Category Archives: 16. Missed The Boat?

“Rent for $2,200 a month or buy and have a mortgage of $4,310 per month. Why would anyone buy?”

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7541 Kerr Street, East Vancouver (Fraserview)
2518 sqft SFH on 45×110 lot

“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.
- vreaa

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

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

From Prices Soaring Towards The ‘Stratosphere’, To The Limits Of A ‘High-Water Mark’ – “Could these maps be a snapshot of the real estate market’s high-water mark?”

“For the last three years, Andy Yan, a researcher and urban planner with Bing Thom Architects, has been mapping the assessed values of single-family residences in the city of Vancouver.
You see his latest efforts here today. …
The question is, could these maps of Yan’s be a snapshot of the real estate market’s high-water mark?”

- from ‘Pete McMartin: The high-water mark of Vancouver real estate?’, Pete McMartin, Vancouver Sun, 2 Mar 2013

Perhaps of interest because this is the same Vancouver Sun columnist who just one year ago wrote:

“Vancouver, of course, will always be the centre of things in the Metro area. It has history and critical mass on its side. And by its very nature, it is going to attract people who want to come here and live in the city.
… the market will propel any kind of property here into the stratosphere.”

- from ‘Short commutes and easy access to an Ethiopian restaurant are not the natural order of things’, Peter McMartin, Vancouver Sun, 22 Mar 2012, as headlined at VREAA 23 Mar 2012

“For almost 20 years, I have had close friends who are realtors. In the past month, I have seen serious changes in behaviour indicative of desperation. Commissions are down 50%, and for those on the fringes, this is pretty much poverty.”

“I’ve been following this market for a long time. Also, for almost 20 years, I have had some close friends who are realtors (and did it in the years when real estate was just something that people needed to live in – – without all the BS hype).
In the past month, I have seen serious changes in behaviour indicative of desperation. There was also a quote that “Everyone in my office has had to take a second job to ensure steady cash flow.”
I don’t think we are here to gloat in the misery of others but with sales numbers like we have now, commissions are down 50% in the past 2 years and for those on the fringes, this is pretty much poverty.
. .
Quick tidbit – – Attached is showing listings declines with some areas even failing to have rising inventory. SFH however is very slow with the high end of the market completely stopped . . . .”
- yvr2zrh at VCI 25 Feb 2013 10:36pm

Realtor Stories – “A close friend of our family has been a Westside realtor for nearly 20 years. A few weeks ago, he suddenly asked if we knew anyone who might be interested in his $2 million listing. Never before has he done this.”

“A close friend of our family has been a Westside realtor for nearly 20 years. A few weeks ago, while talking about a completely unrelated matter, he suddenly asked if we knew anyone who might be interested in his $2 million listing. Never before in 20 years has he tried to drum up business from us. We know a total of zero people with a spare $2 million, so this was completely ridiculous and seemed rather telling.”
- Sheesh at VREAA 19 Feb 2013 11:16am

“A friend of mine 3 years ago quit a well paying full-time job to dabble in RE. When the slowdown started about a year ago, she was lucky to get her old job back.”
- Real Estate Tsunami at VREAA 19 Feb 2013 9:25am

“My land-lady who is a very good friend of [a Vancouver realtor] tells me that there are no buyers coming – she says market is very bad… very obvious to anyone who actually uses their brain… but quite an admission from someone who has been a part of this giant scam.”
- vancouverbubbleman at VREAA 14 Feb 2013 3:30pm

New High – “Inventory is now at the highest point it has been in the last 8 years for this time of year.”

RE Inventory Chart130221

“Inventory is now at the highest point it has been in the last 8 years for this time of year.”
- chart and observation care of b5baxter at vancouverpeak.com 21 Feb 2013, created with numbers from PaulB.

“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

Spot The Speculators #99 – ‘Canada Don’t Let Your Retirees Grow Up To Be Real Estate Cowboys’ – Alberta Couple Late 50′s; Net-worth $196K; RE Holdings $1,850K

“Alberta couple, Edward, 58, and Sue, 56, earn gross income of $247,200 per year from working in two great jobs — his in transportation management, hers in health care. Yet they are almost broke.
The problem is they are shelling out $47,514 per year just in interest charges on liabilities that amount to 6.7 times their annual pre-tax income. Their assets add up to $1.85-million, leaving them with a net worth of only $150,000 as the end of their careers comes into view.
The problem will get worse if not fixed, because they are not making a dent in the principal they owe. When interest rates rise, their debts will become ever more costly to carry. Unless they act, they will not be able to retire as planned. They may not even be able to avoid eventual insolvency. “Should we be selling off investments, some at a loss?” Edward asks. “We are working hard to keep our heads above water, but we feel that it is a losing battle. Our goal is to quit when I am 64. Question is: Can we do it with our heads above water?”
The numbers don’t look good: Their debt is about nine times their equity and their investment income is negative.”

- from ‘High-income couple has to deal with some real estate headaches’, Andrew Allentuck, Financial Post, 11 Feb 2013 [hat-tip kansai]

Breakdown of their assets and debt:

Assets (market value where applicable):
House: $950K
BC ‘income-generating’ property #1: $540K
BC ‘income-generating’ property #2: $240K
Arizona Condo: $120K
Total assets: $1.85M

Debt
House mortgage: $758K
BC property #1 mortgage: $446K
BC property #2 mortgage: $329K
Business Loan: $75K
CC Debt: $32.7K
Car loan: $13.2K
Total debt: $1.654M

Net-worth: $196K
RE holdings: $1,850K
Ratio of net-worth to RE: 1:9.4

By sensible estimates, one should hold no more than (90 minus your age)% of your net-worth in RE.
By that measure, this couple should have 33% or less of their net-worth in properties; the actual number for them is 944% (yes, not a typo – nine hundred and forty four percent).
If RE blinks, these guys are underwater. In fact, given the current market, they very likely are already underwater in that they’d probably have to drop prices by at least 10% to liquidate their holdings.
If prices drop by 30% or 40% or 50%, or even more, their retirement plans will be completely destroyed.
This is a more extreme example, but the fact remains that a very substantial percentage of Canadian ‘boomers’ are overdependent on the health of the RE market for their future financial health. And, like the couple in this example, they will likely be advised, or forced to the conclusion, that they have to lighten up their RE holdings.
- vreaa

Update – Westside Old Favourite Sells For Same Price As In Feb 2011

Here’s an update on a Westside SFH we’ve featured here before:

4411 W 11th; 4,696 sqft SFH; 63×121 lot (7,623 sqft; 0.175 acres)
(Old Timer; Backs onto alleyway behind 10th Avenue stores.)
Listed 9 Oct 2010 $2,980,000
Price change 6 Dec 2010 $2,890,000
Sold 15 Feb 2011 $2,830,000

Listed August 2012 with $3,180,000 ask price
Remained on market for rest of 2012, unsold

Relisted 24 Jan 2013 with $2,998,00 ask price
Sold 24 Jan 2013 $2,850,000

Anybody care to calculate carrying and transaction costs over the last 2 years?
We can’t verify this, but we are told that nobody has lived there over this period.
Will this property now be utilized as a residence, knocked down for a new build, or is it being purchased to sell again later at a hoped-for higher price?
- vreaa


This house was first featured at VREAA 6 Dec 2010 when we noted that, at an “Ask Price of $2,890,000″, “10% downpayment ($289K); 4% rate; 25yr amortization” would result in “Monthly mortgage payments: $13,681.79″
In a later post, 5 Jan 2010, we cited it as the kind of house that would sell for less than $1M in the coming trough.
This house was also featured representing our fair city in ‘Unashamed House Porn: Seattle Vs Vancouver’, VREAA, 11 Aug 2011.

No Bad Hair Jokes, Please – “A high-rise hotel and condo project on Vancouver’s West Georgia Street is being rebranded as the city’s first Trump tower.”

trump tower vancouver +
Sorry; impossible to resist…

“A high-rise hotel and condo project on Vancouver’s West Georgia Street is being rebranded as the city’s first Trump tower, CBC News has learned.
Developer Holborn Group is relaunching its Arthur Erickson inspired twisting tower under the Trump brand with condos priced around $1,600 a square foot.
When the project was originally launched before the global economic meltdown, the 60-storey tower, which will twist 45 degrees as it rises, was to feature a high-end Ritz-Carlton hotel on the lower floors.
Another 123 luxury condos were planned for the upper floors, priced between $2.5 million and $10 million, with the penthouse priced at $28 million.
But when the recession hit in 2008 the luxury market collapsed. The project was halted and early buyers were refunded their money.
The project was restarted in April 2012, with 290 condo units aimed at a lower price point, at the location on the 1100-block of West Georgia.”

- from ‘Trump Tower brand coming to Vancouver project’, CBC News, 15 Feb 2013 [hat-tip Nemesis]

trump tower in vancouverTop rated comments on the CBC site:

“When overdevelopment has hit the point where the likes of Trump are drawn to town to bless us with their “brand”, you know we’re heading into the trash bin. It used to be such a classy city.” – JimBev [547 thumbs up; 27 thumbs down]

“How embarrassing.” – Michael.Wolf [492 thumbs up; 18 thumbs down]

“So according to this article, we are told that the Toronto development was a smashing success (sub-heading “Toronto success moving west”, article says “Trump International Hotel and Tower has put its stamp on that city”) and there is no reason why it won’t be just as successful here in Vancouver.
Yet, in the December 26, 2012 issue of the Financial Post, an article appeared titled “Trump Tower woes signal Toronto’s condo market ‘on thin ice’.”
One investor feels he’s been ripped off and sold something that was misrepresented. “We bought into the Trump name and what we were being told was a hot real estate market in Toronto for this kind of project,” [the man] said in an interview. “It turns out that the hotel had nothing to do with him and that it isn’t a good investment after all.”
Things are clearly not what they seem and the CBC should correct THIS article immediately. A little Googling would have gone a long way, instead you chose to be lazy and, clearly, parrot what the developer is telling you. Shame.”
– Fox in a Hole [368 thumbs up; 8 thumbs down]

We’ll add the Trump Branding as another candidate for the Vancouver RE market’s ‘Jump The Shark’ moment. – vreaa

“A friend of mine was looking to move up but he was not able to find a buyer.”

“Just came back from a Chinese New Year vacation in Vancouver. From folks I talked to, Vancouver’s market has been falling quick. My cousin’s house near Boundary Road was assessed at 1.1x million last year. Last month he received a reassessment from the city and it is now valued at 850k. A friend of mine was looking to move up but he was not able to find a buyer. The seller of the house my friend was looking to buy also delisted his property because he couldn’t find a buyer.”
- Reader 66 at greaterfool.ca 16 Feb 2013 12:06am

“Many people believe that equity and house prices will be dragged down by Baby Boomers as they reduce purchases and sell holdings during their retirement years. But this forecast’s predictive power could disappoint.”

“Many people believe that equity and house prices will be dragged down by Baby Boomers as they reduce purchases and sell holdings during their retirement years. But this forecast is based on just one of the many factors that impact equity and house prices, so its predictive power could disappoint. Indeed, the track record of previous demographic-based predictions suggests such an outcome is likely. A great deal of scholarly research has established the significance of the other factors.”
- from ‘Don’t blame Boomers if housing goes bust’, Larry MacDonald, Globe and Mail, 25 Jan 2013

Retiring boomers will likely weigh heavily on Vancouver RE.
Wannabe retirees are overdependent on their RE holdings for their retirement.
- vreaa

In a related vein:

“Canada’s financial regulator has “serious concern” about the viability of a rising number of private pension plans, a sign that plans are struggling to meet obligations at a time of low interest rates and weak investment returns.The Office of the Superintendent of Financial Institutions supervises roughly 1,400 private pension plans covering more than 637,000 employees in federally regulated businesses such as banking, airlines and telecom. When pension plans give rise to “serious concern,” generally because of their financial condition, OSFI places them on a watch list to be actively monitored.”
- Regulator puts more private pension plans on watch list, Tara Perkins, The Globe and Mail, 7 Jan 2013.

“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?”

NTRcsdX

“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:

constructionsign2

constructionsign3

constructionsign4

“I like the footer below the CTV News clip predicting that the Vancouver bubble will remain intact. Doesn’t that mean they’re admitting we’re in one?”

CTV ran a newsclip entitled ‘Experts predict B.C. real estate bubble will remain intact’ [link here]. mac at vancouvercondo.info [31 Jan 2013 12:17am] posted a commentary, excerpts below:

“That CTV clip is hilarious.

First off, I like the footer below the video predicting that the Vancouver bubble will remain intact. Doesn’t that mean they’re admitting we’re in one?

Then there’s the 1-bed condo in what looks like Kits (West Broadway ish near Alma). Used to be asking 465K and now down to 439K. Uh huh. A friend sold a far more central 1-bed condo at Arbutus Walk about 18 months ago for 419K. So we’re still 20 big ones above the market–last year. But never mind. The agent “feels” a sale is imminent. Hot tip for the realtor: maybe get someone to remove the graffiti off the back of the building just under the gorgeous south-facing balcony.

But why has the realtors spidey senses been piqued? Maybe it’s because “phones are ringing, there’s optimism, and it feels like we’re back into selling real estate again”. AKA: Spring. Listings. Calls.

Then comes the Onni guys. The first one, glassy-eyed, stands in his empty showroom talking about a lot of activity in the sales centres resulting in a lot of people entering into contracts signing, signing, signing. Well? Where are they?

But don’t worry folks. Prices are expected to dip 1% province-wide (no mention of the already 40% decline in some areas of the province like the interior and Whistler) and only 2%-5% in metro Vancouver. Whew!

Don’t believe us? Let’s trot out a Chinese agent from, gosh golly, Onni again. And if you care to notice he’s standing in front of Central 1 –the home of Helmut Pastrick-, where there are absolutely no Onni projects currently going up. WTF is that guy doing being interviewed there anyway?

Any-who… this guy is the obvious expert on the foreign market because he can tell you the exact opposite of what Larry Yatowsky’s realtor survey showed us, that YVR is a destination for a lot of international buyers. That’s the only truthful but anachronistic statement in the whole piece.

Then the news guy, who never asked a question in the whole piece, summarizes that the experts agree that high prices in metro van are here to say. Thanks for the laugh News Guy!”

mac is correct to call CTV out on the internal contradiction of the title ‘Experts predict B.C. real estate bubble will remain intact’. To really say that a market is in a ‘bubble’ is to also predict that it will implode. Most market watchers don’t thoroughly understand the dynamics of a speculative mania.
- vreaa

“They transformed an old Greek couple’s house into a 3 suite main house and coach house. 8 months ago they came up for sale, at a little over $1M ask on each. Now, all 4 are for rent with the same RE company that was trying to sell them.”

“House near me where an old Greek couple lived sold over a year ago for a couple million to a developer. They transformed it into a 3 suite main house and coach house. About eight months ago they came up for sale, averaging a little over a million ask on each.
This weekend I was out for a walk and I saw that all four are now for rent with the same real-estate company that was trying to sell them before.
Yikes! I’m thinking that developer bet the farm on current market softness being only temporary.
Obviously even the professionals are delirious.”

- Anonymous at VCI 20 Jan 2013 10:13pm

What would each unit have to rent for to merit the $1M (each!) price tag?
What price would be realistic for each unit, given the likely rental income?
- vreaa

“Now they are waiting for spring “when sales will pick up” and they’ve already bought air-line tickets for June, so they “must sell”.

“Yesterday I met a neighbour who is an immigrant from my hometown. I know that their family was going to move back because her husband couldn’t find a job in the financial field and currently works as a tennis instructor. They had tickets for September, but couldn’t sell their townhouse since last spring and so they returned the tickets. They also relisted their home several times during last year, but gave up in November.
Now they are waiting for spring “when sales will pick up” and already bought tickets for June, so they “must sell”. I haven’t said a word. What could I say?”

- Aleksey at VCI 21 Jan 2013 11:03am

You could say: “Steadily drop your ask price until you hit a bid.”
That’d help.
- vreaa

Globe And Mail Features Kerrisdale Condo Sold For Same Price As In 2007

“2105 WEST 42 ND AVE., NO. 212, VANCOUVER
ASKING PRICE $458,800
SELLING PRICE $424,000
PREVIOUS SELLING PRICES $420,000 (2007); $206,738 (1995)”


“This two-bedroom suite was on the market at $524,800 for over a year. But once the price was lowered to $458,800 last fall, agent Keith Roy saw an opportunity to negotiate an even better deal for his homebuying clients, who had already seen 20 other properties in Vancouver and Burnaby.”

- from ‘Kerrisdale condo knocked down $100,000′, Globe and Mail, 21 Jan 2013 [hat-tip VMD at VCI]

“I was told that it costs the developer an average of $1,000 a month to keep each completed unsold unit in the development. Ouch!”

“A few anecdotes from today’s trip to Surrey:
-prices on brand new townhouses are (and I quote the sales personnel) “not set in stone. Not anymore” Also “there’s room to move there” as well as “the days of pre-sales are gone”. Offers are welcome – low ball offers are expected.
-I was told that it costs the developer an average of $1,000 a month to keep each completed unsold unit in the development. Ouch! So private sellers can supposedly just hold off and take their places off the market “for now” – developers… not so much.
-majority of units that I saw today are now priced ~5% below the original prices that were announced last fall. Plus, like I said “there’s room to move”

- vanpire at VCI January 19th, 2013 at 7:22 pm

“I was talking to a retired teacher today in Vancouver who owns a leaky condo. She says “You wait till spring arrives prices are going up”.

“I was talking to a retired female teacher today in Vancouver who owns a leaky condo. She says “you wait till spring arrives prices are going up”. She thinks Van will not see any further declines. I asked her where she gets her info from, she said, “experience”. It would seem she doesn’t realize we are in a different world than the one we experienced during the last boom and bust at least as far as I understand.”
- AprilNewwest at greaterfool.ca 20 Jan 2013 6:25pm

Flipping Into The Teeth Of The Storm

4464 W 7th

4464 West 7th Ave, Vancouver West-side (Point Grey)
2,094 sqft SFH; built 1978; 33×112 lot

Listed 22 Jun 2011, Ask Price $1,698,000
Sold 28 Jun 2011, Sale price $1,826,000

Listed 16 Jan 2013, Ask Price $2,190,000

Remember the heady days of 2011, where SFHs sold over-ask?
This flipper appears to have disregarded market signs and is fishing for a big catch.
They have listed at 20% above 2011 sales price, whereas most SFH sales are currently at 5% to 10% or more below 2011-2012 peak prices.
This’ll be one to watch.
- vreaa

“One agent is telling him to drop his price drastically to beat reduced prices in the Spring. The other agent is telling him that he has to keep his price above $1 mil to attract foreign buyers.”

“Just talked to a friend trying to decide which agent to use to sell his house in central Vancouver. One agent is telling him to drop his price drastically to beat reduced prices in the Spring. The other agent is telling him that he has to keep his price above $1 mil to attract foreign buyers. Still too many agents with the former pitch and too many people who want to believe it.”
- pathcontrolmonk at greaterfool.ca 17 Jan 2013 at 10:11 pm

“By the time they listed, buyers were no longer competing for the privilege of overpaying. She accepted the fact that her condo just wasn’t worth what she had hoped.”

“Last summer, having surveyed their local real estate market, and finding themselves spooked by deteriorating prices, Rheanna Mushet and her husband, Justin, decided to sell their Burnaby condo. “We wanted to cash out,” Mushet says, adding that they may end up living in her parents’ basement for a while as they wait out the downturn in the Vancouver market. “We’re going to make sure we get the most for our money. There’s no hurry.” She only regrets not acting sooner. By the time they listed, buyers were no longer competing for the privilege of overpaying. For six months, the Mushets waited for an offer and showed their condo to prospective buyers who seemed to be almost looking for a reason to pass. “They were very choosy,” she says. “‘It’s not on the right floor. The ceiling’s not high enough. There’s a stain on your carpet.’ Just the silliest things that before wouldn’t even be a consideration.” They finally agreed to sell for $22,000 below their original asking price to the first person to make an offer. She accepted the fact that her condo just wasn’t worth what she had hoped. Many other sellers are soon going to have to come to the same realization.”
- from ‘How low will house prices go? Prices are headed down for the long term.’, Tim Shufelt, Canadian Business, 17 Jan 2013 [hat-tip Cyril Tourneur, Anon and CanAmerican]

“The Richmond home had been for sale for about six months, and rather than lower the price any further, the couple decided to take the home off the market. They are in their late 60s and want to downsize to a condo.”

“Realtor Larry Biggar said one of his clients did just that in November. The Richmond home had been for sale for about six months, and rather than lower the price any further, the couple decided to take the home off the market. They are in their late 60s and want to downsize to a condo, Biggar said. He said everyone who went through the home liked it, but that they all seemed to be waiting to see what would happen with prices.
“We watched the market slow down, and slow down, and slow down. … It just got quieter and quieter,” said Biggar, who works with ReMax Westcoast.
“Finally they said enough is enough. We really don’t have to sell. We can stall our plans if need be, although that’s not our first choice.”
Biggar said the couple will be putting their home back on the market soon, and although they have not discussed the asking price, it will probably be the same price it was when they took if off the market.”

- Richmond News 9 Jan 2013, as quoted by Real Estate Tsunami on VREAA

See The Myth Of The Discretionary Seller for discussion of the syndrome of ‘Sellerpause’©. – vreaa

College Student Living With Parents In $7M “Piece Of Junk House” – “I have had to sit through countless dinners where my parents friends bragged about foreign investors leaving notes in their mailboxes making cash offers on their houses and how they could “cash out” at any time. But they didn’t.”

“I am a college student living at home in a house assessed at 7 million dollars. With that price tag you would expect a mansion right? Nope. The house is 90 years old, doesn’t have insulation or a proper heating system. My parents bought the house in 1985 for 450,000. Adjusting for inflation that is 860,000 in 2012 dollars. That is the most I would pay TODAY for this piece of junk house. However we do live in a quiet area in the UBC area and the property itself is quite large with a premium view, but even those factors do not begin to justify the difference between the assessed value and the inflation adjusted price my parents paid 28 years ago.
Luckily my parents were smart with their finances and a large correction in the market will not affect them. My parents have avoided using any paper gains in the property even when their coworkers and friends kept pestering them to take out loans against the house to buy condos and rental properties. These same coworkers and friends have been driving around in fancy leased cars and enjoying nice vacations every year while my parents worked hard to pay off the mortgage. I have had to sit through countless dinners where my parents friends bragged about foreign investors leaving notes in their mailboxes making cash offers on their houses and how they could “cash out” at any time. But they didn’t. Now that they do want to sell they are finding the market has cooled and no on wants to pay peak prices for their homes. Very few people are prepared to spend 15 million dollars on a home in a cooling market.”

- Robert Borden at VREAA 8 Jan 2012 3:43pm

Royal Bank, CIBC, BMO, CTV, REBGV, Michael Levy, Royal LePage, Global TV – “Housing Crash Fears Unwarranted”; “There is no property bubble. Period.”

vanc re keep calm

In contrast to the recent MacLean’s ’2013 Crash’ article, we now have a surging surfeit of reassuring commentary from other sources:

“Canada’s real estate market remains “relatively solid” and should experience a “soft landing” despite the current slowdown and fears of overbuilding in the condominium segment, the country’s leading bankers said Tuesday. …
“Our expectation is that the overall real estate market in Canada is still relatively solid,” Royal Bank CEO Gord Nixon said. …
“Pure math says that a soft landing, if it means you go back historic levels of activity, that we’re going to have some softness in our economy,” Gerry McCaughey of CIBC said.
“… That softness doesn’t necessarily come out in mortgage defaults, it comes out in employment softness and consequential unsecured consumer lending softness.” …
“In fact, house prices may just stagnate. Condominium prices may just stagnate for a couple of years. And that’s the definition of a soft landing,” Bank of Montreal CEO Bill Downe said.”

- from ‘Bankers expect soft landing for Canadian housing market despite slowdown’, Canadian Press care of CTV News, 8 Jan 2013 [hat-tip Dr. Bubble]

“I just watched ctv vancouver news. they did a 5 minute piece on real estate here. they interviewed two realtors and one guy from real estate board. they all said prices of sfh in vancouver were down 1 % for 2012 and say prices won’t fall more than 3% in 2013 as sellers don’t need to sell so they will just pull properties and wait…so buyers who are expecting big drops will not ever see that. the real estate board guy said there is nothing in the cards that is showing sellers will have to sell so prices will stay high. then the host of the news said, well, there you have it… no bubble popping here and went onto next story.”
- vancouverbubbleman at VREAA 8 Jan 2013 5:49pm

Michael Levy, financial analyst: “There is no property bubble. Period. We’ve had prices come up because of demand, both domestic and from off-shore, and demand swelled, and particularly here in Vancouver, a most desirable place to own property, you want to live here or invest here.” …
Announcer: “Prices seem to be holding, as the tug-of-war between buyers and sellers continues.”

- from ‘Experts Say No Real Estate Bubble In Vancouver’, Global TV News, 8 Jan 2013 [video archived by Greenhorn; hat-tip YVRhousinganalyst]
["There is no property bubble. Period." - this latter-day pronouncement added to "What Bubble?" sidebar]

“Royal LePage forecasts that the price of an average Canadian home will rise by a modest 1% in 2013.
Canadian home prices will see a “very modest” appreciation over the next two years, as economies in both the U.S. and Canada gradually improve and family incomes climb slowly, the brokerage said.
“More home buyers moved to the sidelines as 2012 progressed, as economic uncertainty abroad and reduced affordability became a drag on the market, however house prices proved resilient,” said Phil Soper, president and chief executive of Royal LePage.

- from ‘Housing-Crash Fears for 2013 Unwarranted, Forecasters Say’, WSJ, 8 Jan 2013

Update – West-side Houses Selling At 2008 Prices

4549 W 12th Ave, Vancouver West-side
2,569 sqft SFH on a 33×122 lot; built 1933

This particular house previously featured on these pages:
‘Half The Width, Twice The Price’ 25 Apr 2012
‘Next Stop, 2008 Prices’ 19 Nov 2012

Price history:

1:
March 1997: Sold $457,500

[renos in 1998]

2:
April 2008: For Sale at $1,679,000
May 2008: Price reduction $1,595,000
May 2008: Taken off market
June 2008: For Sale at $1,495,000
July 2008: Sold $1,430,000

3:
April 2012: For Sale at $1,975,000
Jun 2012: Price reduction $1,875,000
Taken off market
Aug 2012: For Sale at $1,775,000
Nov 2012: Price change $1,698,000

4:
21 Dec 2012: Sold $1,550,000

Increase of $120K (8.4%) over 4.5 years (since July 2008), for a compound annual rate of 1.8%, pretty much the rate of inflation, so this property did indeed end up selling for the same real price as in the summer of 2008. Of course, with transaction costs factored in, this represents a loss for the recent seller.
According to examples such as this one, west-side SFHs are back to 2008 prices, as much as 25% off 2011-2012 peak, and there does not appear to be any good reasons to suggest that they’re not going to continue to fall. At $1.55M, this property has still sold far above it’s fundamental value.
This is what speculative manias look like when they begin to unwind.
- vreaa

“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.

Local Realtor “Cautiously Optimistic”

mike stewart

“Now Andrew had a couple of questions about the Vancouver real estate market… In the media he’d been reading that the Vancouver real estate market had seen a significant drop in the last little while, and he wanted to know what the real situation was.” …
“We’ve seen a lot of changes in the economy in China, so there’s a lot less people coming over from China. We’ve also seen changes in mortgage rules which has also reduced a lot of demand for property here in Vancouver.” …
“What are my predictions for the next six months?.. Our major trading partners (US, China) have been having some issues but their economies seem to be turning the corner. So I’m cautiously optimistic. … In terms of changes to mortgage rules, they came in 3 to 4 months ago, we’re feeling the effect now, in the past after mortgage changes, you get about 3 to 6 months where things soften up, then things begin to pick up. So, you know, I’m cautiously optimistic.”

- excerpts from Mike Stewart, local realtor, self posted youtube video, 20 Nov 2012 [hat-tip Anon]

Whenever a speculative mania tops and begins its deflation, participants who don’t understand the fabric of bubbles, and who haven’t seen the mania for what it is, will search for extraneous factors to blame. Sure, some external factors may shape the path of the price descent, but the real cause for the resultant implosion is the fact of the mania.
- vreaa

Quotes from above added to the “It’s Only A Flesh Wound” sidebar post.

Macleans Cover – “Inside The Great Real Estate Crash Of 2013″

macleans 14 jan 2013
- cover of Macleans, 14 Jan 2013 [hat-tip Brian and posters at VCI].

Consider the effects of this boldly unambiguous image on sentiment, particularly that of local sellers. – vreaa


Excerpts from the article, ‘Crash and Burn’, Chris Sorensen, Macleans, 14 Jan 2013:

“A housing correction—or, possibly, a crash—is no longer coming. It’s here. And you don’t have to own a tiny $500,000 condo in downtown Toronto or a $1.3-million bungalow in Vancouver to get hurt. With few exceptions, the impact will be indiscriminate as the euphoria of rising house prices is replaced by fear. The only question now is how bad things will get. If the decline picks up speed, as many believe it will, there could be a nasty snowball effect. Construction jobs will be lost. Homeowners will end up underwater. Consumers may stop spending.”

“The sudden cooling in Canada’s housing sector seemingly struck without warning. As recently as last spring, bidding wars were common in many Canadian cities as were the “over asking!” stickers agents slapped on “for sale” signs.”

“Lederer recently sent secret shoppers to several condo sales presentation offices. They made some disturbing discoveries: sales staff who didn’t ask for mortgage pre-approvals and who grossly misrepresented the demographic trends—namely the number of expected new immigrants to Toronto—that are supposed to keep units in high demand. But Lederer says he is most disturbed by the sector’s “shoddy mathematics.” By his calculations, many condo owners who rent their properties are realizing returns of less than four per cent. If rental rates fall as more units come on the market—Lederer estimates there are at least 5,000 too many condo units being built in downtown Toronto—those same investors will soon be losing money, prompting them to sell. “Being a landlord is already a negative cash proposition at today’s prices,” he says, adding that a bust in the condo sector will likely have a “trickle up” effect by reducing demand for starter homes.”

“But a mere collapse in home sales—and prices—would be bad enough. Ben Rabidoux, an analyst at M Hanson Advisers, estimates that 1.3 million people, or seven per cent of Canadian workers, are employed in the construction industry, with housing being the main driver. He argued in a recent report that a U.S.-sized housing slowdown could result in the loss of 370,000 jobs and push the unemployment rate well over nine per cent, compared to 7.2 per cent now. And that doesn’t include job losses in related industries.”

“It all amounts to a dramatic reversal of fortune for Canadians, albeit one we brought on ourselves. Back in 2009, our hot housing market acted as a life preserver in a sea of economic uncertainty. Now it feels more like a cinder block tied around our necks.”

“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

Vancouver Sun Continues To March Out Bullish Reassurance – ‘Vancouver real estate buyers waiting for a price collapse in 2013 could be in for a long wait’

van sun 29 dec 2012 D11

While national media, international media, and various internet commentators are all warning of increasing signs of a Vancouver RE mania in the early stages of implosion, the Vancouver Sun continues to march out overly-optimistic arguments from the usual suspects. Above image of an article in the 29 Dec 2012 Vancouver Sun print edition (page D11) shows how visual prominence is given to the ‘Sold’ property (hardly representative!) and to the headshots of their chosen experts. Celebrity over substance?
Somerville argues that external disruptions are necessary for a local housing crash. This is incorrect. Speculative manias all collapse for the same essential reason: they run out of fuel. External shocks may speed along collapse, and will likely be argued to have ’caused’ a crash, but the real core reason for a crash is the underlying unsustainable architecture of the spec mania itself.
Muir believes that sales, now below average, should return to the mean, to their “long term-averages”. This is intriguing argument, as we’ve never seen him apply similar logic to prices, which would have to plummet by 50% or more to return to mean historic trend lines.
- vreaa

The Sun article has been discussed and dissected at Whispers from the Village on the Edge of the Rainforest: ‘You can almost smell the desperation – buyer’s once again told prices will not be coming down’, 30 Dec 2012.

‘It’s Too Expensive To Sell’ – “We’ve lived in the West-End for eight years, three years in the place we are in now, but it is so expensive to sell. I looked into it, realtor’s fees.. we’d like to move east but it costs so much to sell.”

“Two women, early 30s, decked out in fitness gear, fast walking. (Turns out they ended up walking into their workplace, a mountain equipment co-op office. This has little to play in the anecdote but sets the lifestyle scene up well.)
They are speaking about moving: “We’ve lived in the west end for eight years, three years in the place we are in now, but it is so expensive to sell your place. I looked into it, realtor’s fees.. we’d like to move east but it costs so much to sell your place.”
I believe it will be much cheaper than the equity lost over short term, no? I imagine falling prices will also keep these sellers off the market but how many people want to be getting out of the market? I seem to overhear RE discussion on the streets I walk more and more often.”

- anecdote from Aldus Huxtable, via e-mail to vreaa, 27 Dec 2012. Aldus also adds “I have been back in van for a few weeks after a few months away. Sentiments have changed.”

We agree with Aldus. The cost of the trade, while very substantial in RE markets, will pale into insignificance compared with the price drops. These ladies weren’t clearly discussing getting out of the market, though; rather, it seems, a lateral move.
It is possible that “it’s too expensive to sell” may become one of the stories that owners who ride the market down will be using to assuaging themselves.
- vreaa

Westside SFHs At 20%-Off Peak? – “Nobody is willing to pay what other buyers were willing to pay only 3 months ago. And the sellers are blinking first.”

6332 Laburnnum St. 33×125 lot
Assessed at $1.494M (Land only).
Original asking $1.59M.
Reduced to $1.49M.
Sold for $1.365M.

Recent comparables:
6320 Vine st. 33×125 sold for $1.626M in Jan/12
6331 Yew St. 33×125 sold for $1.393M in Jul/12
6225 Balsam St. 33×125 sold for $1.708M in Feb/12
6436 Vine St. 33×125 sold for $1.638M in Feb/12

“I bet they all wished they didn’t “Buy or be priced out forever”
They could have saved $300K by simply…. waiting.”

1706 W59th Ave.
Assessed at $1.697M.
Asking $1.79M.
Sold for $1.6M.
Purchased for $1.7M in August 2011.

“Wow – $100K drop (+PTT and commissions) in 16 months.”

3721 W16th Ave.
Assessed north of $1.2M
Asking $1.288M.
Sold for $1.030M.

Similar sales include:
4583 W16th – Asking $1.098M. Sold for $1.18M in Jan/11.
4067 W16th – Asking $1.198M. Sold for $1.185M in Feb/11.
4591 W16th – Asking $1.249M. Sold for $1.260M in Sep/11.

“All those purchasers must be kicking themselves. They could have saved up for another year and bought for $200K less.”

650 W22nd in Cambie. New construction.
Ask price $2.488M.
Sold for $2.120M.
They paid $1.47M for the land (nearly $100K over asking) and now are hoping to get out with a small loss.

Similar sales in the past year:
905 W20th, 33×122 sold for $2.49M (no mention of HST – assuming HST included then $2.223M) in Aug/12.
856 W19th, 33×122 sold for $2.29M (1 year old home) Sept/12.

“Even since the fall, prices are dropping rapidly – $100K in 3 months or, wait for it, $1,000 a day. Nobody is willing to pay what other buyers were willing to pay only 3 months ago. And the sellers are blinking first.”

- all above stats and comments by ‘timber2012′, in a series of posts at RE Talks, 19 to 28 Dec 2012

We’d recently heard of a small developer saying that houses on the Westside are “down 20%”. This seemed a bit high to us, but the sales documented above appear to bear that out. Some SFHs on the westside appear to be selling for 15%-20% off the peak already.
And, seriously, this bubble hasn’t really begun to deflate yet.
- vreaa

Spot The Speculators #94 – They’ve lowered their price to $950K already, but they’re “not going to lower it any more because they want to retire, and they really believe that’s what it’s worth because they built it themselves, and it’s one of a kind, yadda, yadda, yadda.”

“Talking to a colleague at the office this morning over coffee. Her relative is trying to sell their $950K house and acreage on the Sunshine Coast in BC, just a 45 minute ferry ride north of Vancouver. It was built it in 2000…..but they inherited the land for 10 years before that. So, a 50/50 “freebee” from a monetary perspective, but that’s only “IF” they didn’t take all of their equity out, that is……and we don’t know that they didn’t do this already.
I casually asked how long it had been listed, and I got the reply “since late 2008″. ROFL !!
Then I get told they’ve lowered their price already, but they’re “not going to do it any more because they want to retire, and they really believe that is what it is worth because they built it themselves, and it’s one of a kind, yadda, yadda, yadda”. So I go and search the town on realtor.ca and it looks like a really bad case of the measles have hit the Sunshine Coast. Not only is there literally a hundred red dots, but most of them have numbers like 12, 25, 43, 33, 17, 5, etc, overlaid on them, indicating multiple listings contained within that dot.”

- Carioca Canuck at VREAA 28 Dec 2012 8:18am who added “Here’s another anecdote from the “willing to sit until I get my price crowd”.

We’re making the point here that any owners who have decided to sell, but then don’t steadily drop their ask price until they hit a bid, are delaying selling on the premise of future market strength.
This is also an example of long-term owners who have, it appears, become dependent on the presumed value of their RE for their future retirement security. We fear that there are many in their position who will have their plans hobbled in the downturn.
- vreaa

“Neighbour has had place on westside listed forever. Had been holding firm on her price. Then decided to take off market. Then accepted offer 10% below ask. Then offer fell through. Now delisted awaiting the spring.”

“Neighbour has had place on westside listed forever…at least 8-9 months. Had been holding firm on her price. About a month ago she told me she was taking it off the market and waiting for spring “when things would rebound”. Ran into her about a week after that conversation and she said she had decided to take a lower offer after all and had sold it because her friends had told her to take the money and run. (Incidently the lower bid was still very reasonable in my opinion and a mere 10% off ask). Anyhoooo, that bid fell through due to financing problems (surprise). So she left it on market until a few days ago when she finally DELISTED it. So I guess she is back to hoping for the spring-time action.
Poor realtor was doing open houses for the entire day both days of the weekend for months and months. It must have been his only listing.”

- Girlbear at VCI 25 Dec 2012 9:30pm

Imagine the sentiment now. If they relist in the spring and comparable properties are selling for 15% or more below last year’s ask, how will they respond?
- vreaa

“Priced To Sell” At $4 Million

5575 Elm
5575 Elm, from the backyard

5575 Elm Street, Westside Vancouver
5,101 sqft SFH, built 2006, 50×162 lot
Listed 9 July 2012 $4,880,000
Price reduction 27 July 2012 $4,530,000
Price reduction 19 Dec 2012 $3,990,000
Blurb extract: “Priced to sell.”

Only in Vancouver would a house like this be called ‘priced to sell’ at $4M.
Even at about 20% off original ask it’s sorely overpriced; houses like this will likely sell for well below $2 Million in the trough, and still be pricey in global terms.
- vreaa

UPDATE (with info from Canadian Watchdog and by Whisperer):

5575 Elm Street, Vancouver

2003 May: Sold $680K

2006: Rebuilt

2007: Sold $2,980,000

2010 May: Sold $3,079,000

2012 assessed value $3,545,000
2012 July: Listed $4,880,000
2012 July: Price reduction $4,530,000
2012 Dec: Price reduction $3,990,000

BC Realtors Predict ‘Unsexy’ Market – “Over the next year or so we expect price changes to hover around zero”; “Price increases of the last decade are long gone”

Announcer: “There hasn’t been a crash, thankfully, but Ottawa, and the Bank of Canada, are desperate to raise interest rates once the economy improves. Economists are expecting rates to start inching upwards by late 2014, meaning that the price increases of the last decade are long gone.”

Cameron Muir, BC Real Estate Association economist: “We expect the market in Vancouver is going to be unsexy over the next year or so… uh, uh, long term trend sales activity… prices… probably pretty flat, we expect prices to stay.. hover around zero… percent or two on [inaudible] side.. depending on what community or neighbourhood you’re in.”

- from Global News 19th or 20th Dec 2012 [video archived by GreenhornRET; hat-tip El Ninja]

Next year will likely see the first very clear declaration of substantial price weakness in Vancouver RE.
Yes, we’ve already seen some price drops, but the numbers are not very remarkable (1%, 4%, 7%), and have been easily hidden in reporting. They certainly haven’t yet pervaded group consciousness.
Realtor association predictions tend to (1) extrapolate recent activity and (2) err on the side of optimism. These calls for a flat market are precisely that, and we are close to certain that they will be proven wrong.
It is noteworthy that even Global sees enough evidence to state plainly “the price increases of the last decade are long gone”.


I’d submit that the use of the word ‘unsexy’ is likely an unconscious attempt at delivering a sobering idea in a playful fashion, in the hope that it makes it somehow more palatable.

As an aside, consider these reports from the perspective of our recently discussed (mythical) ‘Discretionary Seller’. If you had already decided that you’d like to sell, and either had your property on the market, or had taken it off awaiting a strong spring, how would you feel about these predictions? What would you tend to want to now do? Those who reply: “Put another log on the fire and wait for a strong market (in 2014? 2015?)”, back of the class.

- vreaa

Bids All Insultingly Low So Taken Off Market – “We will just wait until the spring when the markets come back and we will get a higher price.”

“True story. Ran into neighbour. She just took her place off the market. It has been constant open houses. She told me the bids were all coming in too low. She was very insulted that people would bid so low. So she took it off the market because she “will just wait until the spring when the markets come back and she will get a higher price”. I didn’t say a word.”
- Girlbear at VCI December 5th, 2012 12:27 pm

Point Grey For Less Than $1 Million

4148 w 10th
4148 10th Ave, Vancouver Westside
Small 1929 SFH on 33×122 lot
Listed 14 Dec 2012, V982817
Ask Price $998K

Busy street, yes; lot value only, yes; still very overvalued, yes.
But a landmark on the way down, nonetheless.
Properties like this will likely sell for about $400K-$450K in the trough.
- vreaa

It’s Different Here, Really It Is – “The rich are not the same as most people, otherwise Vancouver’s prices would never have risen so far above average household incomes in the first place.”

“The free-falling Vancouver housing market shows no signs of reversing its slide with the latest figures showing November sales 30.3% below the 10-year average for the month.
The Real Estate Board of Greater Vancouver now says consumers have begun pulling their homes off the market rather than settle for a lower prices in what is still the country’s most expensive market to buy a home.
Since reaching a peak of $625,000, the board’s MLS Home Price Index for all residential properties in the city is off 4.5% to an average of $596,900. Prices are off 1.7% from a year ago.
“Home sellers appear more inclined to remove their properties from the market today rather than lower prices to sell their properties. On the other hand, buyers appear to be expecting prices to moderate,” said Eugen Klein, president of the board.”

- from ‘Vancouver homeowners pulling properties off the market rather than settle for lower prices’, Garry Marr, 4 Dec 2012

“Given that Vancouver’s RBC housing affordability ratio has been about 92% of household income for awhile now, that must tell you that most homes here are bought by people with wealth. They can afford to hang on and wait for better market conditions, so it makes sense that listings are getting pulled. Conventional house price economic responses are more applicable to cities like Calgary and Edmonton that will react to changes in their (oil based) economy than they are to Vancouver. The rich are not the same as most people, otherwise Vancouver’s prices would never have risen so far above average household incomes in the first place.”
- ThinkRight commenting at Financial Post 4 Dec 2012
[hat-tip to JS who adds "I love the logical deduction that because the affordability ratio has been so poor, it obviously means that homes are bought by people with wealth."]

Agreed, JS, you’ve got to love some of the bizarre justifications for current circumstances.
From the school of handwaving logic. Also, tautological.
“Prices are high for good reason (trust me on that) therefore they will stay high.”
And the bit about “the rich are different from most people”? (gack!!)
Regarding the article, and sellers pulling their wares in disgust.. they still do think it’s different here, but will discover it’s pretty much the same as everywhere else.
Sales are down; Prices will follow.
- vreaa

Vancouver RE Average Price Chart Nov 2012

rebgv nov 12
- from REBGV, 4 Dec 2012

Headlined here for the record. Average prices are not the best way of following the market; averages (means) are easily skewed by outliers (especially in illiquid markets). The best measure are indices based on time1 to time2 same-property sales, like Case-Shiller and Teranet. Regardless, the average chart is published each month, and we continue to keep an eye on it. It’ll certainly be headline-worthy when detached average drops through $1M, and regular readers are aware we’re expecting later support (a bounce) at 2009 lows. For an older but still relevant chart discussion, see ‘Five Charts’ [VREAA 2010] – vreaa

Sticky Seller Ignores Bird In Hand – “He bought new in spring 2009. He is very frustrated that he can’t get a sale, but does not think that the problem is price! He thinks he just hasn’t found the right buyer yet.”

“Colleague at work bought a new 2BR 1200 sq ft townhouse in North Delta (Van suburb) for $330K. Now has 2 kids under 3 and has decided said townhouse is too small for his growing family; they want to rent for a couple of years and then “vultch” a house after prices have come off current peaks. Back in March this year he listed his place at $399K. On the market for a couple of months, only one serious offer, I believe $379K or so, they turned down that “insulting lowball offer”. Pulled the listing to try again later in the year.

Re-listed after Labour Day — this time at $409K. I know, why do they list (doesn’t sell), pull, then re-list later at a higher price?! Well, here is his and his realtor’s reasoning: felt in part that the place didn’t sell/attract offers last time for what it was “worth” because they had low-balled on price and therefore were attracting the “wrong perspective buyer” and were cheating themselves out of a deal at what the place was really “worth”. This is how these people think! And my colleague has a math and accouting background, totally understands numbers……

The townhouse is still on the market today — price drops to $405K, $399K, and currently $389K have not attracted any offers. Some young-ish couples have I gather expressed an interest in the high $370s (the price they poo-poo’d in March!), but in all cases (3-4 times I think), the parents of those folks, who are apparently ponying up the downpayment money, have said they think the price is too high for the location — specifically, within a block or so of a major arterial highway (which one might think would be a selling point given the traffic in the Van area – my colleague’s place does not actually hear traffic apparently).

There are so many units listed, buyers do really have a lot more time and options to shop around. I did try to talk to my colleague (he asked for my view as he knows I follow the RE market, even though I am a renter!) about getting ahead of the price reduction curve, to avoid chasing the price down, languishing on the market and STILL not getting a deal…. when it didn’t get any sniffs back at $409K, I said, given what he had told me about last March’s experience — drop the price to $379K, you want to sell, something “drastic” like that could precipitate an offer, multiple offers maybe and perhaps a price in the low $380s? He does have significant equity in the place about a third, depending on what the place actually is “worth”, so he is not at risk of being underwater….needless to say, he did the slow water torture price changes instead…..

I think he will be lucky to sell in the $360s…. and if this goes on until the spring, which it looks like it will if he is still listed, he will be looking at something in the $350s or even lower….which with breaking the term on his mortgage and paying the commission and transactions costs will leave him at net proceeds likely below what he got in at…he bought new in spring 2009…he is very frustrated that he can’t get a sale, but does not think that the problem is price! He thinks he just hasn’t found the right buyer yet…..”

- renters rule at greaterfool.ca 2 Dec 2012 8:36pm

“At a BBQ at the inlaws’ place back in May, they and all their suburban friends were patting each other on the back about how awesome it was to own property that kept going up and up and up.”

“I just recently found out my inlaws are planning on selling their house in Surrey. In April, a near-identical place across the street sold for $520K. Another near-identical (neighborhood/cul-de-sac built by the same builder in the 70s) went on the market late June (just before OSFI and Flaherty brought in the new mortgage rules), sold last month for $450K.
Back in May, was at a family BBQ at inlaws’ place, they and all their suburban friends were patting each other on the back about how awesome it was to own property that kept going up and up and up. I said (because I’d had a few drinks, won’t do this again…) “Yeah, money’s never been cheaper in Canadian history and real estate’s never been more expensive but yet people still think real estate is still going up.”
It was like I’d said “pull my finger” then farted like a trombone solo. Dead silence, imagine a pin dropping in slow motion.
I’ve been half-assed trying to tell my wife’s parents that they should think about cashing out, y’know, on the house they bought in 1979 for $25K, since at least 2010. Oh, god forbid that anyone who isn’t a homeowner AND is under 40 could possibly know anything about financial planning.
Let me just say it’s gonna take a lot of willpower to not say “I told you so” as their house languishes on the market through to 2014 because “It’s worth more than $450K”, but hey, keeping my mouth shut is cheaper than a divorce lawyer. :->”

- EinsatzgruppenVancouver at VREAA 2 Dec 2012 12:32am

The loneliness of the RE bear.
Wrong and ignored on the way up; vilified and ignored on the way down.
Only masochists need apply; and only those who value truth over social ease.
BTW, that property has already dropped more than 13% in market value.
- vreaa

“The 57-year-old bungalow that sat upon that land was simply a minor nuisance to the developer who replaced it with a huge and rather ugly Vancouver special which is currently for sale at an insanely higher price.”

“I sold my “land” for a stupidly high price in 2010. The 57-year-old bungalow that sat upon that land was simply a minor nuisance to the developer who replaced it with a huge and rather ugly Vancouver special which is currently for sale at an insanely higher price. That’s just how things are done around here.”
- Mister Obvious at greater fool.ca 30 Nov 2012 1:44pm

Realtor Chat – “There is little actionable support out there. A best guess low may be early 2014. … Sadly, we don’t live in a perfect world.”

“There is little actionable support out there. The sense we Realtor types get from our coffee sessions is that everybody is waiting and digesting the mortgage rule changes. The scary part is nobody will really know when the bottom hits. By the time we get there and figure it out it will have passed.
The Vancouver real estate market is a box of chocolates. A best guess low may be early 2014. A better wish to come true would be a steady flat market for 5 to 10 years. Those markets are good for everybody. The reality is that some politician will screw the whole thing up and we’ll all wish we bought something “back then”.”

- Larry Yatkowsky, local realtor, at his blog yattermatters.com, 1 Dec 2012 8:07pm

And sounding like testimony before a Senate committee:
“I readily acknowledge that I and my fellow Realtors are called a lot of things and yes we are known to say a lot of things that in many instances are on the edge of truth. By the same token, buyers and sellers tell us a lot of things that approach the same edge. It is neither right nor is it perfect. Each circumstance, individual and piece of information needs to be weighed, judged and acted upon its own merit. … Humans are prone to do what ever they feel is morally acceptable to them as a group or individually to get the upper hand over the other guy. In a perfect world equity for all would prevail. Sadly, we don’t live in one.”
- Larry Y, 2 Dec 2012 5:41pm, same thread as above

“I still have kids living in BC who refuse to believe that this is anything more than a hiccup in the Canadian market.”

“My family sold my mother’s old Vancouver West house in November 2011… a year ago. Thank god all three of us siblings agreed to sell at that time.
I still have kids living in BC who refuse to believe that this is anything more than a hiccup in the Canadian market! (I live in the US)”

- JimH at greaterfool.ca 30 Nov 2012 8:48pm

Overheard At Ben Rabidoux’s Presentation On Canadian Housing – “He asked “When do you think the crash will occur?” Ben, of course, said “Right now, sell now.” Shockingly, the guy next to me said “Hey man, that’s my landlord in Yaletown, he’s got 5 properties down there. I can’t believe it. He’s so screwed.”

As had previously been announced here, Ben Rabidoux gave a presentation on Canadian Housing in Vancouver 28 Nov 2012, and it was very well received by the audience of 650. We hope that Ben posts some form of the talk at his site. At VCI, people are relaying summaries of the talk, and sharing their experience of the evening. There were also some interesting anecdotal observations:

“Looking carefully, you also see a lot of “shooters” from the downtown finance scene. I was one row away from one of my friends on the “street” who went there independently, as did I. A few rows ahead was a guy who runs one of the largest investment funds in Vancouver. My read, the leaders in the big money crowd are starting to take the bubble talk seriously.” – HAM Solo

“Going into the seminar, I thought Ben would provide a more soft-moderate outlook to the bubble resolution, probably in line with bank analysts/economists, but he’s all-out hardcore bear armed with numbers, graphs, and a complete frank discussion about what’s out there and what will happen. He explains some stuff we discussed a million time here as well as some new stuff that we haven’t thought about before that will affect the market going forward. I was about 60:40 on soft landing vs crash before and now I’m leaning 90% towards crash.” – RaggedyRenter

“Lots of insider interest; one fellow introduced himself to David LePoidevin after the talk as a local construction insider looking to hedge downside risk by investing in a short-on-RE vehicle David offers.” … “Long story short, Ben is probably responsible for another dozen Boomer mansions hitting the market in January, priced to get out before Armageddon.” – Many Franks

“The people behind me kept asking each other questions about what CMHC was and it was clear neither of them had any clue.” – BLISTERINGAGENT

“The couple behind me decided that it might be a good time to sell their Shuswap Lake property.” – Bailing in BC

“The highlight for me was during the Q&A when a guy got the microphone, he was all dressed in a white pimp suit and asked “When do you think the crash will occur?”, Ben of course said “Right now, sell now.” Shockingly, the guy next to me who looked white said “Hey man, that’s my landlord in Yaletown, he’s got 5 properties down there, I can’t believe it, he’s so screwed.” It was awesome.” – Ray


UPDATE:

Presentation now up on youtube:
‘Canadian Real Estate: What happens next?’, Ben Rabidoux, Vancouver, 28 Nov 2012

“If I had bought when I was 20, I would likely be mortgage free right now. In 10 years, I’ll likely be glad I bought in 2011, as opposed to waiting an additional 5 years.”

“The sooner you buy, the sooner you’ll be mortgage free, and then the sooner you can retire/diversify your time with minimal monthly fixed costs. If I had bought when I was 20, I would likely be mortgage free right now. In 10 years, I’ll likely be glad I bought when I did (last year [2011]), as opposed to waiting an additional 5 years.”
- gobigorgohome at RETalks 27 Nov 2012 12:54pm

Appropriate handle.
Timing can be a bitchallenging.*

People who bought near the top in 1981-1982 waited 25 years (yes, twenty-five, not a typo) to break-even in real dollar terms.
- vreaa

[* see what he did there? if only you were all as polite. -ed.]

Larry Summers at Sauder – “The housing price graph here is every bit as bad as it was in the US. It looks like the same graph shifted four years over.”

“Larry Summers (former President of Harvard and former U.S. Treasury Secretary) was in town this week. He gave a brief talk to the UBC Sauder community (on Monday 19 Nov 2012)– it was largely directed towards the many undergrads in attendance about significant global economic trends. He did make an aside though about the Canadian housing market.
He noted that the growth in the U.S. economy since 2008 only accounted for population growth and productivity growth. He then remarked that Canada was doing better. Initially he said that this was because Canadian financial institutions fared better than their US counterparts due to the Canadian system of regulation. But he then immediately noted (and this is a rough quote): “I hasten to add yet — the housing price graph here is every bit as bad as it was in the US — it looks like the same graph shifted four years over.”
- this submitted by ‘Sauder Prof’, a Sauder professor, via e-mail to vreaa 23 Nov 2012. Sauder Prof adds “I have very bearish views regarding the Vancouver housing market. … I thought I would let people know that the range of views that get discussed and taught at Sauder is broader than someone outside the institution might think.”

Many thanks to ‘Sauder Prof’, both for the Summers’ quote and for the information about Sauder. We know there are some at Sauder that see what we see regarding the RE market. It’s a pity that the RE experts there didn’t see fit to warn the populace of the risks involved. Too late for that now, though. – vreaa