Spot The Speculator #17 – “Inability to meet loan payment… The company owns almost 200 pieces of real estate. Many of the B.C. holdings are encumbered by large mortgages.”

From ‘City goes after assets of Games developer’, Globe and Mail, 30 Sep 2010 – “Councillor Geoff Meggs said the inability of developers Peter and Shahram Malek to use other assets they own to meet their loan payment was a “red flag” for the city. … Sources say it’s not clear the exact value is of Millennium’s holdings or of the Maleks personally. That means no one knows at this point whether there is enough security to cover any shortfalls at the village if sales of the residential units never generate enough money to cover the construction loan and the price of the city’s land. … Land records show that the company owns almost 200 pieces of real estate, while Shahram Malek has 15 different properties listed under his name. The Malek family, which ran a construction business in Iran before coming to Canada in the 1980s, also has holdings in Europe and the Middle East. However, many of its B.C. holdings are encumbered by large mortgages and, in some cases, more than one lender is involved.”

Letter From Sweden

Hey! It’s different here. It can’t be different everywhere. … (The commonality is free money.) -vreaa

holgs at vancouvercondo.info 30 Sept 2010 12:40am –
“I sit in Gothenburg, Sweden, still waiting for the bubble here to pop. Nowhere outside of China can compete with Vancouver’s bubble, but it is pretty equivalent to Victoria, at least here in Gothenburg.
Stockholm and Vancouver are pretty similar though, with a 27% increase in condo prices in the past year in Stockholm since the “emergency” interest rates kicked in. I can’t find stats right now but I have heard anecdotes about people buying a small apartment (bostadsrätt) for 4000000:-, or about $610k.
I am Canadian and have been waiting for the global credit bubble to pop since 2004-2005, so a really, really long time. Now sitting here in Sweden where sales and prices still seem to be rising due to many factors, while the bubble finally seems to have popped in my homeland. Aaaaargh!
The problems here are many:
1.) SBAB is a huge government run bank here and is nationalized, and they offer variable rate loans at 1.5% or something ridiculous. (Don’t quote me on the percentage, but it’s really low, basically free, and all other banks need to compete with that)
2.) Nobody here amortizes their mortgages. It’s so passe to do that, why bother as long as house prices are rising?
3.) Prices have been rising here since the mid 90s, nobody in the younger generation even remembers what it was like to have falling prices. Just like Canada, the lessons of 2008 have been very quickly forgotten. The second graph linked here shows inflation adjusted prices over all of Sweden; notice the continual uptrend since 1995. Why would you believe in falling prices?
http://flutetankar.blogspot.co…..tning.html
4.) Due to the EU, Sweden is forced to maintain its interest rates at equivalent rates to the rest of the union, and in this case (as the recession wasn’t as deep here), the rate was far too low to prevent a housing bubble from continuing its rise.)
I have never seen so many brand new Audi’s, BMW’s, and Mercedes’… Was it only two years ago we were all discussing smaller environmentally friendly cars, and how people would be using their cars for longer before buying new ones? I am positive that a majority of these cars are being bought with loans that are now affordable because the variable monthly cost of the house has dropped some 60% from 2 years ago. It is still possible to own here for almost the same amount as renting, but that is only due to the “emergency” interest rates, which you can only get on a VRM and could go back up from 1.5% to 2008’s “normal” 6% faster than most of these people realize, at which point their depreciating beemer will seem more like an anchor.
On a positive note, the rules are changing here on October 1. On that day, there is a maximum “ceiling” on each loan of 85%, so you need 15% down to buy. (As of today, you can buy with 0% down.) I have heard that there are ways around it (ie borrowing the first 15% from another bank at a higher interest rate) but in any case it may be enough of a push to finally kill this market and allow us to place a bid on a place without a bunch of no-savings kids to outbid us by 20%.
I thought it might be interesting for you all to know there is another westernized country in the world where the bubble is still going strong… I pray for it’s death staring October 1, 2010.”

“Here’s the final installment of ‘My Sister is Trying to Sell Her House in Coquitlam.'”

oneangryslav2 at vancouvercondo.info 29 Sep 2010 12:55pm – “Here’s the final installment of ‘My Sister is Trying to Sell Her House in Coquitlam.’
To recap: put it on the market for (now I can be specific) 689K at the end of June, had some looks and a few open houses over the course of about 8 weeks, then lowered the price to 655K in late August. This caused a spike in interest and it was sold about 10 days later for full list.
The new owners? A young, married couple with a newborn, who had sold their old place (townhouse) and had to be out by the end of September, and were in a rush to find a place to buy and move into (like the thought of renting for six months never occurred to them–though, if they purchased the townhouse a few years ago they would have benefited from the rising market and the capital gain upon sale and who wants to be “throwing money away on rent” anyway!).
They will be putting in a kitchen downstairs in order to have a mortgage helper. It’ll be interesting to see what kind of financial shape this young family is in in 2020. As for my sister and her family? Renting, and plan on doing so for about two years.”

‘Under’ Construction – The Mouldy Shoe-Box Knockdowns of 2050-2060

Three houses awaiting completion on the 4700 block of West 11th Avenue.
There is nothing unusual about the ones in the photos, there are dozens of others just like them under construction all over the lower mainland. These three would currently come on the market for about $2.25M each, as per nearby comparables (Point Grey; new; 2500+sqft; 33×122 ft lots).
Concrete basements; almost everything else will be plywood, drywall and stucco. Quite possibly the worst materials for our climate. There’s a good chance they’ll need new roofs before their mortgages are paid off.
Behold the mouldy shoe-box knockdowns of 2050-2060.
As Buffett said, “Price is what you pay, Value is what you get”.  – vreaa
[Thanks to ‘westsidefrank’ for the photos]

scullboy at vancouvercondo.info 28 Sept 2010 6:05am – [in response to an article in the Vancouver Sun 27 Sep 2010 suggesting a need to relax construction rules] “I have lived in most of the provinces (with the exception of the Prairies) and I have to say Van/BC has the worst. buildings. EVER. You can rent nice flats and apartments all over Montreal, some of them date from the early part of the 20th century. The windows may still be single paned glass but the construction is still rock solid. When you walk in to some of the apartment buildings, you can *feel* how solid they are. Maybe it’s because they aren’t made of pressboard, so the acoustics are different… I don’t know. We’ve survived 2 hurricanes in the last 5 years out here in Halifax and except for damage caused by uprooted trees, the region did just fine. Hell even in Toronto most of the units feel solid (though I’m not sure about those buildings at Spadina and Front).BC is the only place I’ve ever lived where it’s common to see those massive rain screens. Homeowners in BC are the only people in the country stupid enough to buy the “it’s different here, we have special housing needs” bullshit.
If anything Van/BC needs TIGHTER restrictions on building. Frankly I don’t hold out much hope that the city/provincial homeowners are bright enough to clue into that. If anything I’d expect the “It’s different here” meme to produce an even more stupid and greedy batch of buyers to accept even shoddier construction.”

Anonymous at vancouvercondo.info 28 Sept 2010 8:22am – “My house in Winnipeg was built in 1910 out of 2×8 redwood… [We lived in it through the 1980’s] …The beams in the basement were so hard you couldn’t drive in a nail. In February, when it was -40 deg. outside we were wearing short sleeves around the house.
Fast forward 20 years in time and 2,000 km in space and here I am in a rackety townhouse built entirely out of 2×4s with almost no insulation, wet and moldy where the lightest gust of wind blows right through it… my bills are double those from frigid Manitoba and we wear hoodies in the house half of the time.”

mflat at vancouvercondo.info 27 Sep 2010 4:48pm – “Took a long walk from downtown to Main & 25th to check out some houses. First up was V840359, listed at $720K. This is a Vancouver Special built on one of the worst bogs in the city. Take a walk down 18th sometime, and have a laugh at all the tilted foundations where neighboring roofs are almost touching due to the house angle. The house listed was like a horror slum on the inside. The worst part of it was the room angles, with sloping floors, and walls/ceilings that felt trapezoidal due to the sunken foundation. No thanks.”

Added:
ulsterman at vancouvercondo.info 28 Sep 2010 8:51pm – “I believe this to be one of the most galling aspects of the insane housing prices on the LM. Not only are they insane to anyone in the world beyond the bubble of the “Playground of the Gods”, but the quality is so pathetically poor.
When my civil/structural engineering dad came to visit me in 2005, he was shocked by the flimsiness of the houses built and being built. I have a distinct memory of helping him cut a hole in the wall of our modest little Irish home – we had a lot of fun (not) drilling through the two layers of brick separated by insulating foam. Our little house – two layers of red brick – solid as a rock 60 years after construction, and yours today for about C$200k in Belfast. And yes, the median income there is the same as the income here. Shocking concept, I know.”

And updated with this contrarian word:
say what? at vancouvercondo.info 28 Sep 2010 11:24pm – “Plywood, OSB, wood in general is structural and has nothing at all to do with building envelope. First step toward eliminating leaky walls: overhangs and sloped roofs! Second step: proper installation of building envelope, especially around windows. Flimsy construction? That plywood provides shear strength primarily, and there are many interior sheeted shear walls, required here by engineers, that you would never seen in a non-earthquake zone. The walls themselves are bolted down to foundation and the successive floors are tied down to foundation using metal straps or rods, all of which was not the case in the past. Softwood lumber is not treated with anything, it is just dried in a kiln. Wet lumber and plywood dries out once under cover, and takes on moisture content proportional to air humidity, and at that moisture content does not deteriorate. Outside walls are required to be 2×6 for greater insulation… the list of things I read that are just wrong or clueless goes on and on.
Before you denounce this post as the rantings of a rabid housing bull whose livelihood depends on the Vancouver real estate ponzi, just take a breath and read the next sentence. Houses here are needlessly complex in design, and drastically overpriced. The market here will eventually fail in dramatic fashion, causing rampant unemployment amongst the hated dependent industries.”

“A buddy of mine on the Island put his home on the market in August…..not a sniff. He is freaking out as he had hoped to ‘move-up’ and is carrying a big monthly mortgage.”

pb at RE Talks 27 Sep 2010 10:25 am – “I have a buddy on the Island. Just finished the renos on his home. Put it on the market in August…..not a sniff. His house is in a very desirable neighbourhood. He is freaking out as he had hoped to move “up” and is carrying a big monthly mortgage. I told him there are still buyers out there, and to be willing to move south with his negotiations in order to dump….
Went to a downtown art show this weekend. Unanimously, the boomer crowd talked of …”stick a fork in it.” This, the same group (many I know) were speaking a different tune a couple years ago…. They were afraid that the CMHC insuring mortgages may have been the biggest mistake ever….they were afraid that in a severe RE downturn it wasn’t fair that taxpayers should have to bail out negligent buyers…”

Avoiding Vancouver – “You know how many people I know who have moved out of the ‘Best Place On Earth?’ People who make their money here, and try to be SFH owners, are fighting an invisible force. It is like head-tax for the right to be here.”

unicas on RE Talks 27 Sep 2010 at 5:44pm – “You know how many people I know who have moved out of the ‘Best place on earth’? My clients, my tenants, my former co-workers and others. To Kelowna, Alberta, Ontario, the U.S. In fact, in the past one and half year, I have 4 tenants, young ones, quit the lower mainland.
I never bash a person who rents in Vancouver. If I were to start over again knowing what I know today, I wouldn’t choose to stay here. A million dollars is a lot of money in most places, for that here you can hardly buy a decent shelter to sleep.
For people who make their money here and try to be SFH owners, without help of family, they are fighting an invisible force most people in North America don’t ever have to deal with. It is like head-tax for the right to be here. For those young and with transferable skills, to move away is not a bad thing. you dont lose much except the best place on earth tag on your door.”

“I bought a new single detached house in Markham, Ontario, after leaving Vancouver 2 months ago.”

LY at vancouvercondo.info 27 Sep 2010 2:43pm – “I bought a new single detached house 2900 sq ft lot size [likely larger? – ed.] in Markham, Toronto after leaving Vancouver 2 months ago. I know it is not the time to buy but my kids are growing up and my cash is just earning 1% in the bank. I wrote just to show how super-bubbly Vancouver housing price are compared to bubbly Toronto.
I bought the new house for $489,000 with builder absorbing the HST, plus $15,000 upgrade (granite, hardwood first/second floor) this month.
It is a 3 bedroom with den, 3 bath, with basement, single garage plus a yard. Location is around good top rank schools. Markham is like Richmond or Coquitlam in Vancouver.
I rented in Richmond BC for 5 years and I couldn’t buy any old single detached house of that lot size even in Coquitlam near the mall. I could have only bought a shoebox-size 10 years or older townhouse, or an overpriced condo. So I left Vancouver for Toronto and it was a good decision. If housing prices are to crash next year, Vancouver would be the epicenter of the that disaster.”

RBC On Vancouver: “Red Flag Raised”, “Most At Risk”, “Situation Closest To A Housing Bubble In The Country”, “Vulnerable”

This is probably as close as a large bank’s senior economist can possibly come to saying that they foresee a Vancouver RE market crash. The first two charts clearly show how Vancouver and BC are far above their average historical housing price affordability levels. This despite emergency low rates. All Canadian housing markets will suffer as rates rise, but Vancouver will be particularly hard hit. We don’t even need rates to rise for the market to implode, but rising rates will certainly hurry the demise. -vreaa

Excerpts and charts from Royal Bank of Canada ‘Housing Trends And Affordability’ report, Sep 2010, by RBC senior economist Robert Hogue [pdf, G&M article]:

“The cost of homeownership continued to climb across Canada in the second quarter of this year.”

“In B.C. in the second quarter, either very weak price gains or small declines were registered depending on the housing type, yet affordability deteriorated quite significantly again, reflecting the B.C. market’s particular sensitivity to changes in mortgage rates. …  Elevated property values amplify the increase in monthly mortgage charges relative to income when interest rates rise.”  …  “We project the overnight rate will continue to rise during the next 12 to 18 months, and this will eventually have a more sustained upward effect on mortgage rates, undermining affordability [further].”

“Very poor affordability is likely to restrain demand in the period ahead.”

“In Vancouver, Canada’s most expensive market, RBC Housing Affordability Measures are very close to their all-time high, which points to significant underlying stress and raises a red flag.”

“In various rankings of housing markets in Canada, the Vancouver area often comes out on top. These rankings include the highest valued residential properties, fastest rising prices during last year’s rebound and highest homeownership costs relative to household income. Vancouver is also making the top of another list – the most at risk. In the second quarter, already extremely poor affordability deteriorated once more. … Generally, we have dismissed the case of housing market bubbles in Canada, but the situation in Vancouver is probably the closest to one in the country. Poor affordability likely contributed to the steep drop in housing resales since the start of this year in the area (although other factors have probably dominated). While the Vancouver market is clearly vulnerable to a price correction, this does not imply that a collapse is imminent because supply (both in the existing and new home sides of the market) is well contained at this point.”

—

In the trenches, however, the banks keep peddling cheap money:

pricedoutfornow at vancouvercondo.info 27 Sep 2010 2:10pm – “Called the bank to cash out a GIC (tired of earning 1% interest, might invest in something else) and the cheery woman asked me “Are you tired of paying rent? We have the lowest mortgage rates in all of Canada! We want all our customers to take advantage of these rates!” I declined. I’d rather not be taken advantage of with these high housing prices.”

metalhead at RE Talks 27 Sep 2010 10:02am – “I went into the bank with my youngest kid to help open up an account for him. When we were done with him the bank broad punches up my info and asks if she can help with any loans or mortgages etc. She sees I’m debt free with a bit of money in the bank.
“Maybe you want to buy another property?” She bats her eyes. “We can help?”
No thanks, I’m good right now I tell her.
“Yes, I can see that she says. Most of our customers are living cheque to cheque and I can see that is not the way for you. Well, keep us in mind when you want a loan or mortgage.”

“I’m in the financial industry. People are one or two paycheques or missed mortgage payments away from real disaster. I think that bankruptcies will unfortunately become commonplace.”

anonymous1 at VREAA 25 Sep 2010 6:09pm – “Unfortunately I think that bankruptcies will become commonplace. A couple distant relations of mine just filed for bankruptcy, apparently. They are under 30 and bought a condo in the valley a few years ago. Along with huge consumer debt, I guess they just couldn’t handle it (their family income is in the range of 60-70k per year, I would guess).
And this is just the tip of the iceberg. I can count enough people on both hands who are one or two paycheques or missed mortgage payments away from real disaster. And that’s from a group of about 200 people (I’m in the financial industry therefore have specific financial information about these people)…and if that’s all the people I am aware of (wide range of ages, incomes etc) there must be many, many more.”

Coldwell Banker Four-Bedroom, Two-Bathroom Analysis – “Metro Vancouver Startlingly Expensive”

The Vancouver Sun [24 Sep 2010] mentions a report conducted by Coldwell Banker of average prices of four-bedroom, two-bathroom homes across Canada. Metro Vancouver is described in the Sun article as “startlingly expensive” when compared to other areas.

Average prices of four-bedroom, two-bathroom homes:
Metro Vancouver $1,300,000
Kelowna $916,697
Calgary $551,920
Metro Toronto $495,398
Saskatoon $484,000
Winnipeg $343,160
Moncton, NB $201,522
Windsor, ON $158,242

“Looking at the pricing of four-bedroom homes across North America, there are some incredible opportunities in U.S. property right now. Canadians who may be thinking of buying property south of the border will find there are a great many options available to them in price ranges not seen here in Canada.” – John Geha, president of Coldwell Banker Canada Operations

US examples (the most expensive markets in each of these states):
WASHINGTON Bellevue $702,048
FLORIDA Key West $643,333
OREGON Portland $417,395
TEXAS Austin $297,890

International examples:
Shanghai  $1,494,072
Rome $1,384,810
Venice $935,433 [running out of land!]
Athens $808,750
Amsterdam $640,830
Dublin $565,775
Istanbul $520,000
Sydney $452,987

Name That Renter

Who rents this house? Where?

Answer: Billionaire founder of facebook, Mark Zuckerberg, rents this house in Palo Alto. LINK

Westside Examples – Disappearing Buyer; Buyer at 16%-Off Ask

4056 10th Ave West; 2,627 sqft; 33×122 lot; Point Grey
MLS V835451, Listed 4 Jun 2010 for $1.798M; registered Sold 20 Jun 2010, $1.798M but then MLS V851685, Listed for sale 22 Sep 2010 for $1.798M
Either a sale that didn’t close or a cold-feet flip.

3042 33rd Ave West; 2,489 sqft; 50×133 lot; Dunbar
MLS V833913, Listed 28 May 2010 for $1.638M; Ask price dropped to $1.580 Jun 22; then to $1.550M; then taken off market 31 Aug 2010.
MLS V848192, Returned to market the same day, 31 Aug 2010, with Ask $1.499M; sold 19 Sep 2010 $1.370M
Steady price drop to meet a buyer, any buyer.
Sale price 16% off the original ask. Still overpriced by a factor of about 2.

Chilliwack – “He has it listed for less than he paid 3 years ago. He also did quite a bit of reno’s. No interest. He’s facing bankruptcy.”

metalhead at RE Talks 24 Sep 2010 5:06am – “The neighbour’s kid fell on some bad times and is having to sell his house in Chilliwack. He has it listed for less than he paid 3 years ago. He also did quite a bit of reno’s. No interest. He’s facing bankruptcy.”

Chilliwack stats from creastats.crea.ca –
“Residential sales totalled 145 units in August, down 29 per cent on a year-over-year basis. The average price of home sales in August was $263,596, down 15 per cent from one year earlier. However, the large decline may well prove a temporary aberration due to an outsized 81 per cent year-over-year decline in sales priced from $400,000 to $500,000 in August. The combined dollar value of home sales in August 2010 totalled $38.2 million, 40 per cent below the dollar volume reported in August 2009.”

“I went into a meeting for a big real estate project earlier this week. Seasoned Fraser Valley realtors looked stricken when they talked about how July & August went.”

vomitingdog at vancouvercondo.info 23 Sep 2010 11:13am – “I went into a meeting for a big real estate project earlier this week. At the table were very seasoned Fraser Valley realtors. They looked stricken when they talked about how July & August went. Like it was the worst two months of their careers or something. But why would seasoned realtors freak at a slow summer? Something doesn’t add up. Lots of jokes flying around the table about the death of real estate in the US. Then upbeat talking about ‘thank god it’s not like that here’, and then back to these sullen stares at each other over how slow the summer was. Deep down they know that the Fraser Valley could end up just like the US–in the doldrums for years.”

The Noose Tightens – Surrey Condos at 35%-off 2006 Presale Prices; Victoria Worst Sept Sales in 10 years… by 40%

Concentric rings of contraction. Ground Zero = Westside Vancouver. – vreaa

From ‘Hot-market’ pitch disputed, by Tracy Holmes, Peace Arch News, bclocalnews.com 22 Sep 2010 [hat-tip to Fozziebear at RETalks]-

A South Surrey developer “cornered” into offloading unsold inventory at below-market prices says consumers are being misled to believe the housing market is stronger than it really is. “In contrast to this situation, which is clearly indicative of a sagging market, realtors… are blogging about how ‘hot’ the market is,” reads a statement issued Monday by Watermark Developments. “Some realtors are putting the wrong perception out there,” explained Salome Sallehy, hired to help facilitate a sale this weekend at Watermark’s 2970 King George Blvd. project. “Inventory is just not moving because the market isn’t willing to bear those prices. Developers aren’t really acknowledging that.” Watermark will offer 37 units for sale at noon Saturday, with prices ranging from $199,000 to about $320,000. The one- and two-bedroom units have sat empty since construction finished a year ago, and comprise almost half of the development, Sallehy said. The prices represent a discount of about 35 per cent off of what the units were sold for during pre-sales in 2006, Sallehy said.

While Greater Vancouver Home Builders’ Association’s Peter Simpson acknowledges the market isn’t as strong as it had been in recent years, housing starts are double what they were a year ago, he said. “I’ve got a laundry list of developers that are launching new projects this fall. They’ve got a lot of confidence in the market,” Simpson said.

—

And, this from House Hunt Victoria, 22 Sep 2010 –Victoria is on track for the worst September sales in more than 10 years, so weak that they’ll be about 40% below Sep 2008:

[chart from househuntvictoria]

Flaherty Removes The Housing Put? – “I, for one, am not particularly concerned about the softening we’ve seen in some markets in Canada in residential real estate.”

Jim Flaherty, Canada’s Federal Finance Minister, as quoted in the Calgary Herald 17 Sep 2010 –

“I, for one, am not particularly concerned about the softening we’ve seen in some markets in Canada in residential real estate,” Flaherty told reporters, noting that Ottawa has twice tightened mortgage rules.
The most recent changes, which took effect in April, made it more difficult for some Canadians to qualify for a mortgage.
“This is entirely intentional, to tighten the market, so that we avoid the excesses that we’ve seen in other countries,” Flaherty said. “If we have to do more, we’ll do more.”

[Do comments like these make market participants less likely to expect bailouts and thus more likely to be cautious? Will this help to subdue sentiment in the housing market? We welcome this kind of government inattention. Let the market now proceed to find its own equilibrium, as justified by fundamentals. -vreaa]

Overextended Owners – “There are now three housewives commiserating about how they don’t know how much longer they can hold on.”

buffates at vancouvercondo.info 21 Sep 2010 10:24am – “A while ago [4 May 2010] I posted about my wife’s friend who confessed that she was crying every night about their home budget and how the house was killing them. Well, apparently she found some company. There are now three housewives commiserating about how they don’t know how much longer they can hold on. This is the case and two of those families have a tenant! Roof, furnace, plumbing, tenant vacancy. Any of these very common issues would bury these people. Did I mention they already have a line of credit and credit cards maxed out?”

Collapsing Periphery – “I listed land at 20% below tax assessment 6 months ago. There have been no viewings. My real estate guy tells me that August in our town normally has 33 house sales. This year there were three. It’s freaking ugly out there.”

slavador 15 Sept 2010 00:10:25, in the comments section of Mish’s globaleconomicanalysis.blogspot.com post ‘59% of Canadians Live Paycheque-to-Paycheque’ 14 Sept 2010 – “After 8 months of no work, contracts have finally restarted! Since I do not qualify for any sort of employment insurance it was a mad scramble for cash. Here’s a few observations:
I ran crews in the forest for a friend for a couple of months. The rates were 1/2 that of other years and there was 1/2 the work. The phone rang day and night with folks desperate for work. In a normal year a 20 year old kid fearless enough to run with a chainsaw full throttle all day could make $300/day. This year it was more like $150/day and there were way more tough young lads than trees to cut.
I sold logs from my lands for a couple of months. Loads of cedar went for $3000 that went for $6000 two years ago. Idle self loading logging trucks were available at all times. Finding buyers was a bitch.
Neighbour with mill had 3 truck loads of cedar products stolen by a shady buyer at the US border. The trouble is that shady buyers are presently the only buyers! He is now running a saw in the bush like the rest of us…
In between I cut firewood. 1 cord split/dry fir is going for $125. In the past it was $200. Lots of guys are in the woods this year – many yards are full of wood.
I listed land at 20% below tax assessment 6 months ago – there has been no viewings. My real estate guy tells me that August in our town normally has 33 house sales. This year there were three and they were all bank foreclosures!!
I’m doing a mid-price (16k) wedding for my daughter in the regional nice hotel in a couple of weeks. We are their only booking for October -normally they have 6-7.
I do not know where the “recession is ended” crap is coming from – certainly not the North Okanagan in British Columbia Canada! Paycheck to paycheck Ha Ha Ha. How about cash job to cash job. With these contracts, I am pleased to be returning to my middle class life, but have great concern for the financial of my neighbours as its freaking ugly out there.”

Snapshot From Vancouver’s Future? – “The remaining three condos will now fetch him only 67K each, and only one is currently rented. He paid over 200K each.”

The last time we published a snapshot from the future, we playfully disguised it as history. This time, we’ll declare up front that we’re simply guesstimating that scenarios like the one below will play out in Vancouver:

Doggystyle at RE Talks, 29 Aug 2010 8:48pm writes – “My long time friend in Florida, a part time real estate investor, call me last night to sadly inform me that he has lost his six figure job of 20 years. He is 46.
Here’s the story:
Owned six condos and a townhouse, was able to rent all of them [in the past], except the townhouse which is his principal residence. Sold two condos in late 2008 at a loss but not so significant. The remaining three condo will now fetch him only 67K each, and only one is currently rented. He paid over 200K each. His realtor told him that his town house might just be sold for to cover what he owes. He is living there for the last 10 years. The only rented condo [is negative cash flow and] requires $10,000 per year on top of the rent. Then the conversation turn into words of encouragement and my own stories of losses and failures and finally ended with blaming Bush and Obama for all the mess.”

RE Buyer Line-Up Spotted Out Of Season – “Here’s a picture from Aberdeen Centre today. Buyer’s market indeed!”

Note and photo from jesse1 at RE Talks 19 Sep 2010 4:03pm – “While I am bearish on commercial real estate, I’m also a pedant for fair and balanced reporting. Here’s a picture from Aberdeen Centre today. Buyer’s market indeed!”

Spot The Speculator #16 – “Panic has set in and she has changed her tune dramatically. They are still carrying both homes and there seems to be zero interest in the one they are trying to sell.”

From ‘the commenter formerly known as…’ at greaterfool.ca 18 Sep 2010 11:41 am – “My wife started telling me about a women from her work in Surrey. This woman and her hubby (a Realtor) bought a new home recently for over a million bucks. She came to work bragging like a male peacock spreading its colourful tail feathers. Problem: They never sold the other home before they bought this one. Now, months later, panic has set in and she has changed her tune dramatically (signs of outward stress). They are still carrying both homes and there seems to be zero interest in the one they are trying to sell.”

HST Fit – “I am so pissed, I cannot put my thoughts into words.”

“I am so pissed, I cannot put my thoughts into words.” – Bob Rennie, Vancouver condo marketer, on the marketing uncertainty generated by Premier Gordon Campbell’s announcement this week that the HST would go to a referendum on Sept. 24, 2011 [Globe and Mail, 16 Sep 2010].

Remember when Bob Rennie was un-pissed enough to put his thoughts into these words: “EVERYTHING IS GOING TO BE ALRIGHT” ? That was back in Sept 2009 when markets were storming back and Vancouver RE looked bullet-proof:

Rennie is trying to sell lots of condos, including >400 in the Olympic Village, in the face of a stalling RE market.

When bubbles burst, people re-write history; they retrospectively come up with ’causes’ for an implosion. They do this because it’s far easier for them to tell themselves that something extraneous, something unpredictable, caused a crash, rather than to admit that they were foolish enough to not recognize a classic and irrational market bubble that had been staring them in the face for years. They’d rather see themselves as surprised than gullible. (And, even better, indignantly blame somebody else at the same time.) Witness locals who now preach that our housing price drop in 2008-2009 was caused by the Sept-Nov 2008 global economic meltdown. [It wasn’t – The Vancouver housing market topped in the summer of 2008, months BEFORE the financial meltdown. Perversely, the global free-money emergency financial bailout RESCUED our RE market… Temporarily, anyway.]

Bubbles don’t need ANYTHING to pop them, they eventually, always, inevitably, collapse under their own weight, as ours is now proceeding to do. Like forest fires, they roar deliriously, then run out of fuel.

The HST is serving as a very convenient scapegoat for current poor sales, and it’s a fair bet that it’ll be pointed to in future as something that brought down the market. But in the grand scheme of things it’s essentially irrelevant. The real problem for this debt-fueled speculative-bubble market is in its very fabric, and that flaw is way, way bigger than the HST.

When Your Landlord Decides To Sell – “We gave our notice and split. The place is still on the market 4 months later and the building manager says it has been shown maybe 5 times.”

Ralph Kramden at VREAA 16 Sep 2010 9:14 pm – “The place we used to live in is owned by an American. They listed it at a price that was stupidly high, and they had the nerve to say “stay awhile, we have your life upended for tours of eager buyers”. We gave our notice and split. The place is still on the market 4 months later and the building manager says it has been shown maybe 5 times. This is a million dollar condo. Now I noticed that a new agent is listing the place. No reduction in price, but the agent looks like a rookie. Maybe the smart managers are steering sales to guys that can close and the dogs go to the rookies. The whole market is upside down and will be carnage for people who bought in the last few years. I am so glad I sold out two years ago.”

Happy Bulls

Thompson at RE Talks 15 Sep 2010 12;28 pm – “I bought a property in Abbotsford at peak in 1994, price didn’t double until 2006, but so what? Two more year didn’t kill me. If someone bought his property in 1982, it wasn’t the end of world, as long as he can hold it, live with it, $180k house in 1982 is $1m today. If he or she can manage buying two or more properties in all those 30 years, he can still beat [the modest returns of RE bears].”

eyesthebye at RE Talks 16 Sep 2010 11:02 am – “I can easily afford the debt with my income – and I’m a lot richer now than when I bought the house [early 2009], 3x as well off to be exact. And so long as the population of GV is growing I’ll be adding more and more equity wealth on the backs of bears’ missed opportunities.”

Kitsilano House Nominal Return Over 33 Years – 0%

rmac at VREAA 16 Sep 2010 7:57pm – “I grew up in Kitsilano, in a house built in 1913 on West 7th. The block was comprised of sets of identical houses, 2 of each style. My parents bought the house in 1946, just after the war when prices were heating up – they paid $3,000 for it (25′ lot). We researched the history of the house and it turned out that these houses sold for $3,000 new, back in 1913, so I think that story about real estate doubling every ten years has just been proven false.”

“And for the last year and a half she’s basically been yelling at me, saying that she’s missed out on some good locations because I’ve been telling her to wait.”

itsonlymoney at RE Talks 15 Sept 2010 1:16pm – “So for the last, I’d say, year, year and a half, I’ve been telling my sister just wait..wait..wait before you buy, because there’s going to be price corrections. And for the last year and a half she’s basically been yelling at me, saying that she’s missed out on some good locations because I’ve been telling her to wait. My thought is there’s going to be a big price correction, but I’ll be damned, this stubborn market keeps chugging away year after year, so who knows? With that being said, my sister is now interested in purchasing at the new Uptown development by Concord Pacific (Kingsway & 12th). Its advertising as nearly all units below $350,000.”

Realtors and RE Investors Deciding To Sell – “Our realtor expects a major (20%-30%) price adjustment over the next year or two.”

myme22 [aka Sege Merckx & Brigette Myaux; Brise Investments Ltd] at myreinspace.com (a Real Estate Investor Network forum) 29 May 2010 10:16 pm [note MAY 2010 date] – “I just had a very relevant conversation with our realtor in Squamish, who is on of the top realtors here locally, but also works with the North Van office.  He currently has our house listed, and has listed his own residence as well (that should say something). In a nutshell, he expects a major (20%-30%) price adjustment over the next year or two.
As for the sale of our place in Squamish, we have now had it listed for 3 mos, and haven’t had any recent offers (the last 2 were about a month ago and fell through because they couldn’t get the financing). We did get a couple of showings, although that’s way fewer than before we dropped the price about 2 weeks ago…(!?)
I just had a really interesting strategy talk with our realtor, and he has already lowered the price on his own house twice within a month! He went on to tell me they are at the highest # of (new) listings in 7yrs in their NVan office, and the lowest # of sales in about 3yrs. A week ago, his assistant had shared with me the fact that her collegues in their team had had a bit of a jolt when they reviewed their weekly stats, which showed 37 new listings (in Squamish), with only 2 sales! Not surprisingly, he confirmed that prices have started to come down in general in Squamish.
There definitely seems to be smoke on the horizon, and I think we will now pretty soon start smelling it too…  I am not looking forward to it…”

The Vancouver Mark… [aka Bruce McCoubrey, The Residential Group Realty, Vancouver] at myreinspace.com 7 Sep 2010 9.57 pm & 13 Sep 2010 6.16pm – “Sell. Price sharp. Don’t overprice or you’ll lose money everyday it sits. … The next 12 months seem like deal territory to me. I am selling my current home and planning to rent for a year or more to see what happens to prices.“

“Major realty companies are handing high-end listing to agents that have no experience and no history of sales. I suspect the senior “star” agents know there is not a hope in hell of selling these places.”

Strataman at vancouvercondo.info 12 Sep 2010 12:58pm – “I have noticed a number of high end (1.2 to 2.5M) False Creek North suites in buildings I work in (thus I am somewhat familiar with typical residents) being listed by mainland Chinese who visited briefly, bought in the last two years, and never came back. These are generally penthouses and I am exposed to them as a lot of building equipment is also at Penthouse level.
What is interesting is I am finding major realty companies are handing the listing to agents that have no experience and no history of sales. This is a big change because I always used to meet the firms’ “star” agents. This got me to wondering why this would be. My theory…. the senior “star” agents know there is not a hope in hell of selling these places (several are 6 month plus listings), so don’t waste their time, [which is] better [spent] moving a couple of $300K units to the last suckers.”

‘Bubble’ Redefined – “They’re saying a “bubble” is about to burst. It makes me laugh… Every decade there is two, sometimes even three bubbles… Every decade, real estate doubles… that’s the point of this exercise.”

Pierre Marchildon, of Marchildon Property Investment Partners, posted a video commentary, ‘The Vancouver Real Estate “Bubble”, on youtube 7 Sep 2010 –

Excerpts:
“Today I want to talk to you about what’s happening in the Vancouver market, though it’s happening in every market all over the world. And it’s where the media… because they need news and they need something to talk about… sometimes things are really boring so they need to create some juicy stories… and, right now, because real estate prices in Vancouver, like in most cities across Canada, have climbed, in the last little while, they’re saying there’s a “bubble”… a “bubble” is about to burst… and it makes me laugh, because I have friends calling me and saying, “Hey, what do you think of this? The bubble is going to burst!”, and they want to sell their home, or rent..and you know, they’re not sure what to do… and I say that saying that “the bubble is going to burst” is like saying it’s going to rain soon and snow in a few months… well, yes, it’s called “winter”, it happens every year”  … “Real estate has its seasons as well..”
“Today I’m going to show you… every decade there is bubbles… there is two, sometimes even three bubbles every decade…”

[Then proceeds to show on chart how average price of a Vancouver SFH doubled 1977-1987, 1987-1997, and 1997-2007]

“I know what you’re thinking… “I should have bought ten back then [1977]” …

“A bubble is when there is a major dramatic drop… but you can see there is a bunch of ups and downs on their way up. Every decade, real estate doubles… that’s the point of this exercise.”

“Don’t try to time the market.”

Video:

“Great Westside starter home” – Asking Price $1,049,000

4579 Blenheim St (Dunbar area); 1,692 sqft; 33×108 ft lot; built 1931
MLS V847287; Listed 23 Aug $1,098,000; Ask price reduced 13 Sep 2010 $1,049,000

“Great Westside starter home in central Dunbar location. … Lots of potential here as a family home, investment property, or lot to build on.”

Complacent Vendors – “They tell me that they have not lowered the price because the market will come back soon and lowering the price would be throwing money away.”

SethM (aka Greenhorn) at RE Talks 14 Sep 2010 8.17am – “In my neighborhood, there are several houses for sale. They have been on the market for months with no offers. They have taken the properties off of the market, put them back on the market, and changed realtors. They have done everything but lower the price. In talking with these vendors, they tell me that they have not lowered the price because the market will come back soon and lowering the price would be throwing money away. I know some of these vendors who have lived in their homes for 10 years have doubled their money. Still, they won’t budge one penny on price.
In 2008, prices fell 28% in only 10 weeks. Vendors who discounted prices regretted this strategy only 2 months later.”

[SethM makes an excellent point. Market participants are most strongly influenced by market action of the recent past. Prices may be ‘sticky’ right now, but they will certainly follow sales action downwards.  And when prices do make their way down to 2008-2009 trough levels, some buyers will step in, mindful of the 2009 rebound. Thus we may see a bounce from that area, as discussed in the TA post [11 Sep 2010]. But when those support levels are eventually breached to the downside, we will see precipitous drops as a majority of market players simultaneously realize that the bubble wasn’t ‘make-believe’. -vreaa]

Richmond Rental On craigslist – 900 sqft; Rent $1580 and falling

From craigslist 9 Sept 2010 9:45am PDT –
$1580 / 2br – Air cond. Luxury Hi-rise – “Paloma” 6068 No.3 Road
5th floor, Approx. 901s.f., South facing (not facing to No.3 Road)
Bright 2 bedrooms + 2 bathrooms + kitchen + living room + Hugh Patio [sic … cousin of Huge Grant?]
Granite countertops. Coordinated polished chrome accessories, [etc]

Recent ask price history:

False Creek South Condos – “There were three open houses in my building yesterday. Virtually no visitors.”

VRENGD at vancouvercondo.info 13 Sep 2010 1:02pm – “There were three open houses in my building (false creek south) yesterday. All 2BR, 2bath 1200 SF. Two were waterfront asking approx $900,000, and the third was street view asking $550,000. Virtually no visitors. By the way, the building has leak problems. Our unit leaks about 1-2 times per year. The elevators have been under repair for the past 5 months. Plumbing will have to be entirely replaced very soon.”

“He pulled the listing on advice of his realtor “because there will be bidding wars again when the market picks up after Labor Day.”

Melville at yattermatters.ca 9 Sep 2010 1:36 pm – “My neighbor had his house listed, and even though he has a relatively short window to sell he pulled the listing on advice of his realtor “because there will be bidding wars again when the market picks up after Labor Day.” In addition to  removed listings, how many new listings have been forestalled by similar advice?”

Construction Jobs Drying Up – “The company does not have a single job lined up afterward and they’ve laid almost everyone off as of now.”

betamax at vancouvercodo.info 11 Sep 2010 1:36pm – “Just talked to someone who works for a large company that just completed a multi-year construction mega-project costing hundreds of millions. The company does not have a single job lined up afterward and they’ve laid almost everyone off as of now. Only a few in management remain, the person I talked to being one of them, and he’s scared that he’s next. And the only new jobs out there are relatively small jobs that everyone is competing for, and the winning bids are so low that they’ll likely lose money. It’s the beginning of the wave, and there will be more mortgage defaults in the years to come as construction unemployment spikes.”

Renting at vancouvercondo.info 11 Sept 2010 9:55am – “A friend who owns a drywall company says rates are now at 50% of what he was getting a year ago. Too many people bidding on too few jobs. Another friend in construction folded up his company with 12 employees recently because winning bids were coming in at 50% of what he had got for the past 8 years. It wasn’t worth his while to keep doing it. Both of these guys have large mortgages they likely will not be able to afford with their new significantly lower incomes. One of these guys has $1 million variable rate mortgage with only his wife’s income. Pretty much every penny goes to housing costs. Each quarter point rate hike cost them another $200 per month. These guys believe if they can just hang on to their levered assets things will be fine as prices will always go up. I think both will be forced to sell at some point over the next year. Credit cards can only last so long and there is nothing to indicate their past incomes that are required to support the mortgages will return.”

Five Charts: Predicting Future Vancouver Housing Prices

Only a lunatic makes real estate sell or buy decisions based solely on charts, but, conversely, only a fool would say that past price action is irrelevant. Technical analysis (‘TA’) involves the study of chart patterns for clues to future price movement. It looks at the places where buyers and sellers have met in the past, and uses charts to attempt to predict where they may do so in future.

To look at TA of the Vancouver RE market, we have used the REBGV chart of the average nominal price of a detached single-family house for the Greater Vancouver area. It would be methodologically better to have a look at a similar price chart of a benchmark house, or better still, a Case-Shiller type of same-house-resale price chart, and even better real (not nominal) Case-Shiller, but, as we don’t have such charts going back to the 1970’s, we’ll use average detached price here. We’d expect the general price action to look very similar for all of these charts over the next 10 years, but obviously the specific numbers will be different. So, keep in mind that you’re looking at average nominal detached price charts here. The chart is updated by the REBGV each month. As of the August 2010 numbers, that price was $999,400, essentially $1M.

This analysis is not going to need to make use of more exotic TA interpretations. We’re not looking at ‘cups and handles’, ‘saucers’, and will barely mention the common ‘head and shoulders’ pattern (for those interested, it’s visible in the scenario (2) chart below). What is far more important is evidence for levels of price support under the market. Even bulls are anticipating a pause or slowing, and the question isn’t so much “Will the Vancouver RE market pullback?” but rather “How big will the pullback be?”.

The recent and much publicized report from the Canadian Centre for Policy Alternatives, ‘Canada’s Housing Bubble: An Accident Waiting to Happen’, by David Macdonald, Aug 2010. (pdf here) predicted possible price drops of between 20%-31% peak to trough for the Vancouver market (using average residential housing prices adjusted for inflation). This report garnered much mainstream criticism, with claims that such pullbacks were inconceivably large. As you’ll see from the REBGV charts, the run-up since 2001 has itself been so large that the CCPA estimates are probably on the low side.

So, what does TA tell us about support ‘under the market’? There are four areas of price support to consider, as illustrated in the following chart [click on charts to enlarge]:

We consider two areas of support to be particularly crucial:

The first and arguably most important price level is that illustrated by ‘B’, the 740 area, 26% below the current price, as defined by horizontal support from lows of the 2008-2009 pullback. The psychological importance of this level is crucial. Thus far, those buyers who stepped in to buy the 2008-2009 pullback look smart, and they are pleased with their paper gains. It is thus likely that there is at least a small group of prospective buyers who would look at any fall to those levels as a buying opportunity. In a related sense, if and when the 740 area is penetrated to the downside, many prospective buyers will back off (asking themselves “how down far can this go?”) and at least some sellers will come into the market, fearing future losses. Remember, it only takes a small percent of owners to try and sell with some urgency for prices to fall precipitously. Thus, if 740 is broached to the downside, we’d expect prices to fall to the 500-600 area of support in relatively short order. We personally anticipate that the 740 area will indeed fail as support, perhaps after a bounce at that level first.

The second most important price support level is illustrated by ‘C’, the 500-600 area, 40-50% below the current price, as defined by long term support from the bottom rail of 1985-2000’s uptrend. This is where prices would be “if we hadn’t had a bubble”. At this moment that support is below 500, and thus suggests that RE prices in Vancouver are >2 times overvalued. This meshes very well with overvaluation estimates based on fundamental analysis using price:rent and price:income ratios, and we thus find this level of support a very persuasive target. We have a very high index of suspicion that prices will hit ‘C’ support at some point in coming years, likely by 2013.

The ‘D’ support line, coming in somewhat perversely at 444, may seem preposterously pessimistic to most market participants as it implies 55% price drops. However, when markets overextend to the upside they often react with overextension on the downside, and levels in the 400 area may be reached if past irrational optimism is replaced with similar degrees of irrational pessimism. These are realistic targets if RE becomes a truly detested asset class in Vancouver.

So, given the importance of the levels discussed above, how exactly may prices get there? This is where very precise bets are off, as there are almost an infinite number of ways in which price and time could dance around those support levels. Here are some possible scenarios:

(1) – ‘Crash to long term support’:

(2) – ‘Bounce at 2008-2009 support, then crash to LT support’:

(3) – ‘Crash and overextend’:

(4) – ‘Drop to 2008-2009 lows, then muddle through’:

(5) – ‘Bull fantasy; hyperinflation; Vancouver is the New Monaco’:

As anybody who frequents this site knows, we are currently very bearish the Vancouver RE markets; we believe there is a >80% chance of very significant price drops this decade. We have expanded on the reasons for this outlook elsewhere [‘Prediction 2010-2019’ (Dec 2009)]. If we were to put probability weightings on the above charts, we’d guesstimate likelihood of outcomes roughly like those above as:
1. 30%
2. 20%
3. 20%
4. 15%
5. 3%
6. (Other) 12%
Our weightings are not based on TA alone, obviously. We don’t see a drop to the lows of 2008-2009 as being enough to rid the market of the speculative excesses of the last decade, and we don’t see how enough buyers will step in to rescue the market at those levels, given debt levels, ownership rates, fundamental overvaluation, RE over-dependence, degree of speculator involvement, leverage, boomer supply, and economic outlook.
Perhaps readers will care to post their own probability estimates for each of the different chart scenarios in the comments section below.

Lastly, another bit of TA: The Vancouver MOI chart is mapping out a bottoming pattern. The 2008-2009 spike is likely heralding a much bigger upcoming spike:

—–

UPDATE, 11 Sep 2010 7:45pm:
Best place on meth at vancouvercondo.info 11 Sep 2010 3:39pm wrote “I’m wondering if you’ve considered a 6th possibility, that the entire past 1/4 century has been an aberration. Try putting a line under the 1976-86 period and see where it ends up.” Good suggestion, here it is:

This longer-term support line is in the 280-330 area. From 1998 to 2010 it increased at a rate equivalent to 2.84% pa compounded. Mean inflation rate was 2.6% 1986 to present. This essentially agrees with Shiller’s long term analysis showing that RE returns 0% after inflation. Suggesting price drops back to this support line implies a pullback of about 70%, the thought of which would make even the most ardent bear blush. As dreadful as it sounds, it could be a real possibility: deflationary waves, plus boomers liquidating, plus dearth of buyers could do it.

Sellers Awaiting Divine Intervention

3641 West 14th Ave (at Alma); 2,496 sqft; 33×122 ft lot; Built 1974
Ask Price: $1,799,800
Listed 1 June 2010, Days on market >100, MLS V834521

.

1419 West 56th Ave; 2,923 sqft; 50×122 ft lot; Built 1947
Ask Price: $1,698,000
Listed 25 Feb 2010, Days on market >196, MLS 812329

.

4857 Trafalgar St; 2,450 sqft; 50×119 ft lot; Built 1952
Ask Price: $1,738,000
Listed 21 Apr 2010, Days on market >141, MLS 825551

‘Foreign Investors’ Will Continue To Trade Like Amateur Momentum Players

Everybody loves a winner…. and nobody more so than momentum traders. Most Vancouver RE speculators were locals, but as the bubble inflated, and as the loonie simultaneously strengthened, our RE must have looked irresistible to foreign ‘investors’. Particularly when it seemed bullet-proof, while other RE markets rolled over and died.
Mo’ players buy assets with high and rising prices, with the aim of selling even higher. But they try to avoid holding anything that’s dropping, and they certainly wouldn’t dream of stepping in and buying low. Foreign buyers dried up completely through our minor 15% pullback (late fall 2008 – early spring 2009), but apparently didn’t have the time (or the buyer demand) to dump their holdings. The RE market is illiquid, remember.
We strongly suspect that, when prices start to drop steadily and in earnest, foreign momentum players will add to supply; they’ll try to dump assets dropping in value.
This is contrary to the buy-low/sell-high strategies of value investors and contrarians. Foreign speculators who have participated in this bubble are no smarter than all of our local amateur speculators. They bought the mo’ on the way up, and they’ll sell the mo’ on the way down, on average at a large loss. Perhaps articles like the one below will start getting them ready to reach for the trigger. “Bubbles burst”, “could drop by 30%”, “settling down”… None of these terms sit well with a momentum investor. -vreaa

From ‘After Frenzy, Vancouver Property Sales Slow’ at the ‘International Property Journal’ [8 Sep 2010], by Kevin Brass, a ‘global property analyst’ who has written for ‘the International Herald Tribune and the New York Times’.

“Vancouver real estate’s record-setting, economy-defying sales surge may be drawing to an end. In August, Vancouver area sales declined 36 percent from the same month of 2009.”

“International buyers helped fuel the surge, especially investors from mainland China.”

“Not everyone is so sure the market is stabilizing. A recent report from the Canadian Centre for Policy Alternatives warned that Vancouver’s real estate market could be a bubble ready to burst. Values could drop by 30 percent if interest rates rise, according to the report.”

“The real question is how long prices grind lower after that phase, and how many years it will last,” former MP and author Garth Turner told a reporter for ctvbc.ca. “Those who thought real estate would always rise in value were blinded by the industry and by the cheapest mortgage rates ever. All booms end badly, and all bubbles burst.”

“I think [the market] is settling down more,” Tsur Somerville, director of the centre for urban economics and real estate in the Sauder School of Business at the University of B.C., told the Vancouver Sun.

Renting In The Olympic Village Ghost Town

Allen Roberts lives in a rented condo at the Olympic Village. Many units remain empty.

.

From The Province, 8 Sep 2010 – “It’s weird,” said Heather Eddy, who recently moved into a sixth-floor rental unit at West 1st and Columbia with her boyfriend, Allen Roberts, 30, an engineering student at Simon Fraser University. “It’s almost like living in a futuristic police state. All you see are police cars driving around and people on bicycles.” Eddy, a 24-year-old pastry chef, said she believes the village was opened too early. “It’s very much like a ghost town,” she added. “I’m scared to walk down the streets at night.” The couple, however, said they love their 850-square-foot apartment with its high windows and top-end appliances.

‘Exceptionally stimulative’ financial conditions not enough to save the housing market.

BOC raised the overnight rate to 1% and essentially announced that it’s unlikely to raise again soon. The housing market is stalling despite ongoing ‘exceptional stimulus’. There is a greatly depleted pool of qualified buyers, a decreased appetite for taking on more debt, and, quiet possibly, a suddenly satiated lust for RE. In the sterile and barren Olympic village, buyers are completely absent, and some owners are trying to back out of contracts. The Vancouver market does not need a raising of rates to tank, but if the long-end does rise, it’ll speed the decline. -vreaa

Bank of Canada increases overnight rate target to 1 per cent [bankofcanada.ca 8 Sep 2010] – Excerpts: “Economic activity in Canada was slightly softer in the second quarter than the Bank had expected. … The Bank now expects the economic recovery in Canada to be slightly more gradual than it had projected in July. … Financial conditions in Canada have tightened modestly but remain exceptionally stimulative. … Any further reduction in monetary policy stimulus would need to be carefully considered in light of the unusual uncertainty surrounding the outlook.” [In other words, they’re not foreseeing any more increases at this point. -ed.]

“I am off with my family to Italy for 2 1/2 weeks, this wonderful little trip made possible by my landlord.”

McLovin at vancouvercondo.info 7 Sep 2010 6:23 pm – “I am off with my family to Italy for 2 1/2 weeks, one week in a villa in Umbria and one week in a villa on the Amalfi coast. This wonderful little trip (I hope we will remember for a lifetime) has been made possible by my landlord. We rent a wonderful 3br condo in Yaletown for 31% of the cost of owning it. The money I am “throwing away” on rent has made this trip possible.”

A Housing Crash Rescue Cannot Be Legislated

There is talk of possible government interventions aimed at preventing the housing market bubble from imploding.

“…if another rebound occurs, it will likely be triggered by Ottawa. The Harper government has repeatedly intervened to micro-manage the $2.8-trillion housing market.”  …. “Ottawa may loosen mortgage restrictions once again if the housing market craters.” – ‘Avoiding the crash’, macleans.ca, 4 Sept 2010

The recently much publicized Canadian Centre for Policy Alternatives report ‘Canada’s Housing Bubble: An Accident Waiting To Happen’ [David Macdonald, Aug 2010], acknowledged the existence of the bubble, but then called for attempts to orchestrate an ‘orderly’ unwinding, concluding:

“Government policy makers, the Bank of Canada, as well as rate setters at the big banks need to work together to steer the Canadian market towards a soft landing. The alternative is not acceptable.” – CCPA report

At the very most any policy intervention would only forestall the inevitable crash. To cause an ‘orderly unwinding’ of a bubble you require an orderly and never-ending supply of buyers willing to take on large amounts of (albeit cheap) debt to buy assets that are falling in value and still grossly overpriced. That isn’t going to happen.

Where would those buyers come from? The vast majority of Canadians anywhere near qualified to buy have already been sucked into the vortex that is this market, and a large minority own far more RE than is good for them in the form of more than one property, or by being financially overextended by their principle residence. Mortgage rates are already very low, and when they recently dropped even lower, no new wave of buyers stepped up to take advantage of them. The ranks of the responsible buyers have been exhausted.

Whatever bizarre huckster-saleman plan a government comes up with (free money; first time buyer grants; 0/40 mortgages; free closing costs; 1 year of mortgage payments ?) would essentially entail dragging individuals into the market who shouldn’t be there in the first place.

“Home ownership rates in Canada are about as high as they can possibly go. In fact the only way to drive them higher would be to further increase the rate of sub-prime lending to allow completely unqualified buyers into the market.” – Daniel Gibbons, commenter at Macleans.ca 5 Sept.2010

Policy change to prop up the market via new buyers would simply delay and magnify the bust, not resolve it. The pool of people facing certain future financial hardships would grow even larger. If a government attempted to engineer this, clear-headed citizens would (1) object to it happening and (2) make sure that any politicians responsible for such foolishness were held accountable for their actions. The vast majority of literate and politically involved citizens are real-estate owners, and there is therefore an inherent conflict in them being able to step up and speak truth about the bubble. Almost everybody with any influence has been co-opted by the bubble.  Therefore, unfortunately, we don’t expect to hear any loud public voices objecting to attempts to rescue the unrescuable. -vreaa

Ongoing Lax Lending – “The fellow with the velvety voice said that as long as you had three years solid employment and good credit, you could buy a house with zero down.”

mousey at greaterfool.ca 5 Sept 2010 11:25 am – “I live in a pretty snotty area of Vancouver and last week on my morning commute, I saw a very strange sign on a local, but busy street corner. The hand written 2′ x 2′ sign read something like, Nice House For Sale – Zero Down – call for more information. I actually thought it was a joke. It was there the next day and it’s a long commute, and the Bluetooth hands free is always fired up so what the hey, I called. It was a recording…no real surprise there…and summarizing, it described how banks only wanted high end debtors because they could make the most profit off of them. He said the banks don’t tell you about all the “other” loan options (read zero down) because it isn’t in their best interest. The fellow with the velvety voice said that as long as you had three years solid employment and good credit, you could buy a house with zero down. Lots of good homes available and he would show you how to get one. A number for a direct line to the broker was provided, but no specifics about the nice house referred to on the sign.”

The Periphery Is Imploding – Penticton, Kelowna, Whistler, Sunshine Coast – “Priced more than 40% below what was paid in 2002.”

Penticton, Kelowna, Whistler, Sunshine Coast… Some RE bubbles start from a centre and move concentrically outwards, and when they implode the reverse happens. Our epicentre is perhaps Vancouver Westside detached. Many of these ‘peripheral’ properties are, of course, owned by people from Greater Vancouver.  -vreaa

Penticton (greaterfool.ca 24 Aug 2010) – “A year ago a guy bought a sub-penthouse in a sub-interesting condo in Penticton, a BC resort town, and paid $1,300,000. On Saturday a mess of people showed up at the same building, and the same suite was sold at auction for $685,000. “Interestingly,” said someone with family at the event, “a number of people thought the prices were still a little high.”

Whistler (cfl122 at RE Talks 22 Aug 2010 7:22pm) – “I was talking to a few hockey parents and they told me that they had recently bought in Whistler. One parent purchased a condo in the Four Season Hotel for less than $250k from a seller who had purchased that condo for more than $600k. Another bought a townhouse for less than half the original listed price.” (Realtor link confirms, sold for $250K: “Court ordered sale: Suite 507 is a 645 king suite with 5 piece luxury, spa-like bath. Phase 2 nightly rental luxury 5 star property with all amenities the discerning buyer deserves. Priced more than 40% below what was paid in 2002.”)

Kelowna to Osoyoos (McLovin at vancouvercondo.info 29 Aug 2010 9.17am)- “I just returned from my second week this summer in beautiful Osoyoos. The family and friends all had an amazing time but talk about dead. We have been going there for 5 summers and I have never seen virtually every hotel on “hotel row” with vacancy on a Sat night. I don’t know if people are traveling less or the “Alberta oil money” has stopped flowing but it was dead. Chatting with an owner of a 15 unit building I learned that Pentiction is hurting so much that hotel prices in some places are down 50%. I did my usual drive around and noticed even more inventory and a bunch of “new price” signs. There were even two projects offering “blow out pricing” The entire area from Kelowna to Osoyoos has gone no bid. There are simply no buyers at virtually any price and inventory keeps grinding higher. There is a waterfront place that we considered buying as a group in 2008. The owner had it listed at $1.3M but we were told by another [realtor] to offer $1.1M. We did the math and decided that it was just way too much for a place we would use collectively 14 weeks a year especially in light of the fact one can rent a similar place for $3,000 per week and give back the keys (like we just did) Anyway, last summer the price had dropped to $1.0M and we were told by the [realtor] that the owner of the empty house had turned down two offers for $950K. This spring (after it had been on the market for two years) the price was dropped to $900K. The price was dropped Aug 1 of this year to $829K (from $1.3M) and still no buyers! That has to put a chill into the retirement plans of many a boomer who bought there in 1982 for $67,000 and plans on listing it for $1.2M! The reality of the pricing has set in and people are realizing that the prices have just gone past the ability for even groups of people to pay for a 1980’s vacation home. In my opinion after watching prices there since 2005, from the peak in 2007 prices are down (unofficially of course as there are ZERO sales) 20-25% and show an increasing trend downwards. There are many projects that were built since 2007 such as Walnut Beach where every buyer is underwater big time. The whole of the Okanagan dropped in 2008 like Vancouver but did not bounce back at all.”

Sunshine Coast (rebgv.org Aug 2010 data) – Detached sales price benchmark down 14% in one month (260.4 Jul 2010; 223.9 Aug 2010)

“Someone who just graduated from university and not a few months later is a real estate “owner.”

oneangryslav2 at vancouvercondo.info 1 Sept 2010 at 11:31pm – “I went down to Granville Island for an orientation seminar for the upcoming Vancouver Fringe Festival. After the seminar we lined up for volunteer passes and t-shirts, and I was standing in front of a pleasant young lady with whom I began to make conversation. She’s a recent SFU graduate in English and works for a real estate development firm creating specification brochures for purchasers. She could be as young as 22, but looked to be in her mid-20s and we started to talk about the real estate market and I mentioned that I would not buy in this market as it is due for a major correction. She tepidly agreed then blurted out “my fiance and I just bought a condo off of Commercial Drive.” There you go, someone who just graduated from uni and not a few months later is a real estate “owner.” Are there any FTBs left to prop up this market? I was about to inquire about the particulars–how old her fiance is, is this a first-time purchase for either or both of them, etc., but circumstances intervened.”

Pharmacist Zombie Realtor Survey (n=50) – “Each and every time I said to a stranger “Buy now!” they laughed at me.”

This picture and story from Sophie, on Garth Turner’s greaterfool.ca 30 Aug 2010 – “As a pharmacist who moved from East coast to West coast, [greaterfool.ca] is a therapy to all the in-laws, co-workers, etc who are constantly asking why I am not in the market yet! We were in Vancouver previously, but we see no future with our 150k total salary income to buy something normal, considering we are now [in our] 30′s and we don’t picture ourselves in a million dollar slum in East Van. As a part of my therapy, I participated to the zombie walk in Vancouver in mid-August. My partner and I were zombie realestate agents (that’s me in the picture). I could swear to you that each time I said to a stranger ”Buy now!” they all laughed at me (about 50 persons surveyed) 🙂 . And they were not zombies.”

The Headlines Turn – ‘The End of Canadian Media Real Estate Bubble Denial?’

‘Vancouver Bubble Bursting?’ – Global BC TV, 3 Sep 2010 [video here]

‘Vancouver real estate ‘bubble’ an ‘accident waiting to happen’

– Vancouver Sun, 31 Aug 2010

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‘Doom and gloom predicted for Vancouver house prices’

– CTV News, 1 Sep 2010

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‘The end of Canadian real estate insanity’

– Globe & Mail, 2 Sep 2010

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‘Housing will be banks’ next sore spot’

– Financial Post, 31 Aug 2010

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‘Vancouver’s high housing prices threaten growth’

– Vancouver Sun, 31 Aug, 2010

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‘Metro Vancouver housing market to slow more than expected’

–  Vancouver Sun, 31 Aug 2010

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‘Why the housing market may be heading for correction’

– Globe and Mail, 31 Aug 2010

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[Headlines showing extremes of sentiment often prove to be contrarian indicators. The most famous example is likely the ‘Death of Equities’ Business Week cover in the early 1980’s, which marked the very best equity buy-point for a generation. Similarly, the 2005 Time cover showing a man hugging a house marked the top of the US RE bubble;and the current Sept 2010 Time cover questioning the value of home ownership may well mark an intermediate term bottom (we personally expect a bit of a bounce in US housing before new lows). In Vancouver, the classic ‘top of the bubble’ Georgia Straight cover Nov 2009 shows a housing rocket-ship takeoff.

Between the extremes, however, headlines often simply reflect prevailing or developing market sentiment. Our market has begun to turn down, and there is a growing awareness of the trouble ahead. We’d imagine these headlines will give buyers pause for thought.  -vreaa]

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Houses Sitting Empty – “Property is treated much like a bank account with relatively high annual fees.”

Bubble Lad at vancouvercondo.info 1 Sept 2010 12:15 pm – “You’d be amazed at how many empty/abandoned houses there are in Vancouver. You can’t walk more than a few blocks without seeing one or two. And it’s not like they’re in crappy ‘hoods. I live in Kits, and just around the corner from me are at least two that no one has lived in for years.”

fixie guy vancouvercondo.info 1 Sept 2010 12:18 pm – “I see quite a few houses in the Oakridge area that are furnished but appear permanently empty. Never any cars or people, packages sit on the porch for weeks, never any garbage out, lawns are dead and the yard work typically very rough.”

Patiently Waiting at vancouvercondo.info 1 Sep 2010 10:11 am – “My parents live in Queens Park, New Westminster. Four years ago, a neighbour (a friend of my parents) died and her decent-quality house was sold by her estate. My parents wondered who their new neighbour would be. Months and then years went by, and nobody moved in. Speculation in my family was that it was owned by a wealthy Hong Kong family as one of those escape-pod houses in case of trouble in the homeland. It seemed like a fair explanation, even to me. Zoom ahead to the present. This house has been totally empty for four years. It hasn’t even been rented, and could fetched (as a very conservative estimate) at least $2000 rent. It’s within a short walk of a respected elementary school. The other day, we noticed renovators working on the house. My parents asked a well-connected friend about the house and were told it is a owned by a local [realtor] and has been for a few years. No rich Asians involved. My Dad was curious so he talked to the renovation workers. This house is not being fixed up to be sold. It was originally supposed to be ripped-down for a new house. It is now being renovated to be RENTED OUT.”

jesse at vancouvercondo.info 1 Sept 2010 11:52 am – “There are a few vacant houses around, though it’s much more common for condos to be vacant. I’ve seen the same thing in Asia, where condos and even large houses are bought and just held vacant for long periods of time. I’m convinced property is treated much like a bank account with relatively high annual fees.”

High Water Mark – $2.4M for 2462sqft on 33ft in Dunbar

Dunbar, Vancouver Westside: 4036 West 19th
Type: 4-bedroom, 5-bathroom detached
Size: 2,462 sq. ft.  Frontage: 33ft
B.C. Assessment, July 2010: $1.508 million
Listed for: $2.388 million
Sold for: $2.39 million
Sold on: June 17
Days on market: 9 [after relist? info anybody? -ed.]
[Featured in Vancouver Sun, 26 Aug 2010, 69 days after the sale]

Archived here for the historical record.
If you’re reading this in the distant future, you’ll know whether we, the bearish minority, were wrong to see this as completely crazy. -vreaa, 1 Sep 2010