Tag Archives: Capitulation

“Several bears I know that were sitting on the sidelines have finally thrown in the towel and bought in the past couple of months.”

“Several bears I know that were sitting on the sidelines have finally thrown in the towel and bought in the past couple of months. Perhaps a contrarian indicator that a top is near?”
- Troll at vancouvercondo.info, 31 Aug 2011 11:25am

If we’d kept a list of the succession of contrarian bells that have rung for this market over the years, it’d be might long…
But, yeah, bears capitulating is always noteworthy.
Poor schmucks, they should have come to the meetings.
- vreaa

$1.6M Teardowns – “Until demand shrivels at the higher end, families at the lower end will be priced out as we can’t compete with the developers. I’ve given up and can’t wait to get my family out of here.”

“Who’s to say the market will ever correct? I keep hoping it will but I’ve finally given up and am in the process of making plans to leave Vancouver once and for all.
In my neighbourhood, teardowns, or what developers consider teardowns, sell within days for well over $1.6 million. Having said this, developed houses selling in the $3 to $4 million range are taking a lot longer to sell than they used to. Anyway, it seems that the market in this area is driven by the upper end, not the lower end. Developers calculate what they can sell the finished product for and then calculate their maximum price for a teardown based on the finished product. Until demand shrivels at the higher end, families at the lower end will be priced out as we can’t compete with the developers. As I said I’ve given up and can’t wait to get my family out of here.”

- chopper at vancouvercondo.info 21 Aug 2011 6:44pm

“One of my best friends has decided to move to Australia. Early 30s, born in greater Vancouver, 2 university degrees. Buying is completely out of the question. Would like to stay but for the high cost of living and low salary.”

human at VREAA 29 May 2011 at 11:38am“One of my best friends has decided to move to Australia with an Australian woman he is dating. Early 30s, born in greater Vancouver, 2 university degrees (one professional), can’t make enough money as a renter to save anything. Buying is completely out of the question for them. They would like to stay here but the high cost of living and low salary is driving the decision.”

human -> Pity about losing your friends. If it’s any consolation, we do like your handle! (Same race as us here at VREAA; please send us more of your kind.) – vreaa

Five Couples Lost To Vancouver Because Of RE Prices – “In the past few weeks, the number of our friends who have either moved away, taken steps toward moving or expressed interest in leaving Vancouver has been truly alarming.”

Sheesh at vancouvercondo.info May 28th, 2011 at 10:23 am-
“In the past few weeks, the number of our friends who have either moved away, taken steps toward moving or expressed interest in leaving Vancouver has been truly alarming. They are all highly educated professionals and the ridiculous cost of living in Vancouver relative to the professional salaries and opportunities available have them suddenly running for the hills.
I don’t know if it is coincidence or if this is a sign of a larger trend, but I feel like we have all waited a really long time for things to get better here and now, in our 30s to early 40s, we are tired of sitting around waiting for a piece of the pie to come our way.
One couple both have MBAs but have had trouble finding work here that lives up to their potential. A corporate recruiter told them staying in Vancouver will kill their careers; one has already found work in Toronto so we expect both to be gone in a few months.
Another couple, both with Masters degrees, is moving to Edmonton. The husband found a job there and they have just put in an offer on a house. They can buy a beautiful house for grown-ups there for the same monthly costs as renting a dark, dank one-bedroom in the West End.
Another couple have met with an immigration lawyer about moving to the States. They can sell their place here and, with the equity, buy a sweet little house in a trendy neigbourhood in Portland for $300,000.
We also know a Canadian/English couple that were going to move here after living in Japan for many years but, after a real estate tour of each city, chose London, England, as the more affordable option!
The last couple that wants to leave is us! Unfortunately, our jobs are keeping us in Vancouver for now. But we have a young son and just don’t see Vancouver as a place where we can raise a family, save for retirement and have anything left over to buy a place.
All of us, by the way, would pick Vancouver as their first choice. It just seems like the city doesn’t want us. At this rate I really have to wonder what kind of place this will be in five or ten years. Can money launderers, speculators and offshore investors really make Vancouver “The Best Place on Earth?”
There are lots of nice places to live in this world; looks like a lot of us that didn’t get in on the ground floor are setting off to find another one.”

We share this poster’s concerns. Speculative manias in real estate cause misallocation of human capital, and our city is going to be poorer for it. – vreaa

Sold Vancouver House 800K in 2010; “Wife Is Out Of Patience”; “Social Pressure Is Enormous” To Rebuy; “Nothing makes sense anymore”.

This anecdote extracted from Garth Turner’s headline piece at greaterfool.ca, 1 May 2011 -
“Corey sold a house in Vancouver last year and was sitting on eight hundred grand. In a wretched savings account. Where, he opined, to invest? Corey’s spouse was hot to burn through all that cash, using it as a downpayment on new digs.
On 30 April, Corey wrote the following: “My wife is out of patience. She constantly refers to some friends who were waiting for the correction, then capitulated after tiring of living with the in-laws for a year. They built their new dream home (just moved in) and could likely sell for several hundred thousand more than they built for. Everyone believes it is different here because of the Chinese buyers, and the social pressure is enormous.
Nothing makes sense anymore:
* wages are stagnant,
* a lot of people are highly indebt[ed] and leveraged but do not seem to worry
* economically things don’t make sense to support an escalating housing market, but everyone here drinks the cool-aid they are fed by the MSM
* people are insane – some in our hood are buying and then trying to flip the house within say 6 months for 200,000 – 300,000 profit (with little or no renos).
* Anyone who dares suggest that interest rates are about to rise soon dismiss the idea saying that the impact will be minimal, or that the government will not raise rates with a high dollar etc.
* If I suggest to friends that the housing market is going to correct they look at me as if I have 2 heads
* Some are so confident that nothing will change that they are buying before they have sold, gambling that they will get their price (or more)

. . . I am beginning to doubt . . . and to wonder myself if the Chinese do make things “different here”?”

“I know a couple waiting for 5 years for prices to come down so they can afford a house with a garden and have a baby. Finally they gave up on Vancouver and moved to Seattle.”

paradox April 11th, 2011 at 2:14 pm“I know a couple who has been waiting for 5 years for prices to come down so they can afford a house with a garden and have a baby. They both work in manufacturing industry and have decent jobs. Finally they gave up on Vancouver and moved to Seattle. They are expecting a baby now. We don’t need more immigrants. Make life affordable for people already here and they will certainly have more kids. We will pay a dear price in the future.”

That’s another three people lost to Vancouver directly because of the RE bubble. -vreaa

Bearish Buyers: Capitulation, Of Sorts – “Yeah, if there was ever a clearer signal of the top of the market. I’m also the guy who enters the shortest cashier line-up at the grocery store but still manages to exit after everyone in the longer ones.”

Bear capitulation occurs when a long term RE bear gives in and buys.
Yelling “That’s it, I’ve had enough, this market is absolutely crazy, I resign myself to renting for life!” doesn’t count. Also, leaving Vancouver may seem like capitulation but it isn’t. The bear has to give in and buy. One of the laws of bubblology states that the bubble is over when the very last bear that is going to buy throws themselves on the frenzied pyre of the market and is consumed in the flames. When that happens, we can get on with the crash, already.
Here are two (rare) anecdotes of bear capitulation, but they are both ‘qualified’ capitulations, and we thus don’t present them as evidence of a top. Our brief comment follows at the end of this post.
We don’t see very many stories of bear capitulation: if you know any, please send them along. – vreaa

Lost Soul gave an account of their purchase on two threads at RE Talks, 8 Mar 2011 and 25 Mar 2011. Excerpts from Lost Soul’s comments:
“This loooooong time bear likely will be an owner soon (accepted offer).
Please don’t categorize me as a bull. I’m buying with the expectation that we will take a financial hit for it.
We didn’t all of a sudden grow horns and start snorting. But something did grow and popped out after nine months and we needed more space. It’s not all about money. :wink:
Could we have just found a bigger rental? — I suppose, but we just wanted a place to settle into and be able to do what we wanted with it without worrying about what the landlord would think.
Do we think this is a wise *financial* decision? — not a chance — this is pure consumption in our view. If by some bizarre happenstance the value of our place goes up 50% in the next year, we will not all of a sudden start crowing about how we were so brilliant to buy.
What if the market gets halved? — Bring it on! The loss on this purchase of course will be unpleasant but it also means that the next place we buy will have dropped twice as much in absolute dollars so net we’d still be ahead (if not by so much as not purchasing at all now). And ‘No’, the loss on the current place would not wipe out our dp for the next one — contrary to the beliefs of some here, bears are not necessarily on welfare living in their parents’ basement.
(Still) My advice to others: *We* are fortunate to have the savings and income to pull this off. If *you* are purchasing a place you’re not happy to live in for the next 35 years and buying it means Kraft Dinners, you might as well wait and pray for a crash — the “buy small and climb the property ladder” approach isn’t going to work.”

[In response to a comment "Lost Soul Buying..."] “Yeah, if there was ever a clearer signal of the top of the market. I’m also the guy who enters the shortest cashier line-up at the grocery store but still manages to exit after everyone in the longer ones.”

And a related story from enki at RE Talks 26 Mar 2011 8:47pm“I totally sympathize; I am a longstanding bear (and still am), and finally bought a townhome in Abby in August [2010]. I didn’t want to buy, but I was tired of waiting, and wanted some stability. Living across the street from some very good mountain biking didn’t hurt either. I bought the cheapest thing I could tolerate, and resigned myself to losing some equity while keeping my wife.”

These stories don’t really qualify as complete capitulation, as the protagonists remain mentally bearish, and actually anticipate a drop in prices. In complete capitulation the bear overextends themselves as much as other current buyers, and emerges from the experience as a born-again bull.
The anecdotes above are perhaps best seen as stories of ‘partial capitulation’. They are of interest, because, for a prospective buyer, the ‘partial buy’ and ‘renting’ are both compromises, but with different inconveniences.
For the record, we don’t think ‘partial buying’ is a good idea. Moving up during a crash may be more challenging than one expects. – vreaa

[Update: An exchange on 29 Mar 2011 between posters at RE Talks turns ugly, and Lost Soul confirms they paid cash for the above deal. Screen caps here and here.]

“Many YVR indigenes have acquiesced… Opted out, packed up, moved on…”

Nemesis at VREAA 27 Feb 2011 6:16pm -
“Somewhere along the way our happy go lucky beer drinking, hewers of wood/drawers of water market economy transmogrified into the financialized market society of condohype and anomie… with all it’s attendant ills.
My childhood Burnaby home (similar to the over-ask Dunbar ‘tear down’ recently featured here @ VREAA) was razed to the ground and replaced with a wedding cake architecture/monster house… and then the brewery I worked at while attending college was demolished – the site is only now being redeveloped as a, “vibrant, walkable urban community destined to include almost 1.4 million square feet of retail, commercial, health and residential space.”…
Prior to that my Fraser Valley army base was sold and unsuccessfully marketed as a new housing development… and even my FantasyIsland (yes, that’s what we used to call Esquimalt/Victoria, “De plane, Boss! De Plane!”) based frigates were scuttled and turned into aquatic tourist attractions…
And subsequently (shortly after my 80′s tenure in the globalpixferbuxbiz) – even the Vancouver operations of my two largest domestic industrial clients – one a railway the other a manufacturer of heavy equipment/industrial plant for the forest industry) were razed to make way for… I think you can guess…
Which is probably why so many YVR indigenes have acquiesced… Opted out, packed up, moved on (especially those whose roots/origins afford them a longitudinal/historical perspective on the city’s evolution) …
Well, as strategies go – I can’t deny that it worked for me. But for Xiào necessitating my return in 2005 I would undoubtedly be somewhere else. Indeed, one day, when I am no longer needed here – somewhere else is where I’ll be. Caracas???”

Summary Snapshot – Heady Prices; Breathless Reportage; Disregard For Debt; Bull Exuberance

An average number of sales for January 2011, as monitored at VCI by VHB. [Jan 2011 sales 1876, sell/list 38.9%, MOI 6.0; Mean for 2001-2010 1732, sell/list 45.2%]

A prominent spike in average detached home price as per above REBGV chart. The detached home average price was $1,144,537. This spike may at least partly be attributable to a statistical anomaly, skewed by a few high end sales. Regardless, that’s the average, and the chart looks vicious.

In pockets of Vancouver, a fair number of over ask sales; Westside, Richmond, and Eastside, too.

Global BC runs a breathless piece on spiking prices, bidding wars, and over ask sales; with the obligatory mention of “increased Asian investment”.  [3 Feb 2011, archived by fellow archivist Greenhorn HERE.]

The Vancouver Sun runs an article ‘How much has the value of your Metro Vancouver home increased in five years?‘ [4 Feb 2011].

In a G&M article [3 Feb 2011] Benjamin Tal, CIBC ‘specialist on household credit’, argues that we’re all richer than we think, and that the 148% debt to disposable income ratio is nothing to worry about. An unwise position, in our humble opinion, and one that is likely to haunt Tal in the fiasco that will follow.

Sentiment? Not easy to distill.
In social situations there is much talk of and from those profiting (on paper) from the bubble. We have heard at least one story of people taking profits by selling investment properties (good for them).
On the blogs, some bears are definitely gobsmacked and demoralized by examples of outrageous prices achieved by sellers. Some are considering leaving town, as evidenced by the recent string of ‘disillusioned’ stories. Other bears are still showing fighting spirit and continue to point to the glaring facts of this bubble. “Just how long can this go on?”, they ask.
At RE Talks, a perennially bullish site, the bulls are even more boisterously euphoric, and any bear that ventures there is soon made to feel like a FOX reporter in Tahrir Square. Only those with the very toughest pelts remain.

This is all as good a sign of a top as any, but, then, we’ve said that before more times than we care to remember.

-vreaa

“I’ve been a bear since 2004 but constant articles for the last 3-4 years promising a crash is imminent is getting a bit ridiculous.”

grant at vancouvercondo.info January 14th, 2011 at 9:36 am“I’ve been a bear since 2004 but these constant articles promising a crash is imminent (“we mean it this time! honest!”) for the last 3-4 years is getting a bit ridiculous.”

[Tell us about it! The articles and naysaying will continue to look 'ridiculous' to many observers, until the crash comes. That's one feature of bubbles. Savour the moment... we're watching history being written. -vreaa]

“My new path forward?? Here it is: Sell. Move back to the USA to the most expensive housing market in the country and still be able to buy a real house with actual quality and real architecture for 50% less than what sheet holes cost here.”

If this anecdote doesn’t make you sit up and think, nothing will. The Vancouver RE market is perversely distorted, and this is profoundly unhealthy for our society.  – vreaa

vanhattan at vancouvercondo.info December 28th, 2010 at 4:41 pm- “Here is my situation. I moved here in 2005. I could not find a ‘decent’ place to rent that would accept a very well behaved dog so we decided to buy a condo of a whopping 889 square feet. We hated the condo and paid more than 3x what our gorgeous home with 22 foot ceilings, 1/2 acre treed lot with more than 3x the square footage cost. (sold our 3,000 sf home for 330K, bought our 889 sf condo in Van for 377K). The purchase and shock of living in this shit hole almost cost me my marriage. F*ck, even the dog hated the place. So we sold 15 months later for 488K. Never saw an uneducated unemployed dog make a 100K+ in one year but that is what our dear Buster did as we would not have purchased except for him. Purchased another condo, this one a more reasonable 1050sf brand new condo with great views, great neighborhood. Still nowhere as nice as our old ‘home’ but at least manageable. Purchased for 700K. The latest comps put our place at 900K+.

Ok so here is our situation. Have a huge desire to get back into a real house again. Have been searching for over a year now. Have been looking at complete sheet boxes going for over 1.5 million that before I moved here I would NEVER have even considered even looking at much less buying and LIVING in. This is what we found one recent weekend: Falling down complete sheet boxes with more than 30+ people showing up in the first 10 minutes of an advertised open house. I am NOT racist in the least bit but have to say that 80% of the lookers were of Asian decent. Guess what???? The damn place sold for 100K over asking at 1.6M the very SAME day!!!!!!!!!

I got so depressed I went home almost in tears. My new path forward?? Here it is: Put the place on the market this spring for 200K under current valuations per a comparable sale one month ago. This is still 100K more than what we paid for it but being 200K below the most recent comp should sell in a weekend. Guess what. I am getting the F#%k out of here. We should be able to easily get out of here with 250K more in our pocket than when we arrived. I figured if we had rented the same places vs. buy we would have paid about $150K over the same period. So we will walk away from the best city on earth living essentially rent free with 100K to spare. What are we going to do next? Move back to the USA to the most expensive housing market in the country and still be able to buy a real house with actual quality and real architecture for 50% less than what sheet holes cost here. This metro area also actually has jobs that pay on average 3x what they pay here.

Bottom line: even though I have been very lucky with this real estate market in Vancouver, I can’t believe what places are still selling for. My opinion is that prices will continue to go up as long as the Asians keep moving here en mass buying any sheet hole for above asking price. My estimate is that China still has a couple of years left of their bubble before it bursts so Vancouver will probably still go up and up and up for another couple of years.

I am out of here. I want to stay, but simply cannot afford it. I am not bragging but I make 5x the average wage of the average resident and can’t for the life of me figure out how anyone makes it in this town.

So am I a bear? Am I a bull? Neither. Just a very discouraged Vancouver resident who simply cannot believe the prices of the crappy 2nd world real estate here. I simply cannot afford to live here and I make more than 200K/year!!!!!!!!! My quality of life is worse than when I made 65K/year before I moved here! Really folks. This city is insane. I am getting out. I have loved Canada and loved Vancouver, except for the housing situation. I will always have fond memories of the place and will leave being a Canadian citizen but have reluctantly thrown in the towel. I would much prefer to live in Canada than in the US as our values are much more Canadian but I also want a better quality of life.

So perhaps we will return but only if the real estate prices return to earth. From where I sit this is still a far way off.

Humbly, a soon to be former Vancouverite.”

“I just wanted to share a conversation I had with a good friend of mine as he announced he was going to buy a place.”

El Magnifico at VREAA 25 Dec 2010 12:24pm -
“I just wanted to share a conversation I had with a good friend of mine as he announced he was going to buy a place. It really highlights well what is called “the emotional factor” when it comes to buying real estate. Hopefully this conversation will be useful to some other people…

Me:
Hi (…),
I hope you’re doing well. I was also apt hunting recently, until I learned more about the real estate market in Vancouver… I’ve decided to hold off for for a couple of years and see what will happen.
I read a lot of articles, blog, etc… You may want to hear what these people have to say about the Real Estate market in Vancouver. Here are some of the most useful links I found:
http://vreaa.wordpress.com/
http://www.greaterfool.ca/
http://canadabubble.com/
http://financialinsights.wordpress.com/
Good luck!

My friend:
Hi (…),
Hope all is well with you too!
Thanks a lot for the information. I surely won’t dare to disagree that the risk of a potential real state crisis has increased due to the low interest rates, easy credit, and consequent increasing household debts, etc.
However, since I arrived in Canada some people have been expecting a real state crash in Vancouver for different reasons: 2008 financial crisis, the olympic games; etc.
On the other hand, some other people think that real state prices in vancouver will never drop significantly, due to the shortage of available land…
Meanwhile, I now realize that I have spent over $75,000 to pay for my rent in the last 3.5 years… and I will never see this money again, that’s for sure…
I mean, I totally see your point, and actually nobody can be sure if a mortage will or will not be a good deal at this time…
I really don’t know who is right or wrong… and so I guess I will keep looking around and I think I will probably buy a place if I see a good opportunity on a place that I like. Besides, it’s probably better to buy now, when interest rates are low, than the opposite…
Anyway, we should keep discussing about that… I think it can helpful to the both of us in trying to make lucid decisions.
Thanks again and let’s try to get togetehr for a beer or coffee sometime soon.
I take this opportunity to wish you, (…) and your baby a very Merry Christmas and Happy New Year!!
Talk soon,

Me:
Hey (…),
Good to hear everything is well for you! (…).
Somehow, I’m glad I didn’t buy any real estate as I would have been such in trouble to sell it off (the market is dead right now, -35%ish for saleq compared to last year…).
I’m glad you are aware of the potential risk for a real estate crash. The intent of my first email was simply to make you aware in case you were not. As we say in french “un homme averti en vaut deux” which means something like “one knowledgeable man is worth two men”.
If I can only give you a few advices to you in making the biggest investment of your life (unless your business becomes so successful that you can afford all these millionaires’ toys), there would be as follow:
– be always careful of what real estate agent and their board say. Trusting them regarding real estate analysis is like trusting your drug dealer when he says heroin is good for you! They have a vested interest in keeping the market going up…
– when you compare renting vs. owning, make sure that you take into account all the costs of ownership. As a renter, you don’t have to pay for property taxes ($1,500 a year), strata fees ($400 to $500 a month in the nicer buildings in downtown) and the maintenance costs (so many people bought condos in leaky buildings and had to pay 50 to 70K in rainproofing… that really hurts!). All in all, ownership costs are really expensive too.
– Don’t forget that when buying a place, you’ll have to pay 7% of commission fee to your real estate agent. On a $450,000 property, this is $31,500 (not far from half what you paid in rent in 3.5 years in Canada!), money that you will never see again too.
– remember that if you don’t have 20% of down payment, you’ll be required to pay for the CHMC insurance, which will be a significant additional burden to your mortgage payments.
Coming back to the argument of buying when interests are low, it is actually a bad idea, and it’s counter intuitive. Let me explain you. When people buy a house, they look at what they can afford and usually bought the biggest house/condo they can afford (property cost + interest cost). This is ok in countries like US or France, where mortgage interest rate is setup for the entire duration of the mortgage. In Canada, however, mortgage rates are reset every 5 years. I let you imagine what happened when a family that has bought to the maximum of their ability, at emergency low interest rates, see their mortgage payment doubling because their mortgage rate has been reset much higher 5 years later… This is what, in my opinion, will create a real estate crash throughout Canada. When the Bank of Canada will increase the prime rate, people will see their mortgage payment increase and won’t be able to face it, and therefore be forced to sell…
On the other hand, if you buy a place at a time where interest rate are high, the cost of your mortgage payment are likely to be lower when your mortgage rate is reset after 5 years. Today, it is the opposite. Interest rate can only go up, and therefore mortgage payment will go up significantly for most of the people.
Regarding the argument of available land in Vancouver, I don’t really buy this argument. There were so many special places in the US (Florida, California, Nevada, etc.) that, despite great features/qualities, have lost more than half of their values that I don’t think this argument is very solid. What I see is that prices in downtown Vancouver are now similar to prices in Manhattan and double the prices in Seattle. There is no rationale reason for that…
The last thing that I wanted to share with you is what I discovered when looking at mortgage payments. Initially, the first few years, your mortgage payments are split as follow: 80%ish to interest and only 20%ish to your principal. That something I didn’t know and found totally unfair and outrageous. Somehow, the first few years of your mortgage, you more renting the place to the bank than owning it…
Anyway, it’s a very long email. I wanted to share with you my thoughts and discoveries regarding RE. I was in the same seat as you and I didn’t buy, and now I’m leaving, I’m so glad I didn’t.
(…)
I hope this email will be useful to you. I’ll organize a small farewell gathering before I leave (…).
Cheers buddy !

Him:
Hi (…),
Excellent reasoning, thank you so much for taking the time to share, I really appreciate it!
(…)
I did become aware of the issues you mentioned above when I first thought of buying a property here in Vancouver, in early 2009. I agree with you in most of them (and that’s why I gave up the idea of owning a real estate property in Vancouver, back in 2009).
In some other aspects I think slightly differently from you, more specifically regarding the interest rates and ownership costs (but I won’t get into details here, because I don’t want to make this a boring discussion to you, as I’m sure you have more important things to think about(…).
(…) I’m now also considering some aspects of ownership that are less of financial relevance (but not less important) and more of personal nature, and therefore difficult to be quantified, because their effect and value can significantly vary from person to person.
All in all, I’m still inclined to jump into the owners side, if the right opportunity comes.
Well, thanks a lot again (…). I really appreciate your analysis – definitely very useful.
Hopefully I will see you soon then!
Cheers,
….”

[Probably Fabricated Market Timer Emotional Capitulation Anecdote] – “I sold my westside home for around $950K in 2004. Now I can’t afford to buy back. You have to believe the incredible pressure I get from my family to buy. They are ashamed of me. I am severely depressed I will never be able to buy what I once had again. The bulls are right, I am priced out for ever.”


.
Yes, the markets can be a bitch. Yes, it is demoralizing to get the general picture right yet get the timing wrong. And, yes, to be down a lot on paper can be excruciating, moreso when you’re playing with your own accommodation and are vilified by your family and community for doing so.

Markets can go from ditzy to completely-bigtime-insane before they sober up.
This poster [** see postscript] was correct, the Vancouver market was already overvalued in 2004. It hit the insanity jets in 2006 and then the free-money magic-blow-off after-burners in 2009. It was going to roll over and die in 2008 but star-dust bailed it out. This poster was mentally short in a mother of a virtual-short squeeze. We say ‘mentally’ and ‘virtual’ because he wasn’t really short, but he felt like he was short.
This poster’s current mind-frame represents a form of mental capitulation, but it doesn’t show real capitulation. Real capitulation would involve action, it would involve this poster buying back into the market for $1M+; a far lesser house for far more money. Thus a bear would become the last of the bulls. Students of the markets all know what happens when the last bear who is going to capitulate does so.
We still estimate that it is highly probable that individuals in this poster’s situation will have the opportunity, in future, to buy back the 2004-$940K westside property, now selling at far more than $1.5M, for 2004 prices or less. We also suspect that many prior market participants will be so gun-shy that they will not step up to the plate, and that, once falling, prices will fall well below 2004 levels. Yes, this may seem crazy to many at this point. Insanity is a common ingredient in Vancouver RE market moves. -vreaa

‘Chinese renter’ at vancouvercondo.info December 1st, 2010 at 5:41 pm“I am Chinese Canadian, not recent immigrant, previous home owner, presently renting. Sold my westside home for around $950K in 2004 after it’s price had recovered from a drop in value in the late 90′s. I haven’t brought since. That same house is now worth minimum 1.5 million. Sure renting is not costing me as much than to buy right now but I loss an asset that is now worth 1.5 million by not re-buying back in 2004,2005 or even 2006.
I was influenced by bloggers like VHB and Garth [Turner] not to buy, thinking it was a bubble. I have lost all confidence Vancouver real estate is a bubble. Not on the westside where the Asians like to buy and the builders and flippers buy so they can resell to the Asians. My invested equity from sold house can no way keep up with price appreciation of Vancouver real estate, not with fixed income interest rates this low. Now just to buy back what I had I can’t afford. I can buy above 1 mil but not 1.5 and above.
The place I am renting now was just brought earlier this year as an investment by a Chinese family for 1.6 million. Sure my rent they receive doesn’t justify the cost per month to own on a monthly bases but it has appreciated $100K already. The landlord can easily sell and there will be a bidding war. Check out the dump V858532, 5069 Ash St, ask was 1.49 million. Sold in 7 day over asking 1.528 million. Why does the sold price have numbers 28 in it. One guess, you are right, Chinese buyers. it was open house Saturday Nov 18, multiple offers Monday, sold Wednesday Nov 22. The house is practically a tear down and that part of Ash St is awful, narrow and full of parked cars.
You have to believe the incredible pressure I get from my family to buy. They are ashamed of me. Seriously they don’t mention to friends and relatives I am renting. Asians, Chinese have to buy, it is low class to rent.
To rent a nicer home on the westside may cost less than buying but eviction is real. Happened three times already to us, not because we are bad renters, we are great renters. But twice after one year lease, landlords claim place back for own use. Not fun having to look for new place and moving after only one year, just settled in. Not fun especially with young children and changing of schools. So I do eventually want to buy for stability, we want to live in a house, not a build for rent condo. At the rate of Vancouver price appreciation I am severely depressed I will never be able to buy what I once had again. The bulls are right, I am priced out for ever.”

**postscript – We are fully aware that this poster may be a fabrication by a bull poster, an emotional sketch making a case against being bearish. The handle, the pat phrases, blaming the bear bloggers, etc.
Regardless, there are likely some individuals in this situation (although very few trade out of primary residences during a bubble expecting to buy back in cheaper later). And the numbers are in the right ballpark. So, we dealt with the anecdote as though it came from an actual individual. ‘Chinese renter’, if you’re reading this and you are an actual individual, apologies for the voiced whiff of doubt. Drop us an e-mail. And keep us informed of your future circumstances. -vreaa

Frenzied Spike In Canadian Media Articles About Asian Immigration

‘Too Asian’? – Macleans, 10 Nov 2010
A lengthy article on patterns of admission to Canadian Universities.
Controversial enough to be the cause of public meetings at UBC.

Is Vancouver in a real estate bubble? – Globe and Mail, 24 Nov 2010
Despite the name, this article deals entirely with the effects of Chinese immigrants on the Vancouver RE market and economy.
We will extract the anecdotes elsewhere.
There is a discussion of this article at financialinsights.

Also, last month, the Globe and Mail ran a series of 6 articles on immigration and Multiculturalism that garnered much web discussion.

Are these articles simply documenting the various effects of immigration on Canadian society?
If so, those issues are longstanding; the effects are gradual, and ongoing; so why all this concurrent media attention?
Students of the effects of markets on social phenomena will ask: “Why now?”
Have the emerging markets peaked?
Has the USD bottomed?
Are we about to face a second large deflationary wave?
-vreaa

“And for the last year and a half she’s basically been yelling at me, saying that she’s missed out on some good locations because I’ve been telling her to wait.”

itsonlymoney at RE Talks 15 Sept 2010 1:16pm“So for the last, I’d say, year, year and a half, I’ve been telling my sister just wait..wait..wait before you buy, because there’s going to be price corrections. And for the last year and a half she’s basically been yelling at me, saying that she’s missed out on some good locations because I’ve been telling her to wait. My thought is there’s going to be a big price correction, but I’ll be damned, this stubborn market keeps chugging away year after year, so who knows? With that being said, my sister is now interested in purchasing at the new Uptown development by Concord Pacific (Kingsway & 12th). Its advertising as nearly all units below $350,000.”

“The pressure to buy was absolutely immense. He caved and paid current prices because the alternative of constant harassment would have driven him insane.”

jesse1 on RETalks 6 Aug 2010 8:41pm“A member of my extended family bought recently because he and his wife are expecting their first child. The pressure to buy, for various reasons, was absolutely immense. I looked in awe at the way he was treated by his immediate family. He caved and paid current prices because the alternative of constant harassing would have driven him insane.”

A Journalist Leaves Vancouver – Max Fawcett’s Goodbye

http://img.dailymail.co.uk/i/pix/2007/07_02/planeDM2207_468x336.jpg

Just last month we featured local journalist Max Fawcett’s anecdote about friends leaving Vancouver. Max has now announced that he has himself left Vancouver, for Edmonton, and that RE prices are the major reason for his move.  Some confident locals will argue that these desertions are meaningless, that Vancouver will be no less attractive a city without these folks, that there is an endless supply of talent and wealth hankering to get in here, so why should we worry?

We personally have a very different take on this, and believe that this almost invisible loss of human capital is one of the most important ways in which the Vancouver RE bubble has hobbled our city. People who would under normal circumstances be playing various active roles in our communities are chased away by preposterous RE prices.

RE has taken centre stage in our social, cultural and economic life, and that is a place that it doesn’t deserve. We look forward to a time when homes in Vancouver are again seen as places to live, rather than investments or speculative vehicles. And we particularly look forward to a time when it is again possible for people like Max and his friends to make Vancouver home. -vreaa

Read Max’s whole article at MaxFawcett.com 13 May 2010. Excerpts below.

“Having been born and (mostly) raised in Vancouver, I’m not ignorant to its charms. But it long ago became obvious to me that the average citizen who lives there pays a high price for those pleasures, one that’s only gone up in recent years.”

“I lay most of the blame for this state of affairs on the overheated real-state market. When the average couple – one without trust funds, inheritances, or seven-figure jobs – can’t afford to buy the average home, there’s a price to be paid. In the short-term, that price will be paid (in a cruel irony) by those very same average couples, who will leverage themselves into knots to get into the market.”

“Those average couples will start to look elsewhere, to the Edmontons, the Saskatoons, and the Halifaxes of the country, places where middle class people – teachers, journalists, nurses, and tradespeople, for example – can afford to live middle class lives. They’ll move to places where they can afford to save money, to have children, and to plan for the future, rather than remaining on the economic hamster wheel of places like Vancouver and Toronto, where wages remain stagnant while prices shoot ever higher.”

“The market has remained solvent longer than I can remain publicly bearish. I’m now in the closet – been wrong so long that I make only neutral comments when the inevitable real estate conversation turns to “but we are different here”.”

ulsterman at vancouvercondo.info 4 May 2010 8:15 am -

“The market has remained solvent longer than I can remain publicly bearish. I’m now in the closet – been wrong so long that I make only neutral comments when the inevitable real estate conversation turns to “but we are different here”.”

My worry is this. In the Ireland, 1 in 5 houses are empty. Entire housing developments have become ghost towns. The Irish economy is on the edge of bankruptcy and Ireland is one of europe’s economic PIIGS. HOWEVER, after 2-3 years of this calamity, prices are down maybe a 1/3. My concern is that Ireland is on the edge of the abyss and yet their prices aren’t off 70% (Vegas -style). How many empty houses and condo’s do we have in Vancouver? Is our economy staring into the abyss? Could we really only be looking at a 20-25% price drop?”

“In my circle of friends I’m witnessing an exodus, as they abandon Vancouver. Computer programmers, arts and culture consultants, teachers, video game designers, lawyers: they’ve all found the city, and prospect of trying to build a life here, untenable.”

The following two anecdotes, one concerning an individual and one a social circle, are extracted from an article by Max Fawcett [at maxfawcett.wordpress.com, 8 Apr 2010]. Readers will be aware that we share Fawcett’s concerns regarding individuals leaving or avoiding Vancouver because of our RE Bubble. “Exodus”; “This is a dangerous trend”; “Vancouver’s future is in real jeopardy”. -vreaa

” ‘Jimmy’ is a 30 year-old corporate lawyer with a very good job who earns close to $100,000 and lives in a three bedroom apartment off Commercial Drive with his long-time girlfriend, with whom he’s expecting his first child in a few months. He still has some debts to pay off from school, but once those are cleared away he’d like to be able to buy a home in the near future. The problem is, he explained to me, that he’d have to save for ten years just to be able to afford the mortgage payments on a place of similar quality to the one he currently rents. Yes, he conceded, he could plunk down a small down payment and go eyeballs deep into debt, but if the market ever corrected downwards he might have to spend twenty just to dig himself out of that hole.”

“In my immediate circle of friends I’m in the process of witnessing an exodus, as they abandon Vancouver and the hope of the building a life here and head east in search of a new one. In almost every case, the reason for their departure is the inhospitability – hostility, even – that Vancouver manifests towards anyone trying to build a decent middle class life without a trust fund on which to draw. These people aren’t struggling artists or layabouts, either, but a diverse group of aspiring professionals whose only wish is to find a meaningful job that can provide for a decent lifestyle – one, in other words, that doesn’t include three roommates and Kraft Dinner for supper four times a week. They are computer programmers, arts and culture consultants, teachers, video game designers, and lawyers, and they’ve all found the city and prospect of trying to build a life here untenable.”


“I no longer care about ownership. I’ve given up on it entirely. I want to see the Vancouver RE market turn before all my friends leave the city. The attrition is getting worse… and they’re not wrong.”

Depletion of human capital: People leaving Vancouver, or avoiding settling in Vancouver, is an invisible yet profound cost of this boom. -vreaa

Absinthe at vancouvercondo.info 6 Mar 2010 12:36 am - “I no longer care about ownership. I’ve given up on it entirely – as I said, I am renting a house with a yard, and since I grew up in apartments, this is a step up and my kids have room. I’m not moving into a tiny space for the pleasure of property taxes and a deed. I want to see it [the Vancouver RE market] turn before all my friends leave the city. The attrition is getting worse and they’re not wrong. Truly, there’s no other market in Canada in which my husband and I couldn’t buy something similar to what we’re renting now. Now, we’re sticking to BC for the grandparents, who are more important than land any day. Rent is still an option. But man, I’m missing many people, these days.”
other ted at vancouvercondo.info 6 Mar 2010 1:59 am – “The only option for bears, according to the bulls, is to rent. How about moving all together? When this puppy blows it’s not just housing that will tank, but the entire fake economy. I live elsewhere but will buy with all the cash I am saving. Not sure if Vancouver will ever be home again though.”

Vancouver Renter writes “Dear Mr Flaherty, Mr Harper, and Mr Carney, I feel compelled to let you know how your policies have affected me and my family.”

Asset bubbles skew and distort the playing field, and honest, taxpaying citizens justifiably feel unfairly treated. This is very, very bad for our society. We all benefit if we live under circumstances where honest efforts and hard work are fairly rewarded. The politicians holding Canada’s financial policy strings are doing absolutely nothing to limit the housing bubble that is perverting circumstances in this fashion, and which is destined to severely injure many Canadians. They know there is a problem, but would rather steer a course for re-election than genuinely improve the country’s financial outlook. History will judge them poorly.  -vreaa

This from Vancouver Renter at greaterfool.ca 3 Feb 2010 3:28 am -

“Dear Mr Flaherty, Mr Harper, and Mr Carney,

I feel compelled to let you know how your policies have affected me and my family.

First, a little bit about me. Unlike many Canadians, I’ve got some cash – not enough to be considered “rich” but enough to raise an eyebrow or two. I didn’t inherit it, win it, marry into it, or obtain it through illegal activity. It’s a result of hard work, living below my means, and most importantly taking entrepreneurial risks.

Over the years, I’ve been one of those fellows who have repeatedly incorporated startup businesses and have created jobs for Canadians, with the hope that I would reap the financial rewards. Along the way it usually didn’t turn out that way, as most of my businesses failed and I lost much of my invested time and money. And believe me, there have been periods of my life where the time invested has been equivalent to 60+ unpaid hours per week. It hasn’t been easy. But I learned from my mistakes and, eventually, one of my ventures paid off and produced a bit of a windfall for me and my little family.

This brings me to the real estate situation in Vancouver, which is where I was born and have lived my entire life.

Even though I have savings, your easy money policies have allowed practically anyone to compete with me in purchasing a house for my family. If I attempt to place a reasonable offer for a house, I know there will be a dozen young kids with no savings and horrifically large pre-approved mortgages outbidding me and driving the price of these shacks in Vancouver ever higher.

But these buyers do not appreciate how long and hard one has to work, risk, and save to actually come up with the cash to buy a house at these levels. A representative example is my son’s preschool teacher who recently informed me, “I bought a place! I got a 1.75% mortgage and my bank helped me to open up a line of credit to come up with the down payment!”

At the other end of the spectrum, higher end houses are being bid up by foreign buyers. A news article appearing in the Vancouver Sun this morning provides evidence of this, with its revelation that higher-priced properties in the west side of Vancouver, Burnaby, Richmond, and the Tri Cities are experiencing the most sales. These happen to be areas in which Asian demand is high.

Now I know how it works in Canada; If you object to selling out your city to the highest (foreign) bidder you are called a “racist”. But let me say this. In the process of earning my nest egg, I paid plenty of taxes to Canada and BC all along the way: payroll taxes, corporate income taxes, personal income taxes, capital gain taxes, worker’s comp, etc that were used to build the infrastructure and fund social programs. These taxes and regulations often brought me and my businesses to their knees.

Yet, through association with several new Canadians, I know many foreigners have built their wealth without facing the same levels of taxation, legal obstacles, fair pay for workers, and environmental concerns in their home countries. And, as politically incorrect as it is to state, from what I have seen, experienced, and read, I’m convinced that much of this foreign money is dirty – generated through crime and corruption.

How can I reasonably compete with these foreign buyers? How can our children be expected to compete?

So, in spite of my successes, I am living, along with my wife and kids, in an older, very modest rental house. And I feel stuck. Renting has its benefits, but I’m also under the thumb of my landlord.

The easy money and immigration policies of the federal government and the Bank of Canada have resulted in a personal dilemma. I can’t afford a house of reasonable quality in Vancouver. So I’m left with three choices:

1. Rent indefinitely.
2. Blow my life savings on an over-priced, tear down dump.
3. Move away from all our friends and family in Vancouver so that I can provide a quality house and better standard of living for my family. And if we move away from Vancouver, it may make sense for us to move away from Canada altogether.

It simply makes no sense to me that this government is maintaining policies that reward only those with nothing to lose (new buyers with no savings) and those who make their riches in offshore businesses.

I’m convinced that, in the end, it is our younger people and children who will be paying a huge price for these short-sighted policies. Does anyone in Canada believe that our children will be enjoying a higher standard of living than our past generations? I certainly don’t.”

Update 3 Feb 2010 – As if to illustrate the points made in the preamble, here is a poster at greaterfool.ca (omg 3 Feb 2010 3:36 pm) advising Vancouver Renter to stop being a such an honest citizen. Welcome to “the new morality” -

“Hold out man, renting ain’t so bad especially when you see your landlord shelling out thousand on upkeep. Alternatively, have you looked into transferring all you assets to your wife and kids. Then you personally buy with 5% down. Usually banks want it to be a matrimonial house – ie both names on the mortgage but in this climate you should be able to get a mortgage in just your name. So if RE continue to go up your’re at least in the market. If things take a dive then you simply default and go into personal bankruptcy. Your assest are in your wife and kids names and beyond the creditors reach. This will be the new morality of the next decade.”

“I currently pay very low rent for a very nice place, but if I think that the market is going to continue up then I’ll jump back on the wagon, and we can afford even these idiotic prices.”

Ownership rates are at all time highs, FTBs are younger and younger. In short, much demand has been borrowed from the future. But there are still a handful of Vancouver RE bears on the sidelines, watching the market and waiting for price drops to buy. They are in a very small minority, but we think that the overwhelming evidence is that they are going to be getting opportunities to buy at substantially lower prices over the coming years. -vreaa

This from betamax at RE Talks 23 Jan 2010 00:57 am -

“I expect to buy next winter [2010-2011]. If prices still aren’t falling again by then, maybe I’ll just start believing that (a) Vancouver is a magical place divorced from fundamentals and (b) maybe the general economy has dodged a bullet, even though the future is low growth and higher taxes. I currently pay very low rent for a very nice place, but if I think that the market is going to continue up then I’ll jump back on the wagon, and we can afford even these idiotic prices. I just hope we don’t regret it a year or two later.”

“I’m 27, and 4 months ago, I was on the verge of buying…the constant BUY NOW, or miss out FOREVER had finally got to me.”

This from Jay-C on greaterfool.ca 20 Dec 2009 11:20 pm -

“I’m 27, and 4 months ago, I was on the verge of buying…the constant BUY NOW, or miss out FOREVER had finally got to me. My instincts told me the market was overpriced and due for a correction, but all my friends were either ‘doing it’ or had “done it”. Thankfully a friend showed me [greaterfool.ca] and my common sense prevailed, I’ll continue to rent and easily sock away upwards of 2.5K a month. On another note, I was pre-approved for my first ever mortgage at just under $500K. All in, I make just under $90K annually. I thought they were crazy.”

Toronto – “Our search felt really irrational, at times, in terms of bidding. Just because money was available to people, it seemed that was artificially inflating the price of houses.”

This Toronto anecdote could very well be a story from Vancouver. -vreaa

An article from the National Post by Paul Vieria 10 Dec 2009 quotes Graham Withers, a film and TV editor in Toronto, who with his wife Heather Harding just bought a house. He described nearly a half-dozen failed bids in the prior month in which properties sold for at least 20% over asking price -

“It was kind of disappointing in the beginning because we were careful not to stretch ourselves further than we could handle. Our search felt really irrational, at times, in terms of bidding. Just because money was available to people, it seemed that was artificially inflating the price of houses.”

____

From Benjamin Tal, an economist at CIBC World Markets, earlier in the same article -

“What the Bank of Canada is saying is that there might be too much of a good thing going on. And I think the issue here is to what extent are extremely low interest rates blinding Canadians, and giving them a false sense of confidence to buy a bigger house.”

The Globe and Mail – “In Vancouver, House Prices On A Tear”

In parts of Vancouver, such as the Vancouver Eastside, the market has reached fever pitch.  This article in the Globe and Mail by Kerry Gold, 19 Nov 2009 6:03 pm, has so many important anecdotal points regarding sentiment and market activity that vreaa has archived large swatches in this post, and highlighted two stories from it in the posts above.

“In the last three months, a heritage house at 274 E. 20th Ave. was listed for $959,000 and sold for $320,000 above asking, after eight days on the market. A heritage fixer-upper at 265 E. 24th was listed for $749,000 and sold for $1,033,000 within a mere 13 days. A month later, another house nearby at 214 E. 24th, was listed for $749,000 and sold for $950,000 within six days. A typical Vancouver Special at 4554 Walden St. was listed for $730,000 and sold eight days later for $958,000. All those houses were in the trendy Main Street area.”

“It’s very topical,” says realtor Rod MacKay. “Other places [in the country] are strong, but nobody’s seen anything like this. What’s really surprising is nobody anticipated the six-month dry spell being as slow as it was, and prices coming up as much. No one anticipated it bouncing back so far and so quickly.”

“At the beginning of this spring’s buying frenzy, buyers were offering $100,000 above asking in some cases. But by September and October, there were buyers – no doubt tired of being repeatedly out-bid – who are making offers so far above the asking price they couldn’t lose. In the case of the house at 265 E. 24th, it went for $284,000 above asking. “That takes a lot of stones to do that,” says the selling agent Darryl Sjerven. “There were 18 offers on that house. So you go in there, write an offer, and there are 17 other offers and you don’t know what any of them are. They could all be just $10,000 over asking. To go and write $284,000 over takes a lot of guts.”

To describe the bidding mentality these last few months, Mr. Sjerven uses the analogy of a “hang loose” hand gesture – with the three middle fingers curled under and pinkie and thumb sticking out.“Say you get five offers on a house, and suppose the house is listed at $750,000. The guy with the pinkie does not get it, he doesn’t know what’s going on,” says Mr. Sjerven. “Even though there are four other offers, he’ll offer you $700,000 subject to sale of his home and if he gets financing and everything. Then you get the typical pack in the middle, they’ll go around $785,000, or something like that. There’ll be a cluster of those people. Then there’s the thumb. It sticks right over the side and says, ‘this is my house. I want this house.’ He’s far enough ahead that it doesn’t get into further bidding or anything like that. And he buys that house.”

A few months ago, it seemed like the only houses being sold in bidding wars were the “hot properties,” the ones with three bedrooms up, new granite counter tops, and a gleaming in-law suite downstairs. More recently, the bidding wars have been over houses that aren’t so hot, such as that Vancouver Special that went for above asking.“The house wasn’t renovated or anything,” says selling agent Kenny Wong. “It was 37 years old. It had the original “shagadelic” carpets. It was on a 33-by-110 lot. It wasn’t even a standard lot. “I had a hard time selling a Vancouver Special in the winter – a lot of people made low-ball offers,” he adds. “Now they are going over asking.”

Although overall prices aren’t quite at pre-correction levels, for buyers it has felt like the spring of 2008 again.

As to where the market will be in early 2010, the current frenzy appears to be abating and realtors like Mr. Sjerven expect the lull to last over the winter and through to the end of the Olympics. Not many people like to list or buy homes around the holiday season, and few are going to want to sell around the time of the Games, when it could be hard to get around. That five-month lull will create “pent-up demand” that will trigger another frenzy, says Mr. Sjerven. “Once you clear the Olympics out of the way and we’re into April, it will be a race to those listings. Spring is going to rock.”

“I’m wondering who’s left… all of my bearish friends with the means to buy have bought.”

This exchange regarding personal knowledge of former bears buying, at mohican’s Housing Analysis blog 9 Nov 2009, starting 11:34 am -

M- :  “I’m wondering who’s left to buy– in my group of friends and acquaintances, my observations on who has bought are:
-2006-2008: non-bearish friends and acquaintances who could really (or in two cases couldn’t) afford it, bought.
-2009: bearish friends and acquaintances bought (all of them).
Yep, in my circle of friends and acquaintances, all of my bearish friends (with the means to buy) have bought. There are two exceptions: myself, and a couple who just returned from overseas. Aside from them, the only other renters work low-wage jobs, or are recent graduates.”

mohican: “I have observed the same thing within my circle as well. Including myself, most bearish friends have purchased already. They largely took advantage of the winter 2008 price dip and negotiated hard to get a decent deal. Many are still bearish – including me – but just wanted a little lifestyle certainty and were willing to pay for it.  I don’t know where the future buyers will come from – overseas? The ownership rate is at an all time high right now as per statscan.”

david: “When bears capitulate isn’t that the sign of a market peak?”