Monthly Archives: March 2013

“A beautiful Belfast home, in the equivalent of 1st Shaughnessy, bought at their RE peak in 2007 for £3.5 million, has now sold for £800K, almost 80%-off. The market didn’t suffer any significant economic shocks. Rates & unemployment didn’t skyrocket. They didn’t build more land. Sentiment just changed and the prices fell and fell.”

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“My old high school pal works at a Belfast, Northern Ireland newspaper – The News Letter – I believe it is the world’s oldest, continuously published paper. Unlike Vancouver journalists he regularly wrote “this is a bubble” articles during the incredible real estate boom that Belfast endured. It was at LEAST as extreme as the 2000-2012 Vancouver bubble period. Their bubble burst in 2007 and real estate has been a taboo topic at middle-class dinner parties ever since. I must say, my return visits have been much more enjoyable since people there stopped crowing about their real estate winnings.

Anyway, his latest of many articles highlights the plight of the owner of a beautiful home bought at the peak in 2007 for £3.5m. The area is the equivalent of 1st Shaughnessy. It has just sold for £800,000, or [almost] 80%-off. I must stress that 80% is not indicative of the average market which ONLY fell about 55% from peak.

Why this is relevant is that the Northern Ireland market didn’t suffer any significant economic shocks. Rates didn’t skyrocket, neither did unemployment, there is a huge percentage of people there who have safe government jobs with pensions. They didn’t build more land; and for those who don’t know the geography, Belfast is surrounded by the Irish Sea and an agriculture land reserve where there isn’t sea.

Sentiment just changed and the prices fell and fell. I will also add that my friend was considered a kook when he quoted the rare economist who called for a massive price correction. People just couldn’t conceive of such an outcome.

If you’re interested in the article it’s available here.”

- Ulsterman at VCI 29 Mar 2013 9:38pm

A story for Vancouver RE market observers that requires no commentary.
– vreaa

“Two family members of hers are trapped, underwater, in condos on the East Side.”

“My new business partner & I were talking about office space and got to talking about the cost of RE, as always seems to happen in this city. I don’t like to bring it up having been contrary for so long, but it does come up anyway, and I get a pained look on my face. Anyway, happily, we had a shared moment of agreement about renting. My partner hasn’t done extensive reading in RE, having decided it was “a ponzi scheme”, but had a simple story that she felt proved her out. Two family members of hers are trapped, underwater, in condos on the East Side. One is looking at assessment or maybe maintenance increase? and wishes to move because work situation has changed and he’s commuting to Surrey. The other has too little room for a growing family and is thinking of moving out, renting space, and putting their condo up for rent … “if they can get enough to cover the mortgage”. We both pulled a face at that. Seems unlikely.”
Absinthe at VREAA 27 March 2013 7:59 pm

“Interprovincial migration is not saying good things about BC’s economy.”

extraprovincial flow

- the above table via e-mail from ‘JJ’, 27 Mar 2013. Thank you, JJ.
JJ adds: “Did you need another reason to be bearish on Vancouver real estate? I’m guessing not but here you go anyway. Interprovincial migration is not saying good things about BC’s economy – looks like net international immigration ticked up slightly in 2012 (+1000 or so vs. 2011) but this was more than offset by departures to other provinces.
Q4 was worse than the year as a whole and suggested an annualized rate of negative ~13,500 or something along those lines.”

These figures reflect (1) paucity of good employment opportunities and (2) high cost of living (especially, of housing). Ask any migrant.
– vreaa

Vancouver RE: Not As Expensive Provided You Don’t Think – “It’s clear that our perception of affordability has been coloured by living on a continent where housing is unusually inexpensive.”

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The following excerpts from ‘Vancouver: Not as Expensive as You Think’, Jim Sutherland, Vancouver Magazine, 1 April 2013 [no joke -ed.]:

“The real estate market is soft, and it’s going to get softer. In the last year, average prices have dropped five percent or so, and they’ll sink some more, guaranteed. Less certainly, the market will…not plunge American-style but rather drift, sometimes downward, sometimes sideways, and perhaps not for very long.”

“… the Cassandras have gained the upper hand lately, and looking at some of the numbers it’s easy to see why. Sales running at only two-thirds the normal pace. Lots of dwelling completions due this year. Historical norms that are way out of whack. The unreasonable chunk of average income that buying a house here requires. Rents that stack up well against buying. Then again, there also exist other, less ominous numbers, some of which will be revealed here for the first time.” [What cheek. MOI has been well know in local RE discussion for years, thanks to the work of jesse (YVRHousing) and others. - ed.]…
The mystic metric is called months of inventory, which is the number of homes for sale divided by a given month’s sales. When the MOI is neutral-around six or seven-average prices change little. Below six, prices rise. And an MOI in double digits results in lower prices. The formula works so reliably, it’s bizarre. … Long before prices respond, anyone willing to make a simple calculation will know.”

“Of course, the mild price drops currently predicted by MOI look nothing like the armageddon forecast by those who believe we’re in a real estate bubble. Why not a U.S.-style meltdown here? The reasons are many (shortage of land, solid financial institutions, impressive livability, fiscal health, low mortgage rates…) even if far from categorical. A major safeguard is the provincial economy.” …
How can this be the case when so many sectors are in trouble? Film production, gaming, life sciences-so much for the halo industries that were going to make us a post-industrial poster child. But at the same time, a lot of industries are thriving. … (goes on to list lumber, mining, pipelines)…
TEDtalks, HootSuite, Plenty of Fish, and Lululemon sure sound like storytime selections at the daycare centre but actually mint money while helping to define the 21st century. Fortunes can be fickle out there on the cutting technical-entertainment-design edge, as a prior generation of civic champions like Angiotech, Electronic Arts, and Ballard Power Systems proves. Still, it’s an indication that at least some cultural creatives can afford to live here. So the local economy is almost certainly going to be just fine, which will help keep the real estate market from crashing, regardless of all those micro-metrics.”

“The monster that threatens to swamp us is declining immigration-and in Vancouver that’s the worst thing that could happen to property markets.”

“But why, one might reasonably ask, are immigrants to Vancouver so fixated on buying real estate? Isn’t it foolish to dive into such a pricey market? Reasons have to do with everything from cultural predilections to the perceived riskiness of other investments; from the apparent solidity and performance of our property market to the essential nature of being adrift in a foreign land. But beyond all that, the fundamental explanation is straightforward: especially to immigrants from Asia, real estate in Vancouver doesn’t seem expensive at all. In fact, it’s pretty cheap.”

“One [analysis], by the Serbia-based crowd-sourced website Numbeo.com, comes up with house-to-income ratios very similar to Demographia’s but analyzes 362 of the world’s largest cities in more than 100 countries. On Numbeo, Vancouver sits not second or even 25th, but as the 125th least affordable city in the world. Our price-to-income ratio is about one-third that of Chinese cities such as Beijing, Shanghai, and Shenzhen and comparable to or cheaper than most other places where Chinese emigrants might reasonably expect to land. Potboiler settings like Moscow, London, Paris, and Tokyo are up to twice as expensive, while secondary but still global cities such as Sydney, Melbourne, Amsterdam, Stockholm, and Barcelona-the kind that join us on livability surveys-are tightly bunched around us in terms of affordability as well. Comparable American spots like Seattle, San Francisco, and San Diego are a little to a lot more affordable, but prices in the U.S. recently experienced a catastrophic plunge and are now bouncing back strongly, even as ours soften. It’s clear that our perception of affordability has been coloured by living on a continent where housing is unusually inexpensive.” [...and why shouldn't our housing be inexpensive? -ed.] …

“None of this means that housing affordability isn’t a problem in Vancouver. We know that mortgage payments are taking up too much of our income, that young people discouraged by the high cost of entry are leaving town, and that the situation isn’t sustainable. We also know that prices are currently falling and that the MOI the formula says they will drop some more. But unless we lose status as a global magnet or immigration is otherwise reined in, a real estate environment akin to that of other Canadian cities or currently depressed American ones is not a realizable dream.”

See below for one reader’s impressions of the article.
Personally, we won’t attempt a comprehensive analysis at this moment.
The author deserves credit for listing evidence that Vancouver RE is overextended and some of the negative effects of high RE prices. At the same time he also throws in many of the mythical reasons for ongoing relentless support.
One critique I would offer is that there is a strong possibility that the BC economy has only seemed relatively resilient because of the RE spec mania (and all its knock-on ‘positive’ multiplier effects), and thus using apparent BC economy resilience as a reason for ongoing future RE strength is a circular argument. We still believe that our economy will suffer badly when our RE inevitably reverts to mean.
Another thing: why shouldn’t our RE be as inexpensive as places such as the US?
– vreaa

Regular reader ‘space889′, alerted us all to the above article with the following [edited] comment at VREAA 23 March 2013 at 10:19 pm:

“OMG!! You have to profile this!!! I just flip through April 2013 issue of Vancouver Magzine’s cover story about Vancouver RE. It is simply unbelievable the extent to which they try to convince people that Vancouver RE is still cheap by global standards. Two things stuck out for me -

“The first is a map of Vancouver, Burnaby and North Shores redraw with new neighborhood names like – Hanoi for most of Burnaby, Macau & Kew Gardens for UBC, Downtown Abby for Cambie from Broadway to 41st, and then North & South Yorkshire from 41st to Marine Drive, Queenstown and Gaslamp Quarter for North Van, and Brighton, Monte Carlo, Chamonix Mount Blanc for West Vancouver. Unbelievable!!”

“The second is they tried to dispel the myth that Demography Survey tries to peddle that Vancouver is expensive by world standards. They gave these reasons why you shouldn’t trust that survey. One the survey only included 7 countries and excluded most of the world including Asia, Africa and South America. Second the backers of the survey is an ultra conservative right wing think tank that opposes any idea to moderate car use. As a counter example, they used data from a Serbia-based crowd-source website that shows on a price to income ratio, Vancouver is cheap, cheap, cheap, especially compared against world class cities.”

“Further, in a comparison they claimed to show that a desirable house in 7 cities with higher price to income ratios – Phnom Penh, Rome, St. Peterburgs, Tel Aviv, London, Mexico City, and Melbroune – all require you to spend “the same for less square footage, less lawn but more history”. However their comparison really got my blood pressure up… They do not compare apples to apples… The ‘desirable house’ in Vancouver they picked is a 4 bed 2 bath house near King Ed Canada Line station and they describe it as TEARDOWN! Let’s just let it sink in for a minute. An example of a desirable home in Vancouver is a teardown on a busy main artery road!!”

—-

Here are the definitely-not-apples-to-apples vanmag comparisons that got space889’s blood-pressure up:

“Around the World in Seven (sic) Homes
What does a desirable (but you know, not outrageous) house look like in cities with higher price-to-income ratios? In many cases, you’re spending the same for less square footage, a lot less lawn, and a lot more history.” 
[P:I ratios cited appear to be median city home price to median city income, not related to the specific properties. -ed.]

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More Undisclosed RE Industry Insiders Publicized As Clients – “In 1995, Allan and Karin Hoegg were mortgage-free. But no more. Today their Vancouver home is a valuable source of income as they plan for full retirement.”

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Allan and Karin Hoegg are pictured in their home in Vancouver, British Columbia on March 8, 2013 [image F.Post]

“In 1995, Allan and Karin Hoegg were mortgage-free. But no more: today their Vancouver home is a valuable source of income as they plan for full retirement.
Allan Hoegg says when their son and daughter-in-law wanted to buy a house, they took out a variable-rate mortgage so they could help them out. “We wanted to take advantage of the stability of the current rates.” To cover the mortgage payments, they rent out a suite in the home to students.
The couple also established a home line of credit that allows them to free up cash for investment purposes when they need it. “It gives you maximum flexibility and you can pay it any time you want without penalty,” he says. “It’s dead easy.”
Like many people planning their retirement, there’s a sentimental side to keeping their home, he says. But there are just as many practical reasons. In the Hoeggs’ case, selling to downsize would mean substantial commissions and moving costs. “Besides, real estate is a very good investment in Vancouver,” he says. “The longer we can stay here, the greater the possibility of no-tax capital gains.”

“For the most part, people want to stay in their homes, says Rob Regan-Pollock, senior mortgage consultant with Invis – Team Rob Regan-Pollock mortgage brokers in Vancouver. “The fact is they’re sitting on a big nest egg. So when they get near to retirement, they start asking how they can use that equity to help them in their retirement.”
There are plenty of options to consider, from applying for a line of credit or reverse mortgage to renting out your property to finance your monthly costs at another residence.
A line of credit is the most flexible option, Regan-Pollock says. “If for some reason you can’t meet your monthly expenses, a line of credit on your home can be a very good buffer. The interest rates are low — typically prime or prime plus one per cent, depending on the institution and your qualifications. It’s also quite sustainable, since your home will often appreciate in value more than the amount of debt being drawn down against it.”

- from ‘Home is where the retirement money is’, Denise Deveau, Financial Post, 13 Mar 2013

Comments from ‘Bo Xilai’ below the FP article, 27 Mar 2013:
“Denise, why didn’t you mention Allan Hoegg works for Invis – Team Rob Regan-Pollock mortgage brokers. Of course he’s going to use his house as an ATM… he’s just eating his own cooking. And at the same time you’re interviewing Rob Regan-Pollock as an “expert” in your piece. http://www.teamrrp.com/team/
More fake real estate stories using employees as plants.” …
“They used an employee of the “expert” interviewed without disclosure and, I would argue, in a deceitful manner to promote a strategy beneficial to the “expert’s” reputation and business interests.”

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Allan Hoegg (top left) part of Team Rob Regan-Pollock mortgage brokers [image teamrrp.com]

[thanks to 'C', for sending news of the article and 'Bo Xilai's comments to vreaa via e-mail, 27 Mar 2013]

This article is interesting..
1. for the undisclosed insider publicized as client
2. for the journalist’s ineptitude or, alternatively, collaboration
3. for the retirees’ dependence on RE holdings for retirement funds
4. for the fact that such borrowings were used to purchase more RE
5. for the need for tenants in their ex-SFH to cover mortgage payments
6. for the assumption that Vancouver RE is “a very good investment”
7. for the assumption that prices will continue to rise.
– vreaa

For those readers unfamiliar with the recent high profile case of industry insiders masquerading as condo buyers, please see:
CTV TV News Featured ‘Condo Buyers’ Actually Marketers Of Very Same Condos!, VREAA 13 Mar 2013

UPDATE:
This article also headlined and discussed by Whisperer here:
‘Another media scandal from the real estate industry? News article appears to be contrived shill piece from PR company.’, 28 Mar 2013

Rumor that some OV units will be reduced by 20%.

“I’ve just had a re-freshing chat with that realtor who’s selling an investor-held unit in the Olympic Village. He told me that Rennie has applied to the City to have certain, hand-picked units at the OV reduced by 20%. This guy is very straightforward and has insight into how investor bulk buying works.”
– Posted by mac to Whispers from the Edge of the Rainforest at March 24, 2013 at 6:31 PM [hat-tip Whisperer]

Downside Weights On The Vancouver RE Market – “One of the older guys (over 60) mention to the guy beside him that he and his wife were thinking about selling their family home, and renting, in order to get some of the money that was locked up in the house.”

“Every Friday I play hockey with a bunch of guys who are over 55. I’m a goalie, so even though I’m not 55, they let me play – I guess it’s hard to find 55 year old guys whose knees are willing to bounce up and down off the ice for an hour and half.”
“Anyways, I overheard a conversation in the dressing room last Friday. One of the older guys (over 60) mention to the guy beside him (over 70) that he and his wife were thinking about selling their family home, and renting, in order to get some of the money that was locked up in the house. The over-70 guy nodded in approval. The over-60 guy asked if he had heard of anyone doing this before, as they couldn’t see any other way to continue to fund their retirement.”
“The over-70 guy nodded, and said “Yup, we did it a couple of years ago. We’ve been renting now for two years – we had to do it, because we couldn’t afford the property taxes each year anymore”.

– anecdote from ‘Ross’, relayed by Garth Turner at greaterfool.ca 27 Mar 2013

“Boomer retirement supply” will be just one of the factors weighing on the Canadian RE market in these coming years.
In Vancouver, there will be many other downside weights. We anticipate that the largest will be the loss of speculative buying (all buying based on the idea that prices go up will stop). Another downside weight will be the knock on effects of a shrinking RE sector (loss of jobs; loss of related economic activity; people leaving). Yet another will be the disappearance of the ‘move-upper’ market (as condo prices contract, almost all wannabe move-uppers will be stuck.. they will not provide support for townhome or SFH prices). Another downside weight will be cash flow negative properties coming to market that have only been held because prices have remained strong enough (we’d expect this to include some of the empty condos we recently heard about). Collapsing RE markets in China will have a modest direct downside effect, but also a larger indirect downside effect through the psychological impact on local speculators.
This list is not comprehensive, I’m sure readers can think of other mutually-perpetuating downside mechanisms. When a speculative mania cycle turns from ‘virtuous’ to ‘vicious’, the multiplier effects reverse.
Boomer supply will be just one of the many downside weights. Many who are reliant on paper RE wealth for their retirement fiscal health will come to market; as prices drop, some will do so with urgency.
– vreaa

“My buddy was looking to upgrade to a house in the Coquitlam area. With 200k extra for a home, that’s half of lifetime saving between him and his wife.”

“My buddy was looking to upgrade to a house in the Coquitlam area. Currently they own a apartment. Not sure if they even have than 10% down payment for a “used” single family home. The other day we were chatting and he mentioned how he wants to upgrade to all new appliances and do a bunch of renos when he buys a place. He said that I bought a house without a mortgage so I could upgrade all the fancy appliances at my place. Here is my thought: my place is in Surrey, which is 500k, for a single house. He wants to buy a house for 700k. His household income is not more than mine. If he is not overextending himself, he could easily do the upgrades. With 200k extra for a home, that’s half of lifetime saving between him and his wife. I guess no more trips and fancy toys.”
– from klin1022 at VREAA 18 Mar 2013 9:41am

Remember the good ol’ days when people used to think about an amount of money in terms of how long it would take to earn or save it?
– vreaa

“I was walking in the Fraser neighborhood yesterday, I noticed that the population, on average, seem to be composed of workers. I belong to the top 5 percent in terms of income. Nevertheless, I cannot afford any of the houses for sale in that neighbourhood.”

“As I was walking in the Fraser neighborhood yesterday, I noticed that the population, on average, seem to be composed of workers, and may be some middle class family, but I bet the average household income is below the province average. I was dressed in MEC [Mountain Equipment Co-op], I guess one could tell I did not belong to that neighborhood, and some people were giving us the strange look. Now, I belong to the top 5 percent in terms of income. Nevertheless, I cannot afford any of the houses for sale in that neighbourhood. Clear sign we are in a bubble? Are people renting the basement, the attic and taking two homestays? Are they packing 10 people per dwelling? Or are these neighbourhoods gentrifying overnight? I also noticed a huge disconnect between the new macmansions being built and the school next door. I do not mean to be disrespectful to those schools, I was myself brought up partly in an inner city and partly in a rural area where I was surrounded by very nice people. But PC aside, after talking with local educators, I do not wish to send my kids to most Fraser schools. So who are those mcmansions being built for?
– from Anonymous at VCI March 25th, 2013 at 8:30 am

“Vancouver is an urban resort whose value mostly resides in its real estate and not much else.”

“Many of these people are filthy rich and treat Vancouver as the gorgeous playground that it primarily is. These are global cosmocrats who make their money in the real business centres of the world – Hong Kong, London, New York – and then drop in here as a respite from the hurly-burly of their hectic lives. Some bought condos for their kids to stay in while they attended school here. In some cases, those children have moved on but the apartment remains.
In most cases, these wealthy purchasers are buying high-end units with golden views of the city, posh pied-à-terres that are out of reach for most of us. And they pay the requisite taxes to the city to maintain them. To which I say: What is the problem?”

“Are we going to start telling people that if you’re buying a condo in Vancouver you have to make sure you, or someone else, lives in it year-round? Are we going to say you can’t buy a condo as an investment property and sit on it for as long as you want before selling it for a profit?”

“I also find it amusing that we get so up in arms about “foreigners” buying up our real estate but think nothing of the thousands of Canadians who have poured into the United States in recent years to take advantage of the housing mess down there. Does anyone doubt that many of those same Canadians are buying those condos as investments in the hopes they’ll cash in once the market returns to normal? “

“You can’t say: “Oh, it’s different because we aren’t driving up real estate values in Phoenix or Palm Springs the way investors are apparently doing in Vancouver.” You either believe in a free market system or you don’t.”

“Whether we like to admit it or not, Vancouver is an urban resort whose value mostly resides in its real estate and not much else. And when that’s the case, you’re going to encounter the types of situations that we see now, with some buying condos as expensive business-class lounges and others purchasing them as an investment decision.
And I’m not sure there’s much you can do about it or would want to.”

– from ‘The ‘great unoccupied condo scandal’? Get over it’, Gary Mason, ‘The Globe and Mail’, 22 Mar 2013

A few ‘random’ thoughts; any reader suggestions of a comprehensive critique of the article will be appreciated:
1. How is it that local judgments of Vancouver have gone from the embarrassingly over-reaching (“Best Place On Earth”), to the other, nihilistic, extreme (“Value mostly resides in its real estate and not much else”), without touching on the intervening reality (a provincial city with a fair amount going for it).

2. There is the implication that we should accept that RE is primarily a financial instrument, rather than shelter. People buying and selling RE, always, it seems, at a profit: Foreigners sitting on Vanc RE and selling for a profit; Canadians buying US RE with plans to “cash in”.

3. Contains a common “you can’t handle the truth”-type taunt about free markets. But who is this aimed at? Who in Canada is currently taking a strong position that there really should be a completely ‘free-market’ in shelter? When did Canada last have a free market in RE? The Vancouver RE market is already far from a free market. It is a market where lending risk has been mispriced, partly by ‘emergency’ low interest rates (where no need for RE price support has ever existed), partly by tax-payer backstopping of lenders (through the CMHC), and partly by loose mortgage lending guidelines (political expediency). Yes, speculative manias occur in free markets, but they would be far more self-limiting if people and institutions were all forced to play with their own money rather than perversely cheap debt. If Vancouver RE was genuinely a free market, it probably wouldn’t have gotten to its 2008 heights in the first place (let alone its 2011 highs), and, if it had, it certainly wouldn’t have been ‘bailed out’ at the very moment when it least needed it.

4. The article displays the kind of hyperbole that we expect in the vicinity of bubble tops, when everything can be interpreted to be so frothy and paradigm-shifting that it’s overwhelming to some observers. It’ll be interesting to see how all these dilemmas and debates settle down after some healthy price-to-fundamental-value reconciliation.
Vancouver will still have housing and city planning challenges, but they’ll look very different once the massive speculative demand disappears.

- vreaa

“Rogers Communications is expanding into RE; aiming to relaunch website; providing critical data that can help potential buyers assess the value of a property from the comfort of their home computer.”

“Rogers Communications is expanding into the real estate business.
The mobile and cable giant has applied to become a licensed real estate brokerage right across Canada and is aiming to relaunch its five-year-old website Zoocasa.com in May as a unique, one-stop-shopping site for homebuyers.
It’s aimed at going far beyond U.S.-based property listing services such as Zillow and Trulia which have revolutionized house hunting south of the border by providing critical data that can help potential buyers assess the value of a property from the comfort of their home computer.
… The rebuilt Zoocasa site will have “the most complete list of property information that can be provided to consumers, including neighbourhood and related information,” said real estate maverick Lawrence Dale who quietly folded his Realtysellers private sales online listings site a few months ago and started working with Rogers as Group Head, Real Estate Business.”

– from ‘Rogers to step into the real estate business’, thestar.com, 25 Mar 2013

We welcome any moves that result in availability of data regarding for-sale properties.
A Zillow-like system in Canada would represent a great improvement.
– vreaa

I’m only 50 and I can just about retire if I want to, all because of a single simple decision – “When prices rebounded to their former highs, then rocketed another 30% higher to what I considered to be totally unsustainable levels, I decided that only a fool would pass up a second opportunity to harvest such a massive non-taxable capital gain, and in 2011 I sold my place.”

“Fortune does not always smile upon you twice but that is exactly what happened to me. I was not an investor when I bought my west side home in 1998. In 2009, like homeowners all over I watched my home value plummet and my paper wealth evaporate before my eyes. Because of my job situation, and other investments turned sour, I was in a pretty bad spot and considered selling my house, for fear of being completely wiped out. Fortunately, I did not sell and when prices in my neighborhood rebounded to their former highs and then rocketed another 30% higher to what I considered to be totally unsustainable levels, I decided that only a fool would pass up a second opportunity to harvest such a massive non-taxable capital gain, and in 2011 I listed and sold my place at what in hindsight was pretty much the top of the market for my area. I suffered a little during the following year, anxious that maybe I had made a huge mistake, but now two years later I can comfortably say it was the smartest decision I could have possibly made, and I can’t even begin to describe the feeling of calmness I have these days, as I watch from the sidelines as Vancouver’s RE market crumbles.
I may or may not buy back into my old hood in the future, but if I do it won’t be before prices have dropped at least 40% or more. I’ve even come to think of my action as my own personal way to “short” the Vancouver RE market. And if prices don’t revert to the mean no big deal as there are plenty of other BPOE’s to be discovered elsewhere in this big world. In the meantime I’m renting (wife and kids transitioned just fine), and sitting on a pile of cash until the time is right.
In short, my life is changed forever. Thanks to the unfortunate souls that bought my place; I’ve got big time cash in the bank and zero debt. I have extra money to invest (mostly just cash for now), money to help my kids through university (started), money to travel (done), money to take time off (done), and even money to buy a summer cabin on a lake to take the “edge” off renting (done). If all goes according to plan I should have enough to buy back something comparable to my old house in my old neighborhood, in about 24-30 months according to my best guess. If anybody can identify the downside in this scenario I’d love to hear it.
For the record I’m a regular guy that earns a slightly above average salary. While other homeowners were taking out LOC’s or spending all their monthly earnings in order to enjoy life to the max, I would apply my surplus savings at the end of each month to aggressively pay down my house mortgage and invest in equities. Life was still quite bearable and I didn’t really need all that extra stuff anyhow.
I’m only 50 and I could just about retire if I wanted to now, all because of a single simple decision. I used to think I was a bit of an oddball because I lived below my means. Now it turns out I’m a fucking genius compared to my neighbors. I’m pretty sure only a few will end up as lucky as I have.”

‘Good to be out’ at VREAA 24 Mar 2013 12:54am

1. Congratulations to ‘Good to be out’ for having the good sense to see the mania for what it is, and for having the capacity to act on that realization by selling.
2. Anybody who sells in even the very vague vicinity of the top will end up having done fine.
3. It is not normal, nor good for a society, that an individual should be able to retire at 50 simply via the act of selling his home.
– vreaa

The Vacant Lot of Versailles, Richmond.

The Vacant Lot of  Versailles

- from ‘E’ via e-mail to VREAA 22 Mar 2013. Thanks to ‘E’, who also wrote:
My husband snapped this pic at 16500 Westminster Hwy, Richmond, on his ride home from work yesterday. He dubbed it The Vacant Lot of Versailles. If you squint and tilt your head just the right way, you can almost see it.

“I don’t think that most people think things are going to crash, just that there is going to be a slight correction, but it was amazing to me how sentiment has changed, and the fact Vancouver RE is too high was just understood.”

“Investors Group (I know, I know,) came to my office for a lunchtime seminar a few days ago. (Talking TFSAs, how to reduce your taxes, etc,). Anyway, it was open to everyone, and there was over a hundred people there. Without giving away too much about where I work, there are a few administration types, and then mostly people with professional designations or MBAs / PhD’s.
The presenter mentioned Vancouver’s Real Estate Bubble a few times, and said that everyone was talking about ‘how we are in a bubble.’ I scanned the audience each time, looking for shock or surprise, but everyone had a look of acceptance, like yes, of course we are overpriced. I don’t think that most people think things are going to crash, just that there is going to be a slight correction, but it was amazing to me how sentiment has changed, and the fact Vancouver RE is too high was just understood.”

Yellow Helicopter at VCI, 15 Mar 2013 9:48am

“The ‘investor’ who purchased our house put it up for sale two months later, in January 1981, but the bubble had burst.”

“Ah, Vancouver. How quickly we forget. We moved to Vancouver from overseas in July 1979, bought our house within ten days the market was heating up – a fixer upper on the westside, Pt. Grey for $105,000. Totally renovated new heating, plumbing, electrical, some cosmetics for $25,000. By July of 1980 the market was on fire, prices were increasing weekly. There were no bidding wars I think it was illegal at the time, but mortgage rates were in the area of 20-21%. We decided to get out, and tried to sell the house by ourselves: first week of August listed for $235,000, no bites. Second week advertised for $245,000, some phone calls, one showing. Realized sheeple would only believe agents’ pricing. Got an agent who evaluated/listed it at $265,000. The house sold in 6 weeks for $254,000. Here comes the good part: we gave a first VTB [Vendor Take Back] non-transferable mortgage for $180,000 at 18% for one year, moved to Windsor and bought a bigger, newer, renovated house in the best neighbourhood for $125,000. It gets better: The “investor” who purchased our house put it up for sale two months later January, 1981, but the bubble had burst. He sold it just before his mortgage was due for $180,000. In one year, he lost $74,000 of his down payment plus the $26,000+ he paid us in mortgage payments, plus taxes, closing costs, agent fees for selling the property. Not counting, I’m sure, what it cost him in nerves. He who does not know history is doomed to repeat its mistakes.”
diva at greaterfool.ca 15 Mar 2013 9:58 pm

And, to round the story out, that same property probably hit recovery in real terms over about 20 years (by about 2001 it probably would have been selling for about $500K, which is $254K in 1981 dollars, inflation adjusted).
And by 2011 the same property was ‘worth’ $1.7M, given the action of our 2001-2011 spec mania. It is now, Mar 2013, likely worth 10% or more below that (sans rebuilds etc.)
After the current bubble bursts, it’ll be interesting to see if real prices recover within 20 to 25 years (that’s what it took on average last time round).
It’ll be particularly intriguing if, in the coming trough, houses like the one described return to their inflation-adjusted 1980 peaks (in other words, about 66%-off). That’d be really cute, and something that’d get the TA guys into a tizzy (it’d look cool on the charts).
66%-off is the very high end of our guesstimate for the trough; we suspect 50%-off is more likely.
– vreaa

For A City To Have That Kind Of Vacancy, It’s Like Cancer – “Downtown, the vacant unit rate is so high that it’s as though there were 35 towers at 20 storeys apiece – all empty.”

bc-empty-condos-0320
UBC planner Andrew Yan’s research raises questions about whether the city is turning into a high-end resort or a haven for offshore investment. [image from Globe and Mail]

“Nearly a quarter of condos in Vancouver are empty or occupied by non-residents in some dense areas of downtown, a signal that investors play a significant role in the city’s housing market.
And the city overall has a much higher rate of empty apartments and houses than other Canadian cities, with a rate closer to places like New York and San Francisco at the height of their mortgage crisis in 2010.

Downtown, the rate is so high that it’s as though there were 35 towers at 20 storeys apiece – empty.

That’s the latest discovery that adjunct UBC planning professor Andrew Yan made when he analyzed 2011 census numbers to try to add more information to the contentious debate over whether Vancouver is turning into a high-end resort or offshore investors’ holding tank.

He revealed those numbers Wednesday night, as a capacity crowd turned out to listen to speakers on a panel at SFU Woodward’s talk about “foreign investment in Vancouver real estate.”

In all, the city of Vancouver appears to have about 7,500 more vacant housing units than what would be expected in most other Canadian cities. For Metro Vancouver, there are around 15,000 to 20,000 more.

That sign of high vacancies and non-resident-owned units, which contradict some other studies and assurances that Vancouver is not being flooded with investors, should give the city pause, analysts say.

“What kind of community are you living in if there are that many empty? For a city to have that kind of vacancy, it’s like cancer,” said Richard Wozny, a real estate consultant, during an interview Wednesday. “It distorts density and it’s delaying the impact. It raises the question ‘Are we over-building?’”

Mr. Yan, who specified that it’s not possible to know exactly why so many apartments were empty, said data indicate Vancouver is creating neighbourhoods that appear to be very dense, but actually don’t have an active full-time population.

That gives a skewed picture of, for example, the amount of commercial activity they can support.

In Coal Harbour, where up to one in four condos is empty in the tower-dominated waterfront neighbourhood between Stanley Park and the downtown convention centre, the scattered shops in the area often struggle to stay in business. By contrast, the West End, which has a low rate of empty residential units, is bounded by three streets – Davie, Denman, and Robson – that are packed with busy small shops and restaurants.

Mr. Yan said that the high numbers of empty apartments don’t prove there’s a problem with foreign investors, but they do indicate that Vancouver has a large proportion of general investor buyers, be they offshore or Canadian.

Housing analyst Tsur Somerville, director of UBC’s Centre for Urban Economics and Real Estate, said the data he has seen also indicate that Vancouver built more housing in the 2006-2011 period than the number of new households that were added to the city’s ranks.

That means investors. There’s nothing wrong with that, as long as those units are occupied, said Mr. Somerville, also on the panel.

“The problem is vacant units since that’s demand for real estate without housing people.”

Mr. Yan’s analysis entailed isolating the census data on dwellings that showed up as either “unoccupied” or occupied “by a foreign resident and/or by temporarily present persons” on Census Day 2011, which was May 10.

“These units could be non-resident occupied because their occupants were just away for the Census Day, between rental tenants, or moving in a just-opened building, but there is also a chance that they are someone’s pied-à-terre, vacation home or empty investment holding,” observed Mr. Yan.

In the city of Vancouver, the rate of those kinds of dwellings stood at 7.7 per cent overall, with some parts of the downtown as high as 23 per cent. In the city of Toronto, the rate was 5.4 per cent; in Calgary, 5 per cent.

If Vancouver’s “non-resident” category had the same rate as Calgary’s, it would have had only about 16,500 empty units on Census Day – the level to be expected in a regular city, where some part of the housing stock is always going to be empty for one reason or another. Instead, more than 22,000 units showed up in that category. An analysis for the whole Lower Mainland shows that it has between 15,000 and 20,000 more empty units, proportionally, than the Calgary or Toronto metropolitan regions.”

- from ‘Vancouver’s vacancies point to investors, not residents’, Frances Bula, Globe and Mail, 20 Mar 2013 [hat-tip Nemesis]

Thanks to Andrew Yan for the research and to Frances Bula for the article. Usually we quote brief snippets from articles, here it is all succinct and interesting enough that we’ve quoted it in its entirety.
The phenomenon described represents an important sub-type of RE speculation in Vancouver.
The most crucial form of speculation driving our spec mania has been regular folks over-stretching to buy their primary residences. That represented the vast majority of transactions in the RE markets, and served as the most important engine to drive prices skywards.
A more obvious sub-group is the flipper, who buys to resell within a year or two, with or without renos.
This article deals with yet another sub-group, the speculators who buy and hold properties (in this case condos but also applies to SFHs) as, essentially, gambling chips. They are betting they can sell at almost any time later, and win. Up until recently, preternatural price gains have made this a profitable method. Not so anymore. We believe that a weak market and falling prices will cause much of this ‘shadow inventory’ to come to market in coming years, with dire implications for prices. This is part of the reason that price drops will beget price drops.
By the way, note how Yan says that he can’t be sure who is holding these units. My own bet is that far and away the biggest holders will prove to be local gamblers. That distinction is not, however, of any particular importance when it comes to predicting outcome. All of this is more evidence of the Vancouver RE market representing a speculative mania, and the outcome is inevitably going to be a collapse in prices.. that’s how manias everywhere always end.
This work is also pertinent to discussions regarding population growth and densification: “Vancouver built more housing in the 2006-2011 period than new households.” Perhaps Vancouver is significantly less constrained than many fear.
– vreaa

“What’s the worst that can happen? You can’t pay your mortgage, so sell your house! No fear.”

Hannah Sung, Globe&Mail: “According to the numbers Canadian’s are carrying more debt than ever; which seems like a worrisome place to be. So I decided to ask people: ‘What is your biggest financial fear?’.”

Man1: “That’d be my mortgage. Actually, I just lost my job, about a month ago. Believe me I’m really happy about it; I can go back to school. I really don’t want the fear to come in front of me. What’s the worst that can happen? You can’t pay your mortgage, so sell your home! No fear.”

Hannah Sung: “‘What is your biggest financial fear?’.”

Woman: “The stereotyped idea of graduating and living in your parent’s basement.”

Hannah Sung: “What is the best way to manage the stress of being in debt?”

Man2: [looking concerned] “Try to think positive. I just had a job interview.”

- from ‘The fears that grip Canadians as debts rise, housing prices fall and incomes stall’, Globe and Mail video, 9 Mar 2013

Spot The Speculators #100 – Couple In 20’s Desire Light Workload, Early Retirement And Free Money From Their RE ‘Investments'; Current RE:Networth 10:1

“In B.C. a couple we’ll call Max and Portia, 28 and 27, are trying to plan their financial future. They bring home a total of $6,880 a month from their high-tech jobs, but Portia wants to take sabbaticals to travel more and Max wants to try out a new career. They also want substantial investment income — $1,000 a month by their mid-30s. All that, plus early retirement well before 65.
What is standing in their way is not just the problem of earning enough money to do all that, but more than half a million dollars of debt
They have already made big career switches, Max from running a theatrical company for four years, Portia from several years in pharmacy management. Their jobs, their incomes and their present high rate of savings can build a solid retirement, though not necessarily an early one.

So far, Max and Portia have made a big bet on real estate. A $265,000 rental condo is their largest investment. It has a $228,775 mortgage with 26 years left on its amortization. Without capital repayment on the 25-year mortgage, interest alone is $410 a month. Condo fees and taxes add $277 for total carrying costs of $687. It generates $1,050 rent, so their total return is $363 a month or $4,356 a year. That’s a 12% return on their equity — not bad, but vulnerable to rising interest rates. If they have to roll over their 3.0% mortgage at 4.0%, which is still historically cheap, they will lose their margin of profit. No one doubts that interest rates will rise and a 1% jump is easily in the cards…
Rather than take all the risks that go with being landlords — such as vacancy, tenant damage, and the inevitable rise in interest rates — they could sell, harvest their about $23,000 of equity after 5% selling costs, and use the cash to pay off most of a $27,000 student loan outstanding at 4.5%. If they choose not to use the cash to pay off the loan, then, at $500 a month, it will be repaid in five years. Their home mortgage would still have 24½ years to run. …
If they choose jobs for fun … their ability to have a secure retirement will be at risk
Their reality at present is that debts are almost 90% of their assets. To support a $1,000 monthly investment income, they would have to have $400,000 capital generating a 3% return after inflation. They can’t do that in seven years with their present incomes and the need to pay down debt. Moreover, if Max changes jobs or Portia takes lots of time off for travel, sacrificing income and perhaps career advancement, their financial outlook would dim.
“It is not possible in any reasonable scenario, especially if they impair their incomes with sabbaticals or risky job switches,” Derek Moran [a financial advisor from Kelowna] says.

Summary of finances:

Income:
$6.9K per month

Assets: $606.7K Total
Home condo $298K
Rental condo: $265K
RRSPs: $23.7K
TFSA: $8.9K
Stock options: $4.5K
Cash: $6.6K

Liabilities: $544.4K Total
Home condo mortgage: $284.6K
Rental condo mortgage: $228.8K
Loans: $31K

- from ‘Is this couple’s financial vision an impossible dream?’, Andrew Allentuck, Financial Post, 8 Mar 2013 [hat-tip MC]

Networth: $62.3K
Percentage of Networth in RE: 973%
[For those readers who have semantic objections to their position being expressed in that fashion, think of the '973%' as an elegant way of saying that their net-worth is leveraged to RE prices by 9.73 to 1.]
So, if their RE holdings drop in market value by a touch over 10%, they lose their entire net-worth. In fact, we can say with close to certainty that, given current market conditions, their actual current net-worth is very likely less than zero, as they’d be unlikely to clear 90% of the quoted amounts on their properties if they tried to sell.
This couple represents self-delusion run amok.
They clearly see RE as a path to a light work-load and early retirement. Free money, in effect.
How many Vancouverites have built positions in RE based on similar fantasies?
Note how the sensible financial advisor (from Kelowna, and thus, we’d assume, no stranger to collapsing RE markets) advises them to sell their RE ‘investment’.
What will the effect on our markets be when all those speculators in a similar position try to get out of money losing RE, over the same few years?

This couple’s position is also particularly noteworthy in that it represents the local speculative activity that has been the major engine of our perverse bubble. Most would still argue that their actions are innocent; that they are simply trying to get ahead in current challenging economic circumstances. We’d argue that they are being greedy; and ask what the hell they were thinking buying a second, poor-cash-flow property with a household balance sheet like that. It is purchases such as these, people over-stretching to buy primary residences and/or ‘investment’ properties in the hope of future abnormally large price gains, that have relentlessly pushed up prices and formed the bedrock of the problems now facing Vancouver RE: A bubble based on cheap borrowing and over-leverage.

Speculative manias represent ephemeral fantasies, and they all, ultimately, have to be reconciled with reality.

– vreaa

“So, if you want some Vancouver real estate should you buy now even if you pay a little more and get a little less than you had hoped? Probably. And should you sell your Vancouver real estate in the hope of buying it back later for less? Definitely, not.”

“Will the Vancouver housing market crash? Should I be waiting for a major drop in prices before buying a home in Vancouver? Should I sell my Vancouver home, rent for a while and then be able to buy an equivalent home for a lot less money? The answer to all of them is a resounding NO.” …
“Housing prices did crash in the 1980’s but a major difference is that at that time many homes had been bought by speculators on very small margins and interest rates soared well into double digit levels.
Now, very few homes are held on spec and any anticipated increase in interest rates is expected to be very modest. Mortgage rates may even go down. Canadian banks make a significant share of their profits from mortgage lending and it is a low risk part of their business since their prudent lending standards reduce the chance of default. Also, many mortgages are guaranteed by the Canadian Mortgage and Housing Corporation (CMHC).” …
“The cost of housing in Vancouver is not likely to change dramatically for the foreseeable future. It may soften a bit or it may even rise a bit.” …
“Prices are about 3 per cent lower than they were six months or a year ago, but are 4 per cent higher than they were three years ago. Prices for detached homes have been the softest, while apartments and townhouses have seen much less change, reflecting the trend to condos as a more affordable form of housing.” …
“There are two groups which would benefit from declining home prices. First are people in the Vancouver area who do not own real estate and whose income level does not enable them to afford the size and location of home to which they aspire. Many have adjusted by seeking a smaller home and/or one in a less costly neighbourhood. But some cannot afford even that.
A second group are the retirement age baby boomers across Canada who hope to spend their golden years in this small corner of Canada where you don’t have to shovel snow. They are frustrated because a home anywhere else in Canada buys much less home in and around Vancouver. They are also one of the main reasons why a housing crash will not occur. Any drop in prices will lead to retirees entering the Vancouver housing market, putting a floor under prices.
Those in the international community do not seem to mind our house price levels. When looked at in a global context, home prices in Vancouver are not unreasonable. Ask anyone from London or Hong Kong. And people from around the world see not only good value in our real estate, but also an open society, a pleasant climate and a stable political environment.
Finally, the majority of people in greater Vancouver already own real estate, benefit from current housing values and would be hurt by a crash or any serious drop. They do not want to see the value of their biggest asset decline. Home equity often forms a large part of retirement savings and people count on it in their financial planning.” …
“So, if you want some Vancouver real estate should you buy now even if you pay a little more and get a little less than you had hoped? Probably. And should you sell your Vancouver real estate in the hope of buying it back later for less? Definitely, not.”
– from ‘Little chance of correction in Vancouver real estate market’, Roslyn Kunin (‘Troy Media BC’s Business columnist; consulting economist’), Troy Media, 18 Mar 2013 [hat-tip ATP, who added, perceptively "same old, same old".]

If it really was a case of paying “a little more” and getting “a little less”, few would be discussing the matter. We fully expect that people will “pay a little more and get a little less” in the Vancouver RE market. Fact is they are paying a lot more and getting a lot less.
This “same old, same old” column archived here for the record. It will eventually be noteworthy that in March 2013 some people were still making ‘limitless demand’ arguments for ongoing endless price strength in the Vancouver RE market.
And it is remarkable that an economist would not give any thought to economic fundamentals in their discussion, and wouldn’t consider indicators such as price:rent or price:income ratios in their analysis.
– vreaa

New Convolution – “Bubble Fatigue”

“Canada’s housing market may still be cooling, but there are fears in some quarters that “bubble fatigue” will pump it back up heading into the spring season.
What economist Benjamin Tal means when he uses that phrase is that home buyers are skeptical about whether the residential real estate market is heading for a sharp price and sales drop.”

– from ‘Home sales slip further, but signs of traction emerge’, The Globe and Mail, 4 Mar 2013

Okay, so just to clarify: ‘Bubble fatigue’ is the process whereby a person who has concerns about the market being overheated gets tired of those concerns, and is thus freed up to buy. Correct?
The webs of intrigue that our minds spin! Not to mention the minds of economists.
“Bubble Fatigue” added to our Bubblexicon, naturally.
– vreaa

2013 West Vancouver Sale At 2007 Prices

“Interesting data point out of West Vancouver. 4820 Headland Dr. sold last month [January 2013] for $1.17M. It sold in July 2007 for $1.2M. Poor location, corner of a 3-way stop, either way, they’ve done ‘well’ to have lost money over the past 5.5 yrs in Van RE. A few more of these coming I reckon….”
NoBid at VCI February 26th, 2013 at 6:00 pm

“We live next door to a large new house that replaced a beautiful one in excellent condition. It has been empty since its construction about 2 years ago. The owners live in another house nearby.”

“We live next door to a large new house that replaced a beautiful one in excellent condition.
This new house, contrary to the bylaw, does not meet the requirement that the bulk and size of new developement is similiar to existing developement. Nor is it as required, compatible with the existing amenity and design of developement. City Planning approved this contrary to the neighborhood objections.
It has been empty since its construction about 2 years ago.
The owners live in another house nearby.
In this block there are now 3 houses that have been empty for several years.”

– B. Mcloughlin, commenting 2:58 PM on March 8, 2013 below the Globe and Mail article Kerrisdale preservationists lament a tide of bulldozers.

Misallocation of resources.
Speculation.
– vreaa

“Mere mortals could not afford housing in Vancouver even back in 2004.”

“Moved from Montreal to Vancouver, stayed six years, (got-the-hell-out-cause- I-didn’t-like-it), moved out to Ottawa. In each city I had a job waiting at 90K range.

Mere mortals could not afford housing in Vancouver even back in 2004. House was fully paid off in Montreal, even with that equity we realized we were going to have the largest mortgage ever. With wife and three kids, living in a condo was not considered, so we moved a little east of the city – Pitt Meadows, commuted into Vancouver for work. Wife gradually found self employment – accounting – in small businesses locally. Loved the views, hiking with kids in the mountains, crossing to Victoria by ferry.

Shocked by real estate prices. Stunned by the cost of everything else. Couldn’t believe that salaries in general here were Lower than Toronto, Ottawa and Montreal. Where in Vancouver would someone bring up a couple of kids on 60k? Where did the 35k salaries live? Was not impressed by the theatre and music scene. Good Chinese food, and Indian food, but otherwise, Vancouver does not hold a candle to Toronto/Montreal/Ottawa. Only place that made real bagels seemed to be Granville Island. Drove down Hastings Street one day. Remarkably like NYC of the seventies, down and dangerous.

Was slightly depressed by weeks and weeks of cloudy days. Missed the changing of the seasons. I love a sunny cold winter day, so bright with the sun reflecting snow. Came to realize that there were no advancement opportunities in my industry. (Like most other Vancouver industries, only a branch office in town.) A survey of some neighbours’ professions: Two teachers, one small business owner, four retired.
Realized that there would be nothing for my kids to do once they hit teenage years in Pitt Meadows. Take a 1.5 hour bus ride to see a band downtown? If would be a pain for them to go to either UBC or SFU.
And where would they live as adults? Love my kids, but after a degree, you’re out. Didn’t see a future for them here.

Moved to Ottawa. Housing is aprox 1/3 the Vancouver cost. We live 20 minutes drive from downtown and Parliament buildings – in traffic. Oldest attends Carleton U, also about 20 minutes away, by bus. High school is 4 minute walk for other two. We lucked out at Canterbury High.
Unknown to us when we moved here, it’s the city’s premier arts school. Incredibly motivated kids apply to attend Canterbury from all of eastern Ontario. We happened to move into its catchment area.
Ottawa has Carleton U and Ottawa U. Montreal (1.5 hour drive.) has Mcgill and Concordia U, if the kids want to adventure out to another city and/or immerse themselves in french language.
Ottawa has virtually no reports of grow-op busts, unlike west coast.
Ottawa has NAC, and host of other theatres, many museums, byward market. Rideau canal has pleasure boating in summer, and becomes world’s longest skating rink in winter. Hiking and cycling, cross country sking in Gatineau park is great. Montreal is 1.5 hours drive with major Jazz/music fest. Many of those acts come to Ottawa the week before or after.

Kids still facebook old buddies from the Pitt. Several bored buddies are serious dopers, dropped out, etc. We’ll go back to Vancouver to visit, but never to live.”

- Dadeedumer at VREAA 9 Mar 2013 11:57am

Thanks for sharing your story, Dadeedumer.
We bemoan the fact that RE prices have driven many from Vancouver.
And we agree that, by 2004, prices were already overextended beyond those supported by fundamentals.
– vreaa

“I explained that if the present rate of price appreciation continued that same house would be worth $92 million in 2051. He astounded me by responding, yes of course. That’s why he was buying a second house.”

“My idiot neighbour.
In his mind “real estate ALWAYS goes up”. When I tried to explain to him that Vancouver was in an unsustainable bubble situation and he said I was crazy. The example I used was a westside special that I know was purchased in 1969 for $38,900 and sold in 2010 for $1.89mm.
I explained that if the present rate of price appreciation continued that same house or 50×120 piece of dirt would be worth $91,800,000 (that is Ninety One Million Eight Hundred Thousand dollars) in 2051 and asked him if he thought that would be the case.
He astounded me by not even blinking and responding, yes of course. That’s why he was buying a second house. At that point I made the decision to leave Canada.”

Bob at greaterfool.ca 12 Mar 2013 9:25pm

Vancouver Sun Profiles A First Time Buyer – “I just wanted to build equity and not pay rent.”

8106638.bin

“Myles Wilcott, a single, 31-year-old general manager at Canadian Linen & Uniform Service, is among those who have met new financial requirements in order to buy a condo. He paid $412,000 for 705-square feet two-level loft in a 16-year old building in the Gastown district of Vancouver.

Wilcott had been looking at condos throughout the winter, waiting to find what he was looking for at a price he could afford.

By this spring, he had almost enough in his registered retirement savings plan to meet the minimum down payment set by the federal government. He had sufficient income to cover the monthly payments, even though new federal regulations meant he would be paying hundreds of dollars more each month than he would have been required to pay before the rule changes.

He was not concerned about reports of record high prices and talk of a possible crash in the real estate market. “A lot of people talk about getting into the market to make a quick buck,“ Wilcott said. “I just wanted to build equity and not pay rent.” …

Mr. Wilcott, who graduated from Simon Fraser University in business and human resources, said in an interview he had thought about buying a home a few years ago but did not qualify for a mortgage that was big enough to buy what he wanted.

He turned his attention to improving his credit rating, pursuing his career and putting aside some savings. “I was able to climb the ladder enough to the point where I qualified for a [25-year] mortgage.”

Mr. Wilcott started the home-buying process in December. The first step was to arrange for pre-approval for a mortgage. He had an agent to help him search in earnest for what he wanted – a loft-style condo in the downtown area. He looked at 12 different condos before finding what he was looking for.

He put down the minimum five per cent, which was about what he had saved in his tax-free registered retirement savings plan. A federal program called the homebuyers plan allows purchasers to use their RRSP as long as the money is paid back within 15 years.

His mortgage payments of $1,900 will be considerably higher than the rent of $1,200 he was paying before he bought the condo.

However it was his outstanding debts — not the monthly payments — that almost tripped up his mortgage application. Arrangements were finally confirmed at an acceptable rate with Vancity Savings Credit Union.

The whole process was a bit more stressful than he anticipated. The most difficult aspect of the purchase was evaluating the conflicting points of view he received on home buying. “I got too many people involved … there was such a wide array of opinions — buy now, don’t buy now; wait five years, don’t wait; don’t go into that neighbourhood, go over there.”

But once he met the qualifications and found what he wanted, he was ready to close the deal.”

- image and text from ‘First-time homebuyers adjust to federal changes; For those who can afford it, home ownership still a viable option’, Robert Matas, Vancouver Sun, 15 March 2013 [hat-tip OH YAH]

“$700 per month more outlay for accomodation plus condo fees, taxes, legals, move etcetera, etcetera (you all know the drill) and no mention that all his savings were wiped out during the purchase. Live and learn. Got to get on that ladder even if it only leads to a periscope.”
Farmer, commenting on the above story, at VREAA 16 Mar 2013 3:22am

Agreed, we don’t think Myles really did the math on this.
He says “I just wanted to build equity and not pay rent”.
Even if he’s not fully conscious of it, he’s speculating on future RE price strength.
We’d bet the math shows that he wouldn’t “build equity” without that.
– vreaa

Vancouver RE Crash On Track

Expected weakness continues, sales remain low. Things are playing out as we’d anticipate. Very significant price drops to come (all in all, 50% to 66%, peak to trough). :

SALES ARE WEAK:
“The flicker of optimism that sparked in Canada’s housing market when January sales outpaced December’s has died out, erased by a notable drop in February.
Last month’s declines were significant enough to prompt the Canadian Real Estate Association (CREA) to cut its sales outlook for 2013 on Friday for the third time since last summer. …
“Vancouver remains the clear weak spot, with sales down a seasonally adjusted 9.8 per cent in February and 29.2 per cent in the past year,” Bank of Montreal economist Robert Kavcic wrote in a research note.But some feel that much of Vancouver’s weakness has played out.”
[hahaha -ed.]
– from ‘Clouds gather over Canadian housing market’, Globe and Mail, 15 Mar 2013

SO ARE PRICES:
“The average MLS residential price in BC was $514,134 … down 8.1 per cent from a year ago.”BCREA news release 14 Mar 2013

INVENTORY/LISTINGS ARE HIGH:
“I’m seeing big increases in New West, North Van, Burnaby SFH listings. Historical highs for this time of year. VW has stalled out; VE puttering along. Condos downtown nothing special on the inventory side. I don’t know what all that means except that our little crashlet is *not* a “Van has too many condos; it’s just condos; houses are safe from all this” thing. It is in fact inventory growth and sales declines are mostly a SFH thing, from what I see.” [price declines will effect all sub-sectors of the market. -ed.]
VHB at VCI 15 Mar 2013 12:22pm

RE Inventory Chart130313
chart care of b5baxter at vancouverpeak.com

HOUSEHOLD DEBT CONTINUES TO GROW:
“The ratio of Canadian household debt to disposable income rose to another record last quarter, calling into question Bank of Canada Governor Mark Carney’s assertion that families are listening to his warnings about the risks of borrowing too much.
Credit-market debt such as mortgages rose to 165.0 percent of disposable income, compared with 164.7 percent in the prior three-month period, Statistics Canada said today in Ottawa.
In his previous two policy statements, Carney weakened language about the need to raise the central bank’s 1 percent policy interest rate, partly on evidence a housing boom was slowing and consumer debt burdens are stabilizing. Finance Minister Jim Flaherty tightened mortgage rules in July on concern some regional housing markets were overheating.
National net worth rose 1 percent to C$6.87 trillion ($6.73 trillion) in the fourth quarter, Statistics Canada said. On a per capita basis the increase was to C$195,900 from C$194,300.”
[Watch the per capita net-worth plunge with RE prices over coming years. -ed]
– from ‘Canadian Household Debt-to-Income Ratio Rises to Record 165%’, Bloomberg, 15 Mar 2013

MEDIA STILL PUMPING:
“Global TV just ran two RE spots (within an hour of each other) on this morning’s news featuring Joannah Connolly, editor of the highly acclaimed BIV and holder of a BA in Eng Lit.
In segment one, she commented on the 0.1% rise in the Cdn new HPI (for Jan) and implied the housing market had “reversed a downtrend”. She also mentioned the Cdn$ and how “it rose five cents” yesterday. How sad. Colorful, animated bar graphs (a la CNBC) were used in the presentation to drive home the point that home prices are still way higher than they were in 2009. The year 2012 was conveniently omitted from graph #1 so as to mislead the public into believing the upward trajectory is still intact. graph #2 was equally laughable with price chg’s in Vanc, Vic, Wpg and Cda average all appearing to be gains with upward pointing bars.
In segment two, she talked about how hot the commercial RE was, that land was in limited supply and that investors were “snapping up anything and everything”.

– from bullwhip29 at VCI 15 Mar 2013 9:55am

..AND MASSAGING:
BTW, they changed the headline of the Tara Perkins article in the Globe from this…
Real estate market outlook cools as home sales plunge
To this…
Clouds gather over Canadian housing market
There….that’s better.”

– from kabloona at VCI 15 Mar 2013 11:01pm

REALTORS STILL PUTTING ON BRAVE FACES:
“BC home sales continued at a modest pace in February,” said Cameron Muir, BCREA Chief Economist. “Despite improved affordability, many potential buyers and sellers remain in a holding pattern. With pent up demand now becoming latent in the market, it’s not a matter of if, but when home sales rise above their current pace.”
BCREA news release 14 Mar 2013

Former PM Kim Campbell Sues Vancouver Condo Developer For Market Weakness

Former prime minister Kim Campbell is suing the redevelopers of the Hotel Georgia in downtown Vancouver, alleging her condo wasn’t ready on time, and now she wants her money back.
In her statement of civil claim filed in B.C. Supreme Court Campbell says she paid a $368,000 deposit on a condo in the new residential high-rise at the Hotel Georgia in 2007.
Former prime minister Kim Campbell is suing the developers of the Hotel Georgia in Vancouver. (AP )
Her lawyer Bryan Baynham says the pre-sale agreement with Georgia Properties Partnership was that that the condo would be finished December 2011.
“The project wasn’t finished on time. They were more than a year late and not surprisingly the people don’t want to complete and they want their deposit back.”

– from ‘Former PM Kim Campbell sues Vancouver condo developer’, CBC, 15 Mar 2013

EVERYBODY speculates on Vancouver RE, it seems.
If prices were up, these claims wouldn’t be occurring.
– vreaa

“I have continuing conversations with a friend who spent just under 1 million for an East Van home…”

“I have continuing conversations with a friend who spent just under 1 million for an East Van home.
6 months ago he thought prices would never come down for detached homes in Vancouver.
3 months ago he admitted that West side home had come down but not on the east side. After all, the west side was overvalued compared to the east.
This month he talked about re-financing their mortgage so they could take on more debt and do more renovations on their home.
sigh.”

b5baxter at VREAA 12 Mar 2013 10:28am

Ongoing Hope For Soft Landings – “Growth should actually gain momentum this year rather than crashing as it did the U.S.”

“Some observers became panicky about a serious collapse in the market, perhaps because they believed that Canada was just like the U.S. had been in 2006.
But what we’ve seen in the ensuing months says that this interpretation was entirely wrong. Housing really is somewhat overpriced and it will indeed be the weakest part of Canada’s economy this year, notes economist Arlene Kish at IHS Global Insight, a big economics consulting firm, but it “will not be following in the footsteps of the U.S. housing downturn.”
Instead, it will be more of a typical cyclical downturn, with housing investment — including new construction, renovations and all sorts of related spending — dropping by a significant, but hardly catastrophic, 1.7 per cent. With others sectors of our economy picking up a little steam, growth should actually gain momentum this year rather than crashing as it did the U.S.”

– from ‘Canadian housing market finds its feet’, Jay Bryan, The Montreal Gazette, 15 Mar 2013
[hat-tip to 'Ryan' who told us about this story via e-mail]

Added to the ‘Premature Calls Of A Bottom‘ sidebar collection.
– vreaa

“Over the years, we refinanced our home a few times to pay off our debts. Now we’re selling our home as we can’t keep up with mortgage payments. In this market, we’re not sure if we’ll break even.”

Q: “Over the years, we refinanced our home a few times to pay off our credit cards and other debts, but we never actually got ahead. Now we’re faced with selling our home as we’re having a hard time keeping up with our first and second mortgage payments. With the market the way it is, we’re not sure if we’ll break even. What can we do?”

A: “… With over a decade of extremely low mortgage rates and fast-rising home values, many homeowners refinanced their mortgages to access the equity in their homes. Unfortunately, this can work against you if you aren’t living within your means.”

- from ‘Evaluate all options before selling your house’, Scott Hannah, The Province, 11 Mar 2013 [hat-tip Alexcanuck]

Savings rates in BC have been negative for years.
The average BC consumer debt is a remarkable $38,837, the highest in the country (up 6.2% in the last year!).
Whether by means of low downpayment or large HELOC, a significant percentage of owners are woefully over leveraged to the RE market.
All of this information represents downside risk for the RE market.
– vreaa

Sold One In Vancouver; Bought Three In Prince George – “It seems that Vancouverites just can’t get out of the real estate mindset even when they have the best chance to get off the ladder.”

Announcer: “In 2011 Prince George’s population grew by 1.4% over a five year period. [sic. ROTFL. -ed.]. Developers have had to keep up with demand, not just from new families, but from investors, like this couple, who moved here from Vancouver 5 years ago.”

the harpers

Shauna Harper: “For the cost of our house in Vancouver, we could buy three rental properties here..”
Mick Harper: “..three houses.”
Shauna Harper: “.. and that’s what we did. We sold our house in Vancouver and we own three properties up here.. and.. they can cash flow.”

Announcer: “Prince George’s population is supposed to get even higher over the next few years.” [Yeah, watch out for that 0.2% per annum parabolic growth. -ed.]

pg house

Announcer: “A more affordable lifestyle is making living here more attractive, especially to those from the lower mainland. Take this house for example: 2200 sqft, 5 bedrooms, 3 baths.”
Realtor: “And we’re looking at $299,900.”
Announcer: “And how much do you think a home like this would cost in the Vancouver area?”
Realtor: “In the Vancouver area it would be over a million dollars, for sure.”

– from ‘Prince George Revival’, Global TV, 14 Mar 2013

Hat-tip to E.G., who comments:
“The report gets into the fact that house prices are quite reasonable in Prince George. Fair enough…
Then the reporter interviews some Vancouver transplants who sold off and moved to Prince George with money in their pockets. Do they buy one house and invest the rest wisely? Nope… they buy several houses and rent out the spares. Seems that Vancouverites can’t get out of the real estate mindset even when they have the best chance to get off the “ladder.”

First Time Buyers – “I have spent several years saving up enough for a reasonable down payment, but have now determined that in the current market, it just makes more sense to rent.”

“The biggest challenge I face is affordability,” said Dustin Strong, a 34-year-old Vancouver renter looking for a home in the $500,000 range. “I have spent several years saving up enough for a reasonable down payment, but have now determined that in the current market, it just makes more sense to rent.”

When the Globe and Mail asked readers in an online poll whether Ottawa should make it easier for first-time buyers to enter the real estate market, only 40 per cent of the nearly 2,500 respondents said yes, first-time buyers deserve a break.
“First-time buyers have all-time low rates, realistic 25-year terms, and minimum 5-per-cent down payments,” one reader wrote in our comments section. “If they can’t afford it, then the prices are too high. The hurdle is low enough for Canadians.”


Market uncertainty and bubble-talk are also holding buyers back, said James Ellis, a 26-year-old looking for a house in Kingston, Ont., with a $250,000 budget. His biggest challenge, he said, is “determining if the value of a house now is inflated or not, and whether resale value in a few years will reflect the current value once the housing market equalizes.”
“Our main challenge is beating the fear of home prices falling on us,” added Joseph, a 28-year-old looking for a detached house in Calgary. “That is what has kept us renting.”


– from ‘What first-time buyers really need: affordable housing prices’, Dianne Nice, Globe and Mail, 12 Mar 2013

There is absolutely no reason that anybody anywhere in Canada should be rushing to overextend themselves into RE, least of all First Time Buyers, and especially in Vancouver.
Prices are headed down.
Interesting statement from Joseph in Calgary: Instead of fearing being priced out, he is fearing buying and having prices drop.. this represents a change.
– vreaa

“He said that he is currently managing about 337 foreclosed/court ordered sale properties in Mission and Maple Ridge.”

“Bought a court ordered sale in Mission…
Property manager for the Banks came by, wondered why we were in the house…
Bank had not told him it sold… two weeks ago.
He removed the lock key holder.. we talked a bit…
He said that he is currently managing about 337 foreclosed/court ordered sale properties in Mission and Maple Ridge right now… that’s right… I asked three times just to make sure he didn’t mean 37… 337 is what he said.
… said he was not able to provide a list of the properties as the banks had forbidden him to disclose the list as part of his contract…, that’s in Maple Ridge and Mission… alone…
Yikes…
That was Three Hundred and Thirty Seven property’s in just the two districts…
WOW…Don’t see that in the news… or the real estate/assessment tax vultures sales lists…”

Silver at VREAA 14 Mar 2013 10:08am

Border Services raid on migrant workers on Vancouver Eastside construction site; Reality TV camera crew in tow.

“An ordinary day on a condo construction site in east Vancouver took a turn for the dramatic Wednesday when Canada Border Services agents burst in searching for illegal migrant workers — all while being shadowed by a camera crew apparently recording footage for a reality TV show.
The raid, which took place at the Porter development on Victoria Drive near 20th Avenue, was one of about 10 that reportedly occurred throughout the city Wednesday.
A site foreman for the condo developer Cressey said two CBSA officers arrived around noon hunting for two Honduran nationals who were quickly located. A short time later, as many as 17 officers surrounded the building and began sweeping the construction site floor by floor, checking identification.
The site foreman, who did not wish to be named, said he was shocked and had not seen anything like it before. He said the raid began with two people who seemed to know who they were looking for, then there were 15 more, as well as camera crews.
He said about eight people, all of whom worked for a subcontractor, were taken away from the site.
Other witnesses reported seeing between five and eight workers handcuffed and removed by CBSA agents while a film crew circled. Many also heard workers speaking of 10 to 15 other raids occurring the same day.”

– from ‘CBSA raid on migrant workers, complete with TV camera crew, raises concerns in Vancouver’, Jessica Barrett, Vancouver Sun, 14 Mar 2013 [hat-tip Nemesis and proteus]

Allegedly ‘illegal’ migrants working a Vancouver construction site; all wrapped up with reality TV. Archived for the chronological record.
We don’t even want to begin to think of the ethical issues involved with the TV show. Who is directing who?
– vreaa

Comment below the article above:
“I know where there is an entire building that was constructed with American workers. I called CBSA and they didn’t even care. I told them that if you went there, there is an entire crew of Americans working on site right now. The agent basically said it didn’t matter. To top it off, the construction didn’t even have a construction permit. No fire inspection. Nothing. They open for business and didn’t even have a business license. Yeah trust me. This is just one case. There has got to be dozens or maybe even hundreds happening all the time.”Henry Wang, comment at Vancouver Sun

Their Children Have Left Vancouver – “One of the rarely discussed consequences of the huge RE price inflation in Vancouver has been the separation of the extended family.”

cheaper RE this way!
“Cheaper housing, follow me.”

“One of the rarely discussed consequences of the huge RE price inflation in Vancouver has been the separation of the extended family.
My own adult children have left their home city (Vancouver) partly because of better opportunities elsewhere, but mainly because of the ridiculous cost of housing. The dream of raising a family in a single family home in Vancouver is an illusion. Their options are to commute hours a day or live in a box.
Well over half my friends are in the same boat. Their children have left Vancouver. They are raising their own families in other cities and other countries. My neighborhood looks nothing like it did even ten years ago. The neighbors don’t say hi to each other and the traditional cultural events in the community are gone.
I loved my city. It’s still beautiful (when the sun shines). But now, I find it kind of lonely and hollow.”

Uwinsome at greaterfool.ca 11 Mar 2013 11:23pm [hat-tip Bob G]

Excellent comment.
A city does best when RE is reasonably priced; when the cost of shelter is not an excessive hurdle to young industrious individuals either remaining here or moving here.
The speculative mania has pushed RE to prices that are two to three times reasonable values, and has consequently forced people away from Vancouver; it has been a deeply destructive force.
– vreaa

A related anecdote, previously headlined here:
“I think about my own home that I bought in 2000, it’s worth about four times what I paid for it now. … I have four kids, three in their twenties and one in their thirties, and they’re never going to be able to afford to live in Vancouver because they’re not already in the market.”
Peter Ladner (former candidate for mayor), Shaw cable TV interview, 25 May 2011

“I phoned ING and they said that they definitely were still issuing mortgages. What had changed is that they were no longer dealing with mortgage brokers.”

“Last week, I received a letter from a mortgage broker that I had used to secure a small mortgage from ING. She told me that ING would not be in the mortgage business any longer, so that she would be contacting me before the maturity date to find me a new lender. Very considerate. Today, I phoned ING and asked them about the situation. They said that mortgages were a huge part of their business and that they definitely were still issuing mortgages. What had changed is that they were no longer dealing with mortgage brokers. Surprise, surprise. The agent then proceeded to offer me an early renewal blended rate that was quite competitive.”
– from M, via e-mail, 28 Feb 2013

The Unshakeable ‘Running Out Of Land’ Meme – Vancouver Mentioned In Tokyo ‘Coffin Apartment’ Article‏

Tokyo_Coffin-apartment
Young people in Tokyo are living in 50-75 square feet rooms paying between $500-$1000 a month in rent.

“How much do you want to live downtown? It’s an important question. Because young people in the world’s greatest cities are juggling unaffordable rents and sometimes working several jobs just to live in a glorified closet with four other people.
We often get the bulk of our nightmare apartment stories from places like New York City and Vancouver, where “micro suites” are now popping up everywhere, allotting people 350 sq. feet of living space for significantly more money than you’d imagine. If you can get a table a bed and a sofa in there, you’re pretty much a black-belt in efficiency.
But no matter how unpleasant you think our situation sounds, these micro suites are positively palatial compared to the way some people live in Tokyo and Hong Kong.
In Tokyo there is something known as “coffin apartments”. These dwellings are essentially share houses that consist of communal bathrooms and locker-sized sleeping quarters stacked on top of one another. These lockers, which in a disturbing way sort of resemble morgue refrigerators, run anywhere between 50 to 75 square feet.”

– from ‘Tokyo’s ‘coffin apartments’ are more expensive than you’d think’, Jordana Divon, Shine On, a Yahoo Canada blog, 1 Mar 2013 [hat-tip 'terminalcitygirl']

The Vancouver mention in this article occurs for the sole reason that the author is Canadian (a journalist from the Toronto area). Nobody else would dream of unquestioningly comparing apartment size in Japan or NYC with that in a Canadian city.
Japan, Population 127.3 Million, Area 378,000 km2, Density 336 persons/km2
British Columbia, Population 4.4 Million, Area 944,700 km2, Density 4.7 persons/km2
The idea that anybody should have to live in a cramped space in Canada is patently absurd. Unless, perhaps, if they were in jail.
One meme of the RE cult is that we have no land, whereas in actual fact we have even more land than we have rain.
See the Doug Coupland video below.
– vreaa

doug's house
Frame from video

“I grew up here, in a suburb just across from Grouse Mountain, overlooking the city. On one side of the fence there is home; and on the other side wilderness until the North Pole.” – from ‘Douglas Coupland’s Vancouver’, a promotional video for Canadian Tourism, 2012.

Two House-Warmings In South Surrey – “One thing I noticed is that no one talks about home prices going up anymore. They talk about how expensive Vancouver is and how prices will drop there, but not where they live.”

“Went to two house-warmings this week. Both in South Surrey.
While we were there we were bombarded with how great Surrey is and we should consider moving there. With close to an hour commute each way to downtown, no thanks.
Even though the townhouses were cheap (in today’s market anyways: you can get a brand new 3/4 br for the price of 1 br in the city), I was not at all enticed.
Previously, after a house warming I would feel like wow maybe I should just bite the bullet and go buy, not anymore. After the new house smell goes away, I realized how house poor all these people have become, and really their lifestyles are not any better than mine, perhaps even worse with all that extra commuting.
One thing I noticed is that no one talks about home prices going up anymore, that was different from a year ago. They now talk about how expensive Vancouver is and prices will drop there, but not where they live because it is so cheap already how can it drop. I guess they think it will always be other people’s problems.”
4SlicesofCheese at VREAA 10 Mar 2013 10:04am

TD Bank: “Home prices will be essentially flat for the next decade” [Therefore Vancouver Prices Will Crash]

td bank flat

“A TD Bank research report is warning that Canada’s real estate bonanza has come to an end and predicts home prices will be essentially flat for the next decade. The TD report forecasts average house prices will move lower over the next few years before modestly rebounding after 2015. But even with the rebound, TD predicts that home price increases will only rise about two per cent annually — essentially keeping pace with inflation.”
– from ‘The value of your house may remain flat for 10 years: TD Bank’, CTV News, 11 Mar 2013 [link defunct at time of press] [hat-tip E.G.]

“Just to be clear, most observers expect a soft landing, rather than a U.S.-style crash. But, according to TD, don’t bet on prices appreciating to any great extent.
“The housing market is prone to cyclical ups and downs, and Canada is expected to embark on a gradual, modest, downward adjustment over the next three years,” the TD economists said.
“A string of lacklustre performances will mean that the annual rate of return for real estate in nominal terms will be roughly 2 per cent over the next decade,” they said in their report.
“In other words, real estate gains are set to match the pace of inflation.”

– from ‘Home prices to gain ‘measly’ 2% a year over next decade: TD’, G&M, 11 Mar 2013

“The report does not predict a collapse in house prices as some analysts have suggested. In fact, it sees prices rebounding after a few years of a correction to as high as eight per cent.
However, the longer term trend is for home price gains to average about two per cent over the next 10 years — flat once inflation is taken into account, says TD chief economist Craig Alexander.
“I do not think we have a housing bubble in Canada,” said Alexander. “We have had abnormal strength in the market during a period of low interest rates and when rates go up over the next three years, you will get a cooling and weaker prices, but not a permanent shock and not a sharp correction.”

– from ‘Vancouver house prices to will outpace national average, TD report says’, Vancouver Sun, 11 Mar 2013

The vast majority of buyers of Vancouver RE, for many years, have been speculators in that they have been buying with the expectation that prices would continue to rise at an abnormally high pace (for instance, 7% per annum, or even more).
Once it becomes clear that prices will not continue to behave like this, the massive central engine for demand will disappear. Buyers will not overextend to a ridiculous degree to chase prices that aren’t going anywhere. The fear of being “priced out forever” will no longer propel their behaviour; the greed that previously encouraged buyers to “jump on the RE train” will disappear.
This is why a speculative mania never, ever, ends with a flat market.
Once the speculative component of prices evaporate, prices will fall to those supported by fundamentals, far below. In Vancouver’s case, these levels are 50% to 66% off peak.
– vreaa

“I am a boomer. I am appalled at some of the financial situations that my contemporaries have gotten themselves into. I can’t stand it, it is all around me.”

“I am a boomer. I am appalled at some of the financial situations that my contemporaries have gotten themselves into. They have borrowed against their homes while saying “that’s just a line of credit, the house is paid for”. They have counted on the run up in real estate without selling and now owe more on the house than when they bought it TWENTY years ago! When renewing their mortgages they roll in their latest credit card debt. Then they keep the amortization high so the payments are as low as possible. These people owe hundreds of thousands of dollars and now are having health issues, divorces, and want to retire. How can you do all that and not have a thought as to paying off your debt? Time is not on their side.
When the lender they started with is cautious and turns them down, they go elsewhere, get the loan and a promise of more if needed and then bad mouth their first lender. They never miss a chance to go somewhere warm for a month and love the casino and the lottery. Their cars are new, Friends, family, acquaintances, I can’t stand it, it is all around me.”

camper at VREAA 8 Mar 2013 11:05am

… and then prices start to descend, and the whole debt expansion process goes into reverse (as is occurring just about… now). Ghastly implications for the individuals involved; not good for the group, either.
– vreaa

Vancouver Secretary’s Urgency To Buy Condo At 7.7x Annual Pre-Tax Income – “I’m worried about keeping pace. I’m worried that no matter how long I keep saving, the prices will keep climbing and I’m never going to be able to catch up.”

RG-08MAR13-5874
[photo Rafal Gerszak, The Globe and Mail]

“Alice Soo is developing a case of spring fever for real estate.
In 2011, five years after graduating from university, she made a final payment to erase $25,000 in student loans. At the same time, she has been a disciplined saver, with $30,000 now socked away. Ms. Soo, a clinical secretary at Vancouver General Hospital, is eager to use it for a down payment on a condominium in the suburb of Burnaby, and soon.
Why the urgency? Condo prices in Greater Vancouver have slipped 3 per cent over the past year, but Ms. Soo believes the softness in the market won’t last. “I’m worried about keeping pace. I’m worried that no matter how long I keep saving, the prices will keep climbing and I’m never going to be able to catch up. That is my main concern.”
Such is the psychology of the first-time buyer in Vancouver, the country’s most expensive property market. Prices here have soared 24 per cent since the summer of 2009, according to the Teranet-National Bank house price index, and the price of a typical detached home is still about $900,000. But prices have cooled and sales activity is way down – there were nearly 30 per cent fewer transactions this February than a year earlier – so Ms. Soo’s concern about missing out may be unwarranted….
“For every first-time buyer, there’s an owner who`s looking to sell and trade up, and for every upgrade, there`s a retiree looking to cash out. The “trickle-up” effect can make the difference between hot and cold in the market.
This year, the big question is: Will the first-timers come back?”
For Ms. Soo, who is now renting the basement of her sister’s home, the first choice is to buy a Burnaby condo priced at roughly $300,000, preferably close to a SkyTrain rapid transit station. Given her modest annual pretax salary of $39,000, Ms. Soo is excited by the prospect of moving into her own place by the time she turns 30 this summer. But price remains the sticking point for buying a condo this spring. She and her agent, Eddy Shan of Homeland Realty, are finding that sellers aren’t budging much from their asking prices.”

– this anecdote from ‘Will nervous first-time buyers make this spring housing market bloom?’, Tara Perkins and Brent Jang, Globe and Mail, 9 Mar 2013 [hat-tip OH YAH]

We agree that this FTB’s “concern about missing out may be unwarranted”. She is still living in the not too distant past, and continues to suffer from the “buy now or be priced out forever” fever. It’d be interesting to know more about her knowledge of current market conditions, and to understand her sources of information.
The current market action is precisely what one would expect through a topping process: sales declining, prices sticky but beginning to give, buyers waiting and watching. Sales volumes always lead prices.
And there will always be some buyers, at any point in the descent, thinking they have “bought the dip”.
The most vulnerable owners in the coming downturn will be the over-leveraged, the latecomers, and the retirees with far too much RE for their life-stage. If Ms. Soo buys, she’d be both over-leveraged and a latecomer.
– vreaa

————————-

Some further excerpts of interest from the same article:

“Will McKitka, a real estate agent with Macdonald Realty, said the spotlight has turned on the slump in property sales in February, but prices haven’t collapsed. “People use the B-word, in terms of a housing bubble. Vancouver isn’t in one,” Mr. McKitka said. Monthly sales volumes are being crimped by stalemates over pricing, he noted.
Two of his clients watched negotiations fall apart last month, even though the asking and offering prices were tantalizingly close. “Not close enough,” he said. But Mr. McKitka insists that buying into the Vancouver area’s cooled-off housing market makes sense. Gone are the days of huge jumps in home values, but for those able to save for a down payment in 2013, it will be a better financial decision to own than rent, he argues.”

“It still seems that the much greater risk is that sales weaken further, not that they surprise to the high side,” BMO Nesbitt Burns economist Douglas Porter said in a research note this week.
Prices remain stubbornly high in most urban markets. Fitch, a ratings agency, said this week that prices nationally are about 20 per cent too high. Such headlines add to the fear among first-time buyers that, even if they can afford to get into the market, now might not be the time.”

“Large marketing campaigns and incentives on the part of mortgage lenders are likely to play a significant role in driving the market this spring. “People buy payments, they don’t buy house prices,” says Toronto-based mortgage planner Calum Ross. “There is a huge psychological impact of five-year mortgage rates dropping below three per cent.” Mr. Ross adds that he’s now seeing “massive” amounts of marketing by mortgage lenders.”

“Phil Soper, CEO of real estate agency Royal LePage, said the slowdown is a good thing, because the market was too hot, but he thinks that the changes that Mr. Flaherty made in July went too far. “It pushed things for young people, for first-time buyers, to a place it didn’t need to be,” he said.
Now, he says, the impact of the change has largely been felt. “Young people have had eight months to either save up a larger down payment or look farther afield for a home,” he says. “As long as the cost of mortgage financing remains very low, we’re going to attract financially stable young people, first-time buyers, into the housing market. The desire to own one’s home hasn’t changed one bit.”

Will McKitka’s comment added to the ‘What Bubble?’ sidebar collection of bubble denier quotes.
We agree with Doug Porter’s observation that “surprises” are more likely to be to the downside.
– vreaa

VanCityBuzz – Vancouver vs. NYC – “If Vancouver wants to keep waving the world class flag, she’d better get used to being compared to those with a few hundred years experience, because beauty and access to a lot of natural resources can only take her so far.”

guggenheim

Empty-Chairs

“Vancouver is often touted as a world class city by local boosters. While the costs of living and real estate prices are certainly indicative of that caliber, our culture (or lack thereof) and the locals’ inability to get to know themselves without making a big stink about how dissatisfied we are with one another, leaves us to question whether or not our very young city is really ready to step up onto the global stage. There’s only so many years a city can ride on having hosted the lesser of the Olympics, no matter how many gold medals were won by locals. Only so many venues can close before the so-called ‘creative’ class finally throws in the towel and leaves everything to the mercy of developers, corrupt political parties and their sycophant friends. So since I’ve just returned from a five month stint in New York, I’ve been asked by the good people at Vancity Buzz to write up a piece comparing some of the finer points of life in both cities.” …
“Housing and Real Estate Development
I’m no expert when it comes to discussing the finer points of housing and real estate, however as someone who at this point can never even hope to think of one day dreaming about the mere thought of buying a property in or around Vancouver, it’s important to mention that many New Yorkers are in the same boat. I was warned that everything is much more expensive in NYC, but this isn’t true at all. If anything, prices for lodging are almost exactly the same. My trendy, 1500 square foot loft cost close to, if not slightly less, than what you’d end up paying here, which is about three grand per month. And just like here, it pays to have roommates.
There are always new development projects happening all over the city, with walk-ups and high rises popping up all over New York, like zits on a teenager’s chin, boasting deals “starting at only 500K!” The difference between there and here is less of a marketing push. Of course, there are the requisite flyers falling out of every free weekly, but I didn’t notice such an in-your-face attempt as Vancouver’s to get me to sign over the next 30 years of my wages in exchange for a tiny, poorly built shoebox in the sky. Nor did I see any buildings wanting to have sex with the handsome new 12 story about to go up just off Bedford. Maybe it’s because I wasn’t looking, or there was a lack of real estate focused billboards, I don’t recall.
New Yorkers, while dealing with various gentrifying forces, are less likely to complain about being priced out of their neighborhoods thanks to fairly rigorous rent control initiatives, which, like the subway, place the rich and poor side by side, often in the same building. Still, just like Vancouverites, there are grumblings among Gotham locals about everything going condo and being sold to absentee foreign investors. But boy did they have a laugh when I showed off CrackshackorMansion.com.” …
“Conclusion
If New York is a grand dame of the urban world, gaudy, spackled with lights and experienced in the ways of love and war, then Vancouver is like a naturally beautiful teenage girl: not sure of what she yet wants or what she’s capable of, only that she’s good looking enough to, for now, have her pick of suitors at the expense of those who really have her best interests at heart. …
All in all, these are two different places, with their own unique styles, so is it even really fair to compare the two? Well, if Vancouver wants to keep waving the world class flag, she’d better get used to being compared to those with a few hundred years experience, because beauty and access to a lot of natural resources can only take her so far.”

– from ‘A Tale of Two Cities: Vancouver vs. New York’, by Hipster Designer, VanCityBuzz, 6 Mar 2013 [hat-tip proteus]

Attaining Escape Velocity For The Constructive Evolution Of Imbalances In Order To Leverage The Opportunity And Break Through In Thought Leadership ["You know what I'm saying?"]

reggie w

“..and that’s one of the things that I enjoy most, ah, about this convention… It’s not so much, as so little, as to do with what everything is… but it is within our self interest to understand the topography of our lives unto ourselves. The future states that there is no time other than the collapsation of that sensation of the mirror of the memories in which we are living. Common knowledge, but important nonetheless. As we face fear in these times, and fear is all around us, we also have anti-fear… it’s hard to imagine or measure… the background radiation is simply too static to be able to be seen under the normal spectral analysis. [Accent alters from British to that of deep-voiced American soul singer] But we fuse though there are times when.. a lot of us.. you know what I’m saying? cos, like, as a hip-hop thing, you know what I’m saying, like TED be rocking, like, you know what I’m saying?.. so I wrote a song, and I hope that you guys dig it… it’s a song about people, and sasquatches, and other French science stuff… Okay, here we go.”
Reggie Watts, TED, March 2012, Long Beach, California. This piece was preceded by a passage in Spanish and then one in French.
—-

“Escape Velocity” – measure of the amount of newly concocted liquidity required to allow Canadian RE to cast off the bounds of gravity and remain afloat; coined by BOC Gov. Mark Carney

“Constructive Evolution Of Imbalances” – [household debt increasing at a slower rate; the tap on the brakes that presages a housing price crash]
“With a more constructive evolution of imbalances in the household sector, residential investment is expected to decline further from historically high levels.” – Bank of Canada statement, March 2013

“Breaking Through In Thought Leadership” – [over-reaching optimism, with a twist of Orwell]
“This is a game-changer for Vancouver. We’re known as a world-class tourism destination but this shows we’re breaking through in thought leadership. I’d like to explore how we can best leverage the opportunity to vault Vancouver into the spotlight and endear us to the leading thinkers who come here.” – Mayor Gregor Robertson, commenting on Vancouver buying the TED conference, March 2013

Who writes this stuff?
The above three samples added to our growing
bubblexicon.
PS: We Love the subversive Reggie Watts. He was in Vancouver recently.
– vreaa

Lower Mainland Couple In Their 70’s; RE Makes Up 216% Of Net-Worth; Desire To Buy More – “My friend is getting worried about his parents’ financial situation.”

“I was talking to a friend earlier today, He’s getting worried about his parents’ financial situation…
Get this:
$2.6 million invested in real estate… all in the Lower Mainland.
$1.4 million of mortgage debt (54%). Dad is over 70, mom not much younger.
Imagine a collapse of 50% of the market in the LM. The entire family’s net worth would be wiped out. Really scary. The irony? They want to invest even more in real estate (because they lost so much money in mutual funds…).”

Makaya at VREAA 6 March 2013 8:22am

We still believe that the (90 minus age)% guideline for maximum percentage of net-worth that should be in RE makes sense.
These guys should have less than 20% in RE, their actual number is 216%… and they want to increase it!
We’ve heard enough of these stories now to extrapolate that there are a significant number of people in this position. They are very vulnerable to price declines, and they make the market that much more vulnerable, too.
– vreaa

“Forty percent of homeowners over age 65 had mortgage debt in 2010, compared with just 18% as recently as 1992, Reuters reports.
The Investor Education Fund recently found that 24% of Canadian homeowners surveyed expect to have debt on their principal residence after they retire. Of those who expect to owe money on their homes when they retire, more than one-quarter said they don’t know how they will pay it off.”

advoc8 at VREAA 6 Mar 2013 at 2:12pm, quoting from ‘How Baby Boomers are rewriting the rules of retirement’, Financial Post, 6 Mar 2013

Bank Of Canada’s New Euphemism For Contraction – “Constructive evolution of imbalances”

“With continued slack in the Canadian economy, the muted outlook for inflation, and the more constructive evolution of imbalances in the household sector, the considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required,” the Bank of Canada said Wednesday. …
“With a more constructive evolution of imbalances in the household sector, residential investment is expected to decline further from historically high levels,” the central bank said in its policy statement. “The bank expects trend growth in household credit to moderate further, with the debt-to-income ratio stabilizing near current levels.”

– from ‘Battle of housing bubble won, Carney focuses on economic growth’, Kevin Carmichael, The Globe and Mail, 6 Mar 2013

Somehow the Globe and Mail concludes that “concern about a housing bubble” has “deflated” and that the “battle of the housing bubble is won”.
We fail to follow the logic.
What is happening is that, as debt hits limits, the entire economy, overly dependent on debt spending, is slowing.
This is precisely what one would expect at this point in the cycle.
The housing bubble hasn’t even really begun to unwind yet, let alone any battle being “won”.
It is not at all surprising that there is no intention to raise interest rates.
As we have said before repeatedly, we don’t need rising interest rates for the bubble to implode; it will do so by collapsing under its own weight.
We look forward to the “constructive evolution of imbalances” that will come with 50% to 66% price drops in Vancouver.
Viva La Constructive Evolution Of Imbalances!
– vreaa

Realtor On Marketing Deceit – “They could have just found a waitress or whatever, somebody who didn’t obviously work for them.”

“Amazing quote here [in this article in 'The Vancouver Observer'], regarding the MAC Marketing scandal, from a Vancouver realtor:
“It’s not just what they did, but that they did it so badly. They could have just found a waitress or whatever, somebody who didn’t obviously work for them.”

Nick at VREAA 5 March 2013 at 10:00 am [Thanks Nick. -ed.]

[For those readers unfamiliar with the "Mac Marketing scandal", see VREAA 13 Feb 2013.]

Interesting that a realtor would make this kind of comment after such a scandal.
It strongly suggests that he sees deceit in marketing as simply being part of the game.
– vreaa

“Talked to a Vancouver man who sold all his assets in Vancouver. He told me he bought a newer house in Arizona for $105K that has a renter that pays $850 a month.”

“I went to a real estate seminar in Phoenix and the prices to rent ratios were awesome for investors. Talked to a Vancouver man who sold all his assets in Vancouver. He told me he bought a newer house in Surprise Arizona for $105,000 that has a renter that pays $850 a month. I guess Canadians have higher incomes for higher price real estate.”
happy renter at greaterfool.ca 4 Mar 2013

Mark Butler – Paintings of Basement Suites

[UPDATE: Images removed 1.May.2013, at the request of the artist, Mark Butler. -ed.]

Basement Suite (Night)
(Acrylic, gouache, pencil, paper on canvas)
Mark Butler, 2012

Basement Suite (Red)
(Acrylic, gouache, pencil, paper on canvas)
Mark Butler, 2012

Basement Suite (Dusk)
(Acrylic, gouache, pencil, paper on canvas)
Mark Butler, 2012

Basement Suite
(Acrylic, gouache, pencil, paper on canvas)
Mark Butler, 2012

- paintings by Mark Butler, BFA (Visual Arts), ECUAD; from the Emily Carr UAD 2012 Grad show.

We like these paintings a lot.
Despite their low, dark subject, they are beautiful.
The third and fourth images are taken from the Emily Carr site.
The first two are cell-phone snaps taken at the 2012 ECUAD Grad exhibition.
We trust that Mark is okay with us posting them here.
Good work; many thanks to the artist.
– vreaa

“There’s a townhouse up for rent in a new(ish) development near my place that is owned by a realtor. After several unsuccessful attempts to sell he gave up and is offering it for a long term lease.”

“There’s a townhouse for rent in a new(ish) development near my place that is owned by a realtor and after several unsuccessful attempts to sell he gave up and is offering it for a long term lease.
The place is fairly expensive to rent, but still a fraction of what it would cost to buy.
Now get this – when I inquired about it, the reply I got stated that “the owner will pay property taxes, but I would be responsible for maintenance and strata fees” at around $350 a month on top of the rent.
OMFG, I still cannot stop laughing…”

vanpire at VCI 2 Mar 2013 2:05pm

The owner was unsuccessful in their attempt to sell.
This simply means that the owner has an overinflated idea of the value of the property.
Drop the price steadily until it hits a bid. That’s the market value.
And, yes, the statement regarding the addition of the strata fee is indeed laughable.
Trying to make a high rent sound lower. Unlikely to draw anything other than laughs.
– vreaa

Fitch Ratings – Canadian RE 20% Overvalued; BC 26% Overvalued

“American-based agency Fitch says house prices are overvalued by approximately 20 per cent in real terms across Canada, with regional variations.
But in releasing its ratings on Monday, it said Alberta’s market is overvalued by 15 per cent.
“Because of the effects of inflation and price momentum, it is not expected that prices would drop by this amount,” said the Fitch report. “If growth halted and prices began to drop, it would be expected to take several years for home prices to revert to their sustainable values, depending on a number of factors such as government support and credit availability. With this time frame, the actual observed decline in prices could be as low as 10 per cent.”
It said rises in prices have continued with small corrections since 1996, and specifically since 2008 have risen when underlying fundamentals suggest that growth is unsupportable.
It said the Ontario market is overvalued by 21 per cent, Alberta by 15 per cent, British Columbia by 26 per cent and Quebec by 26 per cent.”

– from ‘Canadian housing prices overvalued by 20%: Fitch Ratings’, Calgary Herald, 4 Mar 2013 [hat-tip Nemesis]