Wage To House Price Ratio Is A Changin’

inside-llewyn-davis-trailer

Readers may have seen the 2013 Coen brothers movie ‘Inside Llewyn Davis’, about a folk singer in NYC in 1961.
In a relatively early scene we hear from Llewyn’s sister that their parents’ house has been sold for “Eleven-Five” ($11,500).
Immediately thereafter Llewyn sits in on a recording session for another folk singer, playing second guitar and doing fill-in vocals on one song. For this he is paid $200 (a little under 2% of the value of a house!).
Gee, how times have a-changed.
The equivalent in our town today would be for a musician to be paid $15K-$20K for session work on one song.
– vreaa

No, Not Karl Marx; That Other Mark, Mark Carney – “Just as any revolution eats its children, unchecked market fundamentalism can devour the social capital essential for the long-term dynamism of capitalism itself.”

“Just as any revolution eats its children, unchecked market fundamentalism can devour the social capital essential for the long-term dynamism of capitalism itself,” Bank of England governor Mark Carney said. “A sense of self must be accompanied by a sense of the systemic.”

Carney said public trust had been damaged by the behaviour of banks both before and after the financial crisis. He cited allegations that the Libor interest rate benchmarks and prices on the foreign exchange market were tampered with.

“Unbridled faith in financial markets prior to the crisis and the recent demonstrations of corruption … has eroded social capital,” he warned. “An unstable dynamic of declining trust in the financial system and growing exclusivity of capitalism threatens.”

- from ‘Bank of England’s Carney says bankers should be less selfish’, David Milliken, Reuters, 27 May 2014

Related things can be said for the threats to a society of perversely low borrowing rates resulting in astronomically overvalued homes. A housing bubble devours its life-blood.
Carney was instrumental in ensuring years of mispriced money in Canada. He repeatedly threatened to tighten policy, but never walked the walk, and his words were ignored and seen as vacuous. And he never adequately leaned on those in government with direct influence on mortgage terms.
– vreaa

The New Yorker – Vancouver RE As A ‘Hedge'; “Zombie Neighbourhoods”; “The rest of us better get used to being tenants”

“The most expensive housing market in North America is not where you’d think. It’s not New York City or Orange County, California, but Vancouver, British Columbia. Now, Vancouver is a beautiful city—a thriving deep-water port, a popular site for TV and movie shoots. By all accounts, it is a wonderful place to live. But nothing about its economy explains why—in a city where the median income is only around seventy grand—single-family houses now sell for close to a million dollars apiece and ordinary condos go for five or six hundred thousand dollars. “If you look at per-capita incomes, we look like Reno or Nashville,” Andy Yan, an urban planner at the Vancouver-based firm Bing Thom Architects, told me. “But our housing prices easily compete with San Francisco’s.”

When price-to-income or price-to-rent ratios get out of whack, it’s often a sign of a housing bubble. But the story in Vancouver is more interesting. Almost by chance, the city has found itself at the heart of one of the biggest trends of the past two decades—the rise of a truly global market in real estate.

A recent report by Sotheby’s International Realty Canada examined more than twelve hundred luxury-home sales in Vancouver in the first half of 2013 and found that foreign buyers accounted for nearly half of sales.

Vancouver isn’t an obvious superstar. It’s not home to a major industry—as New York and London are to finance, or San Francisco to tech—and it doesn’t have the cultural cachet of Paris or Milan. Instead, Vancouver’s appeal consists of comfort and security, making it what Andy Yan calls a “hedge city.” “What hedge cities offer is social and political stability, and, in the case of Vancouver, it also offers long-term protection against climate change,” he said. “There are now rich people around the world who are looking for places where they can park some of their cash and feel safe about it.”

The globalization of real estate upends some of our basic assumptions about housing prices. We expect them to reflect local fundamentals—above all, how much people earn. In a truly global market, that may not be the case. If there are enough rich people in China who want property in Vancouver, prices can float out of reach of the people who actually live and work there. So just because prices look out of whack doesn’t necessarily mean there’s a bubble. Instead, wealthy foreigners are rationally overpaying, in order to protect themselves against risk at home. And the possibility of losing a little money if prices subside won’t deter them. Yan says, “If the choice is between losing ten to twenty per cent in Vancouver versus potentially losing a hundred per cent in Beijing or Tehran, then people are still going to be buying in Vancouver.”

The challenge for Vancouver and cities like it is that foreign investment isn’t an unalloyed good. It’s great for existing homeowners, who see the value of their homes rise, and for the city’s tax revenues. But it also makes owning a home impossible for much of the city’s population. And the tendency of foreign buyers not to inhabit investment properties raises the spectre of what Yan has called “zombie neighborhoods.” A recent study he did found that a quarter of the condos in a luxury neighborhood called Coal Harbour were vacant on census day.

One option would be to severely restrict foreign ownership, but that’s politically difficult, and not great for a city’s economy. It might make more sense if the Vancouvers of the world simply charged foreign buyers a premium for the privilege of owning there. “We’re one of the places where people seem to want to park their cash, and there aren’t that many of those places,” Yan says. “So let’s raise the parking fees.” As for the rest of us, we’d better get used to being tenants.

- heavily excerpted from ‘Real Estate Goes Global’, James Surowiecki, The New Yorker, 26 May 2014

When the New Yorker mentions Vancouver RE, that deserves a post.
– ed.

“On my block, there are three empty million-dollar houses. Property values are skyrocketing. It is a disaster for people who want to live in Vancouver.” – Charles Hou, retired social studies teacher

“Charles Hou is a retired social studies teacher who has lived in Dunbar for 48 years. He has a bone to pick.
“On my block, there are three empty million-dollar houses,” writes Hou, whose home is on West 39th Ave. “The house behind mine sits empty for 90 per cent of the year.
“This is having a devastating effect on my neighbourhood. People no longer are doing upgrades on their houses because they know they will be torn down if sold.
“Merchants and schools are suffering because people don’t live in the houses. Property values are skyrocketing. It is a disaster for people who want to live in Vancouver.”

– from ‘Absence of data on Vancouver real estate market ‘mind boggling’, Barbara Yaffe, Vancouver Sun, 12 April 2014

“Politicians at all levels of government have adopted a “let-them-eat-cake” posture regarding Vancouver’s housing affordability crisis.
And city residents, justifiably, are becoming exasperated.
“Concerns about affordable housing have focused on those living below the poverty line,” notes South Surrey homeowner Leigh Anderson, “but it’s obvious to me that those in the middle class, particularly young families, can no longer afford to live in this area, either.”
Shaughnessy resident Lesley Bentley reports, “Right now, nine houses are under construction within a block of my house …
“We are becoming a resort city. But it’s a hard place to live, bring up a family and have an engaged population.”

– from ‘Vancouver house prices pushed by apathetic politicians and offshore demand’, Barbara Yaffe, Vancouver Sun, 13 May 2014

Leonardo_da_Vinci's_Perpetual_Motion_Machine

‘Big wheel keep on turnin’,
Proud Mary keep on burnin’..’

– CCR

Little has changed.
Lots of houses for sale; still sellin’ for lots o’ money.
Our predictin’ is no different… market is overvalued, but who will ever let it know?
We still foresee big drawdown… someday.

‘Someday..eee..ayy..
Never comes.’

– CCR

Hope everybody is well and enjoying life.
Posts will continue to be sporadic for foreseeable future.

-vreaa

Vancouverites have ten times the personal debt of people in the ‘debt capital of Britain’.

“The BA1 9 postcode area has the highest level of personal loans per person in Britain. Each owes an average of £2,311 [Can$4,279], according to the latest data from the British Bankers’ Association (BBA).”
– from ‘Lansdown, unlikely personal debt capital of Britain’, Kevin Peachey, BBC, 24 April 2014

In the ‘You-call-that-a-knife-THIS-is-a-knife’ Department, compare this with our muscular local figures:

“At the end of 2013, Canadians owed a total of $27,368 on such things as lines of credit, credit cards and car loans. … Vancouver residents experienced the biggest increase in consumer debt, hitting $41,077 at the end of 2013, up seven per cent from $38,357 in 2012. … “.. the real estate market has really had an impact there,” said Thomas Higgins, TransUnion’s vice-president of analytics and decision services.”
– from ‘Vancouver ends 2013 with highest consumer debt in Canada’, The Canadian Press, 26 Feb 2014

‘How badly would you be hurt in a housing market price correction?’ [The Globe and Mail]

“A question for everyone who thinks houses are an investment: How much would a market decline hurt you? …
Houses are a financial asset that can rise and fall in price, just like stocks, bonds and gold. It’s important to remind ourselves of this after a 25-per-cent price gain between 2008 and 2013 on a national basis and a doubling of prices in Vancouver, Calgary and Toronto over the past 10 to 12 or so years. …

Want to see what a 25-per-cent decline would look like in today’s market? Our Correction Calculator shows you the numbers for the Canadian market as a whole, as well as the Big Three markets of Vancouver, Calgary and Toronto.

The calculator in no way predicts a downturn in housing prices. It’s only a tool for helping people understand how both declines and increases in house prices might affect them.

Be cautious when viewing how a rising market will increase the value of your home. Interest rates are close to rock bottom levels after a 30-year down cycle and likely to rise in the next couple of years. The impact on affordability will be significant.

“I think it’s going to be a huge shock to the Canadian real estate market,” said Craig Alexander, chief economist at Toronto-Dominion Bank. “I do a lot of real estate presentations from coast to coast and an awful lot of young people think these low interest rates are normal. They don’t see anything abnormal about a 3-per-cent five-year mortgage. I always have to say, can you please have a conversation with the grey-haired gentleman at your table about the normal level of interest rates.”

- from Rob Carrick, Globe and Mail, 21 April 2014

Recorded here as part of our series ‘Incredibly Infrequent Posts’.
The idea of a possibly significant correction is getting mentioned more and more in the MSM.
Our outlook for Vancouver RE has not changed. We still foresee a large correction at some point. And, contrary to some guesses on the last comments thread, we have not capitulated and bought or anything bizarre like that.
Markets can remain irrational for longer than one can stay sane.. the Vancouver RE Bubble has been an absolute doozy.
For evidence, check out the graphic below, keeping in mind that the Vancouver chart is running at a trend that is unsustainable, arguably anything from 2% to 5% more per annum than is justified by any related real growth, and that prices tend to revert to means when they correct.
– vreaa

image
– from ‘Canadian, U.S. housing markets defy expectations, price gap hits record’, G&M, 23 April 2014

A Veterinarian’s Dilemma – “Living in a 300-square-foot closet, moving to northern B.C. or renting for life.”

“My veterinarian, owner of a successful west-side practice, emailed recently to say young professionals like him “are left with a choice between living in a 300-square-foot closet, moving to northern B.C. or renting for life.”
– from ‘Here in B.C., we’re richer than we think — on paper’, Barbara Yaffe, 24 Mar 2014

[Posts are, as you can see, very sporadic. No change in our outlook for Vanc RE market. -ed.]