“My Brother-in-Law bought his house last year in Burnaby and tells me that it is now worth $300K more. Seriously, what is the point in actually working for a living in Vancouver?”

Posted on 3 December 2011 | 25 Comments

“I rent a house in Kits and the houses to my direct left and right sold the same week in July, both OVER asking. So, I’m not sure that Kits is dead, just yet. The house to my right sold $500K over asking and the house to my left sold just over asking at $2M. They bought that house in 2006 for $700K, so not a bad profit in 5 years. They plan to rent and buy back in after the correction. The family that made $500K on their house are renting the house back from the mainland Chinese purchaser for the next year and are basically flippers and looking for their next Kits project. They bought the house in 2009, so a tidy $500K profit in less than 2 years isn’t bad either. I’m just a sucker with a really high paying job that can’t afford squat in this town. …
I am seriously banking on a correction in Vancouver next year. I have noticed in the last several months that house prices are slowly coming down (barely) or at least stagnating and definitely selling under asking in the burbs (I almost bought my dream house, but kept strong!). I do now notice that houses are being pulled off the market and there isn’t much selection these days. Lots of crap on the market. I’m hoping this is just seasonal and that next spring will show plenty of inventory at reduced prices. The Vancouver market seems to be resilient for the time being. Very frustrating to say the least. My BIL bought his house last year in Burnaby and tells me that it is now worth $300K more. Seriously, what is the point in actually working for a living in Vancouver?”
– chris at greaterfool.ca 20 Nov 2011 at 9:16 pm

This entry was posted in 14. Social Effects of the Boom, 15. Misallocation of Resources and tagged , , , , , , . Bookmark the permalink.

25 responses to ““My Brother-in-Law bought his house last year in Burnaby and tells me that it is now worth $300K more. Seriously, what is the point in actually working for a living in Vancouver?””

  1. jesse | 3 December 2011 at 8:10 am | Reply

    “Higher quality” units selling with multiple offers is a symptom of underlying speculation. Discuss.

  2. Basement Suite | 3 December 2011 at 8:21 am | Reply

    Prices will not properly reflect value in Vancouver (i.e., drop at least 50%) until we see normal interest rates, rather than 0%. Since 0% is the new normal for those in charge, this hyper inflation of housing prices will not go away here for a very long time. It might eventually level off a bit, but I doubt it plunges without a return to normal interest rates.

    • keeperofthederp | 3 December 2011 at 9:08 am | Reply

      because it was high interest rates that popped the US housing bubble!

      wait.. what?

      nevermind

      • Burt | 3 December 2011 at 1:33 pm |

        Wait…what? Is right.

        It was high rates that crashed the housing market in the US. At least played a major contributing factor. Bank rates remained low, but the huge amount of ARM’s resetting sealed the fate for a lot of buyers. Since many were caught holding houses that had been worth a pretty penny they listed en masse because they couldn’t afford to hold. The rest is history.

      • bubbly | 3 December 2011 at 1:48 pm |

        Not really. The ARM resets came after the market has topped. And the later resets were at lower, not higher rates.
        Option ARMs were a different story, because the principal usually increased to ~ 115%.

        US market toppled because the supply of greater fools collapsed under a critical threshold.

    • vreaa | 3 December 2011 at 9:15 am | Reply

      Basement -> We can’t be sure.
      Housing markets have crashed elsewhere without rising rates.
      Also, the effect of any small increases here would be very powerful – it’s not necessary for rates to increase to historic norms (7%, etc) for there to be big effects. The rate:effect curve is not linear; we can hit, if not a wall, a very steep slope.
      As we’ve said before, the Vancouver RE market is vulnerable regardless of whether rates go up or not. Rising rates would speed the precipitation, but this market could start its downward path without rate raises.

    • chubster | 3 December 2011 at 9:16 am | Reply

      counter: us, japan both effectively zirped. the credit does not have to flow into RE. there are all sort of other carry trades.

      this anecdote dates from the summer (peak?). anyone got fresher goods? i’m tracking one where the westside ppty was purchased high teens tear for down. to be pc, at least partly (though more likely mostly or all) funded asian nvr offshore. typical rebuild i’d guess low teens, then ask sell high middle ages. just like another dozen or so other currently active projects in the immediate hood. just got word the proj has gone offline now and ppty is likely to come back onto the market. more as details confirm.

      • B | 3 December 2011 at 9:37 am |

        Perhaps falling property prices in China could have something to do with why real estate is perhaps stalling a bit here (since the boom in Feb-July)? Maybe not as much liquidity due to falling asset (housing) prices in China? What do others think?

        “Off the back of a thriving coal industry, the local government has been building a new city for one million people called Kangbashi. It sits virtually empty and property prices are falling.

        Even in the old city of Dongsheng where people live and work, some 45 minutes drive away, a wave of investment has backfired. Cranes sit idle over unfinished skyscrapers and migrant workers are fleeing.

        The swing in fortune — residents and property agents say prices have dropped by up to a third — is a severe example of what is happening in cities across China, including Shanghai and Beijing.

        After a housing bubble that doubled values in 35 cities between 2004 and 2009, prices are now falling nationwide. The central bank said on Friday property prices had reached a turning point while banks are worried a price slide of 20 percent could trigger panic selling.

        “People are worried. Especially if they have bought two or three apartments,” said Yu Mingjun, a worker sitting in a down jacket at a ramshackle office of a half-completed project in the old town.

        Beside him, a colleague played video games while outside, the few construction workers left on site chatted over a card game.

        “Actually I am worried too. I can’t decide what to do. I’m thinking of leaving here.”

        Top Chinese leaders have vowed to keep in place measures aimed at clamping down on the country’s property inflation until prices return to reasonable levels.

        But prices in Ordos have already fallen below the level that analysts say would cause serious problems if mirrored nationally.

        Prices have plummeted 20-30 percent in certain property developments in Beijing and Shanghai.”

        http://www.reuters.com/article/2011/12/02/us-china-property-bubble-idUSTRE7B10XA20111202

      • chubster | 3 December 2011 at 9:49 am |

        @B. nice handle. chiRE mkts clearly switching to risk off and fast. Q1: is it temp or for good (i.e. until ALL the misadventures clear)? Q2: what is consequent outcome on vanRE and canRE since hamRE are the nose and eyes of the lead sled dog, sts?

    • Basement Suite | 3 December 2011 at 9:47 am | Reply

      I used to try to hold out the same hope/view. But someone pointed out on this blog (and I tend to agree) that it was the brief rise in rates in the US around 2006 that popped that bubble. Does it so easily re-inflate when they lower rates again? I guess not. Our bubble I guess was not ready to pop back then, but it sure is ready now. I don’t see people buying million dollar east Van crack houses if rates go up 3%.

      Higher interest rates should make it harder for low-wage earners to buy such expensive RE on pure debt, and prices will therefore have to come down. I keep being reminded of my friend who recently re-fied plus paid off all his credit cards at <3%, and is now laughing in his condo, when he was on the verge of a forced sell before that at around 5%. Agreed that lower interest rates do not guarantee a bubble goes on forever, but higher ones can surely help it pop.

      • chubster | 3 December 2011 at 9:56 am |

        it wasn’t the interest rates. it was the high-risk borrowers defaulting on their mortgages, which daisy-chained up the securitzation chain. the prevailing interest rate does not mean anything if no one will underwrite a mortgage. this is the case in the us as 90% of the mortgage mkt is FHA and even they are a lot tighter on issuance due to shortfall in operating capital. not as clear on jp myself, though there i think the public largely went risk off and refused to participate despite availability of credit. concentrate on factors affecting credit issuance specific to RE – on both sides of the contract.

      • Basement Suite | 3 December 2011 at 10:01 am |

        Agreed there are other factors at play, but higher interest rates would be a huge help, because no longer could low-wage earner afford these insane prices on pure debt. It would force prices downward. It’s kind of like A does not imply B, but not A implies not B. Or, you need A to get B. Low rates are an enabler. Not the only one, but a critical link in the chain.

      • Ralph Cramdown | 3 December 2011 at 1:04 pm |

        It wasn’t the high-risk borrowers defaulting — when prices are going up, it always makes more sense to sell and pay off the loan rather than default.

      • Chubster | 3 December 2011 at 2:07 pm |

        Semantics, bros. load breaks the camel not the straw. Anything can be the trigger once the spring is wound. In the us, the subprime defaults meant mbs portfolios had to be written down and/or bailed out. Assets on the books as a1 turned to junk overnight. Chain reaction followed where those types of loans and subsequent higher quality ones could no longer be funded and everyone went on a liquidation binge. this happened to be the 1st weak link to crack but it was not the cause. Could/would have been another trigger, same result. Sometimes there is no trigger, at least visibly. Things just exhaust, turn and come back.

      • Basement Suite | 3 December 2011 at 3:14 pm |

        My point is higher interest rates must lower prices, because low wage earners simply will not be able to afford the payments. Other factors might eventually pop the bubble, but higher interest rates would almost surely do the trick. If the masses can’t afford the prices anymore on pure debt, then the prices must come down. Of course it’s academic, since interest rates are going nowhere.

  3. bubbly | 3 December 2011 at 10:47 am | Reply

    Demoralizing!

  4. Peter Pan | 3 December 2011 at 10:59 am | Reply

    Who actually believes what any BIL says?

    • bubbly | 3 December 2011 at 1:30 pm | Reply

      Why not? We all can see the official stats showing 20+% yearly increase in SFH prices.
      The real question is – is he selling? If not, then the money is imaginary.

  5. Westsider | 3 December 2011 at 2:02 pm | Reply

    ….in the sun today. 258 suites in a new tower in New West sold out in 1 hour.
    WTF!!!

  6. Kiki | 3 December 2011 at 2:16 pm | Reply

    I think a pricing correction has already started….and a lot of people are going to be in for a big surprise if they have bought the biggest property they could at peak price.

  7. fred | 3 December 2011 at 3:35 pm | Reply

    yes, the crash is here. i saw everything single households in my hood lined up at a local supermarket to buy macaroni and cheese by the cartlot; they said tthey could not even afford chicken wings. the crowd was out of control the police had to come.

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