Shiller – “The idea that buying a home is such a great idea is just wrong. Home prices may well decline for the next 30 years, in real terms.”

Interviewer (Morgan Housel, Motley Fool): “Is that what homeowners should expect, that their house will give them a place to live, that it will keep up with inflation, and nothing else?… Is that the basic model that homeowners should think about?”
Robert Shiller: “I think it’s a reasonable first approximation to assume that home prices would just keep up with inflation… [But they can go down too, they went down for the first 50 years of the 20th century] … The idea that buying a home is such a great idea is just wrong.. They may well decline for the next 30 years .. in real terms.”
– from ‘Robert Shiller on Why Home Prices Could Fall for Several Decades’, Morgan Housel interview, Motley Fool, 23 Dec 2011
—

Shiller is describing the US market, where prices in many regions have dropped to the point that they are coming close to values as determined by fundamentals. In a market such as Vancouver’s, where we are starting with prices at 2 to 3 times fair value as determined by fundamentals such as rent, income and GDP, the chances are far and away that housing will underperform inflation over the next 30 years. Most local market participants would see that prospect as preposterous. – vreaa

Spot The Speculator #69 – Three properties, all with maxed out HELOCs – “A 12% or 15% correction does not sound like much, but given the dynamics of the Vancouver market it could be devastating.”

“A close acquaintance of mine lives in the Vancouver suburb of Surrey (an area that respected blogger Garth Turner recently predicted would see a 30% correction if the national market tanks 15%).
A staunch housing bear himself, my close acquaintance rents the house he is currently living in. The home was recently assessed at a value of $450,000 and the landlord is the quintessential poster child of the over-extended, amateur Vancouver landlord.
Owning her own home in Coquitlam (another Vancouver suburb) plus two rental homes in Surrey, she constantly struggles to make ends meet.
Recently a spat of repairs were required on the house my acquaintance lives in.
First, the garage door sustained damage. When arrangements were made for an assessment from a repairman, the landlord asked my friend to pay the $80 charge (which would be deducted from the next month’s rent) because she no longer had a credit card.
Next, the dishwasher failed.  A plumber was called and he replaced the garburator (a repair that had been put off since summer) as well as the dishwasher.  And while the landlord arranged a cash payment for these (delivering the money to my friend to give to the plumber on the day the work was to be done), the plumber later confided the landlord had been in tears on the phone as they discussed the best place to secure the ‘lowest’ price on a new dishwasher.
I’m sure you won’t be surprised to learn that all repairs seemed to be “under the table” with no apparent HST tax paid.
There are other repairs that are required at the house but are “on hold” because the landlord admits to cash flow problems.
The landlord has told my friend that the house was a gift she received from her parents over 13 years ago.
So does that mean the property is mortgage free?
In the 3 years my friend has been at this house, he has accommodated 3 requests to have the property assessed for HELOC applications. In the most recent visit (always by the same assessor), the assessor let slip that he had also been doing the same on her two other properties. She has maxed out the available equity on this house (about six years ago this money was used to purchase the second rental home), the second rental home and her own house.
Now, with TD Bank expecting a market correction of 12%, where will this landlord wind up?
This landlord (not unlike many others in the Lower Mainland) have been using their homes as personal ATM machines.  And the money they have taken out against their properties is spent.
This particular landlord struggles to maintain basic repairs on the homes and is in a personal financial situation where she no longer has access to credit cards.
What will a 12% drop in property values mean to this landlord?
On the one Surrey home (assessed value $450,000), a 12% correction is a loss in $54,000 in mortgaged asset value. A 15% drop translates to a loss of $67,500. If we were to realize Garth Turner’s prediction of a 30% drop – the loss on this house would be $135,000.
Without continued price appreciation, not only is the HELOC ATM most assuredly closed to her for future withdrawals but any major repair or incident will be devastating to family finances.
If the other two homes are of equal value, she is facing a total drop of $162,000/$202,500/$405,000 in asset value (based on drops of 12%/15%/30%), none of which is equity. Are the banks going to blindly renew mortgages on these three properties when she could be underwater by almost half a million dollars on all three combined?
At what point does the straw break the proverbial camel’s back?
How many more are in similar circumstances?
Without a dramatic turnaround in the economy, how can these people avoid any other fate besides default, bankruptcy and foreclosure?
Anecdotal evidence suggests there is a strong likelihood that a higher percentage of Greater Vancouver homeowners are in this situation vis-a-vis the greater mortgage market than there were subprime mortgage holders in the US mortgage market.
A 12% or 15% correction does not sound like much, but given the dynamics of the Vancouver market it could be devastating.”
– anecdote and analysis from villagewhisperer at ‘Whispers from the Village at the Edge of the Rainforest’, 29 Dec 2011. [Thanks, whisperer. Hat-tip to ‘Bailing in BC’]

Renter Finds Coal In Stocking – “It still seems really unfair to me that the landlord made a verbal agreement and then changed her mind at the last second.”

“Just wanted to share an unfortunate renting anecdote involving a friend of mine, as a warning to others and to see if anyone out there knows the best way to deal with this.
My friend decided to move at the end of this month and found a place around the 20th December. Being right before Christmas the landlord and her agreed to do the paperwork around the 26th-27th. My friend called on those days but didn’t get an answer and finally got through on the 28th. The landlord then said that she had spoken with her daughter and decided that maybe it wasn’t the best idea for her to allow a cat in the house and told my friend that she can no longer rent the place. (The cat had been discussed before the initial showing and wasn’t at that prior point seen as an issue). Three days before the end of the month doesn’t leave much time to find a new place, so she will likely now have to move stuff to storage, sleep on a friend’s couch, and find a new place come the New Year.
Technically, no papers were signed, but it still seems really unfair to me that the landlord made a verbal agreement and then changed her mind at the last second. So, just a warning to everyone out there that the deal isn’t really done until all the paperwork is in place. And if anyone knows the best way to proceed about getting the landlord to perhaps pay moving costs or something (RTO, small claims court?) that would be much appreciated.”
– davers, by e-mail to vreaa, 30 Jan 2011

Nothing was signed, so we’d strongly suspect the prospective tenant has no legal recourse; others may think or know different.
Sometimes renting can be very inconvenient.
We hope your friend finds a good place, davers, and that you both have a good 2012 nonetheless.
– vreaa

“Real estate is at a premium in the ocean. There’s hardly a rock on our coast that isn’t covered with life. So if you’re looking for a good solid surface to settle down, docks and other structures may be just the real estate you’re looking for.” [Vancouver Aquarium advice to sea-life.]

– Exhibit text, Vancouver Aquarium, December 2011

Use of RE as any kind of metaphor in the text accompanying a Vancouver aquarium exhibit would be interesting enough. This example is even more intriguing because of the ideas of ‘running out of ocean floor’, real estate being “at a premium”, and perhaps even the message that critters need to compromise if they want to find a place: “Stop gurgling about it: Pay for a decent rock, or move to a peripheral new warf.”
During a speculative mania in housing, real estate gets increasing mention in the local popular culture.
We have previously noted Vancouver examples of RE infusion into childrens’ books, sports fan behaviour, murder reporting, short films, celebrity visits, sports star bios, and musician bios.
Once a bubble pops such mentions simply disappear.
We doubt you’ll find use of ‘Real Estate’ metaphors in exhibit text at aquaria in Japan, Spain or Ireland.
– vreaa

“I had a chance encounter with a Vancouver RE agent who caters to Chinese investors. Turns out she is here in the Phoenix area looking for investment properties for her clients.”

“Had a chance encounter with a Vancouver RE agent (who caters to Chinese investors) this morning. Turns out she is here in the Phoenix area looking for investment properties for her clients.
As well, she already has a few of her own places she rents out as vacation properties.
Didn’t have a chance to ask her what she thought of the Vancouver market – but it was interesting to see her down here on behalf of her clients.
The going rate for a vacation rental Oct-Apr is about $ 2200-2500 a month, and about half that the rest of the year. This is for homes with less than $ 150K into them (if bought within the last year or so).”
– Snowboid at greaterfool.ca 28 Dec 2011 12:01am

Wow, look at those fundamentals.
That’s roughly an average of $1860 p.m rent (less expenses) for $150K.
What would that cost you in Vancouver?
And the US hasn’t yet bottomed.
– vreaa

Epigrams For The Bubble #1 – “To see what is in front of one’s nose needs a constant struggle”

“To see what is in front of one’s nose needs a constant struggle”
— George Orwell, March 1946

Point Grey SFH Inventory Up 100% YOY

Point Grey, MLS SFH Listings
26 Dec 2010:  27
26 Dec 2011:  54

Some folks are trying to cash in their high-end lottery tickets.
How many will join them in the spring?
The coming crash will effect all sectors of the market.
– vreaa

Extirpated Biologist – “In conservation biology, when a species can no longer survive in its home territory, it is referred to as “extirpated”.

From the ‘Introduce Yourself To The Forum’ thread at RE Talks, a post by ‘extirpated’, 22 Mar 2011 7:55pm–

1) Age / Location / Occupation
“38, born and raised in Richmond BC (to Polish immigrants) forced out of my home province by rising real estate prices and the desire to live in my own house. Conservation biologist – turned – artist”

2) What real estate do you own?
“2 houses, which are not in BC”

3) What’s your view on the market going forward? Buyer or seller? Which parts of the market?
“I don’t think I’ll ever be able to afford to live in BC again” 😥

4) Anything else?
“In conservation biology, when a species can no longer survive in its home territory, it is referred to as “extirpated”.

Visual Anecdote – Season’s Wishes

“A guy I know bought a place and was bragging that his mortgage is only a little bit higher than his rent would be. He gave me the whole lecture about how I am throwing money on rent. It took only a month until he started complaining about other expenses.”

“A guy I know bought a place and was bragging that his mortgage is only a little bit higher than his rent would be in a similar place. He gave me the whole lecture about how I am throwing money on rent etc. It took only a month until he started complaining about the high condo fees (which he did not account for), taxes (which he did not account for), higher insurance cost (which he did not account for) and a possible “assessment” (not even in his dreams when he was doing his “calculations”).
He has a variable rate mortgage and is paying just over 2% interest, that’s how his mortgage payments came relatively close to rental cost. Every 0.5% increase would add another $200+ to his cost.
Most home “owners” I talk to ignore any variables beyond mortgage when they are doing their calculations.
Another cost that is almost never accounted for – closing costs.”
– a splice of two posts by ‘bubbly’ at VREAA 20 Dec 2011 11:55am and 11:58am

IMF – Canadian Housing “Vulnerable”; “Some cities are experiencing house-price bubbles”; Review the CMHC

“Canada’s average home price is about 10 per cent higher than models suggest it should be, posing a “vulnerability” to the country’s economic outlook, the International Monetary Fund warns in a new report.” – from article G&M, 22 Dec 2011

—

From the IMF report:

“While households’ net worth has been boosted by rising house prices, their debt is at a historical high relative to disposable income, mainly due to rising mortgages. In addition, several housing price indicators are significantly above historical averages and high by international comparisons. Specifically, the price-to-rent and price-to-income ratios are 29 percent and 20 percent above their averages for the last decade, respectively. While there are structural factors that can explain increases in such ratios, their elevated level and other empirical evidence suggest that house prices may be higher than justified by underlying fundamentals, at least in some provinces— staff estimates indicate an average price overvaluation of around 10 percent, with significant regional differences.” …

“Staff suggested that, to minimize these risks, such measures could include larger down-payment requirements for new mortgages and requiring lower debt service-to-income ratios. Staff also inquired whether measures could target housing markets in specific provinces where prices have increased most rapidly. The authorities noted that they were not considering regulations differentiated across provinces. Continued tight supervision of financial institutions would
also ensure conservative underwriting standards and strict adherence to the existing regulations.”

—

“Since CMHC is now one of the largest financial institutions in Canada and the key backstop to the housing market, it would be useful to undertake a review aimed at ensuring that CMHC has a modern and effective governance structure and supervision, and assessing the scope for further strengthening its risk management.” – IMF report, as quoted G&M 22 Dec 2011.
From same article:
“Strengthening oversight of the [CMHC] will be particularly important,” given Canada’s record levels of household debt and evidence that some cities are experiencing house-price bubbles, the IMF’s executive board said in a separate statement.

Potato’s ‘Rent vs Buy Investment Spreadsheet’

Take a look at this very elegant Rent vs Own comparison spreadsheet/calculator.
Thanks to ‘Potato’ for telling us about the sheet and hinting to link it.
Potato also has a page of discussion regarding the calculator at their blog ‘Blessed by the Potato’. Wise-words excerpt-
“There are a lot of assumptions and estimates involved, a lot. The question is what should you do for your life? And importantly, what are the consequences of being wrong? Don’t use this tool with unrealistic estimates to try to justify a decision you want to make, but rather try to use it to help you come to the decision you should make — and to see what happens if you’re wrong.”

A Bull Predicts – “From 2012-2018 the current real estate boom that is being fueled by hot asian money will continue to push people into the suburbs.”

“My predictions
-Real Estate in BC will continue to skyrocket until 2015 …
-Mass exodus of Vancouverites being pushed into Maple Ridge, Pitt Meadows, Surrey, Langley
-Tale of two cities emerging after the tolls on Port Mann Bridge.
-The world will not end
-Hot asian money will continue to rule the market
-5% increase in real estate prices
From 2012-2018 the current real estate boom that is being fueled by hot asian money will continue to push people into the suburbs and exhurbs. I predict Chiliwack to be the winner for prices percentage wise.”
– FuturePorscheOwner at RETalks 20 Dec 2011 4:21am

Clearly the poster is a friend of the trend, with little imagination.
Given what is going on in other markets, it is arguably surprising that a price crash will surprise so many here in Vancouver.
– vreaa

Rob Carrick, G&M – “Don’t drink the housing market kool-aid”.

“Don’t drink the housing market kool-aid. The affordability gauges used by the banks – i.e., people who make money selling mortgages – are too slack. They let people buy more house than they can comfortably afford while meeting their savings obligations. If your mortgage and all your monthly debt payments would exceed 30 per cent of your monthly pretax income, then back off and keep saving. Worried that the price of houses will keep rising and you’ll never be able to afford to buy in? Won’t happen. When people like you are priced out of the market, the market must fall.” …
“Explore your inner renter (Generations X and Y edition). This is already starting to happen in the United States – young adults are postponing home ownership and instead renting for longer. Frankly, there’s a good argument for buying houses in U.S. cities because of rock-bottom prices. But young adults realize that mobility is an asset when looking for a job. Plus, they’re marrying later and often carrying big student loans. Renting makes sense in this context, as long as you’re saving the money you’d otherwise be spending as a homeowner.” …
“Explore your inner renter (Baby Boomer edition).Enough with property taxes and those never-ending maintenance costs, not to mention condo fees. If you’re a retiree selling the house where you raised your family, think about renting your next home instead of buying.”
– Rob Carrick, in ’12 ways to build wealth in 2012′, G&M, 22 Dec 2011

Wow. This is… sudden.
The implications of cohorts following this advice is a housing market crash.
– vreaa

RE Features In Story And Discussion Of Vancouver Execution Style Slaying – “I’m in business for myself. I know how hard it is to get ahead in this city doing it the legit way.”

“Vancouver police are poring over clues to try to figure out who wanted to execute a 38-year-old mother of four less than two weeks before Christmas.
Thuy Yen “Jenny” Vu was shot several times as she sat in her BMW SUV just after 3 p.m. Wednesday with her three-year-old son in the back seat.
Const. Lindsey Houghton said neither Vu, nor her husband, Stephen Michaelson, are known to police. Nor is Michaelson a suspect in the deadly shooting in front of the house the family shared in the 6400-block of Bruce Street.
“At this point detectives have told me it is far too early to speculate on whether this has any connections to gangs,” Houghton said.
“It is far too early to figure out the motive for this….detectives still have far more questions than they do answers.”
Vu and Michaelson bought the house in November 2010 for $1.11 million, property records show.
Vu is listed as a hair stylist and Michaelson as a businessman on the land title documents.
Houghton could not say what kind of business Michaelson is involved in.
Also in November 2010, Michaelson purchased an acreage in Rossland, B.C. for $468,000.”
– from ‘Husband not a suspect in BMW SUV shooting: Vancouver police’, by Kim Boland, Vancouver Sun, 16 Dec 2011

“What is the name of the business? I have been trying to find that out.”
– Kim Boland, the Vancouver Sun reporter, at her blog 19 Dec 2011 12:49am

“I have no doubt there must be some link to organized crime. I have heard she had involvement in grow-ops. But she does not have any charges.”
– Kim Boland at her blog 18 Dec 2011 11:31pm

—-
“Wow – Million dollar home, acreage in Rossland and an X5 among probably a lot more – shouldn’t be hard to figure this one out for the police. Likely a message for dad to pay up!”
– joe at Kim Boland’s blog, 15 Dec 2011 10:15pm

“Is there anything except for million dollar homes in Vancouver? And Beemers rule the lease market cuz Mercedes won’t play.”
– putmeincoach at Kim Boland’s blog, 15 Dec 2011 11:08pm

“Good luck finding a house in Vancouver that ISN’T a million dollars.. dumb comment.”
– Anonymous at Kim Boland’s blog, 16 Dec 2011 12:07pm

“Actually, it is not a dumb comment. Sure, the majority of homes in Vancouver are a Million+ but there ARE cheaper, less expensive places to live. The obvious point that the poster was making is that these are people of means, OR people who lived as though they were. Who knows what the truth is at this point. Hopefully the investigation is going well. Obviously there is a lot of information that the police find out that they don’t release to the public. So for now it’s just theories and speculation, AND common sense. I’m big on that.The theory (at this point) that there were loan sharks involved seems credible. More credible than the belief that all the people involved, including the victim, are completely innocent. Only one I know for sure is innocent is that little boy.”
– Common Sense at Kim Boland’s blog, 18 Dec 2011 11:39pm
—-

“No one deserves to die like that. [Posters] are right [to point that out]. But people are also trying to figure out why this terrible slaying happened. Police say it was targeted. So it is understandable why people speculate.”
– Kim Boland at her blog, 18 Dec 2011 11:40pm

“I don’t know Jenny or her husband so I won’t pretend to know all the facts. That said I won’t stick my head in the sand and pretend like this story sounds innocent.
Jenny apparently was a ‘stay at home’ mom for the past years, spending her time at yoga; and her husband is a ‘businessman’. She apparently owned a home in Burnaby, and they bought $1.5 million dollars worth of real estate in one month. Credit is fairly cheap, but you would have to be earning quite the income to make those moves.
Considering they were only on one income with 4 kids, the story tends to sound all too familiar. Pretty you’d girl; loves the good life. Enjoys the ‘finer’ things in life; is attracted to the bad boy who can provide her that fast luxurious lifestyle. Young meat head is attracted to the hot toys and women he attracts with money. After not too long he’s in too deep or addicted to the lifestyle. Some people in this city rack up huge debt trying to keep up with the ‘Bacon’s’. Others say f’k the 9-5 and light up a grow show or two because working a crappy job and or being broke in this city is harsh and gets you no love.
I’m in business for myself I know how hard it is to get ahead in this city doing it the legit way. I know how hard it is to get approved for a mortgage these days after they tightened the lending rules.
Am I jealous? To be honest sure sometimes when you see these people buying all that expensive stuff, traveling, partying, seemingly with no cares in the world, I’m only human. I’m not jealous of the fact that these things usually catch up to people. I’m not jealous of constantly having to look over your shoulder. I’m not jealous of the pain her family must endure for the rest of their lives. I hope the kids get good care, and can adjust to the reality of life with no mom. No kid deserves that.”
– YVRGOODTIMES at Kim Boland’s blog, 20 Dec 2011 2:11am
——–

Even though we don’t yet know all the facts behind this ghastly event, the discussion it has already induced is noteworthy. These thoughts about the discussion as much as the incident itself:

“I’m in business for myself. I know how hard it is to get ahead in this city doing it the legit way.”
There will always be those who chase the quick buck.
But in Vancouver today, things are arguably more extreme than during typical times: almost a decade of too-easy money has subverted our society’s principles and beliefs regarding honest work and honest pay. A frontier mentality appears to prevail.
Honest pay is too meagre; quick profits from whatever source are too attractive. Citizens who work hard for conventional wages are considered suckers. People are drawn to fast-and-loose endeavours, be they legal or not. Property flipping; Grow ops; Loan sharking; Gambling; Smuggling; Stock trading…. anything where the potential rewards are disproportionally large compared to the labour involved.
Our economy has been  juiced by massive amounts of debt, with abnormally large amounts of  money released into the economy through the speculative mania in housing. This has caused alterations in behaviour that are deleterious for the long term health of our society.
The misallocation of resources is the resultant central crime of the bubble; we should all rail against the speculative mania for that reason.
– vreaa

Returning Expat Finds Vancouver Pricing “Nuts” – “I found the prices incredible – more expensive per square foot than central London!”

“Hi – for what it’s worth, I’m a Canadian citizen who moved to Europe at the age of 15 with his parents and I’m now looking to come back (with wife and child) to YVR. I grew up in West Van and I found the prices incredible when I paid a visit in April 11 – more expensive per square foot than central London!
If Europe’s experience is anything to go by, you *might* see 15%-20% drop (mostly in marginal areas) over the next 18 months followed by a subsequent slow decline of 2-5% per year. But of course, the Canadian economy is in nothing like the same mess as the US/UK, so… maybe not.
Can anyone recommend decent areas without nuts pricing on the North Shore, or am I just being totally ignorant?
With thanks –
Craig Sterling”
– Craig at VREAA 21 Dec 2011 4:18am

We’d recommend many areas, but only after prices collapse. Sometime later this decade; perhaps in a few years time. Prices will end up dropping over 50% by the trough; across the board. No sector will be immune, despite what the various cheerleaders tell you.
And even after the 50%+ drop, Vancouver RE will still be richly priced by both global and Canadian standards. – vreaa

“I’m STILL getting emails from clients who believe the magic way to make money is to invest in real estate.”

“I’m STILL getting emails from clients who believe the magic way to make money is to invest in real estate. One client emailed just last week and asked what I thought about her buying a property in some small-town in Ontario, renovating it and flipping it. Um, what? Bearing in mind they currently “own” a principal residence in the Okanagan which I’m pretty sure they have ZERO equity in (they took out all the equity with a HELOC to finance their struggling business). But they still have this idea that if they just buy the right property and renovate it (with very little down, the DP will come from RRSPs) it will be a quick flip and they’ll be in the $$$. It took me days to figure out how to write a tactful reply which didn’t include phrases like “are you out of your mind?” and “what have you been smoking?”
– pricedoutfornow at VREAA 20 Dec 2011 9:46am

Cooling – Richmond Lot: Ask Price $1.3M May 2011, Sale Price $790K; Westside Sales Drop 40% YOY – “Buyers are disappearing.”

Garth Turner reports on the Vancouver market turning cold [at greaterfool.ca 16 Dec 2011]:
In May a 66-by-160 lot in a hot neighbourhood in Richmond (if such a thing exists) went to market for $1.3 million. Had it been listed two months earlier, I heard, it would have been snapped by some horny Asian for $1.5. But, too bad. The moment passed. A month later is was $1.1 million, then an even million and finally $900,000. It sold this week for $790,000.
“It goes to show,” says one of my BC insiders, “that in a buyer’s market, sellers have to get their price to where the buyers are willing to pay.  When buyers are few, and sellers are many, you can see prices fall quickly and each new low sets the bar.”
Speaking of Denial City, seems sales on the steamy west side are cooling fast, and will be 40% below year-ago levels by the end of the month. Plus, January will start with more inventory on the market than at any time in three years (nine months now in Richmond). “Buyers are disappearing,” says Deep Listing.

We are setting up for an interesting spring of 2012. – vreaa

Merril Lynch; Scotia Bank – Canadian Housing Boom Overextended

“Merrill Lynch warned Monday that prices could correct by as much as 10 per cent in the next two years in Canada because of weakness in the economy, expressing particular concern about Toronto’s condo market.”
…
“Canada’s housing boom is among the most long-lived in the Western world at 13 years, but the next few years could chip away at the gains that have seen the average house increase in value by 85 per cent since 1998.
In a report released Tuesday that said the Canadian housing market was the strongest in the developed world in the third quarter, Bank of Nova Scotia economists said “the slow pace of the global economic recovery, intensifying sovereign debt concerns, weak consumer confidence and high unemployment all continue to weigh on residential property markets” in 10 countries it tracks.”
…
– from ‘Canada’s housing boom among longest in Western world’, G&M, 20 Dec 2011

Both institutions are overly optimistic in their guarded expressions of caution. – vreaa

“When I asked him what is he going to do when they raise the rate, he said “I am just gonna sell the place, and I will get the money back anyway.”

“One of my younger colleagues can barely keeps up with his mortgage at 3.85%.
When I asked him what is he going to do when they raise the rate, he said “I am just gonna sell the place, and I will get the money back anyway”.
This make me think, how many Canadian homeowners have this idea in mind? And when this actually happens, what would be the magnitude of listing waves?”
– azenis at RETalks 15 Dec 2011 6:26pm

“For it to make sense for me to buy, prices would have to drop a lot more than 15%.”

“I live on the west side of Vancouver and rent a 700sqr ft apartment for $1050 a month. For it to make sense for me to buy a condo, with ever increasing monthly fees, property taxes, random special assessments, and a good possibility that it will leak (like so many others), prices would have to drop a lot more than 15%.”
– Tim at greaterfool.ca 18 Dec 2011 at 9:40 pm

“I know, I know; I’m unrealistic expecting more than a 10% correction”

“I’ve had to endure drivel from people I work with in Vancouver who:
1. bought a house 5 years ago in just outside Shaughnessy for $650k which is now worth… wait for it… $2 million
2. a house in East Van. which is ~90 years old and bought 4 years ago for ~270k is now worth ~$800k…
… I know, I know, I’m unrealistic expecting more than a 10 % correction”
– atomic at greaterfool.ca 17 Dec 2011 5:44am

“Affordable Housing Plan” – Apartment The Size Of Two Parking Spaces For $850 Rent Per Month

Life in an apartment the size of a double parking space will be on full display today as the public gets its first inside look at the mini-living going on at the restored Burns Block building on West Hastings Street in Vancouver.
Boasting 30 micro units described as the smallest rental units in Canada by developer Reliance Properties and partner ITC Construction Group, the Burns building is part of the city’s ongoing affordable housing strategy.
Coun. Kerry Jang told The Province Sunday that the low-rent suites – which range in size from 226 square feet to 291 square feet and rent for an average of $850 a month – were designed with modest income earners in mind.
“What we are trying to do as part of the affordable housing plan and housing in general is to provide a range of housing,” he said. “Because right now, if you rent a place, it’s over $1,000 and that’s beyond people who are making $10 or $12 an hour.”
The city contributed a $50,000 grant to fix the face of the 100-year-old heritage building, $144,000 in property-tax reductions and 62,000 square feet in heritage bonus density.
…
“It’s for folks who need to work in Vancouver but can’t afford to live here,” Jang added. “They can live in Vancouver, go to work and save money on cars and all that kind of stuff because they don’t have to drive in so it makes a big difference.”
…
Wendy Pederson, researcher and organizer for the Carnegie Community Action Project, decried the renovation of the old hotel as gentrification, adding people living on welfare or on old age pensions won’t be able to afford the rents even at $850.
“In my view, it’s a crime that the last housing before homelessness is being converted into micro-lofts,” she said.
“Those rooms used to rent at welfare and old age pension rates, and now the Downtown Eastside is being gentrified by the upscaling of these hotels. It’s upscale by our standards,” she said, adding the pre-reno rents were around $375.
“We don’t have enough social housing, and we’re losing our [single-room occupancy] hotels to upscaling like the Burns Block.
“The city is ignoring gentrification as a cause of homelessness,” said Pederson. “Many residents in a very full hotel were evicted [in 2006] by the owner who wanted to empty his building.” … “That owner made $1 million flipping it,” she said.
– from ‘Living small on West Hastings’, The Province, 19 Dec 2011 [hat-tip jesse]

As we’ve said previously: “Calls for ‘affordable’ new-build housing are almost all band-aid solutions. They largely result in relatively low quality product at proportionally roughly the same elevated costs as all other local properties.” [16 Dec 2011] – vreaa

Sign Of The Times – 58 Year Old Man Locks Himself Into 30 Year Mortgage

Federal Reserve Chairman Ben Bernanke, who turned 58 this week, refinanced his mortgage in September, less than two years after the last time he refinanced, according to a report in the Wall Street Journal, citing sources and public records.
Bernanke owes $672,000 on his house, about 80 percent of its appraised value. The mortgage has a 30-year term, implying that repayments are fixed and that it likely carries an interest rate of about 4 percent.
…
What we have here is a man who was approaching 58 saddling himself with a debt that will have to be paid down over 30 years, at the end of which time he will be a hopefully sturdy 87-year-old.
That is not the way in which mortgages were originally intended to be used. In the now quaint days of the 1950s and 60s, people actually took out mortgages with the idea that some day they would retire them as opposed to using them as a sort of permanent source of leverage. Typically borrowers would time their mortgages so that it would be retired shortly before they did, thus leaving them better able to cope with reduced retirement income.
In fact the Chairman is not too far off the age at which you’d expect him to be taking out a reverse mortgage, one which pays out monthly in exchange for a lump sum repayment on death.
– excerpted from ‘Bernanke’s 30-year mortgage a sign of the times’, Financial Post, 16 Dec 2011

Country Comparison Charts – Canadian RE Overvalued by 35% cf Income, 70% cf Rents

– charts from ‘Global House Price Monitor’ by the International Monetary Fund’s Prakash Loungani, 12 Dec 2011
[Similar data to that in the recent article in ‘The Economist’ 26 Nov 2011]

Further:
“An econometric model of the determinants of house prices… explains house price growth based on several short-run momentum factors, such as growth in incomes, asset prices and population, and long-run factors, such as the house price to income ratio. The difference between house prices and those predicted on the basis on these ‘fundamental’ factors gives an indication of whether there is room to fall. The results from this exercise show that in many countries the declines in house prices over the past five years (the ‘actual’) are close to, or even exceed, what was predicted by the model. But for many countries, house prices are still resisting the predictions of the model.”

“Bolus Of Hope” [‘Vancouver RE-Verse’; Found Poem]

For those who have experienced
a failed startup,
each week it’s like watching
a perpetual photocopy of reality,
all in the name of perseverance
and “stick-to-it-edness”,
aided by a bolus of hope.

How many homeowners have awoken
covered in sweat at 4am
and realised,
as clear as day,
they are beyond any hope of recouping their investments.
That’s a sobering moment, and,
perhaps in a fit of irony,
is more often than not elicited
in a dream-like state.

– jesse, at VREAA 17 Nov 2011

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

“I have spent the last week in Phoenix and what an incredible eye opening time it has been.”

“I have spent the last week in Phoenix and what an incredible eye opening time it has been. Single family detached one story home built approx 2004, 3 bedroom, 2 bathrooms, nice area (Gilbert, AZ) approx 45-55 minute commute during rush hour to any point in Phoenix… $140,000.
Upon talking to many people and explaining what is going on in Vancouver the resounded response has been “every bubble bursts”… Luckily I’ve had the company of couples of varying ages from their mid 30s to late 60s, what an eye opener. Also was given a nice tour of Phoenix by a farmer who still owns his 20 acres that his Grandfather bought and has seen the entire area change and develop over time. I wonder if there will be an equivalent person in Vancouver to do the same in a few years…is this bubble’s skin so thick it is a balloon? I suppose when a balloon bursts the sound is much louder.”
– Aldus Huxtable, via e-mail to vreaa, 14 Dec 2011

And while we’re talking about the USA, these charts from Seattle Bubble blog, 14 Dec 2011 and 15 Dec 2011. Thanks to jesse for the links:

Price Drops Will Result From Market Forces, Not Policy Change

“If we all agree that lowering the value of current homes is not a realistic policy option, then it’s critical we get more creative in order to increase housing affordability.”
– Daniel Fontaine, Editorial, 24HRS, 14 Dec 2011. Mr Fontaine is “former Chief of Staff to Vancouver Mayor Sam Sullivan”
Hat-tip for the above link to ‘4SlicesofCheese’, who adds:
“No, we don’t all agree, that’s the problem right there. Policies like mortgage relaxation led us here, why should we not use policies to address this as well?”

Policy makers are very reluctant to take any steps that lead towards price reductions:

“At a public debate, both Robertson and NPA leader Suzanne Anton said neither would put limits on foreign investment, which many observers believe is behind skyrocketing real estate prices in Vancouver.”
– from 24hours, 13 Nov 2011

“…government’s role should be to modulate severe market swings and not precipitate them. Shocking the market has potential to wreak havoc on households, especially those who may be over-leveraged or recent buyers.”
– Sandy Garossino, independent candidate for City Council in recent elections, VREAA, 11 Nov 2011

“This is a tough one. As a home-owner I do not want my home to drop too much in value but that said a correction is definitely needed in our city regarding real estate prices.”
– Joe Carangi, NPA City Council candidate, VREAA, 2 Nov 2011

“People who already own homes would be unfairly hurt by a policy that would lead to a drop in real-estate values. If the current homeowner has taken out a mortgage for say 90% of the worth of their home, and values then drop by 10%, the homeowner has lost 100% of her or his equity. I am strongly supportive of policies that would bring new housing to market at below market cost.”
– Tim Louis, COPE City Council candidate, at VREAA, 11 Nov 2011

—
The longer speculative bubbles remain inflated, the greater the number of citizens who get on board before the inevitable crash.
Humane policy makers with a Martian perspective (complete outsiders) wouldn’t hesitate to deflate the bubble instantly, to stop it doing further damage. To do that, they’d simply have to cut off the fuel supply (cheap government backed financing). The bubble would pop; prices would crash; citizens could then get on with sorting out a sensible housing policy amidst the sensibly priced rubble. Vancouver wouldn’t be bothered by another speculative mania in housing for a generation.
In the real world, policy makers shuffle around woefully inadequate ideas aimed at, they believe, decreasing the overall pain.
Calls for ‘affordable’ new-build housing are almost all band-aid solutions. They largely would result in relatively low quality product at proportionally roughly the same elevated costs as all other local properties. Those buying into such schemes would be the most vulnerable to the coming inevitable price deflation.
In the grand scheme of things, though, it doesn’t really make much difference to the outcome whether policy makers step aside or shuffle around paper while it all plays out. As they’re paid to do stuff, we suspect we’ll all be shown a good deal of shuffling.
– vreaa

Vancouver raises rates for water, sewer, garbage

“Vancouver city council has approved rate hikes for some essential services.
City residents will pay almost 10 per cent more for sewer and water services next year, and 5.7 per cent more for garbage disposal.
In total, the average taxpayer will pay between $80 and $85 more in 2012.
Mayor Gregor Robertson said the increases are at least partly due to decisions made years ago.
“Unfortunately, past councils did not make the investments in infrastructure in water or sewer or landfill, and that means we’re having to make up ground now,” Robertson said after Tuesday’s council meeting.”
– Vancouver Sun, 14 Dec 2011

Headline inflation: 2%
Wage inflation: pretty much flat.
– vreaa

It’s The Locals! – “All my friends and everyone I work with has bought a house. None of them are Chinese.”

“All my friends and everyone I work with has bought a house. None of them are Chinese. You people have to get out more.”
– WhatProblem at vancouvercondo.info 12 Dec 2011 3:45pm

“We are in our late 20s, take home 120k a year in safe gov’t jobs, and have absolutely no reason to get into this market right now.”

“The wife and I are in our late 20s, take home 120k a year in safe gov’t jobs, and have absolutely no reason to get into this market right now. The market here in Vancouver is silly, and renting 1/2 a house in North Delta that is walking distance from the wife’s office for $800 a month inclusive of all bills, wouldn’t even match the condo fees/property taxes of a 1000 sq/f box down the road.
Over the last year since coming back to Canada from an extended expat stint in Asia, I have def. noticed condos dropping in price, particularly in New West, Coquitlam, and parts of Burnaby.
Interestingly, a contact of mine who owns one of the larger realty companies in West Van, recently divested his ownership, sold his West Van house/sports car, packed the family up, and left for SoCal.
The smart money is leaving. My money is going into a TFSA/RRSP/growing a 3rd income from a small biz.”
– Zeus at greaterfool.ca 9 Dec 2011 9:51pm

Foreigner On Visitor Visa Buys House – 35% Down, 65% Canadian Bank Financing

“Have any [of your readers] ever seen any articles regarding “foreigner mortgage”?
Here is the story – 
One day I attended a lunch in a friend’s house; I did not realize there were her other friends coming over from China and visiting the same time.  During the lunch, our topic was buying house in Vancouver – The friend who was from China was looking for to buy a 2M house and it did not surprise me at all since I have been hearing the story about those wealthy buyer.  What surprised me was the mortgage.  This friend of mine whom is on the visitor visa and that means not yet a Canadian citizen nor Residence.  In the first place, I thought she bought her house in 100% cash since she has no any credit or nothing in Vancouver…  Till, she mentioned to me that she feels that cost of living in Vancouver is very high and I started to asked her what made her think this way; she said the hydro bill, the tax and the mortgage fee…etc.  I was kind of in shocked when I hear “mortgage”.  She later told that she has a 65% loan with the local bank and she has only paid 35% down.  She said she has a business in China and the bank required her to provide some documents from her business in China then she got the mortgage from the Canadian bank.  I had my month wide open – – believe or not.
My question is – is the foreigner really buying the house with whole cash? or it’s sooner going to be Canadian bank’s debt?
I wish someone could provide some comments or stories if they do know anything….. I have been sitting on my cash and don’t want to put them in the bubble market.”
-‘Sab’ via e-mail to VREAA 11 Mar 2011

Can any readers verify whether the described financing scenario is occurring in the Vancouver market?
Further: On an obliquely related note: We recently spoke to a couple with a modest annual income who had used a cash windfall as a 30% down-payment on a BC property. They were puzzled, given the size of their down-payment, that they’d had to undergo such prolonged scrutiny by the lending bank. The degree of scrutiny was likely because their deposit was too high for the mortgage to be CMHC insured. If they’d had only 10% down, it likely would have been quicker and easier for them to ‘qualify’. – vreaa.

PostCardsFromTheBlastRadius #14 – Windsor – In the ‘RustBelt’ The RE Deals are…. “FingerLickin’Good”‏

Tecumseh Road, Windsor, Ontario, Summer 2011
—–
Photos and commentary for the ‘BlastRadius’ series by ‘Nemesis’.
[Images Ⓒ​2011 ‘Nemesis’ – All Rights Reserved]

“I know a couple in Lausanne, Switzerland, whose combined income is certainly over $500k. They rent. Many Swiss cities are renter cities.”

“I know a couple in Lausanne, Switzerland, whose combined income is certainly over $500k. They rent. Many Swiss cities are renter cities.” – Jeff Murdock at VREAA 9 Dec 2011 8:19am
—–

“The Swiss have a very well balanced real estate system. They live in a country with limited land and thus, the ownership and use of land is somewhat regulated and it is an asset to be consumed and not “invested in” or traded. This creates a very very stable market. You’ll see that the value of Swiss real estate has barely gone up in the past 20 years which is not so bad in a country where there has been almost no inflation. However, here are some items that keep their real estate in check.
1.) 80% of people rent. It is an asset to be consumed and it’s value is derived from the rent.
2.) Rent is a factor of property value/interest rates and is controlled and regulated.
3.) 100% of the maintenance risk lies with the tenants. Costs are allocated throughout the year in addition to the base regulated rent. In the event of a major item – it is split up between the tenants.
4.) If you actually own, you can deduct your interest – however- even if you have no mortgage (and thus no deduction) you also have an income inclusion which represents hypothetical rental income to yourself. You have to impute rent at say 4% of the property value each year. This is added to your income and you pay income tax on it.
5.) Foreign ownership restrictions are everywhere. And Foreigners have restrictions on the real estate that they dispose and they only allowed to sell for a gain in restricted circumstances.
—
A few other Swiss things to note. The pensions are very very rich and well funded. Up to 30% of your income each year goes into the pension system. Thus – pension funds are massive and retired people are very very wealthy. Where does the pension money go? To own the real estate buildings that people rent – since this is guaranteed and almost riskless cash flow (cash flow is risk reduced because rents are hardwired to property value and the maintenance and repair costs flow to tenants).
—
Another item is that since all the properties are owned by pension funds and insurance companies, you will never be asked to move – – in fact – most Swiss never move. It is too expensive (when you leave – you must return the property in the original condition you received it – no such thing as normal wear and tear. Plus – your movers are not cheap either – over 100/hour plus equipment rental costs).
—
All this means that Real Estate fulfills its function of providing housing stock as a consumable. Cities are priced in a rational way and so is real estate. Owning v. renting is not really much different in terms of risk. Vancouver could learn a lot from this. I am a strong advocate of implementing some type of limited foreign ownership restriction. Where you are dealing with a limited resource – you need to have the resource used for the benefit of the operation of the city – and not some type of traded commodity.”
– ZRH2YVR at VREAA 10 Dec 2011 8:11pm
—–

“I thought it was funny that they make $500,000 a year and still have to rent – mega lol”
– tmda commenting at RETalks 10 Dec 2011 7:53am on Jeff Murdock’s comment above
—–

Thanks to ZRH2YVR for the description of the very sensible Swiss system.
In Vancouver we do things very differently, of course. Ownership culture is entrenched. The speculative mania has caused each and every property to be viewed at least partly as a financial instrument.
– vreaa

Very Full House – Recent Bankruptcy; Borrowed Down-Payments; HELOC Spent On More RE; Cash Flow Negative Rental; 2nd Mortgage On Friends’ Property; “Throwing Away Money” On Rent; “Would Like A Place To Call Home”.

“We sold our big, two story, 4 bed Kelowna home. We made a profit of only $30K after selling for $100,000 lower than its highest appraisal value just before the 2008 drop. Unfortunately we [had] refinanced and spent the equity on, you guessed it RE!!!
We moved closer to Vancouver not by choice, but for job transfer. We are renting a house for $1900/mth. My husband hates it and feels we are throwing money away!! If we were getting this place cheap, then perhaps it would be ok and we could sock away the savings!!!
We know there will be a market correction, but we are still looking to buy something in the $500,000 range-rancher or something that will be marketable in future! We only have 10% down, but payments will be less than $1900/mth. We have to borrow the 10% down from family (good rate/pymt plan) since we declared bankruptcy last year. Long story but got caught in the real estate speculation hype and lost everything! Well not everything, we have a condo in Kelowna we can’t sell, but at least it is rented!! Mtg is $312K, prop value $300K. Cash flow is negative marginally. We also lent money from our home equity during the boom, when we refinanced. They have defaulted and have not paid us back. We hold a 2nd mtg on their property in St Catharine’s which is not worth much now!!!
Does it make sense to buy? We hope to be here 5 yrs. We are in Langley where we feel any correction would be much lower than in the city. We would be happy to break even and at least enjoy our own place for a bit. We have kids that would like a place to call home!!”
– Sarah’s story, as told by e-mail to Garth Turner and featured at greaterfool.ca 11 Dec 2011

Stop them before they borrow again!
Shouldn’t these guys by now have signed a “keep me out of the casino” voluntary exclusion request?
Just to read the story is difficult and exhausting; the living of it must be mind-blowingly hectic.
Remember when people would buy or rent, and then get on with their lives?
Speculative manias offer people fertile terrain in which to screw themselves up.
– vreaa

“Sounds idyllic, living in a smaller centre with your cashed-in RE wealth but it’s not for anyone who is going to get older and require the care of a health care specialist.”

“My parents left a bigger city for a smaller town in retirement, and took their own parents with them (who were in their 80s). They soon realized that this was a big mistake, because health care in the smaller centres is just not adequate. Sure, you can see a family doctor no problem, but when Grandpa has a heart attack and needs to see a cardiologist regularly, or Grandma is going blind and needs an ophthalmologist, suddenly it becomes clear that driving 2 hours over snowy mountains to get them the care they need is just not feasible. Sounds idyllic, living in a smaller centre with your cashed-in RE wealth but it’s not for anyone who is going to get older and require the care of a health care specialist. And I sure hope my parents leave their smaller city before they get too old (which they are now seriously considering, giving their experiences with my grandparents).”
– pricedoutfornow at VREAA 25 Nov 2011 10:43am

Kelowna Spec House Sells For 60%-Off 2009 Asking Price

“The Kelowna area is seeing first hand the shock and awe from the south. Around the corner from me a spec home was built and listed in 2009 (or there abouts) and finally SOLD. Original price for this semi-lakeshore was $1,300,000 and this past week sold for the low low price of $511,000.”
– View at greaterfool.ca 9 Dec 2011 10:14pm

People Moving To Vancouver

“10-12 health care professionals in my office arriving to Vancouver in the past two years from Vancouver Island, Alberta, UK, Australia, and Denmark. Far more arriving than leaving in my line of work – others might have different experience.”
– eyesthebye at RETalks 20 Oct 2011 8:49am

“I met a couple of people last night who had recently moved here. One was from Montreal, one Australia. Both in their early 20s. Neither of them are what you would call skilled, one a labourer and the other just got a job at a sandwich joint downtown; but they were both set on spending some time in Vancouver.
I asked them both what brought them here, the Montrealer said he wanted to stay in Canada and the winters back home were a bit much. He had been here 2 months and he said he already met some great friends and thinks Vancouver is one of the friendliest big cities he has ever been to (he recently travelled Australia for a year and Europe for 6 months).
The Aussi had originally planned to head around Canada for a year spending 3-4 months in a few cities, but after 2 weeks in Vancouver she is looking for an apartment and plans to spend her full year here.
Neither of these people will replace the people in the prior anecdote that are leaving, and they may not even be permanent, but I was pretty surprised to hear how highly they spoke of Vancouver compared to their hometowns of Montreal and Sidney.”
– davers at VREAA 9 Dec 2011 12:26pm

“We know a young married couple that is moving to Vancouver from Victoria. He’s an IT manager, she works in admin. They have been checking out condos in Vancouver. They think renting is a waste of money so they are looking to buy.”
– Victoria Gal at VREAA 11 Dec 2011 12:00am

“Yesterday I sat in Kitts coffee and listened too a realtor go thru his BS to an unsuspecting female.”

“Yesterday I sat in Kitts coffee (Vancouver) and listened too a realtor go thru his BS to an unsuspecting female.
She had obviously just sold her place and he talked her into a $1.2m offer on a place just off W. 4TH.
They were going for a second viewing on Sunday, and making a “strong” offer after that.
I felt very sorry for her!”
– Sanddancer at greaterfool.ca 10 Dec 2011 10:50am

“Three of my friends are leaving the city, all are professionals making decent money, two of them are leaving the country, one of them is moving to another province. There is a good chance I’ll be leaving in the first half of 2012, and I’ll be selling my property when I leave.”

“Three of my friends are leaving the city. One has already left in the spring, another has left just 2 weeks ago and third is leaving in about 1 month. All 3 are professionals making decent money, 2 of them are leaving the country, one of them is moving to another province. I guess one good thing is that they create job openings for other professionals. There is a good chance I’ll be leaving the country also in the first half of 2012, and i’ll be selling my property when i leave. Not sure how this compares to overall vancouver immigration statistics but I just wanted to throw these anecdotes out there.”
– RENoob at RETalks 19 Oct 2011 3:22pm

“No offense but who cares? People leave cities all the time and more people move in. End of story.”
– vanreal at RE Talks Oct 19, 2011 3:30 pm

Anecdotes about fine young skilled educated professionals leaving are vastly over-represented by sour renters.
Anecdotes about fine young skilled educated professionals arriving are vastly under-represented by sour renters.
– eyesthebye Oct 20, 2011 6:21 am

We look to post both sorts of anecdotes here — but it’s the former type that appear in abundance. We’d like to post more of the latter, please send along any stories of “fine young skilled educated professionals arriving” (and their circumstances), and we’ll post them. – vreaa

The Disappearing Vancouver SFH?

Regular reader and commenter ‘formula1’ has pointed out an interesting statistic: that of the apparently fast disappearing SFH in the City of Vancouver.

(from a table in ‘Metro Vancouver Housing Book’, metrovancouver.org, April 2011 [pdf])

formula1 writes (at VREAA 9 Dec 2011 9:30am and 4:40pm):
“If you want an explanation of the price increases in detached the last 10 years you need look no further than the loss of supply.
We were at 67K in 1991, 65K in 1996, 65K in 2001 and 48K in 2006 – so the majority of this 20K loss happened in just 5 years. So here we are 5 years removed from the last census. If the trend holds we’re now at around 30K detached…a loss of 60% since 1991.
Kinda puts a kink in detached housing crash plans.” …
“The demand for a SFH is alive and well. The supply is on life support.

This is an interesting claim, let’s look at the figures.
A drop in detached SFHs in Vancouver from 65,390 to 48,365 between 2001 and 2006. That’s a loss of 17,025 SFHs, or 26% of the existing SFHs, or one in every FOUR SFHs, in just 5 years!! Where did all those houses go?

We find this number remarkable. If it is indeed true, we’d have to address the implications, as formula1 points out. But the numbers have what researchers call questionable ‘face validity’, meaning that, just on the face of it, it’s a figure we find we want to question. Did Vancouver really lose one in every four SFHs over 5 years? Part of our reason for asking for verification of the data is that, in our recollection of watching SFHs destroyed between 2001 and 2006, almost every time one went down one or two new SFHs seemed to rise in it’s place. Sure, some were levelled for townhome or condo developments, but surely not a total of one in every four?

We’d ask readers to help clarify this matter.

Firstly, is there anybody who can shed light on the data table or source? There is a footnote to the table in the report regarding reclassification of certain dwelling types between 2001 and 2006. Is the apparent change in SFH numbers simply in part a classification change?

Secondly, did any of you out there actually see these 17,025 SFHs disappear? Is this just something that I missed? Sure I’ve seen some go, but 17,025?? Let’s collect a rough inventory of the SFHs in Vancouver that were knocked down to make way for multi-occupant dwellings. Something like ‘2004: ABC block XYZ Avenue; 80 SFHs became EFG condos (or highway, or whatever)’. It’ll be most efficient to first focus on places where this happened in large swatches. We’ll ignore SFHs that were knocked down to be replaced by a single SFH, but, on the other side of the ledger, let’s take note of SFHs that were knocked down to be replaced by two or more SFHs (contributing to a rise in the number of SFHs). Post the observed data as comments and, if it turns out to be necessary, we’ll collate later into a separate table.

Thirdly, we thank ‘formula1’ for sparking this exercise. If the number of SFHs are dropping at a rate of 25% every five years, we need to consider this effect on the whole market. ‘formula1’ does commit a logical error in assuming that the 2001-2006 trend has continued 2006-2011 and that “..we’re now at around 30K”. That’d mean that more than one in every two SFHs had disappeared in the last 10 years, a claim that is very hard to believe.

So, are SFHs indeed disappearing at a remarkable rate in the City of Vancouver?
Please shed light on this, readers.

Renting In Vancouver – “…Unfold a tale to harrow up thy soul…”

This from Vesta at VREAA, 9 Dec 2011 10:01pm–

“Two anecdotes from the last few days. (I know some of you don’t believe in anecdotal evidence. Being a writer, I believe in it more than I believe in statistics.) Warning: perhaps inappropriate humour below. As I mentioned in earlier posts, I had looked for rental housing here for 3 months this summer. Finally thought I’d found someplace decent. Well, in the last 5 weeks there have been two sewer backups that flooded the basement. Turns out that there were sewer backups last year here too (thank you for that info, previous tenants). Funny thing is, I’d specifically asked the property manager if the house had ever had “water problems.” She’d said no. Nothing much had been done about these backups until this latest one, upon which I called City Hall (#311) and didn’t try to use my “inside voice.” That actually got the City out here, and after at first blaming the problem on indolent plumbers, they had to admit that there’s a rotted City pipe that’s actually part of the problem. But the City said it’s not a priority to fix it because it hasn’t “collapsed” yet. So I guess I can look forward to greeting Mr. Floatie in my basement sometime again in the near future. (Those of you who don’t know who Mr. Floatie is, he’s a revered figure in the BC capital.)”

“Renter Anecdote #2 just from this evening: Responsible young couple arrives in Vancouver. Hears that Balfour Properties manages good buildings. They interview at a building near Broadway and Macdonald (West Side). They think it’ll be great. Then they happen to run into a tenant who tells them that two doors down there was a meth-lab explosion where somebody died. They decided to keep looking and they’ve landed in a building that’s badly managed and has — wait for it — water problems.”

“What I don’t get sometimes about Vancouver, on the continuum of human civilization, is how architects and builders here have still not figured out how to defeat the (world-class) precipitation.”

“Okay, enough silliness. My next post: I’ve heard back from Stephen Harper about my concerns about the Vancouver mania! Stay tuned for some hilarious advice.”
—

BOC – “The elevated debt loads of the household sector require continued vigilance”; CTV – “You’ll be surprised how much you can actually borrow.”

The BOC has released a report [Financial System Review Dec 2011] that warns of the ‘growing vulnerability‘ resulting from ‘the rising indebtedness of Canadian households‘. Jesse has posted excerpts and commentary at Housing Analysis [Bank of Canada Blows the Alarm on Housing Again, 8 Dec 2011 (must read, all)].
Here’s jesse’s summary of the key points:
* Household balance sheets are likely to deteriorate further in coming months, and potentially years, with current controls in place.
* The Bank of Canada sees high house prices relative to incomes as unsustainable in the long run.
* OSFI is concerned about a disconnect between bank lending practices and long-term economic stability.
* Curbs on lending in terms of implementing risk management measures and countercyclical buffers on mortage loans are likely in the works.
* Usually announcements of further tightening of mortgage credit are announced in the first two months of the year to allow for proper implementation before the brunt of the peak of Canada’s spring selling season.

jesse concludes:
“If the Bank of Canada feels the need to lower interest rates in early 2012, this paper suggests that they are seriously considering additional curbs on mortgage lending to offset any additional monetary stimulus. This may mean, in particular overheated regional markets (like Vancouver’s), that OSFI will start enforcing measures more closely tied to regional price-income metrics. This means Vancouver homeowners may find credit availability tougher than other regions of the country.”
“This is an important report. I have been surmising that further curbs in mortgage lending are coming, but am still unsure what form they will take. It is still possible that curbs going forward will start delving into the low-ratio mortgage market — if prices do start falling banks who are lending on terms incompatible with government-backed mortgage insurance will create a significant liability for Her Majesty’s Government.”

The Vancouver RE speculative mania has been dependent on easy funding being available to locals, and we can’t see the market here tolerating any tightening very well. In fact, we’d anticipated that the bubble here would burst without any change in interest rates or mortgage rules, but simply out of a normal Ponzi-scheme stall. Any substantial tightening will precipitate and speed that outcome.
– vreaa

—-

While BOC warns, here in Vancouver, lending remains as loose as ever.
Remember this CTV piece from just last week?:

Linda Steele: At a combined income of $92K, Derek Atkinson and his wife could qualify for a $500K mortgage. [But Derek calculated it’d take them 5-6 years to save the necessary $25K down-payment.] This mortgage broker says the couple has several options:

Pauline Tonkin, Mortgage Broker: You have to have a minimum of 5% down to purchase a place. But you can borrow that… from an unsecured line of credit,.. you can have that gifted from a family member,.. you can take that from your RRSPs.
—

Male announcer: There are other options, but, of course, a lot of people really have their hearts set on owning their home..

Steele: Oh, I know… it’s like it’s a rite of passage.. that you’ve seen your parents do.. for sure. Here’s the deal, talk your options over with a mortgage broker, you might be surprised by what you can actually afford.

[The announcers’ gesticulations demonstrate the welcome ‘tangibility’ of RE. -ed.]
—
– from video newscast, ctvbc.ca, 1 Dec 2011.

Architect Bing Thom – “The city needs a strong vision to avoid becoming a tourist resort and a place to park money.”

“We rely on each other, so it’s really important for us all to engage in dialogue,” emphasizes Thom. Which is why – even though friends warn him that he may be alienating himself from potential clients – he has rallied publicly against the now-defunct bid for a casino at B.C. Place and the “god-awful” Canada Pavilion built in the city during the Olympics.
“Actually, I’m a very optimistic person, so it’s not that I go out of my way to be controversial,” he says with a boyish laugh, throwing up his hands. “It’s just that we have to earn democracy every day, which means caring about your community. And if you care, it’s your duty to speak up.”
Currently irking him is the “issue” of Metro Vancouver: to his mind, Vancouver needs to accept that there are no more boundaries between it and the wider metropolitan area, and to be thinking and acting regionally – especially in terms of economic development – as well as globally. “This little paradise is only here because we simply exported all the dirty stuff to the developing world such as polluting heavy industries and unwanted toxic wastes,” says Thom.
The city needs a “strong vision,” he believes, to avoid becoming “a tourist resort and a place to park money.” For example, as an architect who builds “homes – not commodities to be traded or vertical gated communities,” he applauds social-housing policies that mix people of different incomes in the same building. “It’s a way of building a real community,” says Thom, who lives nearby in a condo – that he designed himself – with his wife Bonnie, whom he met at high school in Kerrisdale.
– from ‘Lunch with Vancouver Architect Bing Thom’, BC Business, 7 Nov 2011

Land: Not Making Any More; Don’t Need To

How much of the earth’s surface would it take to provide each and every one of the 7 Billion people in the world a Vancouver-standard 33ft by 122ft lot?

Preposterous thought, right?
We’re packed into the planet so tight as it is, there certainly isn’t enough space on the globe to do it, so we’d have to be thinking of using the moon, and Mars, right?

One of the perennial bull arguments for never-ending future price strength is the old “They’re not making any more land” litany.
Well, apart from a few rare land reclamation examples, this is indeed correct. But it has also been correct through all prior RE booms and busts.

We’re so used to seeing images of busy streets, packed highways, towering condos, that we’re certain it’s all getting extremely crowded.

So, how much space would it take to provide every person on the planet with a standard lot?
Turns out it’d take a square of 1000 miles by 1000 miles, about the size of the square on the North American map below.

[*Note: Before civil engineers, town planners, and Habitat for Humanity folks chime in, let’s make it clear that we are not advocating for a community like this in the midwest. And we do realize that much of the world’s land is uninhabitable, etc, etc… but… you get the picture. – vreaa]

[hat-tip to Harper’s Index, where a line item about how the entire world’s population could be packed into Texas at the same density as NYC (10m by 10m each), got us to do the math above.]

Related posts:

“Vancouver has a finite amount of land. The prices are only ever going to go up.” – Douglas Coupland, 2000
VREAA 10 Dec 2012

Avocados and Christmas Trees – Vancouver Land Use; ALR; Food
VREAA 11 Dec 2012

Tsur Somerville – “My friend went up to Mayor Robertson and said, ‘Look, you can’t have the city more affordable AND the most wonderful, greatest place to live in at the same time. Those things are fundamentally incompatible.’ “

“And my friend went up to [Mayor] Robertson and said, ‘Look, you can’t have the city more affordable AND the most wonderful, greatest place to live in at the same time. Those things are fundamentally incompatible. All those things you’re going to do to make it the most wonderful, greatest, hippest place to be are all going to make it more expensive.'” …
“You want to promote Vancouver as a world-class city, and then you say to the world, don’t come here? It seems a little contradictory, don’t you think?”
– Tsur Somerville, UBC’s Sauder School of Business, as quoted in ‘We all want affordable housing – somewhere else’, Pete McMartin, Vancouver Sun 8 Dec 2011.

Further excerpts from the same article:

“Affordable housing is hot these days. Everyone wants it: no one knows how to get it. Robertson promised a task force on it. Some want a restriction on foreign ownership. They put the blame for rising prices at the well-shod feet of wealthy immigrants.
Statistical evidence propelling that argument is slim. Because transactions are often done through intermediaries, it’s hard to track foreign ownership sales. But the anecdotal evidence is eye-popping, and has a lot of people convinced foreign buyers are the main levers pushing up of house prices.
Somerville isn’t so sure. They may be a factor on Vancouver’s west side, he’d allow, but not in Surrey or Coquitlam.
…
Affordability means different things to different people.
One, if you own a house, you find yourself on the other side of the coin. You want house prices to rise. At the very least, you don’t want them to fall.
Two, it depends on who you want affordable housing for.
“To me,” Somerville said, “for someone wanting to live on the West Side but ending up in Burnaby because they can’t afford to buy on the West Side doesn’t strike me as a problem. But for a single mom who can’t find a decent place to raise her children, that’s a problem.”
—

Overall a pretty good piece. It brings some discussion of the contradictions inherent to the ‘affordability’ discussion into the mainstream press.
Somerville makes a good point with the promote/afford paradox comments, and we also agree with his comment regarding foreign buyers only affecting a relatively small sector of the market directly (and, we would add, the whole market indirectly).
We’d disagree with the Westside/Burnaby comment. Yes, we agree that the single mom in need of a decent place is a pressing problem, but so is the displaced professional. We believe that inflation of the market has had deleterious, albeit different, social effects at all price levels. For instance, there are many stories of overinflation of Westside (or Eastside) prices having caused surgeons and professors and business executives to avoid Vancouver: professionals who would have happily settled in Vancouver in moderately expensive homes have returned to Alberta, or the US; or left for Halifax or Ottawa; or not come here in the first place. You have to compare what they get here with what they get elsewhere: It’s not enough to say “Why not move to Burnaby, or White Rock ? – you can afford that”.
Finally, good for Pete McMartin to note that “if you own a house, you find yourself on the other side of the coin”. For those who would like to see policy changes that genuinely make housing broadly more ‘affordable’, this is a massive challenge: the vested interest of all Vancouver homeowners in ongoing excessively high home prices.
– vreaa

A Realtor Sells A House To Himself In North Vancouver – “The untangible feeling of pride of homeownership I feel is overwhelming and I strive to work harder and longer to make sure my clients achieve the same exciting, rewarding, and satisfying experience!”

“This past week I made the highly anticipated move from my condo to my first house on beautiful Cortell Street in North Vancouver. The new house is a very well maintained, updated character cottage from 1928, with extensive kitchen and bathroom renovations.

The Location is one of the finest in North Vancouver, in the quite and sunny southern pocket of Pemberton Heights, 2 blocks from Capilano Elementary with its coveted IB program. The yard is a gardener’s dream, landscaped and set up with an irrigation system and automatic lighting. The garage is tiny, but my truck just fits in it:). Some of my favourtite features are the classic hardwood floors; the fully renovated kitchen with Viking Gas Convection Stove; the loft with skylghts and views; the many species of birds that call the magical garden home; the protected Royal Walnut Tree in the front yard that I’m forbidden by the District of North Van to touch; the gas fireplace; an exposed brick wall; large south-facing wood deck; the antique claw-foot soaker tub; and the detailed door fixtures, built in cupboards, and wainscoting.

The windows, electrical, furnace, on-demand hot water supply, and roof have all been replaced in the past 6 years. The neighbourhood is a charming mix of cute and character, ultra modern, and brand new masterpieces. My west-side neighbour’s house is currently being gutted, there is a handsome new custom mansion across the street, and 2 brand new houses being built on Cortell, so for a Realtor who loves homes, I feel like a kid in a candy store:). Speaking of candy stores, 2 blocks away is the infamous Corner Store, a Pemberton Heights landmark serving up great coffee, sandwiches, groceries, and snacks in a warm neighbourhood environment.

I am thrilled to have the talented eye of Missy Kaniuk from Design Project in charge of the re-design of the main level & renovations to the basement! We are going to paint the wainscotting white, and the wall in the living room and entrance a tope/grey/olive tone, the office a tope green with white baseboards, and the bedroom white with a dark wood door and window trim, using paint by Benjamin Moore. The exterior will be white with blue or charcoal trim and ‘fire-truck red’ front door. In the long term, I want to refinish the floors a dark oak & install crisp white crown moulding in the bedroom, den, and bathroom!

The downstairs has a finished bathroom but the rest is exposed framing, washer/dryer, furnace, and a work shop. I am planning on renovating the basement so the walls and ceiling are finished with electric heat, pot lights, new washer/dryer, guest kitchenette, and a bedroom. With the help of a great plumber, electrician, framer, and Rona I hope to create an additional 650 sq ft of finished living space. The main challenge is the uneven floor which will require a skilled leveler (which I will be meeting on Saturday morning – Basement design details to come, stay tuned!).

Upstairs will be a guest room & office on the dreamy East side of the loft , and a TV room on the West Side to enjoy the city/ocean views.

Follow my blog for updates on the reno and life as a homeowner! The untangible feeling of pride of homeownership I feel is overwhelming and I strive to work harder and longer to make sure my clients achieve the same exciting, rewarding, and satisfying experience!”

– Realtor Stu Bell, at his blog stubell.com, 24 Nov 2011
[hat-tip to reader who e-mailed the link]

That ‘untangible feeling of pride’ is one factor contributing to the ‘ownership premium’, the amount that one is prepared to pay for a home over and above the cost of renting it. Stu clearly gets a great deal of pleasure out of owning this home, and his personal ‘ownership premium’ is likely substantial (whether he had to pay more than rent equivalent to purchase this house or not). One wouldn’t want to get into a bidding war with this kind of buyer for a home on which their heart was set.
The story is saved here as a fairly intense example of the current Vancouver love affair with home ownership. We believe that this infatuation is closely related to rising prices, and that the feelings will become less intense when prices are falling.
“Will you still need me?
“Will you still feed me?
“When I’m 64(%-of-the-price-you-bought-me-for)?”
– vreaa

[For another recent example of related emotions, see the TV announcer exchange at “Real Estate stories are always great, they never get tiring, you know?”]

“I am a Vancouver realtor, and here are a few facts. I would characterize 7.5% per annum as a relatively modest gain.”

“I am a Vancouver realtor, and here are a few facts:
1. Yes, a couple of specific areas such as Vancouver’s West Side and West Vancouver have enjoyed the effects of an infux of Chinese money and property values in those areas have risen dramatically in the past year or so. Is this sustainable? I don’t know but time will tell..
2. These localized surges in value are not representative of values in the overall Greater Vancouver real estate market.
3. According to the board, the Housing Price Index for all residential properties in Greater Vancouver shows an increase in value of 7.5%. I would characterize this as a modest gain when compared to recent gains in the areas listed in above [Vancouver East detached YOY +16.2% , Vancouver West detached YOY +23.4%].
4. The benchmark price of apartment (condo) properties – generally the type of properties that speculators buy – has risen 3.2% from Oct 2010. Again, quite a modest number compared with the numbers quoted above.
5. Listing a $4MM condo at $8MM or increasing a list price 78% after not selling does not make a bubble. It means the sellers and their realtors are idiots but it does not mean Vancouver is in a bubble.
6. Some areas of Vancouver’s real estate market are not just locally driven and local incomes are not the sole determinant of affordability. Like it or not, Vancouver is somewhat of a resort city to the world.
Vancouver’s real estate market may well follow global trends if the influx of Chinese buyers slows, or even reverses and if/when global economics deteriorate further. Only time will tell. However, the fact is Canada, and indeed Vancouver, is viewed as a relative safe haven by many international real estate buyers. Given European turmoil and USA economics vis-a-vis debt etc, I seems entirely possible that the Vancouver real estate market will continue to do relatively well. Where would you rather leave your money? Iran, China, or Vancouver? Not a tough choice.”
– local Vancouver realtor Shaun Kimmins, commenting on the article “House Won’t Sell? No Problem, Simply Raise the Price by 78%; It’s Different in Bizarro World”, at Mike Shedlock’s ‘Global Economic Trend Analysis’ blog, Nov 2011
[hat-tip Makaya]

Notes:
1. People have been conditioned to believe that 7.5% per annum gains in local RE are ‘relatively modest’.
2. There are alternatives to keeping your assets in “Iran, China, or Vancouver”.
3. What does it take for a “safe haven” to suddenly seem “unsafe”? Will off-shore investors keep buying, or sell, into falling prices?
4. “It means the sellers and their realtors are idiots but it does not mean Vancouver is in a bubble.” No, but it doesn’t mean that Vancouver is not in a bubble, either. Is that behaviour characteristic of typical market periods?
– vreaa

BC Business Magazine – ‘Housing Has Become Vancouver’s Toxic Asset’ – “As a result of this massive monetization of housing, the entire city’s social and economic scene is under intense pressure and is threatened with collapse.”

“Housing is becoming a toxic financial asset that threatens the entire region.
Before we get into it, let’s look at what a toxic asset is. In the U.S., sub-prime mortgages were a toxic asset because they were converted into financial instruments (derivatives) that had no real value, but were continuously traded for ever-increasing prices until, eventually, the banks that were promoting them couldn’t back them any more. We’re all familiar with the results – massive writedowns and a whopping recession that’s still playing out.
Vancouver is undergoing something similar… because it’s allowing housing to be bid ever higher and far beyond its intrinsic value. As a result of this massive monetization of housing, the entire city’s social and economic scene is under intense pressure and is threatened with collapse.”
…
“The houses had become just another abstract financial instrument.”
…
“Well, eventually, it has to stop. When houses are continually traded for ever higher prices, the entire balance of population and housing becomes extremely distorted. Eventually it reaches such a distortion that it breaks.
Throughout history, we have seen that asset inflation can’t go on forever. Either a giant crash comes eventually, or – if there’s some sense around – authorities step in to slowly deflate the bubble to prevent catastrophe.”
– excerpts from Tony Wanless’ commentary [BC Business, 2 Dec 2011] on Sandy Garossino’s 28 Dec 2011 blog post.

Short Film – “What Vancouver Means To Me”

Excerpts:

“Josh. This is me. I live in a basement suite in Vancouver, British Columbia. It’s actually connected to my parents’ house, but I have a separate entrance. And I’m looking for a new place on craigslist. Lots of people move to Vancouver to live in basement suites and small apartments. I don’t really know many people who were actually born here.”

“Rent is expensive in the city. Real Estate is also expensive. My ex-girlfriend’s boss just bought a new place downtown. I bet it’s really nice.”

“Vancouver is currently listed as one of the three most liveable cities in the world. I’m starting to think I wouldn’t mind trying the other two.”

What Vancouver Means to Me by Lewis Bennet and Mark Boucher

Bravo. A movie about bitter-sweet love. – vreaa
[Thanks to ‘E.G.’ for letting us all know about this.]