“CMHC practices have been supporting high debt and risky borrowing by homeowners. The size of the drop in refinancing is surprising to the point of shocking.”

Refinancing activity [at CMHC] tumbled nearly 40% following a move by Finance Minister Jim Flaherty to tighten mortgage rules this spring. Sales of the CMHC’s mortgage insurance fell by 10% immediately after the changes were introduced, though they have regained some ground since then. … Changes to mortgage rules, [included] reducing the maximum amortization period for loans qualifying for CMHC insurance to 30 years from 35 years; lowering the maximum amount that Canadians can borrow to refinance their mortgages to 85% from 90% of the value of their homes; and withdrawing CMHC insurance from non-amortizing home equity lines of credit.

“The size of the drop in refinancing is surprising to the point of shocking. You could hardly have better evidence of the extent to which CMHC practices have been supporting high debt and risky borrowing by homeowners.” – Finn Poschmann, vice president of research at the C.D. Howe Institute

– from ‘Did CMHC support risky borrowing?’, John Greenwood, Financial Post, 29 Aug 2011

Answer: Yes, it clearly did.
The risk remains present in the form of overextended ‘owners’.
– vreaa

Retirement Lotto – “Less than 1% of Canadians have a million dollars outside of their homes. But about 50% of all the people living in Vancouver have $1 million in their homes – at least for now.”

“At age 56, they have a net worth of $1.2 million. That’s good. But 96% of it is in one asset – real estate – which in their city (Victoria) is dropping like a stone. “It’s so scary now,” says Irene, “that I have no idea if we can even sell these places, let alone for what the assessment says they’re worth.”
He was a fireman for the full thirty. She still works, but aches to retire. Both are mid-fifties and when she hangs up the clipboard as manager at a small courier company, they’ll be living on his pension of $3,800 a month.
“Not enough,” Irene says. “I wanna travel.” But that’s not going to happen, unless they give up their entire financial plan – which involves owning two side-by-side houses. The one they live in is worth seven hundred. The one they rent out (for peanuts) is worth five. And the sum total of all RSPs, TFSAs and cash stuffed in the orange guy’s shorts is less than $50,000.”
– story relayed by Garth Turner, greaterfool.ca, 29 Aug 2011.

Read the whole article, in which Garth also notes:
– “A 50% decline in that market over the next five years is entirely possible.”
– “Less than 1% of Canadians have a million dollars outside of their homes. But about 50% of all the people living in Vancouver have $1 million in their homes – at least for now.”
– “According to a new survey, half of the population can’t save even $25 a week.”

Bobby adds [30 Aug 2011 1:38am] – “Certainly lots of properties for sale here in Victoria. I see clusters of For Sale signs. I was up to Bear Mountain the other day and there was huge number of homes for sale. Certainly a buyers market.”

Kilby adds [30 Aug 2011 1:01am] – “Victoria (including Victoria West) August 23 to 29th. 797 active listings, 23 new sales.” [so MOI about 8 -ed.]

—

“A poll of Canadians aged 45 to 64 conducted by Environics Research for TD Waterhouse was even more mind-boggling: 32 per cent said they expected a lottery win to support them post-retirement—versus 34 per cent who said they had retirement savings plans with actual dollars in them.”
– Macleans, 8 Mar 2011 [hat-tip SophieZombie]

—

Access to adequate saved retirement funds is relatively uncommon.
Canadians are overdependent on RE for their retirement plans, moreso in Vancouver.
Boomers are going to be trying to cash in their RE lotto tickets; this process has already commenced.
There will not be enough buyers for them to realize their thus-far-paper gains.
Imagining a lotto win is not a million miles from banking on a big RE pay-out.
RE in Vancouver is two to three times overvalued; prices will drop 50%-66% peak to trough.
– vreaa

The Costs Of Inheritance – “Waiting impatiently for loved ones to die so you can use their money. Nice.”

“In 2006, a study showed that about 1.5 million Canadians were relying on their inheritance as the primary source of capital to fund their retirement. On average, Canadians expected to receive a total of $150,600 in cash or cash equivalents, and $151,200 in non-cash inheritance. But in reality, inheritance sums received were significantly less – the average inheritance received that year was $56,000.” [BMO report, July 2009]
“36% of the wealthiest families have received an inheritance; the average amount of that inheritance was $136,000.” [G&M, 8 Nov 2010]

—
[Following responses to Snats, at VREAA, commenting “Waiting impatiently for loved ones to die so you can use their money. Nice.”]:

“I had a friend from high school with that exact plan – then her brother died and she kicked her inheritance-to-be plan into high gear. She convinced her mother to sell her house and move in with her and her boyfriend. The mother agreed, put the house on the market for about $1.5M (Kitsilano) and after paying off the reverse mortgages and deferred taxes mom had acquired over the years to help out her offspring, daughter realized less than $150,000. This was not exactly the plan the daughter had envisioned but I wonder if that is what is in store for many a baby boomer.”
– rmac at VREAA 22 Aug 2011 10:12am

“Yeah, my friend had the same plan until his widowed father remarried a much younger woman who is making sure that she will get the house. His wife’s parents are in care (actually two care facilities) which is costing over $10,000 a month for housing and care. They are paying for their care through their real estate equity.”
– Vangirl at VREAA 22 Aug 2011 11:17pm

—
Behaviour around the issue of inheritance is complicated, even at the best of times. Expectations of inheritance may lead to tension amongst siblings, ambivalence about parents’ longevity (“Waiting impatiently for loved ones to die”), distress about parents spending their money on care (or anything else), and a multitude of possible social shennanigans.
In a time of a speculative mania in housing, when the market value of an average property is so high compared to income that it becomes a life changing lottery win, issues around inheritance become proportionately exaggerated.
In Vancouver, real estate is the largest source of expected future inheritances. -vreaa

Renter Displacement – “The cute little 1940s bungalow we’ve rented for the past seven years is for sale; 2,300-square-foot, $2 million, teardown.”

“The cute little 1940s bungalow we’ve rented for the past seven years is for sale, and in the past month the realtor has hosted three open houses. That means we have no idea who’s been walking our hardwood, opening our cupboard doors or peeing in our toilet.
I knew the moment our home went from an exclusive listing to the Multiple Listing Service two weeks ago because that evening I heard voices and looked to find two men and a woman standing in our garden looking in the window. Since then real estate-crazed trespassers have let themselves into our back yard through the side gate, walked across our lawn and flowers and snapped pictures of the house with the glee of paparazzi parked outside Hollywood’s Mr. Chow. The street in front of our home looks like a high-end car dealership with a constant parade of Mercedes, BMWs, Land Rovers, Jaguars, Lexus and Audis. We don’t even blink now when yet another $200,000 black Mercedes SLS stops in front of our home at 10 o’clock at night and the owner gets out to take pictures with their iPhone.
The first open house was as an exclusive listing with one realtor and almost 40 people came through. The second open house was for “realtors” and about 70 people dropped by, while an estimated 200 Lookie Loos were expected for the third open house this past Sunday. It was this last open house that sent me over the top. Prior to vacating for four hours, I printed off signs that read “Please Remove your Shoes” for the front and back doors and “Private” for our closets, which I also tied closed. My thought is that if you have the cash to buy this home I’ll show you my closet, but there is no reason on earth my neighbours or Craigslist followers should get a look at my shoes (or skeletons). I also went completely over the top and wrapped toilet paper around our toilet because I decided no more strangers were going to pee in our home. By this time my partner was beginning to look at me as if I’d lost it, which to be truthful was pretty much the case, but I promise that toilet paper will be coming out again this weekend when the realtor hosts the fourth, and I hope, final open house.
It seems to me the fact the house is going to be torn down makes an open house moot, but hey, maybe that’s just me. After witnessing first hand the extreme interest in this house, I laughed out loud last week when I saw an article in the Vancouver Sun with the headline “More sales listings bring balance to market.” We live in a 2,300-square-foot, $2 million teardown, which to me does not exactly scream “balance.” The article quotes Carol Frketich, regional economist for Canada Mortgage and Housing who says, “typically when prices move higher, listings do come on the market.” According to the Real Estate Board of Greater Vancouver, that trend means a “calmer market” for realtors with fewer bidding wars. Seriously?
I always assumed if I lived in a $2 million home it would include a pool, and more importantly a pool boy, but that’s not the case. Instead, our $2 million home offers well-kept hardwood floors, rounded ceilings and lovely heritage roses planted by the original owner.
In the seven years we’ve lived on our street almost every one of the sweet, little post-war bungalows on our block has been demolished and replaced with a 4,000-square-foot behemoth, which I know is the fate of our place. All of our new neighbours are wealthy Asians, many of whom I’ve never laid eyes on. Just as many seem slow to trust. But in the past year or so I’ve made some headway and I’m now on a first-name basis with two neighbours. Unfortunately, it’s just in time to say goodbye.”
– Sandra Thomas, Vancouver Courier, 10 Aug 2011, pg.A08

Talking With Friends About Real Estate

“I have stopped trying to convince people in Vancouver that real estate is overvalued. What’s the point? It’s not worth my effort. I find it’s much more satisfying to agree with them-they have no idea I’m being sarcastic. When they say things like “Real estate only goes up” and “Vancouver is the best place on earth!” I smile and nod.
I’ve found that the “real estate always goes up” argument is dying in other places of the province. People on my old street in Kelowna saw their property values go from around $500k in 2008 to now $350k-they are no longer cheering so much for real estate there. Others have condos that are underwater and are having problems finding tenants. I do believe this will happen here too, it’s only a matter of time before people realize that real estate values are no longer soaring and it’s harder and harder to find justification to buy.”
– pricedoutfornow at vancouvercondo.info 26 Aug 2011 9:07am

“I was talking to a colleague about my views of Vancouver’s impending crash but had to stop as I didn’t realize that her husband is in construction and a crash would really hurt their income. It was the look of total fear on her face when I listed the facts that made me stop and ask why she looked so dour.
It is a weird feeling nowadays when I talk doom and gloom wrt real estate as I feel that it is starting to get through and my facts make people uncomfortable. When this happens I try and think something that will make the person feel better such as “well you bought years ago, you’ll be ok”. I just wish that all those caught up in the rush to the top had taken the same tact when berating me about throwing my money away on rent and how stupid I was to sell.”
– YLTN@Work at vancouvercondo.info 26 Aug 2011 9:29am

“Last evening, I was in a real estate conversation with my wife’s family and I should win an Academy Award for my acting skills. (Lot’s of nodding and smiling)”
– specialfx3000 at vancouvercondo.info 9:39am

PostCardsFromTheBlastRadius #13 – “You’reInvited! GhostMalls ‘O TheOkanagan… by RSVP”

Ya know, the only problem with ‘NaganTouring in a 48 Pontiac Woodie (apart from occasionally having to deal with the irate/disconsolate ‘Darlings’ one neglected to invite) is that they’re Darn!ThirstyBeasts. Which means, sooner or later (usually, sooner) it’s FillErUP!Time… (as opposed to MillersTime – which one ought never to do when in charge of mechanical contrivances in motion; which, come to think it, as ‘catch-all phrases’ go – could include some rather unusual appliances; but I digress  [just this once. -ed.]).

Accordingly, following a recent sojourn exploring the ‘delights’ of Highway97’s assorted RoadSideAttractions/Signage. Imagine, just imagine ‘TheHorror!’ upon discovering that your BigBlockV8 is now reciprocating on mere vapour – and you’re about to experience the GloomyMisfortune of gliding into…

A GhostStation.

As in No SingingTexacoGuyz. No Pumps & Definitely NoGas.

Now, as it happens, there is a good reason why the current PesosPerLitre signage has been ‘blacked out’ at this PitStop…

And it just might have something to do… with whatever it is that’s on the other side of that hoarding. Let’s have a look, shall we?

OhGoodie! RSVP! Have we just been invited to Partay!… @UrbanLiving?

But, “Hey! Just a minute now – this is WestBank. So where the Heck’s The’Urban’?”

Leaving that issue aside, for the moment, upon closer inspection (the kind that reveals the spreading cracks in this faded DevelopersDreamSignage) we discover that this is, regrettably, yet another incitement to ClimbAboard the PreSalesCondoTrain.

Albeit… in this particular instance, a superfluous/obsolete ‘invitation’. For, not surprisingly given the region, the CondoDreams of UrbanLiving’s Montréal QC Developer DevMcGill®, are… Defunct.

Of course, as with all such disappointments… There are consequences.

For example, there are a lot more WestBankers hand-washing their cars themselves these days…

And, more’s the pity, no chance to reprise BackToTheFuture’s superlative retro ‘50’s ‘FullService’ sequence either.

So. What’s an aspiring WestBank, BreakingBad, ‘WalterWhite’ type – looking for a cash business to masquerade his horticultural earnings – to do? Especially, when you allow that the only ‘vacant’ CarWash/GasStation in town is frozen in legal limbo.

‘Better Call Sol’, I guess. Unless…

Yeah! There is a restaurant. Heck, there’s a WholeDarnedStripMall!

Loads ‘a possibilities here! Could work.

Hmmm. Better check out those interiors, though – cause ya never know, do ya. Caveat emptor, and all that stuff.

Ah. Just as well we decided to Peek‘nPoke… Judging by the abandoned air mattress, broken glass and somewhat haphazard arrangement of dusty colonial furnishings – what was once a popular restaurant has been reduced to a temporary refuge for the circumspect (but, presumably, handy with tools) homeless.

Just look at all those stacked/discarded menus. One can almost see them now… The Wives n’ Daughters of The’Nagan. Those effusively fulsome and ebulliently perky purveyors of GrilledSurf&Turf! Rushing to and fro, juggling enormous platters and steaming stainless pot’s ‘o java. Each and every gal lovingly adorned in a fetching, freshly scrubbed ‘PeachQueen@TheProm’ themed ‘CattleCountry’ uniform.

Well, it’s a nostalgic thought, ain’t it?

Yep, “CattleCountry” it once was… but, sadly, there ain’t no RibEyes, Tbones or Lobster a sizzlin’ here. Anymore.

Still – it does afford us a splendid excuse/opportunity to explore the broader implications…

‘Cause, “CattleCountry”, as any aspiring actor could tell ya, or for that matter, anyone who’s ever experimented with OnLineDating in the ‘hinterlands’… is, subliminally at least, an apt moniker for a ‘Nagan eatery.

Even an abandoned one.

And here’s why – because it is also suggestive of that apt turn of phrase from ‘TheShowBiz’, “The Cattle Call”.

So, getting right down to the NittyGritty – it doesn’t take an enormous leap of imagination to equate a Developers’ clarion invitation to StrokeTheSteel & GraspTheGranite to a casting director’s MassAudition (usually to find the perfect DancingTomato, for ‘scale’). Or, for that matter, to the OnLine Catalogues ‘o The Forlorn maintained by the FieldsMedal winning entrepreneurs of SocialMedia. [we’re still with ya, but only just. – ed.]

Regardless, it all amounts to pretty much the same thing… The aggregated exploitation of the ‘vulnerable’ and/or blissfully ignorant.

And, more specifically, the relentless commoditization of people and their dreams.

Well, at the risk of driving a “Steak” through the Heart ‘o those dreams… (or barricading them with welded steel security grilles)… The ‘answer’ just might be…

That some things are best left ‘unsold’. Not hyped. Not marketized. Not ‘traded’.

..& lest we collectively succumb to the temptation of ‘BlameCasting’, however… how about a little reflexive introspection first?

In the LookingGlass. All of us.

For, to quote the MostEstimable Chinese President Hu JinTao’s enthusiastic address to an impressive assembly of the PartyFaithful earlier this year:

“We must go deep down. We must immerse ourselves in the reality!”

“Good night, and good luck” [google that, All – you’ll like it.]

—-

Photos and commentary for the ‘BlastRadius’ series by ‘Nemesis’.
[Images Ⓒ​2011 ‘Nemesis’ – All Rights Reserved]

—-

[Once in a while, it’s good to give your brain a workout. Keeps you ‘agile’. -ed.]

Vancouver Sun Editorial Unashamed RE Promo

‘Detached homes can be had for just over $500,000 in Squamish, less than hour’s drive from downtown Vancouver.’ [Sun image and caption]

It is one thing to run obvious RE-promotional articles by industry insiders (Cam Good [Vanc Sun 21 Apr 2011], James Schouw [Vanc Sun 2 Jan 2010]), it is something else entirely to run an editorial encouraging people to overextend themselves into questionable RE purchases in the latter stages of a speculative mania.
‘Editorial: To dream the impossible dream — home ownership’ [Vancouver Sun Editorial, 25 Aug 2011] encourages “median-income earners” to “lower expectations”, to “make compromises” in property choices (smaller properties; different class of property; outside of the city), to use variable rate mortgages, and to amortize their mortgages over 30 years. In short, it encourages them to find a way, almost any way, to buy.
The editorial is dismissive of the recent RBC report showing the extreme lack of affordability in Vancouver: “… depressing numbers may be valuable for studying trends, making predictions and agitating for policy changes, but they are not useful as a buyer’s guide to the market.”
You are persuaded to step up and buy:“The variety of properties available at different price points and flexibility in financing, including variable rate mortgages and extended amortization, along with a bit of luck, can help fulfil the dream of home ownership for agile buyers willing to keep their options open.”
Vulnerable, naive prospective buyers may be influenced by this peppy argument. ‘Be agile, be flexible, be lucky: be a buyer.’ Those who take the Sun’s advice will very likely prove to be in the group of buyers who will be most severely adversely affected by the coming bust. There is not one word in the article about a possible downturn. It reads a lot like the smooth words of a sales promotion, trying somewhat desperately to get the last buyers, the most dodgy quality buyers, to step up and clear product.
We record the fact of this editorial here, as we’re sure we’ll have reason to return to it in 2 or 3 or 4 years time. It is just one example of the role the Sun has played in this mania.

RE References In Vancouver Popular Culture #97 – ‘Thanks to his recent successes, musician Dan Mangan has finally been able to buy into Vancouver’s red-hot real estate market.’

‘Thanks to his recent successes, Dan Mangan has finally been able to buy into Vancouver’s red-hot real estate market.’
– Georgia Straight [25 Aug 2011]. Photo Leigh Righton.

Nice joke, especially considering Dan once wanted to be a vet.
We like Dan’s music. – vreaa

Georgia Straight Sells Out? – “A headline that does not reflect the full contents of the article, and certainly doesn’t reflect the fact that this bubble is deflating.”

‘B.C.’s real-estate market looks good despite uncertain economic times ahead‘, by Carlito Pablo, Georgia Strait [straight.com 24 Aug 2011] is justifiably getting local blogosphere air-time. Read the article, and Gord Goble’s criticism in the comment section.
Excerpts from Gord’s comment –
“So, Georgia Straight, you’ve finally sold out completely, huh? Good for you. You’ve now joined the long line of mainstream media outlets that endlessly pimp for the real estate industry.” …
“Here we have a headline that does not reflect the full contents of the article, and certainly doesn’t reflect the fact that this bubble (and it is a bubble – driven purely in recent years by emergency low interest rates and media-fueled, unsustainable mania) is deflating. The Okanagan, where prices are off 25% or more and still nobody is buying, the Fraser Valley, where sales are at a standstill, Vancouver Island, Squamish/Whistler – in all these regions, people who bought in recent years are now trying to get out at a LOSS.” …
“I remember when the Straight told it like it is.”

As ‘jesse’ points out elsewhere, take a look at the volume of RE ads in the Straight, and consider possible conflicts of interest.
The latest print edition of the Straight [25 Aug- 1 Sep 2011] has 72 pages total, 44 of which are ads, 7 of which are RE ads. By rough estimate based on one edition, 16% of the Straight’s total revenue comes from the RE industry.

Perhaps, however, nothing too much has changed. The Straight did run this cover in Nov 2009.

“Most of the people I know have lived here a long time and bought a long time ago. The prices are sky-high because a few rich people have bought and pushed the average prices up.”

“Well in my neighbourhood, Point Grey, I would say that most of the people I know have lived here a long time and bought a long time ago. So in a sense the prices are sky high because a few rich people, HAM, overextended hopefuls, very cheap money and what have you have pushed the average prices up. These people around me are NOT millionaires by income, they just happen to now own a home that is worth millions that they bought for a fraction of the cost back when. So what I’m saying is that the percentage of household income it takes to buy a property now is just the metric used. What is the % of all properties in Vancouver that is sold every year? 2-3%? I don’t know the exact numbers but there are a lot of houses that are not being bought and sold, they have been lived in for years and bought on the cheap years ago.”
– DaMann at vancouvercondo.info 22 Aug 2011 8:43pm

This is a crucial point that is obvious to some but lost on many: ‘Prices are set at margin’.
It only takes a relatively small number of ‘rich’ sales to pump a market up, and it only takes for a relatively small swing down in the availability of those ‘rich’ buyers for a market to plummet.
– vreaa

Rumour – “Vancouver Westside homes are being bought, left vacant, then flipped at higher prices after one home in same area is bloated after a STAGED price bidding war.”

“I thought I’d share an interesting comment from a realtor friend of mine. Vancouver westside homes are being bought, left vacant, then flipped at higher prices after one home in same area is bloated after a STAGED price bidding war. Most disturbing is local buyers still wanting to get in at these prices because they are afraid they will be “Priced out Forever”. Sadly when this ends the locals with be holding the bag of mortgage debt.”
– Patrick at VREAA 23 Aug 2011 5:31pm

Thus far, this is just a rumour.
Any corroborating stories will be posted.
– vreaa

Mayor Robertson – “People come here with money and they want to be part of this. That creates challenges for my kids and the next generation to live here. It’s not affordable to live here now.”

“There are many hopeful environmental stories in the city of Vancouver. In the past 15 years, residents’ use of cars and carbon emissions have both gone down dramatically, by roughly one per cent every year – even while the population has expanded to 570,000 people and the economy continues to grow. This is a very unusual trend in the world’s cities now. A city that is committed, and that sets aside the perceived inevitability of calamity, can be a stronger community. We can change our ways of getting around and looking after each other. I think there’s a lot of hope in that for generations to come.
The converse is that Vancouver becomes a very desirable city. People come here from all over the world for the beauty and for the sense of community… That creates challenges for my kids and the next generation to live here. It’s not affordable to live here now. People come here with money and they want to be part of this. And that makes it difficult. So it’s creating other challenges for us.”
– mayor Gregor Robertson, Vancouver Sun, 23 Aug 2011, from a conversation with David Suzuki, Thich Nhat Hanh, and Jim Hoggan

The mayor is deducing that Vancouver RE prices are high because his “green” policies are perceived as successful. We believe that he is sincere in his logic, but also that he is simply wrong. Housing prices have ballooned to “unaffordable” levels in Vancouver because we are in a very large debt-driven speculative mania, not because we have any particular desirability as an environmentally friendly city.
Many of the apparent problems of unaffordable housing will be ‘solved’ by a simple market crash. Of course there will be all sorts of bad effects for the community from such a crash, but that is now unavoidable. You may say that such an outlook is an example of a “perceived inevitability of calamity”, but this outlook is not pessimistic, it is simply realistic. Ask any student of speculative manias. It’s already woven into the fabric of the market; it’s a completely natural consequence of the speculative mania. – vreaa

“People living off drug-related profits are just another pool of buyers. They may be using elaborate strategies, but they’re not throwing money around on the purchase price, driving up the market.”

In ‘The Illegal Drug Trade and High Real Estate Prices’ in the latest Vancouver Magazine (1 Sep 2011), Frances Bula concludes “People living off drug-related profits are just another pool of buyers. They may be using elaborate strategies, but they’re not throwing money around on the purchase price, driving up the market.”
There may be a small direct effect. But small: even at an estimated $6B-$8B the drug trade only makes up a small percentage of our domestic GDP. And, just watch, our bubble will implode while simultaneously the drug-trade merrily chugs along.

We extract here two personal anecdotes from the article:
—
“THE 1930s-STYLE HOME—a well-maintained, nondescript two-level on West 12th near Trimble—had been owned by a succession of engineers and built to withstand earthquakes. It fit in nicely on the street. Yet three weeks after Betty Yan and her husband took possession, they started tearing the place apart. They had interior walls removed, the fireplace dismantled, and the main staircase redone—twice. They also added a bathroom. On the outside, they landscaped the yard three or four times, redid the front porch, took it down again. It was like minor Hollywood celebrities had invaded West Point Grey.
Joan Bryans was one of many neighbours who thought it weird how much work the family was doing—rumour pegged the renovation at $800,000, almost half the purchase price of $1.776 million. “It was very obvious that it was outrageously unnecessary.” Not everyone felt so strongly. “The house did need a little updating,” recalls the seller, an about-to-retire engineer at the City of Vancouver. “So the only thing I thought was a little funny was that they took so long to renovate.”
In April 2009, news broke that Yan had been found shot dead in her Mercedes in a Richmond parking lot. Stories after her death described her as a ruthless and violent loan shark who, after coming to Canada as a refugee in the late 1980s, connected with the Big Circle Boys gang. The gang had branched out from drug trafficking into many other ventures, legal and illegal. Among its enterprises, according to police: loan-sharking, human smuggling, money and goods counterfeiting, and exporting stolen cars.
Suddenly the costly renovation made a lot more sense: one of the key vehicles for cleaning up illegal money is real estate. There are dozens of ways to launder money in real estate, from paying cash for down payments or renovations to buying houses in the names of dummy owners to establishing elaborate mortgage-repayment schemes that convert bags of dirty cash into legitimate-seeming transactions.”
—
“Cam Hui was stunned when he moved back to his hometown after a stint on the East coast. “This city is not overrun with the super-rich,” he says. “But you can’t get into the Vancouver West Side for less than $1.5 million for something that’s not falling down.” In Stamford, Connecticut, where Hui, an investment counsellor, lived previously, prices were just as high. But there it was understandable. The place was infested with people working in the investment business. Stamford has the head office of GE Capital, and, with Swiss bank UBS, the world’s largest trading floor.
Hui doesn’t see that level of financial activity here; nor does he buy the standard explanation for Vancouver’s real-estate prices: that offshore investment or Asian money is largely responsible. In a private blog, he argues that there has to be a connection to the drug industry.”
—
There is nothing that is happening in the Vancouver RE market that is not explained by a speculative mania driven by easy lending. -vreaa

“The only people that think of Vancouver homes as lottery tickets ready to be cashed in seem to be the ones that don’t own them, or the ones that merely flip them. To the majority of owners, they’re just homes.” [We disagree]

“In 2000 I got married, and my wife and I decided it was time to get something more than our apartment. We were making just under 100K combined back then, and bought what we could afford. In retrospect, very good timing, but I didn’t time the market in any way.
Truthfully, I don’t care. I like my home, I like where it is, it suits me and my lifestyle – so yes, I guess you could say I’m attached to it. I’m 40 years old, so I’ll probably be here another 10 or 15 years until I stop working, and worry about the next phase of life then – maybe its here, maybe its not. While I don’t believe that housing will keep going up like it has – I’m pretty bearish on Vancouver real estate – I don’t think it will go lower than what I paid for it either. I don’t really care until its time to sell it.
The only people that think of Vancouver homes as “lottery tickets ready to be cashed in” seem to be the ones that don’t own them, or the ones that merely flip them. To the majority of owners, they’re just “homes”.”
– nuxfan at vancouvercondo.info 23 Aug 2011 7:18pm

We respectfully disagree with ‘nuxfan’.
One result of the speculative mania in Vancouver RE is that it has been absolutely impossible to ignore. For most owners, homes are now more than “just homes”… they are, consciously or unconsciously, also considered stores of wealth; they are partly financial instruments. To suggest that owners are oblivious to this, or that their psychology and behaviour is unaffected by an awareness of the ‘value’ of their property, is either naive or disingenuous.
‘nuxfan’, himself, for instance, plans to “stop working” at 50 to 55 years of age. Does the projected market value of his house factor into that expectation? We can’t be sure, obviously, but we’d wager it does.
Note that this doesn’t mean that we’re arguing that all owners should sell.. just that any owner who claims “not to care” is deceiving themselves, or others, or is so wealthy that the value of their home only constitutes a small percentage of their overall net-worth. And in Vancouver that last group is very small.
– vreaa

$1.6M Teardowns – “Until demand shrivels at the higher end, families at the lower end will be priced out as we can’t compete with the developers. I’ve given up and can’t wait to get my family out of here.”

“Who’s to say the market will ever correct? I keep hoping it will but I’ve finally given up and am in the process of making plans to leave Vancouver once and for all.
In my neighbourhood, teardowns, or what developers consider teardowns, sell within days for well over $1.6 million. Having said this, developed houses selling in the $3 to $4 million range are taking a lot longer to sell than they used to. Anyway, it seems that the market in this area is driven by the upper end, not the lower end. Developers calculate what they can sell the finished product for and then calculate their maximum price for a teardown based on the finished product. Until demand shrivels at the higher end, families at the lower end will be priced out as we can’t compete with the developers. As I said I’ve given up and can’t wait to get my family out of here.”
– chopper at vancouvercondo.info 21 Aug 2011 6:44pm

Victoria Questions – “I can’t afford to buy a house without a mortgage that would screw up my retirement. Who’s buying these houses and why?”; “How do people in Vancouver survive?”

“I look at myself living here in Victoria (renting; – sold the house) and pulling in a good pension with plenty of well paid extra part time work. And yet there’s no way I could afford to buy an average house (over half a million) and sleep worry free at night. So if I’m considered to be in the “middle class” and I can’t afford to buy another house without a mortgage that would screw up my retirement, then who’s buying these houses and why?”
– Not Wondering Anymore at greaterfool.ca 11 Aug 2011 12:00am

“Tell me, how do people survive? We are in Victoria – our family salary is above average – we have 4 kids that don’t do a whole bunch of activities. We don’t travel, don’t eat out. We just can’t seem to make ends meet.
So, how do people in Vancouver do it, I wonder, if so much of their income is going to RE?”
– Victoria at vancouvercondo.info 22 Aug 2011 7:42am

—
Vancouver Answers:
“Victoria,
Few ways it’s done:
Rent basement
Take on more boarders
Two or more jobs
Loans (gifts) from parents
Of course, the above all come with additional stress.”
[from Anonymous, at vancouvercondo.info 22 Aug 2011 8:21am]

“He says he made more on the sale of that house than he made in his entire career as a dentist.”

“My neighbor is a dentist, probably in his 70s. He owned a house in Shaughnessy, custom built decades ago, which he recently sold. The buyers, from Beijing, viewed the house for 20 minutes, then wrote a cheque for the entire asking price. He says he made more on the sale of that house than he made in his entire career as a dentist. I asked him why he doesn’t sell his current house too. He says that, because he can defer the property taxes, he can live in it essentially for free, and the property tax bill that his heirs will be faced with in 20 years pales in comparison to the capital appreciation that the house will experience by then.”
– from Jeff Murdock, via e-mail to VREAA, 21 Aug 2011

Thanks, Jeff. A remarkable story.
The appreciation in the price of a house overshadows monetary gains from an entire professional career of honest labour. Breathtaking, actually.
What are the consequences for the society?
– vreaa

“The guy across the street who’s had his house up for sale for about a month was getting the roof redone today…”

“A note from the Lower Mainland ‘burbs. Today I noticed something interesting: The guy across the street who’s had his house up for sale for about a month was getting the roof redone today. Could’ve been an offer with a building inspector that pointed out a crappy roof, but I’m going to put my money on he’s trying to create a comparative advantage because there are A LOT of 3 bed 2 bath homes in the ‘hood that have been on sale for a LONG TIME, we’re talking half a year. Dude around the corner from new roof house had house on market as least since January or February. Took it off the market a few weeks ago and it reappeared on MLS with a brand new kitchen.”
– Joe at greaterfool.ca 11 Aug 2011 12:14am

‘The Mortgagors With Hands On Their Faces’ – “Extremely poor and rapidly eroding affordability in the Vancouver-area market”, “without a doubt the most stressed in Canada, facing the highest risk of a downturn.”

Above images advertise videos accompanying the Globe and Mail article ‘Vancouver housing affordability ‘rapidly eroding’: RBC‘, 22 Aug 2011 [hat-tip Nemesis]. They are remarkably sorrowful images for a 2011 Canadian housing article, and remind us of ‘The Brokers with Hands On Their Faces Blog’.

Excerpts from the G&M article:
—
Most Canadian cities offer “reasonably affordable” housing, according to Royal Bank of Canada’s quarterly survey into affordability, but Vancouver is at risk of a downturn.
—
“Extremely poor and rapidly eroding affordability in the Vancouver-area market is somewhat skewing the national picture.”
—
“Vancouver’s housing market is without a doubt the most stressed in Canada and is facing the highest risk of a downturn,” Mr. Craig Wright, senior vice-president and chief economist at Royal Bank, said.
—

This sensible comment at the G&M by PF Murphy, 22 Aug 2011, 10:35am:
“With the average price of a house in Vancouver being 11 times the average annual salary, the RBC’s advisory is many days – like several years – late and shows the conflict of interest of their benignly offering advice in an industry on which they depend for their bloated profits. To think that ill-advised people can go on buying houses that mortgage their grandchildren’s futures is idiotic. It is to be devoutly hoped that this bubble pops soon [so that] some sanity will be restored to housing in Canada.”

“I have 4 colleagues whose entire ‘plan’ to address their huge mortgage debt is to take the inheritance they will get when their parents pass (the bulk of which is real estate ‘wealth’) and use it to pay off their own mortgage.”

“I have 4 colleagues whose entire ‘plan’ to address their huge mortgage debt is to take the inheritance they will get when their parents pass (the bulk of which is real estate ‘wealth’) and use it to pay off their own mortgage.
They could have never gotten the house to begin with without ‘assistance’ from those same parents and if the market were to crash before those same parents pass away, then they will be spending the rest of their lives paying off the debt (assuming interest rates never rise).
When you consider our Canadian Bank’s tangible equity ratio, and the massive bloated balance of CMHC, it is clear our nation truly has EVERYTHING wrapped up in real estate.”
– Village Whisperer at VREAA 20 Aug 2011 5:31pm

Modest Ottawa Example – “I bought my house 18 years ago and paid $178,00 – now I am being told it it worth $375,000. This is crazy. My old job is only paying $3,000 a year more.”

“I bought my house 18 years ago and paid $178,000 – now I am being told it it worth $375,000. This is crazy. My wage has only gone up because I switched jobs. My old job is only paying $3,000 a year more. The only way I will realize a profit is if I sell and purchase a home outside the Ottawa market – hmm I still need to work. The house price is more driven by the cost of land so when we looked around for a smaller home – the price difference would only cover the cost of moving – no more. The only one who gained was the bank – we have paid them a lot of interest over the years.”
– DeborahS, comment at cbc.ca 12 Aug 2011 9:26am

This Ottawa example is extremely modest by Vancouver standards. That’s an annual compound growth rate of just 4.5%, but still more than twice the Canadian inflation rate over the same period (1993-2011 CPI averaged about 2%). -ed.

“Trying to make friends aware of the coming implosion of real estate. They all think Vancouver is immune. What else can you do?”

“Currently living in Vancouver, trying to make friends “aware” of the coming implosion of real estate, they all think Vancouver is immune… What else can you do?”
– Davey Boy at greaterfool.ca 22 July 2011 9:14pm

“Both my grandfathers came to this city in the dirty 30s with NOTHING and worked hard to raise families, fight World Wars and make B.C. the AMAZING province that it WAS years ago.”

“It’s funny that since we left and two other couples that we were really good friends with in Vancouver have also left around the same time. We all tried so hard to make things work, two incomes, NO kids and still No home ownership. Now, what ticks me off the most is that both my grandfathers came to this city in the dirty 30s from NOTHING and worked hard to raise families, fight World Wars and make B.C. the AMAZING province that it WAS years ago. Suddenly all the foreigners walk into the front doors with LOTS of money from Asia. Who knows if it is clean or dirty money, I don’t know. They start buying up and taking over everything. I don’t understand why the Asian culture was just ALLOWED to walk through the front doors and start taking over Vancouver neighbourhoods that were originally built by European settlers and knocked down to build these MASSIVE homes that don’t even fit properly onto the properties that were meant for, much smaller homes. Now for many European Canadians the opportunity to ever own your own home and property is now gone FOREVER due to the OUTRAGEOUS real estate prices. The only chance that my husband and I would have had in ever owning a home in this city would have been to do Ilegal drug activity and I’m PROUD to say, NO WAY. I’m true to my ancestors that if I cannot earn my way in life the OLD fashioned way by hard work and paying my DUES then I DON’T want it.”
– Carol at VREAA 12 Aug 2011 12:44pm

Note: Archived here for the record. Headlining a story does not mean we endorse its content. -ed.

North Delta – “People used to have pride in their homes, yards and gardens, but that’s not the case any longer. Drive down any given street and they should be renamed either Crack House Alley, Grow Op Lane, or Renters Avenue.”

Excerpted from ‘North Delta needs cleaning up, says Delta mayor’s daughter’, The Delta Optimist, 11 Aug 2011 –
Barb Jackson conveyed her concerns about the state of North Delta in a letter to the Surrey Leader, writing, “Drive down any given street and they should be renamed either Crack House Alley, Grow Op Lane, or Renters Avenue.”
Jackson, who grew up in North Delta but moved away in early adulthood, has returned to live with her family since her sister’s death. She lives in a house with her mother, the longtime Delta council member who’s been mayor since 1999.
She said over the years it seems like rental properties have ruined North Delta, adding people used to have pride in their homes, yards and gardens, but that’s not the case any longer.
In a telephone interview this week, Jackson told the Delta Optimist her concerns were not intended to slam those in charge at municipal hall, but rather those buying houses as investments.
She said something needs to be done to encourage absentee landlords to keep up their properties and not allow neighbourhoods to run down.
“I grew up here but it’s really changed… there’s lots of places that are beautiful and well maintained but drive down 92nd Avenue and you’ll see what I’m talking about. It’s the pride of ownership of the homeowners and if they’re not given incentive to keep up the property, it devalues everyone else’s property in the neighbourhood.”
Jackson said more punitive tax measures for property owners who don’t live in the homes they own, or perhaps incentives to maintain their houses, should be introduced.

“I know a married pair of boomers who lived the good life on borrowed money, and now that neither are working, have been forced to put their still-mortgaged house up for sale.”

“I know a married pair of boomers who lived the good life on borrowed money, did not save and now that neither are working, have been forced to put their house (still a large mortgage on it) for sale and will be looking to buy a much cheaper house. I warned them 10 years ago but they dismissed me as a wet blanket penny pincher. I have no mortgage on my house and when they asked me for a loan, of course I said no (who would be foolish enough to lend money to poor money managers?). They are not talking to me now.” – Canuckguy, at moneysense.ca, 17 Aug 2011

Spot The Speculators #53 – “They got a HELOC against their condo’s rise in value, used it as a downpayment on a house, and the bank lent them the rest of the money to buy the house, as a HELOC on the house itself.”

M- at VREAA 18 Aug 2011 4:03pm writes –

“I have friends here who followed this path to riches in the Vancouver housing market…
1) Buy presale condo.
2) Eventually the builder completed the condo, and they moved in.
3) Condo went up in value!
4) 2-3 years after moving in, they got a HELOC against their condo’s rise in value, used it as a downpayment on a house, and the bank lent them the rest of the money to buy the house, as a HELOC on the house itself.
5) They took possession of the house, then did a mega-renovation (~$200-300K?), funded by more HELOC money secured against the house.
6) Relative moved into the condo (still there).
7) Couldn’t afford an amortizing mortgage, so they just made interest payments on the HELOCs. Couldn’t really afford the interest payments, so they committed tax fraud (deducted the HELOC interest from their income, trying to treat the house as an “investment”). Primary residences in Canada are not eligible for such tax treatment.
9) Bought a new car! (interest rates are low, it’s like free money!)
10) Realized the depth of the hole they’d dug, one parent divested most of their investment portfolio to give them their inheritance early. The path to riches!
11) They now have affordable payments on a very nice house, and have a proper, amortizing mortgage.

They bought the house at a peak in 2008– if they sold now, they’d probably recover 100% of what they put into the house, maybe even eke out a slight profit. But with the family money invested in their house, they’ve got to duke it out there for the long haul. At least their payments are reasonable…

I just wonder how many other people in the city have done the same thing, but without the benefit of an “early inheritance” to bail them out?”

Request To Readers From A Producer Of ‘The Early Edition’ On CBC Radio 1

Solomon Israel, a producer with ‘The Early Edition‘ on CBC Radio 1 here in Vancouver, is preparing a piece on attitudes towards renting vs. buying in Canada. He would like to hear from people who have personally experienced any stigma regarding being renters in our city.
Sol can be reached at:
earlyed@cbc.ca

—
UPDATE: 19 Aug 2011, 4:00pm
Above post has been up for almost ten hours and had over 1200 hits.
Sol writes that he has yet to hear from any reader describing personal experience of an such stigma and he is thus understandably concluding that “maybe there’s less stigma there than we thought?” or that “such a stigma only exists among certain social groups with certain expectations”.
This is certainly possible, perhaps we have been incorrect in perceiving this to be more widespread. Numerous commenters below do not describe any such effect, so it certainly doesn’t effect all renters.
A few very definitely do describe it, so it is not entirely imagined. And there have been a good number of anecdotes regarding this effect over the years (see ‘Renter‘ sidebar).
It is possible that the effect only occurs in certain subgroups of the population, and that, overall, it is small and inconsequential. Also, it is possible that those who have experienced it prefer not to discuss it on a public forum.

Spot The Speculators #52 – “A very dear friend I left behind in Vancouver bought a house five years ago in Ladner. It was a huge stretch for him and his wife to pay $539k. Fortunately, the CMHC made it easy. Fast forward five years.”

“I was a Vancouverite until 1986 — when I realized I could never make a decent career for myself there as an Engineer, so I de-camped to Toronto for many years. And this was before the real estate boom. It’s only gotten worse in terms of career possibilities and affordability since the eighties.

A very dear friend I left behind in Vancouver bought a house five years ago in Ladner. It was a huge stretch for him and his wife to pay $539k for a side split on a 50 foot lot. But they were kicked out of their rental home and needed a place to raise a family and keep their stuff (bikes, skis, etc.). For some reason my friend thought that he couldn’t possible rent (no room) and besides, he argued, the mortgage payments would be the same as rent. (Insurance, taxes, maintenance etc were overlooked in the zeal to justify.)

Fortunately, the CMHC made it easy: a 40 year amortization and no money down and voila: a home. The $2,900 mortgage payment would be eased by a renter in the illegal basement suite. A combined income of $120k would make things tight, but what can you do? (Move away, or rent, I said.)

Fast forward five years. Despite an old vehicle in the driveway that cannot be driven because raising a few hundred dollars for repairs was impossible right now, the place looked great, with new hardwood floors and kitchen cabinets (RRSP withdrawal). But, the mortgage is up for renewal and guess what, new terms are required. Like a minimum equity requirement (80%), and a new amortization (25 years). This requires another loan for $100k (Mom) plus a big bump in monthly payments. What’s a man to do? Just talk to your financial advisor and come away with a new line of credit from your insurance company. Now he can pay interest only! (At a floating rate.)

The next leg down in real estate prices will bring about a fresh loss of the borrowed $100k and maybe more. The inevitable rise in interest rates will push the monthly payment beyond reach. Bankruptcy or family bailout has to be the final outcome.

And really, this sad state of affairs is due to a nesting desire and a bad case of rationalization. Curses, Vancouver, for ruining my best friend’s hopes for retirement and wrecking his balance sheet. I have to ask, is it really worth all this to live in Rain City?”

– ‘armourb’, via e-mail to VREAA, 18 Aug 2011

Pre-emptive comment: “Yes, they are, indeed, speculating. They are betting very heavily that RE prices will remain robust. They will be completely destroyed by any significant price drops. If they fully understood the reasonable risk of just 15%, 20%, 25% price pullbacks, they would consider selling. They are ‘speculative holders’.”
– vreaa

“I wouldn’t buy my own house at that price, period, just like I don’t pay $50 for a t-shirt.”

“People do have a set point after which it’s just not worth it for them to buy.
If you take for example my house purchased 14 years ago for $156K, large lot, but old 2 bedroom bungalow about 700 square feet. Currently this same house is $380K. I wouldn’t buy it at that price, period, just like I don’t pay $50 for a t-shirt.
Every person with some sense of who they are maintains this kind of price/value list in their head.”
– Rachelle at VREAA 17 Aug 2011 7:43am
[see Rachelle’s similarly very sensible Ontario-based landlord blog at landlordrescue.ca].

Here in Vancouver people have been through 5-10 years of relentless invitations to lose their heads; to lose the “sense of who they are” compass. The speculative mania, with all its ramifications, has applied increasing pressure, and the population have succumbed.
“Can’t afford a $50 t-shirt? Sure you can! Why, that one over there cost $150. This is the price of t-shirts nowadays, where have you been? If you want to live in Vancouver, and you want to wear a t-shirt, this is what you’re going to have to pay. I have wardrobes of $75, $100 t-shirts… look at this one, only $65! Or stretch and buy the $72 one – think of the resale value.”
– vreaa

Sane Oddballs; More Peripheral Collapse – “It is amazing how common sense thinking is now considered to be contrarian.”

“More and more listings are appearing in Qualicum Beach and surrounding areas – small economy and people are passing on – and their children are selling the houses as they can’t find jobs there – Albertans who bought investment properties are moving back to Alberta as they can’t take the wet weather (not good for their health). I mean really? – who buys a 3-5 bedroom house when they retire? – most are starting to downsize to retirement homes or the few remaining condos. I saw this coming 15 years ago when a 3 – 4 bedroom rancher by the golf course was going for 169K – 249K. A massive building boom took off in Qualicum Beach and this ended one – two years ago. Too many houses not enough retirees with the cash needed to buy – insufficient health facilities, retirees are getting older and selling to move into assisted living quarters in nearby Nanaimo. It is amazing how common sense thinking is now considered to be contrarian thinking, lol. Victoria is seeing more and more houses for rent and just about every house has a basement suite for rent for about $1200/mth. Apartment vacancies are increasing, less students returning to University – if I was them I would stay at home and take courses by correspondence until they can afford to move out. Vancouver mentality – well, you’d have to live there to understand how trendy they believe they are or think they are, bad traffic, bad weather, and you might get caught in the gang cross-fire. Raincouver – it really amazes me that educated people can be so so oblivious to reality, but that’s what herd mentality gets you. … Stupid transcends all generations – sorry but that is a true reality.”
– Don at greaterfool.ca 16 Aug 2011 10:37pm

Don is overly down on Vancouver. But we agree with his observation that market developments in recent years have meant that anyone showing common sense is ‘contrarian’. When the herd goes crazy, only the oddballs can be sane. – vreaa

“33% of Canadians between the ages of 55 and 64 have an outstanding mortgage.”

“33 per cent of respondents between the ages of 55 and 64 had an outstanding mortgage.” – from a Canadian Imperial Bank of Commerce survey, as described in the Financial Post/Vancouver Sun, 16 Aug 2011.

Left Off The List – “Toronto, Montreal ranked as pricey. What, no Vancouver?”

“Vancouver, Canada’s most bubbly housing market, wasn’t among the 73 cities studied. (When I first called UBS to ask about Vancouver, the folks that could help me were at lunch, in Zurich, the world’s second-most expensive city.)” – from ‘Toronto, Montreal ranked as pricey. What, no Vancouver?‘, Michael Babad, G&M, 17 Aug 2011, reporting on a study by UBS AG on “the world’s 20 priciest cities”. [In rankings of price levels excluding rent, Toronto ranks ninth and Montreal 17th.]

The truth is, these guys didn’t see us as important enough to consider in the rankings. As ‘three left feet’ said in the G&M comments: “Vancouver’s not on the list because globally it’s not an important city, despite what the locals claim.” – vreaa

“Her husband is a realtor and she’s pregnant. They have decided to sell their condo and rent until the market comes down.”

“Just got a conversation with a friend of mine. Her husband is a realtor and she’s pregnant. They are looking to move to a bigger place. She said her husband has made the calculations and they have decided to sell their condo and… rent and wait until the market comes down before they’ll buy again!”
– Makaya, at VREAA, 16 Aug 2011 6:36pm

“I know a guy that did that in 2004/05 – I think they are divorced now.”
– Blammo, at VREAA, 16 Aug 2011 7:37pm

The first story is interesting as a possible case of someone close to the market getting wind of coming weakness. Most insiders in bubble markets, however, don’t foresee their collapse.
Blammo’s anecdote is an example of probable social fall-out of the speculative mania. (‘Probable’ because they may have divorced regardless).
Financial stress is often claimed to be the commonest cause of marital break-up. On the other hand, once the housing bubble imploded across the US, there was talk of many couples being forced to stay together because they couldn’t afford to sell the house and separate.
– vreaa

“Dull”, “Steady”, and “Flat” Canadian RE Markets? [Highly Unlikely]

“The realization that the Bank of Canada will not be raising interest rates in the coming months is working to remove any sense of urgency to front-load activity. At this point we do not see any catalyst that will change the current trend in any dramatic way.” – Benjamin Tal, Deputy Chief Economist, CIBC World markets, Reuters, 16 Aug 2011.
Tal also said the Canadian real estate market will be comparatively “dull” going forward [in interview on CBC Radio, 16 Aug 2011, 3:35pm.]

“We will probably have a couple of years of steady prices” – Victoria Real Estate Board president Dennis Fimrite, ‘Victoria housing tilts toward buyers’, Times Colonist, 3 Aug 2011

“CREA expects sales to fall less than one per cent in 2012 while prices will flatten next year.” – ‘Home sales to rise this year, says CREA’, Kim Covert, Financial Post, 16 August 2011

A speculative mania never ends with a flat, boring market; not even in Canada.
We suspect “Dull”, “Steady”, and “Flat” are hopeful terms being used by vested interest insiders who are seeing the first signs of coming weakness. – vreaa

Software Engineer – “What is ultimately driving me out is the price of real estate. Establishing a family home is a higher priority than zip lining in Whistler. Adios BC.”

“Living in Vancouver definitely comes at a price. The salaries for my line of work (software engineering) are definitely 30% higher down in the US and quite possibly 5-10% higher in ON/QC. Given that, I’m not complaining about my salary: what is ultimately driving me out of BC in the next year or two is the price of real estate. When you are working crazy hard and the pay cheque is inadequate to purchase a 1-bedroom $600k nice apartment in Downtown Vancouver then I’m better off in ON buying a 3-bedroom $400k apartment in Downtown Toronto by the water. Sure the view isn’t as nice, and it will get terribly cold and terribly hot, but I never fancied myself the die hard nature lover or weather junkie. For a young family as in my case, establishing a family home is a higher priority than zip lining in Whistler. If majority of Canada’s population can bear the cold, so can I. Hey if I’m making more money and saving more, I can always come on vacation 😉 Ultimately it is a shame for BC as a lot of talented engineers and other professionals I know are leaving for better opportunities else in the country. What good is the weather and view if you can’t afford a decent lifestyle because everything is exorbitantly over priced. My 2cents. Adios BC.”
– Newman at VREAA 12 Aug 2011 10:10am

Sure, we all know Newman could rent, but perhaps that doesn’t equate to “establishing a family home” for him and his young family. – vreaa

Victoria Weakens Further – “Offers are coming in well off the listing price. It will be up to the sellers to come to grips with that reality. The buyers are saying that’s what they will pay.”

“The consensus among colleagues is offers are coming in well off the listing price. It will be up to the sellers to come to grips with that reality.The buyers aren’t lowballing, they are saying that’s what they will pay.”
– Michael Ryan, realtor, Century 21 Queenswood, as quoted in ‘Victoria housing tilts toward buyers’, Times Colonist, 3 Aug 2011

Other excerpts:
—
…the average price for single-family homes sold in Greater Victoria last month was $581,117, down from $629,292 in June. The median price declined to $535,000, while the sixmonth average fell to $615,439. Prices were also down for condos and townhouses.
—
Real estate board president Dennis Fimrite maintains property owners won’t see the value of their homes eroding. “We will probably have a couple of years of steady prices,” he said, noting that will be a change for Victorians who have been used to watching selling prices escalate over the last several years.

“In the 1990s a colleague bought and flipped one condo too many and lost it all when the market came to a screaming halt. The loss sent him into a state; he lost his job; he never recovered.”

“In 1986 I was fortunate enough to buy someone else’s loss when I bought my first house for $105,000 which the previous owner had bought for $135,000. Small numbers by today standards, but large by a percentage standard. I also watched in the 1990s as a dear colleague bought and flipped one condo too many and lost it all when the hot market came to a screaming halt. The monetary loss sent him into state which resulted in him losing his job. He never recovered.”
– VanGuy at VREAA 13 Aug 2011 4:31pm

“The main Wiggles guy asked the kids and the crowd to name something special and unique about Vancouver.”

“I was at the live Wiggles show the other day. The main Wiggles guy asked the kids and the crowd to name one thing/something special and unique about Vancouver.
Awkward confused look on people’s faces.
Someone said “maple syrup”..or “sushi”(??)…until everyone seemed to agree on “Olympics”
Come to think of it, I cannot think of anything either..”
– Get Real at greaterfool.ca 11 Aug 2011 11:12pm
—
Damn! This would have been the cutest story if one of the kids had called out something about the housing market. – vreaa
—
On that note, this extract from ‘Summer Fun For Boys’, by Tim Long, New Yorker, 1 Aug 2011:
“At the beach, build the biggest sandcastle anyone’s ever seen. Pretend that it’s 2005, and take out a huge, adjustable-rate mortgage on the sandcastle which you can’t really afford. Throw lavish sandcastle parties for seashells, rocks, plastic shovels, and candy wrappers. When the bank comes to foreclose on your castle, run and find your dad. Try not to look surprised when you discover him sitting with a lady in a green swimsuit. Her name is Terri. While shaking Terri’s hand, ask her for a seven-hundred-thousand-dollar loan to cover your sandcastle debts.”

Children Of Realtors Recall The 1980’s Crash – “I was only around 9-ish but I remember everyone saying it’s only going up up up.”

“Happened to my Mom in the very early 80′s. She was an agent at the time and was buying up everything. Condos, houses and “making” a fortune. She looked brilliant until… well she didn’t. Lost it all, and I mean all. Never did recover. I was only around 9ish at the time but I remember before she lost it all that her, business partner, heck everyone was saying it’s only going up up up, buy buy buy, but instead it was bankrupt bankrupt bankrupt.”
– DaMann at vancouvercondo.info August 3rd, 2011 at 2:58 pm

“Same with my Dad, a realtor in the early 80′s who thought he was smart and scooped up a bunch of places. He lost everything, we ended up going from rich to renting a small place, I was only 14 but I remember like it was yesterday. Right, Vancouver is “different”
– Anonymous at vancouvercondo.info August 3rd, 2011 at 3:32 pm

“I work, I save, and I refuse to buy at 13 times average family income. I’m alone amongst my friends and colleagues.”

“I see so many tear downs in progress; so many idiots paying interest only mortgages; I can barely stand it. God forbid, I work, I save and refuse to buy at 13 times average family income. I’m alone amongst my friends and colleagues.
There are a few of us in Van who managed to avoid the pot smoking, no money down, million dollar crack shack addiction (well.. the last 2 maybe).”
– Hovering at greaterfool.ca 11 Aug 11 11:25pm

“Money is so cheap to borrow and everyone else does it”

“I have nine friends, family, co-workers in the same boat. They used their principle residence as a bank machine to do renos, buy investment properties, travel, buy new cars. Everyone almost said the same thing: “Money is so cheap to borrow and everyone else does it”
– Patrick at VREAA 11 Aug 2011 4:14pm

Unconventional Offer for Adventurous Home Owner (Vancouver) – “This is the only way you will ever have your pet dinosaur, and the only way I will ever be able to acquire a house in Vancouver.”

Thanks to all readers who have forwarded us the following ad from craigslist:
—-
vancouver, BC craigslist > vancouver > housing > real estate wanted
Unconventional Offer for Adventurous Home Owner (Vancouver)
Date: 2011-06-26, 8:16PM PDT
Reply to: hous-wxb6b-2464265874@craigslist.org

This offer is not for everyone. Those of you who have saved every penny for most of your life to afford a down payment and currently work around the clock to make mortgage payments, I commend you on your efforts, but this post is not for you.

Do you own more than one property? Do you have so many rental homes with no mortgage payments, yet you still feel unfulfilled? Tired of your illegal tenants whining that there are rats in the walls? Have you always wanted your own dinosaur? Now is your chance my friend.

In exchange for one of your properties, I will be your personal dinosaur for one year. I will be at your beck and call, 24 hours a day, wearing a dinosaur costume. The type of dinosaur is negotiable. I can babysit your children (references upon request), scare the mailman, wash dishes, entertain and impress your guests, and much more. (No sex stuff though, sorry.) I will make realistic dinosaur sounds, eat what the particular dinosaur eats and maybe even sit on a fake dinosaur egg, if you are so inclined. I am well educated, fluent in English and French (as well as dinosaur), can play several musical instruments and have no criminal record or outstanding warrants.

All this and more. This is the only way you will ever have your pet dinosaur, and the only way I will ever be able to acquire a house in Vancouver.
Serious offers only please.
Thank you.

PostingID: 2464265874

“I Have Friends Who’ve Profited…”

“My friend, a working stiff, bought a house on the west side for 500k 6 years ago and just sold it for 2.6 million.”
– McLovin at vancouvercondo.info August 3rd, 2011 at 2:17 pm

“I have a friend who bought a place in Kits about 7 years ago for $600k. Recently sold for $1.2mill.”
– Girlbear at vancouvercondo.info August 3rd, 2011 at 2:22 pm

“A friend of mine bought his Shaughnessy house 5 years ago for approx. 700k. Sold it four months ago for more than two million to an offshore Chinese buyer who is going to tear it down.”
– Manna from heaven at vancouvercondo.info August 3rd, 2011 at 2:48 pm

“I have some friends who just moved into their rental house at UBC after selling their house in Dunbar in May. The UBC house was recently sold for $4mill to some people who live in Shanghai. My friends are renting it for $4000/mnth. The owners are paying the landscaping (big yard) and the pool maintenance. Oh and of course the property taxes.
And before you think they are SUPER UBER RICH CHINESE, we got copies of the papers and they have a $2.5mill mortgage on the place.
Work the numbers. My friends look like rockstars.”
– Girlbear at vancouvercondo.info August 3rd, 2011 at 4:26 pm

Unashamed House Porn: Seattle Vs Vancouver

3018 W Lake Sammamish Pkwy, Redmond, WA
5,040 sqft SFH; 17,859 sqft lot (0.41 acres)
Built 1991
“110′ of preeminent, level waterfront”, “Terrific privacy, with front row expansive lake, mountain and coastline views from nearly every room.” Sammamish Lake. Pool and hot-tub.
Zillow estimate value $3.34M
Listed for sale Aug 2010 $3.925M
Price reduced May 2011
Current asking price $2.85M

[hat-tip to Jeff Murdock for this example. Jeff adds “Biking distance to Microsoft”(2.1 miles)]
—
Vancouver comparison:

4411 W 11th; 4,696 sqft SFH; 63×121 lot (7,623 sqft; 0.175 acres)
(Backs onto alleyway behind 10th Avenue stores.)
Listed 9 Oct 2010 $2,980,000;
Price change 6 Dec 2010 $2,890,000
Sold 15 Feb 2011 $2,830,000

Spot The Speculators #51 – “If these people succumbed to the greed, I can just imagine how many more there are out there.”

“I have some friends here who live in a nice, upper-class neighbourhood full of big houses. They are absolutely stretched to the limit. There’s no money for anything anymore. And unfortunately they aren’t the only ones I know who are basically counting down the days until there’s not a penny left on the line of credit to draw from (the credit cards are long maxed out). Next stop is cashing out their RRSPs, they tell me. Then that’s about it. End game. Why the mess? A bad investment in a condo that’s done nothing but depreciate in value since they bought it presale (flip gone wrong). Now it’s a losing rental property that is draining their every last resource. And these were people I looked up to financially, they were very conservative with their money for the past 20 years, even had their mortgage on their principal residence paid off by age 45! I can’t believe the risk they took. And if these people succumbed to the greed, I can just imagine how many more there are out there.”
– pricedoutfornow at VREAA 9 Aug 2011 8:53am

Housing Starts Are Up; “My mom is trying to sell a condo in Richmond. 2 months on the market and nothing. Not a soul. Already dropped the price twice.”

“My mom is trying to sell a condo in Richmond. 2 months on the market and nothing. Not a soul. Already dropped the price twice. It’s a newer condo in central Richmond.”
– VanCity Girl at greaterfool.ca 10 Aug 2011 3:04am

And in related news:
Metro Vancouver’s housing starts are up 25 per cent for the first seven months of 2011 compared to the same period in 2010, according to Canada Mortgage and Housing Corp.
Most of the starts were in Richmond, Burnaby, Surrey and the city of Vancouver.
“The focus of new residential starts remains on multi-family construction, especially apartment condominiums,” CMHC senior market analyst Robyn Adamache said in a statement.
“In the first seven months of this year, 5,903 apartment starts were recorded, compared to 3,882 during the same period last year. A pickup in condominium sales as well as stable economic conditions gave developers the impetus to undertake such projects.”
– Vancouver Sun, 9 Aug 2011

Keep On Framin’

Vancouver Market Poster-Boy? – “The house formerly known as 4104 West 11th Ave…” – 50 x 122 lot, $2.825M ask

4108 West 11th Ave, Vancouver
[This house/lot was formerly known as 4104 West 11th Ave; had its number changed to 4108 at some point since 2009.]
1920 built 1,952 sqft SFH; 50 x 122 ft lot

On market February 2009 (above; as 4104) ask price $1,258,000
From realtor blurb:
“…basement suite…currently rented to good tenants for $1200 per month…”

On market February 2011.
Asking price $1,888,888
Sold in 4 days for $2,500,000 ($612,000 over ask).

On market 1 April 2011 (above; as 4108) ask price $2,880,000
Listing removed 11 July 2011

Relisted 12 July 2011 $2,880,000
Price reduced 8 Aug 2011 $2,825,000
From the current realtor blurb:
“50.3′ x 122.1′ corner lot (RS-1 zoning) which allows buildable area of approx 4200 sq ft (3 level) brand new house. All brand new houses in the area is selling over $5.5M. Will build to suit if needed. The approximate monthly rent is $5000/mo. Tenanted until end of July.”

This sentence, in the April listing, has been dropped from the current blurb:
“Don’t miss this opportunity cause this is the best place on Earth.”

—

Notes:
1. Market price rise from $1,258,000 to $2,825,000 in 30 months. That’s a 125% increase; or a compound rate of 38% p.a.
2. [edited after comment by M–] The current listing states that the rent on the property is now $5000 p.m., which would mean that the monthly rent has risen from $1200 for the basement suite (about half the house?) to $5000 (for the whole house) over the same 30 month period. That’s about a 100% increase on the whole house rent. Similar properties in the area have monthly rents substantially less than $5000.
3. We obviously realize that the ‘value’ in this property, in our current market, is in the land, not the house. Thus, pointing out the laughably high price:rent ratio [$2.825M:$5K is 565:1] isn’t too meaningful. Very smart move for the owner to sell, asap.
4. “Will build to suit if needed” – Does this mean a developer already owns this property? Attempting profitable lot flip rather than develop themselves?
5. (a) massive price run up; (b) very large price:rent ratio; (c) address change to an ‘8’ number; (d) prices with ‘8’s; (e) ‘BPOEarth’ quote in realtor blurb; (f) functioning house becoming a tear-down… You just gotta love this property as one of the poster-boys for our market.
6. Also noted here as a sample ask for a Point Grey 50 x 122 lot circa August 2011; for the record.
– vreaa

PS: In the interest of fleshing out the whole story, any reader with access to earlier price history on this property, please post.

Australia – “They claim they never did anything wrong, but of course they did. They paid too much for a house, and they had no cash cushion if one or more of them lost their job.”

From ‘Secretly Broke in Australia’, at Mike Shedlock’s Global Economic Analyst blog, 8 Aug 2011. Transcripts from a ’60 Minutes’ TV feature (‘The Big Squeeze’) on the personal consequences of moves in the Australian housing market. [hat-tip to ‘bubbly’]

ALLISON LANGDON: To the world, Tracy and David Dodd are the very model of Australia’s relaxed and comfortable middle-class. They’re living the dream – three kids, a mortgage and a suburban family home on an acre block. But Tracey and David have been keeping a secret from their family and friends – they’re drowning in debt. No-one to look at you would think that you are struggling.

TRACY: It might look like we have got everything but you don’t see the mortgage, you don’t see the loans. You don’t see everything and nobody wants to talk about it you know, because it is embarrassing.

ALLISON LANGDON: Has it taken a toll on you both?

TRACY: (weeps)

DAVID: Oh it has – it has taken its toll but you’ve just got to do it.

ALLISON LANGDON: Like most young couples, the Dodds invested their heart and soul and every spare cent they had into the ideal of home ownership – the biggest mortgage their double income would allow. But last June, Tracy lost her job in the construction industry and David was made redundant. Just to keep money coming in, he’s taken a lower-paying job. Ever since, the Dodds, like tens of thousands of middle class families have been going secretly broke in the suburbs.

TRACY: We went from having a really great income including a company car, fuel card, phone – things like that – to basically losing all of that.

ALLISON LANGDON: So do you have more money going out each week than what you’ve got coming in?

TRACY: Absolutely.

ALLISON LANGDON: How much difference are we talking about?

TRACY: Probably – it’s getting very embarrassing – probably about 400 bucks…$400.

ALLISON LANGDON: This is the outskirts of the Gold Coast. When you look around and see the big, shiny new houses, the nice lawns and two cars in the driveway, you can’t help but think, ‘life must be pretty good here.’ But this version of the Great Australian Dream is just a facade – nowhere is mortgage stress being felt more keenly than right here. And the figures are staggering – one in 50 families are at risk of losing everything. The number of Australians behind on their mortgage repayments by more than a month is at an all-time high. Areas of mortgage stress can be pinpointed right around the country. Mostly in areas, that just five years ago, were booming. Families who borrowed to the limit in the real estate gold rush are the ones who are now struggling to pay their bills.

—
MISH’s comment: “The story continues with Phil and Sandra Box who claim they never did anything wrong. Of course they did. So did Tracy and David Dodd.
Not only did they pay too much for a house, they had no cash cushion if one or more of them lost their job.”

—
Another extract from the 60 minute piece:
“A generation ago, buying a house was a rite of passage, bricks and mortar were as good as money in the bank. Not any more. Nowadays, renting might just put you ahead of the game.”

—
Note that for the “figures” to be “staggering”,  just “one in 50 families” need to be at risk of “losing everything.” What will the Vancouver area numbers be at 10%, 20%, 25% RE price drops (and with the resultant effects on our  RE-dependent local economy)? – vreaa

“RCMP report suggests the dramatic plunge in U.S. house prices has caused some gangsters to re-evaluate whether B.C. is really the best place to do business.”

From ‘Cheap housing luring Canadian marijuana growers into U.S.: RCMP report‘, The Province, 7 Aug 2011 –
The U.S. housing crash has lured some marijuana growers to move their operations south of the border, according to an internal RCMP report obtained by the Vancouver Sun.
“Some VOC (Vietnamese Organized Crime) groups have moved their marijuana grow operations to the United States where the lower cost of real estate (in some regions) allows them to operate a more profitable enterprise and where they can also avoid police/customs detection at the border,” states the RCMP report.
—
For more than a decade Canada has been home to a multi-billion-dollar marijuana-growing industry, the bulk of whose product has been shipped to the U.S.
B.C., where the largest number of those operations are located, has generally been seen as an attractive place for drug gangs to set up shop because the legal penalties for growing marijuana here are more lenient than in the U.S.
However, the RCMP report suggests the dramatic plunge in U.S. house prices has caused some gangsters to re-evaluate whether B.C. is really the best place to do business.
Since 2007, house prices in the U.S. have dropped by roughly a third nationwide and in some markets, like Las Vegas, by more than half.
During that same period, prices in most Canadian cities have been flat or rising, with particularly large price gains in Vancouver.
Growing operations tend to be located in residential properties, so real estate is one of the biggest expenses for growers.
—

“Without the Vancouver housing bubble I would have probably spent 3,500 hours working on building my business instead of getting addicted to learning everything I can about finance and economics.”

“I hate to invest in things I don’t understand, so from the age of 18 to 28 I invested in the thing I understood best: myself. My investment involved spending enormous amounts of time studying computer science, marketing, sales, accounting, the basic skills needed to operate a business, and IT management practices. In the first 3 years after finishing university I had spent $25,000 on computer books (crazy, but true). I am sure some RE bull observers would say that I would have been better off buying a house and watching it appreciate in value but they would be wrong because I loved every minute of reading hundreds of books on all things comp sci, IT management and geo politics. End result I have a consulting business where I am tax optimized, and only work 100 days of the year, generating 140K to 200K of revenue per year while being able to live anywhere in the world, so I effectively own my job.

My obsession with finance and economics was born around 2007 when I decided that I would stay in Vancouver. The plan was to live in Vancouver, enjoy the great outdoors, start a family, buy a house, and put what I learned into hitting a home run with a product based business (still swinging for the home run; have not hit it yet).
What really pissed me off is that, even though I had done something totally crazy [in a good way] compared to the average 28 year old (starting out as an immigrant kid with no connections and no money and lots of student debt), I still could not afford to buy a house in Vancouver. At this point I owned some commercial RE in Ontario and had cash accumulating in the bank at a healthy rate. My definition of affordable is minimum 25% ideally over 50% down payment and prices close to fundamentals.
My obsession with finance and economics became an addiction in 2008 as the world economy was blowing up. As of now I estimate that I have spent over 3,500 hours reading finance and economics books, and blogs. For fun, I wrote the CSI exam to see if I had learned enough, and I had no trouble passing it.
After 3,500 hours of research I have learned how to tell if something is a bad investment. The problem is that I have no idea what the [current] good investments are, other than my business, and myself.
I don’t have enough money to afford the seriously good money managers that know what they are doing and I know that the financial advisers at the banks and insurance companies really don’t know anything that I don’t know and will probably not advise me on anything and just sell me some product from their company.
It also seems to me that the markets are fundamentally corrupt and rigged against those who don’t have servers in the stock exchanges, or friends in government, or 100 million +.
Buying a house and putting all my money into it would have freed me from dilemma of figuring out what to do with my savings because I would have worked to pay off the house in 5 to 8 years and get mortgage free.

Now it seems to me that my options for my money are:
A) Put my money into a grossly overvalued housing and lose lots of it – I have worked too hard to let that happen.
B) Put my money into the fundamentally corrupt politically rigged and manipulated public markets.
C) Keep it in cash and let the bank gamble with it and loan it to fools who buy over valued real estate while my taxes “guarantee” the loans (current strategy)
D) Spend it
E) Try my hand at investing and see if I learn anything useful (I like learning and creating things not buying things in hope of selling them for more not really who I am the game just does not appeal to me but maybe I could grow to like it)
F) Invest it in my business and work to increase my revenue to $300K per year while only working 60 days per year. Use increased time and cash flow to search for business model with a personal 25 million + exit where I bootstrap the business from the ground up.
G) Raise money from investors for a business idea that I have developed business models for, then work 60 hour weeks 50 weeks of the year, be in perpetual raise capital mode, baby sit investors, lose my time to learn and grow, and then maybe exit if my interests are still aligned with the interests of the investors by the time an exit opportunity shows up.
H) Keep learning more and see if I learn anything new to change my mind about what my options are.
I) Leave Vancouver and hope that by doing so I don’t end up being obsessed about finance and economics any more.

Now that I have written this rather long post, it seems to be too personal and revealing to post online. But … I share my story for sake of contributing to this blog’s effort to capture the impact of the housing bubble.
So, without the Vancouver housing bubble I would have probably spent 3,500 hours working on building my business instead of getting addicted to learning everything I can about finance and economics.”

– ams at VREAA 5 Aug 2011 4:36pm

—
Thanks, ‘ams’, for sharing your illustrative story so openly. You are by no means alone, as the pressures applied to you through these profoundly abnormal times have been felt by many of us. And the perversion of behaviour you describe has also affected many; each in their own way. Witness the very existence of this blog as just one small example.
A few thoughts:
1. The speculative mania in housing has distracted many from usual productive activity. This is just one of the many ways in which asset bubbles misallocate resources.
2. Despite ‘austerity’ talk internationally and nationally (BOC Governor Mark Carney, etc), economic pressures continue to punish the prudent. ‘ams’ still feels pressure to use his accumulated wealth in an arguably unwise fashion: to speculate, to buy overvalued assets, or to squander it (spend unnecessarily).
3. The speculative mania in Vancouver RE was very clearly underway by 2007, and it was prudent of ‘ams’ to avoid the market then. Price action in the four years since then has punished him psychologically. This is a common phenomenon in bubbles.

Having said all this, if one lives through abnormal times, and if one is naturally drawn to examining one’s own behaviour and the behaviour of those around you, isn’t it normal to be fascinated by these massive social forces, to study them, to document them, to discuss them, to attempt to take advantage of them? Isn’t that a particularly human thing to do under the circumstances? – We are all to a certain extent products of our times. The results of ‘ams’s 3,500 hours spent studying ‘finance and economics’ are perhaps as much an important part of who he is as his business career, or the business that he has built, or any other valued aspect of his life.
– vreaa