Spot The Speculators #65 – “It’s more fun to blame the Chinese, but really what went wrong in Vancouver is the baby boomers bought up all the property, drove up the prices, and drove out the lower class, including their own kids.”

“My parents own a million dollar house in North Vancouver and a quarter million dollar apartment in Lower Lonsdale.
How about a couple hundred bucks a month to help out on rent so I can afford to live in the city where people like my parents have skewed the prices?
Not a chance.
It’s more fun to blame the Chinese, but really what went wrong in Vancouver is the baby boomers bought up all the property, drove up the prices, and drove out the lower class, including their own kids.”

Iain at VREAA 9 Nov 2011 10:20pm

We are in a speculative mania caused largely by locals buying as much RE as possible by borrowing at very low rates, leveraging and overextending themselves.
Iain’s parents may look innocent enough, but if you consider their age and the percentage of their net-worth in RE, you’ll see than many in this position are very over-dependent on RE for the fiscal health of their retirement. – vreaa

37 responses to “Spot The Speculators #65 – “It’s more fun to blame the Chinese, but really what went wrong in Vancouver is the baby boomers bought up all the property, drove up the prices, and drove out the lower class, including their own kids.”

  1. It’s not more fun..it’s the truth. Yeah maybe in North Van – more white, but in the westside of Vancouver and Richmond it is HAM. That shot the prices up, even locals could not compete. The only way to get a home there is to inherit one from your parents. It was just timing for many as well. Many of my friends parents have sold their homes the last couple of years – and had to help out their kids with a downpayment for a house in the burbs or a condo in the city.

  2. I lived at 12th and Macdonald before moving up to Fort Nelson in January of last year. Watched homes on all sides sell while living there. White, White, White…and across the street South Asian/East Indian…There is a ton of white money in Vancouver…Don’t believe me…look at our CEO’s, our politicians…Power and money folks!

  3. In some fairness, most boomers bought when prices were way lower. That the market prices of their homes have increased is more a product of a credit bubble (and not just in Canada).

  4. Iain’s parents might look innocent enough, but they are guilty in the speculative mania cuz they own a couple RE? Get yourself a good rest with some sleeping pills, VREAA.

    • Vreaa didn’t claim that the parents are contributing to the speculative mania by holding property. He just claimed that the percentage of their net worth in RE is dangerously high.

      I don’t know about Iain’s parents per se, but would certainly agree that the phenomenon Vreaa’s describing is correct. There’s a 70-year old guy in my west-side neighborhood who lives in an original 1930s SFH and does lawn maintenance for a living. So he’s doing manual labor for, what, $15/hr? And he’s sitting on a $2m property.

  5. I have friends who are teachers in several different catchment areas of Vancouver. They tell me their class composition are 80-90% asian. So although there might be a lot of “white money” in Vancouver now it won’t be here for much longer.

  6. 4SlicesofCheese

    Wouldn’t that mean there are a bunch of rich white people that sold to these rich Chinese people?

    What happen to all the sellers? Are they at fault as well?

    Also can we agree that the % of “offshore buyers” are very very low. I think most people are mistaking offshore buyer from an immigrant who buys.

    Even if the immigrant buys here and returns to where they were born and only comes back once a year, they are still an immigrant, no less than my parents who lived here for 20+ years before they received citizenship.

    • Yes, thank you for the comment. The offshore buyer thing is so misleading it’s not even funny anymore. Satelite families where the wife and kid are here but the husband is back in China making tons of money is normal, they are considered immigrants. They are not counted as offshore buyers. And they are the norm here in Vancouver; they are the ones snapping up the westside properties, not some dude helicopter in from China and buying land then leaving.

      • Fair enough. However, if the wife and kids are here, then that means the family is domiciled in Canada, and the husband must report and pay tax on all income earned worldwide.

        http://www.cra-arc.gc.ca/tx/nnrsdnts/ndvdls/nwcmr-eng.html

        Otherwise they effectively are indeed ‘helicopter’ money. Or just tax cheats.

      • 4SlicesofCheese

        Most likely tax cheats.

      • If offshore is not a factor, so tell me why half the condos we rented and half of the pre-owned condos we looked at purchasing in Vancouver (of a particular vintage so as to avoid the leakers) were offshore owned according to our realtor. That’s half – ie. 50% which I consider significant. I was blown away that many of these condos were completely empty and looked like they had never been lived in despite the owner having purchased these units many years previous. I just couldn’t believe that someone would move to the other side of the Pacific without selling their home first but now I realize that these condos were all speculative assets with the owners all trying to sell before the market peaked.

        Also, an immigrant investor that stays in China to generate income while his family is domiciled in Canada is still hot money since it’s source is outside Canada. As Jross has commented, this money should be subject to taxation in Canada and also China unless there’s a tax treaty between the two countries (which I’m pretty sure there isn’t). I doubt that many of these “investors” are not paying tax in any jurisdiction which is a large part of the reason why he’s bought a Canadian citizenship in the first place (as a tax shelter and a safe place to run). This is the very definition of hot money – the primary reason why Vancouver RE prices are so divorced from underlying fundamentals. Vancouver is all about HAM – always has been and alway will be but today its a tidal wave of money and the governments at some point will have to place restrictions on this hot money before there’s no local economy left.

  7. root cause is banking system that allows credit to be created out of thin air, unbacked by real savings. it is global in scope. if you must lay blame on any single institution, us federal reserve. if any single individual, greenspan. however, we are all complicit in allowing so much power to become concentrated in such a small circle. occupy wall street is wrong. they need to be camped out in front of the federal reserve. you can:

    (i) pass on koolaid, hedge, ride it out – people are resilient, have survived far worse, really this is not life and death
    (ii) find alternative circumstances that suit you better (e.g. move out)
    (iii) ante up and go for it

    read an interesting comment. you can try to fix the system through popular movements. but it is really hard to:

    (a) vote them out
    (b) reform the system

    eg. simple example. what sort of apathy+ignorance led to icbc?

    the easiest path is just to find better circumstances elsewhere. eventually, what is not sustainable will crumble from within.

  8. BS! Owning a detached home for years, decades even, is not what drove up the prices. Buying into the speculative nature of condos and flipping may be part of it but look at the lineups over the past 4 years for those things (almost all Asian). And the houses from the past 3 years post 2008 crash? Almost all Asian. You don’t see helicopter trips filled with Whitey (except the lead salesman). I know plenty of old white people on the westside who sold in the past year. They’d lament that their “home” was going to be bought by some Chinese guy, torn down, and some monstosity built. I’d always reply with “So you’re about to get a couple of million dollars. And that is the bulk of your retirement money? So what are you complaining about? You just won the lottery!”

  9. Rob,
    Do you think the following has anything to do with detached prices as high as they are:

    1) Add 45,000 new occupants to Greater Vancouver each year
    2) Developers buying detached and redeveloping has resulted in a disappearance ofr 35-40% of the total available since 1991

    I’d be interested to know how anyone can tell me they expect a market like anywhere else in the world with the above conditions.

  10. I think it’s fair to say that a number of things have contributed to current market, everything (and everyone) pushing in the same direction and benefiting from higher prices, kind of a “perfect storm”. It’s more difficult to find anyone/anything pushing in the opposite direction.

  11. http://www.bnn.ca/News/2011/11/10/Vancouver-faces-falling-home-prices-Genworth-MI-CEO.aspx

    Genworth CEO says

    “We wouldn’t use the word bubble, but we’re watching it. There are going to be some pockets of correction over the next few years,” he tells BNN. “The upper end of Vancouver, we’re going to see some movement down with prices declining in that market.”

    “In British Columbia we’re not doing many of those jumbo type loans because we feel there’s going to be a correction,” he says.

    • you wonder why they want to come here? Exhibit A for you. And we take these guys in with open arms because they are rich and will pay us to take them in.

      • I don’t think anyone is disputing why “they” want to come here, what I dispute is the actual impact “they” directly have on prices.

      • To be honest, I think it’s a case of a bit of scenario A plus a bit of scenario B. I would say that the price inflation is probably 60% easy credit and 40% asian money. Normally, if it was 100% easy credit it probably wouldn’t get to today’s stage, you see a increase in Toronto too but you don’t see this kind of insanity.

        Another thing to consider is that canada admits 10000 investor immigrants, probably half from China but the looks of the number of applications from that area. Out of the half, about half of that probably ends up in Vancouver. So let’s just be conservative and say 1500 each year.

        This has already been happening for the last decade, so that’s about 15000 investor immigrants from China probably in Vancouver. According to Diablo, there are 48000 SFH in vancouver, probably similar numbers in Richmond / Burnaby / West Van (their three top areas). The numbers seem right to me that these people would cause a significant rise in SFH prices.

        Say if this continues for another decade, we have another 15000 investor immigrants into Vancouver. The numbers don’t look good for us.

      • Here is the worst part, EVERY chinese millionaire wants to get out of China because god knows when they will be prosecuted. And we are already destination number 1 thanks to the word of mouth.

        Now the real estate agencies have clued in on this and are starting to actually advertise in Beijing. The agents here actually now have offices in Beijing.

      • Julian -> All of this may be correct.
        The one assumption to all this, however, is that immigrants (investor or not) will continue to buy RE in a down-market.
        The bulls argue that they will, and it seems a logical thing to do (if you’d buy a west side house for $2.5M, surely you’d be that much happier to buy it at $2.0M).
        But this assumption, we believe, ignores the fact that these are momentum investors. They may have been happy buying Vanc RE when it looks strong, when prices seem infallible. But, the moment Vancouver starts looking like all other falling markets around the world, we suspect that these buyers (along with local buyers) will sit on their hands. Momentum investors HATE buying things that are going down.
        Why do you assume that they’ll buy a falling asset class?

      • vreaa,
        immigrant demand will ensure there is no falling asset class (at least in the detached market). If that were the case we’d have seen it already. There was a brief lull in the market in 2008, but that period is significant for the message that was learned – you cannot keep Vancouver detached market down.
        Even now, developers have stopped buying land due to the inability to sell new construction. Has this effected that sales prices (not volume)? Not one bit.

      • diablo -> Your opinion is noted.
        As we’ve said before in some of our discussions (it’s a bit confusing for readers because you’ve previously used many handles; but we do note you’re now sticking to diablo/Formula1, which is good, readers can follow that), you believe that very consistent demand, in particular for detached homes, will remain strong and overwhelm any price pullback, ensuring that such pullbacks are shallow (you’re on record saying 10%-15% max).
        As you know, we respectfully disagree: we believe that, in the current market conditions, once price drops become clear, the vast majority of buyers will back off, and, what is more, many sellers will step up.
        As you and I have also agreed in the past, all we need to do to test our respective hypotheses is to hang around and see what happens next pullback. So, let’s do that.

        With regard to prices remaining stable in the face of lower sales and fairly high inventory:
        Yes, that is correct, that appears to be the current state of affairs. You should note, however, that is what always happens when markets roll over. Volume leads price.
        Inventory is staying quite high for this time of the year. We think there are more sellers (overt and covert) and fewer buyers out there, and we think that at some point that fact will declare itself.. with rising MOIs and then with drops in prices. It’ll be unlikely that we see clear signs of this before the spring of 2012.
        If prices do pullback then, we can test our theories.

      • @vreaa, you are right, they may not be buying a falling asset class. But let’s look at their choices. They could rent, but they don’t speak English, and have probably NEVER rented in their life. In addition, they are not dumb, they can do the same math that I have. They know that eventually, every investor immigrant in Vancouver will want a SFH at a good location. How many of those are there. Don’t forget, our city is not just full of rich chinese, there are a lot of wealth already established in Vancouver before this all started. These guys know that more and more are coming. And thanks to our government’s raising of the price tag of immigration, it has just priced out the so called middle class HAM’s and bumped the richest ones to the head of the queue. In the end, even if let’s say 1500 arrive each year and rent, then you will just end up with a huge pent up demand that will cause another so called bubble when they all want to buy eventually.

        I am not saying that I am 100% correct, but I think my point does raise a possibility. Now, it is possible that a crash will happen that proves me wrong and shaves say 50% off of the housing prices. But at this point, I just don’t see many alternative locations for these rich chinese to escape to. Vancouver is just too easy for them to integrate into.

    • Well of course they have an effect, the question is how much. $2BB for a population of 4MM? That’s some leverage.

      • Isn’t it rational to assume that HAM has a very large impact since prices have no bearing on fundamentals such as price to rent and price to income. If it was local money, the bubble would have popped in 2008. Instead, China rolls out their $600 billion plus stimulus package and Vancouver prices skyrocket. How many local Canadians received free funds from the Chinese government for asset speculation?

      • ” If it was local money, the bubble would have popped in 2008.”

        Why? Borrowing money’s cheaper now than it was then. 5 year renwal gap still negative. The bubble didn’t pop in any other parts of the country either, even ones currently under severe distress like Kelowna.

      • only “local” money means no immigration. Sorry fella, Canada don’t work that way

      • We’ll see! (Hint: earrrrrniiiiiiinnnnngs)

      • Victoria – up 11% from Jun 09 (Teranet)
        Vancouver – up 28% from Jun 09 (on a much higher base as well)

        Victoria – no HAM
        Vancouver – HAM

  12. I don’t know if you guys saw the article on the globe and mail saying that “a sizable minority” of home owners can’t afford a 1% increase of their mortgage interest rate…
    http://tinyurl.com/77swqdf

    And from the comment section (always interesting to read when RE related articles):
    “All you people whining and crying are clueless. “The sky is falling, the sky is falling!”

    I own 2 houses, 1 in Toronto and 1 in Oakville, and am looking to add another one to my “portfolio” when I get back from my vacation in Hawaii.

    Interest rates are at record lows, now is the time to get in, its basically free money, buy yourself a place and watch the price of your houses skyrocket. You’ll be able to retire a LOT sooner.

    I turned 27 last month, and make $57k/year, if I can do it anyone can.

    The first step is to stop moaning and crying and move out of your mothers’ basements or stop being rental rebels and get in before its too late.”

  13. Seriously?

    “How about a couple hundred bucks a month to help out on rent so I can afford to live in the city…?”

    That’s a hell of an attitude. Once you’re out of the house it’s time to pay your own way.

  14. I don’t know..

    All the new buildings I’ve looked at buying in don’t have 4th, 14th, 24th… floors.

    Annoying to calculate the ‘actual’ floor when looking at higher up units. I think this is the only city outside of Asia with that phenomenon.

    In addition, the staff at the some pre sales seem unprepared to deal with a native English (non Chinese) speaker.

    Doesn’t seem like a rush of boomer buyers ’round here.

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