Monthly Archives: March 2010

“I must talk to 5 people a week who say: “I’ve lost a ton of money in the stock market over the last ten years, but I’ve still got my house, and our plan is to sell our $1.2 million house and downsize to a $500K condo, in the next two or three or four years.”

A crucial component of the coming Vancouver RE price bust will be the liquidation of properties by those owners whose financial futures are entirely wrapped up in the market price of their primary residence. -vreaa

Danielle Park is an Ontario based portfolio manager and financial advisor. Here follow quotes from Park from an audio interview with Stirling Faux of ‘The Money and Wealth Show’ 25 Mar 2010

7:00 – “The problem is you have all these boomers who have been wiped out twice in the stock market in recent years, and the one solace is housing. I must talk to 5 people a week who say: “You know what, I’ve lost a ton of money in the stock market over the last ten years, but I’ve still got my house, and our plan is that we’re going to sell our 1.2 million house and downsize to a $500K condo, in the next two or three or four years.”

8:20 – “I think that boomers are going to find out that the population behind them has a whole lot less money and a whole lot less appetite for the million dollar homes.”

9:00 – “25 to 30% possible downside [in housing prices]… It could happen in a quick period of time, a few months, another way is [a long period of flat prices].”

14:45 – “If you’re thinking of downsizing… and If you’re in some of these hot cities… Try and figure out whether it’s better to sell sooner rather than later when everybody else plans to get out of overpriced real estate… I think maybe think of it sooner rather than later… and if you’re looking to buy, I wouldn’t be in a hurry. Let the prices come to you. This is the art of savvy investing.”

Many struggle to afford their homes – “The Conference Board defined housing costs as unaffordable if they exceeded 30 per cent of pretax income.”

What percentage of buyers of primary residences in Vancouver in recent years are spending more than 30% of their pretax income on their housing costs? What percentage of those having to eat less nutritious meals because of housing costs are ‘owners’? -vreaa.

The Conference Board of Canada released a report “Building From the Ground Up: Enhancing Affordable Housing in Canada” which is discussed in an article, ‘Many struggle to afford their homes’ in the G&M 30 Mar 2010. Excerpts:

“Many Canadians can only keep a roof over their heads by cutting costs in ways that could harm their health – such as buying less nutritious food.”

“About 75 per cent of Canadians are currently living in homes they can afford, the Conference Board said, adding a further 5 per cent have their housing costs subsidized by the government. That leaves 20 per cent of Canadians struggling to keep up with the cost of their homes, the report said. The Conference Board defined housing costs as unaffordable if they exceeded 30 per cent of pretax income.”

“I assume my realtor means “now is the time to buy.” This makes no sense to me. Rates going up is guaranteed to lower housing prices. Any bull or bear knows this. So now is the worst time to buy.”

Dave in Vancouver sent VREAA an e-mail, 29 Mar 2010. Thanks, Dave. –

“My realtor just posted this as his facebook status:
“The Vancouver Real Estate market is very busy these days. Rates are anticipated to go up in the very near future so now is the time.”
I assume he means “now is the time to buy.” This makes no sense to me. Rates going up is guaranteed to lower housing prices. Any bull or bear knows this. So now is the worst time to buy. Or maybe he means “now is the time to sell.” What does everyone think?”

“After many red hot years the Whistler rental market has tumbled. Far more supply than demand. It is now a renters’ market. Throw in the 300 new units being turned over to locals at the Athletes Village and there is no end in sight.”

Lady Luck at RE Talks 28 Mar 2010 9:45 am

“After many red hot years the Whistler rental market (for locals, not vacationers) has tumbled. Far more supply than demand. It is now a renters’ market. Rents are dropping by the week. Two bedrooms that were renting for $2000 can be had for $1400. This will also have a spill over effect on the Squamish and Pemberton markets as commuters return to Whistler because of increased affordability. Throw in the 300 new units being turned over to locals at the Athletes Village and there is no end in sight. Not every landlord will be able to weather the soft market. It will be interesting to see if this in turn creates even more inventory for sale. The only thing I see improving the situation (for landlords) is increased tourism next winter.”

“The poor quality of housing construction and design is so obvious, you have to be blind not to notice it.”

Over at robchipman.net, a German man who lived in Vancouver for the last year, is about to return to Berlin, but first shares his impression of our city. Thanks to Híppos Purrós for alerting us to the anecdote.

Here’s German Guy at robchipman.net 29 Mar 2010 1:36 pm

“Vancouver was a great experience but all good things come to an end I guess. I enjoyed this blog [robchipman.net] and the quality of posts here and learned a lot about the dynamics of BC and RE. As this is my last post here,  I wish you all the best and thank you to all contributors.

Here are some short impressions of my stay here:

Things that I liked:

Canadians:  I met a lot of wonderful people whom I hope to see again here or in Germany and hopefully remain friends for a long time.

The nature The nature The nature: I enjoyed hiking the west coast trail, meeting a wild bear, driving BC Alaska highway, seeing BC wild horses, whale watching , paddling in the Brown lakes, Kootenay Rockies and the wonderful drive from Banff to Jasper,  boarding  BC ferries, skiing in Whistler and lake O’Hara in Yoho park, flying kites with my kids on desert beaches, boating with friends, but most importantly I enjoyed being alone with nature and walking into the roads barely traveled. Only in BC can you do this!

Things I didn’t like:

Health care: I know that many people here are proud of Canadian health system, but our experience was not so good.  After one year here, we still could not find a family doctor. One time my wife had to go to the hospital, she was turned back as there were no rooms available, despite her condition being serious and needing observation according to the doctor . Some long time readers here know my saga with my sinus problem, although not serious, I first went to a walk in clinic last November 2009 only to get an appointment with a specialist by January 28th which after 5 minutes consultation prescribed me an antibiotic Avelox (prohibited in Germany , it almost destroyed my stomach) and a CT scan for which I have appointment on Tuesday October 12th 2010!
Meanwhile I was back in Germany during spring break, saw the specialist and got the CT scan done within 2 weeks, it cost me 95euros.

Public School: We were generally disappointed with the schooling system, kids never came from school with home work nor was really any accountability asked from the teacher. From our understanding the school here seems to be a place where kids go to have fun and play rather than abide to rules, learn the culture of effort and systematic work ethic.
If it is difficult, don’t do it, seems to be the motto.  Fund raising is the main preoccupation of the schools and it is rather frustrating to see the kids come home weekly with fund raising schemes for all kind of things.

Business Opportunities: I could not really find any real business opportunities here rather than some unprofitable franchises in the hospitality industry despite ample pools of capital (2 to 10M). Most small businesses I have analysed have so little profit margins that your money will get a smaller return than leaving it on a 5 year government note.  I looked into farms, wineries, manufacturing, engineering, and hospitality. Business owners I talked to, have extremely exaggerated ideas of the worth of their businesses at least when you look at the cash flow they generate. There seems to be a complete disconnect between risk and reward.
The job market seems to be mainly for low paying  jobs but maybe that is because of the recession.  The best thing that can happen to young people finishing school here is to land a government job or work for a crown corporation or other big company close to the government in my opinion.

Real Estate: Although much has been said here regarding real estate,  I only like to emphasize that the poor quality of construction and design is so obvious, you have to be blind not to notice it.  I have seen brand new construction houses selling for 2+million being built “a la va vite” with poor construction materials, poor design and a mix of tasteless kitschy interior finish that leaves most real estate value on the land rather than building from my perspective.
I have no doubts that Vancouver will get a severe correction in RE prices but trying to time it is a futile exercise.  When the downturn comes it will be painful, and all the myths of the rich Chinese investor and marijuana grow ops (not that they are inexistent!) shall be exposed. People will discover that this bubble is driven mainly by hard working Canadians buying 2 to 3 houses or more on cheap debt subsidised by CHMC, in a desperate rush not to be left behind the neighbour, work colleague, friend etc. as prices keep going higher and higher until they don’t.

Good luck to all. GG”

Mortgage Rates Rise; Financial Literacy Rates Unchanged

A number of Canadian banks have today raised their mortgage rates, with posted five year closed mortgages jumping from 5.25% to 5.85%. Here are some comments made by mortgage consumers below the Financial Post article, 29 Mar 2010. Thanks to metalhead at RE Talks for pointing them out. –

anonymous 29 Mar 2010 1:02 pm“I still think its crazy to get a locked in mortgage. There aren’t many signs outside of Canada that things are back to normal. In fact its far from it. Right now I have a variable rate of 2.05%. How much could rates really go up with so much uncertainty. If they go up too fast our dollar will sky rocket and cause its own problems. I would get a variable rate which could save you hundreds of dollars per month compared to 5.86%, save the money you would have spent at the higher rate and then if interest rates climb you have a buffer to help you but if they don’t rise beyond the 5.86% then you have a lot of extra cash.”

anonymous 29 Mar 2010 12:41 pm“I think a lot of the confusion comes when banks close your mortgage for 5 years on a fixed or variable rate, but they automatically amortize it over 25 years. So people think their house will be paid off in 5 years, when it’s just locking in a rate. That is what happened to me when I was 24 years old. I bought my first home, locked in the rate for 5 years only to find out in 5 years that I had put $15K against the principle and I still owed $200K! Then I went to renew, and finally when I asked them, they were amortizing the mortgage over 25 years again. So in total I would be paying off the mortgage over 30 years! I finally got smart and put a short amortization of 10 years and also started making annual payments on top of my mortgage, until I paid off the house 7 years later.”

And relevant confirmation from older discussion at the G&M:

ruthmatthews 14 Jan 2010 3:58 pm – “Most Canadians do not seem to know that in Canada every mortgage is open after five years and their interest rate can increase at that time UNLESS they have been able to lock in for say, seven, or ten years with specific mortgagees. The amortization period is just used to create a monthly payment to suit the financial ability of the mortgagor. I have spoken to a lot of home buyers who seem to think that if they have a 35 year amortiation with a monthly payment of $650, that this amount will be payable for 35 years.”

Homeviewer Discretion Advised – ‘Vancouver Deliverance’ Visual Anecdote

Bubbles distort judgment. What was going through the realtor’s mind when they were capturing, uploading and presenting these photographs? Surely some form of cautious description in the MLS blurb would have sufficed? This house was discussed on various blogs recently, including greaterfool.ca 8 Mar 2010. Fascinatingly, an ex-owner supplied an anecdote, which is archived below the photos. -vreaa

MLS#V809495 3635 Prince Albert Street, Vancouver East, BC
Lot size 3,159 sq.ft   House 1,650 sq.ft
Asking price  $579,900
“Handy man special. Needs TLC. Mainly Land Value.”


Here’s poco at greaterfool.ca 9 Mar 2010 2:58 am “Believe it or not, I owned this house back in 1973—I can’t stop laughing.–it was a dump back then but from the pics I see they’ve done a few upgrades.
It does bring back a lot of memories from those days. My first wife and I bought it for 28k in Sept 73 from her mother (somewhat as a gift) we split up and I stayed in the house while we tried to sell it.
Finally sold in the fall of 75 for 43k–had a huge moving out party where I met my 2nd wife—-I wrote her phone number in the dust on the siding “shingles” to the left of the front door– whenever we were in that part of town we would drive by and lo and behold the phone number was still there –years later.
Note the dark brown cupboards in the small pantry(?) area– I swear thats the “mac tac” (70s thing) I covered them with.
But thanks once again for that link– I’ve e-mailed it to many–and yes I will be going by it this week.
PS-hope andrew doesn’t see this –he’ll be calling me a fool for not keeping it as a rental.”