“Intuition and Instinct” Reassures North Vancouver ‘Residential Designer’ – “We’ll be able to weather whatever market storms come our way.”

“I’ve intuitively felt that our housing values in Vancouver, specifically here on the North Shore, are not artificially inflated but rather reflect desirability of the locale and the limited supply of buildable land that our topography permits. Our communities on the North Shore are delineated by a perimeter of mountains and ocean that creates one of the most beautiful locales on earth while preventing outward growth. The fact that we’re only minutes from a thriving, world-class metropolis suggests to me more than ever the adage “location, location, location.”
There are those who argue that the trap door will eventually drop but I suspect it won’t be anything so dramatic. My instinct tells me that we’ll be able to weather whatever market storms come our way.”
– Kevin Vallely, a ‘residential designer in North Vancouver’, North Shore News, 28 Sep 2011
[hat-tip vancouvercondo.info]

When it comes to markets, “intuition and instinct” send the very opposite messages to which one needs to pay heed, more often than not. – vreaa

Macleans on the Futility of Prudence – “My fear is that most people in Canada are now debtors and not savers, and so governments will enact policies to help them because they make up most of the population. Savers may get screwed on the way down, too.”

“Steven Patterson and his family moved to Vancouver from Cambridge, Ont., in mid-2008, just as the financial crisis hit. After years of scrimping and saving to pay off their first mortgage, they had earned a tidy profit when they sold the Cambridge house and put the proceeds into GICs, where the money would be safe and easily accessible should they decide to buy another home in B.C. Three years later, Patterson, a 42-year-old IT manager, is still sitting on the sidelines, renting, while real estate prices march ever upward in a city where a three-bedroom bungalow covered in warped siding can fetch $1 million.
That might seem like a prudent move in an uncertain economy, but Patterson says his cautious approach has come at a steep price: all his money is steadily being eaten away by inflation, which the meagre interest income from his GICs can’t cover — particularly after the taxman takes a cut. Meanwhile, several of Patterson’s friends have taken advantage of those same low interest rates, loaded up on debt, and bought into Vancouver’s frothy housing market in recent years. And they have enjoyed a windfall—at least on paper—as the value of their homes continues to climb. As for Patterson, “I’m only a few thousand dollars ahead—minus inflation,” he says, clearly frustrated. “So actually, I’m way behind, and I don’t have a house.”
Welcome to the world of ultra-low interest rates, where profligacy is richly rewarded and saving is, well, for suckers. Those who’ve opted to be austere with their personal finances have found themselves on the losing end as governments and central bankers have worked to get people to borrow and spend in the wake of the global recession. While emergency interest rate cuts were to be expected after the financial crisis seized up lending markets, it’s been nearly four years since central banks started slashing rates to the lowest levels in history.
—
As a result, those saving money have seen almost nothing in the way of returns for a painfully long time. In fact, after accounting for inflation, anyone who dares to be prudent risks seeing the value of their money decline. If one were to put $10,000 into a five-year GIC at two per cent this year, and assume headline inflation goes no higher than the current rate of 2.7 per cent, the future value of that investment in 2016 will have shrunk to around $9,670.
For seniors and others living on fixed incomes in particular, low rates threaten to wipe out their savings. Yet it’s also depressing for those in the second half of their careers who don’t have an appetite for risk but feel they now have no other choice. “People in their 50s are worried about what they’re going to retire on,” says Susan Eng, vice-president of advocacy at CARP, which works on behalf of aging Canadians. Between the carnage in stock markets and the collapse of interest rates, “there’s a huge amount of anxiety. You’re asking for a lot of trouble with this situation.”
—
Some will argue people like Patterson are simply bitter because they didn’t buy into Vancouver’s soaring housing market. And yes, those who take risks should enjoy the potential for greater rewards. That principle is at the heart of capitalism. Only, in the current environment where central banks have pushed down interest rates to abnormally low levels, and government policies encourage consumption over thrift, the dynamics of risk and reward have been severely distorted.
This isn’t how it’s supposed to work. From the moment children are given their first penny, it’s driven into us that saving is a virtue and the path to financial security starts with that ceramic piggy bank on the dresser. Only now, with policy-makers in a desperate race to reignite economic growth, all that has been turned on its head. Yes, Bank of Canada governor Mark Carney and Finance Minister Jim Flaherty have repeatedly warned Canadians not to take on too much debt, but their policies, and those of their colleagues in countries like the United States and Great Britain, have had the opposite effect, encouraging people to buy homes, cars, flat-screen TVs or take a plunge into volatile stock markets—anything, that is, but save.
—
“We’ve got ourselves into a position where debt and spending seem to be highly valued, but saving, which is prudent and helps people plan for their futures, seems to be almost looked down upon,” says Simon Rose, who works with Save Our Savers, a British organization that’s taken up the fight for downtrodden penny counters. “It’s unfair that the problems of the economy should be disproportionately shouldered by savers rather than those with a tendency to borrow too much and get into trouble.” No one is saying Canadians should abandon thrift and go on a wild spree of gluttonous consumption. Indeed, Ottawa has set up tax-free savings accounts to encourage people to save. But the competing priority of spurring economic activity means the interests of savers have taken a back seat and made it that much harder to act responsibly. What’s more, while central bankers have undone basic thinking about saving in the name of juicing the economy, a growing chorus of critics claim that strategy has not only failed to turn things around, but the dogged pursuit of low rates might be weakening the recovery
—
Sometimes Lee Tunstall wonders why she bothers saving at all. A child of parents who grew up during the Second World War and instilled in her the importance of living within her means, Tunstall, a consultant in Calgary, has rented the same apartment for 17 years and dutifully contributes to her conservatively managed RSP account. Yet all around her, friends have piled on huge mortgages and run up towering lines of credit debts in the past few years to buy homes and new Bimmers for the driveway. “If you are a saver you’re absolutely losing money to inflation, and if you go into the markets you’re losing money there too, so why bother?” she says. “Sometimes I think, ‘Why don’t I just join the herd and do what everybody else is doing, buy the toys and live it up like everybody else?’ ”
Tunstall would have plenty of company were she to give up her frugal ways. Gone are the days when Canada was a nation of savers. In 1980, the personal saving rate peaked at above 20 per cent and was still around 13 per cent in 1995. Today it stands at just 4.1 per cent. At the same time, over the last decade Canadians have increasingly relied on debt to maintain their lifestyles. The average household now owes $151 for every $100 of disposable income, a higher level than even American households reached in 2007 as the air rushed out of the U.S. housing bubble. This week, Moody’s, the credit-rating agency, said it is increasingly uneasy with the consumer debt mountain rising in Canada. “We are concerned that Canadians are relying on low interest rates to support high debt levels,” the agency said in a statement.
Much of that growth in debt has taken place since 2007, when the Bank of Canada cut its overnight rate from 4.5 per cent to a low of 0.25 per cent in 2009. The dramatic cuts, along with stimulus programs targeted at the real estate sector, revived house prices, which had begun to tumble. As of June, the Teranet-National Bank House Price index has nearly doubled over the last decade, while in markets like Vancouver, prices have soared a whopping 140 per cent. That shouldn’t have been a surprise; reckless behaviour gets a boost when government and central bank policies punish individuals for not taking part. But while the cuts were a boon to mortgage borrowers, they’ve sideswiped the saving crowd.
One way to measure the impact is to look at how much interest income is being lost as a result of low rates. Stephen Johnston, a Calgary money manager, estimates that with roughly $1.2 trillion on deposit at the banks and rates roughly three percentage points below their historical average, savers are losing out on $30 billion to $40 billion every year in interest income. He argues this amounts to a massive subsidy for the country’s banks, since the rate depositors are paid to part with their money is far less than what the banks can earn lending that money out to other people as mortgages. “Deposit rates now cost the banks nothing, but that’s not free,” he says. “Someone else is paying the price, and it’s little old ladies and people on fixed incomes who can least afford it.”
—
With Canada’s overnight rate at an almost-princely one per cent compared to the U.S., savers have at least had that going for them. Unfortunately, Canada’s economy shrank by 0.4 per cent in the second quarter, reviving calls for more rate cuts. At the very least, Carney now says the need for a rate hike has been “diminished.”
—
For its part, the Bank of Canada is in a difficult spot. If it leaves rates low indefinitely, there’s the very real risk more Canadians will decide saving is a suckers’ game and start to pile on debt. Yet when the bank eventually does raise rates, which it must, someday, over-indebted households could spark a fresh crisis. “Previous generations used to buy a house that was twice their household income, but now families are spending 10 to 12 times what they earn,” says David Trahair, a financial author whose new book, Crushing Debt: Why Canadians Should Drop Everything and Pay Off Debt, is due out in November. “The central banks are in a bind because they can’t increase interest rates or it will be extremely punitive to these people with mountains of variable rate debt.”
Whatever happens, Ritchie Hok, an actuary living in Ottawa, is convinced savers will ultimately wind up paying the price for others’ imprudence. At the peak of the U.S. housing bubble, Hok lived in Minneapolis and saw the excesses first-hand. While there he resisted those who urged him to get into the market; a wise move given prices are down 40 per cent there. Now that he’s in Ottawa, though, he’s hearing all the same arguments for why he should take advantage of low rates and buy a house before prices rise even further. He’s convinced Canada’s housing market is a bubble that will eventually burst, and when it does, policy-makers will rush to people’s rescue. “My fear is that most people in Canada are now debtors and not savers, and so governments will enact policies to help them because they make up most of the population,” he says. “Savers may get screwed on the way down, too.”
If Hok is right, the frugal few could be in for even more pain ahead. Why is it again that it pays to save?
– liberally excerpted from ‘What’s the use of saving money?’, Jason Kirby and Chris Sorensen, Macleans, September 27, 2011

As street-smart youngsters may say: “Word!”. -ed.

“Just moved back to Vancouver, bought and sold some property in south-western Ontario over the last 15 months, sold my Vancouver real estate in 2009.”

“Just moved back to vancouver bought and sold some property in south-western ontario over the last 15 months,sold my vancouver real estate in 2009. I hate to tell everyone, vancouver is not a favoured destinations for many people. I didn’t meet one person who would move their family to vancouver and pay outrages prices to live here. Oh and there were asians and indians in ontario that are happy where they are living and would never pay vancouver prices. Most world investors have taken their money out of vancouver and are investing in places like west palm beach and miami beach. Not sure about most of you but 100 grand for a nice condo in miami beach with a great night life, culture and alot of sun is much mor appealing than the rain in no fun vancouver. Only here in vancouver for work and yes i am renting”
– sebastian at vancouvercondo.info 20 Sep 2011 9:04am

We disagree with the statement “Most world investors have taken their money out of vancouver and are investing in places like west palm beach and miami beach”; that hasn’t yet happened.
We suspect that the bulk of foreign investors in Vancouver RE have been very happy with price increases (compounded by loonie strength) thus far. They will liquidate when prices weaken.
That’s how momentum speculators behave in markets; buy strength, sell weakness.
-vreaa

“A Caucasian friend who owns a house told me that in 20 years time in Vancouver the only Caucasians left will be serving moneyed Asians. Does he intend to then sell for 10 million dollars and leave?”

“A friend (who has a house) told me that in 20 years time Vancouver will be populated by HAM [‘Hot Asian Money’], and that the only Caucasians left will be serving them.
Does he picture himself living in such a community, being Caucasian himself? Does he intend to sell for 10 million dollars and leave?
I thought I did not agree with that vision of the future, until I went to Telus World of Science and noticed bilingual exhibition panels: English/Chinese. Not other language. I will sent them a letter expressing my frustration as a non-Chinese ESL immigrant, since they made my kids feel like secondary citizens.”
– painted turtle at vancouvercondo.info 26 Sep 2011 8:06am

We personally don’t foresee that “20 years time” outcome, but we wouldn’t be at all surprised if a good number of local owners, who DO imagine this happening, are harbouring fantasies of cashing-out big and then leaving to retire elsewhere.
– vreaa

Broad and Deep Negative Effects – “When housing prices do fall the effect on the economy is often much greater than many people expect. Homes are not riskless investments.”

“As I talk with economists from countries whose housing values have risen markedly but not experienced sharp declines, I have been struck by two things. First, they are often confident that national (versus regional) house-price reductions are unlikely. And secondly, most assume that a decline in house prices would have a measured impact on the economy should that in fact occur. But the experience of Japan in recent decades and the U.S. more recently should provide some caution – given that the economic retrenchment that followed these significant declines in home values exceeded most people’s expectations.”  /
“… sharp declines in housing prices can have additional negative effects, with broad implications for macroeconomic outcomes and monetary policy – broader, perhaps, than may be assumed and incorporated into most statistical models of the economy. …
(When) housing prices do fall the effect on the economy is often much greater than many people expect.
A key lesson from the past several years is that homes are not riskless investments.”
– excerpts from a speech given in Stockholm 28 Sep 2011, by Eric Rosengren, President of the Federal Reserve Bank of Boston.
[Taken from a recommended article by Ben Rabidoux, The Economic Analyst, 28 Sep 2011]

Housing is in a speculative mania in Vancouver and the unwinding of that bubble will have broad and deep negative effects on our economy and our society. – vreaa

Spot The Speculators #53 – “He currently owns two condos and they have been looking to also buy a home in East Van.”

“Had a picnic with a couple in their 30s yesterday.
He is currently unemployed. She is part-time student and works as a professional but not in a high paying field.
He currently owns two condos and they have been looking to buy a home in East Van. They figure it will cost about $800,000 with around another $100,000 worth of renovations.
He expressed a little frustration that the bank wouldn’t give him a mortgage given his current employment status and also would not allow him to borrow against the full “equity” he has in the two condos.
But he is moving ahead with the assumption that he will get a six figure income in the next couple months and he will be able to sell one of his condos easily.
I expressed my view that not being able to buy another house is a good thing given the fact that home values are about to take a substantial hit.
Despite the fact I have studied finance and economics at the post-graduate level (and they have little training in this area) my comment was ignored.”
– b5baxter at vancouvercondo.info 11 Sep 2011 8:49am

“I just can not wait to move to Alberta in the new year. This is a major loss to BC. My education was funded by BC taxpayers.”

“I am completing my bachelors degree in December. Vancouver does not have entry level graduate trainee programs. This is mainly due to the lack of head offices. All jobs in Vancouver demand experience and will pay peanuts.
Now, Ontario and Alberta have hundreds of graduate entry positions with salaries ranging from $40k-50k. Even if Vancouver were to offer such positions – $40k in Vancouver is below the poverty line. Being a mature student with a family, my income should be able to offer my family a middle class existence. For me apartment/condo living does not cut it. I want my kids playing in the backyard. In other Canadian metropolitan cities one can buy a detached family home for $250k. It might not be all that but as a starter home for a young family that would be great.
I just can not wait to move to Alberta in the new year. This is a major loss to BC since my education was funded by BC taxpayers. As a full time student I had to put my child into daycare and the province subsidized the cost. I even received rent subsidies. I would have loved to serve the Province that enabled me to attain an education but just can not afford to due to the exorbitant cost of living and lack of meaningful career opportunities.
When you are as busy as I am you hardly have time for the skiing and kayaking. During winter times Vancouverites also get to shovel snow off their driveways. Vancouver winters are relatively mild compared to other parts of Canada but Vancouver weather is no California weather.”
– IamOuttaHere at VREAA 26 September 2011 at 11:16 pm

CTV Host Tamara Taggart – “Real Estate stories are always great, they never get tiring, you know?”

Tamara Taggart: When you want to buy a home, you want to buy a home now..!
Linda Steele: You do
T: …you don’t want to wait until 2013. Oh and, by the way very nice apartment [featured earlier in clip] they were looking at, I like it a lot
S: I know…
T: Gorgeous…
S: They didn’t buy it, by the way..
T: Oh, so it’s still on the market! (smiles and waggles head) … What about off-shore people… are they jumping at prices?
S: Well, that’s kind of a fiction, the Chief Economist of the BC RE Board says not true, a lot of people have heard these rumours, but only 2-3% of the buyers are foreign investors from mainland China, the vast majority are just recent immigrants who bought homes to live in and they are your neighbours and they’re staying.
T: There you go, thank you… Real Estate stories are always great, they never get tiring, you know? Thanks a lot.
– from ‘Is Vancouver’s housing bubble about to burst?’, CTV 27 Sept 2011 [time 2:50 onwards]

“On the one hand, I love real estate; on the other hand, real estate is fabulous!”

Taggart demonstrates the excitable frisson that many owners of appreciating homes in BC demonstrate for the sport of Real Estate.
Watch as glee turns to disgust in coming years.
Hardcore contrarian bears will only consider buying when CTV ‘news’ is completely and utterly devoid of any RE stories.
– vreaa

BCREA – The Bubble Hasn’t Burst So It Doesn’t Exist

“Well I guess the first question is, is there a real estate bubble at all? … We had a financial crisis, the largest we’ve seen since the Great Depression, we had an ensuing global recession, and if that isn’t a trigger or tipping point, for any kind of inflated market to see a major correction, I don’t know what is.”
– Cameron Muir, Economist, BC Real Estate Association
(from ‘Is Vancouver’s housing bubble about to burst?’, CTV 27 Sept 2011)

The argument is that the bubble hasn’t yet imploded so it doesn’t exist.
– vreaa

Ex-Seller Pent Up Demand? – “I sold in Van West about 6 months ago, I’ll buy back in if prices go down about 30-35%.”

“I sold in Van West about 6 months ago, I’ll buy back in if prices go down about 30-35%, that’s the percentage that would make sense to maybe jump back in, and only if the rates are still relatively low. If it doesn’t go down that much then I’ll just keep renting…kind of enjoying renting actually”
– vangrl at vancouvercondo.info 20 Sep 2011 4:03pm

“My wife wants to buy NOW! because she thinks we are throwing away money renting. Its a battle! She also hates moving as do I. The problem is there is a lot of people who have sold, and are sitting on a lot of money. We all sold at different times.”
– mattymatt123 vancouvercondo.info 20 Sep 2011 12:57pm

—
How many Vancouverites have sold their primary residences and are now renting; waiting on the sidelines, hoping to buy at lower prices?
Will that ‘pent up demand’ ensure that any price pullbacks are shallow, as many are predicting?
How will these prospective buyers respond when prices do indeed start dropping?
(Our opinion is that this is a relatively small pool of buyers, and that, even if they do step in and buy, the effect will not be enough to overcome the massive downward momentum in prices that will occur when our very broad-based speculative bubble implodes).
– vreaa

Steak = Overpriced Condo; Sizzle = Vancouver ‘Safety’ : “The broader asset is Vancouver.”

Voice over: Tuesday Bob Rennie launches the sale of the section called ‘Sails’… Bigger units, bigger views, bigger prices… from half a million up to two million dollars.
Reporter: How do you go about doing something like this when there is such financial turmoil?
Rennie: You know… we can start… we’re talking about the asset called ‘The Village’, but the broader asset is Vancouver… If you want to take money out of volatile markets, Vancouver is looked at as a very safe place to put money.
– excerpted from Global TV ‘News’ piece on RE selling in Surrey and the Olympic Village, 24 Sep 2011 [hat-tip Greenhorn]
—
“The broader asset is Vancouver” – Bob Rennie, Rennie Marketing Systems, Global TV ‘News’ (2011)
“Don’t Sell the Steak — Sell the Sizzle!” – Elmer Wheeler, Marketing Expert, ‘Tested Sentences That Sell’ (1937)
—
People are poor at assessing ‘safety’ when it comes to investments.
Assets that have shown apparent strength because of massive speculative momentum, are actually the least-safe place to attempt to invest.
Vancouver RE will look safe until it doesn’t, and demand will then quickly disappear.
We’ll find out what it’s like to participate in the downside of volatility.
Steaks will once again become steaks.
– vreaa

Astrologer On Vancouver RE – “In the long run, Vancouver’s real estate will trend upward. The city’s realty sign is ruled by the Moon, which stood in benevolent Taurus, and in the city’s money house, on April 6, 1886 when it was incorporated.”

“Vancouver’s home prices have climbed by more than 25 % over the last two years, and are now, it seems, second only to New York City’s. I often receive emails asking about the situation. The TD Bank has forecast that Vancouver’s house prices will decline by 25 % over the next two years. Here’s my best guess:
In the long run, Vancouver’s real estate will trend upward. The city’s realty sign is ruled by the Moon, which stood in benevolent Taurus, and in the city’s money house, on April 6, 1886 when it was incorporated. (Always remember my forecast for 2023, though.)
In the medium range – to 2016 – foreign countries will continue to feed this city’s real estate – waves of Chinese have been buying here since the 1980’s, and the most recent wave should last to 2016.
However, even though this wave will defy the TD forecast, it will not have a smooth road upward. At present, a complicated change is occurring: while the true value of Vancouver’s homes will probably rise over the next 18 months, the actual sales prices enter a much less reliable outlook over this same short period.
One of two scenarios should play out: One, there might be a “nova effect” – a bubble in prices now into early 2013, but somewhere along the way the bubble will burst. I’d expect a peak to be reached around July 2012, then it stalls, and the decline begins. Around August/September 2012 foreign purchases of Vancouver’s real estate will dry up, perhaps due to bad luck in their home countries. About January 2013, the local government will take an action that hurts either the B.C. economy, or real estate directly. Two, all of the above events will occur except for the nova, or bubble. In this scenario, the decline has already begun, quietly and slowly, very recently, and will continue quietly and slowly through late 2016. In any case, I would wait until at least 2013 to buy Vancouver. I could be wrong.”
– Tim Stephens, Astrologer, ‘Astral Reflections’, late September 2011 (for week of Oct 2-8, 2011)
[hat-tip terminalcitygirl at VREAA]

As good a prediction as any.
The perfusion of RE into every realm of pop culture.
– vreaa

The ‘Morals’ Of Debt – “Once your debt reaches such a high level, you just cannot keep worrying all the time. For survival, you just start to ignore it.”

“Today a 26 yr old woman explained to me that she lives “beyond debt”: “Once your debt reaches such a high level, you just cannot keep worrying all the time. For survival, you just start to ignore it. It feels really good.” That concept was totally new to me!”
– ‘mad vancouver’ at greaterfool.ca 20 Sep 2011 11:48am

“There is no way I can continue to pay off my car. Morally, I cannot put $10,000 towards something that was taken from me.”
– Jazmin Perez [bmwblog.ca, 11 Sep 2011], whose underinsured leased BMW was torched in the 2011 Vancouver Stanley Cup Riot. [hat-tip Aldus Huxtable]

Hmmm. So, if an unexpected housing crash (hoocoodanode?) had to “take” your paper profits from you, and completely destroy your entire net-worth, and you were underwater on that 5%-down $600K condo, or that 15%-down $1.5M SFH, you’d be “morally” justified to abandon all responsibility for your predicament?
“For survival, you’d just start to ignore it”, possibly?
You’d demand that “something be done”, right?
Adults of BC (those of you left), brace yourselves: The kids are going to come looking for your wallet.
– vreaa
—

Talking about the ‘morals’ of debt, here’s an obliquely related ‘afterword’: a US story from ‘The Ethicist’ column in the New York Times, 16 Sep 2011 –
“I bought a house that a previous owner had nearly destroyed. He knocked holes in walls and doors, trucked away the deck and trashed the aboveground pool, etc. I assumed he was angry at his wife, but it turned out that he was angry at the bank, which had foreclosed, taking everything the couple had put into the property. When a mutual friend invited the former owners to visit, the wife wept and said she could never bear to see our improvements on a house that had been “stolen.” I know we didn’t steal her home, but I resolved never to buy a foreclosed house again. It seems to be an evil thing to do, to profit from another family’s misfortune. Is it?”
– Elizabeth Murphy, Norfolk, Virginia

“I have given advice to my friends to cease and desist immediately their plans to buy bigger and better condos. But they are driven by the “You are nothing if you do not own” philosophy that’s ingrained into all of us”

“I watched, from an up close and personal perspective, the US market die. Indeed, I was part of the run-up, part of the problem, buying and selling hunks of desert in Arizona during the first half of the 00 decade. We bought our first piece of land wanting to put a manufactured home on it for our personal future use. That was 2001. But by 2002, it had doubled in value. So we sold and bought another, and *it* doubled in price by 2003. We continued “flipping” patches of pure desert until 2006, when I got wind of California mortgage defaults. As it was primarily Californians driving the desert boom/insanity/mania, fueled by the unprecedented rise in the paper value of their own homes, I figured it was time to get out. We ultimately lost money on two pieces of property when the buying utterly and completely stopped, but we made far, far more by feeding the sharks during the frenzy.
Sometimes, I wish I’d bought and sold five or ten properties each year rather than one or two. Hell, I’d be rich by now. Other times, I feel like total scum, selling these greater fools properties that only two or three years prior were worth a fraction of the price we were asking.”

“We in the Vancouver area who don’t subscribe to the buy now or be priced out forever mantra can already see that bailing beginning. It’s all around us, in the periphery – the Okanagan, the Fraser Valley, much of Vancouver Island. And we’re pretty sure by all the figures we see and info we pour through that: 1) The vast majority of Canadians, BCers, and Greater Vancouverites are flat outta money, having burned through their credit already to cover extraordinarily high housing prices and basic cost of living, and 2) Wealthy foreigners don’t prop up the prices nearly as much as we’re led to believe.
I still maintain prices here will plummet 50%. It’ll be like dominoes, one “event” triggering another, and the imaginary wealth of so many local residents will be destroyed in the process. I have personally given advice to two of my friends, neither of whom are wealthy, to cease and desist immediately their plans to buy bigger and better condos. But they do not listen. They are driven by the “You are nothing if you do not own” philosophy that’s ingrained into all of us from the time we’re in our teens. They can’t conceive that prices *don’t* always rise, despite my best evidence to the contrary. They are part of the herd. And they will be one of those dominoes, selling low rather than high as the fear inside them grows only more intense.
It’s a vicious, vicious game.”

– ‘Gord’ (Gord Goble) at VREAA 21 Sep 2011 9:22am

“I do not see this trend of rising house prices in Vancouver ending until in-migration stops, likely not until 2050 when the world population is forecasted to be peaking.”

“I do not see this trend of rising house prices in Vancouver to end until this in-migration stops .. likely not until 2050 when the world population is forecasted to be peaking and Canada has perhaps 50,000,000+ people !
People come here because the scenery is spectacular, air is clean, flights are plentiful, low corruption, law & order, great education K-12-Uni .. and because house prices are still reasonable compared to other world class cities like Singapore, London, New York, Munich, Paris, Moscow, HongKong.
Yours Sincerely,
Thomas Beyer, President
Prestigious Properties Group”
– RE Talks, 21 Sep 2011 3:22pm

Another post for our collection of ‘Limitless Demand Argument For Ongoing Market Strength’ personal opinions. – vreaa

High End Hit

Walford, Shrewsbury Road, Dublin
4,000sqft Tudor style house
Sold 2005 €58 million
For Sale 2011 €15 million
[hat-tip Don, by e-mail]

That’s about 75% off.
When a speculative mania ends, the high end of the market is as vulnerable as any other.
Owners like to argue that, for some particular reason, their enclave will be relatively resistant to any possible market drops; they are uniformly wrong, across all property types.
– vreaa

—
More from the Guardian article [22 Sep 2011] –
“Dunne was one of the most colourful characters in the Celtic Tiger – he paid record prices for the Jurys and Berkeley Court hotels just down the road from Walford in the heart of leafy Ballsbridge – with a view to knocking them down and creating a mini-Manhattan…”

What is it with speculative bubbles and Manhattan-wannabes?
– ed.

Provincial Government Policies Will Not Save Vancouver From A Housing Crash – “We’re caught up in a very challenging global economic situation. We are in for a rough time and the provincial government can’t fix that.”

“Our province is a place of relative calm and stability, but we are surrounded in almost every corner of the world by economic turmoil” – BC Premier Christy Clark [The Vancouver Sun, 23 Sep 2011], unveiling a plan she hopes will make BC “one of the country’s fastest-growing economies by 2015”.

“We’re caught up in a very challenging global economic situation. We are in for a rough time and the provincial government can’t fix that.” – Jock Finlayson, economist for the Business Council of B.C., G&M, 18 Sep 2011

The world is experiencing deflationary effects that are the result of forces related to the deleveraging of excessive debt. BC has thus far largely remained blissfully removed, by virtue of having kept the speculative mania in RE going, by ongoing debt-fueled consumption, and by importing money. We can’t see how local RE related activity can insulate us for much longer. BC will, unfortunately, be swept up in the wave. This will occur regardless of local policy; the forces are simply too great for relatively minor ‘in house’ adjustments to alter the course of much larger external forces. This decade, a Real Estate bear market will be Vancouver’s defining social and economic event. – vreaa

Vancouver RE’s “Reality Distortion Field” – “She conceded that I might have a point, but last time I spoke to her she was back to predicting only a modest drop in local prices.”

“I work with someone from Ireland. She argued with me about how real estate isn’t inflated in Burnaby. Her particular story has something to do with the houses in her neighbourhood not being priced for first time home buyers because she moved up into it. So others will have to sell to move up into it. She misses the fact that she’s describing a pyramid scheme. But after a trip to Ireland recently she was less sure of herself. She conceded that I might have a point after all. She saw homes skyrocket into the the 700-800 Euro range only to drop right back down to the 200-300 Euro range. Last time I spoke to her she was back to predicting a modest, 10-20% drop in local prices and then years of flat. I guess it doesn’t take long for the reality distortion field to kick back in once you get within the media bubble of BC.”
– lexlimo at VREAA 20 Sep 2011 8:08am

It is difficult to not be swept along by group-think. – vreaa

The Punished Prudent – “My financial adviser tells me that my wife and I are way ahead of the curve. But it’s hard not feel like a chump sometimes, watching people around me cash in on real estate.”

“I have $32k in a Canadian bond fund. We have combined $53k in RRSPs. We squirrel away $3200/month into savings each month – $1200 to an RRSP and $2000 into a TFSA. RRSP and TFSAs are all in a growth-oriented mutual fund. The TFSA and bond money is meant for a future down payment. Our dream is to one day have a small house on the East Side with 20% down without stretching ourselves too thin. When will we actually be able to buy this house? Who knows, but prices have to come down a lot.
My financial adviser tells me that my wife and I are “way ahead of the curve” when it comes to our financial futures and that we’ve learned lessons that people in their 60s are only learning now. That’s nice to hear but is no comfort to us when one of my peers sells his Richmond home and can now buy a house in Coquitlam and live mortgage-free with his stay-at-home wife and child. Or when another friend buys a nice little house in North Van and can drive to work in Vancouver in 25 minutes.
It’s hard not to feel like a chump sometimes living in somebody’s basement. I can’t bring myself to gamble on real-estate and watch people around me seemingly cash in on it. At the same time interest rates are kept abysmally low and the return on my down-payment money investments is peanuts.”
– anecdote from Vancouver quoted by Garth Turner at greaterfool.ca 16 Sep 2011

Point Grey Standard Benchmark – 4444 15th Ave W; $2.7M Ask

4444 W 15th Ave, Vancouver (Point Grey)
2,401sqft SFH, built 2001, 33ft x 123ft lot
Ask price: $2,698,000

Noted here for:
1. Benchmark price of standard size newer build, on standard lot
2. Ballsy use of 4444 street number

Any readers with prior sales history? – ed.

“You move to Vancouver, you make a lot of sacrifices to look at mountains and avoid a couple of months of snow. It’s far from a slam dunk.”

“I hire positions at a prestigious government employer [here in Vancouver] with an amazing benefit and pension package. I’ve noticed a serious drop off in resumes. 4 years ago I would see 40+ resumes for a professional IT position. The last post garnered 7. I didn’t necessarily connect it with the real estate market, but it does beg the question of where all these people clamouring to live in the “best place on earth” are.
I also perform stand up comedy on the side. There are 4 (soon to be 5) decent places to perform in Vancouver. I recently took a look at the scene in Toronto and there are dozens, you could do a different room every night for a month and never duplicate. You move to Vancouver, you make a lot of sacrifices to look at mountains and avoid a couple of months of snow. I still prefer it to any other city in Canada (I’ve lived in Toronto, Montreal and Calgary), but it’s far from a slam dunk.”
– LexLimo at VREAA 18 Sept 2011 11:50am

When A Speculative Mania Ends, Wealth Simply Disappears – “Poof! Gone in a flash of aggregated neurons.”

When a community is caught up in a speculative mania, it seems simply inconceivable to the vast majority that prices could drop. If apparent hordes of buyers are competing to paying $1M, $2M, $3M for solid assets like houses, how could prices possibly plummet by 40%, 50%, 66%? It just couldn’t happen, surely… why would a group of people who’ve ‘agreed’ (via market pricing) that a house is ‘worth’ $3M, then ‘let’ it change hands later for $2M or $1M or even less? Surely buyers would ravenously step in at even 10-15% off [the commonest estimation of the depth of a pullback on this and other blogs]? Surely that ‘wealth’ can’t simply evaporate?
But it can and it does and it will. Most people don’t have any real feel for ‘bubble dynamics’… they don’t understand the massive upward force that expanding credit has on asset prices and, more important, the devastating effect of the reversal of that process.

In an article at ‘Elliot Wave International’, a passage by Robert Prechter describes ‘How $1-million can disappear’ [19 Sep 2011] We take the liberty to paraphrase the passage here to demonstrate it’s relevance to our RE market. –

“The dynamics of value expansion and contraction explain why a bear market can bankrupt tens of thousands of people. At the peak of a credit expansion or a bull market, Vancouver homes have been valued upward, and all participants are wealthy — both the people who sold the homes and the people who hold the homes. The latter group is far larger than the former, because the total supply of money has been relatively stable while the total value of Vancouver RE has ballooned. When the market turns down, the dynamic goes into reverse. Only a very few owners of a collapsing asset trade it for money at 90 percent of peak value. Some others may get out at 80 percent, 50 percent or 30 percent of peak value. In each case, sellers are simply transforming the remaining future value losses to someone else. In a bear market, the vast, vast majority does nothing and gets stuck holding assets with low or non-existent valuations. The ‘million dollars’ that a wealthy owner might have thought he had in his home at peak value can quite rapidly become a small fraction of that. The rest of it just disappears. You see, he never really had a million dollars; all he had was an asset that he thought was worth a million dollars. The idea that it had a certain financial value was in his head and the heads of others who agreed. When the point of agreement changed, so did the value. Poof! Gone in a flash of aggregated neurons. This is exactly what happens to most assets in a period of deflation.”

Housing always has some underlying fundamental value, we don’t believe that a $1M [circa 2011] Vancouver home can drop in price to “non-existent valuations”… but we do foresee it dropping below $500K or even $400K later this decade. It may seem inconceivable, but history teaches us that it is very possible; probable, even. – vreaa

“In the neighbourhood where I’ve lived for 20 years, there used to be a real demographic mix of homeowners and renters. Now far FEWER people live on our street, despite there being huge new houses.”

“In the neighbourhood where I”ve lived for 20 years, there used to be a real demographic mix of homeowners and renters — renters like elderly ladies in apartment buildings, young couples or young families renting bungalows. One couple at the end of our street, when we first moved in a dozen years ago, had stayed as renters in their tiny bungalow for nearly 20 years. Another set of neighbours was an elderly couple from Zimbabwe; they stayed about eight years, moving only when they had to go into care. A number of homeowners had legal suites that they rented to students or young couples or young families. In the last few years, renting families with small children came and went from the small bungalows opposite — we finally realized that the turnover rate had started to get higher because the bungalows were available only till they were demolished. Then, much bigger houses were built in their places (supposedly as part of an “Ecodensity” plan!); there were eight built in the span of four years, on our street and in the alley behind us.
Now many FEWER people live on our street, despite there being 5 huge new houses (all with multiple-car garages) just at one end of it, only one of them occupied by as many as four people. And all the people who moved in must be extremely wealthy, because the houses sold for well over $2.4 million, $2.86 million — prices like that. (Isn’t it odd I say “must be extremely wealthy”? One wishes there were more interaction between neighbours here, but in nearly every case of the new arrivals, language barriers have created some difficulties.) So there’s a loss of economic diversity as well.”
– Vesta at VREAA 18 Sep 2011 9:51am

“Depending on what you’re looking for, Vancouver is actually a great city to live in. If you can’t be happy here, forget it and go live somewhere else where you can find your happiness…”

“Depending on what you’re looking for, Vancouver is actually a great city to live in. I don’t come from a 3rd world country, but from western europe. I’m not an aging baby boomer either, I’m 34! I’ve lived in London and Paris for years, so I know what’s living in a world class city is like. I also did my MBA at UBC (that’s the reason why I came here in the first place) and decided to get a job and live here (as did a lot of my fellow classmates). Depending on your chosen field, you can have a decent career here. For sure the opportunities might be more limited, of course you may have to compromise a bit on salary, but would I trade my life today to go back to London or Paris? Hell no! In fact, most of my work involved projects located anywhere in Canada and the US. I could be located pretty much everywhere I want, and I chose to be here.
Is everything perfect in Vancouver? Of course not. I wish so much I could afford a house here, which I can’t despite my 6 figure salary (that’s the reason why I’m on this blog!). But I’m renting a nice condo in a great location in downtown, the same way I was renting in London and Paris. I don’t have any problem with it and I’m patiently waiting (and saving) for prices to come down and be reasonable again, as they certainly will… If they don’t? well, I’ll be sitting on a pile of cash…
Vancouver is not for everyone, and there is no reason to be angry about it. I have a happy life here, and I know lots of people do too. If you can’t be happy here, forget it and go live somewhere else where you can find your happiness…”
—
“I agree this is not a city for everyone and a lot of my friends in Paris or London would have a miserable life living here. But Vancouver works great for me and this is where I want to raise my kid…”
—
“This city/province has a lot to offer, but not everyone enjoys nature and all the activities that come with it. If you prefer museums, a developed music scene and other cultural activities, you will have a pretty miserable life here.”
—
“When I went camping to Garibaldi Lake last month, there were all kinds of people, very young “party” folks, older mature ladies (early 60′s) and parents with young children (I brought my 7 month old baby up there and I was not alone, to my biggest surprised! Talking about family responsibilities…).
I agree with you there are a lot more important things in life than outdoor activities. It’s all about putting your priorities in order. I love great food and I have yet to find a good yet affordable restaurant in Vancouver. I’m still amazed at the costs of fruits and vegetables here, and don’t get me started about the price of cheese here. I would also love to have more music festivals in Vancouver during the summer season.
The same way some people go and spend spring break in Florida or Mexico to get sunny and warm weather, it’s possible to travel from Vancouver to satisfy your cultural (and other) cravings you can’t satisfy in Vancouver… Portland, SF or even NY are not that far away.”

– Makaya at VREAA, 20 Sep 2011 at 12:44pm, 2:25pm, 2:37pm& 4:49pm.

“Vancouver isn’t vibrant or exciting, it’s as dead as a doornail. It isn’t a big city, a world class city or even really a city. It’s a large sleepy tourist village that wishes it matters on the world stage.”

“Downtown Vancouver isn’t vibrant or exciting, it’s as dead as a doornail. I lived in False Creek for 11 years so I know how bland and lame that town is. Dining was also bland and uninspired. Vancouverites to this day are the most arrogant closed off unworldly bunch I have ever met. Far worse than Americans, and I’m in the Southern USA now. What baffles me is that people actually pay to live there. I love living in the USA now, as a dual citizen and we’ll never go back to Canada. I couldn’t justify doing my MBA with zero real career prospects in the Vancouver ‘business district’ (laughable) and then driving up and down Broadway, Granville and Seymour thinking that bubble tea, camping, fishing and the Canucks is actually worth living there for and deluding myself in thinking it’s cosmopolitan. It isn’t a big city, a world class city or even really a city. It’s a large sleepy tourist village that wishes it matters on the world stage and the propaganda there just proves it. I hate Vancouver so much it makes my blood boil and get angry even thinking about it. I went to GNS private school in Victoria BC in Oak Bay. The lot of my old classmates either moved away to live in real cities and have real lives or went to private school and didn’t become successful at all. Canadian schools don’t seem to that much better. It’s what silly Canucks tell themselves to spite and convince themselves to the USA. No more Granville Island, no more skiing, no more small town people. A buddy of mine just become an oral surgeon, he moved to NYC to start his practice, why on earth would he choose NYC over the “best place on earth”? Maybe Vancouver isn’t on the map for educated people. Way to go Vancouver!!! the only people that live there (or want to) are aging baby boomers and the 3rd world… what a city !!!!! And one final comment, I never lived in a city like Vancouver where people pretended to be rich like they do there, what the hell kind of careers do people do there? I never figured that out. I know engineers that bag groceries at save on foods in east van, my realtor was an engineer but realized that he would never have a real career as an engineer there so in 1986 became a realtor. Vancouver is a poor city, with piss poor opportunities. I only stayed to do my MBA and watch my property values rise from when I got in during April of 2001. I cashed out to some foreign fool. I’m so happy I left.”
– Reality Check at VREAA, 18 Sep 2011 7:26am

Wow. We don’t share Reality Check’s vitriol; we at VREAA like many aspects of life in Vancouver, that is why we live here.
At the same time we acknowledge that in many ways, in many quarters (particularly amongst locals), Vancouver is simply over-rated. An unrealistic over-assessment of the city has undoubtably contributed to the speculative mania in housing prices.
– vreaa

“On a flight from Berlin to Frankfurt I ended up sitting next to a guy from Vancouver. He seemed to believe that Vancouver is the best place on earth and it would be heresy to want to move.”

“On a flight from Berlin to Frankfurt I ended up sitting next to a guy from Vancouver on his way back to Vancouver, we did not talk till the end of the short flight. He was shocked when i told him that I was moving my family out of Vancouver. He seems to believe that Vancouver is the best place on earth and it would be heresy to want to move.”
– ams at VREAA 18 Sep 2011 12:55am

“We have owned our own home for over 18 years and have recently sold it. We are now looking for a long term rental.”

“DO YOU HAVE A 3 BDRM HOUSE/TOWNHOUSE FOR RENT??? (Coquitlam/Port Moody)
Date: 2011-09-16, 7:35AM PDT
Family of four with small pets is looking for housing. We are a stable, reliable family looking to rent a House/Townhouse in the Coquitlam/Port Moody area. We have owned our own home (townhouse) for over 18 years and have recently sold it. We are now looking for a long term rental.
PostingID: 2601513776”
– ad on craigslist, 16 Sep 2011
[hat-tip Patiently Waiting at vancouvercondo.info]

Are economists ignoring Australia’s property bubble? – “Many leading economists whose analysis and commentary the public relies upon have so many conflicts of interest it would fill a small book.”

I view of a related discussion on the ‘UBC housing’ thread yesterday, we note this timely Australian article today [from ‘Are economists ignoring Australia’s property bubble?’, Philip Soos, theconversation.edu.au, 20 Sep 2011].

Excerpts –

“One aspect of housing and stock market bubbles continually repeats: the vast majority of economists either miss or deny their existence.
In recent years, enormous asset bubbles have burst in many countries.”
—
“In Australia, our $2 trillion housing bubble has seen prices rise by 127% from 1996-2010, and every fundamental indicator is off the chart.
But while it seems logical to conclude that Australia’s property bubble will inevitably burst, very few observers seem willing to do so.”
—
“By definition, an asset bubble requires the vast majority of the public and economists to participate in the mass delusion that prices will endlessly rise.”
—
“Many leading economists whose analysis and commentary the public relies upon have so many conflicts of interest it would fill a small book. Consultancies, university chairs, endowments, six-figure salaries, and industry directorships comprise part of the package that ensures economic “thought leaders” within government, industry and universities speak the words pleasing to the rich.”

…and, one might add, in Vancouver, we’re ALL ‘rich’.
-vreaa

“My family is from Ireland and what happened there is no different from what is happening here in Vancouver, in that the psychology of real estate has permeated everything.”

“My family is from Ireland and what happened there is no different from what is happening here in Vancouver, in that the psychology of real estate has permeated everything. In both cases, greed has taken over, with people bidding up insane prices for houses that have no intrinsic worth. Platitudes such as “the land is what you’re buying” and “real estate is a great investment” overwhelm any rational discussion of what someone needs for shelter actually are. It’s all about ‘investment.’”
– Sean at VREAA 5 Sept 2011 2:04pm

UBC Staff And Faculty Housing Demand Study – “Inability to settle in Vancouver may lead me to leave UBC, despite being ranked as top faculty both in terms of teaching and research”

Thanks to ‘Durr’ at VREAA 30 July 2011 for alerting us to a report, prepared for UBC Campus Planning, by McClanaghan & Associates, and dated more than one year ago, July 2010. pdf here.
The commissioned study was aimed at assessing “housing choices and housing pressures for staff and faculty members” in order “to provide important research and data for UBC to understand the potential implications that the cost of housing can have on their recruitment and retention of staff and faculty members”. The study used census data, MLS data, CMHC data, a web-based survey, UBC income data, & UBC focus group sessions held in April 2010.

The entire report is of interest and worth the read. We will relay a handful of the reported statistics, and then, given the major focus of VREAA, record many of the personal anecdotes ‘snippets’ that the survey gleaned.

UBC employs 12,700 staff and faculty members (1% of Metro Vancouver workforce)
36% faculty, 64% staff
34% originate from outside Metro Vancouver
41% want to live closer to campus
31% take transit to work (69% drive)
Average annual faculty income: $93,524
Average staff income: $51,754
[For comparison, City of Vancouver incomes –
homeowner households: $66,087
renter households: $34,872]

Given lender guidelines, income thresholds required to purchase –
a 2BR condo or Townhouse ($611K price): $138K p.a.
a Single detached house ($1M price): $195K p.a.

Only 29% of staff or faculty members live in a detached SFH.
24% of those have a secondary suite in their home that they are currently renting out.

Renting or owning:
39% own
45% rent
(16% no response)

Average rent: $1,229
Average mortgage cost: $1,901
Average monthly condo fee (46% of owners): $260

Satisfaction with current housing situation:
Satisfied 60.2%; Dissatisfied 20.9%

When surveyed on what is important to them about housing, the UBC respondents indicated as follows (selection):
Affordability 90%
Close to employment 83%
Close to social opportunities 64%
Close to friends and family 62%
Close to schools 34%

FOCUS GROUP RESPONSES (excerpts from various question categories):

How long have you lived in the Metro Vancouver region?/Are you a recent arrival to the Vancouver housing market and how does this affect your housing choices/arrangements?
• Recent arrival from US (last fall). Recognize that this is a very expensive and difficult to read market and will not consider buying for at least 2 years until they can comprehend the local circumstances and context.
• Shortly returning to UBC after a sabbatical but the return will be ‘very tough’ due to housing market conditions.
• Recent arrival from US. Coquitlam resident, renter. Unable to afford any housing closer to UBC. This move have made it challenging to find housing that is adequate and affordable.
• Has moved to Vancouver in recent years. Busy establishing career. Has one child with second on the way. Likes access to UBC and rents a house in close proximity. But is unable to purchase a home.
• Long time Vancouver resident with large family. Previously lived at UBC but unable to find suitable housing arrangements at UBC. Proposed co-housing option but UBC expressed no interest.
• Arrived in Metro Vancouver in 2001, but never got a chance to enter the real estate market, as budget was taken up by childcare expenses for young children.
• Housing has been a big disappointment with UBC & Vancouver and a perpetual source of struggle.

Describe your experience in looking for housing in the Vancouver market. (Difficulty, vacancy rates, market conditions, narrow range or choices, type of neighbourhoods, trade off with commute time to work, etc.) What challenges, trade-offs did you have to make?
• Luckily, were able to land one of the few rental options with not too great an effort. Anticipates market will go down as in US and thinks that may be a good time to buy. But is generally leery of buying if market remains high.
• Challenging. Bought 5 years ago and even then, had to share a mortgage for a single family home with another family/household. This was not preferred option even though it has worked out well. Wife is so frustrated with local housing market and lack of opportunities that she would happily accept offer of employment from a university in another city.
• Difficult. Live on campus at Acadia Park and am entertaining the UBC housing offer. Realize that there are few strong opportunities in local housing marketplace and thinks that UBC may be best opportunity. But it, too, is a challenge.
• Sticker shock. Housing is very expensive and rental market is narrow. Came from US and had to move to Burnaby Coquitlam boundary to find suitable rental housing. This involves a long public transit commute. Would give up UBC employment if better situation could be found.
• Very difficult for young couple still paying off student loans. Forced to live with in-laws in east Vancouver basement suite to attempt to save money for down payment (get a rent break). Would like a family but the housing situation is putting planning on hold. Car pools to UBC.
• Complete unaffordability of 4BR option for a 2 child family as a long-term option ($3,000+ to rent; $6,000+ to buy).
• UBC should be a leader, as proposed by our president, on reducing the environmental
footprint and addressing climate change. Yet faculty are pushed far off campus & into private vehicles.
• There is no solution to housing problem off campus with $1,000,000 homes not accessible to UBC faculty income.
• Could afford $750K-$800K for type of housing household requires, but nothing is available.
• Very tight market, very few options, short-term leases. Very hard to settle down in durable way.
• Willingness to stay at UBC over time is eroded.

Metro Vancouver is recognized as a high cost housing market – what implications does this challenge have for you/your household in terms of the choices that are/were available?
• Generally speaking, this has severely constrained options.
• Buying and settling down is “beyond hope” for young tenured professor with family
• Unable to buy, Forced to rent, Forced to live in a basement suite
• Forced to live with in-laws
• Forced to share mortgage with another family.
• Unable to move up in housing market as they could do in most housing markets.
• Forced to wait to see where the local housing market goes (delaying decision).
• Forced to put off having a family.
• May have to limit the size of planned family.
• Forced to consider options that are long distance from employment.
• Also has implications for UBC with faculty who would spend less time on campus or with students due to imposition of a long commute.
• Off-campus market is “very very tight” with very few rental options available
• The few suitable rental options are “around $3000 to $3500 per month”
• Family would consider offers from elsewhere (other universities) as a function of the local housing market.
• Inability to settle in Vancouver or at UBC may lead me to leave UBC (despite being ranked as top faculty both in terms of teaching and research)

If you were advising a potential new recruit to UBC, what type of housing advice would you provide?
• Rent and observe the market for some time.
• Plan your family size carefully as larger families are particularly challenged in this market.
• Be prepared to make extensive trade-offs (location, amenities, affordability, commute time, size and age of housing, rental vs. ownership).
• Be realistic about lack of housing for families, as it can make life quite tough. Vancouver and UBC are not attractive anymore, due to the inability to settle down in a durable way.

“We have often had to hire from outside of the province for certain specialist roles and it’s very difficult to convince people to move to Vancouver. Telling them they can rent doesn’t go over too well.”

An exchange at RE Talks, 12 Sep 2011:

“There’s a battle for good workers. I cannot tell you how many resumes have passed my desk and how many interviews I’ve run for people who aren’t up to snuff.” – jesse1, 10:08am

“I have heard the same, for high tech companies in Vancouver – too few quality people for open positions. Could it be that the good ones are simply leaving town? I know I still see a very healthy number of quality resume’s in Toronto, and have had no problem with recent hiring.” – westcoastfella, 2:08pm

“Paying more doesn’t help; you need a specialist doctor’s salary to afford what you can get in other North American cities. This is always the thing: we have often had to hire from outside of the province for certain specialist roles and it’s very difficult to convince people to move to Vancouver, even after showing them all the province has to offer. It’s just not for everyone and not deemed a location they want to move to; this is in big part because they look at what they can afford to buy but also because they have to forgo their professional networks when moving to a small-time market like Vancouver’s; if they get cut loose by us they have nowhere else to turn and we can’t afford to make them an offer they can’t refuse. Telling them they can rent doesn’t go over too well.” – jesse1, 2:18pm

A speculative mania in housing prices is very, very bad for a society; it causes misallocation of resources that hobbles future economic and intellectual health. See the ‘Avoiding Vancouver‘ sidebar category for numerous examples of people either not coming to Vancouver, or deciding to leave, largely because of RE prices. – vreaa

“At potential rental after rental we discovered that the answer to “How long can we stay?” was “Depends on market.”

“As someone who’s spent the last few months trying to find a decent rental in this town, I’d say that my impression is that the majority of would-be landlords on the West Side are looking to sell just as soon as they can, and many of them have only recently bought these properties! At potential rental after rental, house or condo, we discovered a). the place had been bought fairly recently and b). the answer to “How long can we stay?” was “Depends on market.”
– Vesta at VREAA 16 Sep 2011 12:07pm

“Try calling Dr. Aladdin [an individual on craigslist advertising a 2,600sqft Southlands SFH for rent; $3.5K p.m.]… No you cannot view this rental-to-be …he just purchased it and won’t have possession until the end of October.
craigslist has been littered with newly purchased ‘rental-to-be’s this year. Google 6188 Mackenzie St or 3118 West 44th Avenue, both “March madness” sales, now rental properties managed by Macdonald Realty and Advent Property Mgmt respectively. Are they available for long-term lease? No. Vesta is right.”
– Epica at VREAA 16 Sep 2011 1:47pm

These landlords may be planning on selling into a rising market, but how will they respond to a falling market? We’re anticipating a good number will try to bail precipitously, and thus add to supply (and price momentum) on the way down.  – vreaa

“I landed a job in Seattle working for Microsoft and we will be moving there November 1.”

“I have reached my goal, I landed a great job in Seattle working for Microsoft and we will be moving there November 1. Seattle is a much much larger metro than Vancouver and it has more to offer. It is definitely underrated but the world is catching on to it quickly. They are building so many new public works projects that the city will be in constant change over the next 10-15 years. Also housing is considered affordable when compared to Vancouver. The neighbourhoods in Seattle trump any of those compared to Vancouver, they are amazingly clean and very unique with great architecture to boot. I know Vancouver has some nice spots as we live in Kits, but when you compare it to the Seattle equivalents none of our areas really measure up. We will be able to actually afford a nice house in a nice area at around $800,000-$1,000,000 depending on the area. (Maybe I should say this is in a nice middle class to upper middle class area. If we want to live in a nicer area than this then we would be spending $1,250,000-sky is the limit. My point is homes there are going for what feels like half the amount.) We are all just so excited to be a part of such a wonderful place while surrounding ourselves by highly educated people. We think it is a tremendous service to our children to have this experience. We’ll even have sufficient funds to provide our children private schooling if we choose to go that route and the schools there are quite nice. We are doing our part as parents and we are teaching them that putting all your money in a single asset is just plain stupid. Here is why we are not going to miss Vancouver. Yes we like Vancouver but the affordability is out of control and we own our place. The cost/benefit analysis does not add up and there are places on this planet that are just as nice if not nicer that we can live and be happy while being able to save sufficiently for our retirements. We could not be more pleased.”
– Brad in Van, greaterfool.ca, 13 Sep 2011, 10:21am and 10:24am

Ok, ok, Seattle’s nice, we get the picture. 😉
As the comedian said to his toddler son, eager to see his Dad at day’s end: “Okay, okay… you’ve got the job!”
An interesting story for its eagerness, and the quality of emotional relief (which we suspect is partly related to housing issues, but partly related to the new job). – vreaa

“I’m rich!” [‘Vancouver RE-Verse’; Found Poem]

I’ve borrowed
so much money
that I’m rich!

– Snats, at VREAA 15 Sep 2011

A post in the very, very occasional ‘Vancouver RE-Verse’ [Found Poems] series.
Poems are completely unedited but for layout.
Prior examples here.

“It has become fashionable to suggest that price levels in Vancouver are set to correct substantially. Central 1 does not subscribe to this view.”

“It has become fashionable to suggest that price levels in Lower Mainland-Southwest region of the province, and particularly Greater Vancouver, are set to correct substantially due to the significant price gains in recent years and a de-linking of home prices relative to income and rental rates. Central 1 does not subscribe to this view, but does expect price gains to slow considerably over the forecast horizon.
While price levels may turn lower in the near term, the annual Lower Mainland-Southwest median resale price level in 2012 is forecast to surpass 2011 by 1.4% to reach $497,000. A further gain of 3.6% is forecast in 2013.
Central 1 deems a significant price correction in the Lower Mainland-Southwest to be unlikely for various reasons. First, much of the price growth in the region has been attributed to disproportionately strong demand for higher priced single-detached product in localized regions such as the west side of the City of Vancouver and Richmond. In contrast, price gains have been less substantial in other markets and product types, meaning this has not been a regionwide price surge. Moving forward, demand will likely remain stable as economic growth, albeit slow, persists and mortgage rates remain low.
In addition, speculative demand in the region remains low. The proportion of units re-sold within six months of purchase can be used a proxy for speculative activity.
In theory, speculators look to gain through capital appreciation over a shorter time-frame relative to home-owner occupiers. In a period of higher speculation, which is generated by strong market activity and price gains, this proxy generally rises. However, this metric has exhibited a declining trend since early 2008, currently hovers near 2% and operates near normal levels. In contrast, this proxy surpassed 10% in the late 1980s, and was closer to 6% in 2006 when markets were overheated. The lack of excessive speculation suggests that we are unlikely to see a speculation-induced bust in pricing.
Meanwhile, price levels will be further supported by supply-side adjustments. Sales activity and the flow of new listings are positively correlated – when demand increases, new listings tend to follow in the months that follow. The opposite is also true. This reflects the tendency of sellers to capitalize on strong markets and rising prices, and sit tight when market conditions weaken. In the absence of any major shock in the economy such as a large and unexpected increase in interest rates or another recession, Central 1 expects the recent slowdown in demand to be met by declining listings activity, which will mitigate growth in standing inventory of resale product.”
– from Brian Yu, Economist, Central 1 Credit Union, Economic Analysis of British Columbia, p4-5, Vol 31 Issue 4, Sept 2011 [pdf]

“Fashionable” to suggest a “substantial price correction”? The only current prominent ‘fashion’ in Vancouver RE ‘circles’ is to debate the exact nature that the “Vanhattanization” of the City will take, or discussing whether foreign buyers are each bring in 10s of millions or 100s of millions.
It remains rare to find a Vancouverite who truly believes we’re in a bubble. Calling the bubble will only become “fashionable” in retrospect, and once we hit the trough everybody will know we were in a bubble (see US RE, still plumbing for a bottom).

This report grossly underestimates ‘speculative’ action in our market. Anybody who buys any property not simply for it’s utility as a home or as an investment, but also for expected future price gains above the rate of inflation, is speculating. The vast majority of RE purchases in Vancouver thus have a speculative component.

And another thing: Looking at the price chart, note how this Credit Union has simply extrapolated price gains forward in the channel from the early 2000’s. In other words, “We expect more of the same”. These guys are rear-mirror commentators disguised as forecasters, and their forecasts are consequently of questionable value.
– vreaa

Borrowed From Dad To Buy Teeny $510K Yaletown Condo; LOC For Closing Costs; Condo Fees “Too High”; $131K Other Debt; Lexus/Toys/Maui – “This guy is in way over his head.”

“I have a friend who has been driving me insane about how he just thought Yaletown is just the greatest place. He was looking at a teeny condo, so small that I could touch the walls with outstretched arms. It was $510K. He borrowed money from Dad… and then he realized he didn’t have the money for closing costs. He put it on his line of credit! Now he tells me, three weeks in, that he is concerned the $356 a month condo fees are too high. This guy must make high dough, but he is in way over his head.
He was kind of nervous at lunch today about the above. Then he dropped the bomb on me. He still has student loans of $61K and his credit card debt on five cards is nearly $70K.
After I gathered my thoughts, I was still speechless.
This gent seems to think everything will be fine.
I paid for lunch, of course.
How many poor schnooks are in this kind of jackpot?
He has a leased Lexus, and all the toys and great clothes and goes to Maui on the credit card every year.”
– ‘Bill Gable’ at greaterfool.ca 15 Sep 2011 12:59am
[hat-tip to ‘Bailin’ in BC’, who notified us by e-mail]

How many in same boat?
When pullback comes, condos crash.
Move-upper-wannabes cease-up.
Whole market crashes.
– v.

“I manage strata titled properties in Greater Vancouver. Some people are so stretched they can’t pay for even the simplest repairs within their unit.”

“I manage strata titled properties in Greater Vancouver. Some people are so stretched they can’t pay for even the simplest repairs within their unit. One lady yesterday told a plumber to drain the toilet and turn off the water because she couldn’t afford to replace the toilet seal. She did not pay the bill and the plumber is threatening to bill the strata. I think there’s another bathroom in that unit.
Another guy in West Vancouver wasn’t aware he had to pay strata fees at all, so didn’t. There are lots of realtors who are not concerned about telling new Canadians the details. He’s got a huge mortgage and can’t afford $300/momth fees or the special levies. The strata is taking legal action to sell the unit to collect the fees. Strata Corporations can file for Conduct of Sale if the fees aren’t paid, the Court sells the place, the Strata gets first dibs and the “owner” gets what’s left. Wonder how that’s going to work when prices finally come down. A few more lost jobs will take a big toll. “
– Property Manager, greaterfool.ca, 14 Sep 2011 12:13pm

Consequences, Intended and Otherwise

‘Vesta’ and ‘jesse’ treated us to a fine exchange yesterday (and in the early hours of today, Wedn 14 Sep 2011) regarding possible actions that could be taken by citizens concerned about Vancouver’s housing predicament. Take a look at the posts starting here. Other posters chimed in, including yours-truly. The exchange has some posters calling for various actions, including the lobbying of policy makers. Vesta and jesse treated us to lists of possible actions, jesse adding to some he had previously mentioned.
When one calls for action, it is wise to have a fairly good idea of the likely outcome. After all, as your Mom always said “Be careful of what you wish for”.
So, before attempting to ask for specific changes, let’s first clarify which changes we think may be useful (and why).
We may attempt to collate them (along with prior suggestions).

Here are two thought experiments, to this end:

1. Broad Thought Experiment:
You are the ‘Vancouver Czar of Housing and the Economy Pertaining to Housing’.
What changes would you implement immediately, and what consequences do you anticipate?

2. Specific Thought Experiment:
Imagine that the City completely and immediately discards all laws preventing densification. Multiple units can be built anywhere in the greater metro area.
What are the consequences?

‘Trophy’ Building Seeks Sugar-Daddy Investor – Bring Lots Of Money

2230 Cornwall Avenue, Vancouver
“The ultimate trophy apartment building & located directly across from Kitsilano Beach is this apartment building featuring five – two bedroom suites and a bachelor suite including a jaw dropping enclosed roof view deck. Every suite boasts water views on every level. Opportunities like this are extremely rare, so hurry!”
6 suites; 5,829sqft; Built 1926; Taxes $13K; Maintenance N/A
Asking Price: $5 Million
– From realtor Lorne Goldman’s listings site, vancouverresidence.com

No mention of annual rent (surprising?), so we can’t easily do the math.
What do these units rent for? $2000 each per month? (Please correct if necessary). That’s $144K rent per annum, minus taxes, maintenance, vacancy provision, and (if you want to be professional about this) property management fees. Altogether about a 2% rate of return on the $5M.
Also, the investor gets exposure to unexpected repairs on a 1926 building, and exposure to large price downside in an historically overinflated market.
Now we understand why the deal has to include the lure of owning a ‘trophy’. We suspect that winning this ‘prize’ will cost the investor dearly.
– vreaa

“A buyer from China bought the remaining 20 townhouses of a project in Langley. He is not looking to flip, he believes prices will go up.”

“Just had dinner with a close friend. He is not realtor. But he helps facilitate rich chinese buyers to locate investment opportunities in lower mainland. He said he just helped a buyer from China bought the remaining 20 townhouses of a project located at 208 st and 82 Ave in Langley.
While this is not the first time we hear someone from China spend the mega bucks on houses here, a few comments my friend made were pretty interesting.
1) the buyer never saw the site. He is in China but his wife and children will come soon. which means they already got the immigration paper. He sent his assistant who used to live in Burnaby to come back to close the deal
2) according to the assistant, people like his boss considers houses liquid investment instead of real assets
3) the buyer is not looking forward to flip, he believes price eventually will go up
4) seems the developer provides the buyer rental guarantee for the 20 units
5) the assistant also helps his boss to close 2 deals in West Van
6) the buyer is also looking for opportunities here for property with business, like hotels, or retirement care facilities.”
– unicas, at RE Talks, 10 Sep 2011 7:36pm

When prices start dropping, this kind of demand will turn into supply, perhaps precipitously.
RE is not a liquid investment, it can turn ‘illiquid’ in an instant.
– vreaa

“More than one-in-three Canadians between the ages of 30 and 39 think today’s interest rates are about average or high. In reality, they are sitting at historic lows.”

“More than one-in-three Canadians between the ages of 30 and 39 think today’s interest rates are about average or high.  But in reality, they are sitting at historic lows. These younger homeowners may be taking on more debt than they will be able to afford if interest rates rise.”
– news1130.com, 12 Sep 2011, citing a survey from Manulife Bank of Canada
[hat-tip Patiently Waiting at vancouvercondo.info, and belated hat-tip to jack at VREAA]

‘No Fun City Poker Game’ – “High-stakes property market allows landowners to sit on otherwise viable community spaces.”

Excerpts from a report by Sarah Berman, vancouver.openfile.ca, 2 Sep 2011 regarding Canadian indie music group the ‘New Pornographers’ being forced to move out of Red Gate Studios 152-156 West Hastings –

As dozens of legal and underground venues face similar threats of closure, the city has earned a reputation among the creative community for being a “No Fun City”. From stringent zoning and liquor regulations to the constant squeeze of condo developers, artists and musicians find it especially difficult to thrive in Vancouver.

For John Collins [bassist and multi-instrumentalist for the New Pornographers], who has witnessed the rise and fall of hundreds of similar spaces, the “No Fun City” argument is an apt but oversimplified description.
“Well the short answer is yes,” says Collins, “Vancouver is totally No Fun City.”
But the long answer is not so simple, he observes: “The fact that Vancouver is such a beautiful city and so many people want to live here makes for an insane price of property—and it’s been that way for decades.”
Collins says the high-stakes property market allows landowners to “sit on” otherwise viable community spaces. With property values skyrocketing regardless of building maintenance and repair, it is all too easy for landowners to become negligent.

“I don’t want to paint Moshe [Mastai] as a villain, but he really is another dispassionate businessman in Vancouver. Job number one is making money, and job number two is making more money,” Collins says.
As a result, upkeep falls into the hands of underprivileged tenants. “We know the building is badly neglected and needs a lot of work,” Carrico agrees. “But if the owner won’t come to the table, it’s hard for us to raise money to do the repairs.”
“It’s a poker game that lots of people play all over the world,” Collins says of the current property market. “When it happens in Vancouver, our cool places are so few and far between they’re often tied up by people who look at them as a poker chip.”

—-
Another example of the misallocation of resources caused by a RE price bubble.
We note that John Collins, like mayor Gregor Robertson, draws a causal link from Vancouver being “such a beautiful city” where “so many people want to live” to the “insane price of property”. In doing so they both omit the most important cause of the “insane” RE prices: a massive speculative mania driven by debt.
There will always be some weather/beauty premium on Vancouver over other Canadian cities, but this is currently disproportionately high. Property prices are two to three times fair value determined by fundamentals.
The bursting of the bubble will cause upheaval, but will also ‘solve’ some of the challenges facing Vancouver. Reasonably priced RE is crucial for the health of a vibrant city.
– vreaa

“The housing bubble in Canada is fictional. Vancouver is affordable. If you want to live in one of the world’s most densely populated areas, then you pay the price…”

“The housing bubble in Canada is fictional. … If you can’t afford $500K for a 600 sq ft condo, can you afford $450K? Can you afford $400K? The difference is only $400 to $500 a month which in downtown Vancouver is not a lot of money … If you want to live in one of the world’s most densely populated areas, then you pay the price…”
– from the comment section of ‘Bank of Canada faces interest rate dilemma’, CBC, 10 Aug 2011 [hat-tip to Makaya at VREAA 13 Aug 2011, for pointing this comment out. Makaya added “Apparently, there are still quite a lot of people that do believe we are not in a real estate bubble.”]

“One of the world’s most densely populated areas”?
This is the kind of throw away comment that is accepted as correct and perpetuates the mania.
Ever looked out of the window when your plane approaches YVR?
Mountains, Sea… and lots and lots of Land.
Sprawling underdeveloped areas. Also, more than enough vacant and underdeveloped lots around and about the city core, all with Fresh Air above them, to ensure space for enough condos to meet a hundred years of demand.
Vancouver is rated 123rd on this 2007 world list of “largest cities in the world by land area, population and density”.
Cities more densely populated include Toronto, Montreal and Ottawa.
This is Canada, folks! Second largest country in the world, 3.4 people per square kilometre… 230th most densely populated country in the world (out of 241 ranked!). Even if you consider the country only one tenth habitable territory, we would still only rank 178th!
We have rocks, trees, water,…and land. What’s “fictional” is to suggest we’re running out.
Once the RE bubble implodes, and the temporary fetishization of real estate ends, we’ll be able to put things in perspective again. Perhaps then our citizens, our economy, our engines of progress and creativity, can return to a time when they are not irrationally and disproportionately hobbled and distracted by the cost of dirt.
-vreaa

BC Mortgage Loan Approvals Over 20% Of GDP

“Once again we see evidence that the suggestion that the current BC real estate market is being driven by cash-toting foreigners doesn’t jive with reality. BC is leveraged far more than any other province, a shocking finding for a province that should have very little mortgage debt….with the rampant foreign capital inflows and all…”
– Ben Rabidoux, ‘The Economic Analyst’, 8 Sept 2011

Debt. Driven. Speculative. Mania. Period. -vreaa

See also: ‘Two Charts: All You Need To Know About Canada’s Housing Bubble’, VREAA 26 Aug 2010

Vancouver RE ‘Jumps The Shark’ – Candidate Moments

To ‘Jump the Shark’ – Definition: ‘the moment in the evolution of a phenomenon where it moves beyond the essential qualities that initially defined its success, and begins a decline in quality that is beyond recovery.’

Has the Vancouver RE market ‘jumped the shark’? Only in retrospect will we be able to identify an exact defining moment, but, in the meantime, we here suggest prospective candidates. We’ll update as necessary, and link via a sidebar graphic. Please post any suggestions/’votes’/nominees in the comment section. The envelope, please…

1. VANHATTAN
BC Homes Magazine runs a front cover asking “Are sky-high real estate prices turning Vancouver into the next New York City?” [August 2011]

2. Cam Good Helicopter Tour Of White Rock
Local condo salesman takes Global TV crew and local realtors with mainland China marketing connections on a much-publicized RE promotional helicopter flight over White Rock. [Feb 2011]

3. Vancouver RE Mention In U.S. Republican Candidates Debate
“Why is it Vancouver is the fastest-growing real estate market in the world today? They allow immigrants in legally, and it lifts all boats.” [7 Sept 2011]

4. This House On The Market For $3.18M
Sold 15 Feb 2011 $2,830,000 back on the market August 2011 with an ask price of $3,180,000 [August 2011]

5. Craigslist Offer To “Be Your Dinosaur” In Exchange For A Home
“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.” [Aug 2011]

6. Gangsters Move To The US To Avoid Vancouver RE Costs
“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.” [Aug 2011]

7. Only One UBC Employee Can Afford To Own A Westside Home.
Poster UnagiDon, using public info regarding incomes, and bank mortgage guidelines. [July 2011]

8. Moderator Of ‘Vancouver RE Bubble?’ Debate Wears ‘No Bubble’ Button
David Podmore, CEO of Concert Properties Ltd., wears ‘No Bubble’ button to RE industry insider debate he moderated at the Vancouver Board of Trade regarding “whether or not Vancouver real estate is in the midst of a bubble”. The panel, unanimously, agreed: ‘No Bubble’.[Oct 2011]

9. ‘Affordable Housing Plan’ Results In Apartments The Size Of Two Parking Spaces For $850 Rent Per Month
[19 Dec 2011]

10. Basement Suite In East Vancouver Sells For $590K
[24 Feb 2012]

11. Laneway House, 500sqft, For $270K, Not Including Land Cost
[29 May 2012]

12. Trump Brand Coming To Vancouver
A high-rise hotel and condo project on Vancouver’s West Georgia Street is being rebranded as the city’s first Trump tower. [17 Feb 2013]

Complex Pressures On ‘A Simple Man’ – “My rant about the Asian mentality toward housing. My getting married and having children is, to my parents, the sum total of my goal for existence. I can’t move out of Vancouver even if I want to.”

“I immigrated from Vietnam 14 years ago. We had about the same culture and mentality as Chinese people. My parents are both teachers, and teachers in Vietnam get paid peanuts. That is an issue that angers me, but I will not dwell on that. I just want to tell my perspective as well.

We came to Canada with practically no savings. My mother forbid me to sell the house in Vietnam to get some seed money. She would have a relative of ours stay there instead, because in her mentality, once a family (and by this I mean an extended bloodline of 20-30 people) acquires one or more houses, relinquishing it is unthinkable.

My parents have been working a full time job and a part time job for most of their time here, clocking in 60-70 hours a week average. Meanwhile I have been going through university, maintaining A to A+ grades and getting scholarships, while working 25 hours a week part time. I also work full time + part time (60-70 hours week) whenever not in school. I am not saying this out of arrogance. I burn away my health and lifespan to maintain this sort of productivity, and trust me, I am not happy living like this. And we also skimp our spending and lifestyle to completely unimaginable levels. I will spare you the details. But the alienation from my parents, family, and community in general is a worse alternative.

Our family did this so that we could buy a house in Vancouver as soon as we could so that I can get married. It sounds absurd to you but my getting married and having children is, to my parents, the sum total of my goal for existence. To understand how much weigh my parents place on marriage, children, and house, I will tell you the anecdote that I once sat through a 6-hour long lecture about the need for me to buy a house and court more girls the night before the final round interview for a 6-figure job (needless to say I did not get the job). [My friend] Julian [Lee] is quite civil in his post about this [VREAA, 7 Sept 2011], but his parents are also significantly more easy-going than mine, and so he had not felt the pressure to buy a house as keenly as I do. And yet, my parents are still a long way from the true “Asian fanatical parents” out there.

Neither Julian nor myself belong to the “rich and probably questionable Asian” group, by the way. Both of our families are honest, upper-middle class at best, and just very hard working.

I managed to buy a house in the end of 2005 and rent out half of the house. I have been comfortably paying down the mortgage for the last few years, but the story didn’t end here…

Recently, I told my parents that if I sell this place and buy in Surrey or Port Coquitlam, I would be able to get a much better house and yet pay off all the debts, and actually still have a bit of money to spare. I got a week-long lecture about how the location is far from the city center, dangerous (because it is far from the city center), etc. etc. I will spare you the details because it all doesn’t make much sense to me either. I know that my parents were just frightened with the prospect of giving up a house because it is, in the community and to my aunt’s family who also live in Vancouver, a lost of status.

I also told my parents that I would like to get a job in the US and live there. My parents then gave me another earful on how I am irresponsible and leave my old parents alone to deal with the renters in half of my house.

There you go, my rant about the Asian mentality toward housing. Perhaps a generation later, this mentality may fade. But right now, I can’t move out of Vancouver even if I want to. Julian and I had talked for a long time about the subject of Vancouver RE, and I suspect that he is as stuck in Vancouver as I am.”

(Afterthought: My parents bought their first house in Vietnam the same way, through ridiculous amount of hard work and sacrifice of lifestyle. They did this because, tada, my dad needed to prove to his own family that he could buy a house before marrying my mom.
To me, that attitude is nihilistic and, eh (let’s not insult my parents here) wisdom-challenged, but it is the attitude of a people, a society, immovable regardless of my wish.)

– ‘a simple man’, at VREAA, 9 Sep 2011, 1:18pm

Your’re obviously not that ‘simple’ a man. Many thanks for a story well told.
We trust that your satisfaction with life will increase, and that you’ll be able to eventually enjoy the results of your labours.
We suspect many readers have had experiences with parental ethics that allow us to empathize with you.
We hope that the extreme infatuation with home ownership that you describe in some individuals cools and moderates in the years to come. We’d venture that it is not good for a society to have such beliefs driving housing ownership costs to irrational levels. (Yes, we’re aware that this is a judgment call.)
We suspect these apparently firmly held beliefs will be significantly challenged when prices drop. Nobody, regardless of cultural background, likes assets that lose value. So, just how ‘immovable’ are those beliefs?
What has happened elsewhere in the world to individuals with this housing ethos, when markets have gone through crashes?
Any Vietnamese Dubliners or Chinese Las Vegans out there to share their experiences?
– vreaa

Earthquake; BC Job Losses; Richmond Dropping; ‘Bubble’ Mentioned In ‘The Province’

A 6.7 Richter earthquake occurred off the west coast of Vancouver Island today at 12:41pm, felt in Vancouver. Buildings swayed “from Fraser Valley to Campbell River.”
“I was watching the U.S. Open Tennis downstairs and while sitting on my couch I felt it beginning to move back and forth…. It didn’t frighten me… but it took my attention off the tennis match for a few minutes.” [David Dickinson, Courtney]
– CBC News, 9 Sept 2011

12,000 Jobs lost in BC last month.
– News 1130, 9 Sep 2011

The Richmond RE market has very definitely softened year over year:
#Sales: 2011-8 (2010-8) : % Change
Detached : 95 (124) : -23%
Attached : 69 (84) : -17%
Apartments: 96 (127) : -24%
New Listings 2011-8 (2010-8) : % Change
Detached : 251 (165) : +52%
Attached : 165 (125) : +32%
Apartments: 244 (205) : +19%
– via VMD, vancouvercondo.info 9 Sep 2011

‘The Province’ quoted David Madani’s ongoing sensible (but conservative) prediction of a Canadian housing price correction of 25%.
– The Province, 9 Sep 2011

Canucks Hockey Player Expresses RE Market Hope – “We finally bought in the Vancouver market and hope it keeps going up”

Now that he has the security of a five-year, $23-million with a no-trade clause, Bieksa said he felt confident enough to buy a house here last month.
“We finally bought in the Vancouver market and hope it keeps going up,” said Kevin Bieksa [Vancouver Canucks defenceman].
– The Province, 7 Sept 2011 [hat-tip Vansanity at vancouvercondo.info]

“I’m not a money guy. I know about money, I understand its value, but it’s not my main priority. I think everybody takes less to play here. It’s such a great organization that you want to be here. So if you want to be here, you have to take less, that’s just the culture.”
– Kevin Bieksa [The Province, 28 Jun 2011] (when agreeing to his new contract).

Vancouver RE Mentioned In U.S. Republican Candidates Debate

“Incredibly, one of the candidates on tonight’s nationally televised US republican nominee debate mentioned Vancouver. He wondered aloud why Vancouver’s real estate has such high growth, suggesting the US should implement immigration policies similar to ours!
If that’s not an anecdotal sign of a bubble, I don’t know what is!”
– from ‘S’, via e-mail to VREAA, 7 Sept 2011.

Transcript:
Jon Huntsman: “Let me say one thing.. let’s not lose sight of the fact our legal immigration system is broken. And if we want to do something about attracting brain power to this country, if we want to lift real estate values, for example, why is it Vancouver is the fastest-growing real estate market in the world today? They allow immigrants in legally, and it lifts all boats.”

You would think that a US citizen, circa 2011, would be capable of questioning the merit of having “the fastest-growing real estate market in the world”.
Wow, two ‘jump the shark’ incidents in a couple of days. Jesse is right, we need that special category, now. Will set up. – vreaa

“I am a first generation immigrant here to Vancouver. I bought my place last year. I expect a correction of 10% over 3 years. People always ask me: why do the immigrants come here?”

Julian Lee at VREAA 29 Aug 2011 1:56am & 7 Sep 2011 12:08am –
“I am a first generation immigrant here to Vancouver. I came about 20 years ago with my parents from Asia. This is a beautiful city and I am proud to say that I am now a Canadian and have completely integrated into the culture. I have a particular perspective on the Vancouver real estate bubble as I am very familiar with both cultures. Here are my 2 cents:

1. Are there rich asians who are buying houses? Yes, there are a lot of it. But they are not the majority of real estate purchasers. They make up purchases in some of the most expensive areas. But it doesn’t justify that all areas should go up by the same percentage. For example, if you go to an open house on some of the Westside neighbourhoods, you’ll be amazed by their purchasing power. It’s incredible, beyond anything that we have seen here, completely consistent with other stories. The street is loitered with expensive cars. You can also take a look at the parking lot of some west side schools, their kids roll in far fancier cars than their teachers. But, if you are to go to an open house say in the commercial area, these guys are nowhere to be found. So it’s not true that they are the single most important factor in driving up house prices in every area, but they do certainly make a difference in some areas. I think across the entire lower mainland they don’t make up the majority as they almost never touch anything in Surrey (except South Surrey White Rock) or Langley. For now they mostly operate in Vancouver, Burnaby, Richmond (until the Tsunami, notice how Richmond’s price stopped flat at the same time as the earthquake), and West Van. As for the 5% foreign buyer stat that have been bandied about here, I would be very curious to ask who is classified as a foreign buyer? Is an immigrant a foreign buyer? Is it simply a non-canadian citizen or a non-canadian resident? That does make a difference because a lot of these rich asians park their wife and kids here. So their family is technically canadian residents, are they still considered a foreign buyer at that point? The final thing is, almost all of them will buy. They will not rent, every investor immigrant that lands here from Asia will buy a property of some sorts. They really don’t care about how high the price is, we have not reached a level that would make them feel that we are expensive compared to a place like Beijing.

2. About this bubble. Is there a bubble? I would say there probably is. But it is not as big as one may imagine. Here is why. All the statistics that have been gathered have been compared to western stats. Meaning that all rent to own ratios, average cost to income ratios, etc, are all using historical statistics in the Vancouver / Canadian markets. But that’s not necessarily correct. Because the demographics of Vancouver is shifting. When you look at any given city’s ratios, you need to take a look at their demographics. So for example, if your city is 20% chinese, I would use Beijing’s ratios multiplied by 0.2. If the city is 10% Indian, then use Mumbai’s ratios multiplied by 0.1, etc. Basically, I would take into account the cultural differences of these ratios. Taipei’s rent to own ratio is a lot worse than Vancouver’s, to the tune of double or triple as bad. This is just an example, do I expect that Taipei or Beijing will ever correct to Western levels? Not a chance. It’s just the way that different cultures value real estate. I would be curious what that ratio would look like once the cultural differences have been considered. I would imagine that we would still be higher than the number, but it wouldn’t be as astoundingly high as it currently is. So while I feel a correction is in order, I would be shocked if Vancouver housing crashed.

3. People always ask me this, why do the immigrants come here? I am a Canadian Citizen who immigrated from Asia when I was young. I have to say, it’s the best thing that has ever happened to me. To understand the core immigration issue, one must examine what is important to rich asian people. Believe it or not this all starts with the one child policy in China. As a result of this policy, Asian families, who normally are very children focused, have become even more so. For anyone who has ever received an education in China, he/she would know that it is worse than hell to go through the highschool final examination (the so called gao kao). Basically, you prepare night and day since the age of 15 till you graduate when you will take a national university entrance exam which will determine your fate for the rest of your life. Like it or not, whether you are rich or poor it does not matter. Everyone needs to go through this. No matter how rich you are, places in the best Universities in China cannot be bought with money, no matter how much. Anyways, no parent wants their kids to go through this. So they must find a way to get them abroad.

Now you ask, there are a ton of places with good education systems, why here? Well, when you only have one child, you really don’t want anything to go wrong with this kid. The only other person that you trust with this child is your wife. So the wife must also immigrate with the child. However, unlike the child who can probably integrate into any community easily, the wife can’t. I am not even 30 and I have to say it is hard for me to drop into somewhere say Germany and integrate easily into the community. Try learning another language when you are 40 and you’ll find out in a hurry that it is not that easy. So you need a huge chinese community where the wife can pretty much not learn english, or know very little of it, to get around. Sound familiar now?

Now, it may sound absolutely absurd to us, but everytime I travel to the states for business or pleasure my relatives get worried. Why? Because there is this nice misconception that the US is dangerous amongst chinese circles. Why? Cause they have guns. Now, remember, the kid is the most important part of the family, do you really want to send him to somewhere where anyone can carry a gun? Not likely.

This really narrows the places down to a few in the world. You are looking at Vancouver, Toronto, Melbourne, Sydney, Singapore. At this point, you have to look at yourself, now imagine that most of your time is spent in the bustling chinese cities where air pollution is a huge problem, where the only thing green you see if likely the little patch of grass the government decided to put there to show the foreigners, where all you see is skyscrapers, etc. You only have about 3 weeks vacation each year, do you really want to go to Toronto? I have not heard one investor immigrant who have ever said they prefer toronto to vancouver. Vancouver is as beautiful as any city in Asia. And here is the kicker, we are a relatively new city, we bring an air of invigoration to some of these people who simply see a better lifestyle here.

Now, you are down to Vancouver and the two Australian cities. Well, unfortunately for us, the Aussies seems to be perceived as more racist than us nice Canadians. At least in some chinese circles. And, asian people aren’t adventurous like their Western counterparts, they tend to want to stick to a tried and true formula. So, as the first wave of rich asians have landed here and shown that their families will settle nicely in this City without much issues. More will follow. They do NOT take the path less traveled, they like the one that has been stepped on by thousands of people.

Finally, one last thing to consider. It is very difficult to get money out of china. If you are very rich, you need to have an excuse to get your money out. Well, guess what, thanks to our abundance of resources, these guys have a nice excuse to get their money out. They can say that they are coming here to buy resources. Much easier sell to the government.

So there you have it, if you look at all these factors, you quickly realize why it is that they don’t go to Miami, or Phoenix, or Portland, hell, or even Seattle, but they come here.

That said, to cool off the bullish camp. A few thousand immigrants does not make up the whole market, so you will still get the swings, but they will come and snap up anything they can get their hands on if we do go down significantly. Because they know that in this is perhaps one of the rarest places on Earth that fits everything they and their peers are looking for. The ones who are here are buying because they know more are coming. There is a three year waiting queue in Beijing for applications. The scariest part is there have not been any significant efforts to market Vancouver abroad. This is all done by word of mouth.

So there are my 2 cents, I wish everyone good luck in this market. I am not convinced that the market will go up forever as I am intelligent enough to know that no market acts that way. I expect a correction of about 10% over the period of say 3 years. Then it might still go up a bit after that. But I think it’s unrealistic to expect ridiculous returns that we have seen. I bought my place last year, but I had to search very very hard to find the best possible deal in the market in order to hedge myself against a correction. I am actually really glad that there is this forum as it is good to hear a contrarian view over the normal “yeah it only goes up comments”.”

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Thanks for sharing your story and your thoughts, Julian.
Your argument that Vancouver is an attractive city for Asian families is persuasive in a broad fashion, but hard to actually quantify. It is a form of the ‘Limitless Demand Argument For Ongoing Market Strength’. It amounts to ‘Vancouver is attractive to Asians’ + ‘There are lots of rich Asians’ = ‘Ongoing price strength in Vancouver ad infinitum’. We have always had the position that there is a chance of this playing out, but that that chance is low (less than 5%).
Many aspects of human behaviour are similar across different cultures, and if you’re a regular reader here you’ll know we expect all market participants to respond in a similar fashion to a pullback in what is an overextended speculative market driven largely by very cheap financing. Markets behave under the same principles in Beijing, Mumbai, Taipei, Europe, and North America; we expect human responses to a failing Vancouver RE market to be similar across cultures. Namely, many buyers will sit on their hands, some sellers will come to market as prospects of ongoing steady gains fade. People almost everywhere have recently learnt that when assets start falling, they can fall a lot. We think they’ll realize that about Vancouver RE in good time.
Asian buyers may well have been attracted to Vancouver, and see it as a safe-haven, for the very reason that prices seem bullet-proof. We expect Vancouver RE to be a lot less attractive to ALL players on the way down.
In the relatively brief 2008-2009 dip, all Vancouver buyers, of all nationalities, disappeared, and only came back when money was handed out for free. There will be no such springboard under the market when it next weakens.
If your way of thinking is true, then we would expect to see an increase in Asian buying in the event of any future price drops. Personally, we don’t see that happening, and expect the opposite.
We’d classify your prediction of no more than a 10% pullback over 3 years as a prediction of ongoing price strength; after a run-up of hundreds of percent, such a ‘correction’ would be nothing more than ‘noise’.
We’ll see how our various predictions play out in the coming years. It probably won’t be long before we get a chance to see how market participants respond to an initial price pullback.
Thanks again for your posts, please continue to contribute here, and all the best with your endeavours.
– vreaa