Spot The Speculator #1 – Speculation Disguised As Normal Behaviour

The major driving force behind our bubble has not been absence of land, nor wealthy foreigners, nor the effect of the Olympics, nor the beauty of our city. Those factors have been more important indirectly, as stories that have driven local speculators to buy RE with extra-cheap borrowed money, anticipating never-ending price gains. Speculation has been the major engine driving the market. We believe that almost all RE purchases in Vancouver over at least the last 5 years have had a speculative component. By that we mean that the vast majority of buyers would likely not have stepped in to buy, to overbid, to take out massive mortgages, to buy second properties, if they had not believed that RE prices would continue to increase at 10% per annum or more. And that is the very essence of a speculative bubble: buyers paying higher and higher prices that are not related to the actual usefulness of the property, but rather based on the belief that prices will continue to rise. Speculation is as often covert as overt. It comes in various forms. A recent article in the Vancouver Sun, ‘Forecast is cool, but neighbourhood is hot’, by Tracy Sherlock, Vancouver Sun, 2 Jun 2010, tells a story that, on the surface, appears benign, but actually describes housing price speculation disguised as relatively normal behaviour. Spot the speculation. -vreaa

Steve Lott and wife Jan Fricker (with Keegan Lott, 8) are confident they will be able to sell their home near Main Street in Vancouver for nearly $900,000 despite a CREA report that says prices will decline as much as 3.5 per cent through 2011.

“Jan Fricker and her husband Steve Lott are confident they will soon find a buyer for their east-side character house. The house, at 431 E. 37th Ave. and listed for $899,000, is near Main Street, one of Vancouver’s hottest real-estate neighbourhoods. Fricker, 49, and Lott, 55, love the neighbourhood so much they bought an empty lot one block away in 2006 and built their dream home. Since then, they’ve been renting out the 2,400-square-foot 37th Avenue house, which also has a two-bedroom basement suite. They decided to sell the house because it is challenging to carry two mortgages and the market appears strong, Fricker said. Their confidence goes against the Canadian Real Estate Association’s lowered forecast for both sales volume and prices for 2011. Fricker and Lott have yet to have any written offers on their house, which has been listed for three weeks, but they’ve had lots of interest, with 50 or 60 people at each showing. “We’re pretty confident we’ll get it sold,” Lott said. “Land in the city is going to increase no matter what.”
They bought the house in 1996 for $270,000, a price, they say, that reflected the state the house was in at the time. “It was a dump,” Fricker said. “We’ve worked really hard on this house.”

Although both Fricker and Lott grew up in the suburbs — one in North Vancouver, the other in White Rock — a passionate commitment against commuting led them to the city. “We love living in the city. We have only one car and we ride our bikes and take transit. It’s really critical to us to live close enough in so that we can do that,” Fricker said. Fricker works in Yaletown and commutes via bus and the Canada Line, while Lott, who is an elementary school teacher, rides his bike to work.”

16 responses to “Spot The Speculator #1 – Speculation Disguised As Normal Behaviour

  1. They’ll probably sell soon enough. I’m not sure how much work they put into the place but it’s likely less than 600K lol

    It’s the same story as every crash: most will get out relatively unscathed but the pain will be concentrated on a few unlucky souls who will also happen to set the market price. A big problem with bubbles is everyone thinks they were smart when all they were was lucky

  2. Speculation is held within this turd-gem of wisdom by Steve Lott;
    “Lott said. “Land in the city is going to increase no matter what.”

  3. I dunno if I would call these guys speculators. They bought a house to live in back in 1996. They lived there for 10 year, and it sounds like they wanted a nicer house so they bought a lot and built a house. I guess they rented it out for a while because they werent quite ready to move. Now they are moving.

    And just because they think land goes up in value doesnt make it speculation. Technically land does go up in value. Its called inflation. Sure it isnt a straight line, but even if theres a 50% crash, land will eventually get back up to current valuations. It will just take a while.

    The interesting thing I find in this article is

    “a passionate commitment against commuting led them to the city”

    Why is it that everyone who works downtown assumes everyone works downtown?

    When I lived in Burnaby I was talking to a downtown resident and she said “why live in burnaby? You have to commute to work and theres nothing out there.” As if Burnaby is some sort of rural area. I explained that my office is in Burnaby, and I work all over the lower mainland, and rarely have any work downtown. I can also get downtown in 20 minutes with the skytrain.

    I think it took her a few seconds to fathom that I didnt work in one of the many tower of glass like she did.

  4. The speculation is holding the old house for years after moving into the new.

  5. Buying a second house and being challenged by “carrying two mortgages” – suggesting that the Main street place has a mortgage not carried by the rent on the 2 suite home – speaks of assurance that they’ll be able to exit the first?

  6. They basically poured too much money into the old house fixing it up. This is fine if it’s personal consumption (you want a nice house), but when they tried to turn it into an investment property it became cash flow negative. The only reason to hold the property is to speculate on capital gains.

  7. Ahh I was under the impression that they were renting out the new house because they werent ready to move yet. Yeah, keeping the first house for renting is speculation.

    You would think that the rent would cover the mortgage on the first house though, unless they took out an excessive HELOC to make the renovations.

  8. Price drop to $859,000 when I googled the location.

  9. A quick google for Jan Fricker yields her linked in profile which states that she is “VP Managing Director at Blitz Promotion (division of Cossette) “. Congratulations on a brilliant strategy to promote the sale of a house. Steve Lott is apparently a school teacher.

    I guess if you refuse to make the choice to live near where you work, you’re immoral scum.

  10. so much they bought an empty lot one block away in 2006 […] They decided to sell the house […] and the market appears strong […] “Land in the city is going to increase no matter what”

    paradoxical behavior :S

  11. They lost a big opportunity for a tax free capital gain by moving out before selling. The property becomes an investment rather than principle residence subject to tax on the capital gain.

  12. tax maaml thats a great catch

    • It’s only a great catch if Can Rev Agcy picks it up. My bet is they ’round the years’ on their tax returns and they don’t pay the taxes…

  13. Lets update this. Somehow this article is worth watching because of that hmmm factor.
    Days on market – 76
    today’s price – 859K (still)

    Downward trend and only one reduction, I would have guessed a second price reduction by now if they were serious about moving this place. So this must factor into how much is oweing and how much they are carrying when they built the dream house.

    “Fricker and Lott have yet to have any written offers on their house, which has been listed for three weeks, but they’ve had lots of interest, with 50 or 60 people at each showing. “We’re pretty confident we’ll get it sold,”

    exactly 1 month later and it hasn’t moved. This says volumes of what has transpired during the last 60 days in the housing market in Vancouver.

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