Monthly Archives: May 2010

“I was showing a couple of friends from London England around Vancouver during the weekend and they were shocked by the condo prices here.”

Van Renter at 31 May 2010 9:39 am

“I was showing a couple of friends from London England around Vancouver during the weekend and they were shocked by the condo prices in Vancouver. They had recently purchased a two bedroom condo for their daughter in a upscale area close to the upcoming Olympic [venue] in London for basically half the price as Vancouver.”

Say Goodbye To Debt Fueled Housing Bubble

The BoC meets tomorrow and will almost certainly increase interest rates. Even with all of this recent juice, Vancouver prices have flattened and likely already begun their descent. Some kind of extreme has been hit, and the rate hikes will add to downward pressures. Our estimation is that, over the next two years, prices will likely correct by >33%. Thereafter we will grind lower, and the eventual trough will represent >50% off current prices. -vreaa

This excerpted from ‘Mortgage debt surges as economy picks up steam’, G&M 31 May 2010

“Canada’s economy is on fire, surging 6.1 per cent in the first quarter at an annualized pace.”

“A Statistics Canada report also shows personal debts rising, as mortgage growth surged $76.4-billion annualized in the first quarter from $59.8-billion per cent in the fourth quarter of last year. People are using more credit for homes, but less for other items.”

“Household debt as a percentage of personal income probably rose to a record 148 per cent.”

“In speaking with people who are trying to buy land and others who are working in the business, it really appears there are a lot of “developers” who are paying top dollar for potentially developable property. If you do the calculations it is difficult to figure out how they plan to get a reasonable return.”

wpw at April 2010

“Having just sold my home in Vancouver, I can now comment. I cannot provide an objective opinion on whether it was overpriced because it was my home. But our annualized return was about 9% from when we purchased it at the bottom of the market more than a decade ago. Not a bad return on investment for a home we enjoyed for a long time.
There is a lot of supply, particularly condos, on the market now. So I would expect condo prices to be levelling off, especially with mortgage rates starting to creep up.
What is really moving is land that might be redeveloped. In speaking with people who are trying to buy land and others who are working in the business, it really appears there are a lot of “developers” who are paying top dollar for potentially developable property. If you do the calculations it is difficult to figure out how they plan to get a reasonable return. This will eventually come to an end but not until the buyers find they can no longer finance their projects.”

“I live in Vancouver and have been waiting patiently for over 8 years for housing prices to drop.”

RentingAt40 comments at Mike Shedlocks blog 30 May 2010 12:15pm

“I live in Vancouver and have been waiting patiently for housing prices to drop for over 8 years. That’s just drop, not become affordable in my terms, but just start to go down. The closest they’ve come to doing that is at the beginning of the crash and it didn’t last long. I could tell you all things you’ve already heard, like how my friends who bought in 2000 have seen the price of their condo more than double, but you all know that. The only thing I’d like to say, is that I think this bubble won’t burst until interest rates start to rise, and more than 0.25-0.5 percent, but not much more. Even then I’ll need to see a real crash before I’m able to afford even a sh$@@ly little 700 sq foot condo here where the bedroom is too small to put a clothes dresser in, because the increase in interest payments will more than make up for the drop in price.

My cousin, who works for a large bank has just recently moved to Ottawa. He’s always thought the prices are crazy here and being recently married and eager to start a family, he decided to move on elsewhere. He knows, and has confirmed through his investment friends that international money is buying up everything here that can be classified a real-estate. He had waited as long as I have, and if there’s a crash, he’ll be on the first plane back here to buy a home.”

“I was out for beers the other night with an ex-pat American friend who has fallen under the illusion that the ‘correction’ will be softer in Vancouver than it was in the US, that ‘it is different here’. What really astounds me is that he is from Detroit, and should be cognizant of the realities of these situations”

cdnprairiedog commenting at Mike Shedlock’s blog 30 May 2010 10:36 am

“I was out for beers the other night with an ex-pat American friend. He has fallen under the illusion that the ‘correction’ will be softer here than it was in the US, that ‘it is different here’. We are in Vancouver, Ground Zero of the madness. What really astounds me is that my friend is from Detroit, and he should be cognizant of the realities of these situations. The lessons that go unlearned…”

“If you look at Vancouver, no one understands why it’s so buoyant. But we have Asia, we’ve got China, we’ve got Iran, we’ve got Korea, we’ve got local rich guys.”

Excerpt from a May 2010 video interview given by Bob Rennie in Kelowna

“If you look at Vancouver, no one understands why it’s so buoyant. But we have Asia, we’ve got China, we’ve got Iran, we’ve got Korea, we’ve got local rich guys… and that keeps the downtown market going.” … “Our market is separated into two markets… you’ve got local incomes, and you’ve got foreigners. … We still have China coming, we’ve got low inventories.” … “Vancouver is really stable on the inventory front” … [Does it hold true that buying property is a wise investment?] “In my own portfolio/… I just don’t think you should ever sell.”

Overextended Amateur Landlords – “I’ve seen over a dozen places for rent in the last month. In ALL cases the landlord had owned for 1-3 years.”

Amateur speculators buy anticipating ongoing price increases. The properties are all cash flow negative. They will be sold into the market as prices drop and the premise for holding them disappears. -vreaa

Devore at 28 May 2010 10:46 am “I’ve seen many places for rent in the last month, and one of the first things I ask the landlord is how long you’ve had the place. All the condos I looked at, over a dozen, ALL, the owner had between 1-3 years with the property. Many without even asking offered to drop price for a “good” tenant with 1 year lease. Uhm, thanks but no thanks. I don’t want to be getting a call 6 months from now begging me to break my lease and move out because they have to sell.”

“Professionally managed rental units are taking longer to occupy. This is indicative of a significant oversupply of housing.”

jesse at 28 May 2010 11:06 am“My relatives and friends who rent out suites get dozens of applicants, even recently. Unfortunately, few of the applicants pass the smell test. That professionally run units are taking longer to occupy is indicative of a significant oversupply of housing.”

‘Optimistic Bear’ Opinion – “I see this coming crash as a social, economic, and psychological “cleansing opportunity”.

The Vancouver RE bubble has had profound overt and covert negative effects on our society. In response to a discussion on divorce and RE, this anonymous poster shared some ideas about the social effects of the bubble bursting. -vreaa

Anonymous at 28 May 2010 1:10 pm

“It has been shown in both the UK and US downturns that divorce rates drop when assets are underwater, and rise when values are excessive, particularly amongst higher income individuals. Few people want to “split” a short sale or negative equity. So this coming crash might be good for our divorce rate, as more couples are forced to stick it out and share both the “good” and the “bad” times.

This coming crash might not only enhance the affordability of housing, but in doing so, it might:
• eliminate the perceived class divisions between owner and renter in Vancouver;
• slap the smugness out of real estate agents who make big bucks for “knowing” that prices always go up;
• make people realize that wealth comes from hard work, savings, and prudent investments;
• undermine the sense of entitlement of many generation Ys and Xs and the instant gratification endemic to our society;
• erode the rampant materialism where one is judged by the sum of their possessions as opposed to the strength of their character;
• enhance the mobility of the workforce, and hence economic productivity, as more people decide to rent and move to where the jobs are; and
• force loved ones and families to focus on the important things in life – friends, family, love and laughter

I don’t know about you all, but I see this coming crash as a social, economic, and psychological “cleansing opportunity” and I am pretty excited! There might be some short term pain for some families and individuals, but in the long term, I think it can really strengthen the moral foundation of our society.

Call me an optimistic bear.”

“A friend of mine bought a house without selling his current one first.”

Carrying two properties through a bridging period is dangerous at this point. The market could turn quickly, and the old property would become very difficult to unload near the previously anticipated price. -vreaa

NO-LYMPICS at 28 May 2:48 pm

“A friend of mine bought a house without selling his current one first. He then had his current one listed and had it sold to an Asian guy in a Mercedes, only “subject to” was financing. The sale should have concluded last Friday, but he told me the deal feel through. His realtor was pissed, as the other agent should have made sure his client was pre-qualified. My friend has a loan to cover his new purchase, but I think he will be in trouble, given this current RE market. He may have to accept a low ball offer to extricate himself from this mess.”

“I have a friend who just bought. She got tired of looking, and got it below asking price, so she “just jumped in”.

manx at 28 May 2010 6:00pm“I have a friend who just told me she bought in tv towers. She got tired of looking, and got it below asking price, so she “just jumped in”. Didn’t get any details but I’m guessing around $650/sqft.”

“A professional couple looking at a $1.8M house on the West-side of Vancouver were told by the realtor that it was a “nice starter home.”

This via e-mail to VREAA – “A professional couple looking at a $1.8M house on the West-side of Vancouver were told by the realtor that it was a “nice starter home.”

“Construction work in the lower mainland has slowed down in the last few months. I know this because my family income relies on this industry.”

E at 29the May 2010 7:54 am

“Construction work in the lower mainland has slowed down in the last few months. I know this because my family income relies on this industry. I also know many people who work in construction and they are saying the same thing.”

“My wife and I pocket over $4,000 per month cash and so far have about $160,000 cash for a down payment but we’ve never felt poorer. All of our friends have bought in the last few months.”

chen at VREAA 28 May 2010 1:50 pm

“I certainly feel the stigma of being a renter, guessing my wife does too, because she seems depressed about not owning. We have good stable jobs, no debt, we pocket over $4,000 per month cash (not including insurance + rsp’s) and so far have about $160,000 cash for a down payment but we’ve never felt poorer. In hindsight we should have just bought with a 0/40 in 2006 and I’d probably be better off today. All our friends have bought in the last few months and I feel like people pity us or something. I really don’t care, but it’s a weird feeling to say the least, perhaps I’m misreading people.”

“I know at least 20 people who bought in the last 3 years and none of them are wealthy foreigners.”

Local speculators and massive amounts of debt have fueled this bubble. Foreign buyers have been relatively minor participants, but the story of foreign buyers has helped spur on locals. -vreaa

Anonymous at 26 May 2010 9:20 pm

“I know at least 20 people who bought in the last 3 years and none of them are wealthy foreigners. They’re mostly Caucasians who’ve lived here for 10 to 50 years and most don’t even earn as much as I do, they just seem ok with taking on ridiculous debt levels. Hey, here’s a concept – maybe house prices are high because locals are overpaying with cheap money at record low interest rates. Maybe they believe all the fairytales: wealthy outsiders, drug money, etc. Maybe that’s why debt levels are at record highs?”

“I really get tired of the comments about rich Chinese coming over and running up our real estate prices. My wife’s parents, typical middle-to-upper class Chinese living in Beijing, own two apartments with no mortgages, worth around 1.4 Million RMB, which converts to $219,000 CDN – not even enough to buy a one bedroom condo in Vancouver.”

Informed at 26 May 2010 12:40 pm

“I really get tired of the comments about rich Chinese coming over and running up our real estate prices. I don’t deny that there are some very rich Chinese (and Korean, Japanese, Filipino, Thai, Malays, etc) who have bought real estate in Vancouver, but please do some research before painting a whole ethnic group with a single brush. My wife’s parents are typical middle-to-upper class Chinese living in Beijing. They own two apartments with no mortgages – one they live in, and one my wife’s grandma lives in. If they sold both apartments, they would make around 1.4 Million RMB, which is a hell of a lot of money in China. But if they brought that over to Canada, that converts to $219,000 CDN – not even enough to buy a one bedroom condo in Vancouver. Keep in mind this is pretty much their entire net worth. So while there may be some extraordinarily rich Chinese bringing tons of cash over to Vancouver, the majority of immigrants have no more money in the bank than the average Canadian. It just bothers me when uninformed Canadians assume somehow that all these Chinese immigrants are obscenely wealthy.”

“This weekend, using the equity of their Commercial Drive property, they purchased a $1.7 million house in Mount Pleasant area after looking at it for an hour.”

Leverage. Works great on the way up; Not so great on the way down. If this couple, who appear to have ridden one property up, now ride two properties down, they will very rapidly obliterate their paper gains. -vreaa

Game_Over at 26 May 2010 11:45 am

“My fiance’s co-worker has a home near commercial drive with a laneway house on the lot. They rented out the main house and lived in the laneway house for years. This weekend, using the equity of their commercial drive property, they purchased a 1.7 million dollar house in Mount Pleasant area after looking at it for an hour. Naturally my fiancee respects this persons real estate savvy as he has been so successful in the past.”

“I have a teammate who recently bought a $350K 500sqft 1 bdrm downtown. I didn’t bother giving her my opinion. I’ve sold my house now and am content to watch people make mistakes and crash this market.”

taylor192 at 26 May 2010 8:55 am

“I have a teammate who recently bought.
She bought a $350K 500sqft 1 bdrm downtown.
She claims prices will continue to go up.
She was unaware that prices from 1994 to 2002 were flat.
She’s young, and all she has ever known is prices going up.
She was unaware of the excess inventory downtown.
She felt lucky to have bought a place that was affordable.
She is stretched into it, having a silent partner help her purchase.
She thinks even if the market goes down, she’s at least paying down equity (sorta true, yet she’s paying a premium to save).
She has a plan B to rent it if she has to hold it for years. Rent would be $1500, yet her mortgage/taxes/fees would be > $1500.
I didn’t bother giving her my opinion. I’ve sold my house now and am content to watch people make mistakes and crash this market. The more mistakes, the merrier.”

The Stigma Of Renting In Vancouver – “Oh no, we would never rent”

About 70% of Vancouverites live in homes they own. The rest rent. Some rent out of necessity, some by choice. Through the 2001-2010 housing boom, the growth in net-worth of home owners has outstripped that of renters by a wide margin. Only very, very few renters would have been able to keep up with the paper-wealth gains made by owners through these years. With stock markets essentially flat through the decade, they would have had to have been remarkably talented, brave, and fortunate stock speculators to have matched REs returns. This effect is exaggerated further because the substantial leverage inherent in RE purchases works extremely well in RE bull markets. Thus it’s clear that homeowners have done far, far better than renters. There are a handful of wealthier individuals here who still choose to rent, but, despite them, renting has become broadly socially synonymous with being relatively impoverished and disenfranchised.

Even though rent-versus-purchase math has long worked strongly in favour of renters, even moreso in the last few years, renters are not looked upon as fiscally wise and prudent, but rather as disadvantaged and unfortunate. This is not to say that this is fair, or right, it simply is the truth of what has happened here through the bubble. A renter confessing to renting in company not uncommonly gets responses ranging from pained grimaces, to condolences, to pity, to thinly veiled scorn. And renters can only imagine the opinions expressed when they are out of earshot.

Yes, there are places in the world where renting is the norm. And, yes, many of the superficially wealthy Vancouver owners have abused their RE-ATMs and have large invisible debt loads. But the fact of the matter remains that renters are seen as relatively disadvantaged compared to their owner peers.

Recently there have been quite a number of stories of people deciding to leave Vancouver because they see no prospect of ever being able to afford to buy a home here. Whenever such stories appear on these pages, or on other Vancouver RE blogs, there are always a few well meaning and sincere commenters who appropriately point out that renting in Vancouver really isn’t that much more expensive than elsewhere, that it’s just owning here that is so overpriced. We agree with this analysis, and from the numbers’ perspective it is entirely correct. But we also note that the ‘social cost’ of renting in Vancouver has arguably increased as this bubble has inflated, for the very reasons described above. It is socially seen as less desirable to be a renter now than it was ten years ago. Many individuals, couples, and families avoiding Vancouver in favour of places where RE is more reasonably priced are doing so partly because they can’t imagine living here as socio-economic second-class citizens, indefinitely.

A sordid and sorry truth is that through the Vancouver bubble there has been a considerable and growing social stigma attached to being a renter. This is just one of the many perverse and far-reaching social effects at play in this RE bubble. Any regular reader of these pages knows that we foresee a price collapse in the RE market. Inventory is climbing, sales are below average, and we believe that the price retreat has begun. As home prices descend, we will initially enter a period where renting is seen as a viable option, later as a wise option, and eventually homes will return to  being seen as shelter rather than wealth accumulation vehicles. Renting will become respectable again. -vreaa

Bailing in BC at VREAA 19 May 2010 7:03 am

“I had a strange encounter the other day. I meet a woman who has to relocate for family reasons and so is selling her house. I suggested that that might be a good thing as house prices looked like they were going to go down. She volunteered that she thought house prices would go down about 30%. Thinking that she was of the same opinion as I, I told her that we had sold and were going to rent and that she should rent too. Her reply was “Oh no, we would never rent”. I really didn’t know what to say. This woman’s house is worth about $600k so a drop of 30% is $180,000. Assuming that she buys another house of a similar price, she would rather consciously lose $180k than be a renter!”

UPDATE: One doesn’t have to look too far to find evidence for the prevalence of this way of thinking. This from an article in the Vancouver Sun [26 May 2010] on the low demand for market rental suites set aside for front-line workers at the Olympic Village. – “Gord Ditchburn, president of the Vancouver Firefighters Union, told The Sun one reason there may not be more names on the list is that most firefighters are already established in their own homes by the time they are hired, at an average age of between 29 and 30 years old. “Most of our guys want to own, not rent,” Ditchburn said. “I think that’s the Canadian dream.”

UPDATE 2: Further regarding the sentiment associated with renting – “I’m a mortgage broker and I can tell you that almost nobody who owns goes back to renting. Most people perceive that as a total regression.” – headlined at VREAA 19 June 2010

UPDATE 3: A discussion regarding buying versus renting from archived at VREAA 13 Nov 2010“I am thick-skinned enough to deal with the social pariah status of being a mere renter. A lot of people here believe that responsible adulthood includes home ownership, so if you don’t own, you somehow don’t make the cut.”

Further related links:

TPFKAA on Renting – “It was as though ‘renters’ were another species, quite distinct from their human, homeowning neighbours.” [at VREAA, 27 Dec 2010]

Reader initiated Renter ‘Poll’ – “Where do you rent, how many bedrooms, and how much do you pay?” [at VREAA, 28 Dec 2010]

Canadian Business Mag: ‘Housing: Real insanity’ – On Renters And Owners [at VREAA, 11 Apr 2011]

Landlord Mentality – “I expect my tenants to subsidize my speculative bet on Vancouver RE prices” [at VREAA, 7 May 2011]

‘In Vancouver, renting is a better option than buying’, Gord Goble, Vancouver Sun, 26 April 2011.

Joanna Pachter, Canadian Business – “This is not yet another story about the real estate bubble. It’s a story about why more of us don’t rent.” [VREAA, 18 July 2011]

A request to readers from a producer at ‘The Early Edition’, CBC Radio 1, to hear from people who have personally experienced any stigma regarding being renters in our city, resulted in a discussion of whether such a stigma even exists. [VREAA, 19 Aug 2011]

Canadian MSM RE Commentary – Still good for laughs

From ‘Vacation property best left rented’ by Jonathan Chevreau, Financial Post, as reprinted in Vancouver Sun, 23 May 2010

“Most financial planners view a primary residence as an item of consumption.”

[We’ll know the bubble has popped, deflated, and been forgotten when, eventually, “most financial planners view a primary residence as an item of consumption”.  A primary residence IS an item of consumption, but almost all participants in our bubble markets, ‘financial planners’ included, still see a primary residence as a vehicle for wealth accumulation. -vreaa]

Vancouver Island – “I bought a home in August 2007 for $300K – $10K down – 40 year amort. I did this for sheerly personal, intangible reasons, for the most part.”

Even here near the peak of the RE bubble, some players are already in financial distress. Unfortunately, even many of those who have been substantially more prudent than the individual in this story will experience hardships in the downturn. -vreaa

Jeff sent this personal story to Garth Turner at 19 May 2010

“I bought a home in Central Vancouver Island in August 2007 for $300K – $10K down – 40 year amort.  (I know, I know – at least now I do) I did this for sheerly personal, intangible reasons, for the most part.  I had a pretty fiancé, I thought I needed forced savings…and I thought we would settle here. She is gone now.  I am renting the house out for a loss of around $500/month after mortgage + taxes. I am *really* bad with money.  At the time I bought I was generating around $100K a year.  I’ve just seen that reduced to $65K.  Still, I should be able to afford my bills, right?  Since 07, through my own stupidity, laziness and immaturity, I’ve managed to accumulate an enormous amount of debt – and recently found that due to my incompetence with managing my finances, I owe around $95K – over $50K of that to CRA. I am 38 years old.  I’ll be lucky to get a consumer proposal approved.  It would be my second bankruptcy, if I have to go that route, and screw me for life. [I am] digging around for ideas as to whether, even during the process of a consumer proposal, I should try to keep my house, which I have around $5.99 in equity.

The answer was always unclear given that if I could afford it, why not?  Rebuild credit, etc.  Always in the back of my mind it didn’t seem to make sense to be so illiquid… so chained to something that I have a bad feeling is going to lose value.  It was built in the 80’s – I have no extra income to replace anything.

The tenants called on the weekend.  The house has carpenter ants. It’s in a place that I assumed will attract boomers, and wouldn’t lose a lot of value, but, realistically – it sure hasn’t gone up much, even through the last 2.5 years. The guy across the street keeps his stock car in the front yard . Not exactly the greatest neighborhood. What on earth would I do in 2.5 years when I have to renew at a rate of 7% or more, or even better, NOBODY is buying and if they are, it’s for 2/3 of what I paid or less?

Anyway.  The house is being sold…and barring that, I’ll have to walk away from it. I’m a financial idiot, and I’m hoping you aren’t laughing too hard at me…hopefully I’ve finally learned a lesson.”

“I am Canadian and my wife is British. I lived in Britain from 1997, until we returned to Vancouver in 2009. Despite the fact that we love it here, career-wise and economically it has been a disaster. No one I know is buying a house or even thinking about it – that’s for the crazy locals.”

northeast canuck at 22 May 2010 10:08 am

“I am Canadian and my wife is British. I lived in Britain from 1997 – 2009 (the whole of my adult life and professional career). Never intended to stay so long, and we tried to come back to Canada for many years but there was always something in the way – usually the job situation. But, last summer we did it anyway. Despite the fact that we love it here, I think career-wise and economically it has been a disaster. I hate to admit that but it is true. We know quite a few expats who moved here around the same time – all professional with loads of experience and had highly paid, sometimes prestigious jobs in the UK, and all with lots of pounds in UK banks. No one is currently working in their chosen profession, all are either seriously underemployed and unemployed. Myself – I have been able to find work – in Japan. We have all found that Canadian companies are seriously reluctant to hire anyone with experience that is not Canadian. They won’t admit it, of course, and many probably don’t even realise they are doing it, but if you don’t fit the standard cookie-cutter job applicant mold here, you are going to struggle. We are all watching our life savings vanish before our eyes as the pound gets more and more feeble by the day.

Vancouver is a beautiful place, and wonderful to live in if you have lots of cash. Just make sure you have that cash in dollars, and a job arranged before you come.

Immigrants want to come here. But we’re not going to stay. Unlike many locals we are able to leave whenever we want and we will not accept a life of stacking shelves or driving a taxi. Oh, and no one I know is buying a house or even thinking about it – that’s for the crazy locals. I just hope that house prices crash faster than the pound.”

“My fiancé and I want to move from Europe to Vancouver at the end of the year and then buy a home there at the end of 2011 or 2012. It will depend on house prices and the strength of the pound as we’ll be selling a townhome in London to buy in Vancouver and are praying we can do it without a mortgage.”

This exchange between Garth Turner and a prospective Vancouverite contains two embedded anecdotes, and an opinion [, 22 May 2010] –

e-mailer: “My fiancé and I want to move from Europe to Vancouver at the end of the year and then buy a home there at the end of 2011 or 2012. It will depend on house prices and the strength of the pound as we’ll be selling a townhome in London to buy in Vancouver and are praying we can do it without a mortgage. What do you think the pound’s chances of returning to pre-2008 levels against the dollar in 2011 or 2012? In the meantime, my brother and his wife recently insisted on buying a house in Vancouver instead of renting and I hope they don’t lose their shirts. They both earn well but have student loans and other debt. I pointed out your blog to my brother but he said “That could never happen in Vancouver”. Hmm, do I hope he’s right?”

Garth Turner: “I’d suggest you move from Europe to, say, anywhere else in Canada. Wait for the Lower Mainland to impode, then consider buying. Hang out in Windsor or Sydney for a year or two, where you can live in a mansion for the price of a 475-square-foot concrete box dangling over Robson Street. You might like being in a place where people actually have a life and don’t talk about their houses all the time.”

“After 10 years of renting in Vancouver, me and the missus are finally taking the plunge. Not buying, but leaving this land of scam. Earning $160K+/yr should be enough to afford a couple a decent place to buy.”

Leaving Vancouver at 22 May 2010 11:53 am

“After 10 years of renting in Vancouver, me and the missus are finally taking the plunge. Not buying, but leaving this land of scam. Earning $160K+/yr should be enough to afford a couple a decent place to buy. Not in Vancouver though. Here you get a 2bd 900 sqft box in the sky, for $4K month (mortgage, condo fees, etc). Enough is enough. Heading East where only one of us needs to work at $80K/yr and we can afford a mortgage on a new 2500 sqft house with a nice yard and maybe even a butler. Extremely miffed I am being chased from my province of birth by immigrant money and a $8B/yr illegal pot industry. But, like I said, enough is enough, I am throwing in the towel and Vancouver be damned.”

“You can add me to the list of people considering leaving Vancouver.”

Jeff at VREAA 19 May 2010 7:34 am

“You can add me to the list of people considering leaving Vancouver. Moved here 3 years ago, have a good middle class job, partner has the same (together manage to hit 6 figures), currently renting a nice condo withviews of the North Shore mountains and False Creek. However, seems so many people we meet are struggling so it’s hard to find people to do anything with, nobody talks to you (unless it’s to ask for money), and even with $80,000 saved for a down payment, not seeing anything for sale at a price we’re comfortable paying. As beautiful as aspects of Vancouver can be, we’re starting to think other cities can offer us a much better quality of life.”

“I sat at lunch near a couple of real estate professionals talking shop. Both of them lamented the unusual funk that the market is having, how little they’d been hearing from other agents closing sales, and of reluctant buyers.”

This from an anonymous poster, via e-mail to VREAA, 20 May 2010 –

“I sat at lunch near a couple of real estate professionals talking shop. Both of them lamented at length about the unusual funk that the market is having, how little they have been hearing from other agents closing sales, and of reluctant buyers.  Much of their frustration seemed directed at the media coverage of the housing market, and that this was souring the mood of prospective housing buyers. The projection of their frustrations I found pretty telling of how quickly things are cooling off.”

The Froogle Scott Chronicles: Mortgaging Our Souls In Paradise – Part 7: Renovation Nervosa Continued

Brace your floorboards and tighten your joists, because here’s the next episode of Froogle Scott’s story of the renovation of his Vancouver home. For those of you who want to catch up on earlier episodes, see here. We hope you enjoy Froogle’s ongoing account as much as we do. -vreaa

Part 7: Renovation Nervosa Continued

By September of 2007 the renovation of our house has been ongoing for a year, although it’s been more stop than start. We’ve replaced the drainage, gutted the bottom level of the house, engaged a structural engineer, and been issued the necessary development and building permits. We’ve already spent $30,000, close to a third of what we’re speculating might be a total budget of $100,000. A friend and I have made a good old mess of the basement slab by breaking a three-foot-wide strip of concrete the length of the house, and excavating a long trench, in preparation for a new concrete footing beneath a new weight-bearing wall. My wife and I have been managing and contracting the renovation work ourselves, often spending large amounts of time, and meeting with considerable frustration, in our attempts to hire contractors during Vancouver’s construction and real estate boom. I’ve now realized that my plan of doing substantial amounts of the work myself is unrealistic. It’s hard to do a full-time day job while also trying in the evenings and on weekends to advance a renovation project — especially one that appears to be evolving in scope from moderate to major. Fatigue is a definite factor. By choice, we don’t have a vehicle, which makes certain things more difficult. When I rent a wheelbarrow, demolition hammer, and fan for the concrete breaking, I use the wheelbarrow to transport the other tools from the building supply store — a fifteen-minute walk. When the first demolition hammer malfunctions, my wife has to jump in a cab to get a replacement. We’re losing rent every month the rental suite is out of commission. And there’s the small matter, with winter approaching, of no longer having a furnace to heat the house. I’m becoming more open to the idea of bringing someone in to help.
Our first move in this direction is to hire Leonard, a handyman recommended by friends — the friend who helped me with the concrete demo, and his partner. Leonard is a lone wolf, mostly working unassisted, although he does have an electrician he brings in when required. My friend’s partner describes Leonard as “an unreconstructed alpha male.” Although I have some alpha traits myself, her description doesn’t immediately set off alarm bells.
….The plan now is that Leonard will frame and plumb the new suite, and the electrician will do the wiring. I still have some idea that we might handle the drywalling ourselves. We’re already in discussions with an energy retrofit company about new windows and doors. I show Leonard the suite layout, which has now become part of the engineering drawings and the city’s permits. He doesn’t spend much time with it, preferring instead to pace off the dimensions of the two new bedrooms, the orientation of their doorways, a central hallway, walking through different versions of an imagined suite. My wife and I had done something similar ourselves, the final placement of interior partition walls isn’t carved in stone, it’s a relatively straightforward space to lay out, and I appreciate that builders with experience get good at visualizing the end results. Even so, I’m made a little nervous by the thought of a possible altered layout existing in Leonard’s head, rather than committed to paper.
Slab decision
Before Leonard can begin, however, the foundation work has to be completed. In addition to the central footing, we’ve decided to replace the substandard basement slab. The demolition work for the footing has revealed the slab is only 2-1/2 inches thick, and was poured directly on top of brown soil, with no intervening moisture barrier or drainage rock between the concrete and the soil — typical of older houses that were never intended to have people living on the bottom level. The brown soil is damp, even at the end of summer after weeks of sunny weather, and in one spot a slender tree root has burrowed beneath the slab, all the way to the center point where we dig the trench for the footing. When we removed the old subfloor, the underlying 2×4 sleepers had numerous sections of rot where they’d been in direct contact with the slab. We could put in a new subfloor with various moisture-blocking attributes, but this approach is second-best because it doesn’t address the fundamental problem of too much moisture immediately below the slab. And reinstalling a subfloor would sacrifice the valuable inches of headroom we’ve gained by taking out the old one. The writing is already on the wall, or the floor, when we get a couple of days of rain, and I discover three inches of water in the bottom of the trench, indicating that the level of the water table during rainy periods is only a couple of feet below the surface. A new basement slab, with a moisture barrier and a good layer of drainage rock beneath, now seems imperative — at least to me.
….We’ve also made a decision about the chimney.
Animal show
We go back and forth several times about whether or not to remove the chimney, or more correctly, the masonry flue, which runs from the slab to the roof at the exact center point of the house. The flue’s sole purpose has been to provide venting for the gas furnace and the gas hot water tank — the house doesn’t have a fireplace. But we no longer need the flue. The new, high efficiency gas furnace will vent through a pipe out the side of the house, and we’ve already switched to a new and bigger electric hot water tank that doesn’t require venting. And the furnace and the tank will no longer be located in the center of the suite, which was a terrible place for them from a layout standpoint. The flue also creates layout headaches, sitting right in the spot where we’d like to have a wide entranceway into an open-concept living room and kitchen. We’d love to have the flue gone, but it’s money we can spend on some other aspect of the renovation. My wife nixes the idea of me doing the demolition myself, and although I’ve been on the roof a couple of times, I’m not overly keen on clambering around up there with bricks. Taking the flue out also means bringing the renovation upstairs to some extent, and regardless of how well we seal up, probably creating a god-awful mess in our living area, which we’d hoped to avoid until later in the project.
(Hot water tank: $580)
….Finally, encouraged by several different people who stress the long-term benefit, and the wasted space represented by an abandoned flue, we decide to accept the short-term pain and start phoning chimney companies. The familiar merry-go-round ensues, with contractors too busy, not interested in a small job, or not returning voicemail messages. We eventually hire a contractor who can’t be there to oversee the work himself, because he’s taking his first vacation in three years, but he’s confident that one of his lead workers can handle what is a straightforward job. I arrange to take a day off work so I can oversee the job.
….In the middle of September, the day for the chimney removal arrives. I’ve already done some preparatory work. In the office, on the main floor of the house, I’ve removed the drywall from two sides of the framing that boxes in the flue, pausing every few minutes to obsessively vacuum up the resulting dust with a HEPA vacuum, convinced that the dust is loaded with asbestos. Cutting the large rectangles of drywall requires going over and over the cuts with a stout Olfa knife, a time-consuming and tiring process. My biceps and shoulders are burning by the time I get each piece out. A saw would be much quicker, but create about ten times the dust. I’ve laid down cardboard to protect the wood floors, and along a runway to the front door. I’ve covered our desks and computers, and a bookcase, with poly, and also sealed off all the nearby doors. I’ve rented a Hilti chipper for breaking the mortar between the bricks, and a fan to vent all the crap that will no doubt be filling the air.
….The doorbell rings and two young guys are on the front porch, raring to go. The lead worker identifies himself, and after a brief consultation and a survey of the job, they get to work. The lead worker has an interesting way of tossing his ladder against the edge of the house roof and running up it almost simultaneously. Then running back down facing forward. A kind of Cirque du Soleil act. I notice his partner — who doesn’t share the lead worker’s lithe physique — is much more deliberate in setting the ladder and mounting it cautiously. They’re both cheerful enough guys, with lots of energy, and talkers. It emerges that the lead worker recruited his partner only a few nights previous, at the Cambie Hotel, a somewhat riotous drinking establishment on the periphery of the Downtown Eastside, with an outdoor patio popular with backpackers and young people traveling on a budget. When his partner is out of earshot, the lead worker tells me his partner was really shaking and gripping the ladder rails hard his first day on the job, both of them three storeys up, in a bit of a breeze, and hungover. “I could see sweat on his forehead! I don’t think he’s used to heights.” The lead worker is from the States, and his partner is from England. The English guy has been in Canada only three weeks, and makes some offhand remark about still needing to get his “hospital insurance” sorted out. They’re already smashing apart the flue, one guy on the roof, the other directly beneath him in the attic, being handed bricks, when it hits me that these two are probably working under the table, probably don’t have the necessary work permits, and if that’s the case, certainly aren’t covered by Workers’ Compensation, which could leave us liable if they have an accident. I’m not sure what to do, but they’re now both in the attic, hammering away with the Hilti chipper and a small sledge, lowering buckets of bricks through the attic hatch, the fan in the office below roaring, doing a reasonable job of venting the grey crud that’s sifting down from above. The thought of calling a halt, based only on suspicion, and setting the reno back a month while lining up another company, is extremely unappealing. Only one of the guys is wearing a mask, and it’s the cheapest and most ineffective type of white dust mask available, virtually useless even if worn properly, and he keeps pulling it aside to talk. I’m wearing a half-mask respirator, and I tell them that I have extra respirators if they want to use them. They initially decline, but after another ten minutes of eating dust from old mortar, which has a strange, slightly sweet, slightly rancid smell, in addition to the grit between the teeth, they take me up on my offer.
….I want these guys off the property as quickly as possible, so I decide to pitch in. My role is to run the wheelbarrow with bricks from the bottom of the front stairs, where they dump their buckets, to the roll-off container at the side of the street — and to check in to the office periodically to make sure they haven’t killed themselves.
….By mid-afternoon the last bricks are knocked apart in the basement and the flue is gone. The two guys have worked hard. Despite the fan, the office is under a layer of powdery mortar dust, like ash. I tell them not to worry about the clean-up, because I know the dust will have gone everywhere and I want it cleaned to my standards, which will probably take just as long as removing the flue.
….As previously arranged with the contractor, I give the lead worker a sealed envelope containing a cheque for the full amount for the job, which the lead worker will deliver to a member of the contractor’s family. The contractor was very specific about sealing the envelope — I’m assuming because he doesn’t want the two workers finding out what a small percentage of the take is theirs. I overhear the lead worker on his cell phone as he arranges to meet the family member, and asks if he and his partner can be given their most recent wages in cash at the meeting.
….We say our goodbyes. After their initial reluctance, the lead worker and his partner found the respirators quite to their liking, so I tell them to keep them. I also tell the English guy that he might want to get that health insurance stuff sorted out sooner rather than later, that if he breaks a leg on the job he could have a problem. They’re both in a good mood, already plotting the evening’s entertainment.
(Chimney removal: $2300)
(Tool rental: $100)
Leonard gets to work
Throughout September, Leonard knocks off some small jobs in advance of the foundation work being completed. He moves the hot water tank from the basement to a shed beneath the back deck. The tank won’t be able to stay in the basement if we’re going to demolish the old slab. At my request, he gets some additional jack posts to strengthen the support either side of the central beam and posts, which will be coming out as part of the structural redesign to satisfy the city’s headroom requirements. He installs a Whirlybird turbine vent in the hole where the masonry flue exited the roof. And together, the two of us go to the building supply store to pick up various materials, including ducting and a vent for our range hood in the main floor kitchen. The range hood had vented into the masonry flue, but with the flue gone we need to install a new vent to get rid of cooking smells.
(Whirlybird, range hood vent supplies: $175)
“This industry’s a nightmare”
The sales rep from the energy retrofit company is meeting with us the same Saturday morning that Leonard is installing the Whirlybird. I’m giving Leonard a hand, and running back and forth between the job outside and the meeting at the kitchen table. With the sales rep, we’re discussing replacing all the junky single-pane aluminum windows in the house with energy-efficient, double-glazed vinyl windows, and also getting new exterior doors, and increasing the attic insulation. My wife and I are not that enamoured of vinyl, but wood windows are three times the cost. And good quality vinyl windows aren’t cheap. The contract price for windows, doors, and insulation is $14,000, and most of that is the windows.
….We’ve had two or three meetings with the sales rep by this point, and our conversations have begun to range more generally over the whole business of renovation, construction, and the Vancouver real estate market. We’ve related our problems over the past year with trying to find and hire contractors, the difficulties of running the project ourselves, the increasing scope of the work. The sales rep relates some tales of woe from his perspective: the difficulty of finding and retaining good people, suppliers not delivering on time, customers changing their minds multiple times, the pressure that the boom is putting on everyone. “This industry’s a nightmare,” he says. It’s mostly my wife having this conversation, as I pop in and out. At one point, the sales rep suggests we should think about hiring a general contractor to manage the entire reno.
….Leonard and I head off to the building supply store. When we get to the ventilation section, Leonard begins loading the cart with duct and fittings that are four inches in diameter. During my research, I think I’ve read that vents for range hoods are supposed to use ducts that are six inches in diameter. I ask Leonard if this is the case. He smiles and looks down, shaking his head, while continuing to pull four-inch duct from the shelf. My alpha traits suddenly reawaken. Implying that I’m a dimwitted homeowner is not a particularly good client relations strategy. However, I’m not certain about the duct sizing, so I let it go. Although I do wonder why the store has so much six-inch duct and fittings sitting on the shelves.
….When I get back to the house my wife is still talking with the sales rep. She announces that we have a possibility for a general contractor. The sales rep has recommended someone, and while I’ve been at the store he offered to phone him and check his availability. My wife agreed and as it turns out, the general contractor is available. I’m not completely comfortable with the way things have transpired, but by this point I’ve accepted that the reno is a much larger project than I’d initially understood. It needs to be managed by someone who can bring the necessary skills, experience, and resources to bear — a general contractor with a crew, and access to the appropriate subtrades. So I’m willing to at least talk to this general contractor.
First meeting
The following week I meet Nick Costa, the general contractor, for the first time. My initial impression is that he’s a good listener. We spend some time looking over the job, and I explain that we already have a contract in place for the foundation work, the energy retrofit work, and a new heating system. I explain the issue with the beam and the required headroom, and the proposed solution. And I tell him we have structural engineering drawings, and the necessary development and building permits. We discuss some of the specific details, and he seems to know his stuff. I also mention that we have a handyman working on the job and that we’d like any general contractor we hire to include him in the plans. Nick says Leonard could “maybe work on deficiencies.” This is the first time I’ve encountered the term ‘deficiencies’ in a construction context.
….When my wife gets home she asks what I thought of Nick. I reply that he seemed pretty good. That we could perhaps ask him for a quote on the remainder of the job. I also want to contact the builder who did a renovation for friends of ours a few years previous. Our friends speak highly of this particular builder, and specifically mentioned that he was honest. You could trust him.
….The one thing we can’t do is do nothing. The days are getting chillier. We need to get the foundation work completed and the furnace installed.
….(Nick Costa is not the general contractor’s real name. For reasons that will become apparent, I’m protecting his identity, and disguising or omitting details that don’t affect the essence of the story. All costs and renovation details are real.)
Take this job and shove it
Now that we’re leaning toward hiring a general contractor, we need to think about how Leonard might be integrated into the ongoing work. At various points I’ve hinted to Leonard that we might bring in someone to manage the process. I’ve realized that Leonard’s one-man operation and working style are probably not a good fit for the size and scope of our reno, but more critically, they’re not a good fit with me. Based on the work Leonard has already done, I know there are going to be conflicts. Leonard will probably consider me picky, if he doesn’t already, and I already consider him too much of a cowboy: casual about the building code and permits, and not sharing my mania for detail. However, we like Leonard, and we admire him for not jacking up his rates to take advantage of desperate homeowners during the boom. He dislikes the gouging he’s seeing, and has chosen not to participate, although he easily could. Perhaps, if a general contractor were to oversee Leonard’s work, everyone could get what they want. But I was forgetting about the power of that alpha male thing.
….The final Saturday in September Leonard calls about something related to the job. I take the opportunity to tell him there’s a strong likelihood we’re going to hire a general contractor, and that we’re currently in discussions with one. I suggest that all of us could meet. Leonard doesn’t say much, his manner non-committal. It’s obvious he’s not happy. My wife winces at me when I get off the phone.
….A couple of hours later my wife is out, and I’m sitting in the house alone, at the computer, when the doorbell rings. I know immediately that it’s Leonard. I open the door and he’s standing on the porch, his face beneath his ballcap stony. He hands me an envelope. “Here’s my invoice.” He hands me the spare keys. “And here’s your keys.” And then he holds a business card in my face — “And here’s my business card that tells you I’m a general contractor too” — before whipping it away and stuffing it in a breast pocket.
….“It’s not right. I turned down other work so I could do your job and now you’re taking it away.”
….“We’re not taking it away. We’re just bringing in someone to manage the process. You don’t have to quit.”
….“You hired me. You didn’t hire me to work for someone else.”
….“Well, think about it. If you change your mind we’re still happy to have you work on the project.”
.“I don’t need to think about it. It’s not right.” Leonard turns his back and walks down the stairs.
….I close the door, a shitty feeling in my stomach. Leonard’s words sting. Although I also know it’s for the best. Leonard and I would have killed each other. My wife is quite upset when I tell her the news, and still feels bad two and a half years later.
….I am who I am. And Leonard is who he is. And my wife is who she is. People are who they are. And much of life is a continuous struggle, overt and covert, among warring personalities.
(Leonard’s invoice: $900)
Quote and contract
Throughout October there is a protracted back and forth with Nick. We ask for a formal quote and are somewhat taken aback by the total price: $122,000. The quote includes the following work required to build the new rental suite: framing, plumbing, gas fitting, wiring, insulating, drywalling, finish carpentry, interior doors, hardwood and tile floors, lighting, new kitchen, bathroom, and laundry (cabinets, tile work, fixtures, and appliances), closet organizers, painting, a stone mantle for a gas fireplace, and blinds throughout the entire house. The quote does not include the foundation work, the new furnace and heating ducts, and the windows and exterior doors, which are contracts we’ve arranged separately. With the exception of the blinds, and extending the plumbing upstairs for a second laundry, the quote doesn’t apply to anything in the upper half of the house, or to anything on the exterior. $122,000, plus GST, for a new rental suite.
….I also speak with the builder who did our friends’ renovation. I tell him how we got his name, and he responds enthusiastically, recounting how much he and his crew enjoyed working for our friends. He’s apologetic when he tells me that he simply can’t take on any more work. He’s completely maxed out. And booking things a year in advance isn’t something he’s comfortable doing. He’s also moving away from basement renos, which aren’t his favourite. From this last piece of information I infer that in this current market builders with good reputations can pick and choose their jobs.
….My wife and I agree that $122,000 is more than we’re willing to spend, and we need to find ways of reducing the cost. The quote doesn’t provide individual item prices, however, making it difficult to know which items to target for cost reduction. As well, nowhere in the quote does it make clear how Nick is calculating his contractor’s fee. We get back to Nick and ask him to break out all item costs individually and indicate how his fee is calculated.
….A few days later Nick drops off a revised quote. He’s shaved off $5,000 from the total price, and provided individual item prices, but there’s still no explicit indication of how his fee is calculated. Is it a percentage? If so, is it applied to just labour, or to both materials and labour? I add up all the individual items in the quote and get a total of $103,000. The revised total price is $117,000, so we assume that the difference, $14,000, which works out to about 13.5% on everything — materials and labour — is the general contracting fee.
….We’re still having a hard time getting our heads around the total price. The individual item costs seem really high, especially the plumbing and the electrical work, at $8,000 and $12,000 respectively. And we’re uncomfortable about the lack of transparency regarding the contracting fee. My wife suggests we contact our builder friend who’s working on the million-dollar renovation in West Vancouver, and ask his opinion. I spend twenty minutes on the phone with him going over the various items in the quote. He agrees that the electrical is on the high side, but he considers the rest of the item prices fairly typical. New construction and renovation have just become very expensive with the real estate and building boom, and with the shortage of skilled labour in the lead-up to the Olympics. He also confirms that a typical general contracting fee is 15% to 17% on everything, labour and materials.
….We go to work on the quote, removing things we can do without (a built-in vacuum, an intercom), can do or purchase ourselves (window and door trim, closet organizers, painting, blinds, bathroom mirror, appliances, final cleaning), or handle under one of the other contracts (gas fitting). We email the revisions to Nick and tell him that we don’t want to spend more than $100,000. A week later he sends back a revised quote and a proposed contract. The total price is now $95,000 plus GST, which we’re more comfortable with, if still not exactly thrilled. However, he’s removed all the individual item prices, and there’s still no indication of how his contracting fee is calculated. I experience a tiny flare-up of anger.
….We tell Nick that the quote, now formalized as part of the contact, must have an individual price breakdown if we’re going to move forward. We also ask for three references. Nick tells us that for a fixed-price contract he doesn’t usually provide a breakdown, but he’s willing to do it. Another week elapses before the next revision of the contract arrives, the individual prices reinstated.
….In the interim, I’ve done some of my semi-frantic early morning research, and learned about ‘holdbacks’. Under British Columbia’s Builders Lien Act, property owners are required to hold back 10% of each progress payment to a general contractor as a pool of contingency money. In the event that the general contractor doesn’t pay one or more of the subcontractors or suppliers on a project, the subcontractors or suppliers can be paid from the holdback fund. If no problems arise, the holdback money is released to the general contractor 55 days after the contract is completed. I’ve also learned about the suggested scheduling of payments, known as ‘draws’, over the course of a project. Most of the sources I find state that an initial deposit paid to a contractor before work commences should be no more than 10% of the total project cost — a figure also corroborated by our builder friend. Nick’s payment schedule calls for a 30% deposit up front ($30,000), 30% after the drywall is completed, 30% upon delivery of the kitchen cabinets, and the final 10% upon completion of the project and passing of the final inspection.
….I don’t like the way the payments are structured, and I especially don’t like the honking big deposit. It all feels too skewed in Nick’s favour. I phone Nick and tell him that the most we’re willing to give him up front is 20%, and that the draws must be smaller and more frequent. And that the final draw must be 20%, not 10%. I ask how he feels about holdbacks and he says that none of his clients has ever required a holdback. Even though I’d like to use holdbacks, I let it go. My feeling is that the 20% final draw provides us with pretty good leverage should the work not be completed to our satisfaction. The contract and quote go back and forth a final time, and version #5 redistributes the payments into five equal amounts of 20% each. Nick also explains that his fee is built in to the individual contract items, and varies somewhat depending on the item, but averages out at around 15%.
While Nick is responsive during the contract negotiation, he is less forthcoming with references. We have to prod him a couple of times before finally getting some names about ten days after we initially ask. One of his references is currently out of the country, although we’re welcome to contact him long-distance. Another owns a high-rise condo on False Creek that Nick’s company has recently renovated, and we can arrange to look at the work. And the third are a couple on the North Shore with a house where Nick’s crew is just wrapping up a medium-sized reno.
….I speak to the husband at the North Shore house. He’s pleased with the overall quality of the work, and praises the carpenter who would also be working on our place. However, he was upset on more than one occasion when the crew went missing in action for days at a time, with no advanced warning, and Nick wasn’t very prompt in returning his phone calls or providing an explanation. He eventually challenged Nick, complained about a lack of professionalism, and the situation improved. Enough so, that he would consider hiring him again. “But you need to keep tabs on him.”
….On the final Saturday in October we go to see the high-rise condo on False Creek. We’d expected to meet the owner, but Nick tells us on our way over that she’s out. We take the elevator to one of the upper floors and Nick takes us in. The place is very nice, the view spectacular. I spend a good amount of time looking closely at the joints in the woodwork, get down and inspect the grout in the kitchen floor tile, look at the finished edges of the drywall around the two-way gas fireplace between the living room and the master bedroom, and scrutinize a number of other small details where sloppy workmanship can become apparent. Everything looks good.
Fateful decision
There’s still the third reference we could contact, but he’s in Europe, and the hassle of the time change, and calling long distance, isn’t that appealing. After leaving the condo, we’re walking with Nick through Home Depot. He’s offered to show us the style of vent he’s recommending for the range hood duct — which I’ve since confirmed is required by code to be six inches in diameter. Four-inch duct is for bathroom vents. “So, what do you think?” he asks, as we cruise the aisles. My wife and I, following behind, look briefly at each other, sort of nod, sort of wobble our heads a bit, sort of shrug a bit, the little micro-manifestations of weighing things, some of which are concrete, and some of which are intangible. The two of us are like the pans either side of old-fashioned scales, dipping back and forth before reaching equilibrium. “Yeah,” I respond. “We’re probably ready to sign.”
….Nick comes to the house the next day and we sit at the kitchen table and sign the contract. We also give him a cheque, written on our home equity line of credit, for the first draw. Before signing the contract, I ask him directly if he’s in danger of maxing himself out by taking on too much work. From my own days working for builders and tradesmen, I know they have to constantly overlap jobs, and have several things on the go, and several more in the pipeline, in order to ensure a steady flow of work and income for their crews and themselves. And the reference I spoke with has indicated this could be a problem area. “No, I’m careful not to take on more than I can handle.” I tell Nick that we understand there may be absences from time to time, but that the important thing is to communicate them in advance, to which he agrees. We talk about the cost, and he agrees that it’s expensive. “That’s what things cost now. The cost of everything is through the roof. Skilled trades are through the roof. But look at what you’re sitting on. You’re sitting on a property that’s probably going to be a million dollars in a few years. That’s the reality of Vancouver now, and the reality of construction and real estate. If you can’t make eighty to a hundred a year in Vancouver right now you’re a loser.” I’m assuming he means eighty to a hundred a year in construction or real estate. Neither my wife nor I make eighty thousand a year, so if he’s speaking more generally, he either assumes we make more money than we do, or the remark is just indiscreet.
(Nick’s first draw: $20,000)
So after a month of negotiation and indecision we sign the contract. Neither of us feels quite right about the decision, but not wrong either. In hindsight, we can see that we rationalized away the feeling in our guts. We put our thumb on one side of the scale. There were a number of warning signs. The general contractor who is available almost immediately in the midst of a huge building boom. The contract numbers that appear and disappear and reappear. The mystery surrounding the contractor’s fee. The attempt to secure a large deposit up front. The long wait for questionable references — one out of the country, one not home (did she even know we were there?), and one with a decidedly mixed report. The focus on money (“eighty to a hundred a year”). But at the time we were less experienced as homeowners, and under pressure to make some kind of a decision. Nick was a convincing talker with confident, reasonable-sounding answers and solutions — suggesting the kind of expertise that we now felt was required. He was affable and easygoing, responsive to our demands, and we were in a bind — no furnace, no insulation in the bottom half of the house, the washer and dryer soon to be disconnected and stored in the garage, the scope of the project spiraling beyond what we could handle ourselves, and contractors of any sort very hard to come by. And in the fall of 2007, after four years of riding the real estate rocket, we’d accumulated $400,000 in equity. Nick’s talk of eventually sitting on a million-dollar property didn’t seem so farfetched. And both figures made the $100,000 price tag for the suite look modest in comparison — or at least manageable. Although as real estate bears will point out, those would be 100,000 real dollars, $100,000 in real debt, as opposed to 400,000 possible future dollars.
Central footing
In early November the concrete contractor is finally available to do the central footing work. In preparation, Dylan, the lead carpenter Nick assigns to our project, and one of Nick’s labourers, remove the posts and the central supporting beam, the floor joists above now held up solely by the two rows of jack posts either side of the trench. The concrete crew brings in a pneumatic jackhammer to break apart the concrete pad that had supported the masonry flue, and excavates the small amount of remaining brown soil to complete the trench. Marco, the lead on the concrete crew, is a little leery of the jack posts, and recommends that we replace them with a couple of temporary 2×4 supporting walls. The additional expense is relatively minor, and somewhat offset by the rent we’ll no longer be paying on the jack posts. Because of the delays in moving the renovation forward, the jack posts have been in place for two months, costing us money. I’d thought we might need them for only a couple of weeks. I realize that using jack posts, instead of building temporary walls at the outset, was a mistake.
(Jack post rental: $500)
The concrete crew builds the temporary walls, then removes the jack posts. They build the form for the footing, and place metal reinforcing bar in accordance with the structural engineering specifications. A couple of days later a concrete truck arrives first thing in the morning and the crew pours the footing. The work goes smoothly and when the forms are stripped we are left with a solid T-footing for a central supporting wall.
(Central footing: $2800)

New footing for central supporting wall, with temporary walls either side
Our first deficiency
Dylan and the labourer return and build the permanent 2×6 supporting wall on top of the new footing, and remove the two temporary supporting walls. The permanent supporting wall includes a ‘flush beam’ to create a seven-foot-wide opening that will eventually serve as the entranceway into the living room and kitchen. The ends of the floor joists at the center of the house now rest on top of the new supporting wall, where formerly they had rested on top of the old beam, or they are attached to the side of the flush beam with joist hangers. The wall looks good when I inspect it after work. The center of the house is now much better supported, and headroom is no longer an issue. Then I see an unpleasant sight: a roll of six-inch-wide sill gasket that Nick dropped off a couple of days previous, sitting in a corner, unused. Sill gasket is a thin, moisture-resistant foam strip required by the building code as a protective membrane between concrete and wood — in this case, between the horizontal bottom plate of the central supporting wall and the top of the footing. The sill gasket prevents any moisture that wicks up through the concrete from entering and eventually rotting the wood. Concrete and wood (unless it’s chemically treated) cannot be allowed to touch. It’s one of the basics of modern wood-frame construction — as I’ve recently learned from my reading. I get down on hands and knees and look closely at the point where the bottom plate meets the footing, working my way along a portion of the new wall, and confirm that indeed there’s no sill gasket between the two. Definitely an Ah, fuck! moment. The temporary walls will have to be rebuilt, and the central supporting wall at least partially disassembled, and the bottom plate lifted, so the sill gasket can be inserted. I phone Nick to give him the bad news. He comes over for a look and is obviously displeased. “They’ll be fixing that on their own time,” he says. Dylan shows up on Saturday and spends half a day making the fix. Our first ‘deficiency’. Not a good start.
Between a rock and a hard place
We now hit a snag. We need to demolish the remainder of the basement slab, and excavate about a foot of soil, to make way for the drainage rock and the new slab. No other work can proceed until the old slab is out and the new slab is in place. For a month I’ve been trying to line up Delmore, the concrete demolition contractor my friend told me about — the one who uses a remote-controlled micro excavator to do the work. Delmore is willing to do the job, has come to the house for a look, and thinks it will take two or three days and cost about $3000. Unfortunately, he’s bogged down on his current job, which keeps growing in scope, and has been complicated by running into a hard, compacted clay layer. Every week I phone him to try to arrange a start date, and every week he tells me that it’s going to be at least another week. I’ve just about given up. Marco and his company aren’t keen to use their precious resources on excavation, although they say they will if they absolutely have to, while at the same time warning us that it might not be the most cost-effective approach. I also talk to the junk removal guy who took away the debris from the demolished sub-floor. He and his sons are willing to demolish and remove the concrete for $4.00 a square foot, but they plan to use sledgehammers. I’ve already tested that method, and I know how slow and labour-intensive it is.
….I discuss the predicament with Nick and he offers to give us a quote for his company to do the work. This job would be an add-on to the existing contract. He tells us that he can probably do it for significantly less than Marco’s company. Nick’s suggestion looks like a solution to a frustrating hold-up, so we tell him to go ahead and put together a quote. A couple of evenings later he comes by the house with the quote. When he drops it on the table we’re both stunned. $11,000. Payable in full upon acceptance, as stipulated by the contract. The remaining floor area to be demolished is about 700 square feet. Removing a foot of soil beneath means an additional 700 cubic feet. I’ve already calculated that it will probably require three 10-yard roll-off containers, a yard being 27 cubic feet. Nick has specified six containers in his quote. He justifies the six loads by telling us that excavated soil tends to fluff up. It does, but not to that extent, or so I feel. Although the excavation is more work than we want to tackle ourselves, it’s not a big job as excavations go. We tell Nick we’ll consider his quote, but that we’ll keep pursuing other options for a few days. There’s no way we’re giving him an additional eleven grand.
….I decide to give Delmore one last try. He tells me his current job is getting close to wrapping up, and he has a window of two or three days the following week in which he could fit our job. However, he’ll need me to assist — specifically, to run the gas-powered track dumper, or “buggy” as he calls it, from the basement to the container while he operates the micro excavator. “No problem,” I tell him, and arrange to take the time off work.
Delmore to the rescue
The following week Delmore rolls up in his flatbed truck and trailer and unloads his machines — the buggy, and the remote-controlled Brokk demolition machine, which runs off electricity from a diesel generator. The Brokk looks like a tiny version of a backhoe, on two rubber tracks. It can be fitted with either a large, pointed breaker, for punching through and breaking apart concrete, or a bucket with teeth for lifting and excavating. Delmore manoeuvres both machines into the basement — the Brokk clearing the doorway by an inch — and we get to work. He tries the bucket first. He thinks the concrete may be thin enough that he can just crack it by bringing the teeth of the bucket down hard, and then lift the concrete in sections, working his way across the slab. Sure enough, this method works perfectly, the concrete coming up like pieces of ice on a pond.

Remote-controlled demolition machine lifting sections of the basement slab
As Delmore predicted, the breaking apart of the concrete goes quickly. What takes time is loading the broken sections of concrete into the buggy, and running the buggy out the door of the basement, around the corner of the house, and down the walkway to the flatbed truck. It takes me a while to get the feel for the buggy, which has two knobbed handles for individually controlling the tracks, a handle for the throttle, and another two smaller handles for raising, lowering, and dumping the load. Once I get comfortable with the buggy, we establish a good work rhythm with Delmore breaking apart the slab, the two of us loading the buggy, and me running the chunks of concrete out to the truck and dumping them. By mid-afternoon the slab is completely broken apart and the truck is fully loaded. There’s more concrete in the slab than the truck can manage in one load, so Delmore calls a halt for the day, and leaves for the concrete recycler with the first load.

The buggy

Getting instructions from Delmore
The next day we load the remainder of the concrete on to the truck and begin excavating the brown soil. The routine is much the same, although I now use a flat shovel to clean up behind the excavating bucket, and instead of dumping chunks of concrete on to the flatbed, I dump loads of brown soil into a roll-off container. This part of the job is a lot more time consuming than the concrete demolition, because of the volume of material requiring excavation, and the capacity of the buggy — the equivalent of three regular wheelbarrows. Moving three wheelbarrows of soil at a time is much better than moving one, but it’s still a lot of trips back and forth. We also have to coordinate with the disposal company to make sure a fresh container arrives at about the time the previous container is getting full.
By the end of the third day we’ve excavated all the soil, with the exception of a narrow band of soil we leave around the shallow perimeter walls as a precaution. The job is complete. We even have some nice-sized boulders for the garden — “dinosaur eggs” that Delmore digs out with the excavator. When Delmore gives us his invoice we’re pleasantly surprised. $2300. The disposal company he uses is also more reasonably priced than the bigger outfit we’d used during the trench and chimney jobs. Nick doesn’t say much when he drops by to look at the results, but I can tell he’s a little taken aback by how quickly we got it done. And perhaps feels a little sheepish when I tell him the price. Delmore is definitely one of the heroes of our renovation saga. And in his own way, Leonard is probably one too.
(Concrete demolition and excavation: $2300)
(Three roll-off containers: $1100)

Delmore’s dinosaur eggs

Episode 7 total: $32,449. Episode 6 total: $32,572. Running total: $65,021. Includes a number of smaller, miscellaneous expenses not listed individually in the episodes – mostly tools, small amounts of materials, and safety supplies.

Next episode
Part 8: “Renovation Nervosa Finale”
Things get much worse before they finally get better.
Financial details

From 2004 onward, all mortgage and LOC balances are as of 31 December of the year in question.
Asking Price: $355,000
Sale Price: $355,000
Down payment: $88,750 (25%, ergo, no CMHC insurance, representing thousands of dollars of additional cost)
Mortgage (at purchase, Sep 2003): $266,250
Terms: 3 year fixed at 4.00%, 18 year amortization, bi-weekly payments
2003 Property Assessment (estimate of market value on July 1, 2002): $260,600
2004 Property Assessment (estimate of market value on July 1, 2003): $330,500
Equity based on assessment: $64,250
Mortgage principal: $247,330
Terms: 3 year fixed at 4.00%, 18 year amortization, bi-weekly payments
2005 Property Assessment (estimate of market value on July 1, 2004): $420,000
Equity based on assessment: $172,670
Mortgage principal: $201,829
Terms: 3 year fixed at 4.00%, 18 year amortization, bi-weekly payments
2006 Property Assessment (estimate of market value on July 1, 2005): $461,000
Equity based on assessment: $259,171
Mortgage principal: $191,884
Terms: 5 year variable at Prime minus .75%, 25 year amortization, bi-weekly payments
HELOC balance: $4,291
HELOC interest rate: variable, at Prime.
2007 Property Assessment (estimate of market value on July 1, 2006): $570,000
Equity based on assessment: $373,825
Mortgage principal: $183,063
Terms: 5 year variable at Prime minus .75%, 25 year amortization, bi-weekly payments
HELOC balance: $49,410
HELOC interest rate: variable, at Prime.
2008 Property Assessment (estimate of market value on July 1, 2007): $639,000
Equity based on assessment: $406,527

“I know three people selling, and all of them admit that this market is going bad, and regret not selling sooner.”

exx at 18 May 2010 2:04 pm

“One of my co-workers listed his Burnaby townhouse at the beginning of this month. All it took was one open house and he received an offer from a couple that absolutely loved the place. Even better, and much to his surprise, they offered him what he was asking (low $300’s). Today he learned they couldn’t get financing…

In ‘08 I only knew one person selling (and he chased the market down until he sold for 20% below list). Today I know 3, and all of them admit that this market is going bad and regret not selling sooner – 2 have priced their properties sharply as a result, the other is counting on a real sucker but is willing to pull the trigger on a big reduction.”

The “New Canadian Diaspora” – Leaving Vancouver; Two More Examples

These two stories at Max Fawcett’s site, in response to his recent account of leaving Vancouver –

Derek 16 May 2010 6:12 am“My wife and I recently left Vancouver, we went to Yellowknife. Born and raised in Vancouver, it was hard to leave at first and people certainly didn’t understand why we would leave “the best city on Earth.” But these people also don’t seem to mind being locked into crippling mortgage debt and maxing out credit cards to eat at grossly overpriced restaurants that now have an additional tax on them. All the while earning less than other, cheaper places. Housing AND cost of living are just too high for the “middle class.” For the first time, we actually feel we are getting ahead in our financial goals. Good luck in your move and welcome to the new Canadian diaspora.”

Jen 17 May 2010 3:31 am – “There were four of us in an approximately 500 square-foot basement suite. It was in a great area, but we knew it was just nuts and could not possible be sustainable. We made the move from Vancouver to Saskatoon about three years ago, and our standard of living has improved immensely. We’ve got a beautiful home (at less that 2x annual household income, natch), we live in a great neighborhood, and we’re able to save, plan for the future, and not continually stress about money.”

“I just spoke with a guy who makes a ton of money in the financial business – north of half a million a year – in Vancouver. “You know this market is insane,” he said, “when my wife and I feel we’re actually priced out of the market. There’s nothing less than one point five that you’d even want to live in.”

How long can market players ignore this kind of anecdote? Couples making >$500K p.a. feeling priced out. The market is clearly insane. The reconciliation will be brutal. -vreaa

Garth Turner at 17 May 2010

“I just spoke with a guy who makes a ton of money in the financial business – north of half a million a year – in Vancouver. “You know this market is insane,” he said, “when my wife and I feel we’re actually priced out of the market. I mean, there’s nothing less than one point five that you’d even want to live in.” So, he rents.”

A Realtor’s Review – “And there is the problem. This Olympic Village, Millennium Water, whatever you want to call it, is completely unaffordable.”

This excerpted from an article by local realtor Will Wertheim at 17 May 2010 2:51 pm

“Today I attended a Realtor review of the Millennium Water development.” … “Mr. Bob Rennie, the King of All Condos, spoke to the crowd. Those who expected a rousing and uplifting speech would be shocked by what he said. It was far more somber, realistic, and tempered with hope rather than wishes.” …  “After the speech we went in groups of twenty to visit the showhomes. … You have a group of realtors, people who sell for a living, people who know their product, and the reactions you get from them will pretty much determine the results. We started in the lowest priced home which was $595k for just about 600 square feet. No view. Reaction? Astonishment at the price. We moved on to another and another. Prices being bandied about were up to 1.X million. Reaction? Astonishment at the gall. We moved into a 2.1m unit and at over $1400/sq.ft. the reaction became muted. It was an impressive suite. We get into the Erickson designed buildings and the prices were $2.Xm and just under $4m, I think. The reaction was much more appreciative. The suites were large and well designed. The views were fantastic and the prices were reflective of the quality and the location. And there is the problem. This Olympic Village, Millennium Water, whatever you want to call it, is completely unaffordable.”

[Note that Will Wertheim finds this development overpriced in terms of the current market, which many of us believe is itself already very, very overpriced. -vreaa]

Whistler – “He told me everything is for sale and pointed out a listing in the the Four Seasons that is a court ordered sale for 250k. These places traded between 450-500k at the peak.”

XXX at 18 May 2010 8:13 am“I talked to the local Whistler realtor I deal with. He told me everything is for sale and pointed out a listing in the the Four Seasons that is a court ordered sale for 250k. These places traded between 450-500k at the peak. There are at least 10 for sale but I only know of one that is court ordered – for now.”

David Rosenberg on ‘The Giant Canadian Housing Sud’

Kudos to the few who are speaking out. Note his reference to fundamentals like price:rent and price:income. -vreaa

From David Rosenberg, Gluskin Sheff, 17 May 2010 daily letter –

Well, that is the message out of Ottawa.
Don’t buy into that. It was Ottawa’s policies, namely allowing near 100% LTV mortgages insured by the CMHC and 40-year mortgages that triggered the bubble to begin with. (Okay — we’ll call it something else: a giant sud). Home prices have surged to record levels relative to incomes or rents so call it whatever you like.
The just-released existing home sales report showed that resale home sales fell 2.6% MoM in April (on a seasonally-adjusted basis) and are down three of the past four months. On a year-over-year basis sales are up 20% partly due to easy comps but this will slow dramatically in the months ahead. Average prices are running at about 12% YoY, slowing from the 20%+ rates seen a few months ago.
New listings continue to rise – up 0.9% MoM and up nearly 30% from year-ago levels. The inventory of unsold homes moved up to 5.3 months (on a seasonally-adjusted basis) to the highest level in almost a year. This higher inventory build is consistent with what we are seeing in the new housing market, where housing starts having been running above household formation rates for about 7 months in a row. All of a sudden, the inventory landscape is beginning to change and we would expect prices to follow suit. Just in time for the Bank of Canada’s rate-hiking cycle too. If you’re a renter, start licking your chops — this is about to become a buyer’s market (hey — CMHC didn’t boost its reserves against default for no reason).”

“A couple in their 50s bought a house in Shaughnessy in 2005 for $2,000,000. It is now listed for $6,800,000.”

The first couple will clear >$4M (tax free) for holding a house for 5 years. This is very likely more than they could save through conventional means through an entire lifetime of hard work, saving, and investing. Such circumstances, where property prices rise at rates that dwarf income and savings, are simply unsustainable. -vreaa

VRENGD at 14 May 2010 12:38 pm “Two sellers that I know personally: One is a couple in their 50s who bought a house in Shaughnessy in 2005 for $2,000,000. It is now listed for $6,800,000 – based upon the list price for similar houses in the area. Another is a couple in their 30’s who bought a small bungalow on Ontario street in 2004 for $450,000. Wanting to list for $1,200,000. This is a 200% increase in five years. It is a similar story for many properties in Vancouver. Prices have risen 200% in five years.”

Field Report From ‘Millennium Water’ – “Vancouver’s Ground Zero For Irrational Exuberance” – “So why, in your opinion, does this place come at a $700,000 premium?”

crashcow at 15 May 2010 6:13 pm

“With the weather so nice today, I decided to checkout my first open house in a long time to get a feel for what’s happening in the trenches. And not just any open house, and entire open village. Little did I know how much of a treat it would end up being. On the way to Millenium Water, I passed by an abnormal quantity of For Sale signs. I kept asking myself how Rennie is going to pull off a 474 condo sale when inventory is exploding and sales are faltering. But soon after I walked into the gates of the Olympic Village, I knew I had stepped into a dream world of magic.

If Vancouver ever had a ground zero for Irrational Exuberance, Millennium Water is it. And if Bob Rennie is ever the King of anything, it’s hype. The man has carefully orchestrated a circus of clowns, bands, tents, treasure hunts and euphoria. When bands are cheering on lined up speculators and the King himself is handing everyone cookies, what is being witnessed is the last “hurrah” of a heavily inflated market. I lined up to view a condo and couldn’t help but overhearing what the herd was chanting. One of my favourites was, “I don’t know if I like this area, but I love the wave pattern on the wall.”

I followed the crowd into a staged 1 bed, 2-den condo at slightly over 1,000 sq. feet. I overheard some lady asking an agent the price and he replied with a straight face: “One-point-three-million.” The lady’s jaw dropped, she shook her head, and moved on. I couldn’t contain myself and had to keep the conversation going.

– Me: “The miracles of record low interest rates. So that’s roughly $1,200 per sq. ft?”
– Agent: “Yes, but I’m also selling units down the street for $500 per sq. ft”
– Me: “So why, in your opinion, does this place come at a $700,000 premium?”
– Agent: “It’s an opportunity to be a part of this famous community and the proximity to the water.”
– Me: “Not only are you asking for an outrageous premium, you’re doing it at a time when there are over 18,000 units on the market, CHMC rules are tightening and mortgage rates are climbing.”
– Agent: “You should then really consider the units we have listed down the street.”

So I followed the yellow brick road down the street and into another Rennie building called “The Maynard’s Block.” And sure enough, studios were priced at half a million. Buy now, or be priced out forever. “

“Five friends with properties on the market since April; No offers; Realtor’s phones quiet for past 2-3 weeks; Low-balling; Sharks smelling blood in the water.”

anonymous at 15 May 2010 10:31 am“I have 5 friends with properties on the market since April. All of them thought that they were investing in an “unsinkable” asset: a house or a condo. You never lose in real estate, right? Only problem is none of these people have gotten offers yet, they’ve held multiple open houses, their properties are well maintained and priced correctly for the market they’re in. Yet, nothing.  The realtors that are honest will tell you that in the past 2-3 weeks, the phones suddenly went quiet. There is still some limited interest in some better-than-average deals, but even there the buyers are REALLY low-balling, because like sharks smelling the blood in the water, they know some people are getting really scared of what will happen after the summer. They are trying to get out of the market as fast as they can, and honestly, I don’t blame them.”

“My friend was looking at $2million newer condos this week and was surprised to see many of these homes sitting empty; no one has ever lived in them. Several of the buildings have only 20% occupancy.”

anonymous at 15 May 2010 12:50 pm“My friend was looking at 2million plus newer condos this week and was so surprised to see many of these homes just sitting empty and no one has ever lived in them. As a matter of fact, several of the buildings have only 20% occupancy. One area is Coal Harbour and also parts of Yaletown.”

“I travel to Hong Kong a fair bit and whenever there is a corruption case in the news I almost reflexively look for a Vancouver real estate angle.”

Impossible to know how much these buyers have contributed to the bubble. All the stories confirm is that at least a few RE sales over the years have been related to ill gotten gains. -vreaa

chip at 13 May 2010 11:41 pm “I travel to Hong Kong a fair bit and whenever there is a corruption case in the news I almost reflexively look for a Vancouver real estate angle. These are some I remember from the last few years:

1) Corrupt cop: “A covert police study obtained by The Asian Pacific Post shows that Hon and his family had bought at least 11 residential and commercial properties and established a dozen companies in Vancouver, including a restaurant on Robson Street.” [6 Feb 2008]

2) Corrupt banker: “Gao Shan has been alleged by China for embezzling $150m from a Bank of China’s small branch in Heilongjiang, where he was the branch manager. Apart from Gao, China believes his accomplice Li Dongzhe (李東哲) also lives in Vancouver. A national arrest warrant was issued against Gao in 2005. However, there was no “Red Notice” issued by the Interpol against Gao.” [11 Apr 2007]

3) More corrupt bankers: “Two Chinese nationals with connections to B.C. are on trial in Nevada this week, accused of bilking the Bank of China of $400 million and blowing it on everything from lavish Las Vegas gambling trips to houses in Richmond. … But U.S. prosecutors allege the trio also stashed some of their ill-gotten gains in Metro Vancouver real estate, specifically three $1-million homes on Udy Road and Mang Road in Richmond.”

A Journalist Leaves Vancouver – Max Fawcett’s Goodbye

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

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

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

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

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

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

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

“My pay has probably risen 5% a year for the last decade but I can’t keep up with this market, and according to the NYT I’m “upper middle class”. Where is all of the fu%&king money coming from?”

It’s borrowed money. Prices will reconcile with incomes. -vreaa

ceejay at 14 May 2010 4:49 am“My pay has probably risen 5% a year for the last decade but I can’t keep up with this market, and according to the NYT I’m “upper middle class”…using Orwellian classification, more like upper-upper middle class….but not in this place. And I am not alone. Or am I , and is it that people value RE possession so much they are readilly willing to impoverish their everyday lives? Where is all of the fu%&king money coming from? We need some kind of ethnographic analysis of buyers to figure this out but that kind of data is simply not being gathered. Statscan, where are you when we need you?”

Local Speculators – “My partner came home last night and was envious that a coworker has recently purchased yet another house. I know several people who are playing this monopoly game, buying several houses as rentals. Some of them make $55k per year and yet have $650k in outstanding mortgages.”

Forget foreign speculators, the real gamblers driving this market absolutely bananas have been the seemingly-innocuous, common-or-garden local buyers who, in addition to their personal residences, have purchased one or more ‘investment’ properties. We have described them as one of the Major Players, ‘Local Investors; Households That Own Two or More Properties’. They are a particularly important group of owners because we anticipate that many will sell their RE investments when the premise for holding them, namely rising prices, disappears. Thus they will sell into price drops, potentially adding to a price cascade. It has been impossible to calculate their exact number, but anecdotes like the following three suggest they make up a significant subgroup. -vreaa

anonymousAA at 12 May 8:44 am“Here’s something I’ve been considering lately, after my partner came home last night and was envious that a coworker has recently purchased yet another house. A “good deal” $750k instead of the list price of $800k or so. This is his oh, 6th house purchase? He’s been playing monopoly, buying more and more houses for the past 20 years or so, so I guess that’s how he finances these rentals (lots of equity-well, the older ones). Another co-worker has also done the same thing, 3 rentals in the last 18 months (though one hasn’t worked out and is sitting vacant at a cost of $2000/month!). I also personally know several people who are playing this monopoly game, buying several houses as rentals. Some people I know make $55k per year and yet have $650k in outstanding mortgages. This must be common, anyone else know people in this situation? And meanwhile my partner moans that we don’t even have one house, let alone six!
How can this end well, when rates go up? Sure, you have a few hundred bucks left over at the end of the month from the rental after paying your VRM, but what about when rates are 5.25%? You can only raise the rent so much.”

space889 at 12 may 2010 9:25 am “I know someone who joined [an RE investment group] in 2008 and within 18 months bought like 3 condos along with $700K+ mortgage, at least 1 condo was in Edmonton, too. Since I don’t know him that well, I didn’t really want to ask him how his investments are doing. He was very excited and trying to get a lot of people involved and start creating wealth together! The good thing about him is that he works for the government with 5 years+ seniority so he’s fairly safe from being laid-off and he gets a guaranteed pension that I think is protected from creditors. Still you have to admit these people’s bravery (regardless of whether you think it’s stupid or not) on taking on so much debt and not being worried about it. That’s guts, man….I wouldn’t be able to sleep well at night if I owed $700K+ and personally liable for it. Ah well, I guess sometimes to make the big money, ignorance of risks helps”.

Rent385 at 12 May 2010 9:44 am – “I also know a few people that have accumulated multiple properties for rental purposes (over the last decade or so). Many of them are not selling right now. They are aware that the market will mellow and interest rates will rise, but somehow, they are going to be fine. One of them (who makes ~$100K) has purchased 3 bungalows, one with a suite, all in the tri-cities area. Even with his income, he must be carrying 600k+ in mortgages. I can’t see him renting the units for >$3500 (total for all three). Is he going to make money? I guess he’s hoping that over the long term RE prices will continue to go up (perhaps with some inflation to help out). If he can keep his mortgages under control (and if there is some inflation) then he’ll probably come out on top.”

Junius added this comment 10:08 am – “I believe this is much more widespread than people in Vancouver commonly acknowledge. When the bloom comes off the market it is these investors looking to exit that will bring prices down fast.” [We agree -ed.]

UPDATE: Additional relevant anecdote:

ibought3 at 13 May 2010 11:49 am“I know a number of friends that bought in the last two months. Two of them earn very average salaries probably around 40-60k, and they have purchased to become landlords. Several are just first time home buyers.”

“Where are these sales coming from? My friend in Coquitlam put his condo up for sale 30 days ago and has only had 3 viewings despite it being the best $/sqft of the 15 other listings available in his complex. His price is being reduced today to make it stand out even more.”

exx at 11 May 2010 3:29 pm “Where are these sales coming from? My friend in Coquitlam put his condo up for sale exactly 30 days ago today and has only had 3 viewings despite it being by far the best $/sqft of the 15 other listings available in his complex. His price is being reduced today to make it stand out even more. He’s very frustrated by the lack of viewings and the huge # of listings he has to compete with.”

“Our property is one of those recent sales. Sold 6.5% over ask. FTB’s or 2ndTB’s looking at current low rates and monthly payments still seem to see value here.”

Purp1 at 11 May 2010 3:43 pm “Our property is one of those recent sales. On the market for one week. 60+ groups at open house, 4 offers, best was 6.5% over ask. Lots of interest in Vancouver for ’starter’ homes priced well which have a mortgage helper. FTB’s or 2ndTB’s looking at current low rates and monthly payments still seem to see value here.”

“He purchased a unit presale, but it was built differently than shown in the plans at the time of purchase. He hoped by protesting that the developer would do the right thing; annul the contract and refund his deposit.”

Bob Arctor 10 May 2010 4:29 pm

“I was riding by the former Olympic village this afternoon, when someone protesting in front of the Millennium Water presentation center caught my eye. He purchased a unit presale, but it was built differently than shown in the plans at the time of purchase. He said he was unable to afford the legal fees to fight the many lawyers Millennium has working for them. He hoped by protesting Millennium would do the right thing; annul the contract and refund his deposit. I suggested going to the media for more attention but he wants to wait a couple weeks before it reaches that point. He let me take some photos of him and his signs.”

Observations During Commutes – “I was on the bus in Port Moody this morning and saw something I hadn’t seen since the peak of ‘08 – so many for sale signs in a low-rise condo that the bottom ones are laying on the sidewalk, and not a single sold sticker.”

Vansanity at 11 May 2010 7:42 pm“I was driving home from UBC today along 12th Ave. One the west side, nothing but vacancy signs, hit the east side, and the for sale signs are everywhere. Crazy stuff! You should all take a drive out there and check it out, beautiful outside this week.”

exx at 11 May 2010 8:55 am“I was on the bus in Port Moody this morning and saw something I hadn’t seen since the peak of ‘08 – so many for sale signs in a low-rise condo that the bottom ones are laying on the sidewalk, and not a single sold sticker. I’m not sure a term was coined for those, but they’re back.”

“I’m getting rid of my pie in the sky, I can’t handle owning in this market.”

rofina at RE Talks 10 May 2010 10:28 pm

“Any recommendations for a sellers agent for Burnaby North? I’m getting rid of my pie in the sky, I can’t handle owning in this market. I sleep better invested in the stock market, rather then being a homeowner in Vancouver, to me thats a sign that I shouldn’t own right now.”

Only 7% of Canadians See Risk Of Housing Price Drops

That figure is very low, and speaks of dangerous complacency. Contrast this with the (clearly minority) opinion of Mark Carney, Governor of Canada, who recently stated that he expects “marked weakness” in Canadian housing for the next 6 quarters. The bull:bear ratio for the Canadian RE market is thus 7 to 1. Last week, Wednesday 5 May 2010, when the US stock market peaked, the ratio for that market was at a historically extreme 3.5 to 1.  Sure, RE is not stocks, but,… you get the idea. -vreaa

Excerpts from ‘Rising mortgage rates, rising trouble’, by Tavia Grant, The Globe and Mail, 10 May 2010

“Canadians across the country believe house prices will rise further. Almost one half of those surveyed, or 49 per cent, expect prices to rise and 44 per cent expect them to remain stable.”

“Almost half a million more mortgage holders would be in trouble if their rates hit 5.25 per cent, a national survey showed Monday.”

“The survey suggested buying activity is slowing. While Canadians are “positive” about the housing market, just 3.4 per cent say they are very likely to buy – “suggesting activity may slow during the remainder of this year.”

“A very large majority of Canadian mortgage borrowers have acted prudently within a challenging housing market,” the report concluded.

[Based on “a biannual report by the Canadian Association of Accredited Mortgage Professionals”,  “compiled from an online survey of 3,000 Canadians, almost 1,800 of whom were home owners with mortgages. The survey was conducted by public-opinion firm Maritz for CAAMP, during April.”]

Liar Loans In Vancouver – “Two people close to me are self employed, and ended up with mortgages more than 10 times their actual income. Stated was 3 times actual. Both were CMHC backed.”

junius at 10 May 2010 9:00 am – [commenting on reports of mortgage fraud in Vancouver] “Even if they were not outright fraud, there were a number of tricks being used to push incomes up and increase access to debt. I saw this clearly with 2 people close to me are self employed who ended up with mortgages more than 10x their actual income (stated was 3 times actual). Both were CMHC backed as well.”

bubbly at VREAA 10 May 2010 9:25 am – “In 2006, a friend talked to a broker at a downtown bank about a loan. Without any hesitation, the broker offered him to “increase” his income by about 50% so that he would qualify. “Nobody will ask”, he said.”

“Both announced their intentions to move out of Vancouver in the next year” – “This city doesn’t want people like us anymore. So I’m listening and leaving.”

Absinthe at 10 May 2010 12:37 pm

“This weekend, I had friends over for drinks and both announced their intentions to move out of Vancouver in the next year. Both are born and bred in Vancouver, but have recently spent time in Ontario. They’ve realized that life does exist East of the Rockies. One of these friends is in the artistic class – working and being paid in her creative profession, but not rolling in cash. Work tends towards feast and famine. The other friend is currently on mat leave, her husband has been recently laid off. My artistic friend said this: “This city doesn’t want people like us anymore. So I’m listening and leaving.” She also is shocked at how lovely the architecture is “even for us impoverished folks” when you venture East”

Vancouver RE Metaphor – Obvious, Yes, But Too Cute To Ignore