“I had a work colleague approach me today to ask about buying a condo in New West. She had no idea about the economics of ownership and real estate.”

“I had a work colleague approach me today to ask about buying a condo in New West. First it was interesting that it was a new project, marketed by Bob R. himself, but what was more interesting was how my colleague had no idea about the economics of ownership and real estate. We took the 600 sq ft unit she was looking at and calculated that over a 5 year period (Assuming this was a 5 year plan) the cost of ownership would be approximately $1,800 per month for interest, strata, taxes and then assuming a real estate commission / transaction costs at the end of 5 years. We assumed there would be no PPT as this was a low cost purchase for a first time buyer.
She was surprised to see it would be that much but $1,800 does not sound too expensive does it? So we did two things. Look at what you could rent for $1,800 and look what it would cost to rent the unit she was looking at.
For $1,800, she could rent a newer 1,100 sq ft unit in New West. That’s pretty much double the size she was going into.
Or – for $1,100, she could rent the unit she was looking at, or $700 per month less than owning.
What I said to her was this:
You can rent this for $700 per month less per month than owning ($8,400 per year) – After 5 years, you could save close to $50,000. That is the equity built from renting compared to owning. Or, you could spent the $1,800 you were going to spend anyway, and live in a much more expensive place. Either way, you are getting way more.
The math was really interesting to her as she is really quite young and never seen such numbers presented. To her however, it seemed pretty clear. At the end of 5 years, $50,000 of savings or, do you bet that that condo you buy is going to up by $50,000 in the next 5 years? Seemed clear to her.
The next day I saw her at lunch, surfing for new properties.”
- from ZRH2YVR via e-mail, 6 May 2012

Unrealistic Expectations Everywhere – “Robson is like Rodeo Drive, it’s like Park Avenue” (But 20 Stores Sit Vacant)

Robson Street, circa 1974

“From the departed HMV to the bankrupt Blockbuster, empty stores dot Vancouver’s highest profile commercial street. West of Burrard, more than 20 retail properties on Robson sit empty. And realtors have taken note.
“For years you’ve never seen lease signs up and down Robson,” said Sherman Scott, associate vice-president at Colliers International, which currently has a number of properties open.
“Now there certainly are, which is unusual.”
Tourism Vancouver President Rick Antonson characterized the vacancies as part of a “transition” but he is bullish on the street’s long-term vibrancy.
“Some international operators can anchor a street and draw traffic. What one always wishes to avoid is a generic street or city. [But] Robson street will get through this transition and retain its reputation as having a healthy variety of retail outlets.”
Following the 2010 Olympics, prices climbed to new heights on Robson. According to one real estate report, the average rent last year was $240 US per square foot, trailing only Bloor Street in Toronto for Canadian supremacy.
“Expectations are changing on Robson. The value of real estate has increased,” said Mark Renzoni, managing director of CB Richard Ellis.
He did, however, admit “the economy is not as strong as we’d like.”
…
“I think you’re going to see a lot more American retailers moving in,” speculated Howard Malachy of DTZ Barnicke, which specializes in commercial real estate.
“Robson is like Rodeo Drive, it’s like Park Avenue. People want to be there to be there.”
–  from ‘More than 20 vacancy signs as Vancouver’s Robson Street undergoes ‘transition’ – Justin McElroy, The Province, 1 May 2012 [Image from Vancouver archives; hat-tip Nemesis]
—

We find the logic being used by the landlords bizarre and perverse.
They do not ask the question “What will the market bear?” but rather state, based on beliefs and not evidence: “Robson is like Rodeo Drive, it’s like Park Avenue”, and they then set accordingly unrealistically high rents. Unsurprisingly, their properties are sitting vacant.
Are there 20 stores sitting vacant on Rodeo Drive? Even in the midst of considerable economic hardship, no.
The logic is reminiscent of that heard in a recent CBC radio discussion about the closing of the Playhouse Theatre. The argument used by discussants was “Vancouver is a world-class city, it should have a very vibrant theatre scene”. No one asks “Vancouver does not have a spontaneously very vibrant theatre scene, is it really the ‘World Class City’ we imagine it to be?”
As we all know here on the Vancouver RE blogs, a similar unrealistic mindset has contributed to residential property prices that spiral ever upwards; a reconciliation with reality is coming.
Vancouver is a fine city, in many, many ways, and it’ll be that much finer when we see it for what it is, rather than for what some wish it to be.
- vreaa

“My girlfriend and I have been looking to rent in the tricities, looking at roughly 20 properties so far. The prospective landlords seemed pretty desperate; most seem to have bought as “investors”. A lot of them called us back when we didn’t contact them.”

“My girlfriend and I have been looking to rent in the tricities for a few weeks, looking at roughly 20 properties so far. The prospective landlords seemed pretty desperate. A lot of them called us back when we didn’t contact them after a showing, we were able to negotiate 10% discounts (on average) and short-term contracts. Most apartments were in the $1000 to $1200 range and seem to be hard to rent out. Most landlords seem to have bought as “investors”, one guy even using student loans. There definitely seems to be an oversupply of rentals (at the current price of $1100 for a 550 – 800 square foot, fairly new building with granite countertops etc landlords re-advertise for weeks on criagslist, indicating a difficult market for them). I see this as the first step of “reality kicking into gear”. Once these people can no longer pay their mortgages and fees (most places sell for about $300K, making a 25 year 0 down mortgage roughly $2000 a month plus $250 condo fees plus $250 tax, adding up to $2500, double what rent would generate) the foreclosures will begin. Of the $2500 a month, $800 are interest, making the “carrying cost” of taxes, int. and fees a total of $1300… they literally lose $200 every month if prices are stable. If they drop, they are even worse…”
- suspectum at VCI 1 may 2012 1:01pm [hat-tip jesse]

“Be Careful Where You Rent”

“I am currently looking for a house to rent for my family. We refuse to buy in this market. I always google the address of the place before I even call if I am interested. A lot of times it comes up as recently sold (this happens A LOT). It is a little scary when this comes up, because the house being bought more times than not is for speculative reasons.
This one was a whole different story. The house was a grow op… twice!
Be careful where you rent!”
- from ‘anonymous’ via e-mail 1 May 2012

—

The address is the same in the two documents.
- vreaa

“As a former Montrealer and current Mechanical Engineer, Vancouver isn’t that bad. Starting a family is very simple here. Do what my girlfriend and I do: rent and forget about buying.”

“As a former Montrealer and current mechanical engineer( B.Eng.), Vancouver isn’t that bad. The job market here is very bipolar, that’s all. If you work in the Forest\Mining\Import-Export industries, you’ll be fine. If you’re field is not related to any hard asset, then things are going to be bad.
If you’re in the F.I.R.E industry, then move to Toronto.
Starting a family is very simple here. Do what my girlfriend and I do: rent and forget about buying…”
- Sebastien at VREAA 12 Apr 2012 10:39pm

“So long Vancouver! Adieu! It’s been nice, but now I feel like a young naïve girl who’s been tricked into having sex with a pretty but vapid jock. How many smart, motivated young people must you scare out with your over-inflated prices and lack of joy before you realize that you are headed to an economic and human disaster?”

“So long Vancouver! Adieu! It’s been nice, but now I feel like a young naïve girl who’s been tricked into having sex with a pretty but vapid jock.”

…
Disappointing thing #1: The job market …
There are no jobs here, and when a good one pops up, the competition is so fierce that you have to send a singing telegram to get noticed.
…
Disappointing thing #2: The cost of living …
How many people must cram into a 1500$/month 2-bedroom apartment just to make ends meet? “Why aren’t they moving somewhere cheaper?” you ask. Well, there isn’t anything cheaper. Well, actually, there is, but the cheaper stuff is often illegal, unsafe and unhealthy.
…
Disappointing thing #3: The heart …
The city has, how can I explain it… no soul. It is as superficial and empty as the endless condo towers growing like weeds. There are good people in Vancouver who give this city some spark and light; but most times I felt no joie de vivre, no… happiness. Everyone is working so hard to maintain the appearance of being affluent that they lose their souls in the process. They lose their ability to enjoy life. And what good is a city surrounded by nature if you can’t find it in your heart to enjoy it to its fullest because you are worried about bills all the time?
…
Conclusion …
I used to love Vancouver as a tourist… but staying there made me hate it. How many smart, motivated young people must you scare out with your over-inflated prices and lack of joy before you realize that you are headed to an economic and human disaster, Vancouver?
…
- excerpts from “Don’t Move to Vancouver”: Why I Changed My Mind After 6 Months”, by Anabelle, at her blog ‘Anabelle’s Blog’, 18 Mar 2012 [Hat-tip Aldus Huxtable]

“So, here’s the punch line… At these killer low rates, AFTER a down payment of $600k, the carrying costs would be $1,374 per month MORE than renting, and that’s not even adding in the $500ish strata, taxes and special levy! Why would I buy? Why?”

“I’m renting a $1.5m house in Vancouver which was renovated to the tune of $180k just before we moved in. I had to peel the protective lining off the steel appliances and fittings in the 4 bathrooms.
“I have a 3 year lease for $2,900 per month. I don’t know how much the taxes are (surely more = better in the self gratifying eye of the locals) but the strata fee is $446, with a special levy of $43,000 (yes thousands) this year to refurb the outdoor and indoor pools and common facilities. It is in Shaugnessy where the cream is turned for its cream.
“So, here’s the punch line… At these killer low rates, AFTER a down payment of $600k (no 95% financing here) the carrying costs would be $1,374 per month MORE than renting and that’s not even adding in the $500ish strata, taxes and special levy! Why would I buy? Why?”
- Mark, as quoted at greaterfool.ca 8 Apr 2012

Why? Well, Mark, we agree you shouldn’t buy, but if you were a citizen who was buying, you’d be buying for two reasons:
1. if your net-worth was large enough that a 50% or more drop in the $1.75 Million home would be very easily tolerated; where such a drop would only make up an insignificant portion of your net-worth;
or,
2. if you were consciously or unconsciously betting (speculating) that the price of this house will rise substantially year after year.
There really is no other reason to buy.
(BTW, are there any $1.7M ‘homes’ left in Shaugnessy? Don’t think so.)
- vreaa

Vancouver Courier Letter Of The Week – “My husband has an excellent job in finance with a great salary we continue to rent little bungalows on the West Side that sell for ridiculous prices. Sadly Vancouver has become our enemy rather than our friend. Every day we discuss leaving.”

‘reality check’, in a comment on these pages, pointed us to the following letter in the Vancouver Courier, with the remark:
“There is a nice whiney letter in yesterday Courier, VREAA, stating how a poor family of 3 who deserves to live on the west side is looking at leaving the province. BOO HOO. I thought you’d enjoy reading it.”

—
Letter of the week
Vancouver Courier APRIL 6, 2012

“To the editor:

Re: “Vancouver realtors cater to wealthy offshore Chinese as middle class gets squeezed,” vancourier.com, April 3.

It’s about time that this major problem be discussed. My husband and I are increasingly frustrated with what is going on in the city and although my husband has an excellent job in finance with a great salary we continue to rent little bungalows on the West Side that sell for ridiculous prices ($2 million or more) to Chinese investor class citizens.

We watch our previous rentals get torn down so that another huge empty house can take its place. It’s heartbreaking and the fact that we have a daughter who is two years old makes the situation more frustrating because we can’t provide a stable situation-a small house, near a good school in a safe neighbourhood. We watch as our trust-fund friends buy on the East Side paying crazy prices to live in houses that need a lot of work in less than perfect neighbourhoods.

We are on our own financially, so sadly Vancouver has become our enemy rather than our friend. Every day we discuss leaving. Our job search in other parts of the nation continues because we are getting the message loud and clear- Vancouver doesn’t want us here.

Sad but true.

Rebecca Kovacs, Vancouver”

Renting Realtor Wants Renter To Buy – “He went on at me about how he can’t stand to see me throwing my money away on rent and that my wife and I need to get ourselves into a little “fixer upper” in the North Shore. Funny thing – he rents – thinks it’s great.”

“My realtor called me a couple of days ago. He does not appreciate the extent of my knowledge about the market, finance, economics, global capital flows, credit markets, asset inflation, leverage, oh – – and the concepts of net present value. He also has probably never read a real estate blog. …
He basically went on at me for about 30 minutes about how he can’t stand to see me throwing my money away on rent and that my wife and I need to get ourselves into a little “fixer upper” in the north shore. There are so many you can get for under a million. He went on to give me all the realtor speak – – – But I do not argue because it’s not possible. Funny thing – he rents – thinks it’s great. Also said HAM not here any more – things are dead. Very difficult to move a house in Richmond right now and mid to high end not really selling. This must be a bad sign because he has never admitted such. Even 5 months ago things were as “busy as ever” even while stats would show otherwise.
This city is delusional and to use a partial quote from the recently departed Goldman exec . . “A visitor from Mars . . . . would wonder if we practice some type of voodoo economics in Vancouver and the entire city is brainwashed” .”
- zrh2yvr at VREAA 14 Mar 2012 7:13am

Read Before You Rent… – “In my 25 years of renting apartments in Canada, I’ve never before had this trick pulled on me.”

[text in window]

“read before you rent ->

In my 25 years of renting apartments in Canada, I’ve never had this trick pulled on me.

We found this lovely place last March.
When we signed the lease, the landlady had pre-ticked the box that said we would vacate after our one-year term.
We said “oh no, we’re looking for a place to live long term. We’d like to go month-to-month after that.”
She said she would negotiate a new lease with us next year and that this is how she does things.

We very soon found out why…

Later that spring, I asked her if I could put in a garden and she said I could put pots on the conrete and slabs where I have put pots.
After I invested $500, and the garden was in full bloom, she said I had to redue to 2 pots – one each slab.
We refused and stood up for ourselves, as the garden gave us and all of our neighbours great pleasure and no problem.
She backed down at the time, but now refuses to negotiate a new lease with us.

We paid our rent on time every single month. PLUS we asked permission for our garden first, and she said yes!

We arent going to bother going to the rental tenancy board.
Shorly after moving in, we watched her do this to a young professional couple who were 8 months pregnant at the time, and the adjudicator at their hearing said “you shouldn’t have signed the lease with the vacate box ticket – I can’t help you.”
And watch, this woman won’t sign a lease with you any other way.
She wants absolute control and she escalates all situations to anger and tells you to move if you don’t like it.
So, beware.
Lovely home. Horrible landlady.

AND DON’T SIGN HER LEASE IF YOU WANT TO STAY LONGER THAN A YEAR.

She’s a master at using this trick to legally force tenants out.
Good Luck!”

—-
[The above care of 'Aldus Huxtable', via e-mail, who adds "Spotted whilst out on a walk, one for the archives? An evolved by-product of amateur landlords? Perhaps we will see a lot of speculators resort to odd maneuvers to make the increasing mortgage payments if rates were to increase. Who knows what this landlord's motives were, but, in a city where renting is propping up the market....". (Thanks, Aldus. -ed.)]

“When I look at the actions of governments, I cannot figure out whether they are mostly stupid or mostly dishonest.”

“For most of us, housing is our biggest expense. One out of every five dollars we earn goes to build, buy, rent and run our homes. Facing high home prices, large personal debts, and an uncertain economy, fewer Canadians can buy a new home today than in the past, and they are choosing to rent instead.
Unfortunately, in many cities finding an affordable place to rent is nearly impossible. The most immediate problem is supply. Vacancy rates under 3 per cent push rents up. In Vancouver and the Greater Toronto Area, it’s 1.4 per cent.
Vacancy rates this low force our young people to move out of the city, threaten seniors on fixed incomes, and have a negative impact on local businesses.
That’s why this spring’s federal budget must put Canada’s rental housing market on solid ground, by pursuing low-cost, high-leverage policies that get jobs on the ground and build housing Canadians can afford.
Building and renovating rental housing will give cash-strapped Canadians more affordable housing options at a time when they’re being increasingly priced out. It will also create thousands of construction jobs to replace the 50,000 lost to slower new housing starts.
We’re calling on the federal government to use its spring budget to introduce cost-effective market incentives to encourage private-sector investment in rental housing.
These include:
• Low-interest loans underwritten by the Canada Mortgage and Housing Corporation (CMHC) to finance new rental construction.
• Tax reform to encourage owners to renovate and retain rental properties, providing an incentive to preserve affordable rental housing.
• Help for landlords to make rental housing more energy efficient, reducing costs and easing pressure on rents.”
- Gregor Robertson, Mayor of Vancouver, in an article co-authored with Joe Fontana (Mayor of London, Ontario) in the Toronto Star, 7 Mar 2012
—

This from the discussion at vancouvercondo.info 12 Mar 2012:

“Why build apartments when developers can make quick and obscene profits on shabbily built condos and walk away even before the expiration of their faux warranties?
The only thing that will truly encourage construction of rental stock is a return to sanity in housing prices.”
- chilled, 12 Mar 2012 10:30am

“…“they” will start building affordable, quality rentals when people stop buying high-priced, crappy condos.
The construction industry is simply doing what makes them the most money. If you want someone to blame, blame the buyers and the governments which enable them.”
- patriotz, 12 Mar 2012 5:02pm

“Right, like the current government that decided to give ten grand to people buying a first home, which is to say, they decided to give ten grand to any developer who sells to a first time buyer, which is to say that they arranged for it so that rentals would have to bring in ten grand more to be competitive with sales. As often happens when I look at the actions of governments, I cannot figure out whether they are mostly stupid or mostly dishonest.”
- N, 12 Mar 2012 5:45pm
—

By the way: A plan for “tax reform to encourage owners to renovate and retain rental properties” means that tax-payers will be subsidizing landlords; this will apply even more government-backed upward-pressure on housing prices in Vancouver.
Governments can really make a hash of markets. Case in point: the CMHC itself was created with the idea of making housing affordable; by mis-pricing the risk of lending, they have supported a speculative mania in housing and made housing less affordable.
Frequent readers know our position very well:
No government can design a solution for Vancouver’s dilemma; we are trapped in a monstrous speculative mania, there is no way through but price collapse.
Government policies may precipitate the collapse, or they may give cocaine to the dying racehorse and let it limp along for a while longer (drawing in even more buyers for the slaughter), but, whatever a government does will not put off the inevitable outcome of a bubble.
- vreaa

Renter Rant – “I make good money, have done everything right from a financial planning perspective, analysed the market in detail and it hasn’t made any sense to buy in for YEARS. Found out this morning I have to move again. Moving SUCKS!!!!”

“Enough is fcuking enough. Found out this morning I have to move again. My stupid mistake for not setting a 2nd lease. They are selling and cashing out – can’t blame them. They are friends of my brothers and gave us an indication they were holding long-term. SO STUPID OF ME!!! A 2 year old, prego wife, new job – timing could not be worse!
But seriously, I make good money (top 5% of Canadians), have done everything right from a financial planning perspective (pay yourself first, hired experience investors, diversified portfolio blah, blah, blah), analysed the market in detail and it hasn’t made any sense to buy in for YEARS. I couldn’t make myself buy in even back in 2007. But still it keeps going up, and lucky people keep getting to feel smug, and look down their nose at renters, and put themselves in CRAZY levels of debt. What the heck are you supposed to do get some stability (don’t answer that – I know get a lease – STUPID ME!). The very basic house I am in (getting booted from), in the neighborhood I grew up in will list and sell quickly for $850K!!!! Blows my mind.
All of this brought to you by our f’d up government who think grants to get more people into the market actually addresses the affordability problem. WTF!
We let real estate investors and contractors and planners run CMHC so they can drive more business for themselves. Really a government program to make housing more affordable and accessible insures INVESTMENT properties. WTF!!!
Total insanity. Heads gotta role at some point here. What’s involved in starting a revolution?????
Yes I’m tired of moving, but my biggest concern is what we are doing to Vancouver for the long-term. Assuming it ever goes down (starting to have doubts at times these days) the correction will be HUGE, and will slaughter so many of today’s smug faces. They will get their financial assess handed to them, and likely never recover. With how many of them there seems to be, what is that going to do to the city I grew up in and love, but have a hard time enjoying living in these days.
Moving SUCKS!!!!”
- RentersRant at VCI 29 Feb 2012 at 9:30pm

‘RentersRant’s biggest concern at this moment is clearly not about “what we are doing to Vancouver for the long term”, nor should it be. He has more immediate personal concerns about the profound inconvenience of being forced to move. We sympathize, moving ‘sucks’ at the best of times; when it is a forced move it is that much more unpleasant.
We also sympathize with his longer-term concerns for the city, and how his financial prudence has been punished by monetary policy & the speculative mania while all around the imprudent have been temporarily rewarded.
The spec mania applies destabilizing forces to the rental stock in the city. Any landlord capable of back of the napkin math, and who also has a modicum of insight into where we are in the RE cycle, should be selling. This is not good, it’s just another deleterious effect of the bubble.
- vreaa

Tom Davidoff’s ‘Fantastic, Pragmatic Lecture’ – “Vancouver RE price future is uncertain, with clear downside risk. Prices could, absolutely, fall 50%. But long run growth is easy to envision, and Vancouver will never be cheap.”

“Today [16 Feb 2012] the UBC Faculty Association hosted a lecture titled “Is Real Estate Part of Your Financial Plan?” as part of their Financial Planning Lecture Series. The speaker was Tom Davidoff, Assistant Professor at UBC Sauder School of Business. In the past Prof. Davidoff had been interviewed on CTV, and discussed on this blog.” [1. 'Tom Davidoff, Sauder School of Business, UBC - "There's not going to be any free lunch in Vancouver. There's no entitlement to own a nice home in the most beautiful place on earth. So I think people need to be prepared just to accept that reality.", VREAA, 1 Dec 2012; 2. 'Tom Davidoff, Sauder School of Business, UBC - Clarification', VREAA, 2 Dec 2012; 3. 'Tom Davidoff Knows About RE Cycles', VREAA, 4 Dec 2012 -ed.]

“Today’s lecture was fantastic. He did not adopt a dogmatic bull or bear stance, but instead was quite pragmatic.”

“His main points were:
1) It’s ok to rent
2) Discussion of legitimate rationalizations of owning
3) Vancouver price future is uncertain with clear downside risk
4) Vancouver is not going to be cheap anytime soon
5) Owning housing can be viewed as both risk and insurance.”

The slides from his talk are available here, and here:
http://www.facultyassociation.ubc.ca/docs/fpls2012_L4.pdf

“I jotted down some interesting remarks, some of which are taken from the slides:
– (concerning slide 4) “If you want something to be distressed about, try this. Vancouver vs Seattle: the rents are the same, but prices are 40-50% greater, even though the tax rules tell us it should be the other way around.”
– (concerning slide 13) “Prices here have risen way faster than rents. This is worrisome and reason to be pessimistic”
– “Vancouver is the nicest city in China” (slide 19)
– “Short run risk of bubble collapse in China” (slide 19)
– “There is a risk of a bubble. Prices could absolutely fall 50%.”
– “There are other nice cities on the coast, but you can’t buy citizenship there like you can in Canada”
– “20-50% of sales are mainland Chinese buyers” (did not state precisely where or what)
– “If you need a 20% downpayment on a $1m home, which in Vancouver is a starter home, and not a very nice one, then it will be very hard to achieve this [if you a UBC employee] with a PhD in English”

“I commend Prof. Davidoff for being the first Sauder faculty (that I have seen) to publicly give a useful and rational discussion of the Vancouver housing market. I apologize for any erroneous quotations.”

- the above account and commentary from ‘Anonymous UBC Professor’ forwarded to VREAA via e-mail 16 Feb 2012
—

Thanks, indirectly, for the talk, Tom Davidoff; and thanks for the reporting thereof, ‘Anonymous UBC Professor’.
For those of us who weren’t at the talk, the pdf slides give a fairly good idea of the material covered. It’d be great if video, or audio, or transcription, of the entire talk emerges.
Davidoff discusses Vancouver rent vs buy, and pricing, in a more complex and more subtle way than we have seen elsewhere. Ideas regarding interpersonal differences in desire for mobility and stability involve important (and very difficult) calculations.
He honestly states that there is a possibility of large magnitude price drops, and is open about his lack of certainty going forward. When Tom states: “Easy to see downside risks; Easy to envision long run growth”, we wonder about how he would weight the probabilities of various different outcomes.
What are his best guesstimates regarding chances of ongoing growth; chances of a crash?
When a careful student of RE markets says “I can’t say if we’re in a bubble or not”, and “Prices could absolutely fall 50%”, but also “It’s easy to envision long run growth”, how are prudent owners and prospective buyers to respond?
When we ourselves join the available dots that the current market lays out, we continue to see very prominent downside risk, with only a very small chance of an ongoing price growth scenario. But we, too, acknowledge lack of complete certainty.
Isn’t that always the way in markets?: One can never be certain, but, one way or another, you have to take a position. You assess and weigh the probability of various outcomes as best you can, and then make decisions about how to position yourself, keeping in mind the consequences of various outcomes, and the particular effects they could have on you. Thus, a couple in their 20′s with 5% down on a condo, and a retired couple worth $10M who own their own $3M westside home outright, may have very little quality of life to lose from a RE crash, and may happily go on owning. But a 58 year old with 3 dependents, inadequate retirement funds, and more than their entire net-worth in a $1.3M east-side house, may suffer devastating consequences from the very same crash. We’d expect the 58 year old to be worried about even a low probability of crash outcome, because the consequences would be so dire, and for them to take up a more defensive stance towards their RE exposure. At what ‘best estimate level of crash-probability’ should the 58 year old sell? 30%? 15%? 5%?
Davidoff is reluctant to jump on what he appears to see as some kind of ‘bubble-caller bandwagon’. Perhaps his perspective is at least partly the result of his US post-bubble experience, where, post-implosion, everybody came out of the woodwork with “we-knew-all-along” fudging. Here in Vancouver itself, ‘bubble callers’, amazingly, remain in the small contrarian minority. Tom says “Many are willing to declare a bubble”; but we can think of few local examples. At least he is now on record as saying we’re possibly in a bubble. We agree, of course.
Overall, a stimulating series of slides, and as our invaluable reporter-on-the-ground says, the talk appears to have been both “fantastic” and “pragmatic”. Tom Davidoff’s analysis is a welcome addition to the local discussion. We continue to extend an open invitation to him to post a piece discussing Vancouver RE on these pages. We’d just as eagerly like to see a comprehensive essay by him in the local press.
- vreaa

“The house and lane house were empty and converted into 7 or 8 suites between the two. The owner couldn’t meet me on time as he was showing one of his other six properties.”

“I’ve been helping a friend who is relocating from elsewhere back to Vancouver find a rental property. I went to view a house around 14th & Cypress which had a lane house. Both the house and lane house were empty and converted into most likely 7 or 8 suites between the two. The owner couldn’t meet me on time as he was showing one of his other six properties “like this”.
May I note, the renos looked shoddy, window surrounds without a straight line, plus, really, would you like to pay $1600/mo for a 1+loft on a property where 8-18 people will be living, coming and going on a boxed in lot? I viewed this place within the last three weeks.”
- Aldus Huxtable at VREAA 9 Feb 2012 3:07pm

Densification, unplanned.
- vreaa

“My wife and I could never buy into a life of servitude to a bank. We just aren’t built to borrow money and don’t consider life as a one track job in order to buy a building.”

“For our family it’s been about enjoying life. My wife and I could never buy into a life of servitude to a bank. It’s not in our DNA. We just aren’t built to borrow money and don’t consider life as a one track job in order to buy a building. We travel and explore BC and paid the university education for two kids. When we first moved to the LM from the Okanagan, we stopped at Haro and Jervis for several years (when a one bedroom was $400/m) and watched the tone of the city change from a cultural oasis to a financial oasis. I almost bought a suite for $90k, but the spirit changed. We wanted out. Now we live on a five acre farm near Golden Ears for $900 a month. We do lots of care taking and the owner keeps the rent low. Fresh eggs, beautiful scenery, and slow paced neighbors who are more interested in gardening than real estate. We’ve saved enough to buy a house for cash near Merritt and have our RRSP’s topped up.
I can appreciate that some folk want to acquire, however that need is at the jeopardy of a full rounded community with contributions from all walks of life. There’s some wonderful people in Vancouver, friendly, but there is a shift in attitude. It’s more about ‘stuff’ now. I don’t know, it might become a haven for the world’s rich, but at what expense to the people who were raised here? It’s like the pipeline up north—we pay carbon tax while the government and corporations pump our fossil fuels to Asia. There’s an underlying hypocrisy in many aspects of Vancouver and British Columbia’s growth. I don’t think the government made good decisions about sustainable living for the citizens of BC. I do believe their priority has been a tax base and many other aspects of culture and affordable living have been secondary. I know some real estate agents and I hold them personally responsible for jacking up prices at every turn. They were born to sell anything for a profit, and I am afraid they are now influencing public policy.
Can Vancouver survive an era of personal gain and self gratification? The same attitude didn’t prepare another glamor town very well, Las Vegas was hit very hard and it still hasn’t recovered from 2008. Two more years and our family is out. We are taking our design and manufacturing business as well. Freight on board out of Merritt is cheaper than expanding into a commercial site here.
Will be back to visit.”
- debtless in poco at VREAA 7 Feb 2012 9:25am

Talk of life without debt, fresh eggs, beautiful scenery, slow pace, neighbours, community.
Freaks!
- vreaa

The Costs Of Ownership – “Here are the economics of my renting since arriving and how this would have compared to buying.” – Renter Ahead $200K Over 5 Years

ZRH2YVR is a regular poster who recently revealed that they will be leaving Vancouver for a job to Switzerland. Their story was headlined 28 Jan 2012.

On that thread, ZRH2YVR added this useful analysis [VREAA 29 Jan 2012]:
“Here are the economics of my renting since arriving and how this would have compared to buying. You know real estate always go up so this renting thing must have been a real bust.
Property info – 1400 sq ft unobstructed 270% view of English Bay south down granville street and up and around to the mountains east approx to My. Seymour. New building 2007.
Rent paid from move in to June 2012: $196,000
This is a true consumption cost and was well within our means.
Value of property in 2007 on move-in – approx 1.4M.
Value today – estimated – 1.4-1.5M . Let’s say 1.5M just to be conservative.
Cost of ownership – Assume 100% leverage and ignore investment opportunity cost.
Interest rate – Let’s sat 5% even though in 2007, it may have been more.
Strata and property taxes amount to approx $1050-1100 per month.
So – Cost of ownership over this period is $395,000. But wait – the property went up in value right? !!! Well
Purchase cost would have been approx $1,430,000 with all up front costs.
Selling at 1.5M and subtracting costs would net say- $1,450,000 – so there is a gain of $20,000. Fantastic . . . Offset this against the cost of ownership of $395,000 – that gives you net $375,000 (ignore taxes). Compare this to cost of renting of $196,000 – we are up approx $200,000 – Believe me we notice this!!!
So – – For all you property virgins out there – the numbers above may be outside your normal range but divide this by 3 for a $500K property and you will be in about the same place – – up by $60,000 over 5 years. I would never buy in the current market.
Now the funny thing is that in order for us to have broken even, the purchase price would have been close to $600K initially -and that is over 50% fall from where we are. Good luck to all of you. A house is a place to live first – invest second and anyone who is investing right now is completely out of their mind. You would have much more fun going to Vegas for a month – and would probably be better off.”
—

Notice how often different methods of calculating the fundamental values of different properties come up with a “over 50%-off” conclusion.
Add bad sentiment on the downside and you can see one source of our 50%-66%-off estimate.
- vreaa

Maple Ridge – Renter Comes Out Ahead Of Buyer/Seller Over 5 Years

“We are all renters. That’s what I said to the nice bank lady when she gawked at my account balance. I explained, five years ago my buddy teamed with an investor to make the down payment and bought a house in Maple Ridge @ $335,000. The payment was $2000/m and he had a mortgage helper for $500/m. Since, he has reno’d the deck for $10000 and payed five years of tax totaling $10000. He also bought a water heater and paint for $1000. At the time, he bugged me to buy, but I rented and banked the difference between our two payments. I paid $700/m. and banked $800/m
Five years later, he wants out and intends to rent again. He can get $400,000 for the property. Principal owed is 310,000. The gross profit is $90,000
Deduct, 3% agent fee going in and out.
Deduct the interest portion of mortgage payments he covered
Deduct operating expense and property tax
Deduct 50% of the mortgage helper as taxable income
Pay back the downie investor principal plus 5%.
Gross profit on the house experiment $90,000
less expenses
balance =
$29,000 for five years rent isn’t too shabby, I told him, however expenses ate up any additional savings. And if he does not buy another place in a year, deduct tax on the capital gains for this year. An accountant might dispute my calculations but I think it’s pretty close. I did not include credit card interest, though my friend has been cash poor throughout the experiment.
In the same five year time period, I banked $48,000 rather than pay mortgage interest, with no fear of capital gains tax and no operating expenses, which I also banked. I may not be a millionaire, but I am happy with my lifestyle and enjoy west coast amenities without worry.
I wanted to share this experience, because I have been reading the VREAA blog and comments rent-free for some time and felt the need to pony up. Thanks.”
- sage at VREAA 24 Jan 2012 5:01pm

“The nice lady at the bank told me that I really should be looking at a house as an investment since house prices always go up. I replied, well until they go down. She looked at me as if were from another planet and said well, not in Vancouver.”

“Linda (a wealthy woman who rents) ran into her account manager. “He told me that the bank is forecasting stable prices and perhaps a small softening based on what’s happening in China. He then asked if we were getting ready to buy yet. I told him that we were happy renting especially since a home we desire in the neighbourhood we like would cost between $1.5 to $2 million. He then inquired if that was our budget. We could certainly ‘afford’ – whatever that means -  a home in that price range. I told him however, that it wasn’t in the cards because we weren’t interested in a fat mortgage. He looked absolutely offended as if I’d launched a personal attack. Then, the nice lady at the bank, who had overheard this conversation told me that I really should be looking at a house as an investment since house prices always go up. And I replied, well until they go down. She looked at me as if were from another planet and said well, not in Vancouver. At that point I realized that I was from another planet – the one inhabited by sane people.”
- anecdote relayed by Garth Turner at greaterfool.ca 12 Jan 2012

Couple With $1M To Invest – “Moved back to Canada this summer and are gobsmacked at the state of “unreal” estate in every corner of this country. Our friends cannot believe we are renting. We cannot believe they think we should part with our savings in this market.”

“Who has $1 million to invest?.. We do. Moved back to Canada this summer from many years overseas and are gobsmacked at the state of “unreal” estate in pretty much every corner of this country. Our friends cannot believe we are renting. We cannot believe they think we should part with our savings in this market. We’ll be sitting tight and so happy to rent our 3500sq foot house for a pittance and pay no property tax. Unfortunately it doesn’t have granite counter tops…I can barely survive.”
- McExpat at greaterfool.ca 2 Jan 2012 10:44pm

There are folks exactly like this in Vancouver, but few RE Bulls believe it. – vreaa

“A guy I know bought a place and was bragging that his mortgage is only a little bit higher than his rent would be. He gave me the whole lecture about how I am throwing money on rent. It took only a month until he started complaining about other expenses.”

“A guy I know bought a place and was bragging that his mortgage is only a little bit higher than his rent would be in a similar place. He gave me the whole lecture about how I am throwing money on rent etc. It took only a month until he started complaining about the high condo fees (which he did not account for), taxes (which he did not account for), higher insurance cost (which he did not account for) and a possible “assessment” (not even in his dreams when he was doing his “calculations”).
He has a variable rate mortgage and is paying just over 2% interest, that’s how his mortgage payments came relatively close to rental cost. Every 0.5% increase would add another $200+ to his cost.
Most home “owners” I talk to ignore any variables beyond mortgage when they are doing their calculations.
Another cost that is almost never accounted for – closing costs.”
- a splice of two posts by ‘bubbly’ at VREAA 20 Dec 2011 11:55am and 11:58am

Potato’s ‘Rent vs Buy Investment Spreadsheet’

Take a look at this very elegant Rent vs Own comparison spreadsheet/calculator.
Thanks to ‘Potato’ for telling us about the sheet and hinting to link it.
Potato also has a page of discussion regarding the calculator at their blog ‘Blessed by the Potato’. Wise-words excerpt-
“There are a lot of assumptions and estimates involved, a lot. The question is what should you do for your life? And importantly, what are the consequences of being wrong? Don’t use this tool with unrealistic estimates to try to justify a decision you want to make, but rather try to use it to help you come to the decision you should make — and to see what happens if you’re wrong.”

“For it to make sense for me to buy, prices would have to drop a lot more than 15%.”

“I live on the west side of Vancouver and rent a 700sqr ft apartment for $1050 a month. For it to make sense for me to buy a condo, with ever increasing monthly fees, property taxes, random special assessments, and a good possibility that it will leak (like so many others), prices would have to drop a lot more than 15%.”
- Tim at greaterfool.ca 18 Dec 2011 at 9:40 pm

“Affordable Housing Plan” – Apartment The Size Of Two Parking Spaces For $850 Rent Per Month

Life in an apartment the size of a double parking space will be on full display today as the public gets its first inside look at the mini-living going on at the restored Burns Block building on West Hastings Street in Vancouver.
Boasting 30 micro units described as the smallest rental units in Canada by developer Reliance Properties and partner ITC Construction Group, the Burns building is part of the city’s ongoing affordable housing strategy.
Coun. Kerry Jang told The Province Sunday that the low-rent suites – which range in size from 226 square feet to 291 square feet and rent for an average of $850 a month – were designed with modest income earners in mind.
“What we are trying to do as part of the affordable housing plan and housing in general is to provide a range of housing,” he said. “Because right now, if you rent a place, it’s over $1,000 and that’s beyond people who are making $10 or $12 an hour.”
The city contributed a $50,000 grant to fix the face of the 100-year-old heritage building, $144,000 in property-tax reductions and 62,000 square feet in heritage bonus density.
…
“It’s for folks who need to work in Vancouver but can’t afford to live here,” Jang added. “They can live in Vancouver, go to work and save money on cars and all that kind of stuff because they don’t have to drive in so it makes a big difference.”
…
Wendy Pederson, researcher and organizer for the Carnegie Community Action Project, decried the renovation of the old hotel as gentrification, adding people living on welfare or on old age pensions won’t be able to afford the rents even at $850.
“In my view, it’s a crime that the last housing before homelessness is being converted into micro-lofts,” she said.
“Those rooms used to rent at welfare and old age pension rates, and now the Downtown Eastside is being gentrified by the upscaling of these hotels. It’s upscale by our standards,” she said, adding the pre-reno rents were around $375.
“We don’t have enough social housing, and we’re losing our [single-room occupancy] hotels to upscaling like the Burns Block.
“The city is ignoring gentrification as a cause of homelessness,” said Pederson. “Many residents in a very full hotel were evicted [in 2006] by the owner who wanted to empty his building.” … “That owner made $1 million flipping it,” she said.
- from ‘Living small on West Hastings’, The Province, 19 Dec 2011 [hat-tip jesse]

As we’ve said previously: “Calls for ‘affordable’ new-build housing are almost all band-aid solutions. They largely result in relatively low quality product at proportionally roughly the same elevated costs as all other local properties.” [16 Dec 2011] - vreaa

“We are in our late 20s, take home 120k a year in safe gov’t jobs, and have absolutely no reason to get into this market right now.”

“The wife and I are in our late 20s, take home 120k a year in safe gov’t jobs, and have absolutely no reason to get into this market right now. The market here in Vancouver is silly, and renting 1/2 a house in North Delta that is walking distance from the wife’s office for $800 a month inclusive of all bills, wouldn’t even match the condo fees/property taxes of a 1000 sq/f box down the road.
Over the last year since coming back to Canada from an extended expat stint in Asia, I have def. noticed condos dropping in price, particularly in New West, Coquitlam, and parts of Burnaby.
Interestingly, a contact of mine who owns one of the larger realty companies in West Van, recently divested his ownership, sold his West Van house/sports car, packed the family up, and left for SoCal.
The smart money is leaving. My money is going into a TFSA/RRSP/growing a 3rd income from a small biz.”
- Zeus at greaterfool.ca 9 Dec 2011 9:51pm

“I know a couple in Lausanne, Switzerland, whose combined income is certainly over $500k. They rent. Many Swiss cities are renter cities.”

“I know a couple in Lausanne, Switzerland, whose combined income is certainly over $500k. They rent. Many Swiss cities are renter cities.” – Jeff Murdock at VREAA 9 Dec 2011 8:19am
—–

“The Swiss have a very well balanced real estate system. They live in a country with limited land and thus, the ownership and use of land is somewhat regulated and it is an asset to be consumed and not “invested in” or traded. This creates a very very stable market. You’ll see that the value of Swiss real estate has barely gone up in the past 20 years which is not so bad in a country where there has been almost no inflation. However, here are some items that keep their real estate in check.
1.) 80% of people rent. It is an asset to be consumed and it’s value is derived from the rent.
2.) Rent is a factor of property value/interest rates and is controlled and regulated.
3.) 100% of the maintenance risk lies with the tenants. Costs are allocated throughout the year in addition to the base regulated rent. In the event of a major item – it is split up between the tenants.
4.) If you actually own, you can deduct your interest – however- even if you have no mortgage (and thus no deduction) you also have an income inclusion which represents hypothetical rental income to yourself. You have to impute rent at say 4% of the property value each year. This is added to your income and you pay income tax on it.
5.) Foreign ownership restrictions are everywhere. And Foreigners have restrictions on the real estate that they dispose and they only allowed to sell for a gain in restricted circumstances.
–
A few other Swiss things to note. The pensions are very very rich and well funded. Up to 30% of your income each year goes into the pension system. Thus – pension funds are massive and retired people are very very wealthy. Where does the pension money go? To own the real estate buildings that people rent – since this is guaranteed and almost riskless cash flow (cash flow is risk reduced because rents are hardwired to property value and the maintenance and repair costs flow to tenants).
–
Another item is that since all the properties are owned by pension funds and insurance companies, you will never be asked to move – – in fact – most Swiss never move. It is too expensive (when you leave – you must return the property in the original condition you received it – no such thing as normal wear and tear. Plus – your movers are not cheap either – over 100/hour plus equipment rental costs).
–
All this means that Real Estate fulfills its function of providing housing stock as a consumable. Cities are priced in a rational way and so is real estate. Owning v. renting is not really much different in terms of risk. Vancouver could learn a lot from this. I am a strong advocate of implementing some type of limited foreign ownership restriction. Where you are dealing with a limited resource – you need to have the resource used for the benefit of the operation of the city – and not some type of traded commodity.”
- ZRH2YVR at VREAA 10 Dec 2011 8:11pm
—–

“I thought it was funny that they make $500,000 a year and still have to rent – mega lol”
- tmda commenting at RETalks 10 Dec 2011 7:53am on Jeff Murdock’s comment above
—–

Thanks to ZRH2YVR for the description of the very sensible Swiss system.
In Vancouver we do things very differently, of course. Ownership culture is entrenched. The speculative mania has caused each and every property to be viewed at least partly as a financial instrument.
- vreaa

Renting In Vancouver – “…Unfold a tale to harrow up thy soul…”

This from Vesta at VREAA, 9 Dec 2011 10:01pm-

“Two anecdotes from the last few days. (I know some of you don’t believe in anecdotal evidence. Being a writer, I believe in it more than I believe in statistics.) Warning: perhaps inappropriate humour below. As I mentioned in earlier posts, I had looked for rental housing here for 3 months this summer. Finally thought I’d found someplace decent. Well, in the last 5 weeks there have been two sewer backups that flooded the basement. Turns out that there were sewer backups last year here too (thank you for that info, previous tenants). Funny thing is, I’d specifically asked the property manager if the house had ever had “water problems.” She’d said no. Nothing much had been done about these backups until this latest one, upon which I called City Hall (#311) and didn’t try to use my “inside voice.” That actually got the City out here, and after at first blaming the problem on indolent plumbers, they had to admit that there’s a rotted City pipe that’s actually part of the problem. But the City said it’s not a priority to fix it because it hasn’t “collapsed” yet. So I guess I can look forward to greeting Mr. Floatie in my basement sometime again in the near future. (Those of you who don’t know who Mr. Floatie is, he’s a revered figure in the BC capital.)”

“Renter Anecdote #2 just from this evening: Responsible young couple arrives in Vancouver. Hears that Balfour Properties manages good buildings. They interview at a building near Broadway and Macdonald (West Side). They think it’ll be great. Then they happen to run into a tenant who tells them that two doors down there was a meth-lab explosion where somebody died. They decided to keep looking and they’ve landed in a building that’s badly managed and has — wait for it — water problems.”

“What I don’t get sometimes about Vancouver, on the continuum of human civilization, is how architects and builders here have still not figured out how to defeat the (world-class) precipitation.”

“Okay, enough silliness. My next post: I’ve heard back from Stephen Harper about my concerns about the Vancouver mania! Stay tuned for some hilarious advice.”
—

Toronto Rents – “There has been a gradual insidious change as more people buy houses. There is a lack of qualified renters. Rents are down in real terms.”

“Rent prices are actually depressed in Toronto in real terms – There is a lack of qualified renters. I say this because I’ve been doing this for 15 years and there has been a gradual insidious change as more people buy houses. If 70% of people now own, and 30% do not for a large part the reason is that that 30% is not qualified for a mortgage.
When I look at the criteria used for credit score with my credit checking system, the credit score used for an approved renter is 700, yet CMHC will approve a mortgage for someone with a score of 620 which makes me chuckle a little. My rental screener tells me to decline those with that score. Of course I can’t, you have to pick from the tenants that apply not those you dream about getting!
Rents have gone down in actual terms in apartment buildings. Condo rentals are skewing the market.”
- Rachelle at VREAA 26 Nov 2011 5:49am

Sandy Garossino – “I want to tell two stories from the campaign trail…”

“One of them was a childcare worker in her forties, making less than $11 an hour, caring for children of 3 families in her home on the East Side. Rents are going up but her income is not, and she is being forced out. Despite having a job, she has no security and is hurtling toward disaster.
Another day I was meeting seniors in the west end. A group gathered and were telling me that they spend on average 60-70% of their monthly income on rent. Most had saved for decades for a comfortable retirement, and were now eating into those funds every month just to survive. All of them live with ice in their bones for fear that they will be evicted from apartments they have lived in for decades, and most believe that no landlords will take them because their monthly incomes are so low.
One woman told me that she will be through her savings in three years, and then she doesn’t know where she’ll go or what will happen to her. She worked hard and saved for 47 years, and blinked back tears as she choked on the word ‘homeless’.”
- Sandy Garossino, Independent Candidate in the recent Vancouver civic elections, at her website votesandy.ca 22 Nov 2011

“I think we’ve been in bubble territory since at least 2004. I’ve been waiting and saving to see how it would turn out. In the intervening years I realized that I really can no longer stand Vancouver. I’m looking for my out.”

“I think we’ve been in bubble territory since at least 2004. I’ve been waiting (and saving) to see how it would turn out. In the intervening years I realized that I really can no longer stand Vancouver. I’m looking for my out.
When will the bubble burst?
Will it take a crash in commodity prices when China’s real estate market is in a tailspin? Or will loss of consumer confidence in China cause the fleeing of the HAM? Or will an expansion of credit suffer the consequent (inevitable) contraction as described by Von Mises and Schumpeter?
Perhaps the trigger will simply be that many people realize this isn’t such a nice place to live after all.
My feeling is that in Canada we’re always about 10 years behind the rest of the world.”
- Pococurante at VREAA 19 Nov 2011 9:19pm

“Even I can’t ‘afford’ a house. What am I supposed to do? Go buy a shack for $1.2M that I know is probably 4x overvalued, only to be the last sucker in before the big crash?”

“I sold my business a few years ago and retired with a nest egg of a couple million dollars. But even I can’t “afford” a house. What am I supposed to do?… Go buy a shack for $1.2M that I know is probably 4x overvalued, only to be the last sucker in before the big crash? I’m not going to take that chance so I’m forced to rent a little modest place while I wait for the madness to end. And, by the way, if you think $2M = rich in Vancouver, you are sadly mistaken. With today’s artificially low interest rates (that are keeping the real estate bubble alive), I can barely generate enough of an income to support my wife and kids.”
- anonymous commenting in ‘The Province’ (13 Nov 2011 11:14pm)

News1130 Radio Poll – Is it smarter to rent or buy in Metro Vancouver?

- News1130 Poll, 9 Nov 2011
[hat-tip 'TPKFAA']

“When I tell people we rent our house, their eyes change. It is as if there is shame in being a tenant. People need to borrow heavily to lead a normal lifestyle. This is not what we want.”

“Deirdre Marconato regularly hears her neighbours and acquaintances say that Vancouver is “the best place on earth.”
“It’s a very pretentious phrase, but it is accepted as an immutable truth,” she said.
Ms. Marconato also thought that Vancouver was a great place when she arrived in 2008. She and her husband, who has an international career as a financial analyst, had decided to sell their flat in Hong Kong to move to the West Coast, where Ms. Marconato was born. They wanted to settle with their daughter in a friendly neighbourhood, close to good schools, ocean and mountains.
But when we spoke to her in her upscale West Vancouver neighbourhood in late June, Ms. Marconato was busy packing her last moving boxes. Her adventure was coming to an end after three years in Vancouver, with the family now returning to Hong Kong.
Upon arrival in Vancouver, the Marconato family soon saw that something was amiss. They were well-off, and used to the cost of living in Hong Kong, but they were shocked when they saw the local Vancouver house prices. They initially decided to rent.
However, being a tenant in Vancouver is to be part of a subclass, Ms. Marconato soon realized. “When I tell people we rent our house, their eyes change. It is as if there is shame in being a tenant,” she said.
Community life in West Vancouver is not what she imagined. “At least 60% of homes in my neighbourhood have been sold over the last two years. Many are empty. It’s a very cold atmosphere. We invite people over, but it is never reciprocate. I lived in London, Paris, Singapore and Toronto, and I have never experienced a situation like this.”
Furthermore, West Vancouver is not immune to crime: several gang shootings took place in the district in the last two years. A student of the high school attended by her daughter was stabbed outside the school.
A few months ago, a headhunter contacted Ms. Marconato’s husband to offer him a job in Hong Kong. The decision to leave was made quickly.
Ms. Marconato is disappointed that her “Canadian dream” has ended.
“I do not understand how people live in Vancouver,” she said. In Hong Kong, life is expensive, but wages are high. Here, jobs are not highly paid. People need to borrow heavily to lead a normal lifestyle. This is not what we want.”
- from ‘Fièvre immobilière: quitter Vancouver’, by Nicolas Bérubé, La Presse, 15 Oct 2011
[translation by Google; paraphrasing by your editor].

“I open the door an the end of the hallway. Surprise! It’s a fully occupied suite. The owner made no mention of this. How about that for a surprise after you’ve signed the lease? The owner’s sister lives in the basement!”

“Ready for a chilling Halloween rental tale? What if you moved into a house without knowing there were other people living there?
It almost happened to me today. I check out this rather promising listing at 1107 Yorston Court:
$2300 / 3br – Beautiful North Burnaby Home
Date: 2011-10-16, 2:23PM PDT; craigslist.ca; PostingID: 2653098354
It’s old, but has a large lawn and a huge deck. I’m poking around in the basement, and I open the door an the end of the hallway. Surprise! It’s a fully occupied suite. As you can see, the listing makes no mention of a downstairs suite or shared accommodation. Neither did the owner as he was showing me the place. How about that for a surprise after you’ve signed the lease? The owner’s sister lives in the basement! What if I hadn’t opened the door?”
- Vulture Fun at vancouvercondo.info 29 Oct 2011 6:50pm

“I Married A Renter” [Visual Anecdote]

“I’m a govt worker, my boyfriend is a journeyman plumber, we don’t have kids, how are we supposed to save up a 10% down payment for a mortgage?”

“I’m a govt worker, my boyfriend is a journeyman plumber, we don’t have kids at the moment, I’d say we live “comfortably paycheque to paycheque”, but how are we supposed to save up a 10% down payment for a mortgage?
We have had no issues paying our landlord’s mortgage – $1250 for a 2 bedroom condo in Poco, so clearly we are willing and able to afford our own mortgage, but we are just unable to save up for the gouging cost of a down payment. Are we supposed to borrow from the bank of Mom and Dad? Buy in with our siblings? What is happening to our independence?”
- Mrs.PacMan, comment, Vancouver Sun, 18 Oct 2011 3:53pm

Tyee and his Wife – “One thing that has changed in the past year is our perspective: we no longer believe a crash is inevitable, or that it would make any real difference to us.”

“My wife and I rent a basement suite in Vancouver, and occasionally we shake our heads that we’re pushing 40 and living in a space that barely notches above student housing. For a long while we’d been looking down our noses at people shelling out what seemed to be exorbitant prices for tiny, well-marketed properties. We waited, a bit haughtily, for the oft-predicted crash to bring prices back down to our level. While waiting in this particular basement for the past three years, we’ve paid $40,000 to our landlord.
As basements go, ours is fine, no mould-spore filter required. But it’s hard not to feel churlish when the subject of real estate comes up. At parties, we sip from the house cocktail shared by many young (and not-so-young) middle-class renters in Vancouver: two parts seething resentment, one part liberal guilt. To protest too much about our situation seems bourgeois, given we eat organic vegetables, drink good wine, and go on vacation every few months. We blunt our bitterness by counting our blessings, which are many—and it’s hard to stir a revolt on a full stomach and a glass of Merlot.
One thing that has changed in the past year is our perspective: we no longer believe a crash is inevitable, or that it would make any real difference to us. Like one of those Re/Max balloons, prices have risen so far out of our reach that even if they deflated significantly we still couldn’t get on board. Yet on our incomes, as a childless couple, we have a choice. Unlike James and Tina, we just might be able to purchase a property that suits our needs. Or we could leave.”
- anecdote from ‘Going, Going, Gone’, by Tyee Bridge, Vancouver Magazine, 1 Nov 2011

When the last prospective buyer with a bearish perspective capitulates, the speculative mania is over.
At least that’s pretty much how the market dictum goes. And we acknowledge we’ve been saying that for years now.
We empathize entirely with Tyee’s position.
But, this really is a speculative mania.
They never, ever end with permanently high plateaus.
Prices will revert to means determined by fundamentals, and that’s a long way below today’s prices.
- vreaa

Alex and Erin – “What frustrates us is that there’s no way to grow wealth or security while living in this city, making what we make—which anywhere else would be considered a really good living.”

“Alex and Erin are doubtful about their future. Smart, practical, and into the city’s culture of dining, outdoors, and high-tech, they’re the Everycouple of Gen F’s 20-somethings. They rent a 500-square-foot apartment in Hastings-Sunrise and love living in Vancouver—even if it means having a living room not much larger than a snooker table. Alex, 28, is a young chef who moved here from Medicine Hat in 2005. After completing culinary school in January, he was hired at the new Hawksworth restaurant in the Rosewood Hotel Georgia. Erin, who grew up in North Vancouver, is 26 and until recently was a pr manager at 1-800-GOT-JUNK. A Twitter lover, she broadcasts their gourmet experiments to the world in 140-character bites. They’ve chosen careers that tie them to Vancouver, or a city of this size, and necessity aside they enjoy the city’s vibe.
They’re not optimistic about putting down roots. As a cook in an upscale restaurant, Alex can count on earning around $29,000 a year. Erin makes more with freelance copywriting and PR, but not much. “Together we make about $70,000, which sounds like a healthy combined income at our age,” Erin says, “and we’re not destitute. What frustrates us is that there’s no way to look at growing wealth or security while living in this city, making what we make—which anywhere else would be considered a really good living.” They’d like to buy a condo in five years or so, but that’s a stretch. “It would have to be in Port Moody or something, which means you’re commuting. Even if we lived on macaroni and cheese for three years, we couldn’t make it work here.”
Erin has over $40,000 in student debt from her UBC years and her Kwantlen diploma, and while pr was a consciously practical choice, getting ahead is tough. “The pr departments are small to begin with, unlike in Toronto,” she says. “So there are piles of people coming in at junior levels who can’t move up because people aren’t moving out of senior positions—the director has been there for five or 10 years and will be for at least another 10.”
- anecdote from ‘Going, Going, Gone’, by Tyee Bridge, Vancouver Magazine, 1 Nov 2011

James and Tina – “Today, any starter home in the Lower Mainland is far out of our financial reach. We didn’t ever think that we’d be 35 years old having never lived above ground level.”

“James and Tina live in Point Grey, in a two-bedroom basement suite in a Vancouver Special. Tina, 34, a former music teacher, is now a stay-at-home mom. James, 35, teaches music and directs the 260-student Dr. Annie B. Jamieson Elementary School string orchestra. He also gives private cello lessons to bring in extra cash. Their twin boys were born last May, and their challenge as a new family of five is how to afford not groceries but space. The search for a larger home has not gone well. Real estate, they say, has been “a continual source of depression” for seven years. “We feel fortunate to be healthy, have three wonderful children, and have jobs that are mostly satisfying and interesting,” James says. But they’re tired of living below ground. “Our dehumidifier and industrial mould-spore-removing air filter are playing too large a role in our lives.”
On their combined income—at around $80,000, it’s well above the regional family median of $68,000—they’re still knocking their heads against the subfloor of the real-estate boom. While in their 20s, they saved for a down payment and made offers on six houses in Vancouver and Burnaby. Despite bidding over the asking price almost every time, says James, they always lost out. “Today, any starter home in the Lower Mainland is far out of our financial reach. We didn’t ever think that we’d be 35 years old having never lived above ground level.” They love Vancouver, and want to stay close to their families and their roots. But, like many middle-income earners here—web designers and police officers, young architects and teachers—they find themselves rehashing halfhearted talks of packing everything into a moving van. “Maybe we’ll head to Victoria,” says James, “somewhere we can realize our dream of living above ground.”
Tina and James are part of what, real-estate-wise, might be called Vancouver’s Generation Fucked. As the city becomes a global “lifestyle destination,” tens of thousands of middle-class households are getting a hard lesson in diminished expectations. Unless the members of Gen F want to raise their children in a one-bedroom condo, their salaries will qualify them to be no more than permanent renters in Vancouver.”
- anecdote and image from ‘Going, Going, Gone’, by Tyee Bridge, Vancouver Magazine, 1 Nov 2011

“I’m not interested in working my butt off to pay a mortgage that we really can’t afford and then totally lose out on enjoying our children and giving them the benefits of having me at home.”

“Christina King and her husband Ian have a 22-month-old son and a two-month-old daughter. They recently decided to give up the idea of ever owning property because they are not willing to sacrifice time with their children to make the kind of money a B.C. mortgage demands.
“I’m not interested in working my butt off to pay a mortgage that we really can’t afford and then totally lose out on enjoying our children and giving them the benefits of having me at home,” she said.
King, 34, teaches yoga, but works around her husband’s schedule so one of them is always home with the children. The family rents a house in Metchosin, a bucolic community west of Victoria, from Ian’s parents. But Ian will soon be moving into a position as a farm manager in the same community, and a house on the farm will be part of his compensation.
“We’ve chosen a lifestyle over making a ton of money,” King said. “We’ve chosen that lifestyle because it’s something that we love to do, it goes with our values. It keeps us happy and not stressed, which I think makes us better parents.
“We’re still able to do what we love, but we’re not going to have to pay a mortgage for the rest of our lives.”
Sacrificing family time to pay for housing and child care is a decision young parents should not have to make, said Paul Kershaw of the University of B.C.’s Human Early Learning Partnership.“
- anecdote excerpted from ‘Incomes, house prices leave young B.C. families worse off than anywhere in Canada’, by Tara Carman, Vancouver Sun, 18 Oct 2011
[hat-tip 4SlicesofCheese]

Spot The Speculator #55 – “At my workplace the lot-boy who washes customers cars for $10/hr. told me how how to invest in real estate. His 1st condo equity was extracted to buy his 2nd condo and that equity was extracted to buy the 3rd.

“At my workplace the lot-boy who washes customers cars for $10/hr. told me how how to invest in real estate. His 1st condo equity was extracted to buy his 2nd condo and that equity was extracted to buy the 3rd and final one. He says Royal Bank was willing to give him the money since all of them are rented out. We don’t have sub-prime like the USA but this looks like a dangerous house of cards that I think is not just isolated to this one individual. I read somewhere that a famous stock investor said once a shoe-shiner was giving him stock tips he knew that was the time to get out of the stock market. I was getting that feeling when the lot-boy was giving me tips on how to buy real estate since I’m just a lowly renter.”
- Pat at VREAA 15 Oct 2011 11:47am

Poorly Constructed Rental Ad – “Heat come from floor” [with tentacles?]

1718,SE MARINE DR
$925 / 2br – Two adults need for on Nov st,2011 (5years old house,Marine and Argyle)
craigslist PostingID: 2646569812
Date: 2011-10-12, 2:47PM PDT

“It’s 5years old house and also appliences are 5years old too.Included utilitie,close to bus stop,Superstore,around
8minutes to go Canada Line buy Bus,BCIT SCHOOL.
Two bedrooms suits is for two adult people only because of the neighbour.
It’s ground level,hardwood floor and heat come from the floor and own alarm system,
cable(a lot of charnel),included
Sorry no extra person or smoke or pet please.
Please contact to Princess 604-312-4668.”

Sic, Sic, Sic. -ed.
[hat-tip BPOM and gordholio at VCI]

“I am a PhD still living in the basement suite where I did my undergrad. I gross >100k. I just see Vancouver RE as such a horrible investment right now.”

“I am a PhD still living in the basement suite where I did my undergrad. I gross >100k. All my spare income has gone into the stock market. Am I down? Yes, but only about 5% right now overall. I just see Vancouver RE as such a horrible investment right now, the graph appearing like the left side of the Nortel stock chart pre-bubble burst in 1999. The above post voices many of my concerns that have kept me out so far. Incidentally, to your siblings, if they buy a condo and RE prices double, they can’t just sell and use the profits to buy their dream home, because their dream home has also doubled. Patiently waiting for the BoC to eventually raise interest rates.”
- ‘Basement Suite PhD’, at VREAA, 10 Oct 2011 9:59am

‘Going Going Gone’ – Vancouver’s ‘Generation F’

Jesse alerted us to an excellent article: ‘Going Going Gone’, by Tyee Bridge, Vancouver Magazine, 1 Nov 2011. We will headline some extracted personal anecdotes in coming days, but, until then, we suggest the whole article as a must read, and headline it here for discussion.
Excerpt:
The dilemma many employers face, says Michael Heeney, a principal of Bing Thom Architects, is that once their employees want to have a family in their 30s and early 40s, they leave the city. “When they have one child in a two-bedroom apartment they can get away with it, but as the child gets older, or they have a second child, it really doesn’t work very well here.” When they leave, he notes, they don’t go to Surrey and commute, but light out for distant centres like Chicago. “These are people who are at their absolute most valuable, because they’ve been working in the business for 10 or 15 years. They’re the backbone, the boiler room of your business. And we’re losing that investment. In many ways, our most significant export is talented people.”

“I was losing sleep over my real estate becoming a capital trap, so we moved; sold in North Vancouver to rent in Kelowna‏.”

“I was losing sleep over the my real estate becoming a capital trap,  and of loss of equity, so we moved; sold in North Vancouver and rented in Kelowna‏. Attached is my calculations about how much money I would lose if we owned in Kelowna vs renting.”

[Monthly payments assume 100% financing at 4.5%, 25 year amortization, used above.]

“Now, further calculations taking into account the effects of Kelowna price drops”:

[**Plus not realizing a decrease in valuations of 10% this year.]
[Rent is paid in these calculations.]

Summary
By renting a house worth $500k instead of buying, we save $68,000 over 1 year. “

- from ‘John’, to VREAA via e-mail, 1 Oct 2011 [Thanks John. -ed.]

Quick Snapshot Of Potential First Time Home Buyer – “We were hours away from closing on a townhouse in Port Moody when we decided to walk away from it. I’ve never been happier with that decision. Thankfully logic trumped emotion.”

“My wife and I ‘were’ to become first time home buyers after spending a year and a half living at my mother in-laws saving for a down payment (not typical these days, actually saving for a down payment?, that’s crazy talk!). We were hours away from closing on a townhouse in Port Moody when we decided to walk away from it. I’ve never been happier with that decision. Soon after, we found this site, and have just moved into a new rental unit right next to family (nearby child care). So not only do we have an acceptable rent payment but we have some money to invest, and no loans or debt of any kind.. How is that for a quick snapshot of one potential first time home buyer. Thankfully logic trumped emotion here.”
- SpatialFiend at VREAA 3 October 2011 4:58 pm

Local Realtor – “The one thing that throws me in Vancouver are the rents. I can’t believe people paying $1700 for a 1 bed on a busy street. Some maxed-out owners should thank their lucky stars at the $$ they are getting.”

“I was just in Switzerland. Max 50% foreign ownership in any development. Funny how each ad states ‘foreign ownership allowed’! Often takes 2 yrs to build a house. Tons of red tape. Many never sell their houses, just rent out. Up to 70% of neighbourhoods rented. Also takes yrs to get into great neighbourhoods. We stayed with two architects there. Fascinating place.
The one thing that throws me in Van are the rents. I think more people would be foreclosing condos ‘cept the rent & tenants in abundance. I cant believe people paying $1700 for a 1 bed on a busy street. Some maxed-out owners should thank their lucky stars at the $$ they are getting. Could be a lot uglier.”
- thinktom (a local realtor), at RE Talks, 30 Sep 2011 9:04pm

Rents will drop during the coming implosion of the speculative mania. They will fall in proportion to the impact of the bubble-burst on our local economy. This will reduce the fundamental ‘floor’ underneath RE prices, which currently stands at 50% below market value, or even lower.
Interesting to see a realtor talking about “maxed-out owners”. – vreaa

Request To Readers From ‘Global TV’ – “I’m doing a story next week comparing renting vs. buying in today’s market, and would like to talk to anyone who may have sold their property in the past year or so in order to rent instead.”

Tanya Beja, of Global TV, would like to hear from readers who have sold their Vancouver homes and now rent:
“I work with Global TV, and I am a regular follower of your blog. I’m doing a story next week comparing renting vs. buying in today’s market, and am wondering if you know of anyone, or have contact info for anyone, who may have sold their property in the past year or so in order to rent instead? This is part of a week-long series examining the high-cost of living in BC.
Thanks so much,
Tanya Beja
Global TV”
tanya.beja@globalnews.ca
—
The irony of this request was not lost on us, given our past criticism of Global’s poor and industry-serving coverage of our housing bubble. For a moment we considered waggishly suggesting that Tanya talk to Gord Goble, who meets the description of recent-owner-come-renter but is also someone who has actively taken Global to task for their faux-news-reporting on local RE issues.
We responded saying we could post a request to readers, adding “You guys may follow VREAA but, boy, your reports sure don’t reflect that. How about a Global piece on how the relative “high-cost of living in BC” is almost entirely attributable to a speculative mania in housing? That really is the case, and history will prove that viewpoint correct.”
Tanya responded: “My goal with this series is to get a snapshot of what’s happening to first-time buyers. I’m not intending to forecast the future, but at least with the renting story I do hope to challenge the idea that buying real estate in yvr is always a ‘smart investment’.”
So, in that spirit, let’s try to help her out, and see if Global can in any way redeem themselves before judgment day. (Melodrama intentional.)
- vreaa

“We have owned our own home for over 18 years and have recently sold it. We are now looking for a long term rental.”

“DO YOU HAVE A 3 BDRM HOUSE/TOWNHOUSE FOR RENT??? (Coquitlam/Port Moody)
Date: 2011-09-16, 7:35AM PDT
Family of four with small pets is looking for housing. We are a stable, reliable family looking to rent a House/Townhouse in the Coquitlam/Port Moody area. We have owned our own home (townhouse) for over 18 years and have recently sold it. We are now looking for a long term rental.
PostingID: 2601513776″
- ad on craigslist, 16 Sep 2011
[hat-tip Patiently Waiting at vancouvercondo.info]

“At potential rental after rental we discovered that the answer to “How long can we stay?” was “Depends on market.”

“As someone who’s spent the last few months trying to find a decent rental in this town, I’d say that my impression is that the majority of would-be landlords on the West Side are looking to sell just as soon as they can, and many of them have only recently bought these properties! At potential rental after rental, house or condo, we discovered a). the place had been bought fairly recently and b). the answer to “How long can we stay?” was “Depends on market.”
- Vesta at VREAA 16 Sep 2011 12:07pm

“Try calling Dr. Aladdin [an individual on craigslist advertising a 2,600sqft Southlands SFH for rent; $3.5K p.m.]… No you cannot view this rental-to-be …he just purchased it and won’t have possession until the end of October.
craigslist has been littered with newly purchased ‘rental-to-be’s this year. Google 6188 Mackenzie St or 3118 West 44th Avenue, both “March madness” sales, now rental properties managed by Macdonald Realty and Advent Property Mgmt respectively. Are they available for long-term lease? No. Vesta is right.“
- Epica at VREAA 16 Sep 2011 1:47pm

These landlords may be planning on selling into a rising market, but how will they respond to a falling market? We’re anticipating a good number will try to bail precipitously, and thus add to supply (and price momentum) on the way down.  – vreaa

Sidestepping Owning Entirely? – “This bubble kept them out at the precise time they were most eager to jump in, and, by the time it runs its course, they will be thinking about downsizing”

“I had an interesting chat over the campfire with some friends on the weekend. They are in their mid to late 30s, two kids, renters. A few years ago they were looking at buying a house in the suburbs where they live. They were priced out despite having a household income slightly above average. We got to talking about the coming crash and I told them that their dreams of home ownership may come to fruition in the next five or six years. Those houses that were unattainable at 500k+ may drop right back into the 250k zone they were at only 5 years ago. They informed me that they had made their peace with renting and the math on a 25 year mortgage no longer worked for them. They have plans to take their early pension option and travel. Even a 25 year mortgage won’t be paid off in time for them to have the freedom they want.
I’m not sure I totally agree with the logic that simply because you wouldn’t be mortgage free at retirement, means buying isn’t a sensible option at the right price, as they could still realize some gains if they were to buy near the bottom of the bubble cycle. But I thought their energy and attitude towards real estate was telling. They were looking to buy when their kids were 3 and 11. Now the youngest is almost 7 and the oldest can see University on the distant horizon. This bubble kept them out at the precise time they were most eager to jump in and by the time it runs its course, they will be thinking about downsizing, not buying into a money pit. I wonder how many other families will follow a similar path. Seems to me this bubble burst could be amplified by the thousands of prudent families who stayed on he sidelines during their most urgent nest years only to be in a completely different head space when the prices come back into reasonable range.”
- Lexlimo, by e-mail to VREAA, 3 Sep 2011

Even though this family will do fine financially, they have had to compromise through the bubble. In more typical times they would have been able to buy fairly easily at 3.5x income (or thereabout), and the whole subject of RE wouldn’t have taken up unnecessary space in their lives. It’s yet another example of the very significant inconvenience that this bubble has caused.
Perhaps more noteworthy, Lexlimo raises a very interesting idea about how the length of the speculative mania may result in a whole group of prospective buyers essentially ‘side-stepping’ the whole act of buying. It’s a persuasive argument, even though it likely only involves a smallish minority (most families have not been ‘prudent’). Thanks for the post, Lexlimo.
- vreaa