Sandy Garossino – “We need a thorough and rigorous analysis of our housing market, the causes of its extreme condition, the risks it poses for our long-term economic sustainability, and a study of the levers and mechanisms available to government to modulate those risks.”

From a post by Sandy Garossino, independent candidate for city council in the recent civic elections, at her blog votesandy.ca 28 Nov 2011. The entire post is a must read for those concerned about Vancouver housing. Some excerpts below for our chronological archive. –

“Relative to household income, our property values are now among the most severely unaffordable in the world. Relative to income, Vancouver’s property values are 56% higher than New York’s, and 31% higher than London’s.
In its November, 2011 report on the Canadian housing market, RBC notes that 94% of average household income is required to cover the ownership costs of a 2 storey detached home in Vancouver.
This development is new and unprecedented.”



“Excesses in the housing sector can generate key vulnerabilities in the financial system and the economy as a whole.
Rather than stimulating productivity and competitiveness through business investment, cheap credit has been used to bid up the price of houses.
Vancouver residential real estate values began to detach from their historical relative values to the rest of the Canadian market sometime around 2006, when volatility began to get very choppy.”

“Many see Vancouver in a housing bubble, and it may well be. Others however, such as celebrated architect Gregory Henriquez, think our prices still have far to go to reach that point. Amazingly, Henriquez says that Vancouver is still under-priced. He is not looking at local economic conditions, however, but at the international forces in play. Viewed globally, Henriquez says that our market has become the “safety-deposit box for the world.”

“… circumstances militate against Vancouver being able to compete in the global marketplace for the best and the brightest talent needed to drive the knowledge and creative economies that will sustain cities in the future.
Our universities are losing key talent and find themselves unable to attract replacements or build on what we have. Our business sector cannot recruit, our local merchants are caught in a fight for an ever-dwindling supply of disposable incomes, and attitudes are hardening against even modest tax increases necessary to maintain our basic infrastructure.”

“Many Vancouverites seem unaware of the strange drama unfolding in many of our neighbourhoods.
The west side of the city is shedding residents almost daily as international buyers purchase more and more housing stock. These homes often sit empty or are re-cycled into the market and re-sold at significant gains within months to other international purchasers.
The west side real estate market is behaving exactly like a secondary market in financial instruments rather than a shelter market. Often the commodity is not actually used or consumed, but only traded. This trait allows valuations to inflate so long as the market is supported by global buyers, completely independently of local economic conditions.
During the recent civic election I was twice approached by people who reported that their homes were the only ones occupied on their block.”

“Yet Mark Carney’s sobering warning last summer seems to have fallen on deaf ears. To hear local developers, urbanists and planners discuss this issue, you would think our market is within the normal range, and people concerned about the speculative spree fueled by interest rates and global capital influx are alarmists and potentially xenophobic.” [Well put. – vreaa]

“The theory currently dominating the discourse on our housing market points to natural or systemic causes for our pricing: our limited land base pressured by in-migration. According to this view, the cure for this market is to build more housing—ie. condominiums.
Yet in-migration is occurring at historically normal rates and we didn’t grow mountains and a southern frontier overnight.”

“Conclusion: It is time to take off the rose-coloured glasses and face some hard truths. We need a thorough and rigorous analysis of our housing market, the causes of its extreme condition, the risks it poses for our long-term economic sustainability, and a study of the levers and mechanisms available to government to modulate those risks.”

Great article. As we’ve said before, Garossino is to be applauded for publicly articulating the ‘hard truths’.
We agree with Garossino’s analysis in many respects.
The hope that there are ‘levers and mechanisms’ to ‘modulate the risks’ the market imposes, is similar to the hope for a ‘soft landing’ after a speculative mania. Some tweaking could alter the flight path, but who is going to be stepping in to buy very overpriced RE that has started a downward price trajectory?
– vreaa

[hat-tip Makaya.]

ADDENDUM 6 Dec 2011 8:20am

This comment posted to Sandy Garossino’s site:

Sandy,

Many thanks for this thoughtful and eloquent article.
We’ve headlined, excerpted, and commented on it in our chronological archives.

You are one of the few public figures speaking out on these issues, and we commend you for that. To point out these truths is brave; the thoughts are deeply unpopular in many quarters. As a consequence, most local  discussion of these issues has been done ‘underground’, in anonymous online forums. Some individuals, such as Gord Goble and Peter Ladner, have spoken out publicly, and you are a welcome continuation of that move.

We agree with your concerns about the multitudinous deleterious consequences of the massive misallocation of resources that comes with a speculative mania in housing. The optimist in us wishes you well with your endeavours to alter policy for the better. The realist is concerned that the only path forward for the speculative mania is a crash.

Judging by historically valid underlying fundamentals such as incomes and rent levels, Vancouver RE market prices are 2 to 3 times fair value, perhaps even more.
You see the speculative mania for what it is, and you are suggesting we attempt to orchestrate a ‘soft landing’ (no mean feat, if it is possible at all).
That suggestion itself creates a massive dilemma:
Given that there is such a large difference between the market price of properties, and their fundamental values, who do we hope to be buying these properties at perhaps slightly reduced but still massively elevated prices in the coming years?
Wouldn’t any such buyers be risking financial suicide?
Isn’t the only credible resolution a marked drop in prices, and then a recovery from the rubble?
Aren’t band-aid solutions on the way down simply going to put even more locals at dire financial risk?

Keep up the good work,
vreaa
(vancouver real estate anecdote archivist)

122 responses to “Sandy Garossino – “We need a thorough and rigorous analysis of our housing market, the causes of its extreme condition, the risks it poses for our long-term economic sustainability, and a study of the levers and mechanisms available to government to modulate those risks.”

  1. Lots of questions for sure, the existentialist-bull in me says prices are coming down no matter what.

    • Agreed.
      We can’t imagine another way forward, given the size of the gap between prices and values determined by fundamentals.
      Pretty stunning income:price chart.
      If you look at the column on the right, it wobbles.

  2. For jesse, once again: “This development is new and unprecedented.”

    😉

    • Indeed, the old farts around the blogosphere were calling the same issues ad nauseum, every day, since at least 2006. But hey who ever listens to an anonymous stopped clock?

      Google me, freako, patriotz, VHB, mohican, markx, going back to 2006. VHB’s blog is behind a firewall now but housing-analysis, vancouvercondo.info, and realestatetalks (search jesse1, yogurt, freako) have millions of words of searchable comments and debates on these issues. None of it is new. By a longshot.

      • Not to mention vreaa’s extensive archive and commentary.

        And the MSM will not engage with anonymous posters, except on rare occasions, because a name and credentials somehow absolves the reporter from engaging in critical thought, at least that’s the most plausible explanation I’ve encountered.

        One of these days I’ll be pleasantly surprised.

      • we’re going to have to have a meet n greet (and get wasted) when it finally does

      • Jesse, I’m trying to figure out why this is a badge of honour? To be wrong for so long? Is it a moral thing?

        This isn’t an attack, I respect your opinion but I liken this to equity bears who have leaned short since 2008 ‘because of fundamentals’ and have seen nothing but portfolio declines. You may be ‘right’ but you aren’t right.

    • Oh, this was a reference to your “Vancouver was always unaffordable” or something like that…
      It was never as bad like these past few years – that’s what is new and more and more people are finally realizing it.

      I have been aware of the bubble for many years. Definitely in 2006, even before. I remember VHB. Nothing on this blog, VCI or even VHB’s blog is news to me.

      • As measured by real rents on condos, it’s not more expensive than it was 10 years ago. This is based on about a dozen people I know who rent condos now who have told me their rental rates, compared to what I know rents were in the early 2000s.

        To buy, and perhaps to rent certain specific properties, yes it is less affordable.

      • price-to-income ratio is out of whack.

        My observation is that rents have risen about 40% to 50% in the past 10 years while prices are up about 200%. If the people you talk to claim that rents went up by 200% too, then they are either lying or are exceptions.

      • My claim was that real rents haven’t appreciably increased, going up mostly in-line with income growth over that period. As measured by income-rent ratio, I’m far from convinced Vancouver is significantly less affordable now than it was 10 years ago.

        I haven’t mentioned inflated prices because nobody has to buy.

      • Sorry, I misread what you wrote. I agree that as measured by real rents, Vancouver is not more or only marginally more expensive than it was 10 years ago.

      • @bubbly, this is a key point, in my view: when we claim that Vancouver is “unaffordable”, we are talking about longstanding issues going back close to a generation in terms of “affordability” of base accommodations, as measured by rents. Recently things have become acutely worse in certain areas of the city and for certain types of dwellings one infers is reserved for those “we” want to reserve for those who have the impetus to elicit business development and broad-based economic activity. With these specific developments in prices (and maybe certain properties’ rents), now some people have begun to take notice. But in terms of renting a condo, a house in the suburbs, or a basement suite, I’m seeing things as more chronic than acute.

        Certainly the in-migrant new hires my company has made are generally renting, not owning, refusing to take on mortgages that may recast at unfavourable payment terms in the future. They have all commented to me that their selection of accommodations to rent was decent (one in duplex on west side, but have higher incomes, for the record), but their selection to buy at the same monthly nut was worse, either a lower quality dwelling or the need to take on renters to make the finances work.

        That’s why I’ve been harping on defining “affordability”: it means different things to different people. If we’re talking about solving Vancouver’s chronic affordability issues (income-rent on various levels of accommodation), that’s a very different problem to solve than knocking off the froth on well-kept single family dwellings in the more exclusive parts of the city.

      • Thanks.

        I believe that in terms of affordability, we should be talking about real estate ownership. It makes sense in the context of this blog.
        It also can not even be separated from the renting issue, because not everyone can/will rent.

  3. “and people concerned about the speculative spree fueled by interest rates and global capital influx are alarmists and potentially xenophobic.”

    Even on bear blogs (VCI), you are accused of being a racist as soon as you point out the recent massive influx of Mainland Chinese money in Vancouver Real Estate. While the hard facts about it may be missing, there is an increasing number of anecdotes that all convergence towards confirmation of that fact.

    The great danger of political correctness is to be prevented from calling a spade a spade. The R card is actually masterfully used by those who have an interest in keeping the situation as it is, regardless of the current and future consequences on BC’s economy and its population.

    I’m glad Sandy Garossino has somehow become become the loud spokeswoman of all of us here screaming tirelessly about the Vancouver Real Estate situation. I wish her plenty of success in her political career.

  4. “Yet Mark Carney’s sobering warning last summer seems to have fallen on deaf ears”.

    Garossino is smart and thoughtful.
    But what can Mark Carney do when these buyers are paying cash for these west side homes?
    Solve immigration and you solve the house price problem.
    These is an easy fix. Immigrants are primarily after health care. Make them ineligible for subsidized health care for 10 years and you solve the house price problem.

    • While the whole issue of rich Asian investors buying West side poker-chip-houses with cash is worthy of study, we again fear that this is distracting from what is far and away the most important cause of the mania: Overextended locals, buying with borrowed funds.

      Thus, Carney, and even more so, Flaherty could indeed effect the market by tapping on the brakes again. It’s more safely going to be F tapping on the mortgage brakes, as that would have more specific effects than C raising rates. But we suspect that neither will be happening anytime soon.
      These guys are preaching prudence but not taking any measures to rein in recklessness.

      • vreaa, you are a superb blogger. Great posts, thoughtful analysis, and comments with a dash of alliteration.

      • I think there’s a decent chance “F” taps on the brakes and “C” hits the accelerator in the new year. We’ll see!

      • Here’s a timely moment to put an interesting anecdote: a contact I have has been perusing the records of some land sales on the westside, waterfront properties. approx. 12 lots ranging from 1.4 million up to 2.4 million all sold for cash. Buyers’ names are all white anglophone.

      • occurred in 2009.

  5. Here is a comment from her blog:

    “There are a few issues as far as I can see. First is our politicians are funded by developers. Second, we don’t track foreign investment. Third, our Casinos are essentially laundry mats for foreign investors with questionable funds, human smugglers, and drug dealers (local and foreign). Fourth there is no foreign investor controls. If they have enough money they buy their way to the front of the line.

    Foreign investors and property speculators should have to pay steep property transfer taxes, while legitimate home owners should have no property transfer tax at all.

    Vancouver in the past decade has a lot of similarities to Miami in the 1980′s. Cocaine Cowboys is an excellent documentary about how drugs and property speculation created a massive Real Estate bubble in Miami while the rest of the country was economically depressed. Sure we don’t see as much cocaine or bloody murder on our streets, but we do have our share. A $7 billion dollar marijuana industry, healthy human smuggling and prostitution rings, and heavy foreign speculations have driven prices through the roof. Nobody wants to talk about the dark underbelly of reality. Nobody wants to kill the golden goose. Eventually the market will implode on itself.”

    • Great abstract, Makaya. And Sandy earns a “Bingo!” [from someone theoretically and practically familiar with an unwholesome assortment of ‘DarkUnderbellys’]. Hint: in BC it’s much bigger than you think – studied regional political ‘indifference’ combined with lax to non-existent federal enforcement regimes. E.G. – Remember Basi/Virk?; well, that little episode actually started as a routine drugs enquiry. Follow the money. Draw your own conclusions.

  6. 1. it’s govt policy (mostly negative real interest rates and explicit backing of risky loans) that got us here. this isn’t a natural market phenomenon. the market only does this when you make credit cheaper and more available than it ‘naturally’ would be. if you want to fix things in a hurry – get rid of cmhc guarantees and hike the rates – but good luck with that now that so many are all in.
    2. get over the bpoe nonsense. the affluent immigrants are not after the freebies. they’re nice freebies if you don’t have any money. but they’re really not that great if you do – you can easily get a lot better care and schools if you can afford to pay up for current westside prices.
    3. foreign buyers may not be paying cash. they may be financing offshore. they may be an influential effect but they aren’t the root cause.

    • How do you know? Need data 😉

      • a) mostly the data for household credit vs home prices. then you have to draw the inference that the 2 are causal. it’s pretty convincing. b) i think it isn’t a great leap to assume mortgages backed explicitly by cmhc would not have otherwise been underwritten by lenders. c) if lending rates were truly market, they would be set by lenders putting their own capital (or savings) at stake – not credit from thin air where the issuer puts someone else’s capital at risk and then collects the fees and interest. i know i would not lend my money to anywhere near current rates to buy vanRE. if i had to factor in default risk, and collateral quality, you would be lucky to get my money for less than 15%-20%.

      • sorry, jesse. if you’re looking for data on offshore financing, that kind of anecdotal data is tough to put up on a public site. then, there is the problem of actually getting stats from a place where a lot of banking is done person to person. but, i would say that there have been many westside teardown-rebuilds. typical buy around $1M-$2M, rebuild about the same amount and then sale at about 1.5X – 2X visible cost (cost of financing hard to see). So, these are spec projects – sort of typical for boom. one would expect such projects will have been at least partly financed through loans of some kind. we’ll certainly get an indication when the tide goes out – to what extent.

  7. Go like Florida: High property taxes, but a ‘homestead exemption’ that waives tax on the first $50k of value for owner occupied properties. Now all you have to do is decide how much is appropriate to exempt in the GVRD. $200k?

    The difference between recognizing a bubble and lancing one is like the difference between recognizing you’re in a firetrap building and committing arson.

  8. It is not a new development but she must phrase it that way so to attract a sense of urgency to the debate. By saying something akin to “This has gone on for far too long and is only getting worse,” would result in falling on deaf ears as there are many who would reply with the malaise that goes with those unaffected.

    Of course, if prices keep rising or wages continue failing to keep pace with inflation, when it hits 95%+ then we’ll have to repeat that this is a new and unprecedented development.

    Eventually every game of hot potato comes to an end and those left holding the debt will be burned.

  9. “Some tweaking could alter the flight path, but who is going to be stepping in to buy very overpriced RE that has started a downward price trajectory?”
    – vreaa

    The PainInSpain, FallsMainly, UponThePlains…

    [BloomBergBusinessWeek] – The Real Threat Facing Spanish Lenders: Spain’s banks hold billions of euros in properties that will be tough to sell

    “Banks are reluctant to acknowledge the size of the declines. There is an “enormous” gap between prices offered by lenders and what investors are willing to pay, preventing sales of large property portfolios, MaC Group’s Cantos says. He estimates that prime assets can be sold at a 30 percent discount, while portfolios comprising land, residential, and commercial real estate may sell only after 70 percent discounts. “Therein lies the problem,” he says. “Banks have already provisioned for a 30 percent loss, but if you are selling at 70 percent discount, you have to take another 40 percent loss. Which small and medium-size banks can take such a hit?” The bottom line: With home prices down 28 percent from the peak, real estate losses may swamp smaller lenders, leaving Spain with four big banks.

    http://tinyurl.com/7pjft3e

  10. See ADDENDUM 6 Dec 2011 8:20am, added to the original post above (a comment we posted at Sandy Garossino’s site).

    • Yet we all have our biases, even the most ardent and rational bear. I’ve accepted this.

    • …”multitudinous deleterious consequences of the massive misallocation”… – VREAA

      Sometimes I think you’re secretly/alliteratively channelling William Safire [of, “nattering Nabobs of negativism” lore], ‘o IllustriousEd. 😉

      PS – Jesse, it’s true, even the most rational of bears have their [ardent] biases… e.g. Nem’s: Czech beer, Italian motorcycles, Yanqui trucks, CaliforniaGirlz – etc.! Unlike the ‘Bulls’, however, we acknowledge ours… and remain eminently persuadable. Or so I like to think.

  11. Interesting to see the contrast of affordability between the US and Canada at this point in time. The NAR has released a report on the affordability in the US. While real-estate may be local it does exist in comparison.

    http://www.realtor.org/research/research/housinginx

  12. “The great danger of political correctness is to be prevented from calling a spade a spade”.

    I guess if you’re being politically incorrect you might just go all the way.

    “Call a spade a spade
    Meaning
    To speak plainly – to describe something as it really is.
    Origin
    It might be thought that this derives from the derogatory use of the slang term ‘spade’, meaning Negro – an American term originating in the 20th century. That view of it as derogatory might also be thought to be supported by this piece from John Trapp’s Mellificium theologicum, or the marrow of many good authors, 1647:

    “Gods people shall not spare to call a spade a spade, a niggard a niggard.”

    • Formula1 is correct, this is the origin of this phrase.
      We too noted the irony of Makaya’s usage, which was probably unintentional.

    • While we are splitting hairs, and to come to Makaya’s defence:

      “Trapp’s use of ‘niggard’ is difficult to interpret. The word had several meanings in the 17th century. It could be used to mean ‘miser’, which is the more common usage today, or as a general term of abuse – ‘lout’, ‘barbarian’ etc. The word was also used as the name of firebricks in grates.”

      “Whatever Trapp’s intention was, we can be confident that he didn’t mean ‘n….r’ or ‘negro’.”

      http://www.phrases.org.uk/meanings/call-a-spade-a-spade.html

      But thanks for providing a case to Makaya’s point about unwarranted political correctness.

    • “I guess if you’re being politically incorrect you might just go all the way.”

      There is a difference between calling things for what they are, and being disrespectful. English not being my first language (which is the other Canadian official language), I sometimes rely on google to find translation of certain expressions. “Appeler un chat un chat” has no historical deep meaning, unlike its english equivalent. As JRoss said, thanks nonetheless for providing a case to my point.

      Here are a couple of examples of political incorrectness coming from Europe:

      You may or may not agree with these guys, but at least their messages are crystal clear. I’m longing to see people expressing themselves publicly like that in Canada?

      Political correctness is just a synonym to hypocrisy. And when you suppress people from expressing their opinion, all you get is frustration and, at the end, extremism.

      “A little bit of agitation gives motivation to the soul, and what really makes the species prosper is not peace so much as freedom.” Jean-Jacques Rousseau.

  13. “Same thing on a personal scale: Who do we expect is going to buy the house that has dropped 25% when it is on its way to dropping 50%-66%”?

    who? those very same people who bought in early 2009 when prices were down 15-20%. Those who were waiting for 50-66% are still waiting, with prices recovering the previous discount and adding another 40%

    • Yes, we know that’s your position, Forumal1, we’ve discussed this before; you believe that overwhelming ongoing demand (largely from immigration) will make price drops of more than 10-15% impossible.
      But the question is addressed to Sandy Garossino, who has a position that is different from yours: she sees the speculative mania for what it is, and is endeavouring to change policy to ameliorate damage.

  14. formula 1 writes, That view of it [the word ‘spade’] as derogatory might also be thought to be supported by this piece from John Trapp’s Mellificium theologicum, or the marrow of many good authors, 1647:

    “Gods people shall not spare to call a spade a spade, a niggard a niggard.”

    the word ‘niggard’ refers to someone who is stingy and selfish. the word ‘nigger’, which is i think what’s being alluded to in formuladiablo’s post, is a mispronunciation of the word ‘Negro.’

  15. “In french, they say: “calling a cat a cat”… no historical reference there”

    no problem Makaya – I don’t think you meant the reference to be malicious. I just couldn’t resist pointing out the irony

    • What you apparently don’t understand is that is was actually not malicious and there was no irony. The phrase simply does not mean what you twisted it to imply.

      And again highlights the inability to approach any ‘third-rail’ issues in a reasonable discussion.

  16. It is time to change how Capital Gains are taxed. Most working families are getting nowhere after income taxes and payroll taxes.

    There is also a tendency in this blog to blame the speculators. But the way our tax system treat labor, its seems it is the only way to make it in this town.

    I am thinking to go all in on a SFH in the west side. One or two flips I can retire. If the market blows, then just file bankruptcy. How does my plan sound?

    • its sounds like everyone else’s!

      seriously though, labour must not be allowed any rights

      thats what real freedom is, after all – shitty conditions, shitty pay

      come on, slackers, make something of yourselves, like rusty.

      you canadians are so lazy

  17. Just wanted to say that, re: Gregor Robertson’s establishing a panel on affordability (I know, I know, we’ll have to see how far we get from panel to action), and Sandy Garossino’s Nov. 28 blog post — VREAA host, and other thoughtful commenters, your labours on this blog may not have been in vain! I think you may well be affecting the discourse. People outside the MSM have been taking note of the problems discussed here, now the MSM is starting to take a little note, and people in power too.

    Hazu Chan, I’ve also been impressed by the smarts of some commenters on this blog.

    Excelsior.

    • Vesta, I think we share many of the same opinions, but I’m more of a perennial pessimist than you.

      I don’t think the housing problems will receive any serious attention from politicians in the near future. Local politicians pay lip service to housing affordability by discussing homeless & low income housing, but in reality this is just a political football which is tossed about to distract the general public and give the impression that something useful is being discussed.

      Most of the general population gets their “news” from the Vancouver Sun, Global TV, etc. Consequently, they don’t understand the situation and haven’t thought intelligently about what should be done. The ones who vote in greatest numbers are the elderly and they primarily own houses, so they have no interest in the hardships of young families.

      Hoping for a political solution is not a reasonable plan. You have to look out for your own interests. Plan carefully for a future which does not include Vancouver.

      • “Most of the general population gets their “news” from the Vancouver Sun, Global TV, etc. Consequently, they don’t understand the situation and haven’t thought intelligently about what should be done.”

        Yes, and I would add to that that they also do not want to know or hear about anything that contradicts the prevailing discourse on real estate. For example, I have tried in vain to warn 5 young families about the possibility of an impending crash.

        Two of them argued that “the government”, “the banks” and “big business” would “never” let real estate valuations decline. One of them said that he will just declare bankruptcy and walk away if it happens.

        The other told me that I was just being a jealous bear out to prove his home would not appreciate because I could not afford one (until I told him the size of our down payment which matched his down payment which was loaned entirely to him by his wife’s parents 🙂 ) and that “one can use the internet to prove anything that one wants.” Apparently unaware of the irony in his actions, he then promptly sent me links proving how rejuvenation of the commercial area in his district would “guarantee the value of his home.”

        Four of them basically ignored every piece of rational discussion or economic analysis or contrarian viewpoint that I sent links for. They did not even want to read them and make up their own minds after viewing. Only one of the four, a lawyer, gave consideration to what I had to say, and he agreed except for the possibility of real estate acting as a hedge against hyperinflation (he is well informed about the fractional reserve banking system and is a hardcore doomer).

        This kind of response is what is convincing me that bubbles are beyond anyone’s control. Psychological mechanisms which I do not fully understand make them into a beast that will not easily be turned around. That is why Garossino, who should be most peoples’ rational choice to be elected, did so poorly. Very few people GAF.

      • @jeff: well said

        cant wait to live in Canada again, instead of FatCity

  18. Speaking of gub’mint involvement in RE, some of you might get a kick out of this:

    Click to access integritybc_2293.pdf

  19. TPFKKA

    perhaps you don’t want to hear any suggestion that Vancouver real estate prices are here to stay and that there is no bubble. When I present evidence that supports house prices at current or higher levels the response is always denial, bluster and vitriol.
    There is evidence to suggest that real estate can go any which way you can point. But who is correct? If I say up 100% of the time I’ll be correct 90% of the time – those are not bad odds.

    • hmm. I am prepared to entertain that the prices will stay at current levels or go up. After all, I went from holding that position to agnostic to believer in a coming decline. I am prepared to flip-flop, too (I have already done so several times!). Since no-one can lay claim to actually knowing the future, the best we can come up with are beliefs, and beliefs can be altered. I guess maybe the reason I hold this belief now is that to me the evidence pointing to declines seemed more compelling.

      I do agree that there is a danger in attending “bear blogs” that one might continue holding beliefs without questioning one’s assumptions in a changing palette of information So… I guess, since I am open to evaluating any evidence on its merits, can you please present the case again for valuations at current or higher levels?

      (I am fairly confident of being able to distill the bear arguments into 15 minutes-or-so’s worth of writing, so I don’t expect you to trouble yourself beyond that, if time is scarce. Thank you in advance.)

    • “perhaps you don’t want to hear any suggestion that Vancouver real estate prices are here to stay and that there is no bubble.”

      Formula1, I too am willing to entertain the possibility that you are correct. (Let’s call this the “Vancouver = New Monaco” scenario.) This is why my medium-term plan includes contingencies for this case, and is why I wrote “You have to look out for your own interests. Plan carefully for a future which does not include Vancouver.”

      My parents moved to Vancouver decades ago because they saw it as a land of opportunity and a good place to raise a family. They were correct and we have had a great life here. I have lived outside of Vancouver for most of my adult life and, after experiencing many cities around the world, I realize that, for many career paths, Vancouver has very little opportunity, and under many measures, Vancouver is a very undesirable city in which to raise a family. A lot has changed in 30 years!

      In the absence of unexpected events, I see a roughly 2-year time horizon for myself remaining in Vancouver. I plan to spend that time enjoying what the city has to offer, and carefully planning my next move. Onward to the next land of opportunity!

      On that note, perhaps this blog could feature some detailed discussion of desirable alternatives to Vancouver. I’m sure pooling our collective knowledge on this topic could be valuable.

      • Seattle, Portland or San Francisco if you are in the tech industry or have dual citizenship.

        They are small, but I love Bozeman and Missoula Montana. Beautiful. Really beautiful. Denver for a larger mountain west city.

        Chicago for the architecture, the lake, the Cubbies, the food, and the great public schools in the north and western suburbs. Great places to raise a family.

        Calgary or Edmonton for the beautiful mountains and friendly people.

        I’ve wondered about New Zealand. Is housing as nuts there as Australia?

      • If anybody is interested in the public public high schools in the Chicago suburbs they are New Trier, Hinsdale Central, Stevenson, Glenbrook North, and Deerfield.

        All are feeder schools to the Ivy League and are public. Buying a house in Hinsdale or one of these other suburbs is very affordable compared to Vancouver.

      • Royce McCutcheon

        @Jeff Murdock: Not sure how to discuss desirable alternatives in a meaningful way. I mean, personal tastes aside, I’m guessing we all probably work in pretty disparate fields.

        I will say that if my family leaves here, I think the scales are tipped towards leaving Canada for the US. The hard part is leaving family, friends, and colleagues in this region. But if it does come time to move on, we’re probably going to go to 1) the highest bidder and 2) the place that affords us the best lifestyle (likely California or a great, established American east coast city). The reality is that most places we’d be willing to live are going to be a few hours flying no matter what.

        Actually, that makes for a cool thought exercise: say you, a Vancouverite, are being pushed out of here and will need to move a good distance from this city to find a job that’s comparable to (or improves upon) the job you have here. And say there were two very equivalent cities, both several hours flying from Vancouver, but one was in Canada and one was in the US. What level of additional earnings over the course of your career (if any) would you need in order to pick the US option over Canada?

      • @Royce: “But if it does come time to move on, we’re probably going to go to 1) the highest bidder and 2) the place that affords us the best lifestyle (likely California or a great, established American east coast city).”

        I agree with you on this. After experiencing all the economic nonsense in this past decade, I think one should aim for a job that pays enough that your personal financial situation is as stable as possible.

        @Royce: “What level of additional earnings over the course of your career (if any) would you need in order to pick the US option over Canada?”

        This amount would be negative. Many things are much more expensive in Canada: taxes, groceries, books, electronics, cell phones. Even if the earnings are equal, your buying power is far better in the US. One thing that is cheaper in Canada though is university education. But as long as your kids are Canadian citizens, not a big deal. Thank god for the “Canadians of Convenience” system!

      • @Royce: “Actually, that makes for a cool thought exercise: say you, a Vancouverite, are being pushed out of here and will need to move a good distance from this city to find a job that’s comparable to (or improves upon) the job you have here … .”

        On the same thought: If you’re pushed to the Vancouver surrounding cities with a long commute and other disadvantages, who would consider going an extra mile and moving out of the city altogether ? If I have to move, I will move all the way out.

      • Royce McCutcheon

        @Jeff: I was wondering whether anyone would go negative value. I definitely see what you mean. Frankly, having seriously done the number crunching of Vancouver versus other places now, I’m beginning to wonder whether I should move anyways.

        @Clipper: My willingness to commute is pretty minimal. I walk ~10 min each way to work now. The minute I have to routinely spend anything close to an hour commuting each day, I’ll be considering my options. Life is too short, traffic brings out the worse in me, and that commute would only be tolerable if there was something pretty amazing for my family on the other end of it. But that’s just me (though I have a higher tolerance for a well-functioning mass transit option). Regarding your 1 mile point, that wouldn’t rate too much for me to be honest. I presume you mean something like moving across Boundary Rd., for example. That wouldn’t really be the difference maker for me. Do you think it would be for others? Would having a Vancouver postal code over a Burnaby one really be worth a year’s pay to someone? Seems a bit silly.

      • Royce,
        I just had this conversation with a colleague yesterday. We are both not from this city and moved far from family to better our lives. We are also both at the age now to reflect on the decisions we made years ago. Personally, if I had to do it over again I would not move so far away from my family or the friends (aka support group) I grew up with. I’ve missed out on watching my nieces/nephews grow up and now my parents are at an age where they need more help.
        The decisions you make now are the ones you need to reconcile yourself with later.
        Whatever you decide I hope I can pass along the reflection of the very same decision I made many years ago.
        Of course, if you’re hellbent on owning a home at the detriment of your social structure then godspeed to you.

      • @Royce: Badly chosen expression. I meant figurative mile, as if : if you need to move and commute with nothing good waiting for you at the other end, better make the extra effort, bigger change and move completely to another city. But you answered it already … and I would make the same choice.

      • @Royce: You make a good point that one’s list of preferred cities is likely very career-dependent, and so what works for you may not work for me.

        @Yank: Thanks for your thoughts, especially about Chicago. I’ve been through O’Hare probably over 50 times but ironically never set foot in the city!

        I guess the world is a big place — even SF has so many neighborhoods and suburbs, it is hard to go into detail about the desirable aspects of each of them.

      • @Formula1
        Intentional or not, great example of the hidden costs of housing situation in YVR and how it is breaking communities, where locals whit family and friend ties are pushed away from they grew up.

      • “Intentional or not, great example of the hidden costs of housing situation in YVR and how it is breaking communities, where locals whit family and friend ties are pushed away from they grew up”.

        Clipper,
        This is not a Vancouver example, it’s a more like a caucasian example. Asian do not leave their families, nor do many other ethnicities.
        A journalist in Tampa doesn’t think twice about taking a promotion that takes him/her to NY, or an IT executive from San Jose to Chicago. In fact, the more expensive the city the more attractive it is for talent, whether it be NY over Syracuse, Chicago over Milwaukee, San Francisco over Sacramento, etc. etc. Regardless the city, the move of caucasian happens all over N. America. Perhaps we’ve seen this uprooting so many times in media that we find it “sexy” and exciting. And for the first couple of years it probably is.
        The topic is fascinating to me. If I had another thesis in me I’d definitely want to research ethnic migration and the effects on social structure.

      • Royce McCutcheon

        “Of course, if you’re hellbent on owning a home at the detriment of your social structure then godspeed to you.”

        I find it fascinating that you might honestly believe that’s what makes me tick. Young family + work demands = zero desire to spend scant free time being responsible for upkeep. Since this time/place actually favors renting over owning, I consider myself lucky that my disinterest in owning aligns so well with a prudent personal financial choice. Moving only happens if finding a larger place to rent later becomes a challenge. And in those circumstances, moving to a city that puts more than enough $ back in our pockets to routinely pay for our families to vacation together and allows us to own or rent a house sufficiently large to accommodate long stays by family juuuust might trump choosing a 60-90 minute daily commute to an unremarkable suburb.

      • Formula1: Thanks for your observations on ethnic patterns of migration. They help explain those families I meet where one or more of the children have moved back to Hong Kong, where they can actually have a decent career.
        / sarcasm off

      • @Formula1: “Asian do not leave their families, nor do many other ethnicities.”

        Just when I was thinking you were starting to make sense, you say ridiculous things like this. I’ll be sure to tell your heartwarming story to all the astronaut families on my street.

      • @ Royce
        All the best with whatever you decide.

        @ canis
        new asian immigrants with family dividing time b/w China and Canada are the exception, not the rule. Those numbers are quite small. Besides, they aren’t finished with the master plan to move the whole extended family here lol
        For those who grew up in Vancouver…do you own unofficial count and note who have left and who have stayed. I’m betting the caucasian leavers are huge and dwarf the asian leavers.

      • “I was wondering whether anyone would go negative value. I definitely see what you mean.”

        As an American recently relocated to Canada, it’s about 33%. Meaning that in Canada we have figured that we pay about 33% more for things. I’m not talking tax, I’m taking about the price on things like food, clothes, moisturizer, manila folders, paper towels, books, etc.

        And, as you know, real estate is far less expensive in the US. (Chicago is less then Toronto; Seattle is less then Vancouver)

      • “As an American recently relocated to Canada, it’s about 33%. Meaning that in Canada we have figured that we pay about 33% more for things. I’m not talking tax, I’m taking about the price on things like food, clothes, moisturizer, manila folders, paper towels, books, etc”.

        that’s what it’s like when you visit a 3rd world country – why should the US be any different?

      • “that’s what it’s like when you visit a 3rd world country – why should the US be any different?”

        3rd world countries don’t have public schools that prep kids for the Ivy League.

        It’s also what happens when American companies randomly jack up prices on Canadian goods. Or maybe they are charging for French on the box or for customs? Who knows? But you’ll pay 33% more for your Cheerios in Canada.

        Bottom line – for anybody thinking of moving to the States – you can take a 33% cut (assuming full health care and retirement benefits through your employer – I’m not talking contract work) and live at the same level in the US.

  20. Vreaa, here is a comment from a Vancouver realtor from Mish’s blog post “House Won’t Sell? No Problem, Simply Raise the Price by 78%; It’s Different in Bizarro World”

    I think it’s worth reading, for once, an alternate view on Vancouver RE.

    “I am a Vancouver realtor http://www.kimmins.ca/ 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 trading_day_night’s
    comment above.
    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.”

    • “viewed as a relative safe haven”

      Viewed. Vancouver area is big, I think this “view” will start shrinking in geographic scope as earnings start to matter. But maybe I’m biased :mrgreen:

  21. “can you please present the case again for valuations at current or higher levels”?

    Yes, this is a story of increasing demand and decreasing supply. Or a war of affordability being lost on two fronts.
    1. Demand – through immigration. Canada has one of the most aggressive and liberal immigration policies in the western world. Our immigration is designed to attract wealth and the exchange is citizenship, access to cheap health care, access to free education, political stability, cultural and ethnic freedoms, democracy. Add to this the fact that it’s mostly two cities that accept the bulk of our immigrants and you have a recipe for endless demand. Change the demand and you can change the direction of house prices.
    2. Supply. In the last 20 years Vancouver detached supply has gone from 70,000 to about 45,000. The need to house people has added density through redevelopment of single family to multi-family. (I make no predictions on any other property class since that supply is elastic)

    I’m prepared to change my position on the direction of detached home prices with any change in (1) or (2).

    • 4SlicesofCheese

      I agree both points have contributed to price increases (how big of an impact is really hard to gauge), but I feel both are inconsequential to house prices when locals are no longer able to afford to live here, in the long run.

      I am not talking about locals rights or entitlements, I am talking about the financial tipping point of a city. People in this city are not shy about incurring debt that is for sure.

      If you have seen those debt shows on television, the people on those shows are treading water but sinking, in 5 years even with status quo they will be destroyed financially.

      The timeline for housing is about ripe for the tipping point.

      • tipping point for a lot more than just vanRE housing. this will be a very minor one of many blow-ups over the next decade.

      • the tipping point should have been 2005, or 2007 or 2010, or…

        Perhaps the tipping point was 2003. A tipping point for detached affordability. There must have been some point where the cumulative effect of adding 50K new “citizens” to the GVRD coupled with a loss of detached housing supply resulted in an explosion of prices (and the rapid deterioration of a middle class). The date of this event is a matter of individual opinion…to deny that this event has taken place would be to deny simple observation.
        We might shed some value in the future, but unless we magically recover the 10s of thousands of detached housing supply then we aren’t returning to last decades house prices

      • “We might shed some value in the future, but unless we magically recover the 10s of thousands of detached housing supply then we aren’t returning to last decades house prices”

        So are you implying that negative savings and ever increasing household debt will not have any significant impact on RE prices in the foreseeable future in Vancouver?

      • “I agree both points have contributed to price increases (how big of an impact is really hard to gauge), but I feel both are inconsequential to house prices when locals are no longer able to afford to live here, in the long run”.

        I’m puzzled by comments like this. In one breath claiming that foreign demand is negligible and it’s impact insignificant – and that most homes sold in Vancouver are to local buyers who’ve stretched themselves to buy with huge mortgages. Then in the next breath a comment like the one above…that locals are not the buyers since they can’t afford these prices.
        With such mixed messages what is one to believe?

      • 4SlicesofCheese

        “In one breath claiming that foreign demand is negligible and it’s impact insignificant – and that most homes sold in Vancouver are to local buyers who’ve stretched themselves to buy with huge mortgages. ”

        Its negligable because housing crashes are not determined by the people that can pay, but rather the people who cannot pay.

        Where did I say locals are not the buyers.
        I said they love to take on debt. I was saying at some point the debt catches up to them.

        Actually it would seem you are the one implying locals debt are negligible because of your two points.

    • Thank you, Formula1. That is a well phrased and succinct answer, and it merits a thoughtful response. I want to ask one more question before I weigh in with my thoughts on the bull case you make. What is your personal exposure to Vancouver Real Estate? i.e. what will happen to you personally if prices rise, and what if they fall? Most bears here have laid out their personal circumstances as a perhaps unintentional form of disclosure of any biases that the reader may take into consideration. Would you mind also doing the same to whatever degree you are comfortable?

    • Earnings…

    • Ah yes scarcity, limitless demand. Here’s something on density increases I wrote about 3 years ago.

      http://housing-analysis.blogspot.com/2009/03/densification.html

      • Great piece on density, jesse.
        Worth the read, all.

      • Anyone with a calculator can analyze cap rates. It takes minimal cognitive abilities. What is so ‘great’ about forecasting future prospects with a calculator but neglecting X, Y, and Z?

        X = interest rates/Carney/Flaherty
        Y = Chinese capital flow
        Z = speculation/psychology

      • from the article:

        “It doesn’t necessarily mean all properties should be torn down but it does mean their values will be higher than what a straight rental income equation suggests. This is the densification premium”

        smart article but this above assessment is somewhat incorrect. The premium derived from the property is one of two reasons
        1) as stated, by the redevelopment potential aka the densification premium
        2) the demand to NOT redevelop. Or, by those that simply want the detached property for their own personal reasons – usually to have space and privacy to raise and house their family. This premium is increasing with the diminishing supply of detached dwellings due to 1)

      • formula1, you are booking ownership premiums on properties. I understand there is a perception of scarcity and certain types of SFH are disappearing. Fine, people can think that. It’s rather clear that perceived capital for future investment in Vancouver is not perceived as scarce!

        I will leave it at the following: tracking fundamentals with SFH is much more difficult. Best stick to condos as a bellweather (ex density premium) and I’ll let the SFH chips fall as they may.

      • Formula1: In the current boom, factor #1, the densification premium, is much more often in play; there are huge incentives, of various kinds, to rebuild, so that of every 10 older, standard SFHs on the west side that are sold, 8-9 will be rebuilt. The pace of rebuilding has accelerated in the last 5-6 years of the boom, over the first 5-6. The rebuilding (or buying of speculative rebuilds) may be primarily so that the buying family (or wife and children) can live in a house, but densification, at least in potentia, through provision of a suite in the rebuild has become part of the system. In a different market, this may change; renovation/preservation of older houses may seem more rational financially, and become more popular. Re: the statistics on declining numbers of SFHs — it is sometimes still possible to subdivide large lots with older houses and rebuild, thus adding to the number of SFHs on that particular lot.

      • Blammo: X, Y and Z may not be with us forever. But rents will be.

  22. “but I feel both are inconsequential to house prices when locals are no longer able to afford to live here, in the long run”

    we built our country on immigration. Those current “foreigners” are our future locals just the way it’s always been. The change now is that asian locals seem to be finding a way to afford current prices and caucasian are not.

  23. Why would you compare AVERAGE house prices with MEDIAN incomes?

  24. Im so glad I left vancouver, I still get a kick out of seeing people squabble about the real estate. Im curious to see if it does crash which is why I still follow it. Here in Florida you can get water front new condos for 200k, decent sized ones too ! Im going to buy one and then keep the other 500k from my Vancouver property for my retirement. Enjoy being in debt for 40 years or moldy basements suites in east van suckers! … ” the best place on earth”

    • Thanks for your positive contribution to the blog…

      • Hey I tell it like it is, .. ” the most livable city on earth”, yes and filled with rain, junkies, ethnics that don’t speak to each other and a strange jealousy, inferiority complex to the USA. And total blandness and mediocrity! Face it, it’s too expensive what it is and it isn’t much!

        best of luck guys !

  25. There has been a lot of discussion on this blog lately around public policy, and I would like to respectfully suggest it is misguided. I’m as big a bear as any, and I sympathize with the feeling that “something has to be done”. But government meddling is not the answer, and in fact could be counterproductive. First, changing the rules mid-game will discourage investment and curtail the supply of new housing. Second, any new restriction on market activity would amount to a form of price capping. As any Economics 101 student knows, artificially depressing the price of an asset increases the quantity demanded, while decreasing the quantity supplied. This, in turns, leads to shortages–precisely the opposite of the intended outcome. Fact is, market forces are the best arbiter. The real estate market is inefficient in the short and medium terms (witness Vancouver). But over time, supply and demand WILL come into balance, and prices will return to the mean.

    • Royce McCutcheon

      The goal of increasing public engagement should simply be to *ahem* bear witness on the issues surrounding Vancouver real estate. People should skip calls for policy changes and simply call “BS” on the widely accepted storyline – namely, that 1) incredibly high and rising Vancouver prices are a good thing, 2) the mechanism behind current prices is foreign/immigrant dollars and not massive new debt amongst all Canadians, and 3) owning is pretty much always better than renting.

      “The emperor has no clothes.”

      Bearish opinions and rationales may not stand up to wider public scrutiny, but they’ve not been given any such scrutiny here in Vancouver for the last many years. Thoughtful presentations of opinions that contradict the above conventional wisdoms – and efforts to make those opinions heard and understood by a wider audience – could have at least some impact over time by dint of their undeniable logic. Will it happen? We’ll see.

    • With all due respect, do you think there should have been government intervention vis-a-vis mortgage derivative securities in the U.S. circa 2005 to prevent a financial crisis? Let’s follow your call to reasoning using Econ 101, what are the assumptions necessary for that model to have any predictive value for the policy outcome you have outlined? Perfect competition anyone? Perfect information anyone?

    • So why are financial markets regulated? Another question, do you think CDS markets should also be regulated? What’s the problem with well-formed housing market regulations that prevent local economies from being completely hollowed out by hot money?

  26. @hazu chan. I think your comparison is apples-to-oranges. The U.S. was facing systemic economic collapse. I’m talking about not capping the price of a specific asset, in a specific geographic locale. But in general, no, I think government intervention only kicks the can down the road. It’s painful, but faster, and ultimately healthier for everyone, to let market forces work.

  27. @Airedales. I don’t know of any serious regulation in financial markets that prevents an asset from being stupidly mispriced. Dot Com stocks are a dramatic example, but really everyday there are securities traded at levels that don’t reflect their intrinsic value. Surely millions of profit-seeking market participants are more efficient than a bureaucrat could possibly be at correcting this mispricing over time.

    To your point about housing regulation. You’re right that Vancouver real estate is absurdly overpriced, with all kinds of disastrous effects in the works. And housing is a core need of any community, so deserves a stronger regulatory framework than other asset classes. I’m just wary of hasty “government action”, as I think it could lead to unforeseen consequences. The subject is complex, though, and there are some sensible policy changes that need to be considered. Certainly I think the CMHC and bank lending are egregious, and would be a good place to start.

    One of the oft-ignored dynamics with real estate is that it carries strong political and emotional charges, and so is particularly prone to mispricing. First, housing is considered a basic human right and a way to build an “ownership society”. As such, it garners all manner of government support–with resulting market distortions. Second, people’s basic instincts are stirred by the concept of a home and all the bells and whistles that go with it. There are entire industries built on our drive to decorate, improve, enlarge, and trade up our living space. And unlike someone’s stock portfolio, housing is visible to others. So, from a social order standpoint it earns outsized consideration. Third, and I think most importantly, most new buyers justify their purchase partly on the grounds that a home represents shelter. And the need for shelter, after all, cannot be put off forever. This adds a layer of urgency (particularly in an inflationary market) that doesn’t apply to other asset classes, making housing uniquely susceptible to bubbles.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s