Monthly Archives: December 2010

Jay Bryan, Montreal Gazette – “Homes are resistant to big drops in value. … It’s hard to find a reputable analyst who predicts anything other than mild fluctuations in housing over the coming year or two.”

Excerpts from ‘No solid basis for scary speculation’ by Jay Bryan, Montreal Gazette, 30 Dec 2010
“One of the biggest business stories of 2010 was one that never happened: the disastrous Canadian housing bubble and crash that never came to pass.
Of course, we know this now. Canada’s hot housing market has settled down without any serious slump in either prices or sales. It’s hard to find a reputable analyst who predicts anything other than mild fluctuations in housing over the coming year or two.” …
“The roots of bubble hysteria are understandable. After the terrible experience of the U.S., it made sense that many would be hypersensitive to any evidence that something equally disastrous could happen here. What’s not so understandable was that journalists working for some of the best newspapers in North America would give credence to such a hare-brained idea without finding any evidence that it was actually happening.” …
“As investors become more or less optimistic, the price of an asset -stocks, commodities or real estate -constantly moves up and down. Sometimes it’s too high and ripe for a fall -but that’s not a bubble. And unlike stocks or commodities, homes are an asset that’s resistant to big drops in value. Many owners are perfectly willing to wait if they don’t get a satisfactory price.”

It’s worth taking a look at the entire article.
Our comments:
Complacency comes before a fall.
Labeling concerns about a bubble in the Canadian RE market as “hare-brained” and “hysteria” are examples of bull hubris.
A home is by no means “an asset that’s resistant to big drops in value”.
How can anyone seriously write that while witnessing so many examples of housing prices plummeting around the globe?
It reminds one of the ‘scientist’ centuries ago writing that nothing heavier than air would ever be able to fly (while birds settled on his windowsill).
And folks, when “It’s hard to find a reputable analyst who predicts anything other than mild fluctuations in housing over the coming year or two” – Run for the hills! This kind of market complacency always, always, predicts coming volatility. The evidence is overwhelming that the moves will be to the downside.

[Some of Jay Bryan’s passages from this article will also be archived in the ‘What Bubble?’ and ‘Bull Hubris‘ sidebars.]

[Update 2 Jan 2011: For an excellent and comprehensive dissection of the Jay Bryan article, see Who’s the ‘hare-brained’ one? More hot air from perma-bull Jay Bryan‘ by Ben at]

“I grew up in this town and am old enough to remember when False Creek still had pulp mills surrounding it… Vancouver just gets uglier and more soul-less with every passing year”

interested at VREAA 30 Dec 2010 4:49pm“I grew up in this town and am old enough to remember when False Creek still had pulp mills surrounding it and working class people raised 4 kids in their East Side AND West Side bungalows. I’ve always hated the hubris of “the best place on earth” and see it as yet another bid to bragging rights for ex-pat Ontarians and Albertans. I’ve also lived in San Francisco, Oakland, Berkeley, Montreal, Toronto, London England and Glasgow and can decidedly attest that Vancouver is not the best place on earth. It may not even be the Best Place in Canada. In fact, Vancouver just gets uglier and more soul-less with every passing year, given the relentless tear-down culture here.”

Can’t Sell? Increase The Price By $200K!

3719 W 11th Ave, Point Grey; V853201
2,198 sqft house on 30 x 122 ft lot; Built 1996
Listed 29 Sep 2010; Ask price $1,498,000
Price change 29 Dec 2010; Ask price now $1,698,000
No sale in 3 months, price increased by 13.3%

Up is the new down, people.
What’s going on here?
Trying to attract buyers who demand to pay more? (Not a joke: There seems to be cachet to paying more for less on the westside. Bragging rights?).
Or some kind of weird financing fudging? (We’ve previously seen other properties relisted higher just prior to a sale: Is the financing source possibly more comfortable if the buyer buys at list rather than higher than list?)
The property would still be overvalued at a half of the original price.
Soulless boxes like this one will sell for 650K or less after the crash.
Standard lots will return to 500K and below.

A Vancouver Bull Sells An Investment Condo In Singapore- “I could probably hold out for another 10-20% easily over a year (still very cash flow positive at this price)….. but decided to take it.”

RiskArb at RE Talks 28 Nov 2010 8:03am“Realtor from Singapore woke me up this morning to present an offer from a mainland Chinese buyer for my condo.
If I sell, it would be the highest price so far obtained in the development. And mainland money is new to this part of town (East Coast SIngapore) as they’ve typically only played in the ultra high-end (Orchard Road and Marina Bay).
At the same time, I read in the Globe and Mail ROB an article about Vancouver real-estate and how the majority of purchases on the westside are from mainlanders. … The trend should have slapped you in the face by now.”

Update one month later:
RiskArb at RE Talks 27 Dec 2010 10:30pm“Update. I turned down the above offer……..and last week I got another offer that’s 3% higher. Malaysian Chinese buyer. I could probably hold out for another 10-20% easily over a year (still very cash flow positive at this price)….. but decided to take it.”

“My new path forward?? Here it is: Sell. Move back to the USA to the most expensive housing market in the country and still be able to buy a real house with actual quality and real architecture for 50% less than what sheet holes cost here.”

If this anecdote doesn’t make you sit up and think, nothing will. The Vancouver RE market is perversely distorted, and this is profoundly unhealthy for our society.  – vreaa

vanhattan at December 28th, 2010 at 4:41 pm“Here is my situation. I moved here in 2005. I could not find a ‘decent’ place to rent that would accept a very well behaved dog so we decided to buy a condo of a whopping 889 square feet. We hated the condo and paid more than 3x what our gorgeous home with 22 foot ceilings, 1/2 acre treed lot with more than 3x the square footage cost. (sold our 3,000 sf home for 330K, bought our 889 sf condo in Van for 377K). The purchase and shock of living in this shit hole almost cost me my marriage. F*ck, even the dog hated the place. So we sold 15 months later for 488K. Never saw an uneducated unemployed dog make a 100K+ in one year but that is what our dear Buster did as we would not have purchased except for him. Purchased another condo, this one a more reasonable 1050sf brand new condo with great views, great neighborhood. Still nowhere as nice as our old ‘home’ but at least manageable. Purchased for 700K. The latest comps put our place at 900K+.

Ok so here is our situation. Have a huge desire to get back into a real house again. Have been searching for over a year now. Have been looking at complete sheet boxes going for over 1.5 million that before I moved here I would NEVER have even considered even looking at much less buying and LIVING in. This is what we found one recent weekend: Falling down complete sheet boxes with more than 30+ people showing up in the first 10 minutes of an advertised open house. I am NOT racist in the least bit but have to say that 80% of the lookers were of Asian decent. Guess what???? The damn place sold for 100K over asking at 1.6M the very SAME day!!!!!!!!!

I got so depressed I went home almost in tears. My new path forward?? Here it is: Put the place on the market this spring for 200K under current valuations per a comparable sale one month ago. This is still 100K more than what we paid for it but being 200K below the most recent comp should sell in a weekend. Guess what. I am getting the F#%k out of here. We should be able to easily get out of here with 250K more in our pocket than when we arrived. I figured if we had rented the same places vs. buy we would have paid about $150K over the same period. So we will walk away from the best city on earth living essentially rent free with 100K to spare. What are we going to do next? Move back to the USA to the most expensive housing market in the country and still be able to buy a real house with actual quality and real architecture for 50% less than what sheet holes cost here. This metro area also actually has jobs that pay on average 3x what they pay here.

Bottom line: even though I have been very lucky with this real estate market in Vancouver, I can’t believe what places are still selling for. My opinion is that prices will continue to go up as long as the Asians keep moving here en mass buying any sheet hole for above asking price. My estimate is that China still has a couple of years left of their bubble before it bursts so Vancouver will probably still go up and up and up for another couple of years.

I am out of here. I want to stay, but simply cannot afford it. I am not bragging but I make 5x the average wage of the average resident and can’t for the life of me figure out how anyone makes it in this town.

So am I a bear? Am I a bull? Neither. Just a very discouraged Vancouver resident who simply cannot believe the prices of the crappy 2nd world real estate here. I simply cannot afford to live here and I make more than 200K/year!!!!!!!!! My quality of life is worse than when I made 65K/year before I moved here! Really folks. This city is insane. I am getting out. I have loved Canada and loved Vancouver, except for the housing situation. I will always have fond memories of the place and will leave being a Canadian citizen but have reluctantly thrown in the towel. I would much prefer to live in Canada than in the US as our values are much more Canadian but I also want a better quality of life.

So perhaps we will return but only if the real estate prices return to earth. From where I sit this is still a far way off.

Humbly, a soon to be former Vancouverite.”

Renter Poll – “Where do you rent, how many bedrooms, and how much do you pay?”

Reader ‘ams’ proposed [VREAA 28 Dec 2010 8:12pm] that we headline this question, for the sake of data points and possible discussion. If you’re a renter and would like to participate, please add your info in the comments section.

“Where do you rent, how many bedrooms and how much do you pay?”:

ams‘ own response, to get things rolling –
“Mount Pleasant, 2 Bedroom Condo, hardwood floor, in suite brand new washer, dryer, fridge, stove, and dishwasher. $1570 per month not including utilities.”

[Rough estimate of ‘square footage’ may be as useful as ‘bedrooms’. -ed.]

TPFKAA on Ambivalent Recent Buyers

anonymous (now known as TPFKAA) at VREAA 22 Dec 2010 at 9.35pm
“A family friend bought a 2 bedroom, maybe 700 sf condo during the late 08- early 09 correction for around 350000. He rents out the second bedroom to a tenant. I asked him if it was working out ok in such a tight space… a pained expression flitted across his face: “yeah it is a little tight… but it works out okay.”
uh huh. Comfortable.”

“An acquaintance with a townhouse, decent sized, good for two kids, bought long ago told me she dreaded her family friends coming over for dinner. Recently the friends bought a house for 850000 in N van, with help from parents’ downpayment. Since then, each time they visit the wife keeps on telling my friend that “you should get a bigger place. you really need more space.” They shopped for months before they found the place, and it is in dire need of renovation and decoration. My friend says it is really grotty. But they seem so pleased with themselves. To me it sounds more like they need others to affirm they see the emperor’s clothing, because their nagging subconscious sees the scam they have fallen victim to.”

Dunbar House Seeks ‘Discerning Buyer’

V861636; 4085 West 36th Ave, Dunbar
4,886 sqft house on 52 x 134 ft lot
Asking price $4,599,000

[HST, after rebate, is additional $525,000, for a total price of $5,125,000 -ed.]
New; Listed 24 Dec 2010
Realtor: “Your most discerning buyer will not be disappointed.”

[We archive the occasional house such as this one because we suspect that these examples will make interesting data points in our chronology, when viewed in years hence. -vreaa]

TPFKAA on Renting – “It was as though ‘renters’ were another species, quite distinct from their human, homeowning neighbours.”

TPFKAA, from comments at VREAA, 22 to 24 Dec 2010:

“Our previous landlord increased rent because he had miscalculated property taxes. Massive assessment forced his payments into greater than rental income, and he tried to ask us to pay voluntarily a 15% increase so the rent would cover the taxes. He raised three years in a row by max allowable until we had had enough. Then he sold for a $400K profit, minus costs.

When we moved in to our current rental three years ago, I brought some raspberry plants (the kids love eating raspberries fresh off the plant) that we had planted, from our previous rental. The neighbour saw me and looked amazed. She said: “oh, I have never known renters[in italics] to put in any money”. the way she said it was as though “renters” were another species, quite distinct from their human, homeowning neighbours. Persistently, these neighbours place their garbage and garden cuttings over on our side of the property line, so as not to sully their beautiful, OWNED garden. (We maintain ours with 30+ hours of tending a month). They also treat the front of our house as their parking spot. Granted, they have been there 17 + years to our 3, but still…. I can’t help thinking that if we weren’t mere “renters” this would happen less.

[Current rental experience] in roughly chronological order:

Crackhead tenant in other suite steals our things the week we moved in, and soon gets evicted, Accuses us of ruining her life, and threatens our child with abduction. Strange men had been visiting her all hours of the day, and the sickly smell of crack smoke coming through the vents caused me to tape bags over all the heater vents. Lucky it was summer. This is an upscale Burnaby neighbourhood with 1m houses all around. She and associates came back to ransack carporch and break in to our car twice more before, like the mice, she disappeared. I sealed up carporch to make into complete garage, landlord donated materials that were already here and paid for the rest. no compensation for stolen property. I lectured landlord on not giving us any notice of his obvious concerns about this tenant, who had moved in two months prior to us.

I notice door is broken from attempted break in, soon after we move in. I fix with wood glue and clamps and screws.

My father in law spends 30+ hours per month (its more like 40+ hrs per week in summer, no exaggeration) landscaping and tending the garden. Landlord pays $50 per month + a couple hundred on materials, which is fair enough by him, no complaints about this behaviour as I guess he could just go back to getting a guy to hit it with a petrol strimmer once a month to whack the weeds down as he used to before us. I am sure it adds something to equity, though; the neighbours are so pleased that they don’t live next to weedy wasteland any more.

Our shower leaked through the floor for three months before the landlord finally came to repair, himself. Leaked again after two weeks, landlord (more accurately his brother, but they are interchangeable) came a month later. It still drips. There is a huge fungus/mold patch in the laundry room wall where the water went, and a hole in the ceiling where he fixed it. The beam holding the ceiling is rotted and green with fungus.

Every few months people knock on the door and tell us that the gutters are overflowing with leaves and totally blocked. Landlord doesn’t care.

Other shower leaks through the tap so barely any flow makes it up to the shower head… landlord promised to come back. asked him four times before giving up. Three years later, still leaks the same way. Father in law just showers in the meager flow.

Tap handles dropped off in other shower. I just bough replacements from home depot. Shower dripped for a year before drip turned into pour. (had long since given up on landlord coming). Had to shut off mains at midnight, open it up and put washer in backwards to stem flow overnight. Next day, mains off, trip to Rona with stem and washer, come back and replace. How lucky is the landlord that I own a 7/8ths socket?? a plumber outcall at midnight is what my wife would have done.

We have mice. I bought traps and battled them for a year, killed around 35. mice disappeared. came back this winter. I bought more traps. landlord no intention of getting pest control. Still spend hours each week trying to catch one. landlord paid for traps.

Deck stairs rotted and last two steps collapsed. We step down gingerly. One year already.

Oven part of gas stove failed. Repairman said 420 in parts to repair. Landlord told us he did not want to pay for a gas range, we tell him we prefer gas. He planned to buy cheapest electric replacement he could find ($340). waited several days, then, last week he tells me he was too busy, so maybe next week? I said wife wants to bake for christmas. He says ok, will you come and help me carry one from other rental property. I donate 4 hours of my time. We carry stove here, carry old one out. New stove doesn’t fit. We have to move all food out of kitchen, tape up cupboards, cover everything with sheets so he can cut the countertop.

After all this, and several other repairs I can’t remember, I blow my fuse finally and ask him to reduce the rent by $25 a month (off $1800, or $2600 including other suite). He initially thinks I have asked him for a one-off payment of $25 and agrees readily. Once the confusion is resolved he gets angry and thinks I am blackmailing him. we have an argument for about an hour before he agrees to try it; in return I will maintain the house to whatever extent I can.

On the flip side, he doesn’t bother us much with inspections or busybody nosiness… that’s a good feature. He is a nice guy, but I can’t stand his save-every-cent-I-can attitude. I believe he is either ignorant (unlikely) or just anticipates land value only, tear down and rebuild, so won’t invest anything in maintenance if he can avoid it. He tells me that I am the first tenant that complained about having to fix stuff ourselves. He says that his other tenants are very happy to just hand him receipts for “whatever needs to be fixed that they fix”. Of course, I am happy to save himself and myself some money too, if I can take care of the repair myself, but I told him it’s only fair he share the savings. I suppose we could pressure him to fix stuff, but he could just raise the rent by maximum allowed every year as our previous landlord did, but then we will be forced to leave. He has increased it once by the maximum in three years, so keeping pace with inflation.”

[cited in ‘Renters’ side-bar]

Realtor Slip – “Instant Crashflow Investment”

MLS V860846 3694 NORMANDY DR, Renfrew Heights, Vancouver East, $789,900.00
“REVENUE ALERT! An instant crashflow investment. This Beautiful renovated home conveniently located close to shops, transit, schools and skytrain. … [etc]”
[hat tip to scoop at]

Exquisite Malevolence – Vancouver RE Bull Uses ‘It’s A Wonderful Life’ Quotes To Torture Bears On Xmas Day

For at least five years, there has been fluctuating online animosity between Vancouver RE bulls and bears. The intensity ebbs and flows. High emotion is an inevitable component in a market as distorted as ours.
The Christmas Day post below, initiating a thread at at a largely bullish local blog, reaches such an exquisite point of malevolence that even other bulls admonish the poster.
Archived here to record the sentiment; it will also be referenced in the ongoing ‘Bull Hubris’ sidebar collection.

eyesthebye at RE Talks 25 Dec 2010 11:59pm
“It’s A Wonderful Life
Thought these quotes were appropriate – given the holiday season and on topic for this site.

– “They had to wait and save their money before they even ought to think of a decent home. Wait! Wait for what? Until their children grow up and leave them? Until they’re so old and broken-down that they . . .”
– “Fifteen years ago, a half-dozen houses stuck here and there. There’s the old cemetery, squirrels, buttercups, daisies. Dozens of the prettiest little homes you ever saw. Ninety per cent owned by suckers who used to pay rent to you.”
– “You know, George, I feel that in a small way we are doing something important. Satisfying a fundamental urge. It’s deep in the race for a man to want his own roof and walls and fireplace…”
Hope you bears fulfill your fundamental urge for the coming year..
Merry Christmas and all the best for 2011.”
image above was inserted into the post here]

geezer responds 26 Dec 2010 2:39am
“Keep up the petty and inappropriate gloating ETB, you are going to look sooooo dumb if the market has a major correction. How will you feel if [the bears are] right? I am beginning to understand [their] hostility to bullish sentiment, it is probably caused by people like you.
What if your old house drops to $100k below your purchase price and mortgage rates hit 12%, then you discover you need a new roof or foundations, or both? Any one of those events is well within the bounds of possibility.
I’m a long term bull on Vancouver but I’ve lived through huge price reversals before, if you believe in karma you are begging for a collapse.”

TPFKAA – “Like many people I have been trying to save with my wife for the past four years, with the end goal of buying a house”

Just three or four short days ago ‘anonymous’, the poster now known as ‘The Poster Formerly Known As Anonymous’ (‘TPFKAA’), started treating us to anecdotes in the VREAA comment sections. We’ve already headlined one of their composite anecdotes [Spot The Speculators #22; 23 Dec 2010], and will headline others in the near future. And there will be even more to follow, we hope.
Here’s TPFKAA’s own story, edited and compiled from various posts, 22 to 24 Dec 2010, at VREAA:

“I have been a blog reader for the past few weeks – it has been eye-opening. I have since been collecting my own anecdotes. I have “vectored” in to this site to share my experiences, as limited as they are. I felt it my duty to share with others as they have generously shared – I owe a debt of enlightenment to the many who bothered to post real stories from their lives, in keeping with the spirit of this forum. I (have gone) a little evangelical on the postings volume, I must admit, and for this I apologise. I had a lot of anecdotes built up over the past month that I felt would be of interest. [No need for apologies, the anecdotes are appreciated. -ed.]

Like many people I have been trying to save with my wife for the past four years, with the end goal of buying a house – (we actually wanted a small condo or townhome but have her father living with us, and with two kids, there are very few that have enough bedrooms. One thing I don’t understand is why virtually no one builds four bedroom apartments or townhomes – they are surely more economical than SFHs?) We were despairing of ever being able to afford anything large enough. I was looking as far out as Mission (we work in Vancouver, rent in Burnaby). One day I just got sick of every minute of every day thinking about how I could spend less and save up fast enough to get in to the market, and did a little search on Google for “average Vancouver house price” to see what information I could uncover to get a glimpse at future house prices. I came across Vancouver Condo info’s rollercoaster, saw the charts, and in rapid succession hit VREAA and Garth Turner’s blog. Read every Froogle Scott episode (loved the writing and the detail) – and months of archived blogs and anecdotes. The wife says I am obsessed.
I think it’s fair to say my world shifted on its axis. Since then, I have been asking subtle questions of anyone I encounter (it’s surprisingly easy in Vancouver, in 2010, to ask highly personal questions like how much did you spend on your house! amazing…) and my findings astonished me. The one question that had been puzzling me was the HAM or Hot Asian Money hypothesis, that had all my family members believing prices will NEVER come down in Van. So I got my realtor landlord into a discussion and worked my way to asking how these investors get the money. He volunteered all of the above. I should mention that together with his brother, he also manages 19 properties for investor clients, taking care of renting them out, maintenance etc. (his brother does the legwork, gets a small rent based commission, and together they share the commission from the eventual sale of these investor properties.) All these investor clients are living in Van, and own one or more investment properties in addition to primary residence. Most of them bought in around ten years ago, however, so they truly are long term investors.

I will keep asking around for more information. As far as I see it, there are two possible outcomes to this real estate conundrum:
1) Chinese and other foreign investors keep coming with enough cash and overseas income to buy up all Westside and work their way east with tear-down and rebuilds, with no need of local jobs. Local wage earners unlucky enough to be left behind in the property market rent or leave. That would include us. A skeleton crew of baristas, mechanics, retail staff, Ferrari and Lamborghini salespeople and check out clerks live in rent assisted social housing islands in a sea of uber wealthy, world’s-elite-with-a-penchant-for-temperate rainforest-climate-owned mansions. What happens to the local economy next I am not smart enough to figure out.
2) Many of the overseas investors are overleveraged in a speculatory bubble, both in their home markets (esp. China) and here. Rising interest rates and falling prices sap their will to buy higher. Depending on events in China, prices either decline calamitously or grind down slowly as per Garth Turner until they rest somewhere slightly above where fundamentals would put them, so about 4.2 price to income ratio (Vancouver seems to always have been above fundamentals. (grow op income perhaps?)
People continue to buy in preference to renting because of the homeowner premium. (as a six year renter since I arrived in this god-forsaken city I am prepared to pay slightly over to not have to deal with the landlords here – words cannot describe how cheap they are and how much it annoys me to have to spend money and time on making repairs because they never show up and I worry that they will raise rent every time I make them fulfill their legal obligations and actually spend the money on repairing dripping taps, leaks, broken stairs, etc.)

So that’s my take. I will keep collecting information to help the blogosphere decide where this will end.

As a new-ish Vancouverite who has lived in Italy, Spain, UK, Finland, Japan, even Albania albeit briefly, and traveled in 28 more countries, I want to tell something to all of you: read my lips very carefully:
It’s just like every other place, ok in some respects, sucky in others, great in a few. Get your heads out of your asses. It’s almost embarrassing telling people from other parts of Canada where I live, as I inevitably get tarred with the same brush of arrogance.

In my case, housing in Vancouver wasn’t affordable 4 years ago, and it isn’t affordable now. If it were affordable I’d be mortgaged to the hilt just like everyone else, nervously biting my bull hooves hoping that all these have-nots posting away into the night are wrong. I didn’t try to outsmart the market. I came within 10,000 more saved dollars of pathetic little downpayment to springing for a 1950s bungalow on an easement in Surrey backing onto railway land that if BC rail decided it needed, would cut the corner of the house off. Well, the 10,000 wasn’t as big an obstacle as the wife’s reluctance towards the place.”

“I just wanted to share a conversation I had with a good friend of mine as he announced he was going to buy a place.”

El Magnifico at VREAA 25 Dec 2010 12:24pm
“I just wanted to share a conversation I had with a good friend of mine as he announced he was going to buy a place. It really highlights well what is called “the emotional factor” when it comes to buying real estate. Hopefully this conversation will be useful to some other people…

Hi (…),
I hope you’re doing well. I was also apt hunting recently, until I learned more about the real estate market in Vancouver… I’ve decided to hold off for for a couple of years and see what will happen.
I read a lot of articles, blog, etc… You may want to hear what these people have to say about the Real Estate market in Vancouver. Here are some of the most useful links I found:
Good luck!

My friend:
Hi (…),
Hope all is well with you too!
Thanks a lot for the information. I surely won’t dare to disagree that the risk of a potential real state crisis has increased due to the low interest rates, easy credit, and consequent increasing household debts, etc.
However, since I arrived in Canada some people have been expecting a real state crash in Vancouver for different reasons: 2008 financial crisis, the olympic games; etc.
On the other hand, some other people think that real state prices in vancouver will never drop significantly, due to the shortage of available land…
Meanwhile, I now realize that I have spent over $75,000 to pay for my rent in the last 3.5 years… and I will never see this money again, that’s for sure…
I mean, I totally see your point, and actually nobody can be sure if a mortage will or will not be a good deal at this time…
I really don’t know who is right or wrong… and so I guess I will keep looking around and I think I will probably buy a place if I see a good opportunity on a place that I like. Besides, it’s probably better to buy now, when interest rates are low, than the opposite…
Anyway, we should keep discussing about that… I think it can helpful to the both of us in trying to make lucid decisions.
Thanks again and let’s try to get togetehr for a beer or coffee sometime soon.
I take this opportunity to wish you, (…) and your baby a very Merry Christmas and Happy New Year!!
Talk soon,

Hey (…),
Good to hear everything is well for you! (…).
Somehow, I’m glad I didn’t buy any real estate as I would have been such in trouble to sell it off (the market is dead right now, -35%ish for saleq compared to last year…).
I’m glad you are aware of the potential risk for a real estate crash. The intent of my first email was simply to make you aware in case you were not. As we say in french “un homme averti en vaut deux” which means something like “one knowledgeable man is worth two men”.
If I can only give you a few advices to you in making the biggest investment of your life (unless your business becomes so successful that you can afford all these millionaires’ toys), there would be as follow:
– be always careful of what real estate agent and their board say. Trusting them regarding real estate analysis is like trusting your drug dealer when he says heroin is good for you! They have a vested interest in keeping the market going up…
– when you compare renting vs. owning, make sure that you take into account all the costs of ownership. As a renter, you don’t have to pay for property taxes ($1,500 a year), strata fees ($400 to $500 a month in the nicer buildings in downtown) and the maintenance costs (so many people bought condos in leaky buildings and had to pay 50 to 70K in rainproofing… that really hurts!). All in all, ownership costs are really expensive too.
– Don’t forget that when buying a place, you’ll have to pay 7% of commission fee to your real estate agent. On a $450,000 property, this is $31,500 (not far from half what you paid in rent in 3.5 years in Canada!), money that you will never see again too.
– remember that if you don’t have 20% of down payment, you’ll be required to pay for the CHMC insurance, which will be a significant additional burden to your mortgage payments.
Coming back to the argument of buying when interests are low, it is actually a bad idea, and it’s counter intuitive. Let me explain you. When people buy a house, they look at what they can afford and usually bought the biggest house/condo they can afford (property cost + interest cost). This is ok in countries like US or France, where mortgage interest rate is setup for the entire duration of the mortgage. In Canada, however, mortgage rates are reset every 5 years. I let you imagine what happened when a family that has bought to the maximum of their ability, at emergency low interest rates, see their mortgage payment doubling because their mortgage rate has been reset much higher 5 years later… This is what, in my opinion, will create a real estate crash throughout Canada. When the Bank of Canada will increase the prime rate, people will see their mortgage payment increase and won’t be able to face it, and therefore be forced to sell…
On the other hand, if you buy a place at a time where interest rate are high, the cost of your mortgage payment are likely to be lower when your mortgage rate is reset after 5 years. Today, it is the opposite. Interest rate can only go up, and therefore mortgage payment will go up significantly for most of the people.
Regarding the argument of available land in Vancouver, I don’t really buy this argument. There were so many special places in the US (Florida, California, Nevada, etc.) that, despite great features/qualities, have lost more than half of their values that I don’t think this argument is very solid. What I see is that prices in downtown Vancouver are now similar to prices in Manhattan and double the prices in Seattle. There is no rationale reason for that…
The last thing that I wanted to share with you is what I discovered when looking at mortgage payments. Initially, the first few years, your mortgage payments are split as follow: 80%ish to interest and only 20%ish to your principal. That something I didn’t know and found totally unfair and outrageous. Somehow, the first few years of your mortgage, you more renting the place to the bank than owning it…
Anyway, it’s a very long email. I wanted to share with you my thoughts and discoveries regarding RE. I was in the same seat as you and I didn’t buy, and now I’m leaving, I’m so glad I didn’t.
I hope this email will be useful to you. I’ll organize a small farewell gathering before I leave (…).
Cheers buddy !

Hi (…),
Excellent reasoning, thank you so much for taking the time to share, I really appreciate it!
I did become aware of the issues you mentioned above when I first thought of buying a property here in Vancouver, in early 2009. I agree with you in most of them (and that’s why I gave up the idea of owning a real estate property in Vancouver, back in 2009).
In some other aspects I think slightly differently from you, more specifically regarding the interest rates and ownership costs (but I won’t get into details here, because I don’t want to make this a boring discussion to you, as I’m sure you have more important things to think about(…).
(…) I’m now also considering some aspects of ownership that are less of financial relevance (but not less important) and more of personal nature, and therefore difficult to be quantified, because their effect and value can significantly vary from person to person.
All in all, I’m still inclined to jump into the owners side, if the right opportunity comes.
Well, thanks a lot again (…). I really appreciate your analysis – definitely very useful.
Hopefully I will see you soon then!

“Here Is My Bear Household Profile…”

‘WFT?’ at December 15th, 2010 at 10:43 am
Here is my Bear household Profile:
Cash invested in low risk assets: $1,200,000
Annual income from investments: $60,000
My annual income as a lawyer: $165,000
Wife’s annual income as a doctor: $150,000
Rent: $1800/mo (2 bedroom south false creek)
Do I have money to buy a house? Yes.
Am I stupid enough to do it? No.
With my investment income alone, I can live in a mansion in Shaugnessy.

$5000 / 4br – Ideal Shaughnessy House For Rent –
Ideal Shaughnessy location, quiet neighborhood. 80’x150′ lot with a beautiful 4,044 sf character home. 4 large upstairs bedrooms with walk-in closet in each. New kitchen and large deck off the kitchen. New carpet in basement. Local access street. Only one block away from prestigious private schools.

Why would I buy that house for 3.5-4 million and have it eat up my invested savings, and spend all my take home salary on mortgage payments every month?
In other words, if I can live in that house using my $1,200,000 in savings, why would I spend those savings AND borrow a few million more to live in the same house?
Please, bulls, give me one good reason why I should buy that house?

Spot The Speculators #22 – “The realtor himself owns four, rented out, and plans to sell and retire with the equity a few years from now.”

anonymous at VREAA 22 Dec 2010 at 9.35pm“I was told by a realtor dealing primarily with the Chinese segment [of the market] that many of the purchases are investment properties bought by people already here, using their first home’s equity as leverage to get a downpayment AND mortgage. As for overseas purchasers, they put down 40% cash and the rest is a mortgage from a Canadian bank. In fact, he told me many take out mortgages here with the favourable rates, and invest them in China and pocket the difference in interest!
The realtor himself owns four, rented out, and plans to sell and retire with the equity a few years from now.”

[Cavalier speculation by locals is rife and has been the major engine for this bubble. A large number of owners have “plans to sell and retire with the equity a few years from now”. Only a very small percentage will realize their dreams. -vreaa]

Don Coxe: “I see a price bubble.” … Nicole Foss: “Me too, a very big one. I could see real estate falling 90%.”

For the chronological record, a bearish commentary (Coxe) and an ultra-bearish prediction (Foss) made the blogosphere news today:

“Canada continues to experience a real estate bubble” – Don Coxe, Coxe Advisors, Chicago [In ‘Basic Points’, 15 Dec 2010, distributed by BMO Capital Markets]

“We are in a massive bubble and there will be an enormous comeuppance. Canadians are tremendously in debt.” … “I could see real estate falling 90%”Nicole Foss, of the Agri-Energy Producers’ Association of Ontario, and author of The Automatic Earth blog, on Max Keiser’s Keiser Report (E105), Dec 2010

[We think 90%-off is too bearish. But the direction is correct, as is the concern that there are big challenges ahead. FTR, our estimates are 50-66% off for Vancouver. -vreaa]

“I don’t see a price bubble”

“I don’t see a price bubble and I don’t see that we need the mortgage criteria tightened as is suggested in some quarters”Helmut Pastrick, chief economist of Central 1 Credit Union, Financial Post, 19 Dec 2010

[Quote also archived in the ‘What Bubble?’ side-bar]

Central 1 Credit Union is the umbrella organization for credit unions in British Columbia and Ontario. Member financial institutions have nearly three million customers and hold about $70-billion in assets, the lion’s share of which are in British Columbia, home to some of Canada’s most expensive housing markets.

“I’ve been trying to get my Mom, who lives in Richmond, to sell for $750k and down size to a 2 bdrm apartment/condo to secure the cash. She won’t do it.”

$froma$ia at 20 Dec 2010 at 12:55 am“For the last 6 months I’ve been trying to get my MOM, who lives in Richmond, to sell for $750k and down size to a 2 bdrm apartment/condo to secure the cash. She won’t do it. I asked here if she has anymore earning years left in her 76 year old body… She says no.”

Abbotsford – Unsold Inventory; Unemployed Contractors

metalhead at RE Talks 12 Dec 2010 1:16pm“I had lunch with my concrete finishing buddy on Friday. He said it’s really slow right now, which is not unusual for this time of year but what really worries him is his usual contractor clients are telling him they plan to do nothing for at least the first part of next year too. One of his competitors has already shut down completely and started a different job.
Not sure what all this means for now. They probably over built in 2010 by looking at all the new houses sitting unsold out here. It will take awhile for that inventory to be absorbed. Abbotsford isn’t exactly booming right now.”

“In Vancouver there is no economic engine driving the local economy other than Real Estate. An economist at one of the local business schools said it’s like watching a game of Kerplunk.”

‘Fool me once…’ at 20 Dec 2010 1:10am“I have spent all of my 50 years here in Vancouver. … This was a beautiful spot to grow up and raise a family. Was being the operative word. There is no economic engine driving the local economy other than anything related to Real Estate. This includes construction as well. Most of the local activity is supported by this sector. An economist at one of the local business schools said it’s like watching a game of Kerplunk, all the balls are still in play, but there’s only one stick left to hold them up. The stick is going to come out at some point of the game.”

How Is A Bursting Asset Bubble Like A Sinkhole?

A sinkhole opened up on Vancouver’s SE Marine drive on Sunday 12 Dec 2010. We featured an early picture of the beast in an earlier post.

Well, it has grown. As have estimates as to how long it will take to repair.

“Vancouver’s giant sinkhole on SE Marine Drive near Fraser Street likely won’t be filled in until Christmas Eve at the earliest, according [to] city officials. The city’s manager of street operations Murray Wightman says it’s taking longer than originally hoped to get the busy stretch of road drive-able again. “The plan for now is possibly by next Friday that we can come in and get a surface on the road and then get it opened up. It will be a temporary patch but we can get it opened up. Wightman says a permanent repair isn’t likely to happen until the end of January. The giant sinkhole 14 metres across and several metres deep opened up in the middle of the busy road on Sunday, but fortunately nobody was injured. Officials have yet to say what caused it.” – from CBC, 17 Dec 2010

How Is A Bursting Asset Bubble Like A Sinkhole?

It’s kinda man-made but it also involves raw forces of nature.
Everything seems fine until the pie-crust breaks.
It’s far from clear where the bottom is.
‘Nobody’ is sure what caused it.
It’s very hard to repair.
It seems to have a life of its own.
Everybody is puzzled: Surely they can step in and repair this? What’s taking so long? Surely the authorities should get control and sort this out?

Learning From Isaac Newton – “I know quite a few people who sold at peak just before the 2008 correction. Their plan was to buy back in at lower prices. They are all now waiting and losing pace to the market every month.”

eyesthebye at RE Talks 18 Dec 2010 12:24pm“I know quite a few people who sold at peak just before the 2008 correction. Their plan was to buy back in at lower prices. Guess what? One is still living with her folks, another can now only afford a townhouse, and a couple more are renting, waiting and losing pace to the market every month. If I ever decided to sell it’ll be because I have an accepted offer on another house. Check how many “smart” waiters/renters there are on this site [RE Talks]. Waiting to buy real estate is the dumbest strategy… better to buy real estate and wait.”

Learning from Isaac Newton’s experience:
Okay, these players could listen to their friend ‘eyesthebye’, and plunge back into the bubble market ASAP (buying even less for even more; exposing themselves to the market, again). Alternatively, they could stick with the conviction that led them to sell in 2008 (that Vancouver RE was ridiculously overpriced and due for a big correction) and stay out of the market.  If they take the latter course they will,  in our opinion, ultimately prevail, and then some. In the coming crash prices will likely drop far, far below those of the 2008 peak.
During the South Sea Bubble, Isaac Newton, perhaps the brightest guy on the planet at the time, made a lot of money selling into the first half of the run-up. Then, enticed by the promise of further gains (and, who knows, perhaps because of the taunts of the early-1700s likes of ‘eyesthebye’) he stepped back in, just in time for the final peak ‘n plunge. He lost 20 thousand pounds, at a time when ‘a middle class family could live very comfortably on 200 pounds a year’. If he’d simply stayed out of the market and waited, he’d have been one of the  very few people who made money out of the bubble. -vreaa

“The maxim that credit was not wealth unless it rested on a wealth-producing asset had been ignored”. – John Carswell, historian, ‘The South Sea Bubble’, (1993)
“Snap; ditto.” – Vancouver RE 2010

Stealth Speculators & Shadow Inventory – “I am an owner who is again thinking of selling. A 10-30% hit I could handle. Any greater than that and I will regret not cashing out.”

There has been much discussion this week about debt, and about the likely effects of probable upcoming stricter mortgage criteria and rising interest rates on the Canadian housing market. Those are obviously important factors, and a tightening of finance may well be the precipitant that finally breaks this hardy camel’s back.

But, when it comes to the main engine that will accelerate a crash; the factor that will turn a shallow pullback into a dizzying plunge; we have long been most impressed by the effect of ‘shadow’ inventory. We believe that there are many Vancouver owners who are ‘stealth’ speculators, meaning that they have bought or are holding properties purely because prices have been rising. We suspect that a very large number of these properties, including personal residences, will come into the market in attempts at locking in profits or minimizing losses. With dropping prices, the reason for holding will disappear. Waves of inventory will cause prices to drop well beyond that which the consensus deems possible. There is the very real possibility that the selling will reach panic intensity.

Bulls who currently point to apparent unlimited demand and limited supply are not taking into account the dynamic nature of both supply and demand. When prices start their decline in earnest, both will change profoundly. This can happen very quickly.
Speculative demand (largely local) will disappear. Why buy a cash flow negative property in a price dropping environment? Why overextend to pay 10 times your annual income for a home that is dropping in price?
Supply will become plentiful. It will only take a small percentage of owners, perhaps just 4-6%, to decide to try and cash in at the same time for the market to crash.
Only a very small percentage of bubble participants get out with profits.

‘vancouverowner’ [RE Talks 14 Dec 2010 10:21pm] writes

“As an owner sitting on a significant cushion (greater than 50%), I am again thinking of selling. I’m comfortable and my payments are virtually nil (tenants in the basement) but a capital gains hit will annoy me (at the least!) if we get hit as hard as the States has (and they look like they are in for another leg down). 10-30% I can handle. Any greater than that and I will regret not cashing out.”

This anecdote is extremely valuable as, we believe, it reflects the kind of thinking that is going on in the minds of many Vancouver owners. Some are getting wind of the possibility of price pullbacks, they are considering the possible effects of such pullbacks, and they are weighing their strategies. Do I wait or sell? If I don’t sell, at what point would I sell? How much of my paper profit could I stand to watch disappear? If we get to 30% off, how do I know it won’t hit 50%, 60% off? Shall I stay or shall I go?
Note that this owner is not somebody who is distressed. They are comfortable from the financing perspective. But they have a speculative component to their reason for holding their property, and that makes them a potential seller in the face of a downturn.
There are no karma points for riding markets up and down.

CBC – Repeat After Me: “An Investment For Real Estate Doesn’t Make Me Nervous”

What is it to be? One day after appropriately scaring the socks off the populus with warnings regarding precarious debt levels, the CBC marches out a mortgagee and two shills to reassure everybody that it’s perfectly fine to keep fighting the good fight and piling on the ‘Good Debt’ (by buying even more RE).
Watch the end of the clip for the mortgagee interrogation. Convinced? Neither were we. Note the eye roll, the verbal hesitation, the faux ‘strong’ stance. He’d earlier called his debt “daunting”.  Also note the quirky phrasing: “an investment for real estate doesn’t make me nervous”. More like some kind of sacrifice; like dying ‘for’ a cause.

And then, to confuse everybody further, the CBC ends the piece with a warning about the interest rate ‘Wild Card’. Perhaps they’ll retract that tomorrow.
Some nice drive-by shots of very overpriced Vancouver westside homes.
The wise are nervous at this point.

CBC’s ‘The National’, 14 Dec 2010, a follow up to a piece the previous day that had echoed the harsh words of warning from BOC Governor Mark Carney. Reproduced verbatim and in entirety. [hat-tip ‘Re-diculous’ at VCI] –

“Well we hope we didn’t scare some of you last night with that story of how Canadian’s now carry more debt than Americans, and how debt here is more weighted to mortgages than credit cards. Some actually call that “Good debt”, but is it putting Canadians in a bad position?”

“Like lots of small business owners, Kevin  Barrett has to watch his finances carefully, and even though his personal debt is more than $300,000, he’s not too concerned because almost all of that is his mortgage on his condo”

[Barrett]: “The number is a little daunting to think about, sometimes, but I think about it long term, I try not to think about it today. I think about what it’s going to mean to me five, ten years from now.”

“Barrett is an example, say some experts, why rising debt levels in Canada shouldn’t necessarily cause alarm. He’s building equity in his home as it rises in value.”

[Pastrick]: “From time to time we do see declines in housing values, but over longer sweep of time, residential value housing prices have increased, er, over time.”

“Now, you may be thinking about what happened south of the border, houses were built for frenzied speculators, and prices crashed.”

“But even in a city [Vancouver] where average looking homes like these are selling for a million dollars, this market is much different from the States for lots of different reasons, including:…”

[Somerville]: “Looking at Vancouver, we just don’t have the excess supply that you’d need to get the crash that’d make it look like the sort of things that you see in the United States.”

“Add to that, Canadian’s have built up more equity in their houses, than Americans, owning on average 50% of the value of their home. The bottomline: A less volatile, more secure housing market.”

[Hannomansing]: “Three hundred thousand plus is a lot of money, does it ever make you nervous?”

[Barrett]: “No, …er,.. an investment for real estate doesn’t make me nervous”

[Hannomansing]: “Of course the wild card is interest rates. At historically low levels now, the BOC Governor has pointed out there is no guarantee how long they’ll stay there.”

Watershed or Landmark? – Carney, Flaherty, Harper All Warn – Risk Of “Brutal” Reckoning

Perhaps a watershed; at least a landmark. Very strong warnings this week from Mark Carney, Jim Flaherty, and Stephen Harper have been widely quoted all over the RE blogosphere. We post them as a bookmark,  for the sake of being able to reference them as having occurred ‘here’ in our ongoing chronology of stories from the Vancouver Bubble ‘n Bust. -vreaa

From Remarks by Mark Carney, Governor of the Bank of Canada, Economic Club of Canada, Toronto, 13 Dec 2010
“Historically low policy rates, even if appropriate to achieve the inflation target, create their own risks. Aside from monetary policy, Canadian authorities will need to remain as vigilant as they have been in the past to the possibility of financial imbalances developing in an environment of still-low interest rates and relative price stability. …
The perception of low rates for long [can] potentially distort behaviour in public, financial, corporate and household sectors. …
Encouraged in part by low interest rates, Canadian household credit has expanded rapidly during the recession and throughout the recovery. As a consequence, the proportion of households with stretched financial positions has grown significantly.
In a series of analyses over the past year the Bank has found that Canadian households are increasingly vulnerable to an adverse shock and that this vulnerability is rising more quickly than had been previously anticipated. …
Without a significant change in behaviour, the proportion of households that would be susceptible to serious financial stress from an adverse shock will continue to grow. …
Owing to the declining affordability of housing and the increasingly stretched financial positions of households, the probability of a negative shock to property prices has risen as well. …
Even if the growth in debt continues to slow, the vulnerability of Canadian households is unlikely to decline quickly given the outlook for subdued growth in income. In addition, private consumption is unlikely to be bolstered by gains in house prices going forward. …
Prolonged periods of unusually low rates can cloud assessments of financial risks. …
The Bank’s advice to Canadians has been consistent. We have weathered a severe crisis–one that required extraordinary fiscal and monetary measures. Extraordinary measures are only a means to an end. Ordinary times will eventually return and, with them, more normal interest rates and costs of borrowing. It is the responsibility of households to ensure that in the future, they can service the debts they take on today. Similarly, financial institutions are responsible for ensuring that their clients can service their debts. …
Low rates today do not necessarily mean low rates tomorrow. Risk reversals when they happen can be fierce: the greater the complacency, the more brutal the reckoning.”

“In the housing market, the Canadian government has already taken important measures to address household leverage. These include a more stringent qualifying test that requires all borrowers to meet the standards for a 5-year fixed-rate mortgage as well as a reduction in the maximum loan-to-value ratio of refinanced mortgages and a higher minimum down payment on properties not occupied by the owner. In addition, the Bank of Canada’s interest rate increases reminded households of the interest rate risks they face. These measures are beginning to have an impact. Canadian authorities are co-operating closely and will continue to monitor the financial situation of the household sector. These defences should go a long way to mitigate the risk of financial excesses. But the question remains whether there will still be cases where, in order to best achieve long-run price stability, monetary policy should play a supporting role by taking pre-emptive actions against building financial imbalances. As part of our research for the renewal of the inflation-control agreement, the Bank is examining this issue. While the bar for further changes remains high, the Bank has the responsibility to draw the appropriate lessons from the experience of others who, in an environment of price stability, reaped financial disaster.”

“These are extraordinary times. A massive deleveraging has barely begun across the industrialised world. …
The challenges we face have only just begun.
Cheap money is not a long-term growth strategy. Monetary policy will continue to be set to achieve the inflation target. Our institutions should not be lulled into a false sense of security by current low rates.
Households need to be prudent in their borrowing, recognising that over the life of a mortgage, interest rates will often be much higher. …
Now is not the time for complacency.”

Mark Carney in interview on BNN 14 Dec 2010
“You always get yourself in trouble if you only lend on the basis of assets, ultimately the debt service is as important, the debt endures, the asset prices go up and down.. And, when countries have got themselves into trouble in these situations, … to only look into that aspect of it is to make the classic mistake… When you have, in fact, asset based lending, which then drives asset prices up for a time which then allows more asset based lending and consumption until it doesn’t. And then when the cycle reverses it’s pretty brutal, and the debt endures. People in Ireland, people in Iceland, people in the United States, who took out big mortgages on assets that were worth a lot more for a long period of time found out that the assets not worth very much but the debt is the same as when I took it out.”
“No country can grow debt faster than income persistently.”
“Debt levels are unprecedented in this country.”
“The level of vulnerable households is high.”

Finance Minister Jim Flaherty 13 Dec 2010 – “Our parents were more inclined to pay off that mortgage as soon as possible, and some Canadians are not as inclined to do that now. I encourage them to do it. The fear is that were we to see sharp rises in interest rates or were we to see sharp rises in unemployment, that a significant number of people might not be able to afford their debt obligations.”

Prime Minister Stephen Harper 13 Dec 2010 – “We are a free country and people are entitled to make their own financial decisions. This is a matter that is of concern to the government, we continue to warn Canadian households that interest rates are unlikely to go down.”

Local Realtor’s Bullish Predictions – “Sorry, but you’re wasting your time with these charts. They mean nothing. There are only three factors: Supply of Buyers, Buyer’s access to funds, Supply of Sellers.”

Local realtor Will Wertheim laid out a bullish case for Vancouver RE in his comments [3 Dec 2010 10:18am] on our recent post presenting a technical analysis of the Vancouver RE price chart [Five Charts: Predicting Future Vancouver Housing Prices, 11 Sep 2010]. Will’s argument is headlined here, for the record, and our own comments on his predictions follow.

“Sorry, but you’re wasting your time with these charts. They mean nothing. There are only three factors (two related):
– Supply of Buyers, and
– Buyer’s access to funds
– Supply of Sellers

Like it or not you have to agree that there is a large enough pool of buyers out there right now and that will not likely dissipate over the next two years (as your hopeful charts try to say). Many of these buyers are not of local means. As long as these buyers have access to cheap money (be it offshore or through low interest rates) they will buy. The price balance and pressure is due to the small availability of homes for sale. As long as many homeowners are living in their homes and not listing them, supply will remain tight.

What happened in 2008 was an incredible event of such mind boggling reach. From media and those “in the know” a global crisis of confidence occurred. I knew (but did not realize its magnitude) of it coming about a year before it did from some higher-up bank VPs (no, I will not disclose who said what to me but they were a client who did not go forward on a deal and then proceeded to lose quite a bit of their investment equity, at least on paper). It stretched out into every sector of the consumer’s mind and retailers/sellers struggled to move any sort of product. What a great time to buy it was (in hindsight).

Now, what would have happened if that bubble didn’t burst? If there was no 2008 crisis? And where would we be today if the 2009 recovery didn’t happen? Doesn’t matter.

Fact: We don’t have enough land in the areas people most want to live for the type of homes most people want (westside detached).
Fact: We don’t have a high turnover of homes coming onto the market and likely won’t for a very long time.
Fact: Vancouver is desirable for a great many people, particularly those from outside Vancouver. I see that every day and hear it from tourists and foreign buyers.
Fact: Interest rates are low and general consensus is that they are unlikely to rise much over the next year or two. Beyond that, unknown.
Fact: Yes, unaffordability for locals is obscene. You’re talking average prices but as you know, that average house is pretty darn poor. While the average may be $1m for REBGV, on the West side it is $1.6m. The result is that locals will continue to migrate East where it is *cough* “affordable” while only those of generous means will be buying up the West maintaining that high average.

My bet: somewhere between 4 and 5. Not as low as 4 and not as high as 5. Unless another crisis of confidence spurs a massive dump of listings and a disappearance of money.”

Our comment:
We welcome Will’s opinion and will take the opportunity to discuss it.
He sees as highly probable a mix of scenarios 4 and 5; scenarios that, in our original post, we weigh as having just 15% and 3% probabilities of playing out, respectively. So we differ substantially from him in our outlook on the markets.

Will’s position really comes down to a ‘demand-will-continue-to-overwhelm-supply’ argument:

1. Demand will remain high
– “(the) pool of buyers out there … will not likely dissipate over the next two years”
– “Vancouver is desirable for a great many people, particularly those from outside Vancouver.”
– “locals will continue to migrate East , … while only those of generous means will be buying up the West maintaining that high average.”

2. Supply will remain low
– “We don’t have enough land in the areas people most want to live for the type of homes most people want (westside detached).”
– “We don’t have a high turnover of homes coming onto the market and likely won’t for a very long time.”

3. Money will remain cheap and available
– “Interest rates are low and general consensus is that they are unlikely to rise much over the next year or two.”

Will is essentially saying “Things that have been happening will continue to happen, so price rises that have been happening will continue to happen.”

Will offers us caveats, but simultaneously downplays them:
– “As long as these buyers have access to cheap money (be it offshore or through low interest rates) they will buy.”
– “As long as many homeowners are living in their homes and not listing them, supply will remain tight.”
– “Unless another crisis of confidence spurs a massive dump of listings and a disappearance of money.”
He mentions these caveats in passing, but when it comes to factoring them into the final probability outcome, he appears to ignore the possibility (probability?) of any of these things coming to pass.

This is the difference between the bulls and bears at present.
The bulls say that things have gone well so far, despite the ‘crisis’ (the ‘Great Recession’), and thus, things are expected to continue to go well.
Bears say that, somehow we may have missed the bullets thus far, but there are so many potential downside risks, we’re expecting at least some of them will come to pass. And it’ll only take one or two of them to start a price avalanche. Bears give weight to factors other than ‘supply’ and ‘demand’, such as historically extreme fundamental measures, as indicating that a severe price correction is highly probable. Record high price:income and price:rent ratios; record high ownership rates; record low interest rates (now guaranteed to rise); record high household debt levels.

What Will doesn’t seem to get is that, rather than ‘meaning nothing’, analysis of charts takes into account the past behaviour of buyers and sellers. That’s the point. As we said at the beginning of the five-charts article: “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.”

Buy Or Rent In Fort Nelson? – Reader Request For Opinion

t at VREAA 11 December 2010 at 3:48 am
“I am very bearish on Vancouver real estate…I am moving to Fort Nelson in the new year. I have been looking at Vancouver RE for so long that the prices in Fort Nelson appear reasonable to me. I have looked at the cost to rent vs. cost to own…$1100/month to rent, $800/month to own…and I am considering buying a place up there. Your thoughts?”
& t again on 13 December 2010 at 10:01 pm
“I am going to buy in Fort Nelson in the next month. I am a bear, and I am relocating for work. The cost to buy up there is roughly 300k for a nice family home. It would cost more to rent than it does to pay a mortgage. I do think that the prices are still high up there, but the local economy does support those prices because there are lots of high paying jobs. If any of you know anything about the RE up there please let me know. We meet with a local RE agent next week.”

vreaa thoughts:
t – Thanks for the note, and for caring enough to solicit our opinion.
We suspect there will be numerous readers who can give you food for thought regarding this decision; we’ll start with a few thoughts of our own:

You’d likely be taking the following into account:
Various nuts-and-bolts questions about the math (Is the cost of owning REALLY $800 per month? What about transfer costs, taxes, maintenance, etc? etc.).
Your age. Your income. Your degree of job security.
Whether you intend to live in Fort Nelson long term.
If you purchase, would you be buying the kind of residence that you’d like to live in long term?
What is your ‘ownership premium’? (How important is it for you to feel you ‘own’ your house?)
Would the prospect of future higher interest rates alter your decision? (BOC Governor Carney warned us yesterday that rates WILL rise)
Would the prospect of a future distressed economy in Fort Nelson alter your decision? (How secure are all those ‘high paying jobs’?)

We note that you went from “considering buying a place” to “I am going to buy” in just two days. Obviously you are planning your move, and we respect that you have a need to decide one way or the other. But, does the decision to buy merit the urgency that you currently appear to feel?
Perhaps you are confusing two separate decisions:
..(a) where are we going to live when we get to Fort Nelson?, and
..(b) should we rent or buy our accommodation?
These are indeed two separate decisions, but currently they may feel like one. Perhaps you should try to separate them.
Is the prospect of going up and renting for a while too burdensome?
What do you have to lose if you went up, rented for 6 months, and then made your decision?
The benefit, even if you did end up buying, would be that you may get a better idea of the property type and site that would work for you.

All of the above are important considerations, and readers will likely be able to add more.
For us at VREAA, however, the most crucial considerations are the following:
We are bearish on RE. (You, ‘t’, are bearish, too.)
We anticipate a pullback in RE prices in Vancouver in future, a pullback that will also effect all of BC (and, to a lesser extent, all of Canada). We think prices could drop 50%, perhaps more.
We could be wrong (we have been for some years now).
We weigh the probability of ongoing steady price increases as low to very low (5-10% chance of ongoing price strength). We think the chances of an outright crash are far higher than that.
So, if we were trying to make the decision you’re weighing, we’d be asking ourselves the following:
“If I were to purchase, how much would a substantial decrease in housing prices in Fort Nelson effect my overall future financial trajectory?”
The answer to this question would be closely related to income level and net-worth.
If you purchased, what percentage of your entire net-worth would be made up by the purchase price of the property? 20%? 50%? 100%? 500%? 1,000%? – [the 1,000% example is the case where you put 10% down and have no other savings.]
For some individuals, to purchase a property that then drops from 300K to 150K market value, and stays there (in real terms) for 10 years, would not be of much consequence. For them, it may not be worth the hassle of renting to avoid that risk.
For others, the 150K paper loss may be completely devastating; it may result in a financial blow that takes decades from which to recover (and essentially changes their entire life’s financial trajectory for the worse).
Some people can afford to lose 150K, others can’t.
(In Vancouver, the same rent vs buy decision are heightened by the fact that in many cases that statement becomes “Some people can afford to lose $1.5M, others can’t.”)

Needless to say you have to do your ‘own due diligence’ on this.
(Oh, and by the way, I don’t think any of us doubt what the Fort Nelson realtor will advise. You’d best be clear in your own mind about your intentions BEFORE you meet with the local RE agent next week.)

“I am begging my family members up in Vancouver to stay away from real estate, but the kool-aid is strong, my friends.”

SW at December 13th, 2010 at 9:28 am“I was born and raised in Vancouver (thus my interest here) but have lived in Orange County (SoCal) for about 11 years. The similarity of SoCal in 06/07 and Vancouver nowadays is sickeningly obvious.
I am begging my family members up in Vancouver to stay away from real estate, but it is hard going. The kool-aid is strong, my friends.
Good luck Vancouver, you are going to need it. I don’t think you understand how much of the economy is underpinned by an artificial bull real estate market. A world of hurt is coming and nobody will be left untouched.”

Mainstream Crash Concern Rising – “A Softer Demand Environment For Housing Will Be Unleashed”

You drive over this patch of road daily, oblivious of the risk, until bingo!… who could have known? [Sinkhole photo from Vancouver Sun 12 Dec 2010]
I’m sure you all get the metaphor.
Well, a growing number in the mainstream are coming around to ‘getting it’, too.
The following extracts from articles in the G&M 12 Dec 2010; G&M 13 Dec 2010a

The ratio of household credit market debt-to-personal disposable income hit a record 148.1 per cent in the third quarter.
Bank of Canada Governor Mark Carney said last week that the growth of household debt, which has outpaced incomes, has deepened the vulnerability of the household sector.
The ratio of debt to assets is the second-highest in the G7.
“The trend is still that debt accumulation is faster than disposable income – and that is a worrisome trend over the long haul,” said Pascal Gauthier, senior economist at TD Bank Group. “We should look at this before we reach extreme levels, but the question is, what are extreme levels?”
78 per cent of respondents said they think they have the capacity to borrow even more.

Home ownership rate in Canada is at a record high of about 70 per cent – that’s a bit more than at the peak in the United States.
Home prices are also at record levels and the market is overvalued.

Economists Derek Holt and Gorica Djeric want the central bank chief to update markets on the outlook for housing:
“We still subscribe to the view that house prices face downside risks although the exact timing is uncertain.”
“In our view, low rates for a long time translate into concerns about transferring even greater volumes of homebuyers out of the future into the present.”
“[In future] a softer demand environment for housing will be unleashed.”

Interesting mix of euphemism and metaphor.
You don’t ‘unleash’ ‘softer demand’, you unleash the ‘hounds of hell’.
We’re not heading for a soft landing, we’re heading for a crash.
More are doing the math and realizing this. -vreaa

And from a second G&M article today (G&M 13 Dec 2010b) –
The Bank of Canada has kept borrowing rates low for longer than many economists had expected, offering a steady stream of fuel to the housing market and consumer spending. But in the process, Canadian debt levels have risen to troubling heights.
Gordon Nixon, chief executive officer of the Royal Bank of Canada, the country’s largest bank, said “We are clearly at the limit”; “You do not want significant growth in consumer debt.”
The average debt per household, including mortgage and credit card debt, hit a high this year of $96,100.
Fairfax Financial CEO Prem Watsa is among the influential voices pointing to the impact of soaring debt on the broader economy. Not only are Canadians overleveraged, primarily with mortgage debt, low interest rates have prompted speculative buying that is artificially inflating housing prices, he said.

In February, 2010, Finance Minister Jim Flaherty announced measures designed to make it harder for mortgage borrowers to get in over their head.
But those measures fell short of what some bankers wanted, namely a significant reduction in the maximum allowable amortization period of new mortgages or a substantial broad increase in down payments.

[ Yeah, as we wished for and predicted HERE. -vreaa]

Ownership As The Unquestioned Norm – “I naturally want to buy a first home”; Financial Advisor – “Go Ahead”

Anecdote extracted from ‘Financial Facelift’, Globe and Mail, 10 Dec 2010

With a stable job as an environmental engineer and a $100,000 gift from her father, Kamala naturally wants to buy a first home. She’s 34, single, and has no plans to marry and have children. But she lives in Vancouver, where a modest condominium apartment will set her back about $390,000.
She plans to go to graduate school in six or seven years to train for a completely different career in which she will be a self-employed professional with no company benefits or pension plan.
“I’m wondering if both owning a condo and saving enough for retirement are possible with the gift from Dad.”
Monthly net income: $5,290.
Assets: Bank accounts $15,420; Canada Savings Bonds $100; RRSP $80,000; RSP with employer $32,000; tax-free savings account $5,070; employer pension plan $2,405. Total: $134,995.

Eric Davis, a financial adviser at TD Waterhouse Canada Inc. in Kamloops, B.C. advised “Buy the condo, take advantage of the government’s home buyers’ plan to help with the down payment, and continue to contribute to the RRSP.”

“Her best financial move would be to move away from Vancouver.”

EastCoastWestCoast in the comments section at the G&M 10 Dec 2010 9:04pm, regarding financial advice to a prospective Vancouver buyer – “For starters, I suggest that her best financial move would be to move away from Vancouver. I lived there 14 years, owned a home and liken the experience to owning a boat – it’s an absolute money pit except with the addition of pig-headed governments who pick at whatever you have left. If she’s smart and ambitions then she’ll land on her feet just fine – land a resonable mortgage and grad opportunties, too – anywhere outside the Lower Mainland.”

“A lower-mainland home “owner” who is a client of these friends has FIVE mortgages on his property, for total mortgage debt of 115% of the value of the underlying home.”

real_professional at December 10th, 2010 at 4:11 pm
“Today I had the pleasure of going to lunch with a couple of old University friends who are in the Mortgage and Private Financing business. They have been in this line of work for a number of years and to provide some additional background, these guys are the types that definitely tell things the way they are.
As lunch progressed I asked them how business is and to no surprise they said, “slow”, and not just seasonally slow, but down right slow.

A lower-mainland home “owner” who is a client of these friends has FIVE mortgages on his property!!! I guess I was too much in shock to ask what the structure of the loans are, so I am forced to assume that two of these are through proper CMHC insured mortgages and the remaining three are privately held. But the worst part of it is, the total value of the mortgage debt amount to…. drum roll…. 115% of the value of the underlying home!”

“They walked. You win.” – “I don’t think I’d be telling everyone about this little sales problem!”

‘Judy in Langley’ sent this to VREAA by e-mail 10 Dec 2010
“A recent ad that I’ve seen twice now in the Langley Advance:
“They walked. You win. … Get ready for this unprecedented opportunity to save. Calera at Clayton Village has 16 homes where non-refundable deposits were paid but the sales didn’t complete, and the buyers walked away. …”
This ad presents this as a great deal, a one-day only sale.
“… and thanks to a previous buyer’s deposit, it could be yours for a lot less.”
They’re giving you a discount equal to the previously paid deposit? Plus, they’re including the property tax and maintenance fees for a year – must be desperate. I’m shocked that so many buyers walked away from their deposits in this new condo complex. This is a bad sign, not a good thing as the spin would like you to believe. I don’t think I’d be telling everyone about this little sales problem!”

Animation – “It was a hectic weekend. We finally bought a house.”

‘P’ sent us this video of an imagined dialogue by e-mail 11 Dec 2010 –

Debtors Will Be The New Social Pariahs – “Anytime I see somebody who mentions they “just bought a house,” I’m automatically hesitant to contact them.”

Jayco49 at VREAA 10 December 2010 at 10:40 am“I’m involved in online dating. I don’t want to get involved with a women who is over leveraged because of some shoebox she purchased in the last couple of years. I’m looking for renters!! I don’t want to take on their financial mess when this whole thing heads in the other direction.”

ChrisG at VREAA 10 December 2010 at 12:23 pm“I’ve been on that same dating website and seen countless profiles where women say, “I own a house,” implying they are financially responsible (without giving any regard, it seems, to price paid). I think it’s a great anecdotal indicator of the irrational times we’re in.
I totally get Jayco49′s comment as well. Anytime I see somebody with “real estate” as a profession or who mentions they “just bought a house,” I’m automatically hesitant to contact them.”

Do Buyers Factor In All Expenses? – “Owning without a huge comfort margin is asking for some stressful living.”

AG at December 10th, 2010 at 10:00 am“When we bought our first house, ages ago . . . when dinosaurs roamed and munched on palms growing at the 45 parallel . . . We bought way below our means and thought we were set. No one told us about the 5-10% of the purchase price per year that a used house was going to need in repairs. Stuff had been done by the previous owners, but it had been done very badly. This wasn’t even upgrades. We gave up on even starting the upgrades for four years while we scrambled to get the fundamentals under control. And this was without some of the things our friends suffered with (collapsing basement wall). It took nearly a decade to put the house fully in order the way we wanted it, in which time we paid for it over again.
I like owning. I like taking a crowbar to a wall when the mood strikes. I know it’s just me that college and renting and misery of rental living conditions do not really apply to adult life, but I can’t get that out of my head. But owning without a huge comfort margin is asking for some stressful living, one hiccup from renting again or moving back to your parent’s. We were stressed and I thought going in there was no way that was going to happen.
I learned through this that assuming you will get lucky is not financially prudent planning.”

Realtor Overheard On Tour-Bus – “Some people say that a 15% or 20% correction could happen because of the lack of affordability but Vancouver is a beautiful place and there is a line up of people looking to move here.”

real_professional at December 8th, 2010 at 2:45 pm“Recently I was on a tour bus in another part of the world and overheard a conversation of a nearby real estate agent (also from Vancouver). He was engaging in guerrilla marketing by striking up a seemingly innocent conversation with a fellow passenger who was yet another Vancouver resident. Well, the realtor went on to talk about his “profession” and how there are a number of realtors in Vancouver, however, many of them have no more than a high-school education. Of course, he was different because he studied Marketing and Economics at UBC. And he stated that the “lower educated” realtors are weeded out because they aren’t trusted to handle the single largest financial transaction that most individuals make.
During the course of the realtor’s pontificating he went on to state, “some people say that a 15% or 20% correction could happen because of the lack of affordability but Vancouver is a beautiful place and there is a line up of people looking to move here.”
This is a classic example of someone being aware of the facts by being exposed to the debate, however, they are choosing to ignore it with frivolous justification. There is no line up, Vancouver has been growing at a steady rate, actually slightly slower, over the last decade than it has in the past.”

“None of [these supposed bearish influences] mattered when stacked up against shrewd investors from China.”

Douglas Porter, deputy chief economist at BMO Nesbitt Burns, in a missive to clients 9 Dec 2010 [cited at CTV News]“Vancouver posted the fastest increase in house prices among major Canadian cities this year, averaging 15 per cent. Tougher mortgage insurance rules, a 13-per-cent slide in sales in the city, a 13-per-cent rise in new listings this year, the new HST, a feature story in Business Week about how Vancouver was the last housing bubble in the world, a website comparing million-dollar homes in the city to crack houses … none of it mattered when stacked up against shrewd investors from China.”

[Investors can only be called ‘shrewd’ once they have consistently made gains. -vreaa]

Self Referencing Meta-Post – “The best indicator that there’s a RE bubble in Vancouver? The fact that there’s a RE blog (VREAA) that is basically dedicated to comments posted on other RE blogs.”

Anonymous at December 4th, 2010 at 9:03 am
“The best indicator that there’s a RE bubble in Vancouver?
Nope, it’s not rent-value ratios, median income, affordability, etc.
It’s the fact that there’s a RE blog (VREAA) that is basically dedicated to comments posted on another RE blog (VCI)…
A blog about comments on another blog that basically consists of comments….nice.”

vreaa replied December 4th, 2010 at 9:10 am
“You make a good point, one that is not lost on many of us.
The fact that so many spend so much time thinking about the RE markets is itself an example of the misallocation of resources that occurs during a bubble.
We are aware of this.
In unusual times, people do unusual things.

[For the record, we source anecdotes from wherever they are available: RE blogs, news sources, e-mails directly to us, word of mouth, etc. VCI ( is certainly our single ‘richest’ source for anecdotes. This is because it’s the most active discussion about Vancouver RE out there at present. ‘Anonymous’ is incorrect to imply that VCI is our sole source, but, we believe, is correct to point out that the simple fact that VREAA exists can be seen as further evidence of a bubble. In ‘normal’ markets conditions we certainly wouldn’t be collecting anecdotes. -vreaa]

Social Effects Of The Bubble – “I happened to go onto the dating site, Plenty of Fish, and saw a profile of a beautiful lady in which she stated very clearly that you must OWN not RENT to be someone she wants to date.”

LookingforaGoodName at December 5th, 2010 at 11:04 pm“I happened to go onto the dating site, Plenty of Fish, and saw a profile of a beautiful lady in which she stated very clearly that you must OWN not RENT to be someone she wants to date. I couldn’t believe it. I looked for a place on the site to open a discussion on the issue, but I didn’t find any.”

Newly-weds; 1908 sqft Bungalow; South Fraser; $860K

From Vancouver Magazine, 1 Nov 2010
THE BUYERS | Like many young couples financially locked out of the West Side, Aaron and Tessa (both 30) found a charming alternative in South Fraser. Sandwiched between Main and Commercial, the newlyweds now live near destination restaurants and shops without the accompanying fracas.
THE HOME |  942 E. 21st Ave., $860,000
A bungalow from the 1920s. The quaint exterior belies 1,908 square feet of hardwood floors and French doors that open onto a back deck for family BBQs. Five bedrooms, two baths.
THE SEARCH  | After looking at almost 30 properties in Mount Pleasant, the McHardys grew weary of competing with aggressive buyers and widened their hunt to include South Fraser. They immediately fell for the long and spacious kitchen in their roomy new bungalow—a welcome change from their previous cramped apartment in Kitsilano.
THE NEIGHBOURHOOD | The McHardys look forward to simple neighbourhood activities: picking up organic produce at Famous Foods and nearby farmers’ markets; coffee dates at Cedar Cottage (an easy 18-minute bike ride down the Windsor Way route). It’s a friendly ’hood, too: neighbours helped them find a used lawn mower and took out the garbage when they forgot.”

“Sigh. Another weekend, another family gathering. Another evening of hearing the same robophrases “Why haven’t you bought yet? You should buy!”; “You’re throwing your money away by renting.” It really reminds me of when I hung out with a group of evangelicals.”

pricedoutfornow at December 3rd, 2010 at 10:29 pm“Sigh. Another weekend, another family gathering. Another evening of hearing “Why haven’t you bought yet? You should buy!” When I try to argue that it would cost me $1000 more to buy this same place rather than rent, I just get blank looks and the same robophrases “But you’re throwing your money away by renting.” and “But real estate always goes up.” It sure is tiresome. It really reminds me of my high school days in the Okanagan when I hung out with a group of evangelicals. They were convinced I was going to hell since I was a non-believer (or rather, I just questioned things intensely). Now I guess I will be sentenced to the hell of renting for the rest of my life. I am doomed. (But hey at least I save $1000 a month and can take vacations every year, unlike some homeowners I know!) huh. Some hell. I’ll take it!”
and, after the event, on December 4th, 2010 at 7:25 pm“I told my (future) sister-in-law last night that it would cost me more than $1000 a month more to buy this place than what I’m currently paying in rent. I asked her where I’m supposed to come up with an extra $1000 a month (which is not really the point, since I’m actually putting $1000 a month into a savings account). But being the brilliant person that she is, told me that I don’t have to, then spouted some nonsense about low mortgage rates. And then what happens when rates go up to 7% when I go to renew? She said I should probably just go find a better job (ya right, like it’s so easy!). Then she said disdainfully, “But you’re renting” like, EWWWW!!!! Funny how she walked around the place unimpressed because it’s a “rental” but if I’d lied and told her I’d bought I’m sure she’d be gushing over the gas fireplace and stainless steel appliances.
People are dumb.”

Westside – Price Drop To $2,890,000; With “Great Mortgage Helpers in Basement”

4411 W 11th; 4,696 sqft; 63×121 lot
Listed 9 Oct 2010 $2,980,000;
Price change 6 Dec 2010 $2,890,000
“4 bdrms up, great mortgage helpers in basement. Must see to be appreciated.”

10% downpayment ($289K); 4% rate; 25yr amortization
Monthly mortgage payments: $13,681.79

[Those ‘mortgage helpers’ could come in handy. Magical elves, one hopes. The whole concept of paying $3M for the privilege of running a rooming house in one’s basement escapes me.  -ed.]

“I have two home-owning friends who are looking to sell.”

scullboy at November 30th, 2010 at 8:29 am
“I have two home-owning friends who are looking to sell. Both are senior managers, one is a VP. One lost his job last year. Of course he got a settlement that was fairly generous. At the time I said “Learn from my mistake. It will take you a year minimum to find new work. Cut your expenses right now, and sell your condo as fast as you can. The Olympics are working in your favour but you gotta work fast”.
I don’t think he believed me. He gave me that “you poor sap, just because you had bad fortune doesn’t mean I will” look. Sure enough, he made the same mistakes I did. He didn’t start looking for work right away. He didn’t work his personal network of friends aggressively. He didn’t look outside Vancouver.
It’s been a year now, he’s on EI, he’s flat bang busted broke and now instead of waiting for a good offer, he’s forced to sell ASAP.”

“My other friend’s place I have described before, as some of you may remember, it was priced 100K over an identical unit on the same floor in the same building. The place sat on the market for months, and at last inquiry he was waiting till the market improves in the spring. He isn’t forced to sell the way my other friend is… yet.”

“In the last year 5 or 6 of the 1 bedroom suites have been bought by the same Chinese investor.”

geezer at RE Talks 28 Nov 2010 4:00pm“I have an interest in an older condo building in a popular area. In the last year 5 or 6 of the 1 bedroom suites have been bought by the same Chinese investor. If any suite is offered at a reasonable price, a bit higher than assessed value, he’s all over it with pretty fair offers. To the best of my knowledge this flurry of activity from a single buyer is something that hasn’t been seen in this building before.”

“I’m sorry, Sir, you must be mistaken… the CMHC NEVER allows GDS ratios above 32 per cent.”

Jsan at 4 Dec 2010 12:33am cites the response they got to an e-mail sent to the CMHC describing a single mom on a $64K pa salary who had taken out a $695K mortgage on a $725K home in New Westminister [as described in 15 May 2010] –
“When assessing a mortgage applicant’s ability to pay, a calculation known as the Gross Debt Service (GDS) ratio is used. This is the percentage of gross income required to cover the mortgage payments (principal and interest, based on the qualifying interest rate explained above), heating expenses, property taxes and (where applicable) 50 per cent of condo fees. CMHC mortgage loan insurance is not normally available when a prospective borrower has a GDS ratio above 32 per cent.
The blog post that you referenced in your correspondence claims CMHC has insured a $695,000 loan for a single individual who has an income of $64,000. This would result in a GDS ratio far in excess of the maximum that CMHC can accept. Unless there are extenuating circumstances, such as a family member helping the borrower with the mortgage payments, this situation is highly unlikely.”

This reminds us of a kind of perverse and reverse version of the apocryphal story from about three or four decades ago, of the Rolls-Royce that broke an axel in the Spanish Pyrenees. The tale goes that Rolls-Royce flew in mechanics and repaired the car at great expense to themselves. A few weeks later, when the owner, back in London,  enquired about why he hadn’t yet been sent a bill, he was told: “I’m sorry, Sir, you must be mistaken… Rolls-Royce axels never break.”
So, now, Vancouver 2010, despite overwhelming evidence to the contrary, Jsan is told: “I’m sorry, Sir, you must be mistaken… the CMHC never allows GDS ratios above 32 per cent.”

[PS: Isn’t the internet a thing of remarkable beauty? After writing the above based on vague memories of a story heard years ago, I googled ‘Rolls-Royce axels never break’ and the very first hit was to this discussion of the urban legend: ‘Buttered Rolls’ at ]

Greg Weldon, Market Analyst, interviewed on CKNW – “Vancouver is among the most overpriced real estate markets in the world. You guys are totally tied into this.”

Michael Campbell interviewed investor and market analyst Greg Weldon, of Weldon Financial, on CKNW Money Talks radio show 4 Dec 2010 [9am show], at 9.15am [hat-tip to Renting at 4 Dec 2010 1:18pm]. Extract –
After discussing the global debt bubble, and the sovereign debt crisis, Weldon notes that “timing the failure becomes so difficult”. He discusses the “push for austerity” that is “not [only] happening in Europe”. He then says the following:
“Even when you mention Canada, by some metrics, the math is… Vancouver is among the most, you know, overpriced real estate markets that there is in the world, so, you know, it does hit home, you know, it’s a city that I love, I love visiting, it’s great, we’ve had a lot of fun there, but the reality and the math is, you guys are totally tied into this…”

[Probably Fabricated Market Timer Emotional Capitulation Anecdote] – “I sold my westside home for around $950K in 2004. Now I can’t afford to buy back. You have to believe the incredible pressure I get from my family to buy. They are ashamed of me. I am severely depressed I will never be able to buy what I once had again. The bulls are right, I am priced out for ever.”

Yes, the markets can be a bitch. Yes, it is demoralizing to get the general picture right yet get the timing wrong. And, yes, to be down a lot on paper can be excruciating, moreso when you’re playing with your own accommodation and are vilified by your family and community for doing so.

Markets can go from ditzy to completely-bigtime-insane before they sober up.
This poster [** see postscript] was correct, the Vancouver market was already overvalued in 2004. It hit the insanity jets in 2006 and then the free-money magic-blow-off after-burners in 2009. It was going to roll over and die in 2008 but star-dust bailed it out. This poster was mentally short in a mother of a virtual-short squeeze. We say ‘mentally’ and ‘virtual’ because he wasn’t really short, but he felt like he was short.
This poster’s current mind-frame represents a form of mental capitulation, but it doesn’t show real capitulation. Real capitulation would involve action, it would involve this poster buying back into the market for $1M+; a far lesser house for far more money. Thus a bear would become the last of the bulls. Students of the markets all know what happens when the last bear who is going to capitulate does so.
We still estimate that it is highly probable that individuals in this poster’s situation will have the opportunity, in future, to buy back the 2004-$940K westside property, now selling at far more than $1.5M, for 2004 prices or less. We also suspect that many prior market participants will be so gun-shy that they will not step up to the plate, and that, once falling, prices will fall well below 2004 levels. Yes, this may seem crazy to many at this point. Insanity is a common ingredient in Vancouver RE market moves. -vreaa

‘Chinese renter’ at December 1st, 2010 at 5:41 pm“I am Chinese Canadian, not recent immigrant, previous home owner, presently renting. Sold my westside home for around $950K in 2004 after it’s price had recovered from a drop in value in the late 90′s. I haven’t brought since. That same house is now worth minimum 1.5 million. Sure renting is not costing me as much than to buy right now but I loss an asset that is now worth 1.5 million by not re-buying back in 2004,2005 or even 2006.
I was influenced by bloggers like VHB and Garth [Turner] not to buy, thinking it was a bubble. I have lost all confidence Vancouver real estate is a bubble. Not on the westside where the Asians like to buy and the builders and flippers buy so they can resell to the Asians. My invested equity from sold house can no way keep up with price appreciation of Vancouver real estate, not with fixed income interest rates this low. Now just to buy back what I had I can’t afford. I can buy above 1 mil but not 1.5 and above.
The place I am renting now was just brought earlier this year as an investment by a Chinese family for 1.6 million. Sure my rent they receive doesn’t justify the cost per month to own on a monthly bases but it has appreciated $100K already. The landlord can easily sell and there will be a bidding war. Check out the dump V858532, 5069 Ash St, ask was 1.49 million. Sold in 7 day over asking 1.528 million. Why does the sold price have numbers 28 in it. One guess, you are right, Chinese buyers. it was open house Saturday Nov 18, multiple offers Monday, sold Wednesday Nov 22. The house is practically a tear down and that part of Ash St is awful, narrow and full of parked cars.
You have to believe the incredible pressure I get from my family to buy. They are ashamed of me. Seriously they don’t mention to friends and relatives I am renting. Asians, Chinese have to buy, it is low class to rent.
To rent a nicer home on the westside may cost less than buying but eviction is real. Happened three times already to us, not because we are bad renters, we are great renters. But twice after one year lease, landlords claim place back for own use. Not fun having to look for new place and moving after only one year, just settled in. Not fun especially with young children and changing of schools. So I do eventually want to buy for stability, we want to live in a house, not a build for rent condo. At the rate of Vancouver price appreciation I am severely depressed I will never be able to buy what I once had again. The bulls are right, I am priced out for ever.”

**postscript – We are fully aware that this poster may be a fabrication by a bull poster, an emotional sketch making a case against being bearish. The handle, the pat phrases, blaming the bear bloggers, etc.
Regardless, there are likely some individuals in this situation (although very few trade out of primary residences during a bubble expecting to buy back in cheaper later). And the numbers are in the right ballpark. So, we dealt with the anecdote as though it came from an actual individual. ‘Chinese renter’, if you’re reading this and you are an actual individual, apologies for the voiced whiff of doubt. Drop us an e-mail. And keep us informed of your future circumstances. -vreaa

“I have a friend who is an immigration consultant. New citizens in Vancouver are largely Asian, and they don’t rent.”

chg at 1 Dec 2010 10:29am
“I have a friend who is an immigration consultant, and the stats he gives me tell the same story. New citizens in Vancouver are largely Asian, and they don’t rent.
My friend mostly works with the much-maligned investor class and the skilled worked category (the latter makes up only 17% of all immigrants, the rest being investor and the horribly abused family class), and practically the first thing they ask him about is where to go for reliable real estate advice.
These cultural factors must play some part in Vancouver’s anti-gravity real estate act.”

What are we thinking? – Frank Lloyd Wright Californian Home on 80 Acres compared with more expensive Dunbar Box on 0.15 Acres

UnagiDon, in the comments section of our recent post comparing LA and Dunbar houses, points to an article in the NYTimes [2.Dec.2010] featuring the Frank Lloyd-Wright designed ‘Fawcett House’ in Los Banos, California: 3,800 sqft; 6 bedrooms; 80 acre lot. Asking price $2M. Impressive photos here.
The Dunbar box, photo reposted, sold for $2.4M.
With the Frank Lloyd Wright house, you get 536 times the land that you get with the Dunbar house. (6,500 sqft vs 3,484,800 sqft).
Yeah, sure: far from Starbucks, higher taxes, less sunshine of liquid type, but, still…

People of Vancouver: What are we thinking? -vreaa

Recent Dunbar sale: $2.4M: