Visual Anecdote – No Doubt That Easy Lending Fuels Vancouver RE Market

This Canada Trust billboard from the window of the TD branch at 10th Ave West and Tolmie –

Vancouver RE Assessment

This from Boom and Bust at Rob Chipman’s blog 05.30.08 at 2:43 pm –

excerpts –

“I’ve lived in San Francisco and New York. I recently returned to Vancouver, where I was born and raised. I don’t think the NY and SF markets can be compared to Vancouver. The former are major financial and industrial centres. NY and SF are full of high paying, professional jobs. Both centres attract immigrants and investors from around the world. Both are bigger, have better dining and entertainment. Vancouver is a place I’ve come back to because I’ve made enough money in the U.S. that I can afford to. Vancouver is a lifestyle city for which you pay a lifestyle tax. I think San Diego and Miami are more comparable cities.”

“This, make no mistake, is a bubble. At the root of this bubble are very encouraging long term fundamentals. Vancouver is a nice place, it is growing, immigrants and Eastern migrants like to live here. However, at the root of every bubble is a good story. I’d bet that 20% of the recent run-up is due to real economic fundamentals. 80% of the recent run-up can be attributed to the great credit boom. Lower interest rates, longer amortization terms, lower credit standards, stated income practices, pre-sales and access to debt led to an amazing run-up in property values. Values have now stretched affordability to its limit even in this low rate environment. Property values, if all else constant, should only increase at the rate of income increases.”

Vancouver Compared With A ‘World Class City’.

This from doubter at Rob Chipman’s blog 05.29.08 6:51 pm –

“I’m on vacation in New York City. Several things strike me about this city in comparison to Vancouver that make me wonder if the Vancouver real estate inflation/bubble (depending on your bent) isn’t almost all psychology/delusion (ditto). The first thing I noticed within 24 hours of being in NYC is that Vancouver has become a pretty miserable place. People are much happier, friendlier, and more relaxed here in The Big Apple. A related observation is that the percentage of people talking on cell phones or listening to iPods seems to be much, much lower than in Vancouver. People here actually walk around and talk to one another. That “walking around” bit is the next thing that seems to be an obvious difference. In New York, people are out and about. Maybe that’s partly because there are, you know, THINGS TO DO. There are places actually open after about eight o’clock. And, next point, those places don’t all seem to be professional sporting events. In fact, and this really surprised me, pro sports seems to be far more low key here. Museums and art galleries and plays and such outnumber sports stadiums by an amount that would absolutely stagger any Vancouverite going on about “world class city status” only being achievable by building yet another stadium (or Olympics venue, for that matter; NYC is probably fortunate to have lost out on 2012).”

Moving To Montreal – “Why the difference I wonder?”

Another family moves. This from hiandre at RE Talks, 2008 May 26, 10:54pm –

“Having spent my first 22 years in Montreal, and the last 18 here, it is time for me to go back “home” to Montreal. Mostly family reasons, but also financial incentives for sure. Also having young kids snow is far more fun than the constant rain… I have many fond childhood memories: snowball fights, tobogganing, skating, snowmobiling, snowshoeing, snow forts, wood burning fireplace going while snow is coming down, etc… Can buy a new quality house with 24,000 sq. foot lot for under $258k, 30 minutes from Montreal. The quality seems far and away above any entry level home you would find in BC. Many homes in Montreal are commonly built using brick, stone, hardwood floors, etc… How many entry level homes have you see with these features in BC ?  Why the difference I wonder ?  Currently selling our home in Surrey, and will be able to buy house with almost no mortgage in Montreal. So am thankful for being lucky and building this equity in just a few years.  As much of an optimist I am, this market is coming to an end in BC in IMHO. Originally was planning on selling next year, but all the signs / my intuition are pointing to “get the hell out now” Hopefully will be a soft landing for those of you staying here.”

Outrageously Poor Cashflow – “Buy & hold. Great opportunity! Tenanted up & down.”

‘Investors’ are still being encouraged to buy Vancouver Real Estate in the hope of future price increases. Here’s an example of such encouragement from the MLS, V697723, culled 25th May 2008.

This property in Point Grey (3963 W 11TH AV, 2494 sq ft house, 6044 sq ft lot) has a price tag of $2,380,000. A mortgage at 5% rate amortized over 25 years would cost the buyer $13,800 per month.

The cheeky Realtor Blurb on MLS states: “Well maintained, but no arch master piece. 3 bdrms suite down. Definitely not a drive by. Tenanted. Buy & hold. Great opportunity! Tenanted up & down.”

Even in Point Grey, this can’t possibly be fetching more than $5,000-$6,000 per month rent. Thus the realtor is encouraging someone to ‘Buy and Hold’ this ‘investment’ at negative cashflow of over $7,000 per month. This is another bald-faced bet on property price direction, and another indicator of how far prices have become removed from fundamentals in the Vancouver RE market.

“I work as an Safety officer on these sites.”

Another local condo developer has run out of money. In a comment on the CBC coverage, ‘Renews Boy’ (2008/05/22 at 2:08 AM ET) gives us further insight into the poor construction quality in the lower mainland –

“I’ve worked in construction in the lower mainland for about 12 years now. Honestly, I have never seen it so bad when it comes to craftmanship that is being done on the new developments. I never see a carpenter use a hammer and nail to built a proper wall or floor. It is all done by nail gun now. The faster they can put them up the more the profit. I know of one building where the exhaust fans were covered over by the drywallers in 100 units. I have seen alot of dangerous and unsafe acts going on at several construction sites. I know because I work as an Safety officer on these sites in the Greater Vancouver Area. The mess that will happen after 2010 will be make the leaky condos look like a joke.”

Young BC-born Couple Leave Vancouver Because of RE Costs – “Early financial independence instead of mortgage servitude.”

This post from ‘Jordan’ as a comment (21 May 2008 at 10:29pm) in the recent “Anybody else here know people leaving Vancouver” thread. The importance of these kinds of losses to BC merits a front-page post:

“My wife is leaving this week to see Toronto for the first time, looking for an area we could raise our family in. We’re both 26, born and raised in BC and now have 2 young kids. She’s never been away from them for more then a night so this week is going to be hell for both of us, but we don’t see any practical alternative. It’s a heart wrenching decision leaving our families here, but we want to raise our kids in a house with a yard without selling our souls to the bank. We can get a house there for 50% less and have the mortgage paid off in about 10 years. This will help us to fulfill our dreams of early financial independence instead of mortgage servitude.”

“…There are a declining supply of greater fools to buy mediocre houses at inflated prices.”

Mohican runs the superb Vancouver RE blog, ‘Langley Financial Planning‘. In his latest post (Wedn May 21 2008 ) he gives an account of his own recent RE experience, and his first hand observations of a bubble preparing to unwind. VREAA can’t resist archiving it here:

“My wife and I bought a condo in 2004 for a reasonable price that made our mortgage payments plus strata and property taxes less than the cost of renting. We were happy with our purchase and paid down our mortgage quickly, starting with a 15 year amortization and making double payments until we sold the unit last August for nearly double what we paid. Needless to say we were happy with the profits and would have gladly purchased a reasonable townhouse to accomodate our growing family but no such suitable unit was found after a fairly extensive search. We are now renting a larger condo in a brand new smaller building and we enjoy our location close to work and amenities. Our cost of renting this unit is half the cost of purchasing on a monthly basis and we are socking away our savings for an even larger down payment once we find a suitable home at a reasonable price. This extra monthly savings combined with the earnings from our extracted home equity is very substantial by any account and make these renters quite satisfied with our lowly renting status!”

“Now I find myself at Vancouver Housing Bubble Ground Zero. The building we live in has 32 units and currently 20 of these units are listed on the MLS website. Yes, that is right, no typo – 2/3rds of the units in our building, including the one we rent are for sale at this very moment. My landlord was hoping for quick profits by flipping this condo and realizing no quick sale he franticly sought a renter to help cover his costs while trying to sell the unit. His asking rent was ridiculous but was easily bid down by 25% with some fairly convincing arguments and some stiff competition. The parking garage is empty and we have watched the poor realtors hold open houses all spring long with no traffic and no bids. Reluctantly the sellers lower their prices by $2000 and $4000 at a time but still no takers. Nobody realizes the game is over yet and there are a declining supply of greater fools to buy mediocre houses at inflated prices. I am happy with my spectator status.”

Turn off the light on your way out.

At what point will sellers start competing with each other in the rush to the exits? This from Drachen at Vancouver Condo Info  May 21st, 2008 at 10:42 am –

“A friend of mine owns two condos right now and can barely pay the mortgages. Her realtor, who she swore was a close friend and had her best interests at heart, is suddenly moving to Australia, and has apparently sold off all their local holdings.”

“Anybody else here know people leaving Vancouver?”

People are leaving Vancouver because “the economics don’t make sense to them”. This from Digi at Vancouver Condo Info May 16th, 2008 at 8:48am –

“Anybody else here know people leaving Vancouver? Over the last week I’ve found out about several people leaving. Two Americans, a Kiwi, and a family of Australians are all returning home – they all like it here, but the economics don’t make sense to them, they’re work has finished or they’re homesick. Then there are the locals born here, one moving to Europe, one to the US (cash out tiny condo and get a house in the sun with a pool), and a few moving elsewhere in Canada. This could be just an anomoly in my group of friends and coworkers, but I wonder if the already underwhelming population growth graph is about to take a downturn?”

Yes, we are Pretty – (Now let’s talk about something else) –

Yes, Vancouver is a beautiful city. This from ‘distraction’ at Vancouver Condo Info My 16th, 2008 8:20am –

“I had a friend in town for the day – they had a half day layover at the airport so I took them out for lunch. They saw the Richmond BC “Better in Every Way” banners and the Vancouver “Best Place on Earth” license plates and thought they were hilarious. It’s rather embarrassing, like having an attractive friend that keeps shouting “I’m beautiful! I’m the most beautiful person on Earth!”

Price Reduction Anecdotes

Asking-price reductions do not a peak make, but they certainly appear to suddenly be more common. This from ‘romeo jordan’ at Rob Chipman’s blog 05.16.2008 4.33pm and 4.53pm –

“(I) just got off the phone with a realtor.. a false creek condo that was listed for $588K sold for $495K. Also note: the 50K price reduction on the coal harbour studio – sold for 299K originally listed at 359. (Also) note: 1189 howe – 1 bedroom listed at 339K – original list north of 379K. duplex in north van – reduced by 40K on 3rd street. and a 3 plex in burnaby reduced by 50K on moss street.”

“There is a flagship building in North Van., The Talisman 145 St. Georges.. my data shows.. someone bought a one bedroom couple months ago for $320K. now there are some offered at $285k. I’d bet you will be able to pick one up for 269K by the end of the summer. What will the guy or girl do who bought it for 320K?…. It is actually really sad. Some poor souls who do not have the skills to place a Fair Market Value on an asset will be in a lot of trouble.”

Landlords by necessity – “They are basically in a rent out or die scenario”.

One of the results of the housing price run-up has been people becoming landlords out of necessity. After buying a house for over $1 Million they end up tippy-toe-ing across their living room floors every day so as not to disturb the tenants in their basements. This from ‘Tony Danza’ at Rob Chipman’s Blog 05.15.2008 at 8:17am –

“FWIW I have noticed a lot more new basement suites in my hood (PG near Byng) and from some of the convos I’ve had with my neighbours and acquaintances who’ve put in new suites they are basically in a rent out or die scenario (one guy on my soccer team said if he misses more than a months rent from his two suites he’ll be screwed). A lot of these folks received early inheritances or no interest loans from their parents to get into their places in the early 2000’s.”

Two Exchanges with Realtors – “It’s getting ugly”.

This from bdk at Vancouver Condo Info 2008-05-14 12:27:12 –

“Just talked to a realtor who I’ve known for decades and he said it’s getting ugly, that the sellers haven’t figured out they need to lower their asking prices and the few buyers out there are low balling like crazy, he mostly works in the westside and yaletown.”

This from Anonymous at Rob Chipman’s blog 05.14.08 at 2:43 pm –

“Well I did my part to save a RE shopper last night. The ditzy realtor & her serious sidekick asked if I would fob them in the elevator (their fob wasn’t working) – “it’s okay, we’re realtors” she says. I replied that I was always happy to help realtors – the sarcasm was only a tad thick. The poor sucker -em I mean propsective RE Millionaire -said I was helping him too to which I replied “Not a very good time to be buying real estate is it?” He sheepishly looked at his shoes. C’mon it was two on one and clearly the guy needed a lot more help than my fob could provide! I thought a simple serious query the responsible thing to do under the circumstances (or I was just being mean to the realtors, yah, actually, probably that). Oh, You could have heard a pin drop for the rest of that elevator ride.”

A Bull Sells – “He can’t deny that something stinks.”

Things are changing in Vancouver RE markets. Inventory is climbing, and we seem to have crossed an important psychological threshold. Bulls are starting to acknowledge that price pullbacks may be possible. Some are acting on that realization. This from exx at Rob Chipman’s blog 05.13.08 at 8:55 pm –

“My coworker + (wife, 3 young kids) is selling his 3bed townhouse in poco, pocketing his ~120K gains and renting a house. He looked at buying in North Van, but a similar townhouse would cost him 70% of his net income AFTER putting the 120K down. That’s for 25 years. He did the math on the 40 year mortgage… enough said. Funny thing is, he has always been very bullish on Van RE and we’d always get into the typical arguments. I think even he can’t deny that something stinks.”

“Self-waterboarding with the RE Koolaid.”

This bizarre but arguably apropos image from scullboy at Vancouver Condo Info, 2008-05-12 18:53:56 –

“Many of us have tried to warn family an friends, only to be looked at with a mixture of pity and scorn. I have two friends who are considering buying another place. One of them works for VANOC and has been self-waterboarding with the RE koolaid. He’ll quote occupancy rates for 2010 like… well like they’re relevant, actually. After a couple of conversations I told myself I’d done my job and I don’t bring the subject up any more.“

Eastside – “It is definitely a stretch.”

This ‘group anecdote’ from Lisa MacIntosh, an Eastside realtor, quoted in The Province, May 11, 2008 –

Lisa MacIntosh, a realtor specializing in first-time buyers on the east side, says her clients fall into two categories. One is the single buyer — often female — in their 30s purchasing a condo in those three-storey walk-ups from the 1970s. MacIntosh’s other buyer is the young professional couple in their 30s with one, possibly two kids, looking to buy a detached house for between $600,000 and $800,000. Like their west-side counterparts, they are “trust-fund kids” who have received help from boomer parents. Some got in the condo market a few years ago and made a healthy profit. “It is definitely a stretch,” says MacIntosh. “Most of them, 90 per cent of the time, there’s a need for a basement suite to help cover the mortgage costs.“

Westside – “Everybody maxes”.

This ‘group anecdote’ from Marty Pospischil, a Westside realtor, quoted in The Province, May 11, 2008 –

“Everybody maxes,” says Marty Pospischil, a realtor with Dexter Realty specializing in the west side. The profile of a typical buyer of a $1.3-million, three-bed, two-bath west-side home is a couple between 35 and 45 years old with one or two young children. They are both professionals who have ascended the ranks — think stockbroker, lawyer, doctor. They will usually have a down payment of $400,000 to $500,000 — derived from a combination of personal equity, inheritance or a substantial gift from a wealthy boomer parent, says Pospischil. That means they’re still borrowing between $800,000-$900,000. To make ends meet, the couple will rent out the basement for $1,500 a month. The rest — monthly mortgage payments of $3,500 to $4,000 — must be covered by income. “These are hefty mortgages. So they’re scraping for every penny that they can get,” says Pospischil. “

“The carnage is just beginning.”

With inventory climbing and more on the way, some sellers are starting to get motivated. This from mflat at Vancouver Condo Info 2008-05-09 10:17:53 –

“The carnage is just beginning. We took a 1-year lease on a downtown 2-bdrm, 950 sq ft condo. Our rent is very affordable, and we really enjoy it here. The owner has decided to sell, and has priced VERY sharply. A unit like this went for around $620 K in late 2006, and the owner is asking for less than a 10% profit on that price. Yup, the party is over. Either he’s under huge financial pressure (which I doubt, since he purchased this place on completion), or he recognizes that the gig is up and wants out FAST!”

“The quality of workmanship has degraded considerably.”

During a building boom, what happens to construction quality? This from somebody who sounds like they may have a valid insider perspective, Strataman at RE Talks 2008 May 10, 10:23 am –

“(You ask) “How do these guys compete with the newer stuff on the market? ” In one way I agree with you the newer stuff is more attractive to the inexperienced vendor. However to be absolutely honest I would not buy much of anything built in the last three years as the quality of workmanship has degraded considerably. As a person who does a lot of warranty work for the first year that downtown developers cover the building systems, I have my hands full trying to keep buildings running till the developer can get out of the warranty period. Elevators, mechanical systems, fire systems are substandard and incompetently assembled. Personally if I was going to hold something for more then five years I would steer clear of the “stuff” built in the last three.”

“I hope the bears get it right soon!”

It has been painful for renters awaiting price drops. This from bc buds at Langley Financial Planning, mohican’s blog, 9:49 PM, May 09, 2008 –

“I’m a bear and have been for the past two years. In that time I have spent 40K on rent and missed out on at least 100K of appreciation (2 bedroom condo downtown). If I had bought a place for 500K with 50K down my mortgage would have been paid down by just under 10K by now. If the place is now worth 600K a 20% drop brings it back to 480K. 20K under what I would have paid two years ago, a loss of 4%. I hope the bears get it right soon!”

“I own real estate because I believe in it.”

It should be said that many have done well with their real estate investments and are not considering changing their positions. This from Rob Chipman at his own blog, 09 May 2008 9:16am –

” ‘Rob Chipman is Homeowner’? You bet I am. I also own other property, and I’m not motivated to sell. I will buy more when the numbers make sense for me. That means that either rents rise/prices drop or my OSBs drop enough that I can re-finance and buy more at less favourable metrics. I’m no genius, but I do know that I haven’t sold my properties and they’ve still performed better (i.e., I have more real money in my jeans) than my non-real estate investments, which are professionally handled. I know this isn’t the experience of everyone, and I’m the last guy to say that it is. Still, I own real estate because I believe in it, and my belief in it has been rewarded handsomely over the years. I’ve made more money owning real esate than I’ve ever made working or in other investments.”

“This is great value” – unless “you think the market is imploding.”

Realtors continue to imply bullishness, or at the very least attempt to sit on the fence. This from Rob Chipman at his blog 02.May.2008 –

1280 Rupert Street, East Van. $725,000 asking price, May 2008. 2,596 sqft.

“We’ve reduced price on 1280 Rupert Street and will be having an open house Sunday. This is a excellent house in a great location, and if you’re looking for an East Van family home it would be hard to do better. If you think the market is imploding, stay away. But, if you think the market is just taking a breather, this is great value. Compare what you get for $725,000 with what you get for $650,000 and I think you’ll agree.”

“..She was panicked because she told me that the market is crashing..”

As prices fall, some renters will be displaced when their speculator landlords decide to sell. This from kansai_92 at RE Talks 2008 May Wed 07, 8:10pm –

“My landlord stopped by today and indicated that she’s selling the condo that we are leasing. The thing is I signed a 1yr lease and it does not end until October 2008. Our lease agreement contains a clause in there that indicates either party can terminate the lease with 60-days notice. I always thought this is referring to giving notice 2 months prior to the end of the lease to indicate to the other party that there will be no renewal. I’m not that familiar with BC tenancy laws as I only own property in Alberta. What are my options?
..She was panicked because she told me that the market is crashing and that her realtor thought she should get out now while she can. She also mentioned that last year her realtor said she could sell for $879K, but now she has to list at $839K.“

Coming Vancouver Real Estate Crash – “Most people are still oblivious.”

Despite ballooning inventory, decreasing sales, and the beginning of downward pricing pressure on sectors of Vancouver Real Estate, most people are still convinced that Vancouver RE is a good investment.

This from markoz at mohican’s Langley Financial Planning blog 1:08PM May 04, 2008 –

“Most people are still oblivious. A co-worker, who is a long-time homeowner, mentioned to me the other day that she wished she could afford an apartment downtown as an investment. I told her about the 18,000 empty units and preponderance of 40 year mortgages amongst first time buyers and she said, “A 40 year mortgage isn’t so bad, at least you own the place.” Sigh.”

Local Speculators Drove The Bubble – “The elevators were hardly being used.”

Local speculators have driven the housing bubble in Vancouver. This from ‘Lardy Boy’ at Mohican’s Langley Financial Planning Blog May 02, 2008, 8:56 PM –

“I was at the Real Estate Forum in Vancouver this week. This is the big event of the year for the real estate industry, with all the big players in the development industry in attendance. It was a decidely gloomy affair, by its normally upbeat confident standards (in recent years at least), with comments from some of the more candid major players, about the market( both commercial and residential) having ground to a halt over the last 60 days. Reasons identified, were the tightening of lending practices to both developers and consumers, and a change in market psychology. I heard an interesting comment from a major residential developer (Bosa) that they had totally underestimated the number of speculators who had purchased into their condo developments. The true number, which was shocking, was only evident following completion of the buildings. To use their words “the elevators were hardly being used”.”

“Renos have consumed my life……Plan to develop in the future.”

People continue to purchase properties in the Vancouver area with the primary intention of selling them later at higher prices.     ‘adamcory’ at BC RE Talks 2008 May Thu 01, 12:30pm answered the question “What was your last housing purchase and for what reason?” thus –

“Jan 2008 I purchased a fixer upper, 2000 sq ft house, w/ 800 sq ft shop, on 1.1 acres. In Cloverdale for $ 850 . A highly developed area that continues to sprawl rapidly. It is our principle, and hopefully will be for 5 years or so. Renos have consumed my life… so has the stupid yard. Plan to develop in the future.”