Category Archives: 18. Spot The Speculator

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

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

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

Misallocation of resources.
Speculation.
– vreaa

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

Spot The Speculators #98 – “Robert has been tapping his savings for years to support his biggest investment, a rental property that bleeds more than $1,000 a month over the rents it produces.”

“Registered retirement savings plans are the lifejackets for the retirement of a British Columbia couple we’ll call Robert and Jill. At 55, he is a maintenance supervisor for a small town. Jill, 48, is a self-employed management consultant.
“We need to get more money for our retirement and we have to make up for the savings that Robert lost through bad investments,” Jill says.
“We have to rebuild our investments, specifically our RRSPs, if we are going to be able to retire comfortably.”
Their RRSPs have a balance of $355,000 heavily allocated to growth stocks and mutual funds.”

“Robert and Jill have been short of cash and have abandoned RRSP contributions in the wake of a divorce that cost Robert $100,000 on top of a six-figure loss on a business.”

“Unfortunately, Robert has been tapping his savings for years to support his biggest investment, a rental property that bleeds more than $1,000 a month over the rents it produces.
If the property were sold for its $650,000 estimated value, it would leave $200,000 after paying off the $414,366 selling costs. That would pay off $30,000 in other debts and leave $170,000 to put in RRSPs. In 10 years at retirement, that would have grown to as much as $290,500 and could then add $16,000 a year to retirement income.”


Assets:
Residence $550K
Rental property $650K
RRSPs $356K
cash $10K
3 cars $35K

Liabilities:
Mortgages $414K
LOC + CC $30K

Networth:
$1.12M

- from ‘Family Finance: RRSPs to the rescue’, Andrew Allentuck, 6 Feb 2013 [hat-tip space889]

Clearly only hanging onto rental property for presumed future price gains. Ergo, speculators.
Percentage of net-worth in RE: 100%
Percentage of net-worth that should be in RE at age 55: 35% or less
Percentage of BC boomers in similar position: [your guess here]%
Implied price downside when couples like this started selling: [your guess here]%

- vreaa

Spot The Speculators #97 – “We are moving to Burnaby in March, so we decided to keep our house in North Vancouver and put it up for rent.”

craigslist

“We are moving to Burnaby on March, so we decided to keep our place and give it [for] rent, it has never been rented before, very well cared and Very nice designed two levels, 3_Bed, 2_Bath, 1 seperate entry Den, located in one of the nice and quite neighborhood.
You have the option to choose(Furnished: $2700 or unfurnished: $2500).”
craigslist ad, 21 Jan 2013 [hat-tip Guy Smiley on VCI]

The ‘speculator’ classification is based largely on the assumption that they have purchased in Burnaby.
– vreaa

Spot The Speculator #96 – “In 2008, when I was 28 years old, I had saved $70,000, enough for a 20% down payment on a triplex in Toronto. I moved into one unit and the rent from the other two units paid for the mortgage and utilities.”

“I’ve always been very focused in my life. I was born a triplet and knew from an early age my parents wouldn’t be able to pay for many extras, or for postsecondary education for all of us. But I was determined to go to university and to buy a home of my own. So in high school I started working as a waitress for 20 hours a week. During the summers I took as many shifts as possible, often working seven days straight. I was a workaholic and should have cut back because my grades were suffering, but I persevered.”

“I earned enough to pay for tuition by living at home with my parents and commuting to York University. It wasn’t easy. I didn’t have a car so I used buses to make the two-hour journey to York and back each day. At one point I considered buying a car but was shocked when my dad showed me how expensive it was. I kept commuting every day for four years. Believe me, it was really depressing. I would get home every night and it was cold and dark, and I was tired. But I knew I was saving for my big goal of owning an investment property, which kept me going.”

“After graduating with an English degree in 2006, I had no student debt and $20,000 in savings from my waitressing job. Then I got a lucky break-I landed a job as an administrative assistant, paying $32,000 a year in downtown Toronto. In 2008, when I was 28 years old, I had saved $70,000, enough for a 20% down payment on a triplex in Little Italy. I moved into one unit and the rent from the other two units paid for the mortgage and utilities. Last year, I got married and my husband moved into the apartment with me. I’ve never doubted the triplex was one of the best financial decisions I’ve ever made.”

“The key for me was tracking my spending in a journal to see exactly where every penny was going so I knew where I could cut back and add to my savings. Most years I saved 70% of my earned income, which I used to pay for university and for the down payment on the triplex. By living at home a little longer than most people I was able to really beef up my down payment. That’s made me truly independent a lot more quickly than many of my friends who are still mired in debt.”

“Now my goal is to pay off the mortgage on the property as quickly as possible. I’ve done some renos over the years and I’m putting $500 a month extra on my mortgage to pay it off faster. The triplex’s value has also gone up. I bought it for $350,000 and it’s worth $450,000 today.”

- Angie Oliveira, 32, Toronto, as featured in ‘How to become a landlord’, Julie Cazzin, MoneySense 16 Jan 2013 [hat-tip proteus, who sent this link by e-mail and added "Saving 20k waitressing is a heroic accomplishment."]

Angie has an admirably proactive savings habit. Because of this ability, she will quite likely do fine in the long run, but we suspect this will end up occurring despite her RE investment, not because of it.
Yes, she is describing a ‘cash-flow positive’ property (something unavailable in our city in 2008), but we’d like to see more of the math before being sure about that. Also, there is downside risk of increased mortgage rates, downward pressure on rents (TO condo glut), and unexpected expenses.
She bought a few years prior to the peak of a multigenerational bubble in real estate. If property prices drop 33% from the peak, she’ll likely still be able to maintain her ownership, but she will, on paper, have lost her profits and her downpayment. This is something we’d imagine would be particularly painful for her, given the hard work it has taken for her to accumulate her savings gains.
In that regard, it is interesting to note that it took her many years of extreme saving to accumulate $70K, but her RE purchase then rose in value by $100K from 2008 to 2012. In fact, she ‘made’ more on paper in RE than she did in entire income those 4 years, when taxation is taken into account. This is a good example of how RE price rises through the speculative mania have perverted the way in which people consider the relative value of real estate, money, work and saving; and how homes have become financial instruments as much as places of shelter.
– vreaa

Spot The Speculators #95 – “Each had a house with a mortgage. Then they bought a new residence and used a line of credit to add a rental apartment to the new house. Their $1.5-million of debt is 12 times their gross employment income.”

“A couple we’ll call Tiff (49) and Sandy (45) turned their long-time friendship into a union when they bought a house in British Columbia and combined their fortunes in 2008. The relationship came with a lot of baggage, however. Each had a house with a mortgage. Then they bought a new residence and used a line of credit to add a rental apartment to the new house. Their $1.5-million of debt is 12 times their gross employment income.
Revenue from the income properties barely covers their total costs — mortgage and line-of-credit interest, taxes, utilities, insurance and maintenance. Add in falling prices in the sliding B.C. housing market and the couple is subsidizing losing investments.
They save only $100 a month for RRSPs and $25 a month in an RESP for a Sandy’s nine-year old child from a former marriage. At mid-life, the couple, each of whom works for a large publishing company, has just $31,000 of RRSPs and almost no cash.”

They started with 25% conventional down payments, but now find themselves with about 10% equity in the rental units as a result of falling property prices and debt-financed buyouts of former partners. Their return after paying all interest costs, utilities, insurance and taxes is negligible. Unless they can raise rents drastically or realize future capital gains, the investments are flops.

A financial crisis triggered, perhaps, by unemployment, illness or accident would require them to add debt, for they have just $2,000 in cash. If interest rates rise by 1% or 2%, they would be forced to refinance, but they already have 30-year amortizations. To pay more interest, they would have to face deregistration of some or all of their $31,000 of RRSPs, heavy taxes on payouts or, in the worst case, bankruptcy.

Family Finance asked Adrian Mastracci, a portfolio manager and financial planner at KCM Wealth Management Inc. in Vancouver, to work with the couple. He is candid in describing the issues.
“The couple’s problems are far too much debt, especially for properties that are poor investments, and an excessive concentration in real estate, for each unit is within just blocks of the others,” he says.

Real estate has produced substantial gains for homeowners in parts of B.C., but the boom is waning. When interest rates rise, prices could fall further, for most people buy what they can afford and, with higher borrowing costs, they will afford less.

– from ‘Bad real estate investments leave couple with $1.5-million in debt’, Andrew Allentuck, Financial Post, 11 Jan 2013 [hat-tip JoeQ]

Summary of finances for this couple:
Assets $2M [$1.862M in RE at current market prices; $137K other]
Debt $1.542M [3 mortgages, 1 LOC, CCs, Car loan]
Net worth $456K [Assets minus Debt]
Ratio of RE holdings to Net worth: 4.1 to 1
Put another way, more than 400% of their net worth is in RE.
(I find this figure as shocking as the debt to income ratio of 12)
If/when the market price of their RE holdings drop 25% they would be wiped out.

What, me, a speculator?
Just innocent locals doing what innocent locals do, right? Building wealth with RE.
How many more out there are in similar situations?
– 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

“I took a big gamble and bought a house in the Oakridge area a few years ago for around 700K, on limited income. I sold it last year because I knew I got lucky and didn’t want to push my luck.”

“I took a big gamble when we bought a house in the Oakridge area a few years ago for around 700K on limited income and sold it last year because I knew I got lucky and didn’t want to push my luck. Now we’re renting a condo in Vancouver.”
Dashgall at VREAA 14 Dec 2012 10:45am

This is an example of speculative behaviour being bailed out by luck. Despite that, ‘Dashgall’ does deserve some respect, not for the initial bet (which was, indeed, a rash gamble), but (1) for having the insight to sell rather than “push (his/her) luck”, and (2) [special points for this one] for being able to admit that the profit was the result of luck, rather than attributing it to one’s own new-found investment genius (the commoner explanation used in this scenario).
Only a very small percentage of market participants will end up having sold in even the vague vicinity of the top. The majority will remain invested in the RE market one way or another, and ride their paper-gains down as the market collapses.
– vreaa

Spot The Speculators #93 – “Over 20% of listed homes in Shaughnessy right now were purchased just one year ago.”

“Over 20% of listed homes in Shaughnessy right now were purchased just one year ago (this is not including new builds, so the figure is actually higher).”
– Observer, at vancouverpricedrops 19 Nov 2012 [hat-tip Whisperer]

Spot The Speculators #92 – “They took whatever money they got from the sale and immediately mortgaged a new house despite the fact that they don’t have jobs or savings or pensions.”

“Husband had a call from a relative recently. This family sold their max mortgaged house in the interior last spring so they could move to Hope and amazingly didn’t lose money on the sale. Of course they took whatever money they got from the sale and immediately mortgaged a new house despite the fact that they don’t have jobs or savings or pensions. He shared that they would like to have us for dinner but they don’t have a table to eat at and no money to buy one. He also said he was trying to look for work but didn’t have enough money to buy gas to drive to Chilliwack which is the only place in the region that might be hiring. He is early-60s with health issues. While I think he is on the extreme end of stupid, I wonder how many other folks are living similiar unexamined lives and trying to keep up appearances.”
Terminalcitygirl at VREAA 24 Nov 2012 7:57pm

Anybody who can’t see the speculation in this kind of behaviour, and tries to argue that this is just a couple looking to put a roof over their heads, really isn’t paying attention.
– vreaa

Spot The Speculator #91 – “I personally know of a young woman in her 20′s who just got her first job and refused to rent.”

“I personally know of a young woman in her 20′s who just got her first job and refused to rent. Her parents forked out the 25% down for a condo in South Surrey as she did not qualify for CMHC financing.
She purchased a one bedroom with a flex space, once she moved in she was astonished at the extra monthly fees she has to pay. She had her boyfriend move in to help with the payments and now has foolishly went out and got a dog.
6 months later from the original purchase she now finds herself in a space that is too small. Now she wants to rent (yes rent) a larger place (2 bedroom) closer to Vancouver.
To make all this happen she now has to find a tenant for her South Surrey condo.
It seems that Gen Y looks at condo buying as a fashion accessory and not a prudent financial decision. There is a serious lack of financial literacy amongst the marginal buyers of real estate.”

DJB at VCI 20 Nov 2012 9:21am

Why isn’t she selling the condo?
She’s holding on the assumption that its market value will rise.
– vreaa

Spot The Speculators #90 – And So Ad Infinitum – “Three transactions were all stuck in limbo because no one was willing to budge on their price in order to sell their place and let the dominoes fall.”

“Here’s an interesting game of chicken that illustrates what’s happening in the market right now:
I was talking with a colleague who just sold their home. They had an offer made on it a couple months ago which was subject to the sale of the buyer’s townhouse. The owners of the townhouse received an offer, you guessed it, subject to the sale of the potential buyers condo. These 3 transactions were all stuck in limbo because no one was willing to budge on their price in order to sell their place and let the dominos fall.
In the end what ended up happening was the couple at the bottom (owners of the condo) decided to take on two mortgages. They used that as leverage on the person who owned the townhouse to lower their price (use the difference to carry the second mortgage for a few more months). The person with the townhouse agreed and used that as leverage on the homeowners. So everyone dropped their price to move their properties and the condo owners are now left with two mortgages… hope their strata allows for rentals.”

Anonymous at VCI, November 16th, 2012 at 8:12 am.

And the speculators here are… 1. the guys who end up with two properties, and 2. the move-uppers from the townhome to the (I presume) SFH.
The buyers create apparent wealth from nowhere by borrowing and promising pay-back over 25 years, the only seller who is actually cashing out runs with the money.
If home prices go up, those who have increased their RE exposure do well to okay… if prices drop, they are BBQed.
Anybody who doesn’t see how this is all directly related to musical chairs and Ponzi schemes really isn’t paying attention.
– vreaa

Spot The Speculators #89 – “Rent our charming turn of century East Vancouver home. The basement has shared laundry and a suite where we, your prospective landlords, reside.”


Visualize the basement

“$2400 / 3br – 1400ft² – Lovely quiet home in great neighborhood Available December 1st (Mount Pleasant / Cedar Cottage)
Date: 2012-11-11, 1:44PM PST
Our charming turn of century East Vancouver home is for rent.
Newly (as in will be finished in a week!) renovated kitchen with white shaker cabinets, dove grey quartz countertops, breakfast peninsula, mini office / computer area, dishwasher.
Hardwood floors throughout most of the house, living / dining rooms with big picture windows.
Three bedrooms upstairs: master bedroom with two large closets (one walk-in with a window for natural light), two smaller bedrooms with one closet each and big windows looking out to back yard.
One bathroom with soaker tub and skylight.
Back deck for bbqing and entertaining, big nicely kept back yard.
Front porch ready for your rocking chair.
Basement has shared laundry (and a suite where we, your prospective landlords, reside).
One year lease.”

– craigslist ad, 11 Nov 2012 [hat-tip Chem guy at VCI]

You can imagine the ‘math’.
Upside: “In 25 years, our tenants will have paid off our mortgage!”
Downside: “We live in a smallish, dampish, darkish box, with people stomping on our heads.”

Another example of Vancouver homeowners as speculators: decisions to buy/hold property based almost solely on expected future price strength.
When these homes were first designed and built, was there ever any intention for people to be living in the basements?
– vreaa

Spot The Speculators #88 – “My girlfriend and I just put an offer on a condo by Gilmore station for 430K. It looks like we’re going to get it. We plan for this condo to be both an investment and a home for at least the next 7 years.”

“I graduated last year and got a stable government job and my gf is a chef. We’ve saved up about 50K for downpayment, and we just put an offer on a condo by Gilmore station for 430K. It looks like we’re going to get it. We plan for this condo to be both an investment and a home for at least the next 7 years.
We both grew up in Richmond, and as much as we love the place, there are inherent issues with the city. Most importantly, its housing market is based on one factor – Chinese investors.
The housing market in Vancouver is strongly influenced by investors from overseas, mainly China, Hong Kong, Taiwan. Earlier this year, policies were tightened for foreign investors, in most cases from China. Money was actually returned to them. This means that the development on River Road in Richmond by the Olympic Oval is undersold. Now housing prices are dropping like crazy in Richmond after a 5 year boom, not to mention the crawling speed of the market as well.
My company will be moving next to Brentwood mall soon, and this is one of the reason why we’ve decided to move there.
More importantly, the plan to develop and rebuild and revamp Brentwood mall is a good sign, including the three phase project – the first of which includes an ultra high rise. Needless to say, with an increase in population in the area, housing prices are expected to go up in the future.
We almost bought a similar place for 20K more last month, I’m so glad we didn’t because the prices has dropped a little. But there are not a lot of options because sellers who are not in rush simply took their property off the market.
Here are the questions I have:
Is it possible that there will be too much property for sale that dilutes the value of property as a whole in the future? For example, both Brentwood and Oakridge malls have plans for a ton of new homes in the future (both 3 stage projects).
What are other factors that might affect property value in Burnaby and in Greater Vancouver as a whole?
Finally, I’ve heard that housing in Vancouver, as long as it is close to Downtown, UBC, or Vancouver itself, will always be saturated. Can this always remain true if there is such an abundance of developers creating new condos?
Everything considered – what do you expect a 400k-ish condo in Burnaby to be worth on the market in 5-10 years?”

‘Reddit, I need your opinion about something as I’m about to make the biggest purchase of my life’, shaozhen, reddit.com, 31 Oct 2012

The fact that they see the home, even in part, as “an investment” makes them speculators.
They are buying on the premise that prices will rise or at the very least remain strong.
To answer their last question: I would say that their $400K condo will touch a market price of $220K (real) well before it ever hits $440K.
Would they be buying if they saw that possibility?
Precisely.
– vreaa

“The purchases are the fifth and sixth properties that Forsgren owns and plans to rent.”

“Don Forsgren has heard pundits speculate that Vancouver home prices will drop by as much as 40% during the next five years – but he’s not having any of it.
The Intracorp Canada president recently committed to buying two units in his company’s MC2 development near southwest Marine Drive and Cambie Street. Another 18 units in that project have sold to insiders while the remaining 425 condominiums will be made available October 27 to the 6,500 people who have registered to be eligible buyers.
The purchases are the fifth and sixth properties that Forsgren owns and plans to rent.
“Vancouver has a good base level of demand from immigration and population growth,” he told Business in Vancouver. “That’s not going to change over the long term, so we’re quite bullish about the prospects of the market from a stability point of view.”
That bullish sentiment is clear from the spate of Metro Vancouver housing projects that Intracorp has in the works, many of them near transit hubs”…
“Our target is to do about 1,000 homes each year in Vancouver and about 500 in Toronto. We’re on track to do that in 2012, 2013 and 2014.”

– from ‘Don Forsgren: Home maker’, Business in Vancouver, 23 Oct 2012.

We suspect that, unlike the case of the man-in-the-street investor/speculator, the housing market could tank and Don would still be fine despite his advertised RE holdings. Those 6 units are surely purchased cheap, and likely represent a risk of only a small percentage of his net-worth. A bit like a chef dining at his own restaurant, a clothing chain CEO wearing his own suit brand, or a car dealer driving his own stock.
– vreaa

“I visited a few open houses today. At every one, I was the only visitor, and the sales pitch was the same – buy now, do a few quick fixes and sell higher. Nobody assumed that I may actually want to live there.”

“I visited a few open houses today. At every single one of them, I was the only visitor. The used house salesmen seemed generally lethargic. When I talked to each of them, I always got the same sales pitch – buy now, do a few quick fixes (or not) and sell higher. It’s all about flipping. Nobody assumed that I may actually want to *live* there. They were not concerned about quality of life for me, or having a family there, or entertaining guests, or proximity of amenities. It was always about selling down the road, one or two years from now for a profit of a few hundreds of thousand dollars.”
bubbly at VREAA 30 Sep 202 6:51pm

Homes in Vancouver have become priced largely as financial instruments, and far less so for their utility as dwellings.
Now inventory is high, sales are slow, and prices are showing the initial signs of weakening. Open houses are very quiet.
As the bubble deflates, prices will approximate those determined by true underlying value.
By my calculations, this means prices will fall by somewhere in the range of 50%-66% from the peak.
– vreaa

South Surrey Speculators – “It sold for $1.85M. Six weeks later and I assume it is time for possession and lo and behold it’s on craigslist, for rent at $5K/month. At 5% down and a 4% mortgage they would need to pay $10K/month and they think renting it for $5K/month is a good financial move?”


“I looked at a home in South Surrey last June (I own a place in Burnaby but plan on moving there for a variety of reasons – I’m looking at next spring / summer to make the switch but go to see a few places to get better feel for the neighbourhoods). The address is 3312 144A St and it is a lottery home from 7 years ago and listed at 1.95 million. I didn’t think much of it, really weird layout and other issues. Somehow it sold a month later for $1.85 million which was very surprising. Anyways….
6 weeks later and I assume it is time for possession and lo and behold I see it on craigslist [see above].
Trying to rent it out for $5K/month… At 5% down and a 4% mortgage they would need to come up with roughly $100K and pay $10K/month and they immediately think renting it for $5K/month is a good financial move. This is going to be fun to watch.”

an observer at VCI 7 Sep 2012 10:29pm

“Investors are prepared to buy houses they will rent out at a loss, just because they think prices will keep rising—the very definition of a financial bubble.”
‘The global housing boom. In come the waves’, The Economist, 16 Jun 2005

Canadians Planning On Selling Homes To Fund Retirement

“Peter and Mary are in their mid-50s and earn two incomes. They are wondering whether they can retire at 60.
It helps that their three children have grown up. The two oldest are “off the payroll” and the youngest is expected to become self-supporting after he completes university in three years.
Their retirement dreams aren’t extravagant. The couple plan to sell their house and live six months of the year in their condo (where the youngest child is now living rent-free until university is finished).”

– from Financial Facelift, Globe and Mail, 10 Aug 2012

“In Alberta, a couple we’ll call Lars, 57, and Phyllis, 56, waited until their late thirties to have children. Not long after, Lars lost his job with a multinational company, forcing him to retrain for a new profession. Phyllis had an illness that curtailed her career and made her a stay-at-home mom doing part-time work. But they adapted.
Today, one child is in university and one is about to start. The couple has six figures of debt and no capacity to save after paying all their bills out of $7,450 in monthly combined take-home income.
With no more than eight years to go to Lars’ planned retirement at 65, they wonder how can they finish paying the university bills and retire with financial security. …
They plan to boost retirement income by taking advantage of high real estate prices in Alberta. They want to sell their $450,000 house and move to the Maritimes, where, they think, they can buy a similar house for $225,000. The difference would add to their retirement capital.”

– from Family Finance, Financial Post, 10 Aug 2012

Many Canadians are planning to sell their homes to help fund their retirement needs.
There appears to be a significantly sized group of them intending to do this at much the same time.
The majority will be disappointed by falling, in some cases plummeting, home prices.
– vreaa

“We recently let our recreational property listing lapse because we could not get what the property was worth to us. We will try again in 5 or 6 years.”

“We recently let our recreational property listing lapse because we could not get what the property was worth to us. We will try again in 5 or 6 years.
We sincerely want to sell, but on our own terms. I wonder how many listings are driven by expectations of windfalls and not need.”
Jim at yattermatters.com 20 Jul 2012 7:33pm

In 5-6 years time, that property will almost definitely have a market value substantially less than it does now. If the proceeds from this sale are important to retirement plans, Jim should sell now.
– vreaa

One Note, Three Anecdotes – Unplanned SFH Flipper; Dual Property Stress; Realtorship Declined

“The young colleague who was approved for a massive mortgage, on a smallish income, and bought a SFH in Coquitlam, is now listing it for sale in the hopes of eking out a profit. Another colleague still hasn’t had any luck offloading his North Van duplex. In the meantime he has to service a $1.2 million loan that he used to purchase his new North Vancouver SFH. He hasn’t received a single offer since it was listed over two months ago.
Had lunch with a pal today that I hadn’t seen in several months. The last time I saw him he was thinking about becoming a real estate agent. I disabused him of the notion with all of the usual arguments. I asked him today if he was still thinking of becoming a real estate agent, “No, not with everything that I’ve been reading and hearing.”

Manna from Heaven at VCI 10 July 2012 2:01pm

Spot The Speculators #87 – “To add to our stress, the condo we were living in before we purchased this house isn’t selling.”

“Overheard this conversation today at a bus stop in the Lower Mainland:

A: I haven’t seen you very much lately

B: Yeah, we just bought a house and it is constantly in need of repairs. Every time we touch something it breaks. We opened a window and the glass fell out so we had to fix that. We had to get a new furnace. We had to replace this. We had to replace that. We keep finding deficiencies that need to be replaced.

A: Oh that sounds stressful!

B: Yes, it is stressful. And to add to our stress, the condo we were living in before we purchased this house isn’t selling. Our realtor told us the reason our condo isn’t selling is because the carpets smell bad and that we should replace them. We can’t afford to install new carpetting so we are thinking about just getting them cleaned to save money. He is telling us that these carpets are such a big problem but we don’t understand because the same realtor sold us that condo with the same smelly carpets in it. I don’t understand what has changed.

…It was all I could do to bite my tongue and not tell this person that they have a much bigger problem than smelly carpets.”

- joe_blown_away_by_high_housing_costs at VCI 19 Jul 2012 5:10pm

Carrying TWO properties, with leverage, into a downturn, is a recipe for personal financial disaster.
A good number of Vancouver households are carrying more than two.
– vreaa

The Story Of Burnaby Joe – “He finished high school and has worked in the building trades his whole life. Owns his own home. Now bought his 18 and 19 year old daughters each a new condo.”

“I had some drinks with a friend last night who told me about a friend (let’s call him Burnaby Joe) of his who has contributed to the craziness here in Vancouver. Burnaby Joe is in his mid-50s, born and raised on the east side of Italian parentage. He finished high school and has worked in the building trades his whole life. He owns his own home (probably mortgage-free) in Burnaby.
Anyway, my friend told me about Burnaby Joe’s pretentious and spoiled daughters–18 and 19 years old – who have almost as many shoes as Imelda Marcos in their “clothes room” at home. Each of these girls is as of recently the proud owner of a new condo in the North Burnaby area.
How many of these cases are around? How did Burnaby Joe finance the purchase of these two condos? Cash? HELOC? When the market turns will Burnaby Joe both the means and fortitude to hang on while equity drops monthly?”

oneangryslav2 at VCI 11 Jul 2012 11:32am

Spot The Speculators #86 – “My unemployed friend bought two townhouses in Langley, one for him to live in (20% down) and one as an investment (30% down). His retired father bought four townhouses in the same development, all of them bought with 20% down.”

“I had dinner with a good friend of mine last night. He got back from Korea five months ago after four years working there. We were discussing about his work situation as he can’t find a job here and is now considering moving out of Vancouver.
The trick? He bought two townhouses in Langley, one for him to live in (20% down) and one as an investment (30% down). His father bought four townhouses in the same development (“his retirement plan”), all of them bought with 20% down. He told me: “we got them under market value, the developer gave us a discount”…
I asked him the question:”if the market goes down by more than 20% in the next 5 years and the bank asks you to put more money into the houses at refinancing time, will you be able to do so?” Puzzled answer: “no”.
He and his dad have basically put all their savings into that development. These are not the type of people you would imagine being RE speculators (they don’t see themselves as such), but they just don’t have a clue of what’s going on in the RE market here. They’ve bought into what the developer told them…
So here we are: one unemployed and one retired putting all their savings into RE. How strong can the market be when people like them are so over-leveraged in real-estate? How many people like them on the market?”

Makaya at VREAA 6 Jul 2012 10:41pm

These guys are gamblers who don’t even see themselves as such. They think they’re ‘investing’. They’d be better off taking their down-payments, walking up to the roulette table, and putting everything on black. In that scenario the close to one in two chance of doubling their money is better than their current set up, where there is a close to 100% chance of losing it all. Seriously… Gambling is not raised here as metaphor nor as hyperbole… they statistically would be better off with a two to one bet. Even at this extremely late stage of the cycle, we have buyers entering who cannot imagine Vancouver prices dropping. Truly mind-boggling.
And the “got them under market value” line is just so pathetic that hearing it induces cataplexy, a state where, overcome by emotions, your muscles lose tone and you collapse to the ground.
As Makaya says, how many like them in the market?
– vreaa

30s Grind #5 – “We own a house in Vancouver partly because we got into the market elsewhere about ten years ago & leveraged our way up to a house (with basement suites).”

“We own a house in Vancouver partly because we got into the market elsewhere about ten years ago & leveraged our way up to a house (with basement suites). However, another big reason we can afford to live where we do is that we have a frugal lifestyle: no expectations of a huge house with a designer kitchen & a bathroom per person; we don’t buy a lot of electronics & other consumer goods or eat out at expensive restaurants; plus, we have no car–bikes, walking, bus & Modo are all really easy in East Van. We do spend more money that some people might on some things–we eat mainly organic food (I actually shop at ‘Whole Paycheque’ every few weeks), we go out for coffee/lunch/dinner fairly regularly at cheaper places & we enjoy our craft beer; we take trips in BC a few times a year & to Europe every few years.”
Lisa C at thethirtiesgrind.com 1 Jun 2012 2:23pm

This couple are playing the role of building superintendents in their own home, overseeing their tenants in the basement suites (plural, note). Would they choose to purchase a rooming house if they knew that prices will remain static in real terms (rise with headline inflation, currently at about 1-2% pa), or possibly even drop?  We don’t think they would have seen it as worth their trouble: They are speculating that future housing price gains will make it all worthwhile.
– vreaa

“When my family and I were pondering a move out of Vancouver, the line I heard more than once was “Don’t sell your house, you’ll never get back in.” It almost made sense, until I looked at the mountain of cash we would be leaving town with. For now I remain a Vancouver homeowner. The abstract concept of my net worth remains a fictional number.”

“Real estate is a hot topic these days amongst my neighbours. We’ve all heard the stories of little bungalows along the Cambie corridor selling for north of 2 million dollars. These were homes you could buy for a third of that before the construction of the Canada Line system was announced.”
“Where does it end? That unfortunately is a scenario we humans are not all that good at seeing. If it is indeed a bubble, it will remain invisible to all those but a chosen few. Those few will be madly blogging about it and preaching their gospel of “sell now” at cocktail parties, desperate to be proven right. And even if history does prove their predictions about a real estate crash to be correct, we’ll still find them annoying and usually find a way to avoid them at the party.”
“The cruel truth is that a bubble does not become visible until that bubble has popped, leaving drops of soapy fluid on the ground that we will be slipping and sliding on for years (as we make our way to the bank to renew our mortgages at a higher interest rate, realizing just how much money we owe on a property that suddenly doesn’t seem as sexy as it once had).”
“Last year, when my family and I were pondering a move out of Vancouver, the line I heard more than once was “don’t sell your house, you’ll never get back in.” It almost made sense, until I looked at the mountain of cash we would be leaving town with. Thankfully I haven’t had to make that decision yet… and the abstract concept of my net worth remains a fictional number.”
“So for now I remain a Vancouver homeowner. At least I know where to buy a carpet for cheap. [See body of article for context.] I should ask why they’re shutting down the business though. Maybe they know something I don’t.”
– from ‘The Persian Rugs Going Out of Business Sale!’, Martin Strong, at City Caucus, 30 May 2012 [hat-tip Nemesis]

Many Vancouver homeowners ‘know’ that this is a bubble; they see that the price run up is just too ‘good’ to be true; yet only a very small percentage will capitalize on this windfall before the bust. Most will be unable to overcome the inertia and the inconvenience of selling. And, that aside, it’d only take a relatively small percentage to try to sell at the same time for the market to collapse.
It is very, very difficult to run against the herd. On the way down, of course, the herd is selling…
Martin is correct about the bears being seen as irritatingly annoying by the general citizenry. Witness Larry MacDonald’s article in Canadian Business that we headlined yesterday, where Larry asks the bears to simply go away. As today’s anecdote shows, it’s irritating to have people tell you something that pertains to your circumstances, that you know in your heart is likely valid, but that you can’t bear to act on. Like a large version of being asked whether you shouldn’t get that overdue term paper finished when the big game is on television.
And for how long is the “can’t-tell-its-a-bubble-until-it’s-popped” canard going to be in such wide circulation?
It is very clear that you can identify a bubble from the inside: a market is in a speculative mania when prices clearly divorce themselves from fundamental values, and continue upwards solely because new buyers expect ongoing price strength. That’s a bubble. Capisci? (The bears do!)
Anyway, Martin shows that he has a remarkable amount of understanding about what’s going on, even to the point of talking about what it’ll be like after the bust (“realizing just how much money we owe on a property that suddenly doesn’t seem as sexy as it once had”). He also shows excellent insight in referring to his current perceived wealth as an “abstract concept” and his net-worth a “fictional number”. After the pop, he will doubtless say that he “knew” it was a bubble, and he actually ‘did’. But his own wishful thinking and the seduction/threats of the herd (“you’ll never get back in”) will have prevented him from acting on that which he knew. This is how bubbles work. Powerful, eh?
– vreaa

Spot The Speculator #85 – “They’re trying to sell their downtown condo into a weakening market, but now they’ve doubled their exposure. A few months ago it would have taken more than a 50% decline to wipe out their entire net worth, but today it would take just a 20% drop.”

“My friend wanted to trade up from a $400k condo to a $900k house. I helped to convince her that the market was likely to go down. Disaster averted.
Next thing you know, she’s borrowed $45k from her father and appropriated $5k from her unwilling but helpless husband to buy a presale for a $450k condo that “should be available for move-in by August.” (It’s a bit bigger and nicer, but it’s North Vancouver instead of Downtown.)
They’re trying to sell their downtown condo into a weakening market. The “price” has declined 5% in the last two months, but now they’ve doubled their exposure. A few months ago it would have taken more than a 50% decline to wipe out their equity (their entire net worth, of course) but today it would take just a little more than a 20% drop.
Remember, she agreed that prices were likely to decline. Her justifications for going ahead with the condo aren’t in any way rational, and amount simply to the “because I want it” logic of a four year old. She dismiss any opinions that didn’t support the outcome she desired, even going so far as to threaten her marriage.”

Rick at VREAA 3 May 2012 9:07am

Just regular Vancouverites doing regular things with real estate.
If you had to try to do the same thing with any other asset class, you’d be laughed out of your bank.
How much they’ve all been gambling will only be widely apparent once the market reverses.
– vreaa

Spot The Speculator #84 – “I live in Vancouver and own a condo in the heart of downtown. Bought it for $515K and only seen a slight increase in value in two years. Quite depressing. Is it a stupid idea to buy another?”

“I live in Vancouver and own a condo in the heart of downtown. Bought it for $515K and only seen a slight increase in value in two years. Quite depressing… If what you say is true about a 30% reduction, I would indeed lose almost all the equity I have which is made up of my down payment and two years of mortgage payments.
Is it a stupid idea to buy another property, maybe sub-500 sq ft for roughly $280K to rent out, with a 20% down payment and a locked in 3.29% 5-year fixed rate? With rate and market adjustments to come, if I am not borrowing 95% (though still 80% debt), am I in the same risk category? Or should I just wait until 2015 to snatch something up when prices are down?”

Sharon, as quoted by Garth Turner at greaterfool.ca 1 May 2012

Yes, it most likely is a “stupid idea” to buy another condo.
Crazy, eh?
But that’s what a bubble does, turns the citizenry into lunatics.
No profits on first condo, let’s increase our exposure!
Even the experience of the condo not rising in market price can’t erase the monomania acquired when all you hear is talk of ever rising prices.

PS (‘pre-empt scriptum’):
1. To pre-empt the inevitable one or two commenters who will say that Garth makes these anecdotes up, we say we disagree, and ask, why would he possibly do that?
2. To pre-empt those who say “yes-condos-will-go-down-but-detached-is-bullet-proof”, we politely disagree. All sectors are interdependent and will go down together; different precise paths, perhaps, but same destination in the trough.
– vreaa

‘Borrow To Get Ahead’ – “People are notorious for looking at the glass half full, or pretending things aren’t happening.”


Scotiabank Store Poster, image from this CBC News clip

Announcer: “The biggest concern for the Bank of Canada is still the record amount of debt that Canadians hold, debt that Carney expects to keep rising.”

Carney: “Some Canadian households are becoming overstretched, and Canadian households as a whole are being overstretched, which creates risk for the economy.”

Announcer: “Some experts argue that most Canadians can handle their debts, often backed by solid assets, like houses. But, even with strong hints interest rates may rise, Canadians appear to be ignoring the bank’s repeated warnings.”

Laurie Campbell, CEO of Credit Canada: “Well, to a certain degree I believe they are tuning it out, I mean people are notorious for looking at the glass half full, or pretending things aren’t happening.”

- from ‘Carney’s Warning’, CBC News, 18 Apr 2012

Spot The Speculator #83 – “Much to my surprise there is a for sale sign out front of 1923 Waterloo again. Asking price $2,288,000, a whopping $478,000 over last year’s sale price.”

“Last year we lived in the top floor unit at 1923 Waterloo St. Vancouver and was saddened when the owner decided to sell the house. The owner lived downstairs with his young growing family and we knew them since they moved into the neighbourhood. The previous owner had completely gutted the house and did a great job in bringing back this Kits Grand Dame back.”

“The house sold last July [2011] for $1,810,000 and the new owners did not want us as part of the package. Here’s the original listing:

“Much to my surprise, I recently drove by to see a for sale sign out front of 1923 Waterloo again. Asking price $2,288,000. A whopping $478,000 over last year’s price.”

“All the new owners did was take out the upstairs suite kitchen, removed the carpet and laid laminated wood floors, dry walled the unfinished basement, painted over all the nice wood beams and fire place in the downstairs living room, put in a new refrigerator, cut out all the privacy of the laurel hedge out front, and put up a large fence.”

“My back of the envelope math on this unit goes like this
:
Purchase Price $1,810,000
Transfer Tax $35,620
Renos $60,000+/-
Realtor (if sold) $61,700+/- (7% on $100K 2.5% on balance)

Total cost: $1,931,700 is their break even point (maybe a little less on the realtor fee depending on selling price).
Not including any interest cost if they had a mortgage.
Asking $2,288,000.
Comparable houses in this neighborhood are selling between $1.6-$1.8 million.

“They can try all the lucky 88’s they want but HAM does not buy in this area, they prefer a newer house with a view.
I guess someone forgot to tell the new owner that the market peaked last year.”

- from DJB, via e-mail to vreaa, 17 Apr 2012
[thank you, DJB -ed.]
—-

This’ll be one to track.
Possible ‘crispy flipper’ candidate.
Nice looking house. Currently serving as a trading chip.
Perhaps 800k to a million bucks in the trough?
– vreaa

“I’m a mortgage broker and I just don’t get it. When will the madness end? Recently a girl was telling me about her purchase of a flip, for $800K, plans to put $400K into it, and sell it for $1.6M. When I asked her what contingency plans she had if the market went sour she looked at me like I was speaking a foreign language.”

“It’s unfortunate but everywhere I look I still see and hear of people looking for homes to renovate and flip. I’m a mortgage broker and I’ve spoken to other realtors, mortgage brokers and so called “real estate investors” who all still believe that now is a great time to buy a teardown and rebuild OR renovate.
I just don’t get it. When will the madness end? Listings are up but the market just isn’t getting the message.
I was at a bar recently (blarney stone) where a girl was telling me about her recent purchase of a flip. She purchased for $800,000, plans to put $400,000 into it and flip it for a cool $1.6 million. When I asked her what contingency plans she had if the market went sour she looked at me like I was speaking a foreign language.”

Anonymous at whispersfromtheedgeoftherainforest 12 Apr 2012
[hat-tip Makaya]

Spot The Speculators #82 – “They are “borrowing” wedding rings until they can afford to buy real ones as they are maxed out on their HELOC’s. When I asked them why they don’t sell the condo or apartment I was told they need them to keep going up in value.”

“My sister is getting married and planning their wedding. With a house and apartment in Vancouver and a condo at Whistler you would think they were flush but no… The entire wedding is on their line of credit and they are “borrowing” wedding rings until they can afford to buy real ones as they are maxed on what they can get on their HELOC’s. When I asked them why they don’t sell the condo or apartment I was told they need them to keep going up in value. I’ve given up giving guidance anymore but felt chills when I realized that they need the places to go up in value so they can increase their credit lines to maintain their current lifestyle….god forbid what will happen to them if (when) the value declines.”
ChemGuy at VREAA 5 Apr 2012 1:30pm

Spot The Speculators #81 – “If we sell we may not be able to afford to buy again and the house down the street is listed at $1.8 million right now. Prices will never go down in Vancouver cause its different here and has a lot to do with lack of land and the Chinese buying up everything.”

“Talked to daughter of a friend here in Vancouver. They bought in 2007 for around $750K… old 1920′s place and needs complete redo…still same old single pane windows, sloping floors, old wiring and plumbing. Suggested that they look at selling if they think its worth the $1.4 million they say it is and cash in on their lottery ticket, rent and wait for prices to come down then rebuy. The answer I get is “If we sell we may not be able to afford to buy again and the house down the street is listed at $1.8 million right now. Prices will never go down in Vancouver cause its different here and has a lot to do with lack of land and the Chinese buying up everything.”
I shake my head in amazement. I tried.”

Ronaldo at greaterfool.ca 3 Apr 2012 1:08pm

Spot The Speculators #80 – “A couple who landed here in 2007/8 bought 2 new condos near Brentwood, and have owned and flipped no less than 5 properties since then.”

“A couple who landed here in 2007/8 bought 2 new condos near Brentwood, and have owned and flipped no less than 5 properties since then. He works in IT, and she a homemaker with 2 kids. He briefly lost employment but found another within months last year. Wife is always complaining about being financially strapped, but the real fact is that they are free loaders and expect others to foot their meals all the time.
When he was unemployed and could not make payment of the mortgages, he sold off one condo in Quangzhou and had his parents remit the funds to him as a gift, since there is no gift taxes in Canada. Recently she is thinking about buying in NV and selling another property in the province of Guangdong, and have the proceeds transmitted over in the same fashion. Most of their cash savings are offshore to take advantage of the much higher interest rates in fixed deposits. And when they need cash, they get their parents to remit gifts to their 2 kids.”

ToL at VREAA 1 Apr 2012 9:38am

Spot The Speculators #79 – “I have 2 RE agents in my extended family who have been flipping for about 7 years and they are both multi-millionaires on paper. They are completely leveraged to the hilt.”

“I am no realtor but I can guess that many of you can see the “gold rush” mentatlity of the last few years in Vancouver is a temporary blip – some people will make a fortune and those who came too late will be left with a bum claim. I think realistic numbers and a price correction is actually very healthy for the long-term health of RE in Van and surrounding areas. I am bearish on RE but unlike many others, I do not want to see a crash – that will wipe out too many families and destroy the economy. I do want to see some flippers get burned badly, and I want regular Vancouverites to be able to afford a home (with sacrifice and due to hard work). Unfortunately I have 2 RE agents in my extended family who have been doing this for about 7 years and they are both multi-millionaires on paper, by this I mean they are completely leveraged to the hilt. It is a tops-turvey bizarro world where a RE agent makes more than a surgeon selling “nothing special” or even teardown bungalows, and makes millions flipping a half-dozen presale condos with “creative” financing.”
Leben at yattermatterc.com 2 Apr 2012 10:59am

Spot The Speculator #78 – “One couple recently spent $900,000 on an East Van house and also own a downtown condo.”

“Recently we hosted a meal at our home with 3 young couples present. The topic of real estate came up. One couple recently spent $900,000 on an East Van house. When someone referred to my bearish outlook the male owner of that home, who also owns a downtown condo, brought up a couple of classic arguments:
• even if this is a peak, real estate is still a good investment in the long term, just like the stock market.
• Vancouver is different.”

– b5baxter at vancouvercondo.info 30 Mar 2012 2:36pm, who also adds analysis.
—-

Real estate is only sometimes “a good investment in the long term”.
Buying (or holding) when it is historically overvalued is a certain recipe for underperformance.
Holding more than your personal residence, with leverage, through a downswing, is a recipe for crippling punishment.
– vreaa

Spot The Speculator #77 – “She’s kept the Cambie property and hopes to turn it into rental income in future.”

“Phoenix Lam returned home in 2005 after years of basement suites and roommates.
“I realized I wasn’t ever going to save enough for a down payment,” the 28-year-old said of spending more than half her monthly income on rent and expenses.
Instead, she paid minimal rent while at home. Four years later she had saved enough for a mortgage on a 566-square-foot apartment in Cambie Village.
“I wouldn’t be owning if I didn’t do that.”
While Lam now lives elsewhere, she’s kept the Cambie property and hopes to turn it into rental income in future.”

‘Hopeful homeowners staying in the nest’, Stephanie Ip, 24hrs.ca, 22 Mar 2012

Spot The Speculator #76 – “The 29-year-old started saving aggressively in her mid-teens and by 20, was able to purchase her first piece of property. From then through 26, she bought a new property each year while still living at home.”

“My parents would much rather me stay at home and save than to not have anything to show for the rent I was paying,” said Angela Calla, host of CKNW’s The Mortgage Show.
The 29-year-old started saving aggressively in her mid-teens and by 20, was able to purchase her first piece of property. From then through 26, she bought a new property each year while still living at home.
“It all starts with a plan and with educating yourself,” Calla said, adding her parents didn’t help her financially but allowed her to live rent-free.

‘Hopeful homeowners staying in the nest’, Stephanie Ip, 24hrs.ca, 22 Mar 2012

Marine Gateway – Did 415 Pre-Sales Sell To Fewer Than 150 People?

‘Marine Gateway’ condo pre-sales were previously discussed here, in a post featuring Bob Rennie’s interview on CKNW Radio [16 Mar 2012]. The project was later widely reported to have sold out within 4 hours, and the event touted as “the most successful condo launch since Woodward’s in 2006″.
There has since been a report by ‘village_whisperer’ [whispersfromtheedgeoftherainforest 22 Mar 2012] that the 415 pre-sale units sold to somewhere between 110 and 150 people. If this indeed the case, this is another important landmark event in our speculative mania, and we record the link to ‘whisperer’s discussion here, for the chronological record.

Spot The Speculator #75 – “At the age of 72, she feels poor. Ironically, she has substantial capital, including a house in B.C. and a condo in Austria that together are worth $810K.”

“A retired musician who we’ll call Helga lives in British Columbia. At the age of 72, she feels poor. She has been able to cover her expenses with pension and investment income and by teaching music. Yet she feels trapped, unable to stop teaching and thus unable to retire completely.  Ironically, she has substantial capital, including a house in B.C. and a condo in Austria that together are worth $810,000.
Helga’s income comes from Old Age Security, $540 per month, Canada Pension Plan benefits of $825 per month, Registered Retirement Income Fund distributions of $1,135 per month and teaching violin at $2,500 per month for a total of $5,000.  After tax at an average rate of 20%, she has $4,000 to spend.
“I would like to retire from teaching music at the end of this school year,” Helga explains. “But I need the money it provides. I would like to spend more time in my condo in Austria. I don’t know where to turn.”

– from ‘Impoverished millionaire’ needs to face the music’, Andrew Allentuck, Financial Post, 9 Mar 2012

Housing-Bubble-Headedness – “Since I want to open a wine bar one day, I figured house-flipping was one way to jump-start a savings plan at the beginning of my career, when the money is still tight.”


“George, who lives with his mother in a townhouse, wants to open a wine bar. To get a leg up given his modest income, he is looking to speculate in real estate.”

“George has the lofty goals and dreams befitting a budding entrepreneur: He wants a business of his own, easy money, and the freedom wealth brings to put up his feet and retire by the time he is 55 – with an income of $150,000 a year after tax.
Back down on earth, George is 23, recently graduated from university and has just landed his first “real” job earning $35,000 a year plus bonus and other benefits. He lives with his mother in a townhouse in the Guelph area that they plan to flip for a $60,000 profit. He wonders how best to use his share of the anticipated gain.
George’s big dream is to open his own wine bar. He aims to save $70,000 over the next 10 years as a down payment and wonders whether that will be enough to enable him to get the financing he will need. To get a leg up given his modest income, he is looking to speculate in real estate.
“Since I want to open a wine bar one day, I figured house-flipping was one way to jump-start a savings plan at the beginning of my career, when the money is still tight,” he writes in an e-mail. Mind you, that $60,000 profit he and his mother expect has yet to be realized, and they’d need at least half of it as a down payment to buy a bigger, better home.”


“We asked Kurt Rosentreter, a senior financial adviser at Manulife Securities Inc. in Toronto and author of Wealthbuilding, to look at George’s situation. /… As for house-flipping as a way of making money, “Be careful. A real estate correction in the future could leave this ending badly for a young guy with not a lot of wiggle room.”
Mr. Rosentreter says George would need to accumulate $2.5-million by the time he is 55, excluding his home. Assuming a 5-per-cent rate of return on his investments and a 32-year time horizon, he would have to save $33,000 a year to achieve his goal, so he may want to set his sights a little lower. Mr. Rosentreter’s suggestion: “Save what you can.”


– from ‘Champagne dreams with a chaser of realism’, Dianne Malley, Globe and Mail, 2 Mar 2012

See how the distorted economic playing field that results from the speculative mania in housing has perverted the thinking of the young?
It’s all very distracting.
– vreaa

Spot The Speculators #74 – “My husband and I live in Richmond and have 6 children. Late last year we bought a rancher and renovated it, hoping to sell it as an investment. We are willing to sell far below market value…”

“I opened a copy of the [17 Feb 2012] ‘Delta Optimist’ today and ended up in the RE section [pA25], where I saw a big *half-page* ad that read thusly:

“My name is Ingrid – my husband and I live in Richmond and have 6 children. Late last year we bought a rancher in Boundary Bay from a lovely lady who moved to Vancouver Island.
Here’s our dilemma: We completely renovated this cozy rancher hoping to sell it as an investment. Now that it hasn’t sold, we are carrying more than one mortgage and would like to remain in Richmond. We are willing to sell far below market value because a similar renovated rancher sold for $949,000 on the same street and we are willing to sell for $729,000.
Our realtor will be holding an open house this Sunday at 2pm sharp. If you have any questions, please call…”

Now, this could be typical realtor bullshit, but I’d rather think it’s more anecdotal evidence that 1) People are taking on WAAAAAY more than they can handle because they’re told BPOE RE always goes up in value, and 2) This bloated pig is exploding…”

- posted by ‘gordholio’ at VCI 3 Mar 2012 10:10pm

Thanks Gord.
Real brazenly obvious speculators, so the ‘spotting’ isn’t that difficult, or that much fun, in this case.
“Below Market Value” sales always make us laugh. Whatever this sells for is, of course, the market value.
– vreaa

“We bought a house with some family help and moved out, but decided to keep the condo because we couldn’t sell it while it was tarped up.”

“My wife and I bought a two bedroom condo (Vancouver suburbs) when we had our first child. Had a second child, things were fine. Had a third child, and things went off the rails. The third ended up having a laundry/pantry room as a nursery with a portable crib. At the same time the condo (our building, but not our unit) sprung a massive multi-million dollar leak.
We bought a house with some family help and moved out, but decided to keep the condo because we couldn’t sell it while it was tarped up. We rented it out (for less than the mortgage payment) to a family that burned every countertop, the carpet and the vinyl balcony deck with a hot pot. They moved out and another family moved in – with a cat, and with a kid that drew on walls. All while we were paying out an ever growing series of special assessments for the building repairs.
We finally decided to cut our losses and sold the condo for half of what we paid for it. Net net we LOST an amount equivalent to the original purchase price.
Moral of the story: Don’t buy a home that doesn’t match your stage of life and that you don’t plan to be in for a good 10-15 years. And don’t buy a leaky condo.”

Leaky Condo Hell at VREAA, 29 Feb 2012 at 7:59am

Spot The (Wannabe) Speculators #73 – “A home is their best non-taxable investment, and besides, they have to live somewhere.”

“Jean and Gary plan to marry in April, pay off Gary’s student debt and save up for a month-long backpacking trip to South America. Easily done.
Their longer-term aspirations will take more effort. Mind you, at 28, their dreams look possible – a home, a family, a “robust” investment portfolio. Jean will graduate this summer and hopes to get a job, perhaps with a municipal government, paying in the $60,000 range. In the meantime, she gets about $2,100 a month working as a research assistant. Gary earns about $60,000 working for a regional transportation authority.
Already, they’re thinking about their financial future.
“We think we are generally pretty wise with our money but are keen to learn about financial planning and investing,” Gary writes in an e-mail. Once Jean starts work, they intend to begin saving to buy a house in Vancouver in about five years.
“We are unsure if we can afford to buy a place and wonder if we should continue to rent for the longer term,” Gary adds. Their rent in Vancouver is $1,600 a month. They figure a house that will meet their needs will cost at least $800,000 in that market. Alternatively, to get a foot in the real estate market, they are mulling buying a rental property in Gary’s hometown in small-town Ontario.


Once Jean starts working at a salary of $60,000 a year, the couple’s cash flow will improve substantially, Nancy Woods (investment adviser and associate portfolio manager with RBC Dominion Securities Inc.) says. …
Once the student loan is paid off in 2014, the couple will have a surplus of about $13,065 a year or about $1,090 a month if they keep their expenses in check. That’s on top of their registered retirement savings plan and tax-free savings account contributions. This money can go toward saving for a down payment.
With time and compounding at 5 per cent a year, they could conceivably save more than $160,000 by 2017, the planners calculate. They could withdraw $35,000 from their RRSPs under the federal Home Buyers Plan, $74,410 from their TFSAs and $52,000 from non-registered savings, for a total of $161,410.
Even so, they may want to rethink that $800,000 price tag on a home. If they put $160,000 down on an $800,000 house, they’d be left with a $640,000 mortgage. Amortized over 25 years with an interest rate of 5 per cent, the loan would cost $3,700 a month in principal and interest. If, instead, they bought a $600,000 house with the same down payment, their monthly mortgage payments would be $2,560. …
For their first home, Jean and Gary may have to start with something very small and out of their current area, the planner says. “A home is their best non-taxable investment, and besides, they have to live somewhere.”


– from ‘Building a foundation for long-term dreams’, Globe and Mail, 24 Feb 2012

Hey, with a household income of $120K, if they save diligently, they could afford to buy a basement suite in South East Vancouver, in 2017, for $600K. But, wait!… at the assumed annual property price appreciation of 7% to 10%, in 2017 that basement suite will cost them anything between $840K and $966K… The price will appreciate much faster than they can save! So, wouldn’t it be better for them to go all-out right now, get together as big a downpayment as possible (cue boomer-parents bearing HELOC derived gifts), borrow as much as they possibly can, and get into the market ASAP? Otherwise, they’ll be priced out, right? No chance of ever owning anything!
Okay, ‘/sarcasm off'; but you get the picture.
This is precisely the kind of perverse thinking that has gotten buyers of almost every stripe to overextend themselves, as early as possible, into as much RE as possible, in order to catch the Vancouver RE train. All premised on future price rises.
The couple in this story will possibly be okay. Our hunch is that a fair number like them won’t over-extend into anything just yet, largely because what they can get now at the top end of their budget is barely what they’d define as a ‘home’. Then the crash will bail them out.
Sometimes it pays to be so late to the party that it’s over when you get there.
– vreaa

Spot The Speculator #72 – “My colleague has been bragging about the price of his house for the past 4 years. On Friday, I told him we are passed the peak, and that I know of two families who sold in June and are proud of their timing. He turned white.”

“My colleague B. has been bragging about the price of his house for the past 4 years. On Friday, I told him we are passed the peak, and that I know of two families who sold in June and are proud of their timing. He turned white. I showed him Larry’s graph on my laptop. Sorry to say it, but it felt good to look at his face. He could hardly work in the afternoon, trying to gather data on the web. His conclusion: he is late, and his last chance to cash in is in the next two months, if there is any HAM left.
I realized that, in his mind, he did not have a 2.5 million $ home, he thought he HAD 2.5 MILLION DOLLARS (and plans about how to spend it). And suddenly, those 2.5 millions have turned into 2.2, therefore he FELT HE HAD LOST $300,000. I now understand better the psychology behind a rush to the exit.
I also realized that for 4 years, he was never living in a home, but just camping in an investment.”

DEFAULT NAME at vancouvercondo.info 15 Jan 2012 at 9:14am

This anecdote interesting from many perspectives:
1. Schadenfreude. (Yes, it does occur in mild mannered Canada).
2. Paper profits imagined as real gains. (Many have planned their futures around the imagined values of their homes).
3. Paper losses experienced as real losses. (And, until losses occur, people underestimate how painful taking losses can be. In this case, an imagined loss, thus far, of $300K after-tax, clear profit. How long would it take ‘B’ to earn and save $300K after tax? The thought of the loss is agonizing… thus, there is accompanying fear of further losses…)
4. Fear as prices fall; Urgent rush to market. (Price drops will beget price drops.)
5. Housing as a financial instrument rather than shelter.
6. Owners are almost all speculating on future price strength.
– vreaa

Spot The Speculators #71 – “I loaned a family member $20K three years ago to help them with a liquidity issue while they were closing on their house. I asked why they didn’t borrow against their Yaletown condo but the response was that they had already borrowed against it for their place at Whistler.”

“I loaned a family member $20K three years ago to help them with a liquidity issue while they were closing on their house. I asked why they didn’t borrow against their Yaletown condo but the response was that they had already borrowed against it for their place at Whistler. They bought the house with a DP from the Whistler equity. The loan was only for 3 months…still haven’t been paid as the bank won’t loan them any more.
They are going to pay me back half next month after going to the loan shark (Alpine credits). Scary $hit! I bet my folks they will be back in Yaletown in 5 years with no house and no Whistler property.”

yltnboomerang at VREAA 10 Jan 2012 8:57am

Most Vancouver RE speculators are far less obvious about it than these cowboys.
Jumpin’ the loan shark.
– vreaa

Spot The Speculator #70 – “A close relative of mine just bought a house near Commercial Drive. She can’t imagine prices dropping in the slightest– a flattening is the worst that she considers to be possible.”

“A close relative of mine just bought a house near Commercial Drive. She can’t imagine prices dropping in the slightest– a flattening is the worst that she considers to be possible.”
M—, at VREAA 31 Dec 2011 at 10:27am

Most don’t count buyers such as this lady as speculators.
That’s the main point of this series.
– vreaa

Shiller – “The idea that buying a home is such a great idea is just wrong. Home prices may well decline for the next 30 years, in real terms.”

Interviewer (Morgan Housel, Motley Fool): “Is that what homeowners should expect, that their house will give them a place to live, that it will keep up with inflation, and nothing else?… Is that the basic model that homeowners should think about?”
Robert Shiller: “I think it’s a reasonable first approximation to assume that home prices would just keep up with inflation… [But they can go down too, they went down for the first 50 years of the 20th century] … The idea that buying a home is such a great idea is just wrong.. They may well decline for the next 30 years .. in real terms.”
– from ‘Robert Shiller on Why Home Prices Could Fall for Several Decades’, Morgan Housel interview, Motley Fool, 23 Dec 2011

Shiller is describing the US market, where prices in many regions have dropped to the point that they are coming close to values as determined by fundamentals. In a market such as Vancouver’s, where we are starting with prices at 2 to 3 times fair value as determined by fundamentals such as rent, income and GDP, the chances are far and away that housing will underperform inflation over the next 30 years. Most local market participants would see that prospect as preposterous. – vreaa

Spot The Speculator #69 – Three properties, all with maxed out HELOCs – “A 12% or 15% correction does not sound like much, but given the dynamics of the Vancouver market it could be devastating.”

“A close acquaintance of mine lives in the Vancouver suburb of Surrey (an area that respected blogger Garth Turner recently predicted would see a 30% correction if the national market tanks 15%).
A staunch housing bear himself, my close acquaintance rents the house he is currently living in. The home was recently assessed at a value of $450,000 and the landlord is the quintessential poster child of the over-extended, amateur Vancouver landlord.
Owning her own home in Coquitlam (another Vancouver suburb) plus two rental homes in Surrey, she constantly struggles to make ends meet.
Recently a spat of repairs were required on the house my acquaintance lives in.
First, the garage door sustained damage. When arrangements were made for an assessment from a repairman, the landlord asked my friend to pay the $80 charge (which would be deducted from the next month’s rent) because she no longer had a credit card.
Next, the dishwasher failed.  A plumber was called and he replaced the garburator (a repair that had been put off since summer) as well as the dishwasher.  And while the landlord arranged a cash payment for these (delivering the money to my friend to give to the plumber on the day the work was to be done), the plumber later confided the landlord had been in tears on the phone as they discussed the best place to secure the ‘lowest’ price on a new dishwasher.
I’m sure you won’t be surprised to learn that all repairs seemed to be “under the table” with no apparent HST tax paid.
There are other repairs that are required at the house but are “on hold” because the landlord admits to cash flow problems.
The landlord has told my friend that the house was a gift she received from her parents over 13 years ago.
So does that mean the property is mortgage free?
In the 3 years my friend has been at this house, he has accommodated 3 requests to have the property assessed for HELOC applications. In the most recent visit (always by the same assessor), the assessor let slip that he had also been doing the same on her two other properties. She has maxed out the available equity on this house (about six years ago this money was used to purchase the second rental home), the second rental home and her own house.
Now, with TD Bank expecting a market correction of 12%, where will this landlord wind up?
This landlord (not unlike many others in the Lower Mainland) have been using their homes as personal ATM machines.  And the money they have taken out against their properties is spent.
This particular landlord struggles to maintain basic repairs on the homes and is in a personal financial situation where she no longer has access to credit cards.
What will a 12% drop in property values mean to this landlord?
On the one Surrey home (assessed value $450,000), a 12% correction is a loss in $54,000 in mortgaged asset value. A 15% drop translates to a loss of $67,500. If we were to realize Garth Turner’s prediction of a 30% drop – the loss on this house would be $135,000.
Without continued price appreciation, not only is the HELOC ATM most assuredly closed to her for future withdrawals but any major repair or incident will be devastating to family finances.
If the other two homes are of equal value, she is facing a total drop of $162,000/$202,500/$405,000 in asset value (based on drops of 12%/15%/30%), none of which is equity. Are the banks going to blindly renew mortgages on these three properties when she could be underwater by almost half a million dollars on all three combined?
At what point does the straw break the proverbial camel’s back?
How many more are in similar circumstances?
Without a dramatic turnaround in the economy, how can these people avoid any other fate besides default, bankruptcy and foreclosure?
Anecdotal evidence suggests there is a strong likelihood that a higher percentage of Greater Vancouver homeowners are in this situation vis-a-vis the greater mortgage market than there were subprime mortgage holders in the US mortgage market.
A 12% or 15% correction does not sound like much, but given the dynamics of the Vancouver market it could be devastating.”

– anecdote and analysis from villagewhisperer at ‘Whispers from the Village at the Edge of the Rainforest’, 29 Dec 2011. [Thanks, whisperer. Hat-tip to 'Bailing in BC']

It’s The Locals! – “All my friends and everyone I work with has bought a house. None of them are Chinese.”

“All my friends and everyone I work with has bought a house. None of them are Chinese. You people have to get out more.”
WhatProblem at vancouvercondo.info 12 Dec 2011 3:45pm

BC Business Magazine – ‘Housing Has Become Vancouver’s Toxic Asset’ – “As a result of this massive monetization of housing, the entire city’s social and economic scene is under intense pressure and is threatened with collapse.”

“Housing is becoming a toxic financial asset that threatens the entire region.
Before we get into it, let’s look at what a toxic asset is. In the U.S., sub-prime mortgages were a toxic asset because they were converted into financial instruments (derivatives) that had no real value, but were continuously traded for ever-increasing prices until, eventually, the banks that were promoting them couldn’t back them any more. We’re all familiar with the results – massive writedowns and a whopping recession that’s still playing out.
Vancouver is undergoing something similar… because it’s allowing housing to be bid ever higher and far beyond its intrinsic value. As a result of this massive monetization of housing, the entire city’s social and economic scene is under intense pressure and is threatened with collapse.”

“The houses had become just another abstract financial instrument.”

“Well, eventually, it has to stop. When houses are continually traded for ever higher prices, the entire balance of population and housing becomes extremely distorted. Eventually it reaches such a distortion that it breaks.
Throughout history, we have seen that asset inflation can’t go on forever. Either a giant crash comes eventually, or – if there’s some sense around – authorities step in to slowly deflate the bubble to prevent catastrophe.”
– excerpts from Tony Wanless’ commentary [BC Business, 2 Dec 2011] on Sandy Garossino’s 28 Dec 2011 blog post.