‘The Extra Breadwinner In The Family’ – ‘Does your house make more than you?’

Another nation, but just as relevant (and equally unsustainable) here in Vancouver. – vreaa
[Remember the Vancouver dentist who reportedly said that he “made more on the sale of that house than he made in his entire career”? (VREAA, 21 Aug 2011)]

“With house prices growing faster than incomes in many parts of the UK, is your house making more money than you do?
Thanks to an extra breadwinner in the family, Rebecca Fletcher, her husband and two daughters are living the good life in a rural cottage deep in the Hampshire countryside.
The extra breadwinner is their old family home – a three-bedroom, terraced house in south-west London which Mrs Fletcher, a primary school teacher, and her husband, a London solicitor, bought in 2007.
They paid £450,000 – right at the top of the house price boom of the last decade.
When house prices fell after the 2008 banking bust, they feared financial disaster.
“We thought, ‘Are we ever going to be able to move out of this house – are we ever going to recoup the money we’ve spent on it?’” says Mrs Fletcher.
Their fears proved unfounded.
In 2009, prices in south-west London started rising, and went on rising. By the time they sold their former home last August, the price was £655,000.
According to calculations done for the BBC by Lloyds Bank, in the 12 months before the sale, Mrs Fletcher’s London home had increased in price by about £100,000 – more than she and her husband’s earnings put together.”
- from ‘Does your house make more than you?’, Michael Robinson, BBC, 1 Aug 2014

‘Extreme Speculation’ – “The problem is that the diversion of resources into investments that are only justified by the stream of new money and artificially low interest rates will destroy wealth at the same time as it is boosting activity.”

The Vancouver RE market can only be understood as part of a global phenomenon of too-cheap money encouraging ‘extreme speculation’. -vreaa

“When the central bank pumps money into the economy and suppresses interest rates it creates incentives to speculate and invest in ways that would not otherwise be viable. At a superficial level the central bank’s strategy will often seem valid, because the increased speculating and investing prompted by the monetary stimulus will temporarily boost economic activity and could lead to lower unemployment. The problem is that the diversion of resources into projects and other investments that are only justified by the stream of new money and artificially low interest rates will destroy wealth at the same time as it is boosting activity. In effect, the central bank’s efforts cause the economy to feast on its seed corn, temporarily creating full bellies while setting the stage for severe hunger in the future.
We witnessed a classic example of the above-described phenomenon during 2001-2009, when aggressive monetary stimulus introduced by the US Federal Reserve to mitigate the fallout from the bursting of the NASDAQ bubble and “911″ led to booms in US real estate and real-estate-related industries/investments. For a few years, the massive diversion of resources into real-estate projects and debt created the outward appearance of a strong economy, but a reduction in the rate of money-pumping eventually exposed the wastage and left millions of people unemployed or under-employed. The point is that the collapse of 2007-2009 would never have happened if the Fed hadn’t subjected the economy to a flood of new money and artificially-low interest rates during 2001-2005.”
- from ‘Setting the stage for the next collapse’, Steve Saville, The Speculative Investor, 22 July 2014

“Yellen will not use interest rates to head off or curtail any asset bubbles encouraged by the extremely low rates that might appear. And history is clear: very low rates absolutely will encourage extreme speculation. But Yellen will, as Greenspan and Bernanke before her, attempt to limit only the damage any breaking bubbles might cause. … I had thought that central bankers by now, after so much unnecessary pain, might have begun to compromise on this matter, but no such luck… The evidence against this policy after two of the handful of the most painful burst bubbles in history is impressive. But not nearly as impressive as the unwillingness of academics to back off from closely held theories in the face of mere evidence.”
- from Jeremy Grantham’s latest newsletter, GMO Q2 2014

“It won’t last. It just prepares the way for the bust. It forces out real businesses. And it drives out people who find themselves financially unable to live here any longer.”

When reading this article, Vancouverites may want to play spot-the-differences/spot-the-similarities. – ed.

How the Surge of Hot Money Pushes San Francisco to the Brink
Wolf Richter, wolfstreet.com, 22 July 2014 [also reprinted at zerohedge]

The median home price in my beloved and crazy San Francisco – that’s for a no-view two-bedroom apartment in an older building in a so-so area – after rising 13.3% from a year ago, hit an ultra-cool, slick $1,000,000.

It made a splash in our conversations. People figured that nothing could to take down the housing market. Yet, as before, there will be a devastating event: the moment when the billions from all over the world suddenly stop raining down on San Francisco.

Every real-estate data provider has its own numbers. The Case-Shiller placed the peak of the prior bubble in “San Francisco” in June 2006 with an index value of 218, well above the current index value of 191. Though named “San Francisco,” the index covers five Bay Area counties that include cities like Oakland and Richmond where home prices, though soaring, haven’t gone back to previous bubble peaks.

The $1,000,000 that DataQuick, now part of CoreLogic, came up with is for the actual city of San Francisco. In the data series, San Francisco’s prior housing bubble peaked in November 2007 when the median home price hit $814,750. People thought this would go on forever, that San Francisco was special, that the national housing bust would pass it by. A month later, the median home price plunged 10%.

It was the beginning of a terrible bust – the moment when money from all over the world stopped raining down on San Francisco. Real estate here lives and dies with the periodic storm surges of moolah from venture capital investors, IPOs, and corporate buyouts.

Now we’re in another storm surge. The Twitter IPO transferred billions from around the world to Twitter investors and employees in the city and the Bay Area. When Facebook acquired Whatsapp for $19 billion, its 55 employees and some investors started plowing some of this money into the local economy, money that didn’t come from heaven but indirectly from Facebook shareholders. In the current climate, hundreds of transactions, large and small, take place every month, including a slew of IPOs. That’s the great hot-money-transfer machine. And San Francisco sits at the receiving end.

There are some drawbacks, however. Number one, it won’t last. It just prepares the way for the next bust. Number two (and in the interim), it forces out real businesses with real revenues and profits. And it drives out people who find themselves – though well-employed – financially unable to live here any longer.

Take the story of Bloodhound that was catapulted into the limelight by ValleyWag. In January 2013, a Series A round brought its total funding to $4.8 million, based on its conference app, an “ambitious vision to fundamentally change how buyers meet sellers,” as TechCrunch put it. “Its hardcore dedication to product and the fact that it can reuse everything it builds puts it leagues ahead of….” Etc. etc. The article was dripping with startup hype.

Companies like Bloodhound are flush with money from investors and have no need to make revenues or profits, and they have no clue how to manage expenses, or that expenses even need to be managed, and there’s nothing to constrain them in any way and force them to be prudent with investors’ money. Armed to the teeth this way, they dive into the local real estate market.

As the startup bubble in San Francisco was coming to a boil, and billions started showing up in bits and pieces, landlords began lusting after this money. And so in October 2012, the Million Fishes Art Collective – “an incubation program” for artists – was not able to renew its lease on a 10,000 square-foot space on Bryant Street at 23rd Street, in the Mission, which had been an iffy area and therefore affordable. After ten years, Million Fishes was gone, and so were the artists and the shows that had been open to the public. It reportedly had been paying over $13,000 per month.

The space was prepared for a startup armed with hype, hoopla, and Series-A money piped in from VC-fund investors around the world. Along come Bloodhound with whatever remained of its $4.8 million in funding. It signed a 5-year lease for $31,667 a month in rent and $564 in fees, or nearly 150% more than Million Fishes had paid. The neighborhood wasn’t amused, but hey, big money rules, and it was a done deal.

So Bloodhound was blowing $387,000 a year on rent, and it didn’t care because expenses were no objective because profits weren’t even on the horizon. It was just building a thingy that would forever change the world. But now Bloodhound is gone as well. Stopped paying rent, ran out of money, just packed up and disappeared. ValleyWag reported:

When emailed for comment, Bloodhound co-founder Anthony Krumeich simply stated “We moved out of the office. No longer fit our needs.” However court documents indicate Bloodhound has gone AWOL and abandoned their office. The landlord’s attorney has not been able to issue the company or its founders a summons….

Bloodhound didn’t change the world. But its hot money changed San Francisco. It helped drive up rents. Each transaction impacts a number of future transactions via the multiplier effect. This scenario is repeated over and over. Enterprises with real cash flows are pushed out because they can’t compete with the hot money that briefly comes into town looking to multiply itself.

But occasionally, it goes too far, even for San Francisco. A little while ago, Pinterest jumped into the fray. It has raised $800 million so far, and sports a valuation of $5 billion, but has no noticeable revenues, doesn’t even dream of profits, and has no idea how to control expenses – and no need to. Armed with this distorted attitude and hundreds of millions of dollars in global hot money, it set its sights on the beautiful, historic 600,000 square-foot San Francisco Design Center at 2 Henry Adams St., where 77 design businesses were plying their trade the hard way by generating the cash flow necessary to sustain themselves.

The Design Center’s owner, according to the SFGate, “had sought to take advantage of a city zoning ordinance that allows owners of designated historic landmarks to change zoning from so-called PDR – production, distribution and repair – to traditional office space. That would have allowed Pinterest to locate its offices there.” The tenants would have been booted out in favor of a company that had no reason to care about how much money it blew on office space. Alas, after an uproar, the Board of Supervisors Land Use & Economic Development Committee voted to table the matter indefinitely.

The ratchet effect continues as each transaction impacts future transactions, pumped up by hot money that doesn’t care about actual expenses and profits. And the space Million Fishes had leased for $13,000 a month, and that Bloodhound had leased for $31,667 a month, went back on the market, ValleyWag reported, at $37,500 a month.

This too is happening to homes where one sale price of one home impacts the price on average of 60 others via the multiplier effect [How Wall Street Manipulates The Buy-to-Rent Housing Racket]. That’s how the median home price of $1,000,000 came about: powered by hot money that follows hope and hype about the next big thingy that will change the world. As before, someday the hot money will suddenly evaporate, with devastating effect. To pinpoint that moment, we just have to watch the IPO market. When it blows off its top, so will San Francisco.

UBS is already preparing for that moment. The world’s largest wealth manager is “very worried” about “the lack of liquidity” that could wreak havoc during the expected sell-off. So UBS reduces risk “over the full spectrum of assets.”

‘Vancouver Affordable Housing Agency’ Created By The City

VAHA
Candidates Should Possess Superhuman Powers and Pixie-Dust

“The City approved the creation of a new Affordable Housing Agency last night, an arms-length organization based on best practices in other cities to enable the creation of new low and modest income housing in Vancouver.

The Vancouver Affordable Housing Agency (VAHA) will also collect available data on issues such as vacant homes, and provide information on ways to limit investor speculation and unnecessary vacancies in Vancouver’s housing market.

“The Vancouver Affordable Housing Agency will be a key tool in the City’s efforts to create new affordable housing that meets the needs of local residents,” said Mayor Gregor Robertson. “As well, by designating it as a research hub to monitor issues such as vacant homes and excessive investor speculation, the VAHA will contribute to an informed, fact-based discussion of Vancouver’s housing market.”

The VAHA will be comprised of a board appointed by City Council, which will include members of the community with expertise in real estate, non-profit housing, and tenant issues, among others. Its target is to create 2,500 new affordable homes by 2021, with 500 in the first three years, with a focus on affordable housing geared towards families.”

- from ‘Council approves new Affordable Housing Agency’, Mayor of Vancouver website, 10 Jul 2014

Above noted, for the record.
A “fact-based discussion of Vancouver’s housing market” sounds like a great idea.
That aside, it would be extraordinary for an Agency like this to make a real difference. It is very, very difficult to create genuinely affordable housing in the context of an extremely overvalued market.
This kind of initiative usually acts as a marker to remind us that people are concerned about the issue, rather than being a force for any substantial change.
- vreaa

Meanwhile…

“Fitch Ratings says Canada’s real estate market is as much as 20 per cent overpriced and cautions the government may need to take more measures to slow down borrowing on homes. Fitch is the second U.S. financial agency to sound the alarm on Canadian home prices in the past week, with the Morningstar research firm predicting a 30 per cent correction was possible over the next few years.

The latest warning comes as the Teranet–National Bank composite house price index for June showed prices rose 0.9 per cent from May and were up 4.4 per cent from last year. The year-to-year gain was the lowest in six months, but still more than twice the underlying level of inflation in Canada and above income growth. Prices were 8.1 per cent higher Calgary compared with a year ago, while Hamilton saw increases of 7.3 per cent and Toronto and Vancouver climbed 6.1 per cent. …

Whether Canada’s home prices are due for a big fall has been a hotly debated topic in Canada for several years, but as yet predictions of a housing bubble about to burst have not materialized.”

- from The Vancouver Sun, 14 July 2014

Enter Inflation, Stage Right

The Bank of Canada came under pressure on Friday to stop fretting about low inflation after unexpectedly sharp price gains pushed the rate above the central bank’s target, making it more likely the next move in interest rates will be higher.

Statistics Canada reported the annual inflation rate hit a 27-month high of 2.3 percent in May from 2.0 percent in April. Core inflation, which excludes some volatile items like gasoline, rose to 1.7 percent, the highest since July 2012, from 1.4 percent in April.

As recently as last week, Bank of Canada Governor Stephen Poloz had said the underlying rate of inflation, which he pegged at 1.2 percent, was so low it “leaves us vulnerable to a downside shock at any time.” —

“The low-inflation ship has sailed in Canada, and I think the Bank of Canada pretty much has to change their rhetoric as of the next meeting,” said Bank of Montreal chief economist Doug Porter.

Poloz said the central bank’s policy stance was neutral, specifying that rates could just as easily fall as they could rise, using dovish language that has kept a lid on rate hike expectations and the currency.

Still, yields on overnight index swaps show rate cut expectations have largely faded.

And even before Friday’s data economists were unanimous that the next rate would be a hike. —

“We are still of the view that any moves on rates are not likely until 2015, but certainly there is now a higher probability of hikes coming sooner rather than later,” said Royal Bank of Canada assistant chief economist Paul Ferley.

- Reuters, 20 Jun 2014

Average House Price In Canada Rose 7.1% YOY

“The average resale price of a Canadian home continued to march higher, with the national real estate association showing it hit $416,584 in May, a rise of 7.1 per cent compared to the same month a year earlier.
The Canadian Real Estate Association said sales activity in Toronto and Vancouver continue to skew the average price higher. If those two cities are stripped out, the average Canadian home is worth $336,373 while the year-over-year increase shrinks to 5.3 per cent.”

- CBC 16 Jun 2014

Recall:

image

Vancouver School Trustees Threaten Risk Of Property Price Drops In Debate Concerning Rights Of Transgender High School Student

A current public debate regarding the rights of a transgender student at a Westside public high school has caused elected school trustees to invoke risk to property values to shore up their bigoted side of the argument. They claimed that “senior people in the real estate industry” supported their viewpoint, but they did not name those people (and it is not clear whether any such views had actually been expressed by any real estate salespeople).

By virtue of the prominence of Vancouver RE values in this remarkable debate, we document it here, for the chronological record. Reminiscent, of course, of the UBC Hospice debate (where sanity fortunately prevailed).

By virtue of the inflammatory nature of the debate, and because we do not ride shotgun on comments on this blog every hour of every day, we have chosen to close comments for this post. It’s here simply as a marker on the very long and winding road that is the Vancouver RE saga.
Keep well all.

Peace. Love. (and moon-age daydreams of 1960′s RE valuations…)

- vreaa

Entire Vancouver Sun Blog article reproduced verbatim below:

‘Vancouver school trustees turfed after event linking real estate, unisex washrooms’
- Douglas Todd, Vancouver Sun, 14 Jun 2014

“The Non-Partisan Association expelled two of its elected school trustees from caucus Friday after they held a news conference and claimed leading realtors are upset the school board’s proposed policies on transgender students may reduce real estate prices.

The NPA released a statement late Friday afternoon declaring it had formally expelled Sophia Woo and Ken Denike “given that the two have chosen to follow their own course in various matters without consulting with the other members of caucus.”

“The caucus has concluded that Denike and Woo do not share the same level of sensitivity and understanding of the LGBTQ+ community.”

During a raucous news conference in a Chinese restaurant Friday, Woo and Denike condemned the way Vision trustees on school board are trying to bring in a policy to protect transgender students from discrimination and ostracization.

Parent Jane Wang, sitting beside Woo and Denike, said the transgender policy that is scheduled to go before the board on Monday is a threat to her two young children and those of many other parents, some of whom “were close to emotional collapse” at a recent public meeting where the transgender policy was debated.
Wang, an associate professor in engineering at the University of B.C., has already placed her two children on a waiting list for a private school.
Wang does not want them to have to deal with the possibility a transgender public-school student could, under the proposed policy, enter either a boys’ or girls’ washroom.

Asked to provide the names of what Denike said were “senior people in the real estate industry who are expressing real concerns” about the effects of the proposed transgender policy, neither Woo nor Denike would provide any names.
However, the first sentence of a release that Woo and Denike put together to draw journalists to the news conference at Flamingo House Chinese Restaurant said:
“Realtors express concern that a revised policy on sexual orientation and gender identities could negatively impact enrolment of international students and West Side students in Vancouver’s public schools.”

One parent told The Sun her friend has already returned with her child to China because of the proposed transgender policy.

Asked if realtors are concerned that foreign parents will stop buying houses or condos for their children to live in while they attend school in Vancouver, Denike said West Side realtors know there is strong “competition” for international students, whose offshore parents might avoid Vancouver schools in the future.
There are 1,170 fee-paying foreign students in Vancouver public schools, said Denike, the board’s longest-serving trustee.

Woo and Denike said the realtors they talked to were mostly concerned about “the quality of education” public school students would receive in light of what they said is a flawed, rushed new transgender policy.
But Denike, in response to a question, said the realtors may also be concerned about declining property values.

A few hours after the two NPA trustees finished their press conference, Vision Vancouver released a statement “calling upon the NPA to condemn disturbing comments” made by Denike and Woo, in which Vision maintained the trustees “suggested that support for the rights of LGBTQ students could somehow harm property values.”

School board chair Patti Bacchus, of Vision, said: “Vancouver is known throughout the world for our commitment to a learning environment that is safe and inclusive for students of all backgrounds, including LGBTTQ students.”

Bacchus urged the NPA to “apologize for in any way suggesting that LGBTTQ students or their rights could have a negative impact on our community, and I hope all NPA elected officials and prospective mayoral candidates will condemn these remarks.”

At the news conference at the Cambie Street restaurant, roughly two dozen-ethnic Chinese parents who had squeezed into a side room of the facility to support Woo and Denike clapped enthusiastically when one East Asian parent stood up and shouted:
“How would you feel if you had a daughter in the washroom at one of these public schools and a transgendered student – maybe a girl, maybe a boy? – walked in? How would you feel?”
The man, dressed in suit and tie, would not identify himself.

Visibly tearful, Enda Yua said in an interview with The Vancouver Sun her friend was so upset about the transgender policy that last week she pulled her child out of a Vancouver public school and they flew home together to mainland China.
“I’m so sad. I don’t want my friends to leave,” said Yau, who lives on the West Side of Vancouver.
“My friends say to me: ‘I feel so bad. I shouldn’t have come to Vancouver, to Canada. I thought it was a democracy.’ In the Chinese community there is very serious concern about this policy. This policy makes transgendered kids too special. It gives them an extra shell that will keep other students away from them.”

Yau said Chinese people come to Canada with “very old traditional conservative values” and that Canadian policy makers have to respect that.

Trustee Woo told the room of reporters and Chinese supporters, some of who later gave flowers to Woo and Denike, that she has been overwhelmed in the past two months by the volume of complaints from worried parents. “I’m concerned many of them will send their children to be students in other school districts or other provinces.”

In an interview Lana Liu said she has been part of a group which has gathered 4,000 signatures protesting the school board’s proposed transgender policy. While Liu said petition signers have been “mostly Chinese,” she noted some parents from Iranian, South Asian, Caucasian and other ethno-cultural backgrounds are also upset.

Bill Dick, managing broker for Macdonald Realty in Vancouver, said he is not aware the VSB’s transgender policy has become a real estate issue. “There hasn’t been any discussion in my office, and we have 175 realtors in Vancouver.”

A spokesman for the Real Estate Board of Greater Vancouver, who declined to be identified, said the first they have heard about alleged realtors’ complaints about the transgender policy was in Friday afternoon phone calls from media outlets following up Denike and Woo’s comments.”