“Frequent visitors to my site will recall a series of articles a few months back examining whether Vancouver, Canada is indeed in the midst of a real estate bubble. Those articles weren’t just for your benefit; they were primarily for mine! You see, as a Vancouver home owner, I wanted to know if I was sitting on an asset that might soon be worth a lot less than it is currently. My conclusion was that we are in a bubble, and so I took action!
The sale of my house closed last week! But it wasn’t easy. First, the hard part was convincing the wife (and other family) that this is the right course of action. The psychology of home ownership is so strong, in my opinion, that it’s very difficult to convince someone that they should sell their home, no matter how high real estate prices become. As prices have risen above normal for several years, the common expectation appears to be that they will continue to rise. Following this sale, if prices continue to soar, the in-laws (and other I-told-you-so’ers) will be all over me for the rest of time.
Once we agreed on the decision to sell though, our journey had just begun. Though average selling prices are still high, the number of sales has dropped substantially in the area. Several reasons are commonly cited for this:
1) China’s slowdown has hurt commodity prices, hurting BC’s economy
2) China’s slowdown has hurt Chinese buyers, who represent a significant portion of buyers of Vancouver real estate.
3) New government mortgage requirements have increased the annual cost of ownership (e.g. the mortgage amortization maximum has been brought down from 30 to 25 years)
4) Buyers are finally tapped out. Credit and home ownership in Canada are at all-time highs.
As a result, for a while we didn’t think we’d be able to sell. The house was listed for three months starting in February, and while we received a lot of visitors (over 95% of whom spoke a Chinese dialect as a first language, I would estimate) over that span, we received not a single offer. We took the house off the market, partly because I didn’t have the courage to push for a “price to sell” price.
But then our luck turned. Our next-door neighbour approached us, as his cousin was moving to Vancouver from Asia and was interested in our place. The prospective buyer spoke no English, and so would benefit from being able to locate his family right next to his cousin’s. His reasons for moving? He wanted a good education for his kids, and wanted to live in a society with free speech.
With no real estate agent fees to come between us (as the house was no longer listed by then), we quickly came to a deal that resulted in more money in our pocket than if we had managed to sell while our house was listed. The last few weeks have been hectic, as we’ve had to move out and find ourselves new digs to move into! Last week, we moved into our new place, so the hard part (physically) is now over. The hard part emotionally may be yet to come; if house prices rise, it won’t be easy being me!
Though almost every metric I encounter suggests housing supply is growing faster than demand and that price to income and price to rent ratios are way higher than their historical norms, there is one thing that worries me about my housing thesis. It seems that developers just aren’t building single-family detached homes. While condo-building more than makes up for the lack of new houses, I do worry that the lack of supply for actual houses could continue to force house prices upward.
On the other hand, however, condo and house prices are undoubtedly correlated, so if there’s a ridiculous oversupply of one, it probably affects the other pretty significantly.
Wish me luck!”
- Sal Karsan at barelkarsan.com, 5 Nov 2012
[Thanks to Sal for notifying us of his story. We think there is a high likelihood he's going to look wise in future years. -vreaa]