Monthly Archives: October 2012

‘Vancouver Sun’ Paywall Will Decrease Readership

“The paywalls increasingly installed by news sources (eg. Times, G&M, Vancouver Sun, etc) are going to limit conversation to only those people who chose to look at a specific source. No-one is going to pay $20/month for each source – they will just choose one.So for example, G&M comments are going to be limited to people who prefer to read the G&M. That means less diverse opinions. I think that’s a loss for all of us.”
kcash, comment at The Globe and Mail, 3:20 PM on October 27, 2012

I’d agree. Paywalls are a step backwards.
We are almost exclusively going to be headlining articles and anecdotes that are freely available on the web.
We’ll tend to avoid articles where access is limited.
(Are RE ad revenues falling?)
– vreaa

“Pegeen and Michael have invested heavily in the B.C. real estate market, which poses some risks if prices fall. They have about 64% of their wealth in real estate [actually, 81%]. As a benchmark, pension funds tend to target 10% to 15%.”


“I see no problem having 81% of my wealth in real estate…”

“Midlife reflection led Michael and Pegeen to feel their lives would be fuller if they adopted two children, so they have set the process in motion. Their plan is to adopt siblings between the ages of 5 and 10 years.
The couple can afford the new additions to their family. Over the years, they have built a consultancy that pays them well even though they have plenty of time off to travel. They spend about a quarter of each working year out of the country.
“We hope this won’t change once we have kids,” Michael writes in an e-mail. When the children join them, they will have to move from their two-bedroom Vancouver condominium to a three-bedroom home. High prices in the city mean they will likely have to rent, Michael writes.
With no company pensions, they have to provide for their own retirement. They are well-fixed to do so now, but they know having children will change things. They have an investment adviser “but don’t really have a plan,” he adds.
Their major assets are a portfolio of stocks and B.C. real estate – their condo, a vacation property and a half interest in a rental property in a smaller city.
Their goals including scaling back to working half-time so they can spend more time with the children, continuing to travel abroad on business, maintaining their current lifestyle while still providing for the new additions to their family, and “retiring early at 60 with few worries and the kids’ education taken care of.” Neither one has life or disability insurance and they wonder whether they should buy some.”

“We asked Eric Davis, a financial planner, investment adviser and vice-president of TD Waterhouse Canada Inc. in Kamloops, B.C., to look at Michael and Pegeen’s situation.
“Life is pulling this family in many directions,” Mr. Davis says. … They need to give some serious thought to setting their priorities. …
If they sold their existing real estate, they would have enough money to buy a three-bedroom house in Vancouver if they chose to, Mr. Davis says. Because of the nature of their business, which takes them out of the country part of the time, “they could consider buying a cheaper property outside the expensive Vancouver market but [that is] still accessible to airports.”
Mind you, Pegeen and Michael have invested heavily in the B.C. real estate market, which poses some risks if prices fall. They also carry substantial debt in the form of a $390,000 line of credit.
“From an asset allocation standpoint, they have about 64 per cent of their wealth in real estate,” Mr. Davis says. “As a benchmark, pension funds tend to target 10 per cent to 15 per cent.”

Monthly net income: $10,000 (variable)
Assets: Non-registered portfolio $380,000; RRSPs $80,000; TFSAs $40,000; U.S. IRAs (individual retirement accounts) $160,000; condo $600,000; vacation property $500,000; share of rental property $75,000. Total: $1,835,000
Monthly disbursements: Housing expenses $630; transportation $200; groceries $800; clothing $100; line of credit $1,000; charitable $100; vacation and travel $500; personal discretionary (drinks, dining, entertainment, pet expenses, sports, hobbies, subscriptions) $1,410; dentists, drugstore $150; telecom, TV $185; RRSPs $815; TFSAs $410. Total: $6,300 cct
Liabilities: Investment line of credit $390,000

- from Mid-life couple need to set their financial priorities, The Globe and Mail, 26 Oct 2012

This ‘Financial Facelift’ is noteworthy in that it is the first that I can recall where any advisor has explicitly mentioned the possibility of Vancouver RE dropping in price.
Relatively minor point: We disagree with the math – Their net-worth is actually $1.445M (subtract their liabilities), of which $1.175M (or 81.3%, not 64%) is in RE.
That aside, look at the advice: They are in ‘midlife’ (40s?) and it is suggested that they are being unwise having ‘64%’ of their wealth in RE; the wisdom of a far lower figure is implied.
Think about it: what percentage of Vancouver homeowners in their forties have less than 64% of their net-worth in RE? Many (most?) have a far greater percentage in RE simply by virtue of the cost of their homes. We don’t know the exact numbers, of course (we’d love to know them) but we suspect it’s a very substantial portion.
As a group, Vancouverites are woefully overdependent on RE for their future financial health, “which poses some risks if prices fall”.
– vreaa

Household Debt Growing Larger At A Slower Pace


He knows

“There are some signs that accumulation of household debt is slowing… So the pace is slowing, it’s still accumulating… and that some adjustment appears to be under way in the housing market. This requires continued vigilance by all parties and we intend to play our part in that.”
Bank of Canada Governor Mark Carney, 30 Oct 2012, in response to a question from a member of the House of Commons Standing Committee on Finance (Reuters)

Ever had that experience in a station where a train passing yours makes you feel like you’re going backwards, even though you aren’t?
Me neither, but I’ve heard it happens.
Household debt expansion and spending is still growing, but the slowing pace sure feels like it’s stopped all together, or even reversing, doesn’t it? And when household debt load actually stops expanding (or, the mind boggles, starts shrinking) our economy is going to feel like it’s running backwards at significant speed.
– vreaa

The Post-2009 Global Housing Bubble – “$1,050,000 will only buy a tiny house that is merely “livable” in Vancouver, where median real-estate prices are an astounding 9.5 times median household income.”

“After the cataclysmic mid-2000s housing bubbles in the U.S. and European PIIGS nations, one would think that the world would never allow another housing bubble to rear its ugly head again. Unfortunately, this thinking is completely wrong. Since 2008, the world has openly embraced new housing bubbles with astounding vigor in complete defiance of all lessons taught by the Global Financial Crisis.” …

[Amongst accounts of about 16 RE bubbles, the following:]
“Canada’s Housing Bubble
Canada is experiencing a classic bubble economy that is driven by a commodities export boom (which is part of the commodities bubble) a massive housing bubble that is larger than the U.S. housing bubble was at its peak, a consumer debt bubble and global “hot-money” investment inflows.
Canada’s bubble economy is driving a U.S. export boom that has helped the U.S. economy recover from the Great Recession – this is just one of the many reasons why the U.S.’ recovery is actually a “bubblecovery.”
Canada’s housing bubble is now nearly 40% larger than America’s bubble at its 2005 peak. Price-to-rent ratios, a common real estate valuation measure, are flashing clear warning signs of a bubble as well. Even the IMF is warning of a Canadian housing bubble (but seems to understate the extent of the bubble and its risks as “official” organizations tend to do).
Vancouver homes are now pricier than NYC homes, thanks partly to Chinese investors. $1,050,000 will only buy a tiny house that is merely “livable” in Vancouver, where median real-estate prices are an astounding 9.5 times median household income.” …

“The world is experiencing a massive Post-2009 Housing Bubble that will pop and finish where the U.S. and PIIGS housing bubbles left off in 2008. The global economy has “recovered” from the Great Recession on the backs of more housing bubbles – this is why I call the recovery a “bubblecovery.” Believe it or not, the Post-2009 Global Housing Bubble has the potential to grow larger due to global central banks’ incredibly stimulative monetary policies that have been implemented as a response to the Global Financial Crisis. When this epic pan-country housing bubble finally pops, it could conceivably throw the world into a devastating depression.”

- from The Post-2009 Global Housing Bubble or Housing Bubble 2.0, Jesse Colombo, at Stock Market Crash!, undated article

Deputy Minister Of Finance – “The housing market is cooling and slowing. We read a lot of press commentary saying it’s because of the government’s changes to mortgage insurance rules. I think it’s actually too early to make the direct link.”

“Canada’s deputy minister of finance says he isn’t convinced tighter mortgage rules his department announced in June are behind the recent cooling in the housing market.
In a rare public speech, Michael Horgan argued that recent comments linking the two are premature.
“There’s some evidence that the housing market, particularly in some markets, is cooling and slowing at the moment,” he said Monday during a presentation to business students at Carleton University. “We read a lot of press commentary that’s saying it’s because of the government’s changes to mortgage insurance rules. I think it’s actually too early to make the direct link.” …
It is the kind of analysis that leaves Mr. Horgan unconvinced. While he says there is likely some cause and effect at this point, he suspects it is more likely that Canadians are starting to realize their household debt levels need to be addressed.
Mr. Horgan pointed to data released this month that the ratio of market household debt to disposable income hit 163 per cent in the second quarter, which the deputy minister noted is at similar levels as those in the United States before the recession.”

– from ‘Finance official questions link between cooling housing market, mortgage rules’, Bill Curry, G&M, 29 Oct 2012 [hat-tip allen]

We agree with Mr Horgan.
See our post from last month ‘Erroneous Theories For Falling Prices #5 – Tightening Of Mortgage Rules Caused The Crash
The Canadian bubble was already beginning to collapse under its own weight; mortgage rule tightening may have helped it along a bit.
Posters on this site have already pointed out that in Vancouver our RE sales, and, to a lesser extent prices, were already in decline before the new rules were even announced.
– vreaa

“The most extreme example was a house on Wesbrook Cr that had just sold for $7M. It was a crappy house being rented for ~$2K/mo, but it was on a fantastic piece of land. It had been bought by a family from China that was planning to hold the property and eventually build on it.”

“Recently when I was looking for a new rental, I came across numerous examples of recently-purchased foreign-owned houses that were being rented out. The most extreme example was a house on Wesbrook Cr that had just sold for $7M. It was a crappy house being rented for ~$2K/mo, but it was on a fantastic piece of land. I spoke to the rental agent, it had been bought by a family from China that was planning to hold the property and eventually build on it.”
M-dash at VCI 27 Oct 2012 7:30pm

This strongly suggests that the buyers bought believing that similar properties would sell for considerably more than $7M in years to come.
So much so that they are shouldering considerable carrying expenses to simply hold the property.
– vreaa

Berlin’s ‘Bubble’?


“Prices have risen, for residential properties, by almost a third, in the past five years.
In fact, George Soros has warned of a property bubble…
Not the view of the local real estate agents…
Apartments yield an average of 5 to 5.5%.”

– from ‘Could Berlin Be In A Property Bubble?’, Bloomberg, 28 Oct 2012

In Vancouver, we know that prices have to double or treble, and yields have to reach real-negative numbers, before you can really boast of having a bubble. What’s German for ‘wussy’? Try harder, Berlin.
– vreaa