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- kabloona on BC Premier: “I think the market’s good, it’s a buyers market. I want to make sure I get in before prices start to rise.”
- bullwhip29 on BC Premier: “I think the market’s good, it’s a buyers market. I want to make sure I get in before prices start to rise.”
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Type of Anecdote
- 01. He Said, She Said (248)
- 02. Profiting from the Boom (445)
- 03. Changed my Life (106)
- 04. Changed my Career (39)
- 05. Where do Buyers get the money? (969)
- 06. Held my Nose and Leapt (97)
- 07. Avoiding Vancouver (376)
- 08. Overextended Buyers (1193)
- 09. Delaying Buying (316)
- 10. Demoralized Renters? (366)
- 11. Regrets about Investing in RE (417)
- 12. Effects of Development (276)
- 13. 2010 Olympics Related (74)
- 14. Social Effects of the Boom (1260)
- 15. Misallocation of Resources (963)
- 16. Missed The Boat? (236)
- 17. The Froogle Scott Chronicles (27)
- 18. Spot The Speculator (171)
- 19. BlastRadiusPostCards (17)
- 20. The Limitless Demand Argument For Ongoing Market Strength (70)
- 21. Vancouver RE-Verse [Found Poems] (8)
- 22. RE References In Popular Culture (42)
- 23. Jumping The Shark (1)
- 24. Policies On Housing (10)
- 25. Epigrams For The Bubble (1)
- 26. Premature Calls Of "Bottom" (3)
- 27. Seller Panic (3)
- 28. Erroneous Causation Theories For Falling Prices (7)
- 29. Bubblespeak (1)
- Uncategorized (176)
- Still Dead
- BC Premier: “I think the market’s good, it’s a buyers market. I want to make sure I get in before prices start to rise.”
- “You’ll have to pry my cell-phone from my cold, dead hand….” [Off-topic, but irresistible]
- Mayor Robertson Selling His House
- “Nothing Wrong Here!”
- “We spoke to a friend of ours yesterday. Even though she has purchased a house, she wants to keep (and rent out) the condo she’s living in, because she thinks prices will only go up.”
- Families With Children Leave Vancouver – “We bought a townhouse in Port Moody in 2006, sold it in 2011 and bought a house. We couldn’t have done that in Vancouver. Absolutely not.”
- The Economist on Land Taxes – “Taxes on immovable property are the most growth-friendly of all major taxes.”
- “It’s kinda funny that 3 unrelated Irish blokes all said that this mess in Vancouver/Canada RE is unfolding EXACTLY like the mess did in Ireland, one headline at a time.”
- “I was really fortunate with how things worked out for me in real estate. I definitely took chances when I bought a few presale condos to flip back in 2004, but I was adamant at the time that there was room to grow for Vancouver.”
- Making Sense Of It All
- “I have been contacted by two of my realtor friends in the past week both proclaiming that the market is turning and that this is a good time to buy.”
- Trump on Vancouver – “Your people, they go to New York, they go all over the world, and they speak so highly.”
- ‘Canadians obsessed with real estate, poll suggests’ – “Just as many people reported talking about real estate on a regular basis as they did about hockey.”
- ‘Doomed’? – “Home prices in Canada are now double what they were in the 1970s in real terms. Historically, over the very long term, real home prices tend to be flat.”
- “The bank encouraged her to take the equity in her home to purchase another home. She bought a 2nd home at the peak.”
- “Let’s remember how we got here” – Looser and Looser CMHC Limits
- Don’t Worry, I’m Sure Somebody Will Sort This All Out – “Policymakers now know better and will be a lot more proactive in preventing a collapse.”
- “Things have changed, we are not doing that type of mortgage. We are not interested at all.”
- “We are noticing our target type of housing in price decline, albeit slow, as our money increases in value, slowly as well but outpacing housing.”
- Renter Buys In West Van – “For a few hundred more per month, you could own the place. Which is what I will be doing as my offer for a place down the street has been accepted. There is some value in staying in one place.”
- A Bed in the Bathroom, Why Not? [Let Us Count The Reasons...]
- “My husband and kids are pretty happy in our rental house within cycling distance of work that we could never have afforded otherwise. We’re doin’ pretty dang well, thank you, for median income earners in this expensive city.”
- “I Wish Them Bad Luck.” – Jim Flaherty, on those who wish to profit from Canadian RE price drops
- “We asked why he doesn’t just rent the whole house. He said he can’t, it wouldn’t cover his mortgage – he’ll get more to rent it out as two suites. These new landlords are hilarious, thinking that rent will cover their mortgage!”
- “My neighbours, in their late 60s, just put their house on the market. They had said they would die in that house, but now they are worried that with the housing market going south they may be losing a lot of equity and they better sell now before it gets worse.”
- Chat Thread
- Taking A Break
- “My best guess: this property is now an ‘investment hold’ and will be built ‘when prices recover’. Good luck on that!”
- Man Loses $745,000 Vancouver Condo Deposit
- Graphic – Degrees of Housing Overvaluation in Canada
- The Rare Individual With A Negative Ownership Premium
- Advice Regarding Renting In Vancouver, Please – “Unfortunately, the Vancouver rental stock is absolutely atrocious. It just seems like every landlord is looking for someone to pay 100% of their mortgage on a crappy place through rental income.”
- “I just visited Manhattan for a week, and happened to snap some real estate ads on both the Upper West and Upper East sides of the island. Compare to Vancouver. It simply doesn’t compute.”
- Ben Rabidoux In Vancouver Next Week
- “The mortgage company told me they were calling in my 40-year, 0-down mortgage. I have paid nearly sixty thousand dollars towards it, but, nearly five years in, I have yet to touch the principal.”
- ‘Vancouver City Hall: Housing Report Card 2012′; Plus Revised Version
- “My folks find themselves at 65 still owing half the value of their home and recreation property to the bank. After almost 30 years of ownership in the BPOE and a number of boom markets, they have very little to show for it.”
- “Rent for $2,200 a month or buy and have a mortgage of $4,310 per month. Why would anyone buy?”
- “They were talking about two couples they knew who had recently bought a lot and planned to each build a house on it and live as neighbours.”
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Category Archives: 15. Misallocation of Resources
“It’s kinda funny that 3 unrelated Irish blokes all said that this mess in Vancouver/Canada RE is unfolding EXACTLY like the mess did in Ireland, one headline at a time.”
“Been chatting with some Irish blokes who are here working post Irish Bubble. It’s kinda funny that 3 unrelated guys all said that this mess in Vancouver/Canada is unfolding EXACTLY like the mess in Ireland, one headline at a time. Good luck Canada!”
- TBWCB at VREAA 29 Jun 2013
All bubbles are alike in essential nature, even though there may be variations in the minor details.
Don’t Worry, I’m Sure Somebody Will Sort This All Out – “Policymakers now know better and will be a lot more proactive in preventing a collapse.”
“Risks are undeniably elevated in the Canadian housing market with prices so high relative to household incomes. Many housing bears assume this overvaluation entails a hard landing but I’m not convinced it’s inevitable at the national level. One reason – which seems mostly overlooked in the debate – is that Canadian policymakers will be doing their utmost to avert such an outcome.
In a sense, Canada is fortunate to be facing the spectre of a housing bust after other countries have had theirs. Before 2008, it was generally believed house prices could never fall by much. Policymakers now know better and will be a lot more proactive in preventing a collapse.
Canadian policymakers do have the levers to affect outcomes. One is the regulatory framework for housing, which can be amended in various ways to reconfigure housing demand and supply to the extent required. Indeed, Finance Minister Jim Flaherty has tightened mortgage lending several times over the past two years to slow down price increases and give household incomes time to catch up.
Other regulatory changes include tagging Canadian banks with “too big to fail” provisions that require them to put aside more capital. Then there are the “bail-in” provisions that specify when a troubled bank will recapitalize by converting its senior unsecured debt and other liabilities into equity.
In addition to these pre-emptive steps, Canadian policymakers have no doubt given some thought to dealing with the risk that the soft landing could go off the rails. It’s hard to imagine they would allow the housing sector to destabilize the economy and financial system like it did in the U.S. and other countries.
Responses could range from cutting the Bank of Canada rate to relaxing regulatory restrictions on housing demand. Housing bears might complain about such measures but they would allow Canada to reposition back to a soft landing. That would be more preferable than inflicting the trauma that befell the countries hit with housing meltdowns.”
A soft landing will not be engineered in the Vancouver RE market;
it is in the nature of spec bubbles that they burst, ending with a “bang and not a whimper”. Let’s hope that those in charge of Canada’s monetary policy and mortgage rates don’t do even more damage to sensible citizens by trying to avert the inevitable.
While we’re on the topic of “late to the party”, it is interesting to see the Globe and Mail’s Larry MacDonald, who up to now has gone to great lengths to reassure himself and everybody else that the RE market is not at risk [see, for instance, 'Housing bears need to relax and take the long view', G&M 1 April 2013], now stating that “risks are undeniably elevated in the Canadian housing market with prices so high relative to household incomes.” After all, prices have been outrageously high relative to incomes for many years now.
“We considered renting this SFH a few months ago. It stayed on the market for a few months, looks like the landlord never got any tenants (rent went from $2500 to $2200) and today when I walked by – - it’s for sale for $999,999! Gee… tough choice, rent for $2200 a month or… buy and have a mortgage of $4,310 per month (based on 3.09%, 25 year, 100k down). Why would anyone buy?
Thanks, I think we will remain renters until prices come back down to earth. Or never buy in Vancouver.”
- pricedoutfornow at VCI 5 Apr 2013 7:38pm
Think of this situation like this:
This landlord can’t find anybody who will pay $2,200 per month to actually use the house as a home, but they are hoping to find somebody who is prepared to pay over $4,310 per month to make use of the house as a financial instrument, by using it to bet on increasing prices.
The house’s fundamental value is that which one could calculate based on a yield of less than $2,200 per month. The speculative market has been valuing it at substantially higher than that. As the speculative mania unwinds prices will fall to reflect fundamental values.
“Villa and White felt “sucker punched” when stocks collapsed in 2008, he reports. The crash “wiped out half their savings.” They sold out of stocks, put their money in the bank, and “swore off stocks,” presumably forever.
Last month, as the Standard & Poor’s 500 index surged to new highs, they hired a new financial adviser and plunged into the stock market again.
The problem with Villa and White isn’t that they are unusual but that they are absolutely the typical American investor. Both of them are doctors, meaning they are presumably intelligent and educated. And yet they insist on investing like absolute fools.” …
“They buy high, sell low, and the ending is predictable.” …
“Share prices fall because there are more sellers than buyers. They rise because of the reverse. So mom and pop investors like the Villa-Whites rush to dump their stocks because they see the market plummeting, oblivious to the fact that the only reason it’s falling is because people like them are rushing to dump their stocks.”
- from ‘Mom and pop: The world’s worst investors’, WSJ Marketwatch, 4 Apr 2013
And so it is with all markets.
Regular folks (in the case of RE, the vast, vast majority of market participants) fell in love with Vancouver RE when prices started running up, became more and more adoring as they ran up more, and were most infatuated at the frothy peak (at the very time they should have been most wary). It is this crescendo of infatuation that drives speculative manias to their ridiculous heights.
As prices fall folks will become less enamoured, then discouraged, then disgusted by local RE, and when the most people are the most disgusted, it’ll be a sensible time to buy.
It’s not rocket-science, but it is emotionally very, very difficult to be a contrarian, and to take a position that is the opposite of that of the crowd.
“She said the market was dead in Victoria and that it would remain so for a very long time. I asked how she knew. Her answer was fascinating and should scare the pants off the real estate crowd.”
“Yesterday two old friends, J & M, from Victoria, mid 50′s, both very bright and mid level bureaucrats at separate provincial government departments came to visit us in the Comox Valley. At one point the topic moved to real estate. I began to say that the market was dead here when J interjected that it is the same in Victoria and that it would remain so for a very long time. I was surprised by her response and asked how she knew this because I know that neither of them reads any of the real estate bear blogs. Their answer was fascinating and should scare the pants off the real estate crowd.
First, both live in Townhouses and J is the head of her strata council (46 units). She said that last year about 7 units sold. This year one of the most desireable units was listed and got no inquiries at all. It was pulled. In addition one of the vendors of a unit last year did want to buy back in but could only do so with a 0/40 mortgage, which is of course no longer available. She had no idea what he had done with the equity from the sale.
Second both pointed out that their incomes have remained largely static for years but that housing prices and strata fees (not to mention special assessments) have increased relentlessly to the point where they felt prices are ridiculous relative to income. J was of the opinion that the townhouse unit in which she lives has about $60K of material in it and yet these units were until recently selling for $300k plus. She felt that the spread between material cost and selling price was indefensible. J also pointed out that despite being mortgage free her strata fees and hydro per month were in excess of $500, the better part of a mortgage payment not that long ago.
Third J said that the price of real estate would be down basically forever because our generation had had few children, overall. As a result who was going to buy our houses when we depart for the great hereafter?
Fourth both believe that the potential sales price of their own units have decreased substantially in the past year and will probably continue to decrease but they intend to stay put. They do not see any point, for example, in selling and then renting despite knowing that prices are inflated vis a vis rent.
Fifth both pointed out that they work at very large institutions and that they, of course, interact with many of their fellow employees. One of the constant topics is real estate and these days the virtual impossibility of finding buyers for the units that their fellow employees have for sale. They report that the view of the majority of their fellow employees is similar to their own – real estate is dead.
Finally, and very ironically, at least for most of us at this site, both get most of their news from CBC and CTV. Their overall impression of reports on both channels was that the real estate market is collapsing.”
“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.
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:
$6.9K per month
Assets: $606.7K Total
Home condo $298K
Rental condo: $265K
Stock options: $4.5K
Liabilities: $544.4K Total
Home condo mortgage: $284.6K
Rental condo mortgage: $228.8K
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.
“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.
“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…
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
The Unshakeable ‘Running Out Of Land’ Meme – Vancouver Mentioned In Tokyo ‘Coffin Apartment’ Article
“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.
“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.
“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]
“There are up to 40,000 illegal suites in the city of Surrey — nearly double the 20,000 previously reported.”
“The appraiser stands at the foot of the empty lot, asked to assess its value — as if the home to be is already built.
He comes armed with floor plans sent to the city for approval.
In his eight years on the job in Surrey, he’s now seen thousands just like this.
The plans show an outlying deck and a basement with rec rooms, kids rooms, sewing rooms — “all these rooms that make no sense,” he tells The Province.
He is then handed another set of floor plans, either by the builder or homeowner.
“The revised floor plan? They show secondary suites going in,” says the appraiser, who estimates there are up to 40,000 illegal suites in the city — nearly double the 20,000 previously reported.
“The day (homeowners) get their final occupancy, the day it’s done — they enclose the rear patio and now you’ve just added another 1,000 square metres to your house.”
Not only are thousands of Surrey’s homeowners collecting undeclared income, he says, they are also saving on taxes when the suites are popped into place after city approval.
The owner of an in-demand design firm in Surrey says he’s aware of the illegal suite issue, but insists his company creates plans in accordance with zoning requirements.
“We discuss with the homeowners/ home builders as to their requirements and then prepare house plans,” he said.
“Our design company plays no role during or in the construction of the homes.”
“Of the nearly 4,000 residences developed in Surrey in 2012, 1,500 were single family units, namely in Newton and South Surrey.
The city issued permits for 427 secondary suites at 67 coach houses in 2012.
Surrey’s manager of bylaw enforcement, Jas Rehal, says his staff and the city’s building department communicate their bylaws and policies to developers.
“Generally, they’re abiding,” he said.
“These suites in Surrey, they’re all over the city,’ said Rehal. “When brought to our attention, we go out there, state the fee … once a suite is identified, we start billing.”
Annual fees for a secondary suite range between $500 and $1,300, which includes infrastructure costs such as garbage pickup and water use.
It can cost a homeowner up to $10,000 to properly outfit a home with separate piping, wiring and a firewall to make a suite legal.”
Jesse (YVRHousing) calls these suites ‘townhouses rotated 90 degrees’, and we think that’s spot on.
They are products of high prices: owners build and manage them to allow themselves to over-reach on price in the hope of further price increases.
This is an inefficient, clumsy and ugly way for a city to increase density.
Housing Makes Up 20% Of Canadian GDP – “This heavy reliance is not healthy. We basically borrowed our way out of this recession. Now, it’s payback time.”
“If the city is any indication of what’s going on in the country, it’s over-reliant on its housing sector.” – Herbert Crockett, a retired World Health Organization executive who lives in France says of Toronto.
“We basically borrowed our way out of this recession. Now, it’s payback time. We will be in for a period of long, slow growth.” – Benjamin Tal, deputy chief economist at the investment-banking unit of Canadian Imperial Bank of Commerce.
“It did seem a little unusual to have every policy maker in Ottawa hectoring Canadians about their excessive debt levels and yet the economic incentive for the average Canadian was completely slanted to taking on debt and not saving. The realist in me would admit it was the only tool the Bank of Canada had. The reality was, they really could not lift interest rates.” – Douglas Porter, chief economist at Bank of Montreal.
“As an economist working for a Canadian bank, I can’t go into a client meeting and have someone not ask me about housing in Canada. For U.S. investors, they are still a little gun-shy about what happened in the U.S., and I think they worry the same fate will happen to Canada.” – Tom Porcelli, chief U.S. economist at RBC Capital Markets LLC, Royal Bank of Canada’s investment-banking unit, in New York.
Meantime, the share of GDP linked to housing, including construction and renovation, soared to more than 20 percent. A similar U.S. measure peaked at 18 percent in 2005. Canada’s share of construction jobs in total employment was 7.3 percent in January, above the 4.3 percent in the U.S.
“This heavy reliance is not healthy,” CIBC’s Tal says. “I expect to see some softening.”
- excerpts from ‘Canada Losing Debt Halo as Bull Market Housing Peaks With Carney’, Bloomberg, 26 Feb 2013 [hat-tip Nemesis]
As we have been saying here for years.
What percentage of Vancouver’s GDP is linked to housing?
‘CMHC seeking to hide foreclosure information from home buyers’ – “CMHC just told us that pricing will stay strong and now they want to keep information about foreclosure secret. Where there is smoke there is fire.”
“Canada Mortgage and Housing Corp. has been asking realtors for months to keep consumers in the dark about whether the properties it sells are part of a foreclosure, according to a document obtained by The Financial Post.
The move, said to be part of CMHC national policy, upset Quebec realtors who refused to play ball, worried about an ethical breach. …
Some real estate industry insiders wonder whether the Crown corporation is simply being prudent, not letting potential buyers know a property is part of a distressed sell so they can put in a low-ball bid.
Others question whether the Crown corporation is just getting things in order in case home prices collapse and they are forced to sell properties that are backed by government insurance. …
“Look at what is going on right now in financial institutions and everybody is ratcheting up their loan-loss provisions,” said Ben Rabidoux, a Canadian analyst for California-based Hanson Advisors, a market research firm whose clients are institutional investors. “Everybody expects loan losses to rise. I can’t imagine CMHC is in the dark on that. My suspicion is they want to limit any loss on that hits their books.”
By limiting the information on whether a property is part of foreclosure, the Crown corporation would potentially avoid a situation in which a buyer knows it has to sell. In the United States, foreclosed properties have sold at huge discounts.
“CMHC is trying to get the better price,” said Don Lawby, chief executive of Century 21 Canada, who had not heard of the new policy. “You know something is repossessed, you low-ball the offer. You know you are not dealing with a homeowner but an investor.”
- from ‘CMHC seeking to hide foreclosure information from home buyers’, Financial Post, 27 Feb 2013
[hat-tip Reader #4]
“If the price of a house is good or someone is putting a low ball price and the seller is ok with that…I call it the market. CMHC just told us that pricing will stay strong and now they want to keep information about foreclosure secret….When you have smoke…fire is not very far…” – ‘luckyluc’, commenting on the above article at the FP site
Is it within the CMHC mandate to take active measures to hide information from the public?
Aside from that, the need for deception is massively telling – the market is at risk from normal price discovery processes, and the CMHC obviously now sees that.
Vancouver Reddit Boards – ‘Paid Shills In Our Midst?’ – “Does anybody else find there are too many real estate/property development posts on the /r/vancouver sub-reddit?”
“Does anybody else find there are too many real estate/property development posts on the /r/vancouver sub-reddit?
Moderators, and fellow /r/vancouver-ites: Can we consider banning/pruning the number of real estate submissions as a new rule? It’s rather frequent that I can come to /r/vancouver and see 4-5 posts on the page that certain individuals have posted.” – pfak at reddit.com 16
From the comment exchanges on that thread:
“I’d say the number of posts are in perfect proportion to the frequency Vancouver real estate comes up in conversation and the local media… “- [nutty buddy]
“The price of real estate in Vancouver is too high. This isn’t controversial, I don’t know why you are suggesting it is, everyone I know down here agrees about this, and some of my buddies overseas, the ones who are familiar with real estate/finance, agree completely.” – [MyFavouriteAxe]
“The fact that it’s subjectively “too high” might not be controversial, but this notion (that almost all of OP’s articles are pushing) that the housing market is about to crash any day now is a complete fabrication, and it’s one we’ve been hearing for at least a decade now.” – [Niyeaux]
“Obviously not everyone agrees the prices are too high, there are people buying houses for those prices, and there are others desperate to join them if the prices drop. Supply and demand my friend.” – [idspispopd]
“In a community as small, as easily accessible, and as geographically centralized as this one, it would be pretty surprising if there wasn’t at last a few paid shills in our midst. I’ve always assumed the aforementioned user /u/derpaderpe (formerly /u/proudbedwetter) is one of them.” – [Niyeaux]
“Paid by whom to sell what?” – [Smallpaul]
“Either the shitty “news” outlets who are peddling these crappy real estate articles, or someone with an interest in making people think the price of real estate in Vancouver is too high. I imagine the list of people who fit the latter description is quite lengthy.” – [Niyeaux]
“Oh, really? Like who exactly?
Agents want people to believe their property is valuable, worth it, and selling well. Developers want to charge as much as possible and make everyone think demand is high. Construction people want as much development as possible. Governments want high assessments so they can charge owners as much tax as possible. Banks want to collect as much interest as they can get on long-term mortgages. Owners want reassurance that their property isn’t losing value…
So, I guess you’re referring to mid to low-income renters and young people who don’t work in a field related to real estate. Yeah, they’ve got a lot of clout. Damn propagandists.” – [FellSwoop]
“Or, y’know, any prospective investor who is waiting for the market to crash so they can pick properties up for cheap.” – [Niyeaux]
Real Estate infiltrates every discussion about Vancouver, so it certainly won’t surprise any of us here that the subject comes up frequently on the Vancouver reddit boards.
We don’t know whether there actually are any “paid shills” on Vancouver sites (other than the recently publicized OlympicVillage/VancouverIsAwesome ‘arrangement’, of course).
The idea that there are “prospective investor[s] who [are] waiting for the market to crash so they can pick properties up for cheap” is relatively new to the Vancouver RE discussion. It’s an interesting idea to ponder. These ‘vultures’ would have to be people who consider Vancouver RE to currently be appropriately priced, and who are hoping for ‘bargains’ at prices lower than this, such that when the properties recovered what they see as fair price levels, they would profit. We don’t ourselves know any prospective buyers of that stripe; we would certainly be interested to hear about any. All the prospective buyers we know (and there aren’t many of them) see prices as currently being far above fundamental values, and simply have a desire to buy themselves a stable shelter arrangement at a vaguely reasonable price.
Large Abandoned Richmond SFH Construction Site For Sale – “Assessed value is $2,300,000. Asking $1,888,888 for quick sale.”
“Ad posted in Richmond News Feb 15.
10111 Sidaway Road, Richmond
4 Acre Estate Property, located in area of multi million dollar mansions and is adjacent to Mylora Golf Course.
The property was under construction in 2011 but construction was stopped.
House plans currently include a permit to build a 16,000 square foot house, but buyer can change the plans and build on the Engineer approved foundation that is on site.
Value of foundation is in excess of $300,000 and the assessed value of the property is $2,300,000.
Asking firm price of $1,888,888 for quick sale.
- posted by ‘Real Estate Tsunami’ at VREAA 18 Feb 2013 7:41pm
Filed under ‘Misallocation of Resources’; the central tragedy of a speculative mania.
“Canadians shouldn’t count on home prices to be their main source of wealth gains. Real wealth is built through innovation, and hard work. Not through some magical asset inflation.”
“The correction underway in Canadian house prices is likely to persist for another two years, warns Bank of Canada Governor Mark Carney.
“We’ve seen the adjustment in the housing market. We think there’s a bit more to come over the next couple of years,” Mr. Carney told CTV’s Question Period in an interview broadcast Sunday.
Mr. Carney said rapidly rising prices experienced in Canada over the past decade are “certainly not normal” and Canadians shouldn’t count on home prices to be their main source of wealth gains.
“Real wealth is built through innovation, and it’s gained through hard work,” Mr. Carney explained in an interview taped before this weekend’s G20 finance ministers and central bankers meeting in Moscow. “It’s not through some magical asset inflation.” …
Ottawa has tightened mortgage rules several times since 2008 to cool the market. But interest rates still remain at rock-bottom levels, as do borrowing costs.
Mr. Carney said the pace of debt accumulation has slowed to about 3 per cent a year from 10 per cent.”
- from ‘More adjustment to come in home prices: Carney’, G&M, 17 Feb 2013
‘Vancouver Is Awesome’ “Community-Based Social-Venture” Blog Actually A Stealth Paid Promoter Of Olympic Village
Above from a 12 Feb 2013 post on the ‘Vancouver Is Awesome’ site
“Marketers of the in-receivership Olympic Village are paying the editor of well-known local culture webzine VancouverIsAwesome.com to blog about the joys of life in the village – but it does not say on the website that he is being paid to do so.
Rennie Marketing Systems awarded the deal after receiving a single pitch from VancouverIsAwesome.com editor Bob Kronbauer, who says feels like he won a contest to be paid to flog the Village in False Creek – much like the public contests held by Vancouver International Airport and Tourism Richmond to find paid bloggers to promote them.
“I was visiting the Village a lot as a resident of Mount Pleasant before we moved in and fell in love with it and wanted to share the stories of all the positive things that make it great,” Kronbauer said.
“Beyond the budget and all this stuff I really have no idea about as an average citizen, (I wanted) to sort of expose stories about what it’s like to actually live there.”
Kronbauer lives in a market rental unit at the $1.1 billion complex, marketed by Rennie Marketing Systems, but declined to disclose his rental rate. He began a $2,475 per-month, six-month contract in May 2012 that was renewed in November. The year-long gig is worth a total $29,700.
“Beyond this, beyond my contract to promote the Village, we’ll be staying there in our suite because we love it so much, that was the intention to move there,” Kronbauer said.”
- from ‘Life in the Village pays off for local webzine editor’, Bob Mackin, Business in Vancouver, 14 Feb 2013
Elsewhere in the same BIV edition, Glen Korstrom suggests this is part of a broader trend of media manipulation by the real estate industry:
“Such tactics seem to be part of a trend of real-estate marketers manipulating media perception to sell condos.
Business in Vancouver has learned that VancouverIsAwesome.com editor Bob Kronbauer is being paid by the in-receivership Village on False Creek, formerly the Olympic Village, to promote life in the village – even though nowhere on his website does it make it clear that he is being paid to do so.”
“Vancouver Is Awesome, and we are dedicated to everything that makes it that way.
A community-based social venture sharing positive stories of arts, culture, lifestyle, and everything awesome about Vancouver. No bad news.
If you want to read ugly, bad news about this beautiful city of ours, you’re going to have to look to traditional media and other blogs; V.I.A. promotes everything that makes our city awesome, from old to new and everything inbetween. We’re like the human interest piece on the news… only different.”
We’ve previously tried reading the V.I.A. blog, but each time we break out in a terrible rash and can’t continue.
Advertising is irritating enough when it’s clearly advertising; when it’s in a stealth ‘product-placement’ form, far more so. And the ‘trend’ of media manipulation by the Vancouver RE industry is something that has been going on for years, it’s only coming to light now because the current state of the market makes people ‘ripe’ for the realization.
For the record, we ourselves aren’t paid anything, by anybody, for anything we archive, post, or say on this blog; it’s a labour of love and morbid fascination. We actually pay a small fee to wordpress each year to keep ads off the blog.
When news is “bad”, we call it “bad”; when something is “ugly”, we call it “ugly”; and that’s precisely how the RE market here looks to us right now – ugly.
A grand spectacle is playing out in our town, and we’re keeping notes.
If you are interested in developing your own ideas about the truth of the Vancouver RE market, and whether it is ugly or otherwise, read as broadly as you can about the market. If you don’t already do so, make sure you also consider the opinions expressed in posts and discussion on the following sites:
Vancouver Condo Info
Whispers From The Village On The Edge Of The Rain Forest
Vancouver Price Drop
Vancouver RE And Then Some
The Economic Analyst
and, of course,
Vancouver Real Estate Anecdote Archive
“My friends who are westside realtors are cutting spending budgets and dipping into savings now to keep things going.”
“My conversations with friends who are westside realtors over the past few months (I know a few – hey everyone wanted to be a RE agent for a while, it seems) [reveal that things] are not good (for them). Telling me they are cutting spending budgets and dipping into savings now to keep things going.”
- Girlbear at VCI 11 Feb 2013 2:51pm
“I live in the new Wesbrook village on UBC campus and finally stopped by the Wesbrook Welcome Center. I wonder how long they will keep up this rate of construction?”
“I live in the new Wesbrook village on UBC campus and finally stopped by the Wesbrook Welcome Center. They have a map of all current and planned development, (captured here with my) camera phone. The grey ones have been approved but haven’t been started, apparently they should all be completed in 10-15 years. That’s a rate of .67 – 1 highrises and 2 – 3 lowrises a year. Since I moved in 6 months ago none of the show rooms or open houses have closed. I wonder how long they will keep up this rate of construction?”
- LazyCanadian at VCI 8 Feb 2013 12:24pm, image posted here.
“UBC has gotten totally out of control. I graduated there a couple years ago, and it was getting a little ridiculous with the amount of construction, but now it’s even worse. When I visited for the first time in 2005, it was beautiful and was one of the reasons I wanted to go there.
The whole campus is under construction now, and they’ve cut down massive parts on the endowment lands (a.k.a. woods) to build million dollar houses and condos (which is just what the generally poor students need).
Most of the open green spaces are now huge condo towers. You can barely walk across campus anymore, with all the detours. Some people recently hung up a bunch of signs. [see below]
Back in 2007 they permanently cancelled the annual big party students have on the last day of classes, because the people in their million dollar homes on campus didn’t like the students drunkenly walking through to the stadium. Apparently the realtors didn’t tell them that they lived on a campus…
Nothing against UBC, I loved the school when I went there, but now when I visit campus, I feel bad for the current students.”
- Andrew at VCI 8 Feb 2013 2:38pm
Guerilla signs protesting construction on UBC campus, images from blog post ‘Anonymous snarker channels construction anger into guerilla memes’, Ubyssey Social Club, 12 Oct 2012. Archived here for the chronological record:
“I am in LOVE with the natural beauty here, but I can’t find work! The more time goes on, the more sad, lonely, desperate and lost I feel in this city.”
“Wow, this is really defeating. I mean, I am in LOVE with the natural beauty here, but I can’t find work! it’s ridiculous! I live in Surrey and the job market seems horrendous. I’ve applied for about five months straight, and nothing. nada. it’s like you’ve got to be super cut throat to find that you’ve competed with hundreds of other sorry applicants. forget having credentials. really? this is sad. I want to believe that it’s possible to find a way to stay here, but the more time goes on, the more sad, lonely, desperate and lost I feel in this city…which feels absolutely awful as I left Toronto feeling the same way. What the hell kind of life are we supposed to live where your next meal is being paid by the service industry job that you abhor and can’t wait until you find your next soul sucking job? where are the JOBS other than the oil loving alberta? what the hell is wrong with this country?”
- Tova at VREAA 2 Feb 2013
“A friend of mine had to ditch his Vancouver Kitsilano rental condo because every month he was dishing out expense after expense but his rental income didn’t come close to covering the expenses.”
“One can have problem tenants even in great areas in Vancouver based on my experience. However, unless you are paying almost entirely in cash, you will have a losing investment. A friend of mine had to ditch his Vancouver Kitsilano rental condo because every month he was dishing out expense after expense but his rent didn’t come close to covering the expenses (with a 20% down payment). My family has OK luck with Vancouver rental property but that’s only because they paid cash but even then some of their tenants have been problematic. Victoria has worked OK, too, but that’s because we bought years ago – again the cash flow just isn’t there if you were to buy today. I will say I have had excellent results over the last six years in Saskatchewan – specifically Regina. And I’m still buying there. Even today, you can still buy a SFH for $300,000 or so in a good part of town and get $1800 month rent plus utilities and get your pick of good quality tenants. And that’s without an in-law suite – you just buy a place in a good part of town, rent it to tenants with good jobs and not worry too much. You can get other homes at even better cap rates in not so nice parts of town but they will be high maintenance and definitely not suitable for the out of town landlord. With a vacancy rate of 0.8%, it is actually easier to get good quality tenants with stable jobs in Regina than in Downtown Vancouver, believe it or not.”
- westar99 at RE Talks, 15 Dec 2012 4:11pm
Condo Ad Booklet – “The Provincial Government will send you a tax free cheque for $10,000 if you buy a qualifying condo by March 31, 2013 and you are a first-time home buyer.”
- above from a set of images sent by ‘Ordinary Average’, via e-mail, 22 Jan 2013, and who adds:
“Today in my mailbox I found the following booklet. Pages 4-5
state “Borrow the down-payment from your favourite uncle and pay him back when you get the $10,000!”. Condo advertisements have become a weekly occurrence in my mailbox lately, this one blows me away.”
UPDATE [hat-tip bullwhip]:
“A major condo developer has been reprimanded by the B.C. government for the unauthorized use of the provincial logo in a promotional brochure for a new development in Langley.
Quadra Homes agreed Thursday to delete all references of the government’s registered logo from its website and to destroy the remaining promotional brochures for the development, named Yorkson Creek, which carried the B.C. logo on its front and back page.
The issue came to head on Wednesday after The Province contacted the Ministry of Finance asking about the 28-page, glossy brochure, which began arriving on doorsteps in the Langley and Abbotsford areas within the last two weeks.
“British Columbia [the logo is used] is handing out $10,000 in cash … ” read the cover and back of the brochure.
“Borrow the down payment from your uncle and pay him back when you get the $10,000,” read another page.
Another read: “We have the qualifying condos and will fill out the paper work for you.”
The $10,000 refers to the government’s first-time homebuyer’s bonus, which was detailed in the first few pages of the brochure. The rest of the pages are dedicated to the benefits of buying at Yorkson Creek.
“It is not just misleading, it is wrong,” said Doug Bigg, who received the brochure last week. “I interpreted it as taxpayers’ dollars being used to advertise condos for a multi-million dollar corporation. If I thought that, then I’m sure most other people would think that.”
But the government had nothing to do with the brochure, the Ministry of Finance said. And on Thursday, the company was ordered to remove all unauthorized references of the logo.”
- from ‘Major developer reprimanded over unauthorized use of provincial logo to help sell condos’, The Province, 24 Jan 2013
“Overvaluation is especially marked in Canada, particularly with respect to rents (78%) but also in relation to income (34%). Mark Carney, the country’s central-bank governor, who is soon to jump ship to join the Bank of England, where he takes over from Sir Mervyn King in July, may have shown good market timing with his move to London as well as a deft hand in negotiating his lavish remuneration. …
At some point, central banks will have to take away the balm of easy money. If housing markets remain so fragile when they are getting so much help, they may break when it is removed.”
- from ‘Home truths’, The Economist, 12 Jan 2013
And Vancouver rent and income ratios are far more extreme than the national averages.
‘The Economist’ has steadily been warning of a Canadian RE bubble for some time:
‘The Economist’ – Rental Income Shows Canadian Home Prices Are 71% Overvalued, 25 Nov 2011
“In the past year, out of about 15 empty units (out of 32 total) in my west side townhouse complex, only one sold.”
“In the past year, out of about 15 empty units (out of 32) in my west side townhouse complex, only one sold, in January 2012 for 1.28m. Thus, for my townhouse complex there is at least 15 years of inventory. This isn’t counting all the other buildings going up around me still. You don’t need much of a brain to see supply is far outstripping demand.”
- Brian at VREAA 4 Jan 2013.
“You might feel differently if you’re a baby boomer who plans to sell the family home soon to help finance your retirement. The same applies if you bought recently and expect rising prices to carry you into a bigger home in a few years.”
“None of this matters to people who own homes they’ll live in for many years to come and thus shouldn’t care much about the current value. You might feel differently if you’re a baby boomer who plans to sell the family home soon to help finance your retirement. The same applies if you bought recently and expect rising prices to carry you into a bigger home in a few years.”
- from ‘Canada’s housing hangover: Real estate boom, meet dot-com crash’, The Globe and Mail, 2 Jan 2012[Hat-tip Nemesis and other readers]
In Vancouver, almost every owner has come to ‘care much’ about the ‘current value’ of their home. – vreaa
“I walked into bank to settle the mortgage. I wasn’t sure what I needed to do. The thing is, neither did they! The fellow I dealt with had opened hundreds of mortgages, but he hadn’t actually closed one. It took a couple of phone calls and the help of his supervisor to figure it out. But they had all the forms ready for a line of credit.”
“Our good friend Lynn from Vancouver flew to Montreal to visit family at Christmas. My wife and I dropped in to catch up. A little about Lynn: She’s just under fifty, and is a single mom with a 20-something son who has just moved out on his own. She has worked for the BC government for 15 plus years in a relatively low level job and will be finishing up a Psych degree in April. Full time job and 3 classes in the evening over several years- she’s no slouch.
Lynn has owned her modest condo in Surrey for 16 years. She casually mentioned that she had just finished paying off the mortgage, though the twinkle in her eyes betrayed her pride. After high fives all round, she told us about her visit to the bank after her last payment. “Well they wouldn’t let me pay the last $28 with my regular payment unless I payed an early repayment penalty! So, the next month after the $28 payment went through, I walked into bank to settle the mortgage. I wasn’t sure what I needed to do. The thing is, neither did they! The fellow I dealt with had opened hundreds of mortgages, but he hadn’t actually closed one.
It took a couple of phone calls and the help of his supervisor to figure it out.
But they had all the forms ready for a line of credit.”
- Berniebee at VREAA 30 Dec 2012 12:11pm