“I’ve been watching carefully, and reading religiously, the postings on this website.
As a journalist for nearly two decades, I enjoy the perspectives shared, especially about the biased nature of certain opinions from within the media, real estate organizations, and members of the public, as well as those who run this site.
I’ll wade into that later, but first, some real facts from Richmond, B.C., where much of the real estate craziness has been centred.
First, a little background.
My family first bought a split level house in 2002. A modest, 1,500 square foot, three bedroom, 1.5 bath, on a lot that measured about 8,000 square feet.
We bought for $320,000, and within six months, the prices in the area “soared”—I use quotes, because at that time, we thought this was the definition of “soared—by more than $100,000.
At that point, we’d already maxed out what we could borrow from the banks, and we thanked our lucky stars we got in when we did.
But our house wasn’t worth renovating, so when a home in the neighbourhood with better bones was listed in 2007, we jumped in.
We sold our place in a bidding war for $30,000 above our asking price, and landed this other home, a dozen doors away, for about $550,000, slightly more than we sold our old place for.
By then, my wife was back at work, my kids were in elementary school, and we could afford the larger mortgage.
We then renovated it, planning to live there for the next 25 years.
But alas, then the real craziness began, which redefined “soar” for us.
We were approached by a developer offering seven figures. Our jaws hit the floor. But we’d just renovated, and were emotionally invested.
Then we slapped each other in the face, and agreed to sell it for roughly DOUBLE what we’d bought it for. This was in 2011.
Turns out, the buyer also bought at least one other home a few doors down, and was planning to raze the structures.
Having received the offer, we were worried about the market continuing the insanity, and didn’t want to be priced out, so we sought out another home not too far away. It was priced $300,000 less than what we were about to sell our home for.
The deal closing period was the normal three months, and it was the spring of 2011. This was when the first hint of the frailty of the market appeared.
The buyer backed out of the deal, citing that financing wasn’t approved. (We’re convinced it was an excuse; banks were handing our mortgages like flyers)
We were shocked, and the deal to buy the other home died too.
Although it didn’t appear that way at the time, we were actually lucky the deal died.
We decided to list the property, and in early 2012, we sold it for $100,000 less than the previous year’s deal, to another developer. But we were still well ahead despite the six figure drop.
Our notary public was shocked to see the price we got. Nobody was getting that kind of money anymore in 2012, she said, for a tear-down.
Instead of buying again, we decided to rent, and that’s where we are today, as prices continue to fall.
By how much? Well, don’t let the Greater Vancouver Real Estate Board’s averages mislead you.
The devil is in the details.
Those median selling prices truly can fool you into thinking prices are “staying about the same”.
That’s not true. We’ve seen asking prices commonly drop by more than $50,000 for one $950,000 house we looked at. That other house we’d bought—before the original deal died—wouldn’t fetch within $150,000 of what we’d bought it for, and the neighbourhood is relatively ugly and certainly less desirable.
We almost bought another house from that original deal, bout were eked out in a bidding war for the house that sold for $950,000. Today, similar houses in the neighbourhood are listed for $120,000 less.
There are people out there, still wishing for their $1,000,000 pay day. But that’s not going to happen anytime soon, based on my close observations.
I’m convinced, based on conversations with my realtor and others, that much of the hype was generated by offshore buyers seeking new homes, and local developers scooping up tear downs to meet this foreign demand.
Today, in my old stomping grounds, there are close to two dozen brand new megahomes listed for $1.8 million or more.
They’ve been lingering on the market for more than a year, and in one case, closer to two. Those prices aren’t budging, but those developers will surely start feeling the pinch, as money from offshore (mainly China/Hong Kong) has dried up.
One house directly beside ours was bought for $720,000, a crazy price, only for the prices to further soar to $950,000 for our neighbour, in the span of just three months in the fall of 2011. A new house was built in its place, sold for $1.78 million to the parents of my son’s classmate, and is now back on the market for $1.9 million. Wishful thinking, no doubt, for someone wishing to be on the outside again as prices fall.
In the McNair area, I’ve seen houses drop in asking price by more than $150,000. Now, sure, you could say the owners were simply listing too high. But we’re not talking talking about one or two homes. We’re seeing many homes drop in prices by six figures.
When those home prices drop enough to attract a buyer, that will bring down the median selling house price, but only if the market for multi-million dollar homes remains quiet as well. If demand for pricey homes rises, those other price-drops would be masked.
I believe that prices have been propped up for a long time by higher-priced homes selling, hiding the street-level changes I’m now seeing.
This month, I’ve seen some evidence of change.
One house in the South Arm area listed for $720,000, and sold within a month. It was a modest rancher, on a corner lot of above-average size.
Other slightly larger homes on smaller lots, including one directly across the street, still are asking for $910,000+.
The bottom line: whether it’s a matter of the “bubble bursting”, I’m no expert.
But when prices drop 20 per cent, that’s nothing to sneeze at.
Now, back to the issue of biased reporting, readers should keep this in mind.
Journalists aren’t paid to share their opinions unless they are writing a column. They simply report results of research, observations, and the opinions of others, essentially.
When I read that a real estate association thinks this will be a good year, I’m reminded of one of my university classes.
I believe the term/phenomenon is “self-fulfilling prophecy”.
Real estate assocations/boards are understandably directed by their membership, which is realtors.
To say the sky is falling might just trigger said sky to fall, at least in terms of prices.
This should be self evident to readers.
It’s like asking a used car salesman if he likes used cars, or if the price of a particular used car is fair. If he says the price is inflated, you’ll offer less, and he’ll get less commission, thereby shooting himself in the foot, and earning the scorn of his bosses.
The same could be said for financial analysts. Those with enough of a following/clout could trigger cold feet among deep-pocketed investors, resulting in a cascading-like crash if they indeed predict one.
And finally, the same could be said of the analysis done by the operators of this site.
I once interviewed the frequently-quoted-on-this-website real estate expert from UBC, who referred to the Vancouver-based blogsites that have been predicting a crash for many years. (He claims there is no bubble, and therefore it can’t burst.)
It could be argued that the operators of these sites are hoping to trigger a “bubble collapse” simply by writing about it all the time, and offering opinion biased in that direction (even supported by stats; I’m reminded of the saying, there are lies, damn lies, and statistics, the latter of which can be conjured up to demonstrate almost anything). To what end? Perhaps they are renters, and want to jump back in post-collapse, and then reap financial rewards when/if prices go up.
Is this likely? Who knows.
But don’t believe everything you read.
Do your own homework, keep your ears open, take everything with a grain of salt.
And remember; when you hear an opinion, take into consideration who gives it.
Do they have a vested interest?
Almost everyone does, including me, as I’m hoping prices plummet so I can reduce my future mortgage as much as possible.”
- Martin comment at VREAA 31 Jan 2013, held up in the automatic moderation filter (likely because of length); also sent via e-mail; headlined rather than posted as comment.
Many thanks to Martin for the stories, and for sharing his thoughts about bias.
Anybody who downsized their RE holdings, or sold entirely, in the vague vicinity of the top, will do fine.
This will, however, end up representing only a very small percentage of owners.
Anybody who bought or ‘moved-up’ during the run-up, especially in its latter stages, was speculating on future price gains, even if they didn’t know it.
Those who purchased with leverage, with more than their entire net worth in RE, will be particularly fortunate if they end up lightening up at higher prices. In the vast majority of cases, this occurs by good fortune.
Martin used some skill in selling in so much as he was able to recognized the prices offered as being ludicrously high, and made the decision to take advantage of that, and he should be congratulated for doing so.
As to the discussion of bias of opinion, including that on this site:
Of course each and every argument has a source and, consequently, a perspective.
And it is wise to suggest that we all take careful note of the source of any opinion.
At the same time, I would suggest that it is far more important to consider the content of the argument than its source. This is one reason, in our opinion, that there is a place for anonymous commentary on the web: their are benefits to making content the focus of the discussion.
A waggish response to Martin’s fair objections concerning bias would be to make a quip something along the lines of “Yes, but my bias is the right one!”
The true word in that jest is that we do, indeed, believe that the evidence (the “statistics”, if you like) strongly supports the bear case. We genuinely can’t see how one can’t conclude that this is a market that’s very overextended and at high risk of a large price collapse. We accept that people arguing many other positions may see the market very differently, and may be just as sincere in their arguments as we are. And of course we are aware that some can make arguments in an insincere fashion, when they have other motives for putting out a certain message.
As for the argument that bears are trying to purposefully bring on a crash, I’d say that the thought greatly overestimates our influence. Remember, bears have been warning of the mania for many years and it has made absolutely no difference to the behaviour of the herd. A healthy and balanced market cannot be influenced by an opinion that it is not a healthy market; especially if that voice is heard by only a very small percentage of participants.
When a speculative mania collapses, reasons for the collapse are always sought. But manias end simply because they are manias; bubbles pop because they are bubbles. We have started a collection of ‘Erroneous Theories For Falling Prices‘ (linked in the sidebar categories section) which already has 7 candidates. Number 3 is “Vancouver RE Bears Caused The Crash” - excerpt:
“It is common, as speculative manias implode, for ‘naysayers’ to be blamed for the shift in sentiment.
But those same bears went unheard when the market powered ahead. Suddenly, inexplicably, people start listening to bearish predictions? No, the market turns of it’s own accord, and the sentiment change reflects the turn, not the bears suddenly gaining attention.”