Category Archives: Uncategorized

Fantasy Anecdote: “Mr Carney, I’d like to take the opportunity to thank you for improving housing affordability for us regular Canadians…”

This fantasy anecdote from vreaa himself:

Somehow, I come to be sitting in the very front row of the October 22, 2009 press conference held by Bank of Canada Governor, Mark Carney. The members of the press have had chances to ask their questions, there is a sense that we’re about to wrap, and then for some reason I find my hand raised, and Carney generously gestures for me to speak…
“Who…me?.. hey great!.. Mr Carney, thank you for allowing my question. I’d like to take the opportunity to thank you for improving housing affordability for us regular Canadians –I’m a construction worker who earns $70K a year, and I’ve finally taken the plunge and bought a $650K Vancouver town-home. My bank, my realtor, my mortgage broker, and all my friends & family encouraged me to buy.. Heck, my family have been on my back to buy for quite awhile, and my friends, who all own a few properties each,  told me to stop being such a renter-loser… And all these folks have reassured me that I can afford it because the monthly carrying costs seem so reasonable, and it’s obviously a good investment… Heck, if the last 8 years are anything to go by, it’ll be a GREAT investment, right? So… as you said, we’re all being prudent… Here’s my question… well, it’s more a request, really… Some buddies and I are thinking of getting in on some investment condos… If possible, could you hold off on raising rates past next June? … Please… it’ll help us out a lot…”

“People should manage their affairs prudently in anticipation that at some point rates will return to a more normal level.”

These comments of hope and caution were made by Bank of Canada Governor Mark Carney on Thursday Oct 22, 2009, after the release of the October Monetary Report [transcribed from video of the press conference] -

“Our view is that people should manage their affairs prudently in anticipation that at some point rates will return to a more normal level. Obviously rates are exceptionally low… they’re exceptionally low for a purpose… and we’ve given pretty clear guidance on how long we expect they will have to remain at these levels [June 2010] in order to achieve inflation targets. But people should manage their affairs for… you know… a longer horizon… and most Canadians will certainly do that.”

[And in response to a question concerning whether there is a 'risk of people buying houses they can't afford'] “We do look at this… we have some concerns… Obviously consumer borrowing cannot grow faster than the economy forever.”

Addendum: This comment on Mr Carney’s comments from Stewart Hall, an economist at HSBC Securities Canada, quoted by Paul Viera, Financial Post, Oct 22, 2009 - “The Bank of Canada [seems] to have removed themselves from the dynamic of cheap money … and instead fallen back on the view that, at best, we are simply seeing pent-up demand and at worst … that lenders and borrowers will self regulate and act in a prudent way.”…“The heart wants what the heart wants and many a purchase, houses included, prove emotional rather than prudent.”

Rates So Low Renters Forgoing Subsidized Housing To Buy

When low income individuals are forgoing subsidized rentals to buy, how far can a market be from a top? These excerpts from an article that ran in the Georgia Straight 22 Oct 2009, by Carlito Pablo -

The Metro Vancouver Housing Corporation [mandated to supply affordable rental to families with low to moderate income] is losing many of its moderate-income tenants to the housing market. With variable mortgage rates going as low as 2.25 percent, plus incentives being offered by sellers, families are buying homes and moving out of affordable rental properties operated by the public housing body, according to a report by regional housing manager Don Littleford. The housing body has seen two consecutive quarters of increasing vacancy in its properties. “With the efforts of the Bank of Canada and the chartered banks to create economic activity, they’re offering very low-cost money on everything.” — “the next several rental quarters are expected to be challenging until mortgage and consumer-borrowing interest rates return to more normal levels”.

Early Boomers “starting to get the downsizing itch.”

When will the boomers downsize? Perhaps that’s already starting. This from /dev/null at vancouvercondo.info October 22nd, 2009 at 12:43 pm -

“[My] parents/in-laws are the early boomers and they and all their friends are starting to get the downsizing itch. Father-in-law shoveled a LOT of snow last winter, which is hard on anyone’s back, and they hate asking the kids to check on the house if they want to go somewhere warm for Jan/Feb. Too many stairs, too many unused rooms yada yada. They sold in August [2009] and decided to rent for now (imagine how happy I am). Many of their friends are making noises of doing the same. It’s a huge demographic group. What do you think might happen if even a small fraction of them decide “let’s just put the house on the market and see who bites”? “

“I am forever outpriced, and have decided to rent for the rest of [my] life.”

This statement of exhaustion, resignation, and some determination, from abbydabby at RE Talks on Thursday Oct 22, roo9 7:03 am -

“I am forever outpriced. — Well bulls, You were right. I was wrong. I am now a renter and even though both my wife and I work, we are not willing to spend all the money we make on a decent (as in non-luxury) home. So we [have] decided to rent for the rest of our lives so that we can afford to go out occasionally and travel once a year. But congratulations to you! I guess the new reality is that average income families can really only afford dumps or rent something decent. No middle ground. Good buy RE market.”

_______
UPDATE: It’s interesting to note the psychological pressure applied to abbydabby after those comments, by posters who are bullish the market (all comments from the same site and thread) –

adamcory on Thu Oct 22, 2009 11:05 am — “Maybe its your way of life that keeps you from owning something you desire…”

(BCAccountant on Thu Oct 22, 2009 11:11 am responds for, and in support of, abbydabby — “It definitely my way of life that keeps me from buying…. I follow the personal rule to live within my means”.)

unicas on Thu Oct 22, 2009 11:31 am mocks this prudence — “Because you add anything to the penny. But you may have missed the big picture. Have you ever heard any accountant joke?” [Presumably the ones implying accountants are people who know 'the price of everything but the value of nothing'.]

eyesthebye on Thu Oct 22, 2009 8:43 am suggests abbydabby buys anyway, but that they must decrease their expectations — “What about a townhouse or half duplex? Or even a large condo? There will be some buying opportunities for those mentioned in the next 6-8 months.” — “Don’t give up yet.”

Greenhorn on Thu Oct 22, 2009 3:59 pm is a little more forceful — “You have a piss poor attitude that prevents you from achieving your goals. The fact that you have resigned yourself to renting for the rest of your life is pathetic. You probably spend everything you make on a nice car lease, plasma TV, ipod, PS3, etc. and have huge credit card bills. There are lots of affordable places to buy in Metro Vancouver. What about Surrey, Langley or Cloverdale. Stop feeling sorry for yourself and get off of your welfare ass and do something.” [and later adds] “Sorry for the tough love, but you have a bad attitude which will get you absolutely no where in life.”

Specuvestors consider bailing: “He is re-evaluating his investment.”

Bears have long voiced the idea that a plunge in Vancouver RE prices will be greased by bailing amateur landlord/speculators. But few thought this effect could start cutting in at interest rates this low. Prime rate at TD has been 2.25% since April 2009.

This from SD92129 at vancouvercondo.info Oct 20th, 2009 at 10:37 am -

“TD’s recent increase on my co-workers variable (to prime +1%) has halved his +ve cashflow. He is re-evaluating his investment. He is 1% from being cashflow neutral, renter is leaving at the end of the month, he is considering sell, re-rent, hold out for 5 months or so to cash in on the olympics and para-olympics (dont flame me, not my words, I quietly laughed when I heard that also).”

“My neighbours have put their place up for sale in a flurry of panic that the market is going to crash.”

On the other hand, it’s not just the disenfranchised bears who are fearful of ever-rising prices, some owners are becoming fearful of the opposite, a crash, and are taking steps to cash out. It seems everybody is fearful in their own way….perhaps it’s the time of the year.

This from Hovering at vancouvercondo.info on Oct 20th, 2009 at 10:08 am -

“My neighbours have put their place up for sale in a flurry of panic that the market is going to crash. My landlord (who bought last year at peak) is also desperately trying to sell the place out from under me (so to speak).”

“I’m watching the market irrationally move further and further beyond my means.”

Market wisdom is that the bull market is over when the very last of the bears that are destined to capitulate do so (and buy). VREAA personally knows of two long term bears who have recently bought. The Vancouver RE message boards are rife with bears expressing their exhaustion and demoralization. Perhaps we are somewhere near a top. This bear lament from Ulsterman at vancouvercondo.info on October 19th, 2009 at 7:06 pm -

“All the rational arguments in the world won’t help the fact that the irrational bulls have become quite wealthy while I’ve sat back and read bear blogs. I think the market is insane and makes no sense. When I see family income @ 60k I wonder who is buying all the houses around me. [My income is] double that and I feel like everything is out of my league. Meanwhile, I’m watching the market irrationally move further and further beyond my means. Funny thing is, though, I don’t really feel like I’m getting rich from renting either. The house I rent (Burnaby) costs 2400/month to rent and I figure it would cost 4200/month inc. taxes to buy (at the CCS 5 year rate of 3.85 – which i’m certain will rise soon). However, I don’t automatically save 1800/month because to be honest I couldn’t afford to pay 4200/month in the first place without eating Kraft dinner throughout my “good years”. Could I pay 4200? Right now yes – just. But what happens when another kid comes along? Mortgage rates rise? 4200 on one income is a frighteningly LARGE payment. Very little margin for error. I’m just worried that this market will keep on chuggin’ or drop a measly 10-15% again and I’ll still be waaaaaay out of the market.”

“Life is too short to live in a city where people are obsessed with real estate to the point it drips in to every conversation.”

And individuals continue to consider leaving Vancouver to seek out saner RE climes. This from Hibernating at robchipman.net on Oct 14, 2009 at 9:54 am -

“I will check back in 1 year to see if there is a downward trend in real estate in Vancouver. If not, I am taking my pile of savings from renting in this overpriced city and buying something outright in another part of Canada. Life is too short to live in a city where people are obsessed with real estate to the point it drips in to every conversation. Sorry, but no other city I have ever been to or lived in is this focussed on RE to the point that there are no longer any intelligent conversations about civic affairs, national politics, global affairs, etc. When people only have one thing to talk about, it shows me that the society is both neurotic and immature.”

And Hibernating later adds:

“Purchasing your home back then [1990] meant buying a home first and foremost, and then maybe as a long term investment.  Flip that rationale around, where the investment properties of RE are the primary motivator, and having a home is secondary, and presto, the role of RE changes in social conversations.  Just like people will always ask how is the market doing, people now ask, how is your house doing.
Just had a meeting the other day with a chap that moved from Montreal, where he had a 2 year old 3500 square foot house for less than 350.  Once we started talking, he commented how everyone talks about RE here, especially at social functions.  I told him he is not alone in thinking that, as in the past several months, I have met with people from Europe, the US, and other parts of Canada, who travel here for business or now live here, who have all said the same thing.  Just passing on my “anecdotal” experience….”

“Now everyone is buying because they’re afraid they’ll be priced out.”

This regarding “fear-based demand” from betamax at vancouvercondo.info on October 18th, 2009 at 4:19 pm -

“A very successful realtor I just talked to said: “Last year, everyone was afraid to buy. Now everyone is buying because they’re afraid they’ll be priced out.” Further conversation revealed that most buyers thought they’d be priced out later primarily because of rising rates, though none of them seemed to consider that they’d have to pay those rates at some point anyway. When fear is running the market then you know a correction is still nigh. Yes, it’s been a long time coming, longer than most of us thought or would like, but I think that when the market finally corrects it will not be a Japan-like decline but a rapid fall when expectations of constantly rising prices aren’t met and the bottom falls out of this fear-based demand.”

“When the market crashed he had 34 assignments on the go.”

This anecdote about a flipped-out condo flipper from whisperer, the blogger at ‘whispersfromtheedgeoftherainforest.blogspot.com’, posted 16 Oct 2009 at 12:15 am. If this can happen when the market pulls back just 15% (winter 2008-2009), one would imagine that there will be even more spectacular blow-ups if and when it drops again. -

“Back in 2002, my friend ‘Bill’ (not his real name), and another colleague (‘Steve’), had invited me to join them in a
‘can’t miss’ venture. Yaletown was just starting it’s transformation and under construction was a new condo development at the corner of Seymour and Davie. Known as Tower 1, the Brava development was about to become available for pre-sale. Offered at a ‘bargain’ $306 per square foot, Bill and Steve were planning on snapping up four of the two bedroom condos (two each). At 880 square feet, each two bedroom unit was selling for about $270,000. Now, I didn’t have $540,000 to spare and neither did they. But that didn’t deter Bill. “All you need is $20,000,”“$10,000 per unit as a down payment.” The objective wasn’t to actually complete the purchase. The plan was to sign an agreement to purchase (an ‘assignment’) and then in six or eight months, sell the assignment for a profit. It was my first introduction to condo flipping. Bill was a very convincing. He had done this before and was ecstatic about the possibilities. Recognizing the early stages of a real estate bubble blowing up before our very eyes, Bill could see the easy money… and he made a convincing argument. “Just get one,” he urged, “and get your feet wet.” It was the lure of easy money… but I passed. Was it a mistake? Bill and Steve sold their four assignments for over $360,000 per unit just 8 months later. After fees, they each netted over $120,000 each for their efforts. Not a bad return for their $20,000 investment over eight months. Bill came back to me with another project the next year, this one in Tinseltown. Your humble scribe declined on that one as well. It was an attractive gamble, I said, but what happens if the market collapses? Bill would have nothing of it. It was a “license to print money”. After that, we lost touch.”

“As we know, the real estate market exploded upward for the next few years. Hundreds of others followed Bill’s idea and condo developments sold out everywhere within hours of opening their pre-sales centre. Long lineups were the norm and each new development sold out faster than the last; each one an ‘event’ profiled on the local evening news.”

“And then the real estate market crashed. [15% price drop to early 2009 trough. -ed.] My friend Bill? With each passing year, he took his profits and leveraged more and more pre-sale purchases. Things were so good, he quit his job and turned to real estate flipping full time. When the market crashed he had 34 assignments on the go. Worse, Revenue Canada began tracking down assignment sales and he was audited… apparently the government expected that these profits should be declared as income at some point. In July, Bill declared personal bankruptcy. After a messy divorce, he’s currently trying to rebuild his life.”

“…the Bank of Canada allowing people instant gratification…”

Some prospective buyers on the sidelines are demoralized by the recent market action and are starting to look at the systemic factors that have led to the RE bubble: here’s rog at Garth Turner’s greaterfool.ca on Oct 17, 2009 at 12:16am -

“Boy, are housing prices in Vancouver making me depressed. I have saved close to 70 grand and a dumpy 60 year old house here is 600 thousand and up. Savers are not rewarded, with the Bank of Canada just allowing people instant gratification, and the rates don’t look like going up anytime soon. My money makes almost no interest…”

“What type of mortgages are most new buyers taking?”

This in the trenches report on risk taking from Anonymous at vancouvercondo.info October 16th, 2009 at 4:36 pm -

“I spoke with my banker at Vancity in Richmond today. I asked “What type of mortgages are most new buyers taking?” She said without a doubt it was at least 95% “variable with the 5 year term” I said “quite risky”. She says no, because they can lock into a 5 year fixed at any time. This rate of course being double what they are paying now. Most current buyers only qualify @ the current 2.25% rate. If rates go up, I think all these current buyers will be broke.”

“Wow, landlords are getting desperate!”: Market Rents are Down

There are many anecdotes on various boards about rents dropping and renters being in the driver’s seat.. most of the time. Here are two anecdotes,  one of which involves the ‘renter’s dis-ease’…(eviction):

YLTNBoomerang at vancouvercondo.info Oct 15th, 2009 at 8:49 am -

“Wow, landlords are getting desperate! Last year when I looked at places it was a competition to rent, this year I am getting pestered by the landlords of every place I see with offers of “special deals” and rent reductions for signing a longer lease. We looked at one place that was very nice but very small and custom; we told them it was just not big enough as the built-ins would prevent us from using all our furniture (didn’t mention to them that it was over-priced). I got an email follow-up this morning from the landlord/owner offering not only a $200 rent reduction but actually offering to remove the built-ins so we could fit our stuff. Imagine that, they pay for custom millwork to increase the value then rip it out to make room for renters.”

Crash at vancouvercondo.info Oct 15th, 2009 at 9:42 am -

“My wife and I just recently got an eviction notice as our landlord wants to demolish the house and build a duplex in place. Too bad as it’s a nice house in Metrotown with the upstairs rented to us, and two lower suites, so it’s a good revenue generator. But anyways, lots to choose from rental wise (and we have 2 cats) and we’ve had potential landlords pester us for business. We found another upper suite in the same area for $75 less per month and negotiated a new dishwasher and kitchen counters and faucets be installed. They are also not asking us for a pet deposit. I also came across a full house (in nice condition) and the rent was originally $1800 but then lowered to $1650. So there’s lots for rent and languishing and rents are definitely dropping.”

Foreign Sellers, Local Buyers?

Part of Vancouver RE mythology has been the idea that prices have been elevated beyond the restrictions of local incomes by local owners selling to wealthy foreigners. Simon posted this relevant observation (edited) on VREAA -  “I’ve given up trying to figure out this town…” thread, 3 October 2009 at 9:23 am -

“I am in real estate and I can tell you for certain that most of the recent sales have been to ‘natural born Canadians’…”
“Most are moving up due to lower rates and ironically many of the sellers are overseas investors cashing out after years of owning. If you had access to the realtors MLS info you would see that. Are they over-extending themselves? – maybe some are, but they are still buying.”

“…the sick fact that people are USED to making $425k offers on 500 sq ft condos with no view…”

This from Jim as quoted by Garth Turner on his blog greaterfool.ca October 4th, 2009 -

I’m 27 years old, no debt and I have managed to save and budget well. I’m lucky to be living with a family member. I’ve been wanting to leave the nest for years now but right when I finally had the means (out of school and working full time) the real estate in Vancouver went insane! To be honest, in Vancouver right now everyone I talk to seems to think that since it’s “booming” again that it will never go down. My buddy just listed his condo (500 sq ft) at $399,000 he had 20 offers and it sold for $425,000. I told him I was happy for him, but that it’s just not sustainable….his response to me was “Vancouver has changed man, you have no idea how much money is in this city, plus we have the mountains, ocean, olympics and rich Asians…real estate can never go down! You missed the boat dude”. Any predictions for if and when Vancouver specifically will ever stop? I refuse to believe Vancouver won’t correct harshly soon…..but with locals all thinking that the world will move here after the olympics, that if they don’t buy now they’ll be “priced out forever,” and the sick fact that people are USED to making $425k offers on 500 sq ft condos with no view and a curved wall in the living room even I am starting to worry that my waiting is just going to screw me in the end. Meanwhile I just keep saving and saving and getting further and further behind, that 3.85% 300k mortgage is looking pretty good right now.”

The Pressures from Family and Relatives: “Why Not Buy?”

The details of an intra-family debate regarding Vancouver RE is laid out by real scenario at vancouvercondo.info on October 5th, 2009 at 5:07 pm -

My girlfriend and I are in our mid to late 20’s living at home mainly cause we don’t want to buy anything in this market. Combine income of 110k/year. Recently her mom is insisting that she buys something.

Her reasons:
1. start building equity
2. with our incomes and help with the downpayment, we can get a nice townhouse 400-450k range (burnaby, coq area) and be comfortable even when rates do go up.
3. if you decide you need something more, you can always rent it out and buy again. Even though the rent may not cover the mortgage, at least most of it is going towards something you own.
4. rent is like throwing your money away.

My counter argument:
1. Although we can technically afford a place like that, I look at value more than affordability.
2. prices are so far from fundamentals and avg incomes, its just not sustainable. Would bother me if 450k can buy me a house instead!
3. paying interest is also throwing money away
4. I can rent and live in a neighborhood I actually like and still save up for an even bigger downpayment.
5. vancouver is due for a crash. the gov’t keeps making provisions to keep that from happening.
6. we have lowered our standards so much in the past 10 years, why the sudden change? I think it’s hype and psychological, both of which can be turned in an instant

I’m thinking a majority of people my age just do what our parents say. Think about it, 2 sets of baby boomer parents, both paid off their mortgages, kids out of university and now left with excess cash. Why not buy if affordability is not in question? Not to mention the pressures from family and relatives. We’re both canadian born chinese if people are wondering. RE is like religion. Each side is blowing smoke and not making sense according to the other party. If it wasn’t for this blog [vancouvercondo.info -ed.], there would only be one party. There’s now talk of her mom buying, and we rent from her. At the end of the day, it’s one more blind sale to boast. You’d be surprised how many ppl out there read the Sun and Province for RE advice, think renting is garbage, believe the olympics (now HST) is driving RE prices, and that RE goes up forever.”

“I’ve given up trying to figure out this town…”

Judging by current blog discussions, there are a good number of non-owners exhausted and demoralized by Vancouver RE price action. This from scullboy at vancouvercondo.info Oct 2nd, 2009 at 11:29am -

“I’ve given up trying to figure out this town…. I’m giving it a couple more months, then I’m packing it in for somewhere else. I’ve spoken to a lot of people between 35 – 45 who are saying the same thing….. “Yeah it’s pretty but I’ll never be able to afford more then a 2 bedroom apartment I’ll have to share with a roommate.”   My own roommate is preparing to leave. He’s in construction. He runs fiber optic cable through new buildings. He was saying the whole construction industry is set to dry up completely after the Olympics.   It’s sad but to be totally blunt, I don’t think natural born Canadians can move to Vancouver and compete. Guys like Supraboy [another poster] can because they live with Mummy and Daddy but that’s hardly competing, it’s just extending adolescence indefinitely. ……I’d say the city will collapse in on itself when all those 35-45 years olds migrate somewhere else, but after three years I can’t figure out how Vancouver ever functioned as a city. There aren’t a lot of head offices. It’s expensive to start a business here. Except for construction and tourism, there just aren’t many industries to support the population.”

“And besides, I’m not so sure anymore either.”

Vancouver RE Bears are having their faith tested and their feet held to the fire. And some are beginning to doubt themselves. Sign of a market top? This from skiff at vancouvercondo.info September 29th, 2009 at 6:42pm -

“A co-worker just bought a 600sq.ft. apartment downtown for $360k. He is thrilled that his mortgage will only be about $1500/month with a 35yr, 3.7% 5yr fixed. Although he plans to live in it eventually, he hopes to rent it out for a year at $1500/month.
Another co-worker is in the midst of buying an apartment in the suburbs, and it turns out there is a bidding war on the place she likes. She goes to co-worker #1 and asks advice (since he is so experienced), and he says “if you like the place then add $10k to your offer! That’s only, like, $5/month over 35 years! It’s not an investment, but a place to live. And don’t think about the total amount or total interest. You’ll never own it, but in a few years you can sell it and make a bit of money and get a bigger place if you want. Now is the time to buy though!”
I think that pretty much sums up who is buying right now. If you are only concerned with your monthly payment, believe that real estate always goes up overall, and that what’ll happen in five years is so unknowable that it’s not worth worrying about then this market is for you! I’d have spoken up, but since I am the only person at work who still rents and isn’t actively looking to buy nobody wants to hear it. And besides, I’m not so sure anymore either.”

“Essentially, we either buy now or we never do. “

This anecdote, purloined from Garth Turner’s ‘GreaterFool’ blog post (22.Sep.2009) has a ‘Top of the Bubble’ ring to it -

My wife and I, in our mid-40s, have never bought real estate, as a result of either being in the wrong place at the wrong time (essentially moving to insanely expensive areas where we were pretty much priced out from the moment we arrived–we lived in Silicon Valley during the boom, for instance), or being naïvely bearish on real estate (when we moved back to Vancouver in 1999 I was convinced the dot com bust was the beginning of a disastrous period for real estate, never mind everything else). If we bought today, we’d be over 70 by the time a 25-year mortgage was paid off. We have about $200K to put down, and a household income about double the Vancouver median. The bank will rent us far more money than we would dare spend, but a property around about $700K would result in payments a little shy of 50% of net income, which is significantly less than other Vancouverites are paying. Yes, I know there’s a possibility that we’d lose the downpayment in the first couple of years if prices turn around. But any formerly rational person would, at this point, have to admit that in this city there’s starting to be a very strong possibility that we wouldn’t, and they won’t. Talk of “new paradigms” and “it’s different here” begin not to sound quite so insane, because there’s really no other solid explanation offered, except maybe grow-ops, which I don’t buy. Yes, I know fundamentals are out of whack. But they have been for ages. Renting, at our age, has moved past tired to exasperating. Essentially, we either buy now or we never do. Don’t try to tell me that prices will fall 40% after the stupid Olympics; I’m no longer buying it. 5%? Yeah, maybe.

“I had an interesting conversation with four ‘twenty something’ kids last night.”

This from hal smith at Garth Turner’s Greater Fool blog, on 09.17.09 at 11:30 pm -

“I had an interesting conversation with four “twenty something” kids last night. We exchanged views on real estate and the economy. Their views are buy now, it’s your last chance, rates will never be this low again. Real estate will only go up in value. This is what I learned about them from the conversation:
1. They are young testosterone driven optimists and
they are greedy.
2. They have parental backup.
3. They have no fear of debt.
4. They have no fear of risk.
5. They have no fear of lifetime mortgages.
6. They have no fear of unemployment.
7. If things go into the dumper they will inherit their
way out of trouble.
This is what they told me: ” Your views are well thought out and all that but you are wrong. That can’t happen.”
Wanna hear something even funnier? One of them is unemployed , one is in the forest industry,and another one is maybe 20 or 30% underwater on his Kelowna townhouse and heloc since he bought it in 2007. It could get real ugly out there………”

“It seems in metro Vancouver, we will never run out of great fools. I am giving up.”

This from Lender at vancouvercondo.info on Sept 9th. 2009 at 9:26pm -

“I have been a regular visitor of this website (http://vancouvercondo.info) for more than two years now. I was alone since 2005 and insisting the house bubble would burst very soon until I found this website. I think my mind started changing slowly to believe the possibility of a perpetual Vancouver housing bubble. I am a lender working for big five with two professional designations. I am familar with all the bearish arguments and totally agreed with them. We all here are being rational. I also have first hand knowledge how irrational the current buyers are. I have client buying a place for $600K which they can rent out for $1500 per month and deeply believe they got a bargain. I have client doing landscaping bought million dollar home with 10% down. I have client without any other income bought three rental properties. It seems in metro Vancouver, we will never run out of great fools. I am giving up.”

“Dumped Inheritances As Downpayments Into Homes That They Bought For 600k, 700k, and 800k.”

Could the Vancouver RE market be a way in which intergenerational wealth transfer may be destroyed? This from No Condo in the 604 at greaterfool.ca on 08.06.09 at 10:58 pm -

“Since Peak prices, I’ve discovered couples in their late 30s/early 40s, all first time homebuyers, who dumped inheritances as downpayments into homes that they bought for 600k, 700k, and 800k. I know that two of these homes are 35yr mortgages, and for all three, they required major renovations, into six figures. (The) thing is: before their inheritances they were living hand to mouth. And now, although “homeowners”, they are living hand to mouth once again, only they have a mortgages spanning quite possibly for the rest of their natural lives.”

“I have none of my clients lock up. “

Many suspect that ultra-low borrowing rates are continuing to levitate Vancouver’s RE market. This from a ‘horse’s mouth’, Anonymous on vancouvercondoinfo June 12th, 2009 at 7:09 pm -

“I am lender and have first hand knowledge regarding speculators holding out. Most of them have VRM 0.75% to 0.90% below Prime. So currently their mortgage rate is between 1.35 to 1.50%. How many of them lock up into 5 year term when the rate was 3.5%? Very few. It is very hard for a person to lock up with a 2.0% rate increase rightaway especially if they are thinking short term to sell. I have none of my clients lock up. So if the Prime goes up next year by big numbers, you will see lots of blood.”

“And yet, he’ll still boast about what great RE decisions he’s made.”

This from DownTurnLiving on 2009 May  27, 1:35pm -

“A friend in early ’07 bought a 2 bedroom in a development on Pender east of Cambie and fell for the buy now or be priced out forever, hook line and sinker. He thought by the time his building would be complete that somehow magically the neighbourhood would be gentrified in time, and the street wanderers would no longer be there.
He and his girlfriend have since had a child but found the street crowd hasn’t magically changed there; so realizing it’s not the best neighbourhood to raise a one year old, their only option was to move the family in with girlfriend’s mom into her west end rental apartment. Meanwhile, take out a mortgage on their 2 bedroom unit when complete and roll the dice by putting it into the furnished rental pool, while enjoying the benefits of negative cashflow. And yet to this day, he’ll still boast about what great RE decisions he’s made.”

Owners “Bleeding Money Every Month”

Now there are anecdotes emerging of sellers who are in debt:

This exchange on RE Talks:

Johnny Horton on Tues May 26, 2009 7:51 pm -

“I’ve heard so many stories of Sellers not having any dough.
It’s not getting any better, either.”

Greenhorn on Wed May 27, 2009 12:46 am -

“I know some investors who would love to sell, but won’t because there is no profit on the table. They are underwater on the deals. Now they are bleeding money every month, paying a tenant to live in their investment. They tell me the negative cash flow each month is like Chinese water torture. I wonder if there are any homeowners in this situation?”

meeeeep on Wed May 27, 2009 5:21 am -

“I think it’s a pretty common scenario. There is a newish house in Shaughnessy that the owner picked up in the fall of 2007 for $2.8m. He now can’t sell it even for $1.9m. While he waits (for what I’m not sure), he’s got it rented out for $4000/month.”

“A lot of Sellers are tapped out of equity…”

There’s been a bit of a ‘spring bounce’ in sales and prices, in some areas. But all is not what it superficially seems. This from ‘Johnny Horton’ at RE Talks on Wed May 20, 2009 8:01 pm -

“My buddies in the business tell me that a lot of Sellers are tapped out of equity in the properties that they are selling.
Many of the mortgages are very close to the selling prices, ie…..no equity left.
Although there are a lot of first time Buyers purchasing these properties, the Seller’s don’t have the equity to buy “up” or buy “down”.”

“And I was wondering where all the greater fools were coming from, apparently they all work for the banks. . . ”

This from VanBanker at vancouvercondo May 12th, 2009 10:43 pm -

“(I) was having lunch with someone who works in another department and mentioned I was renting, they said I should jump in now since we’ve “hit bottom in Vancouver,” I said we’ve got a lot further down to go, they suddenly sat up defensively and said “I just bought last month”, very awkward, lol :) And I was wondering where all the greater fools were coming from, apparently they all work for the banks, and I thought my co-workers would know better…”

“It’s Now A Depression At My House”

This from ‘JeffSkilling’ on 2009 May 05, 1:27 pm -

“The saying goes when your neighbour loses his job it’s a recession, and when you lose your job it’s a depression. Well it’s now a depression at my house, my firm laid off 25 professionals this morning, including me :shock: . Anyone out there have any tips for the newly unemployed in terms of keeping up with mortgage payments, job search consultants, etc…

BTW my next door neighbour lost his job three weeks ago (architect) and the lady across the street (lawyer) has been unemployed for three months she is thinking of becoming a bus driver! Until these last 6 months I’ve never known a “professional” who had ever been unemployed, it’s kind of disturbing.”

Point Grey Spec Build: “They’re underwater $390K when all is said and done.”

This from Whybuywhenucanrent on 2009 May 02, 3:04 am -

“4597 W 14TH AV sold for $1.69M on April 1 (2009).
As of Feb 1 at a $1.79M list, I estimated they were $260K underwater. At 2 more months of $15K debt service and a $100K hit on the price, they’re underwater $390K when all is said and done. To drive this home, they bought the place 12 months previous for $1.25M, bulldozed a house, built a brand new house on the lot, and sold it for a whopping $1.69M. That’s only $340K more than they bought the lot for. And they paid $50K in Realtor fees if they did a standard contract. (And I left out landscaping costs in the original post, so subtract another $10K?)
Another way of looking at it — to break even, they would have had to have brought construction costs from $250/sf to $90/sf. “

“But he’s jazzed because he can buy a townhouse for $50k off peak price.”

This from betamax at RE Talks 2009 Apr 28, 8:27am -

“I know someone who’s buying right now, he and his girlfriend just put an offer on a place. The crazy thing is, he works for an IT startup company which has already laid off 1/3 of the staff and may not survive the year, and the people already laid off still haven’t found jobs again in IT, but none of that has deterred him. And his relationship doesn’t look too stable either. But he’s jazzed because he can buy a townhouse for $50k off peak price. People just don’t think things through very much.”

Group Anecdote: “How Exposed Are You To The Vancouver Real Estate Market?”

(1) “What percentage of your net worth is currently in RE?”
(2) “To what extent is your equity in RE sensitive to changes in the RE market?”

These are important questions for all RE owners and RE investors, and we are here collecting ‘group anecdote’ information in this regard. Raw dollar numbers are likely too personal. Rather, you are invited to share the answers to the two questions above. Posters on other Vancouver RE blogs are also being invited to participate in this survey. Results will be collated on VREAA.

First, establish the following variables -
x = Total current market value of owned RE
y = Total outstanding mortgage debt on owned RE
z = Value of all other your assets, including savings, RRSPs, etc.; minus non-mortgage debt.

Now, calculate -

(1) “What percentage of your net worth is currently in RE?”

Percentage of net worth in Real Estate = ((x-y)/(x-y+z)) X 100

Then calculate -

(2) “To what extent is your equity in RE sensitive to changes in the RE market?”

Leverage ratio = x /(x–y)

[Illustrations regarding leverage -
If RE prices go up (or down) by 10%, someone with a ‘leverage ratio’ to the RE market of 1.0 will have their equity in RE move by 10%.
If their leverage is 1.2, it will move 12%; and if their leverage is 4.0, by 40%.
A negative leverage ratio occurs when there is more owing on the mortgage than current market value.]

At the very least, these are numbers with which all RE owners and RE investors should be familiar.
This is an invitation to do the math, and to share answers if you feel comfortable doing so.

Post your answers to questions (1) & (2) as a comment below.

“He is scared as hell because the company has absolutely no jobs lined up.”

Some are only now starting to anticipate the post-2010 hangover. This from betamax at RETalks 2009 Apr Tues 07, 9:16 am -

“A neighbour of mine is a project manager on one of the multi-million dollar development projects currently due to complete in the fall. He is scared as hell because the company has absolutely no jobs lined up when this big project completes. He’s now sending out resumes to other companies, with no takers. He even started talking about applying for jobs in the US, seemingly unaware that things are even worse there. I was actually a bit shocked by how little he knew about the larger economic picture.”

“30% is the average vacancy rate in a couple of dozen towers in Yaletown.”

The rental market is softening in Vancouver, with both more vacancies and lower rents. These anecdotes from a thread at RETalks, 2009 Apr 03 -

wtm notes: “Very interesting developments these days west of Denman in the west end. Normally at this time of year, i.e., start of the summer, very few vacancies are posted. Take a walk in the this hood tomorrow — I saw close to TWO DOZEN vacancy signs today — studios, one bedrooms, two bedrooms, even a 3 bedroom place. Either tenants becoming owners or people leaving the city because they lost their jobs? I have lived down here off and on for 10 years — I have NEVER seen this many vacancies in this neighbourhood.”

Strataman adds some first hand information: “I am exposed to well over 2000 rentals in YALETOWN as a service company for the strata corps. The rents are dropping and have dropped substantially. 30 % is the average vacancy rate in a couple of dozen towers in Yaletown.”

kansai_92 reports: “I’m starting to see vacancy signs around the Broadway/Cambie corridor now. These are older rental stock. One of my colleagues live in one and his rent is an amazing $775/month for around 750sf. He’s surprised to see vacancies popping up as well.”

Visual from Kits – “Due To Financial Difficulty, Must Sell!”

200903kits

“The 493K will not happen in my lifetime” – “Nobody wants them yet they will still sell for minimum 500K.”

Some are frantically calling the bottom in the Vancouver RE market, in word or in deed. This from eyesthebye on 2009 Feb Wed 25, 6:05pm & 10:21pm who seems to believe that the market can’t possibly deteriorate further from here -

“He’s saying the price of a single detached in Vancouver should be 493,000? I just bought a place – a character 1 and half story at over 600K and I had to line up for it – in fact, every decent home I looked at was sold in the first week for high 500′s to 700K. I’ve even see substandard locations sell for 500K in the first day offered. If you’re in the market for a single detached expect to pay 600K for a decent place. The 493K will not happen in my lifetime.”

“Buying a decent house in Vancouver for under 500K is a pipe dream. Trust me, I’ve just been through it – searched for a HOUSE for six months and every time there was a decent 1.5 or 2 storey character house for under 700K it was gone. Go look for yourselves – mls is littered with Vancouver specials and bungalows – nobody wants them yet they will still sell for minimum 500K. Anyone who doesn’t believe this can continue to live in their rented apartment or owned condo”

UPDATE: The above poster later revealed “I have a construction trade too…this is not a secret.” (RE Talks 11 Dec 2009 4:31 pm)

“I’m 79 years young … I should have known better with all these years of experience.”

This is a second anecdote from the article by Kerry Gold in the  Globe and Mail, February 19, 2009 -

“Lou Skoda and his wife Donna purchased their two-bedroom Port Moody apartment in Onni’s Aria 2 building in September, 2007, for $456,000.

However, a year later, when they tried to sell their smaller condo unit to finance the purchase, the market had collapsed. Mr. Skoda, 79, a retired cartographer, lives on a fixed income and couldn’t obtain a mortgage to finance the Onni condo. He attempted to renegotiate with the developer, he says, but was turned down. By January, he learned that his new condo would be sold for 25-per-cent less as part of a liquidation sale of 375 units. Mr. Skoda offered to buy the condo for the reduced price, but was offered a 6-per-cent discount instead. Onni is now suing Mr. Skoda for backing out of the deal, which means the Skodas could lose their $68,350 deposit and be stuck for damages such as the loss in property value.

“We bought at the height of the real-estate-market wave and we were trying to sell when the real estate went through the floor kind of thing,” says Mr. Skoda. “We definitely didn’t see this coming, so we signed on the dotted line. Of course, we made a decision without consulting with a lawyer, which my lawyer now tells me was a dumb thing to do, and I agree.

“I’m 79 years young … I should have known better with all these years of experience.”

“The market changed so quickly, no one could anticipate it.”

This from an article by Kerry Gold in the  Globe and Mail, February 19, 2009 -

“Computer programmer Riaz Kassam purchased a two-level penthouse in the trendy Yaletown district of downtown Vancouver last June for $1.5-million, with a down payment of $80,000. Compared to comparable units, the H + H unit should have been priced at $1.6-million, so Mr. Kassam thought he was getting a bargain. By the time the condo was completed earlier this year, Mr. Kassam was shocked to see it appraised at $1.2-million. In order to close the deal, he says his bank requires that he pay a bigger down payment of 25 per cent. However, his current condo has also dropped by more than $170,000 in value, which has made that impossible. Mr. Kassam says the developer is now threatening to sue.

“We even asked our broker to get third-party funding for us, with 10 or 12-per-cent interest – but no one is willing to do that because they need equity,” he says. “The market changed so quickly, no one could anticipate it.”

“The cycle will come back but I don’t want to wait until it gets better.”

Lynn Harrison has lost her job twice now in the boom-bust home building industry. This time, she’s getting out for good. The former marketing manager at British Columbia’s Vesta Properties Ltd. was laid off as the slump in the residential construction sector took hold late last year. She lost a job the first time during the 2000-2001 downturn, and now she’s looking for a senior marketing position in a completely different industry. “The cycle will come back but I don’t want to wait until it gets better,” said Ms. Harrison, who was laid off in December at Vesta, which is based in the Vancouver suburb of Langley. “No one wants to build a bunch of homes no one wants to buy. There are just times when you have to cut people.” Ms. Harrison was part one of the greatest job creation booms that drove employment in the sector to 1.2 million from about 800,000 at the beginning of the decade. And now she’s among those leaving as construction plummets.”

“Damn Those Pumpers!”

Regrets from Waitingtobuy99 at RETalks on 2009 Feb Tue 17, 11:23 am -

“We (young business professionals) bought in 06 and thought oh, it’s never coming down; we sold our 700sq/ft condo and lost a lot of our down payment. Damn those pumpers! It’s not the older generation who are getting screwed here, its the first time home buyers in the past 2-3 years. They (pumpers) should be on trial for some kind of conspiracy.”

“That’s GOTTA’ hurt.”

Report on a telling sale from thinktom at RETalks 2009 Feb Mon 16, 2:20 pm -

“Unit 2701 at 1455 Howe. Purchased Feb 1, 08 for $1m even. Just sold for…. $725k. That’s GOTTA’ hurt.”

“I guess paying close to a half a million bucks for 720 square foot condo doesn’t seem like such a great “investment” now.”

Are we already back to 2005 price levels for some Vancouver RE? This from meeeeeep on RETalks on 2009 Feb Sun 15, 6:36 pm -

“1201-1005 Beach Avenue (the Alvar) just sold for $375K after 28 DOM. In 2005, the going price was $350K for the same unit on a lower floor. 501 sold for $345K in Oct. 2005 and 601 sold for $352K in Dec. 2005. In May 2007 one of these units (1601) sold for $438K. Considering current interest rates, it is astonishing how fast the price has fallen. I guess paying close to a half a million bucks for 720 square foot condo doesn’t seem like such a great “investment” now.”

“I look forward to selling real estate in a market where I can more easily see value for the dollar.”

Respected North Shore realtor Paul Boenisch has decided to move from Vancouver to PEI for reasons of affordability and consequent improved lifestyle. This extracted from his blog, Wednesday February 11, 2009 -

“My wife Sandra and I have made the decision to move our 1.5 (one on the way) kids to Charlottetown, PE. Why? We initially were interested in Charlottetown because we have some family there, and after researching it and visiting PEI, the vastly improved quality of life is what convinced us. Sandra and I want to have the time to be very involved in the lives of our children, and PEI is affordable as well as being beautiful.” -
“I look forward to selling real estate in a market where I can more easily see value for the dollar. Selling first-time home buyers into a 200k house will feel good compared to the recent speculative mania that has infested BC real estate. And when you toss in beautiful beaches and the best golf in Canada it all made a tough decision a little easier.”

comparison

“The Other 30 are Completely, Utterly and Totally Empty.”

The rental market is not as tight as many would have one believe. This from vomitingdog at Rob Chipmans blog 05.Feb.2009 at 1:04pm -

“I am renting in a 12 story Vancouver tower in the South Granville neighbourhood. Of the 40 brand-spanking new units in this building exactly 10 of them are rented. The other 30 are completely, utterly and totally empty with craigslist ads posted several times a day to try to fill them up. And the craigslist ads have been running for 5 months now. If you said that they are over-priced and the landlord is not open to actual market values, I would be hard-pressed to disagree. But it seems to me that landlords, even of big rental buildings, have drunk from the same kool-aid as owners. Anyone who says that the rental market is tight must be referring to bachelor’s and 1-bedrooms at the lower end of the market. But even those are now widely available and sitting empty for 1-3 months in beautiful old heritage walk-ups in this neighbourhood when they never were as available before.”

“Would You Like A Mortgage With Those Fries?”

grantness at RETalks Thu Feb 05, 2009 4:44 pm writes -

“A year ago we faced a staffing crunch in my restaurant. But since December, we’ve had several realtors applying to be waitresses.”

A Drove Of Price Drops

A thread on REtalks started on Saturday 31st January 2009, resulted in a series of anecdotes about price drops -

“Assessed: 1.42M; Orig list: 1.35M; Sold: 850k. This is not uncommon.” (Paulb quoted by freako). Update 01 Feb 2009 -> “Paul B missed the mark by $10K. I purchased the WV house for $840K with a $1,426,600 assessment. The market is collapsing regardless of pricepoint ($100K or a $1,000,000) and will continue to for likely the next 2-3 years, perhaps longer.” (westvanbuyer)

“I am not a realtor but there was a house on Capital Hill my wife and I were looking at. Beautiful home, quality built. A year ago it was listed for $1.15M and an offer was made (according to the realtor) for full asking but the sellers got cold feet. Fast forward a year. House sold after being on the market for a second time. Was listed at $1.05M but sold for $860K.” (poundcruncher)

“Buddy builds homes in Point Grey. Last year he was buying 33′ ft lots for $1.1M. One sold two weeks ago for $823 (w/ view of d/t). ” (poundcruncher)

“Ambleside home. sold 1.57M March 08; sold 1M Jan 09.” (Paulb)

“Sales at significantly below list are becoming common place now. A house three blocks down from me just sold for $1m below assessment. The listing agent said the sellers were very pleased with the sale price, given the state of the market.” (kingroland)

Some suggested that these anecdotes exaggerate declines, citing possible lesser drops as evidence:

“My Abbotsford townhouse, confirmed by to recent sales in Dec and Jan is worth 300-310k. Last May it would have sold for 330k” (pianoexcellence quoted by Thompson)

“It consists with what I observed, such as the highrize buildings in Lougheed Mall where is worth about 250K now, down from 280k since last May.” (Thompson)

vreaa would appreciate the posting of any first hand anecdotes of 2008 versus 2009 sales price changes in the comments section below.

“They’re already crying — They’ll go bankrupt, I think.”

This from concerned father joe2 at RETalks on 2009 Jan 29, 10:15 am -

“My daughter, with her boyfriend, bought a house last year in Prince George for $270,000. They’re already crying, and tried to sell privately but can’t even get a $170,000 offer. They’ll go bankrupt, I think.”

(quote paraphrased by vreaa editor)

“I make $52,000 a year and I own two large townhouses. I bought the last one a year ago.”

Apparently some people haven’t heard the news about the ongoing worldwide RE bust. The CBC reported that people literally lined up to buy condos in Vancouver on the 19th January 2009.

The comments on the article at the CBC website included this one from  ‘johnny’ Posted 2009/01/20 at 3:41 PM ET:

It really annoys me when greedy, lazy people complain about the cost of housing.
Yes, it is expensive!
Vancouver is the #1 place to live in the world.
Prices are not inflated tho. The price that homes sell for is exactly what buyers are willing to pay – and that is always how it will be. If you are not willing to pay those prices, then either give up on wanting to buy, or move somewhere cheaper. The prices will not drop drastically just because you want them to. Vancouver will ALWAYS have lots of foreign investors. That is the way things are here.
I make $52,000 a year and I own two large townhouses. I bought the last one a year ago. I have never been given any money from relatives or won anything. I dont have any special knowledge or opportunities. I simply wanted to buy a home, and made it happen. And then I wanted to buy a second one, and made it happen. Its not about how much money you make, because really, I dont make all that much! Its about your priorities and the decisions you make. If you really want something, go and get it!
Why buy now instead of waiting till “the bottom” has been hit? Well, we never know when the bottom has been hit until its already gone and prices have started to rise. Also, do you realize how many people are waiting for “the bottom”? Once someone declares that the bottom has been hit, the market is going to be flooded with buyers and there will be lots of competition and prices will rise. Right now there is a huge supply of homes and great interest rates, so even if prices do drop a bit more, you still may get a better deal now, just because there is so few buyers.
Even if prices do drop a bit more, unless you are intending on selling in the near future, it wont affect you. Most people are buying a home, not an investment, so even if prices do go down a bit in the short term, that has no affect on the value of your home say 10 years in the future.
If you want a home, and you can afford one, buy one.

“Owner” of 20 Investment Properties Can’t Sleep

This from IC4 at RE Talks on Wed Jan 14, 2009 4:08 am -

“Some of my family members attended (the Real Estate Investment Network) seminars a few years ago and now are up to their necks in debt. Maybe a couple of million in one case, and no idea as to the others. Probably more than that.
One of my siblings “owns” more than 20 investment properties and has a hard time sleeping, worrying about how to keep the places tenanted. Somehow they have always found other investors to help them buy more property. One of the big purchases was a building which needs millions to be refurbished and probably can’t be resold until it is—but my worry is, what if the original co-investors start asking for their money back? If that is the case then I see ruination ahead. And that makes me feel very scared for their sake.”

Sold! (For 10% Below 2006 Price)

This from Thomasina Barnes, in the Globe and Mail, January 9, 2009 at 2:08 PM EST -

  • 428 BEACH CRES., UNIT 2102
  • ASKING PRICE: $1,998,000
  • SELLING PRICE: $1,600,000
  • PREVIOUS SELLING PRICE: $1,780,000 (2006)
  • TAXES: $8,258 (2007)
  • DAYS ON THE MARKET: 162
  • SELLING AGENT: Nicolas Blachette, TRG Realty

“A lot can change in six months. The list price of this 1,713-square-foot suite was reduced twice before its sale. It was originally listed at $2,298,000, then cut to $2,198,000, and finally $1,998,000. It sold for almost $700,000 below the original price — and $180,000 less than the home was purchased for in 2006.”