Monthly Archives: January 2012

CIBC, CMHC, Tap The Brakes (While On Black Ice, At 112mph)

“CIBC’s wholesale mortgage arm, FirstLine, quietly announced Tuesday that it will no longer accept new applications from “stated income” homebuyers who can’t prove they have the annual net income to qualify for home loans.
FirstLine also set a $1 million cap on what it will lend for a home purchase.
The major change in policy, which is bound to pique the interest of other major lenders, came on the same day it was revealed that the Canada Mortgage and Housing Corp. could be forced to cut back on the mortgages it insures.
The moves are seen as among the clearest indications yet that Canada’s hot housing market and record levels of household debt are a concern far beyond just the Ottawa offices of Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney. …
“The signs are there that everyone is worried, with the exception of BMO. It’s not like there is just one person saying there is a problem with the housing market,” said Jason Friesen, a mortgage consultant with the Callum Ross Team.
“It’s impossible to know, given all the doom and gloom in the rest of the world, what will happen over the next three months or the next six months, but lending institutions are looking for ways to protect themselves.”

‘Self-employed, new immigrants may find getting a mortgage tougher’, Toronto Star, 1 Feb 2012

The Canada Mortgage and Housing Corp. said Tuesday it “has recently received an unexpected level of requests for large amounts of CMHC portfolio insurance.”
“To ensure equitable access to portfolio insurance within CMHC’s annual limits, an allocation process is being established, which has caused some delays.”…
“The federal government, which ultimately must cover the Crown corporation’s mortgage guarantees, has imposed a $600-billion cap on how much liability the CMHC can take on.
Ottawa increased that from $450 billion in 2008, as the global financial crisis led banks to increase focus on their cash reserves.”

‘CMHC curbs mortgage insurance offerings to banks’, CBC, 31 Jan 2012
[hat-tip allen]

Our bubble/’balloon’ doesn’t need a ‘pin’ to prick it before it implodes, but any nudge could help it past its tipping point. -vreaa

“GDP contracting, but real estate agents still riding high before what’s expected to be a cooling market.”

“Canada’s economy stalled again in November [2011], for the second month in a row, but manufacturers continued to make strides. And real estate agents were still riding high before what’s expected to be a cooling market. …
With so much focus on the housing market of late, it’s worth noting that construction posted a decline of 0.3 per cent, but Canada’s home resale market was still going strong, with a 2.2-per-cent gain for real estate agents.”

– from ‘GDP lag: At least real estate agents are making money’, G&M, 31 Jan 2012 [hat-tip Jason]

“Incomes Haven’t Risen, But Housing Prices Have”

– part of an ‘infographic’ from The Globe and Mail, 18 Oct 2011

One of these provinces is not like the others… – ed.

Cooper Says “No” – “The national housing market is more like a balloon than a bubble. While bubbles always burst, a balloon often deflates slowly in the absence of a pin.” [BMO]

“The Bank of Montreal poured cold water on the idea Canada’s housing market could be headed for a crash, suggesting that prices are only “moderately high across the country.”
“Expect the housing boom to cool rather than crash,” BMO’s chief economist Sherry Cooper and senior economist Sal Guatieri said in a report published Monday.
“While the housing boom is unlikely to continue unless mortgage rates drop much further, neither is it likely to bust.”
The bank says home values are indeed rising at a faster pace than they used to, but the signs are pointing to a soft landing where prices stabilize — not a hard correction where prices drop quickly by 20 per cent or more.
“In our view, the national housing market is more like a balloon than a bubble,” the bank said. “While bubbles always burst, a balloon often deflates slowly in the absence of a pin.” …
Average prices have grown more than twice as fast as family incomes since 2001, but BMO’s report argues there’s no reason to panic yet.
Nationally, home prices are 4.9 times higher than the average household income. A decade ago, that ratio was at 3.2.
Some cities are hotter than others. Vancouver’s ratio currently sits at 10 times higher than average household income, Toronto’s is at 6.7, Montreal’s is at 4.5 while Halifax is at 3.8. Those are all on the high side, but if the market cools, that will allow incomes to catch up and move the price-to-income ratio lower, the bank argues.” …
The bank does note, however, three risks to the outlook. A sudden hike in interest rates, a widespread Canadian recession, or an economic slowdown in Asia reducing the number of foreign buyers would all take the air out of Canada’s housing market.
“But barring one of these triggers, however, a dramatic correction is unlikely,” the bank said.

– from ‘No housing crash coming in Canada, BMO says’, CBC, 30 Jan 2012
[hat-tips to Zerodown, HD, Potato, Don]
BMO report itself here: BMO 30 Jan 2012 pdf

What’s the difference between a balloon and a bubble?
It seems, from this report’s perspective, the only real difference is HOPE.
Hope that the bag of gas with a membranous cover will deflate slowly rather than implode. Otherwise, a balloon pretty much is a bubble. Both are, after all, largely made up of air.
We’d love to see the BMO math on the proposed ‘income catch up’. It simply isn’t going to happen. There is no way of price:income reconciliation other than via a dislocation, and, unlike BMO, we don’t think there is any need for a precipitating factor to start the implosion.

“There’s no reason to panic yet.”
Of course, by the time BMO warns you to panic, it’ll be obvious to everybody that it has indeed been a classic bubble.
This is all rear-view commentary, with a hefty dose of aforementioned hope. Pretty much useless to anybody attempting to make decisions concerning their own financial future.
Has anybody done an analysis of the predictive capacity of BMO Special reports over the last 12 years?
– vreaa

Bloomberg – “Canada’s Subprime Crisis Seen With U.S.-Styled Mortgages”

“Canadian lenders are loosening standards, offering mortgages similar to U.S. subprime loans that pose an “emerging risk” to financial institutions, according to the banking regulator.
Banks and other lenders are becoming “increasingly liberal” with mortgages and home-equity credit lines that don’t require individuals to prove their income, according to 152 pages of documents obtained by Bloomberg News under freedom of information law from the Office of the Superintendent of Financial Institutions. The mortgages, typically granted to the self-employed and recent immigrants, “have some similarities to non-prime loans in the U.S. retail lending market,” the documents show.
“It just speaks to the general easing in lending standards, which has contributed to a booming housing market,” said David Madani, an economist in Toronto with Capital Economics, which estimates that Canadian housing prices may fall 25% over the next few years. “The problem is sort of baked in now, so I’m not sure there’s a way to prevent a weakening of the housing market.”

OSFI head Julie Dickson said in a Sept. 26 speech the agency is “very focused” on mortgages and home-equity lines of credit, which allow individuals to borrow against the equity in their homes. …
Home-equity credit lines without income verification have become “an increasingly popular option,” OSFI says in the analysis, adding that they “pose greater risk” than mortgages because the credit lines are offered at floating interest rates. …
OSFI officials assessed Canadian banks’ potential losses from defaults on home-equity lines of credit last year, the documents show. The results were blacked out under legal provisions that allow the government to withhold commercially sensitive information.

– excerpt from Bloomberg, via FP, 30 Jan 2012
[hat-tip to Makaya and Zerodown]

So, Canadian lending has perhaps been looser than previously celebrated. “Baked in” is the way we’ve previously described the coming implosion.
There is no way of deflating the bubble in an orderly fashion.
Those who propose such a hopeful outcome need to explain who they expect to be buying this year, next year, and the next. Which buyers do they propose now step forward, take out oversized mortgages to buy still extremely overpriced properties, to bail out the many, as the ‘balloon’ deflates in an orderly fashion? It simply isn’t going to play out like that.
– vreaa

The Gains Of Ownership – “Here’s our family real estate history in Vancouver. I essentially tripled (quadrupled?) my investment in around 10-12 years while providing a decent roof over our heads. Many of us are neither bulls nor bears. We’re trying to make the best choices for our families without a crystal ball to the future.”

“Here’s our family real estate history in Vancouver. I suspect we are not atypical.

HOUSE 1, Kits
1985 purchase price: $180K
Renovations, over 10 years: $150K
Mortgage & Taxes: $130K
Subtotal: $460K

Rental income (basement suite)over 14 years of ownership: $140K
Value of Occupancy over 14 years: $450K
Subtotal: $590K

Sale price after commission, 1999: $580K
What’s my profit: ?

HOUSE 2, Point Grey
1999 purchase price (land only): $450K
Building and landscaping cost: $450K
Mortgage & Taxes: $200K
Subtotal: $1.1M

Value of Occupancy over 12 years: $700K
(3 blocks from beach, water & mountain view)

Current value (based on recent sales in neighbourhood): $3.8M
What’s my (potential) profit: ?

I purchased both homes during a time when prices were flat or depressed. Definitely a buyers market which gave me some room to negotiate the purchase price.

These two homes have gone a long way to helping provide financial security for my family. Yes, a substantial part of our net worth is tied up in real estate, but how else could I essentially triple (quadruple?) my investment in around 10-12 years while providing a decent roof over our heads?

Our mutual funds have come in at around 6% the last 15 years in comparison.

Having said that, I don’t think I would be a buyer in this market. The numbers don’t make sense. And I’m often tempted to cash out and rent.

However, I’ve been thinking this for a good 10 years now. I could still live to regret my decision not to sell, but at this point my worst decision was selling our place in Kits. The place next door sold for over $1.8M in 2010.”

“We have been with one of the top investment firms in Canada (PHN) for over 20 years and our returns are in the 6% range. Half that for our kids RESPs the last 12 years.

Making investments with the benefit of hindsight is easy. It’s not so easy when the future is unknown/uncertain. That’s why I’m torn between staying the course and cashing out — like a lot of us probably are.”

“Just to be clear, I think I’ve been darn lucky rather than smart to have gotten into real estate when I did. And yes, I can’t imagine that returns over the next 25 years are going to be anywhere as good, or even positive.

The problem for many of us is that the alternatives are not that attractive either.
I’ve seen the stock market go down as much as 50% not that long ago. What’s the difference if you lose 50% of your house value or 50% of your investments?

Handing your money over to someone, no matter how reputable, to invest for you is risky. Just as home ownership is risky. Just as buying gold is risky.

Up until a few years ago, investing in real estate made some sense to me. However, I think it’s highly unlikely that the returns of the past 25 years are going to be replicated again anytime soon. I can’t imagine how current prices can be sustained at least in the medium term. However, I’m not convinced there are a lot of viable alternatives for many people.

Many of us are neither bulls nor bears. We’re trying to make the best choices for our families without a crystal ball to the future.”

kautious at VREAA 30 Jan 2012 9:45am and onwards.

[Some posters have already added intelligent commentary to this anecdote on yesterday’s thread. Headlined here for the chronological record. Thanks, ‘kautious’. – vreaa]

Artificially low interest rates encourage speculation in whatever appears to be the current ‘hot’ sector.
In kautious’ case, we are seeing the same forces that have driven buyers into the local RE market keeping him in the market.
If he had to sell, his profits would be tax free.
14% per annum, compounded, over the last 12 years. *
Only a very small percentage of investors have beaten that performance in other sectors.
* Past performance not reflective of likely future performance.
– vreaa

The Costs Of Ownership – “Here are the economics of my renting since arriving and how this would have compared to buying.” – Renter Ahead $200K Over 5 Years

ZRH2YVR is a regular poster who recently revealed that they will be leaving Vancouver for a job to Switzerland. Their story was headlined 28 Jan 2012.

On that thread, ZRH2YVR added this useful analysis [VREAA 29 Jan 2012]:
“Here are the economics of my renting since arriving and how this would have compared to buying. You know real estate always go up so this renting thing must have been a real bust.
Property info – 1400 sq ft unobstructed 270% view of English Bay south down granville street and up and around to the mountains east approx to My. Seymour. New building 2007.
Rent paid from move in to June 2012: $196,000
This is a true consumption cost and was well within our means.
Value of property in 2007 on move-in – approx 1.4M.
Value today – estimated – 1.4-1.5M . Let’s say 1.5M just to be conservative.
Cost of ownership – Assume 100% leverage and ignore investment opportunity cost.
Interest rate – Let’s sat 5% even though in 2007, it may have been more.
Strata and property taxes amount to approx $1050-1100 per month.
So – Cost of ownership over this period is $395,000. But wait – the property went up in value right? !!! Well
Purchase cost would have been approx $1,430,000 with all up front costs.
Selling at 1.5M and subtracting costs would net say- $1,450,000 – so there is a gain of $20,000. Fantastic . . . Offset this against the cost of ownership of $395,000 – that gives you net $375,000 (ignore taxes). Compare this to cost of renting of $196,000 – we are up approx $200,000 – Believe me we notice this!!!
So – – For all you property virgins out there – the numbers above may be outside your normal range but divide this by 3 for a $500K property and you will be in about the same place – – up by $60,000 over 5 years. I would never buy in the current market.
Now the funny thing is that in order for us to have broken even, the purchase price would have been close to $600K initially -and that is over 50% fall from where we are. Good luck to all of you. A house is a place to live first – invest second and anyone who is investing right now is completely out of their mind. You would have much more fun going to Vegas for a month – and would probably be better off.”

Notice how often different methods of calculating the fundamental values of different properties come up with a “over 50%-off” conclusion.
Add bad sentiment on the downside and you can see one source of our 50%-66%-off estimate.
– vreaa

REMAX KickStart 2012 Video – “Ultimate Objective: Satisfaction… And Satisfaction Is A Perception… May Have Nothing To Do With Reality.”

– posted by REMAX, on youtube, 25 Jan 2012. A few stills below.

ADDENDUM. Even more stills:

“What I can tell you from long, direct experience is that the Westside of Vancouver is now and always has been ground zero for real estate corrections.”

“Take it from a born and bred Westsider, who has owned more than one house on the Westside. A lot of people have made a lot of money in residential real estate on the Westside. A lot of people think that they have a lot of money because they own a house on the Westside. Some of them are right, depending upon their equity levels, some of them are wrong for the same reason. Some of them will get out while the getting is good, some won’t care or don’t need to. Many of them on the lower end of the scale, however, will hold out and be absolute toast. What I can tell you from long, direct experience is that the Westside of Vancouver is now and always has been ground zero for real estate corrections as it has been the same for price increases. A whole generation of property virgins have grown up and bought in without having a clue about this, even when their Kool-Aid drinking parents ought to know better.”
JR at 26 Jan 2012 9:13pm

Point Grey SFH Inventory (MLS):
27 January 2011: 34
29 January 2012: 79 [Up 132% YOY]

Market Is Slow – “When times were good, developers wouldn’t let realtors near their projects, just paid their own sales staff. Now they are dropping by offices with presents, taking realtors out to lunch.”

“Was speaking to a realtor in Vancouver yesterday, he said that when times were good, developers wouldn’t let them near their projects, just paid their own sales staff. Now they are dropping by offices with presents, taking realtors out to lunch etc…HA!”
kilby at 27 Jan 2012 5:15pm

“Sky-high Vancouver housing prices were one of the reasons why my son, a young engineer, and his wife chose to move to Montreal, where they were able to buy a townhouse for half what they’d have to pay here.”

“In fact, sky-high Vancouver housing prices were one of the reasons why my son, a young engineer, and his wife chose to move to Montreal, where they were able to buy a townhouse for half what they’d have to pay here.
They miss Vancouver terribly, and we miss them and our little granddaughter. But we realize the vast distance separating us is the penalty we pay for living in Lotusland, and my son pays for having a real job.”

– from ‘We need to look at a greater variety of housing options’, Jon Ferry, The Province, 27 Jan 2012
Hat-tip to Patiently Waiting, at 27 Jan 2012 2:44pm, who also adds:
“A smug Boomer newspaper columnist is suddenly concerned about housing affordability. Why?
He’s only concerned now that it affects him personally.”

Leaving Vancouver, Again – “Came back for what was supposed to be career advancement. Didn’t pan out. My old company in Switzerland called and wanted to know if I would move back there to work for them. Immediate 100% increase in salary, 6 weeks holiday again, living in truly the best place on earth, etc.”

“I did the whole ‘go-away-and-make-money’ thing. Saved over $1 million in 5 years working abroad. Had a fantastic client situation, was making amazing money. Came back for what was supposed to be career advancement. Didn’t pan out. Making 65% less, doing same job, working longer hours. Real Estate also went way way up and now – So – even though I could get “something” it just makes no financial sense to own. Renting a penthouse downtown for a 1.5% cap rate.
So – now looking to go back on the world circuit. Vancouver is nice – but if you have a choice of where to be – there is no reason people should make a professional career here . . period.
I have a very deep skill-set from my experiences abroad that are just not available from others in the local market – however – the local market won’t pay for it.
People are leaving all the time but Vancouver as a city will not progress and attract any outside talent because if they are mobile, the amount that would have to be paid to be here is so high that nobody will pay.”

ZRH2YVR at VREAA 10 December 2011 1:08 pm

“Today I got the call I thought would come one day. It took almost 5 years of being in Vancouver – however – My old company/client in Switzerland called and wanted to know if I would move back there to work for them. Immediate 100% increase in salary, 6 weeks holiday again, living in truly the best place on earth, no street people begging from me on my walk in every day, 50 world class cities within 2 hours flying, 30 ski resorts within 3 hour drive, perfectly on-time and clean and spacious public transit, unbelievable career potential, international Global 100 company. Um – – – – let me think about it . . Absolutely no weekend working. Or – – – slaving it out here waiting for the market to crash while working 70 hours a week trying to get ahead…”
ZRH2YVR at VREAA 27 Dec 2012 10:35pm

We hear this news with mixed feelings: Almost definitely good for you, ZRH2YVR; but not good for Vancouver.
We wish you all the best in all future endeavours.
Many thanks for all of your posts on these pages.
The pressure on sensible folks to leave is not good for our town.
– vreaa

TD Training Session Teaches Mortgage Agents How To “Overcome Objections” To ‘HELOC Product’

Sent: January 24, 2012
To: Undisclosed recipients
Subject: Overcoming HELOC Objections and the HELOC process, Wednesday Feb 8, 2012

From: Main Reception []

 Hello Agents, 
On Wednesday, Feb 8 from 10 – 11AM, my assistant Sarah and I will be putting on a presentation regarding the HELOC product.
Our goal is to discuss the following:
  • The full application process for the HELOC on our end and how we can streamline it
  • Provide you tools(Excel sheets, HELOC calculators) that will ease the process in dealing with clients for you in the future
  • Explain to you exactly what we discuss with the client (and how we discuss it)
  • Overcoming objections that we face and role play overcoming objections that you face
We will also have a detailed Q&A period following the presentation so we can assist in helping you overcome common concerns that we face when working with new clients.
I hope to see you all there!   
Trevor Yerema
Manager, Residential Mortgages
TD Canada Trust
Prairie Region
Phone: 403-466-6654
Fax: 403-770-8382             

– this e-mail passed on to VREAA, 26 Jan 2012 by regular reader ‘Peter Pan’, who also writes:
“A friend forwarded this e-mail to me – a TD Manager, Retail Mortgages is organizing a training session with independent financial planners on techniques to OVERCOME objections from retail clients to HELOCs.  Hey, what better way to shove more debt down clients’ throats, right?
This e-mail really struck in my craw because Ed Clark and the other Bank CEOs rail against Canadians increasing their levels of personal debt while actively encouraging their employees to do exactly the same thing.”
Hypocrisy deserves to be called out. This is what Peter Pan is talking about:
“Less than a year after Ottawa forced the banking sector to cut back on risky mortgage lending, the head of one of Canada’s biggest banks says the federal government should go even further.
Ed Clark, the chief executive officer of Toronto-Dominion Bank, said in an interview that he believes Ottawa could tighten the rules on housing loans more than it already has, without hurting the economy or putting the housing market at risk.”
‘Mortgage rules should be stricter: TD chief’, G&M, 14 Dec 2011

Still Ignorant After All These Years – “During our lunch my friend told me that he was going to quit his job to become a realtor. He seemed surprised by my comments about the market, and said that he hadn’t heard any of this before, and wouldn’t even begin to know where to look for that kind of information.”

“Recently had lunch with a friend of mine. During our lunch he told me that he was going to quit his job to become a realtor. Was quite surprised as he was just promoted and is doing very well. I launched into the usually bear arguments: debt-to-income, easy lending standards (CMHC), risk of further restrictions regarding mortgages, housing starts and that most economists are waving red flags regarding Canada’s RE market.
He seemed surprised by my comments and said that he hadn’t heard any of this before and wouldn’t even begin to know where to look for that kind of information. We’ve talked about RE before and as I pointed out to him that I’m still wrong but have been right about every other housing bust I called, from the U.S. to Ireland to Spain — Australia’s right around the corner, and that at some point I’ll be right about Canada’s as well.
In any event, I didn’t dissuade him. He is a great salesman and will undoubtedly have success regardless of getting in at the top of the market, taking on tonnes of listings and having to deal with future sellers that will refuse to lower prices because their house is worth more. I wished him luck and told him to make sure that he had plenty of cash set aside to grow his business.”

Manna from heaven at 25 Jan 2012 11:09am

Boy, this is late to the party.
Like arriving at 6.30am, after the cops have broken it up.
Mental note to self: 1. Never underestimate the ignorance of some folks, and, consequently, 2. Never (again) try to estimate how long a speculative mania can perpetuate itself.
Yeah, sure, perhaps it’s we bears who’ve been ‘ignorant’. But the game isn’t over yet.
– vreaa

Vancouver RE Blogosphere Watch – Poster Publishes His Annual ‘The Wengzhou Money Is Coming’ Post

“Wenzhou money is now in Vancouver. An article from Vancouver’s chinese media talked about groups of businessmen from Wenzhou are in Vancouver now and purpose of their trip is to buy properties. One agent by the name of Zhang Wei Bin of Sutton picked up 4 parties at the airport alone on Monday, the first day of the year of dragon. Starting on Tuesday, they have started to look at ocean view properties in West Van, most in $5 million range, including one at 2400 Halston Crt, which those businessmen consider very cheap, comparable properties cost 3 times more in China.
Most of you may never have heard the city. It is the birth place of current day capitalism in China and it is estimated the residents of the city have amassed over $90 billion investable capital, people from Wen Zhou are known as fierce business competitors, and fearless properties buyers. Wen Zhou housewives formed buying teams and go from city to city to buy big chunk of new development projects and sell later for profit.”

unicas at RE Talks 26 Jan 2012 8:44pm

“The Wenzhou ladies may be coming. Wenzhou people are feared in China both as fierce business competitors and real estate buyers. 30 years ago, they were among the first Chinese who set up private business shops. They calculated profit by fraction of a penny. For the past decade they have been known as bigshot condo buyers. They form teams of RE buyers, go from city to city in China, and bring up prices whereever they go. And for the first time ever, they are allowed to invest directly overseas. So the suit case for cash will not be needed anymore. And “I buy 3, husband buy 3 thing may not be evening news material anymore. The money they are allowed to invest oveaseas may not initially sent out of the country in the name of RE investment, eventually most of the money will find their way in some kind of real properties.”
unicas at RE Talks 23 Jan 2011 10:05am

Well, they certainly have more inventory to choose from this year.
Any news on how Wenzhou Chinese stock market and RE investments have done over the last 12 months?
What do these guys do when they’re holding assets in falling markets?
– vreaa

Maclean’s – “Yes, we’re in a bubble, and it will probably pop soon. The signs of a bubble are unequivocal.”

“Are we literally living in a bubble? And when it bursts, will it get as ugly as it did south of the border? Here’s where the most recent speculation is pointing:
Yes, we’re in a bubble, and it will probably pop soon.
The signs of a bubble are unequivocal. At 13 years and counting, Canada’s current housing boom is one of the longest-lasting in the world, the Bank of Nova Scotia noted in a recent report. The real price of Canadian homes has increased by 85 per cent on average since 1998. Prices stagnated in 2008, at the height of the financial crisis, but they were back on the rise again as soon as 2009, when they grew by nearly 20 per cent, according to the Canadian Real Estate Association.
Meanwhile, Canadian household debt set a new record last year. On average, the debt burden of Canadian families stands at 153 per cent of their disposable income, according to Statistics Canada. That’s almost as much debt as American households had at the peak of their bubble.”

“The scary part is that, by most accounts, 2012 is going to be the year when housing prices start heading south. The housing market is already showing signs of weakness. Despite a rebound in December, housing starts fell in the last quarter of 2011. And in some smaller markets on the west coast, condo prices have already declined 15 per cent, according to Merrill Lynch. The bank predicts that prices nationwide will slip by five per cent this year in the best-case scenario. A spike in unemployment could trigger a 10 per cent price drop.”

“No, it won’t be “housemageddon.”
The good news is that, in all likelihood, our bubble won’t go KABOOM! Instead, we seem to be in for a painful but not devastating pop. That’s because only certain parts of Canada are in a bubble. Overcrowded markets in B.C. and Ontario may be close to busting, but many other areas of the country remain very affordable. The very same survey that ranked Vancouver most-unaffordable-city after Hong Kong rates Canada the third most affordable country, after the U.S. and Ireland.” …
“Most likely, then, the Canadian market will let the air out gradually. As inelegant as that sounds, it’s good news.”

– excerpts from ‘What happens when Canada’s housing bubble pops?’, Erica Alini, 26 Jan 2012 [hat-tip Potato]

Well, hard to get more mainstream, or more definite, than that.
All of the signs of a speculative mania were very definitely present by 2006-2007, but the MSM were silent about it then.
Now, 5 years and tens-of-thousands of overextended buyers later, it is even more glaringly obvious that the bubble is present, so the media ‘warns’ of this. What do they expect the record high number of homeowners to do about this now?
The MSM are rear-view commentators, and their articles have little predictive capacity. Like all other mainstream commentary recently, this Maclean’s piece is overly optimistic in its price-drop predictions.

Note ‘Maclean’s’ is calling for a soft landing. All those predicting a slow gradual reconciliation of prices and the fundamentals (which are currently far, far below prices) have to answer one big question:
Who do they imagine these buyers will be, who will step in and buy, in an orderly fashion, all the way down?
Who will, essentially, step in and bail out current owners, with promises to pay banks a stream of money for the rest of their lives, at these still very elevated prices?

And, while they’re pondering that, ask them for historic examples of speculative manias that have resolved with a soft landing. (There aren’t any.)
– vreaa

“The two top tech companies could not find anyone to fill the position. The number one reason given by the numerous Canadian & US-based candidates for withdrawing was the cost of living in Vancouver.”

“Heard two interesting Vancouver anecdotes recently. Two top tech companies (one bio, one IT) were recruiting for certain specialist legal skill sets. Given that very few people meet the criteria the jobs were advertised across North America. Both companies were offering very attractive salaries and both were prepared to pay for relocation etc.
In both cases, despite interviewing numerous Canadian & US-based candidates, the companies could not find anyone to fill the position. The number one reason given by candidates for withdrawing…the cost of living in Vancouver was just too high.”

Bally at VREAA 26 Jan 2012 6:16pm

Anybody not troubled by stories such as this really doesn’t care about the future of this city. – vreaa

Slew Of Mainstream Press Articles About Canadian RE

‘Housing a ‘balloon’ not a bubble: economist’ 11 Jan 2012
“Sal Guatieri, Senior Economist at BMO Capital Markets, tells BNN that housing is not in a bubble, but rather a “balloon.”
“In a balloon the air can seep out slowly, it doesn’t necessarily need to burst unless something comes along to prick the balloon,” he says. “That something could of course be a recession or a loss of incomes or job…or a big spike in interest rates that worsens affordability, but we don’t see that happening.”…
Guatieri says that while home valuations are “excessively high” in Vancouver and “somewhat high” in the Greater Toronto are, he doesn’t expect a major implosion in home prices.
“We think Canada’s housing market will fizzle out rather than flame out,” he says. “It will indeed soften, there’s no doubt it will because household debts are relatively high — there’s only so much more rapid mortgage growth that can be sustained in Canada’s housing market and economy.”
CIBC chief executive officer Gerry McCaughey told bankers at a gathering that the housing sector may have peaked and will begin to soften.
RBC CEO Gordon Nixon and Bank of Montreal CEO Bill Downe also expressed concern about housing prices, saying the next few years could see a pullback.
Many economists say the condo market is particularly vulnerable if there is a pullback in home prices, but Bank of America Merrill Lynch Canada economist Sheryl King says predicting an isolated fall in home prices is risky.
“I don’t think that anybody would want to say with the lessons that we learned with the United States that you can isolate a particular sector or a particular part of the market and say everybody else is going to be protected,” she says. “There’s a lot of exuberance in this market right now, there are increasing signs of speculation…this is a market that is red hot and you have to be a little cautious right now,” she adds.

‘More gains in home prices expected’
Vancouver Sun, 12 Jan 2012
Canada’s housing market will continue to be strong this year, with rising property values expected in all major markets, real estate brokerage firm Royal LePage said Thursday.
The company’s forecast called for prices across to country to rise 2.8 per cent by the end of 2012, after stronger gains last year. …
“Widespread calls for a major real estate correction in 2012 simply can’t be justified,” Royal LePage CEO Phil Soper said in a statement. “The industry has significant momentum entering the year, and buoyed by the stimulative effect of very low interest rates, we expect the market to continue to expand — albeit at a slower pace.”
The Canada Mortgage and Housing Corp. has forecast the average price of a listed homes for resale to be $363,900 this year, up 1.2 per cent from 2011. The Canadian Real Estate Association predicted that the average price would be relatively flat at $362,700. Both forecasts were made in November.
Royal LePage said even pricey housing markets in Vancouver and Toronto — where standard two-storey homes averaged $1.1 million and $629,188, respectively, in the last quarter — will see continued price appreciation in 2012.

Bill Good Show, CKNW Radio
calguy via e-mail to vreaa, 12 Jan 2012
“Just listened to Cameron Muir [chief economist of the B.C. Real Estate Association] on the ‘Bill Good [radio] show’. He says the market will be flat …except for the premium pockets.
Interesting he says the influx from China is a big factor, especially in areas like Dunbar etc, and West Vancouver. He says they are bringing lots of cash but
also taking loans out. He basically admitted that young people have to look at a condo in order to buy a place.”

‘Mark Carney’s low-for-long rates yielding more houses than machines’
Vancouver Sun/Bloomberg, 18 Jan 2012
Bank of Canada Governor Mark Carney’s 1 per cent interest rate has fostered the opposite of what he has said the country needs to be competitive — record borrowing by consumers, while companies pare debt ratios to the lowest in decades. …
“For the bank to be exhorting businesses to go out there and spend at a time when the bank itself admits the global environment is quite uncertain, I think it’s being a bit disingenuous,” said Mark Chandler, head of fixed-income strategy at Royal Bank’s Capital Markets unit in Toronto.

‘Chinese cash buyers may be about to spice up choice neighbourhood real estate market’
The Province, 19 Jan 2012
Will the story of 2012 in real estate-mad Vancouver be a “not very sexy” period of moderation, or another surge of cash-in-hand transactions in the “micromarkets” favoured by Chinese investors?
For answers we interviewed Cameron Muir, chief economist of the B.C. Real Estate Association, and Julia Lau, Chinese real estate specialist at Sotheby’s International Realty Canada.

‘Year of Dragon heats B.C. real estate market’
CBC, 25 Jan 2012
“Real estate agents in and around Vancouver are expecting big things this week, thanks to the Lunar New Year, which is typically a great time for sales.
Real estate agent Malcolm Hasman showed four Chinese families through a $7.8 million mansion in West Vancouver on Tuesday. The home has panoramic views, two kitchens and even a heated driveway.”

UBC Prof. Duanduan Li says the Year of the Dragon is auspicious for big changes, including big purchases. (CBC)

‘Household borrowing surge driven by most indebted’
CBC, 26 Jan 2012
“The debt-to-gross income ratio of those most indebted families is 160 per cent. The proportion of the most indebted families is greater in British Columbia, Alberta and Ontario where housing is the most expensive.”

‘Pending housing bubble spells trouble for Canada, experts say’
Financial Post, 26 Jan 2012
“Patti Croft, recently retired from being chief economist for RBC Global Asset Management, cited the risk of a housing bubble as among Canada’s biggest issues. Part of the problem, she said, is exceptionally low mortgage rates, due to the Bank of Canada’s low interest rate of one per cent — a level intended to support the economy. “Historically, after a long period of low interest rates, what lies ahead is some kind of speculative excess,” she said.

[hat-tips to Makaya, calguy, E.G., others for pointing out these articles. -ed.]

The above only a small sample of the large wave of RE related articles in national and local MSM over the last few weeks. – vreaa

Limitless Demand Argument Still Being Voiced – “Over the next decade Van RE will prove to be an excellent investment.”

“I am looking at buying in Vancouver and torn between the obvious paranoia of some people who think the Van RE market is in a bubble and will crash and my belief that Vancouver will always be a safe place to park you money, as long as it is quality. Let me explain – buying a condo which has no direct interest in the underlying land is always a risk, if it has no unique features, (like to die for view) or in an area where where future new buildings will sprout up like daisies on a warm spring day, these are not good investments and over the long run will depreciate. Buying your typical 3BR home in the valley or suburbs with an hour commute, again not a good investment. I believe real estate which has a land component, duplex or Single Family house within 30-45 minutes of the CBD, in a good area will hold it’s value and although we may be in a market where increases are minimal, over the next decade Van RE will prove to be an excellent investment. The reason I believe this are 1) Having traveled all over Canada, given a choice Vancouver is the place to live. 2) China and the Asian Pacific view Vancouver as a safe place to purchase in order to diversify overall investments position, regardless of current market prices this will continue, soon the rich Indians (from India) will be coming. 3) ALR, US Border, Mountains all limit the supply of land in the lower mainland, combine this with my buy RE with a land component close to the CBD and you have a winning formula, providing of course you can afford it.
I have a lot of sympathy for working Vancouverites looking to get into the market, people who grew up in Vancouver and want to stay and raise their families, yet can not afford the market and see their dream of providing for their family like their parents did fade.Hey it’s not fair but it does not change the situation. If you are one of these angry people who desperately want the market to crash or use screwed logic to justify renting and your pessimism, I suggest you consider moving. If I was young and unable to get into the Vancouver RE market, I would move to a place like Saskatchewan where real estate is cheap, the economy is strong and prospects are good, sure the winters crap but it doesn’t rain. Having left BC 20 years ago, I would never be in the situation I am now, able to come back and buy quality real estate, looking through global glasses and liking what I see.”
Sam Waterman at VREAA, 25 Jan 2012 8:16pm

Sam, it doesn’t seem like you’re really “torn” at all.
If what you say is genuinely what you believe, you’re clearly going to go ahead and buy a Vancouver SFH.
Please keep in touch, and we’ll see how that has worked out for you in coming years.

We humbly disagree with Sam, being one of the “paranoid” few who believe Vancouver is in a bubble.
We predict that all sectors of the market will implode, SFHs as much as any other.
Remember, SFHs have been bid up through the mania, with people using the very exclusivity that Sam cites to justify that much more stratospheric pricing. SFHs are, by degree, as overpriced as condos or townhouses or any other sub-sector you care to name. In the same way, no geographical areas are bullet-proof.
We archive this post, along with others in a similar vein, under ‘The Limitless Demand Argument For Ongoing Market Strength’ sidebar category. These kinds of arguments are very common during speculative manias.
– vreaa

More Sellers Than Buyers? – “Would your buyer’s who backed away reconsider their decision? The other three offers that were declared Sunday evening have decided not to go forward.”

“It was Sunday in the early evening when the call was made to the listing agent:
Buyer’s Realtor® – “We’d like to make an offer!”
Seller’s Realtor® – “Ok that’s great but, I need to tell you that three others who visited the weekend open house have also declared their intent to make an offer as well,” said the listing agent.
Buyer’s Realtor® – “Oh – well then, I will inform the buyers I’m representing to advise them that you expect multiple offers – I’ll get back to you with their decision.”
Later Sunday Evening:
Buyer’s Realtor® – “The buyers I’m representing have decided that they do not want to participate in a multiple offer situation.” “Thanks for your time and good luck with your multiples.”
Monday Morning:
Seller’s Realtor® phones. “Would your buyer’s reconsider their decision?”
Buyer’s Realtor® – “Why?”
Seller’s Realtor® somewhat embarrassed – “the other three offers that were declared Sunday evening have decided not to go forward.”

– Local Realtor Larry Yatkowsky recounts a story he heard over coffee with his Realtor buddy, at 23 Jan 2012.

Inventory is rising rapidly this year, and has yet to be met by convincing sales.
This next month or two could be where the bust declares itself.
Remember, it’s not about buyers vs sellers; it’s about sellers vs sellers.
– vreaa

Maple Ridge – Renter Comes Out Ahead Of Buyer/Seller Over 5 Years

“We are all renters. That’s what I said to the nice bank lady when she gawked at my account balance. I explained, five years ago my buddy teamed with an investor to make the down payment and bought a house in Maple Ridge @ $335,000. The payment was $2000/m and he had a mortgage helper for $500/m. Since, he has reno’d the deck for $10000 and payed five years of tax totaling $10000. He also bought a water heater and paint for $1000. At the time, he bugged me to buy, but I rented and banked the difference between our two payments. I paid $700/m. and banked $800/m
Five years later, he wants out and intends to rent again. He can get $400,000 for the property. Principal owed is 310,000. The gross profit is $90,000
Deduct, 3% agent fee going in and out.
Deduct the interest portion of mortgage payments he covered
Deduct operating expense and property tax
Deduct 50% of the mortgage helper as taxable income
Pay back the downie investor principal plus 5%.
Gross profit on the house experiment $90,000
less expenses
balance =
$29,000 for five years rent isn’t too shabby, I told him, however expenses ate up any additional savings. And if he does not buy another place in a year, deduct tax on the capital gains for this year. An accountant might dispute my calculations but I think it’s pretty close. I did not include credit card interest, though my friend has been cash poor throughout the experiment.
In the same five year time period, I banked $48,000 rather than pay mortgage interest, with no fear of capital gains tax and no operating expenses, which I also banked. I may not be a millionaire, but I am happy with my lifestyle and enjoy west coast amenities without worry.
I wanted to share this experience, because I have been reading the VREAA blog and comments rent-free for some time and felt the need to pony up. Thanks.”

sage at VREAA 24 Jan 2012 5:01pm

Froogle Scott – “Some interesting comments from our banker this morning. They’re wondering what might happen if prices go down 20 or 30 percent.”

“Some interesting comments from our banker this morning. My wife and I were in the bank switching our variable rate mortgage to one of the low fixed rate mortgages the banks began offering last week. (The switch is a bit of a gamble, but not one with a lot of downside risk.) Our banker said that because we have a good credit rating, we could also apply to have our HELOC credit limit raised and we’d be approved. But as of two weeks ago, customers with a ‘C’ rating, if they want a raised limit, must have their house reappraised, at their expense, and also provide a proof-of-income letter from their employer. I asked if this was because the bank was getting worried about house prices. Our banker said, “Yes. They’re wondering what might happen if prices go down 20 or 30 percent.” She then went on to say that my wife and I are among the few clients who have been significantly paying down the principal on their mortgage. A number of her clients have been “bumping up,” and she feels some of them could be caught if the market drops.”
“Interesting on several levels. The bank quietly enacting some defensive measures. Clients with good credit and steadily shrinking mortgage balances — i.e., ‘safer’ — invited to increase their credit limit. 20 or 30 percent – her numbers, the ones that I assume are circulating in the bank at the moment. Plenty of people still increasing their debt, fiddling while elsewhere Rome burns, assuming the flames will never reach them, or not even aware there’s a fire. As for credit rating, apparently all it takes to get on the bank’s shit list is a couple of missed credit card payments.”

– from Froogle Scott, via e-mail to vreaa, 24 Jan 2012

Interesting. Many thanks for the story, Froogle.
If prices do fall 30%, what’s to stop them falling 50%?
Do we expect there to be buyers stepping in at 30%-off levels given what such a fall is likely to do to wages, the economy, lending criteria, and sentiment? We will have lost all momentum buyers, of course. And would we expect value buyers to step in when prices, albeit lower, would still be significantly overvalued by fundamental measures?

PS: All Froogle Scott fans will be pleased to hear that he is, in his characteristic painstakingly thorough fashion, putting together an analysis of the actual cost of home ownership. He plans to share this with us soon. We eagerly await it.
– vreaa

Excessively Indulgent Expensive Fast Food And Its Relationship To Asset Bubbles

“A small storefront on Vancouver’s Granville Street is the home of a rare gourmet treat — the $100 hot dog.
And it could soon be in a small storefront near you.
Dougie Dog is owned and operated by Dougie Luv, who is as ambitious as some of his menu items are exotic.
“We want to expand across the country, we want to share the love,” said Luv. “Why should Vancouver be the only place with the greatest hot dog in the world?”
So, what’s with the $100 doggie, Dougie?
Luv explains that this is no ballpark tube steak. It contains Bratwurst, Kobe beef, truffle oil, a dribble of $2,000 cognac and some Atlantic lobster.”

– from ‘$100 hot dog on Vancouver menu’. CBC, 24 Jan 2012

Reminiscent of:
“In what might now be forever known as the “War of the Burger Prices”, the Wall Street Burger Shoppe has just raised the price of their burger to $175, to ensure their place as New York’s most expensive burger. And no, you’re not seeing things. The (burger) is sparkly and gold because their burger is topped with gold leaves. According to Reuters:
The burger, created by chef and co-owner Kevin O’Connell, seeks to justify its price with a Kobe beef patty, lots of black truffles, seared foie gras, aged Gruyere cheese, wild mushrooms and flecks of gold leaf on a brioche bun.”

‘America’s most expensive burgers’, Huffington Post, 28 May 2008, shortly before Wall Street imploded.

File under: Socionomics.
We’re sure that industrious readers could find us examples of similar flavour excesses from 1999 and 1929. – vreaa

‘Canadian Business’ Headline – “Prediction: The Canadian housing market will crash”

(graphic used by ‘Canadian Business’ to illustrate this story)

“The average price for Canadian homes sold in November stood at $360,396, according to the Canadian Real Estate Association. Meaning that in just 10 years, prices have doubled.” …
“Optimists may find comfort in the market’s resilience. In fact, a December press release from Re/Max boasts of a residential real estate market that “defied conventional logic and exceeded expectations in 2011.” But why should we take comfort in a market that defies logic? That is one of the key elements of a financial bubble.” …
“There is little argument among economists that houses in most major Canadian markets are, at the very least, overvalued. By some metrics, houses are less affordable now than at any point over the past 30 years. Rising prices draw people to the market in part because they’re afraid they will eventually be shut out. But what many fail to consider is that when ordinary Canadians are unable to afford real estate—even when borrowing at unusually low interest rates—the market will adjust. Unless our incomes go up, house prices have to come down. And there is a very good chance this will happen in 2012.” …
“Both the U.S. and the U.K. have already suffered crashes north of 20%. While different factors underlie their real estate markets, it nevertheless stretches credibility to believe that Canada will remain an anomaly.” …
“The heads of three of the country’s major banks (CIBC, RBC and BMO) expressed concern about the housing market at an investor conference this month. All agreed that increasing housing supply and growing debt means the market is reaching its peak. While they don’t foresee a crash, they acknowledged prices are likely to drift downward. Bank of America Merrill Lynch, meanwhile, predicts prices could fall between 5% and 10% this year. There is also a possibility prices will drop much farther over the next few years, perhaps as far as 25%. The scary part is that the direction of the economy ultimately might not even matter. If interest rates rise and the monthly cost of carrying a mortgage edges up, there’s little doubt that prices will fall, as rising rates make homes less affordable. But interest rates don’t have to rise for the boom to come to an end.”

“David Madani, an economist with Capital Economics, says that the reason prices keep rising, despite fundamentals that indicate they should be moderating, is because a bubble mentality is driving the Canadian market. “It’s this belief that prices are going to continue to go up, which becomes a self-perpetuating force,” he says. He explains that in good times, rising prices create a sense of urgency among home buyers who don’t want to miss out on the chance to benefit from soaring prices. So people pile in, pushing prices higher. This creates the appearance that housing is an asset that can only rise in value, and even more pile in.
But this line of thinking can reverse, and people can overreact to a declining market too. The greed that previously drove buying behaviour turns into fear that prices will fall indefinitely. This can be a self-perpetuating force. The result is that prices can dip farther than where economic fundamentals suggest they should be.”

“An argument sometimes used to defend the strength of the housing market is that foreign investors, predominantly wealthy Chinese citizens, are buying property here because Canada is a safe haven in a turbulent global economy. There are no actual data to support this claim, however. Even assuming it’s true, the presence of financially motivated buyers helping to prop up the market doesn’t inspire confidence. “They’ll just liquidate their positions,” Madani says. “They’re a much greater flight risk.” Any listings they dump on the market will only serve to drive prices down further.”
“When prices do start to fall, don’t expect a quick rebound like we saw three years ago. The average home price fell by 8.5% between August 2008 and March 2009, according to the Teranet-National Bank House Price Index, in a decline sparked by the financial crisis. By November, the market had already recovered. Part of the reason for the quick rebound was massive government intervention.” …
“That doesn’t mean that those considering buying a house today should necessarily let the prospect of a correction deter them. A house is firstly a place to live, not an investment. Bubbles occur, in part, because we forget that distinction. So buyers need to be comfortable knowing their houses might not increase in value over the next few years—and also that they could be worth much less.”
– excerpts from ‘Prediction: The Canadian housing market will crash’, Canadian Business, 12 Jan 2012

Exactly what the bears have been saying for years now; it is noteworthy that this argument is now being laid out by the MSM. All of these mainstream articles ‘prime the psyche pumps’, in that all market participants likely now know of the bubble ‘theory’. Once price action confirms their fears, buyers will freeze and sellers will rush to market. Just watch.
We agree with pretty much every word in the article, except for:
1. “That doesn’t mean that those considering buying a house today should necessarily let the prospect of a correction deter them.” [Of course it should deter them, unless they enjoy giving away money and hobbling their own financial future well-being. They can simply wait, and then later buy the same house for less money, or a lot more house for the same money.]
2. “There is also a possibility prices will drop much farther over the next few years, perhaps as far as 25%.” [For parts of Canada, perhaps, but these predictions are way too optimistic for the Vancouver market. Prices here will drop 50%-66%, and in some BC recreation areas as much as 80%, peak to trough.]
– vreaa

“My niece and her boyfriend want to buy a house in East Van. They have been to several open houses. They are both lawyers so they probably could afford a house even at these prices.”

“I found out over the Xmas holidays that my niece and her boyfriend want to buy a house in East Van.. They have been to several open houses .. My niece has a condo in the Main and 6th area that they will sell.. Her and her boyfriend are both lawyers so they probably could afford a house even at these prices..”
robert james at RE Talks 17 Jan 2012 4:55pm

Huffington Post Canada Headlines Vancouver RE: “Severely Unaffordable”

Huffington Post Canada, 23 Jan 2012, headlines Vancouver’s dubious distinction of being named 2nd most unaffordable city in the world in the latest Demographia study: “Historically, Western cities have had a housing-to-income ratio of around three, the study says, meaning the median house price is typically three times the median annual household income. In Vancouver in 2011, that ratio hit 10.6; the median house cost 10.6 times the median income. Only Hong Kong was less affordable, with a ratio of 12.6.”

“I left Vancouver in 2005. When I go back to visit, the conversation usually turns to RE with snooty relatives boasting about their $1M houses.”

“I left Vancouver in 2005. Sure glad I did. When I go back to visit family, the conversation usually turns to RE with snooty relatives boasting about their one million dollar houses. I can’t wait for the housing bubble to pop and humble these folks. It will be a tough fall to reality for Vancouver.”
Uh Oh Canada at 6 Jan 2012 10:37pm

“Vancouver, this sounds pretty stressful to us. We have decided to leave you and move to Texas where my salary would be double and our living expenses would be less than half.”

“Dear Vancouver,
Happy new year!
I’ve lived here most of my life, I’m 32, married now and about the right age to buy a home and start a family.
My wife and I have been saving up for a nice 2 bedroom apartment for several years. We’ve looked at the prices and it seems too risky in terms of ending up “house poor”. We’ve been waiting and waiting for anything to change in Vancouver, but nothing has happened!
At the current state of things, after doing some calculations we envisioned a situation where we would be both forced to work (dual income) and drop our future children into daycare in order to make ends meet. Most likely we will make the payments just fine but without any retirement savings no extras for vacation, etc. Vancouver, this sounds pretty stressful to us.
So after much deliberation, we decided to leave you and move to Texas where my salary would be double and our living expenses would be less than half.
In Texas we would be able to afford a large home and still save plenty for vacation/retirement/etc and this is on only one income!!
My commute is only a 5 minute drive, the people are so friendly, it feels like the same level of friendliness as being at church everywhere I go.
The weather is great, I don’t see any junkies, at worst there is a homeless person with a sign by the highway asking for change.
I thank you Vancouver for your past accomplishments, your scenery, your skytrain lines and abundance of sushi restaurants.
Unfortunately at this time I will not be needing your services and wish you farewell.
A former Vancouver resident (for more than 28 years!)”

– from formervancouverresident at 1 Jan 2012 10:22am

“Sold a 1940′s small house in Victoria in 2011 and took a year off to travel. Now in sunny Florida, where I could buy 4 similar houses for what we got for the Victoria place.”

“Sold a 1940′s small house in Victoria in March last year and took a year off to travel. Currently I’m in sunny Florida on the gulf coast, I could buy 4 similar houses here for what we got for the Victoria place. Also cost of living here is so much less, and I spent the day on a beautiful white sand beach watching dolphins play. A lot of people in BC are delusional.”
Beagle at 9 Jan 2012 8:17pm

‘The Province’ Runs Three “Avoiding Vancouver” Anecdotes

Victoria Schmidt of Vancouver walks to class Thursday on the campus of McGill University in Montreal. She says the high cost of living in Vancouver may prevent her from ever returning.

The $200 monthly rent that Victoria Schmidt pays to share a big, rambling old house not far from university in Montreal has given the Vancouverite a taste of low housing costs and may keep her from ever returning to her hometown.
“My friends who live on The Drive [in East Vancouver] pay $500 to $600 each to share a basement suite – for three people and a mouse problem,” said the 21-year-old McGill education student. “Here, you could pay $300 to $350 for a perfectly reasonable apartment about six kilometres from downtown.”
After she graduates this term, she plans to take a couple of years off to save some money to continue working toward a postgraduate degree.
And she’s already decided to live in Toronto, where the average two-storey house last year was worth $630,000, rather than return to Vancouver, where it would cost more than $1 million to own a single detached house in her parents’ Kitsilano neighbourhood, where she grew up.
“I pay significantly less here. My quality of living would drop [if she lived in Vancouver],” she said. “I’m able to live here and save money.”
And she also worries that she will never be able to own a house in Vancouver when she is ready to settle down and raise a family.
“I don’t know what it’s going to look like in 10 years,” she said.
“I wonder if she’s ever going to come home,” said her mother, Diana Schmidt.
She said she looks to all three levels of government to find a solution to the problem of high prices.
“I don’t think we have to accept it. We need to come up with a way to deal with it,” she said.

Christina Hughes, with son Charlie and partner Brendan MacIver, says they have no choice but to move to another province if they don’t want to rent for the rest of their lives.

Christina Hughes, 23, and her common-law husband, a 25-year-old construction tradesman, live with their newborn in a Port Moody rental and the thought of having to come up with $50,000 for a 10-per-cent down payment just for a condo in the Metro Vancouver area, let alone Vancouver, is a daunting prospect.
The couple is considering moving, maybe to Alberta.
“I grew up here and my friends are all here, and my school, but we realize we may have to move unless we want to rent for the rest of our lives,” Hughes said.
“It’s cheaper in Alberta and there’s no [provincial sales] tax,” she said, noting some of their friends have moved.
“If we could get a $300,000 house there, the down payment would only be $15,000.
“It’s good that the province is doing so well. But it’s driving young people away. It’s no one’s fault. It just ended up happening.
“But to keep this group of young people from leaving and having no one left except wealthy people, that won’t be good for the province.”

Kris Taylor is moving to Powell River because ‘it doesn’t make sense’ to stay in Vancouver.

Kris Taylor said he’s already made the decision to move to Powell River because he doesn’t think he’ll ever be able to afford to own a home in Metro Vancouver.
“It just doesn’t make sense to stay here,” said Taylor, who has a school-age son and rents in New Westminster.
He says he would need $50,000 for a down payment here but could get a house in Powell River for $70,000.
“Right on the beach or near the beach,” he said.
Taylor – who’s fortunate that he can work from home as an investment consultant and says he earns more than the average – said he can’t see how someone working at Starbucks could ever own a place.
He said he understands the need for higher density neighbourhoods, but he doesn’t “like the idea of a condo to raise a family.”
“It’s not really the Canadian dream at all.”
He said governments have to devise a policy to create affordable housing for people like him.
“They’ve got to keep some housing for people who live here,” he said.
“You’re driving out the people who were born and raised here and replacing them with affluent people, but who’s going to serve those products and services to them?”

– These three anecdotes from ‘You’re driving out the people who were born and raised here’, by Susan Lazaruk, The Province, 22 Jan 2012. The article ends: “Have you fled Vancouver because of its high real-estate prices? Are you sharing housing because of it? Are you taking other steps to cope? Tell us how you are managing in the country’s most expensive real-estate market.”

[If anybody from ‘The Province’ is reading this, we suggest you check out the ‘Avoiding Vancouver’ sidebar category, for over 200 stories pertaining to people leaving Vancouver. Any VREAA reader posting a comment to the Province article, feel free to add that link. – vreaa]

Better late than never, perhaps.
Ask now what effect this is all going to have on our town?
The speculative mania in Vancouver RE has been present since at least as early as 2006, arguably identifiable as far back as 2002-2003. It has had severely detrimental effects on Vancouver, not least of which is to force people away, or to get them to avoid moving here in the first place.
Many prominent economic commentators and analysts from other centres have described our market as a clearly visible bubble.
Local media, ‘The Province’ very much included, have been stunningly silent in warning of the presence of the bubble, and, indeed, have largely been complicit in promoting its growth.
– vreaa

Recreational Price Implosion – Okanagan; Whistler – 45% to 54%-Off

580 Sarsons Rd, Kelowna, BC V1W 2X3, Canada
1452 sq ft ‘penthouse’
Asking price $600K; “Reduced Almost $500K”

4591-258/259 Blackcomb Way
258/259 in the Four Seasons Resort provides 2 beds / 2 baths and 1,430 sq ft.  The price has just been reduced to $527.5k which implies a deal at c$500k is achievable (which is in line with the recent sale in the building).  [Sold for $519K -ed.] That compares to an original 2002 sale price of $1,138k for this unit!”

[hat-tip Makaya at VCI]

Coming soon to a metropolitan area near you. – vreaa

Vancouver RE Thought Experiment: “Would You Buy This House For Half Price?”

would you?

This house was featured in a recent post.
Kerrisdale SFH, 2,200sqft, built 1955, 56 foot lot.
Purchased after the price pullback in early 2009 for $920K, now assessed at $1.859M, reflecting estimated Jun 2011 market value.
Here’s the question: “If you knew you’d be holding this house for at least 5 years, would you buy it, today, for $920K?”

[The question is framed with the 5 year ‘clause’ to take out the obvious “Sure, I’d buy it and sell it” answer. -ed.]

“Chatted with a gentleman in Langley yesterday who bought his townhome presale about 8 months ago for $400K. Now the developer is selling exact same units for about $350K.”

“Chatted with a gentleman in Langley yesterday who bought his townhome about 8 months ago before it was completed. He paid about $400,000 for it (very nice place) and now 8 months later the developer is selling exact units to his for about $350,000. The owner feels that this is a temporary blip and that the value will come back to his place in a year or so. Perhaps he is right, perhaps not, I can’t say… but I was surprised that there was any kind of weakness in the Langley market as there is still a TON of building going on out there.”
Burbs Boy at 13 Jan 2012 12:31pm

Whitehorse Housing Crisis – “Apparently, the higher the number of people who own a home, the more others will want one of their own. No one wants to be the only person in town renting.”

“For several years, the territory has seen the effects of the latest commodity-fueled mining rush and stimulus spending. It’s also seen a remarkable shortage of housing lots.
So, alongside the money, Whitehorse has near-zero vacancy rates sparking high rents and crazy housing prices.
The effects have rippled throughout society, with the poor and professionals alike trying to cope, in their own way, with the inflation and homelessness.
For eight weeks, Yukon News reporters and photographers fanned out to chronicle the crisis – the problems people are having, why it happened and some possible solutions.
Here is what we found…”

‘Gimme Shelter’, as series of special reports on the Whitehorse housing crisis, 16 Jan 2012
“Apparently, the higher the number of people who own a home, the more others will want one of their own.
No one wants to be the only person in town renting.
In Whitehorse, between 1991 and 1996, these rates increased to 67 per cent from 60.
Two of every three households in the city own their own home. This exceeds the national rate.” …
“The average sale price for a single detached house in Whitehorse has increased at a relatively steady rate between 1999 and 2005.
Prices increased by 34 per cent to $199,000 from $149,600.
After that, prices skyrocketed. Between 2005 and 2008 housing prices shot up 62 per cent.
That same house that was once worth $149,600 is now worth $322,800.
Housing prices have only continued to climb in the past three years.” …
“In order to buy a $325,000 home, an annual household income of about $81,500 is required, according to the Canada Mortgage and Housing Corporation’s online mortgage calculator.
Given that the average household income was $92,308 in 2006, this would appear to be affordable for the average Yukoner.”

The above link via e-mail from ‘Zerodown’, who comments:
“Having spoken to people there I echo the panicked tone of the articles. I tend to be a demand-sider on Canadian housing (sentiment, ease of credit, buyer and holder mania), but the Whitehorse market has genuine supply problems (city planning incompetence: trust me there’s plenty of land) and actual economics driving the demand (ramp in government hiring; gold rush).
That the crisis is also felt in rents (and availability) reveals a contrast to the rest of the country. People who know better are buying because they need somewhere to live, others are choosing not to move there.
Sadly, knowing the quality of local governments there, I am inclined to conspiracy theory that city council (baby boomers of course) are more than happy to watch their homes skyrocket in value while they destroy economic potential. How much of a factor is it that (nationwide) policy makers are all about 60 years old right now (Carney the obvious exception, but I mean down the totem pole a bit)?”

[Thanks, Zerodown. -ed.]

“They asked “How do I know it could go down 3%? In the long term real estate always goes up.” I was angry, and stammered “Fine, you are 72 right now so in the long run you will probably be in a geriatric home. The condo will be liquidated to pay medical bills. Get your cash out now and enjoy it rather than hanging on.”

“The old timers aren’t that keen to cash in, my folks have two places, one in Van and one on the island that they like to visit about once a month. I created a model for them that showed even with a modest 3% decline they are better to sell and take a loss now than hold on and still stay at the empress every weekend amg be ahead. They refused and said they like to open the closet and have their stuff and if things got bad they could rent it out. I next showed them that if they sold now, at a loss, and rented a place over there, they would still be better off and de-risked. Their response was “How do I know it could go down 3%?”. My response was I don’t but Van has dropped more than 10% since the peak and how do they know it is not going to fall”. In the long term real estate always goes up was what I was told. I was angry at this point and stammered fine, you are 72 right now so in the long run you will probably be in a geriatric home and the condo will be liquidated to pay medical bills; I just want you to get your cash out now and enjoy it rather than hanging on.”
YLTN@Work at 10 Jan 2012 at 8:35am

Imagine 10,000 couples in this position.
They find it hard to conceive of substantial price drops.
The market drops 5%, 10%, then 15%. Then 20%.
How do the 10,000 respond? Not all in the same way, of course, but what percentage would, at 20% off, come to market?
– vreaa

‘Sell Your Property In China’ – “This postcard was in my mailbox yesterday. Lots of lucky red colouring.”

– scan of a card flier distributed to residential addresses in Vancouver, e-mailed by ‘J’ to VREAA, 20 Jan 2012. J writes “This postcard was in my mailbox yesterday.  Lots of lucky red colouring.”

Homeowner “Shocked But Pleased” At $1.86M Value Of His “Modest, Un-renovated, Ugly” Kerrisdale House – $940K (100%) Appreciation In 3 Years

This Kerrisdale home belonging to Elvis Cepus has been reassessed for $1.859-million

“Elvis Cepus says he’s all for seeing his home in Vancouver’s Kerrisdale neighbourhood increase in value, but the one-third jump in his assessed value this year means his “ugly” bungalow has now hit nearly $1.9-million.
Mr. Cepus’s original 1955, 2,200-square-foot bungalow is just one of the West Side homes hit by assessment increases around 40 per cent higher than last year. While the average detached single-family residence, condo or townhouse in the city has gone up by about 16 per cent, the west side of Vancouver as well as the municipality of West Vancouver were hardest hit. Increases in those areas are typically around 25 per cent higher this year – and in certain pockets, such as Kerrisdale, the jump is more than 40 per cent.
Like everyone who’s sitting with a much higher assessment this year, Mr. Cepus is worried about tax increases come July. He realizes he got a deal when he purchased his house for $920,000 when the market had crashed in early 2009. Last year, when it was assessed at $1.385-million, he was shocked but pleased at the value of his modest, un-renovated house. This year’s $1.859-million assessment is a different deal.
“It’s the ugliest house on the street,” said Mr. Cepus, an engineer who lives there with his family. “We’re talking powder-blue bathroom and plywood cabinets in the kitchen.”
The home is valued at $17,000, so the value is in the 56-foot lot. He guesses the increase is due to large, 4,500-square-foot houses being built in his neighbourhood, driving up property values.
“There are massive houses being put up everywhere. I don’t have a leg to stand on, not if that’s what houses are going for, and that’s what comparables are doing,” he said. “But almost $1.9-million? Oh my God, when is it going to stop? The reality is people born and raised in Vancouver won’t be able to live in Vancouver anymore.”

– from ‘Assessments hit Vancouver homeowners hard’, Globe and Mail, 18 Jan 2012

This story is noteworthy for the apparently genuine sense of disbelief in the homeowner regarding market price.
Obviously this guy should be noting his own emotions, and taking them to the bank by selling.
Wise contrarians sell assets when they find themselves singing on in the car in celebration of their value.
Elvis may, however, be caught like a deer in the headlights, and watch frozen as the price reverts.
These lots will sell for a lot less than $900K in the trough.
– vreaa

“My brother went to renew his mortgage. The guy asked him, “Do you want to open a HELOC to borrow against your equity?” He said, “No.” Dude was seriously surprised. I’m guessing few turn down that offer.”

“My brother went to renew his mortgage. The guy asked him, “Do you want open a HELOC to borrow against your equity?” He said, “No.” Dude was seriously surprised. I’m guessing few turn down that offer.
My girlfriend works in a bank. When a customer comes in and she opens his account, a flag often comes up in the system stating he is entitled to a new HELOC, or entitled to expand his existing HELOC. And she is obligated to tell them this and ask them if they’d like to do it. More often than not, they bite. Imagine, you don’t even need to apply for credit anymore. It just falls into your lap.”
– theragingranter at VREAA 15 January 2012 at 5:02 pm

“I’m running out of patience with the bubble in the city. If it does not pop soon I’ll move on to another city or country.”

“I’m running out of patience with the bubble in the city. If it does not pop soon I’ll move on to another city or country. So plans do revolve around the housing market for most – either counting on real estate for retirement, or deciding to stay/leave. And that dependence grows as one gets older, has kids and thinks about school districts.”
604x at 15 Jan 2012 at 6:22pm

Can’t the bubbleheads see how bad this is for our town?
– vreaa

House ‘A’ and House ‘B’

House ‘A’
2,000 sqft SFH, on 3,920 sqft lot
Built 1910
“..elegant living room with hardwood floors and two all-brick fireplaces with mantles. The kitchen is gorgeous with the cabinets and built-in breakfast bar. Other features include a wood fence and covered front porch. The bedrooms are outstanding with their sleek hardwood floors and baseboard trim. The bathrooms have shower-tub combinations, while one has a pedestal sink and another has a sink in the lovely wooden vanity. .. Great location to community parks, schools, restaurants…”

House ‘B’
2,136 sqft SFH, on 3,716 sqft lot
Built circa 1910
“..lovely home has been renovated. New paint, newer kitchen, bathrooms, wiring, plumbing, new roof, windows, water tank. Beautiful front and backyard. Steps to top schools.”

The reveal:
The first property is 1112 North 34th Street, Richmond VA, on the market for $130,000 ($65 per sqft)
The second property is 3043 Crown Street, Vancouver BC, on the market for $1,878,000 ($879 per sqft)
[hat-tip Ralph Cramdown for the idea for this particular comparison]

Yes, we know that Richmond VA isn’t Vancouver BC, but then $130,000 is a lot, lot, lot less than $1,878,000.
Ninety-three percent less, to be precise.
Buy 14 houses in Richmond for the price of the one in Vancouver, and still have change.
– vreaa

UBC Housing Action Plan Forum – Proceedings Summary – “We have lost out on many hiring cases”

UBC hosted a ‘Housing Action Plan Forum’‏ today, 18 Jan 2012. The purpose was to “focus on faculty/staff housing, provide an “early look” at the options being explored and give an opportunity for participants to ask questions and provide feedback about key issues related to the options.”

‘Anonymous UBC Professor’, who attended this event, was very kind to send along this point-form summary of the proceedings:

Statements by Prof. Nassif Ghoussoub
– Board has approved densification of the campus “to remedy the housing problem”
– The housing situation keeps getting worse, not for real estate tycoons, but for colleagues
– Property assessment have increased 40% on west side. Increased perception of wealth, but doesn’t bode well for UBC.
– Problems in recruiting and retention. Cannot recruit heads, Canada Research Chairs, Canada Excellence Research Chairs, due to housing problems.
– Staff have problems too.

– What have we done?
– Ask for input – Discussion Forums – Talk to deans
– Blog – Visited universities with similar challenges (NYC, Columbia, Harvard, Irvine, …). Inquired at Stanford, Cambridge, Oxford. They are WAY ahead. Their bread and butter is competitive hiring.
– Next steps – Discussion paper, ready by the end of March.

Presentation by Lisa Colby
– Work done  – Reviewed data from housing demand studies

– Faculty & Staff rentals
– 550 units (obviously more needed)
– Claim 20% below market rent
– Leasehold
– Claim 10-20% below cost
– Prepaid to avoid developers marketing cost.
– Do not have to sell to faculty/staff (benefits to 1st gen buyers)
– This is on hold
– Financial assistance package
– $45k lump sum or interest free loan, or mortgage interest assistance
– Student housing: 8500 beds, increasing roughly 500 per year

Current land use plan:
– 50% of new units must be university affiliated
– 20% rental (10% of which are non-market)
– Plan amendments allow for SMALLER units on campus

Claim: much of demographic is looking for studio 1 bedroom
[Remark: I doubt the accuracy of this statement.]
Claim: 60% of demographic don’t have kids or dependents

Here are various options for campus development going forward.

“Equity” Options

Options 1:
– 99 year leasehold, unrestricted growth

Option 2:
– Only for faculty and staff
– Intended 20% below market rate

Option 3:
– Only for faculty and staff
– Joint ownership & leasehold: own building, rent land

Option 4: Cohousing
– Large shared facilities (kitchen, dining room, etc.)

Option 5: Coop
– Only for faculty and staff
– Members purchase shares, no equity gains
– Perhaps of interest to renters who want a larger say in their building

Rental Options

Option 1: Non-market rental
– Only for faculty and staff.
– 20% below market rents
– (More appealing if students are not allowed to rent)

Option 2: Non-profit rental
– Household income must be below $64k
– Below market rents, geared to incomes

Option 3: Market rates
– Quality & space are key factors

Other options
– Priority access to housing options
– Potential financial assistance plan modifications:
– Extend to more employees
– Increased value
– On-campus purchase only?
– Claim: other universities that do this also give $30-$50k, so UBC is in the right ballpark.

Key considerations:
– Options should have enduring value that help future generations

Open-Mic Discussion

Someone from Faculty of Medicine:
– Much of the on-campus housing is obviously empty. It is immoral to allow the general public to buy on-campus housing.
– We need a community to make the campus interesting. The general public is an important part of that.

– Revenues from the general public are important to the academic mission. This goes to support student housing, scholarships, academic bursaries, research chairs, etc.

Carl Hansen, Asst Prof in Physics & Astronomy
– Came 2005. Could not afford anything. Now have 3 kids. Live in rental housing. Biggest apartment they’ve seen is 1000sqft.
– Have not been able to save money
– Housing prices have gone up 120% since then.
– Does 20% below market value make a difference? 1.5m and 1.8m are the same.

– Due to taxable benefit, 20% is the best we can do.
– Yes, it’s important to look at the range of sizes. There is less range than there should be.

– This is still under discussion. Your feedback is important.

Lior Silberman, Asst Prof in Math
– We don’t want “windfall programs” (i.e., co-development programs, advanced access programs)
– Waitlist for 3 bedrooms are several years (someone says 4 years)
– Don’t confuse demand with with “what is happening because what is available”
– The units are in the wrong market. There should be a “UBC-only market”.
– If the market was limited to us, the price would naturally be what we can pay.

– Lisa asserted that people want amenities on campus. Housing survey from last year says 83% value amenities.

– 2 kids
– Rental unit, 720 sqft
– “Faculty & Staff Housing” is really “Faculty housing”. Staff honestly cannot afford it.
– 50% of his paycheck goes to housing. What percentage should people pay off their paycheque to rent?
– 3% increase in rent. What is the justification?
– Loses sleep over this
– Renters are treated as second-class citizens.

– Definition of “affordability”: 30% of household income, assuming 10% downpayment, 5% interest over 25-year amortization. For renters, again 30% of household income.
– Reminds about below-market rental housing.

Don (CFO of some UBC housing group?):
– Market rent: 1000sqft, $2500/mo is typical for west side.
– We don’t want to go beyond the magical 20% discount that would trigger taxable benefits, that’s why we have to increase.

– Further explanation on taxable benefits: if the discount from market rent were greater than 20%, you’d have to pay tax.

– NYU, Irvine, Stanford, etc., all found ways around it. You see 40-50% subsidies there.

Eugene Barksy, Library:
– 20% discount is not enough.

Asst Prof in Faculty of Forestry:
– Came last year, father of 3
– $2200 for 1000sqft
– 46% of net income goes to rent
– Whether it’s 20 or 50% below market price, he cannot afford to buy, so he is stuck renting.

Andrew Patterson, PhD student in sociology:
– Has UBC lobbied city or province to control housing prices?

– We’re starting to engage with the city. No specifics at this point.

Bill Holmes, alumnus, lives in Hampton place. Income tax lawyer.
– Regarding taxable benefits, the 20% cutoff doesn’t make sense. Even if one received a 50% discount and paid tax on the 30%, you’d still come out way ahead.
– We haven’t heard how much money the board of governors is prepared to put into this.

– Financial assessment is not done. See the upcoming discussion paper. Their decision is partially
based on your feedback.
– There is not a firm line on 20%.

– We’re still computing the costs of the options.
– Our priorities are in competition with other priorities of the board.
– Market housing goes to our endowment.

Senior Faculty Member:
– We have lost out on many hiring cases.
– When bubble was not so bad, we lost CRC 1 chair to Alberta. [This was the first use of the word “bubble”.]
– We missed a candidate from Irvine.
– A hire from 2003 started applying for jobs, and we very nearly lost him due to the 7-year limit
for Financial Assistance Package.

– There are important tradeoffs between money from market housing to support academic mission.
– Tradeoff between faculty/staff and endowment.

Satish, Asst Prof in Computer Engineering:
– There are many universities which do not have land to support their endowment.
– Using land to support endowment is a very short-term plan.
– If we fail to attract faculty, the endowment is irrelevant as the land will go to the dogs.
– Harvard has $40B, which has nothing to do with their land.
– Faculty don’t even apply here. Why live in Vancouver when you can live in Austin and visit Vancouver every 2 months?

– Claim that UBC was given this land specifically to support the endowment.

[Thanks ‘Anonymous UBC Professor’ – ed.]

Bank Of Canada – Warn Of Extreme Debt Levels, Yet Set Monetary Policy Such That “the ratio of household debt to income is projected to rise further.”

“The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1.25 per cent and the deposit rate is 0.75 per cent.” …
“…very favourable financing conditions are expected to buttress consumer spending and housing activity. Household expenditures are expected to remain high relative to GDP and the ratio of household debt to income is projected to rise further.”

– from ‘Bank of Canada maintains overnight rate target at 1 per cent’, Bank of Canada press release, 17 Jan 2012

Get that?
The Bank of Canada is expecting the Canadian consumer to support the economy and the housing market by going even further into debt, while at the same time they have been warning Canadians of the dangers of excessive debt.
– vreaa


Further in a similar vein of hypocrisy:
“Both the Finance Minister and Bank of Canada Governor Mark Carney have been urging consumers to get a handle on their debts, the bulk of them in mortgages, and not allow low interest rates to entice them into taking on more credit than they can handle.” …
“We have been cautioning Canadians for some time that they need to be prepared to have higher interest rates in the future and be aware of the affordability issue that that may create for some Canadians, not to assume that mortgage interest rates will remain low for a long period of time,” Mr. Flaherty said Tuesday. “So we all have to be cautious in our financial planning.”

– from ‘Flaherty keeping wary eye on housing market’, G&M, 17 Jan 2012

From the comments section at the G&M:
“Is Flaherty not the man who gave Canadians the 40 year house Mortgage?” – ososo
“Flaherty keeping wary eye on housing market? That’s like having Dr. Kevorkian keeping an eye on my 85 year old mother.” – Peter Pan

“The nice lady at the bank told me that I really should be looking at a house as an investment since house prices always go up. I replied, well until they go down. She looked at me as if were from another planet and said well, not in Vancouver.”

“Linda (a wealthy woman who rents) ran into her account manager. “He told me that the bank is forecasting stable prices and perhaps a small softening based on what’s happening in China. He then asked if we were getting ready to buy yet. I told him that we were happy renting especially since a home we desire in the neighbourhood we like would cost between $1.5 to $2 million. He then inquired if that was our budget. We could certainly ‘afford’ – whatever that means –  a home in that price range. I told him however, that it wasn’t in the cards because we weren’t interested in a fat mortgage. He looked absolutely offended as if I’d launched a personal attack. Then, the nice lady at the bank, who had overheard this conversation told me that I really should be looking at a house as an investment since house prices always go up. And I replied, well until they go down. She looked at me as if were from another planet and said well, not in Vancouver. At that point I realized that I was from another planet – the one inhabited by sane people.”
– anecdote relayed by Garth Turner at 12 Jan 2012

BMO – Left Hand Stop; Right Hand Go

“Some are now wondering if Canadian policymakers and bankers might not be too sanguine about the housing strength in Canada, specifically in Toronto and Vancouver. While the Canadian situation is far different from the U.S. of 2006, the continued surge in condo construction and overall home prices to levels that are not consistent with the growth in domestic income is certainly raising questions about its sustainability and the fallout if it were to unwind.” ..
“…mortgage rates have nowhere to go but up… eventually. Investment activity and foreign purchases in the condo market are not fully understood or predictable. Corrections in housing do occur and they can occur suddenly, so while this is not a red alert, we are not flashing green, either.”

– excerpts from ‘The Bubble Debate in Canadian Housing’, a note to BMO clients from Dr. Sherry Cooper, Executive Vice President and Chief Economist, BMO Financial Group, Jan 2012 (Cooper is rumoured to have her $3M Toronto ‘mansion’ on the market). [hat-tip ZRH2YVR]

“Bank of Montreal, Canada’s fourth-biggest bank, dropped the rate for a five-year fixed-rate mortgage by 50 basis points, or 0.5 percentage points, to 2.99 percent on Jan. 12, the lowest in its 195-year history. Toronto-Dominion and Royal Bank, Canada’s two-biggest lenders, followed suit the next day with the same rate on a fixed four-year loan.”
– from ‘Canada Bubble Seen as IMF Risk With Record Low Rates’, San Francisco Chronicle, 17 Jan 2012
Further from the same article:
“Kevin Lau, a Toronto-based technology consultant, says he can’t wait to take advantage of the lowest mortgage rates in Canadian history to buy a second condominium and rent his current home.
Lau, 28, plans to get another mortgage and refinance his C$160,000 ($157,000) home loan after Bank of Montreal, Toronto- Dominion Bank and Royal Bank of Canada cut borrowing costs last week.
“It’s always tempting when the credit is available at much lower rates than they ever have been,” said Lau. “The fact that house prices have been going up and continue to go up much faster, you need to really take advantage of it.”

Perhaps Lau can “take advantage” of BMO record low rates to go all out and buy Dr Cooper’s ‘mansion’.
It won’t happen literally, but in principle, it is happening: those in the know selling to what may be the last wave of ignorant buyers.
– vreaa

“40 years old, married with two young kids. Leaving for Victoria and a mortgage free life. Now I can focus on building a retirement portfolio and not having the bulk of my wealth tied up in my house.”

“I am leaving as well. 40 years old, married with two young kids. Leaving for Victoria and a mortgage free life. Now I can focus on building a retirement portfolio and not having the bulk of my wealth tied up in my house. Thank you Vancouver Realestate its been great, but I am out! I feel like I won the lottery.”
2muchdebt at VREAA 14 Jan 2012 12:44pm

Dr. Housing Bubble On Vancouver – “The median household income in Vancouver is $67,550 yet the average detached home price is above $1 million. That is simply madness and even makes the California housing bubble look modest in comparison.”

Dr.HousingBubble, one of the well-known US RE Bubble blogs, has highlighted Canada and, in particular, Vancouver in a recent article: ‘The other CA bubble – Canadian housing bubble ripe for popping. Vancouver real estate increased by 142 percent from 2002 to 2011. Average detached home in Vancouver costs roughly $1 million while the median household makes $67,000 per year’, 15 Jan 2012 [hat-tip Makaya; chart originally from AGSage’s worldhousingbubble site (see sidebar blogroll)]

“Let us first get one thing out of the way; the Canadian housing bubble will burst. Just like real estate bubbles in Ireland, Spain, England, and the United States real estate bubbles do burst. Timing is always hard to predict but undoubtedly these bubbles pop because they are fueled by easy and hot money. Even at the apex here in California arguments were bandied around regarding foreign money, low interest rates, and other nonsense trying to support a ludicrous bubble.” …
“The U.S. housing market peaked in 2006 and it looks like Canada is five-years behind the curve. The rise in Canadian real estate is simply unjustified. Household incomes in Canada have not come close to keeping pace with real estate values in each respective market. … Real estate values in Vancouver have shot up by 142 percent since 2002. There is absolutely no justifiable reason for this except for massive speculation.” …
“The median household income in Vancouver is $67,550 yet the average detached home price is above $1 million. That is simply madness and even makes the California housing bubble look modest in comparison.” …
“By the way, I think Vancouver is a great place but it is in a major bubble. A lot of hot money from outside has inflated values. … Patterns like this are short-term just like Japanese buying in California during a previous bubble. These bubbles will burst because any housing market is going to be supported over the long-term by local households and what they can afford. These short-term speculative bubbles simply become landing grounds for hot money. The home price-to-rent ratio is already absurd in Canada.” …
“While many in Canada and places like Vancouver would like to deny a real estate bubble it is rather obvious to most outsiders. The bubble will burst and is looking very close to reaching a peak already. All the arguments and justifications were played out here in California as well. This is something that is very familiar especially now that we enter year five of the housing market crashing here in California. And just like the U.S. fringe markets pop first.”

Note how absurd the Vancouver market looks from a distance, or to anyone who sees it for what it is, “a ludicrous bubble”.
– vreaa

Spot The Speculator #72 – “My colleague has been bragging about the price of his house for the past 4 years. On Friday, I told him we are passed the peak, and that I know of two families who sold in June and are proud of their timing. He turned white.”

“My colleague B. has been bragging about the price of his house for the past 4 years. On Friday, I told him we are passed the peak, and that I know of two families who sold in June and are proud of their timing. He turned white. I showed him Larry’s graph on my laptop. Sorry to say it, but it felt good to look at his face. He could hardly work in the afternoon, trying to gather data on the web. His conclusion: he is late, and his last chance to cash in is in the next two months, if there is any HAM left.
I realized that, in his mind, he did not have a 2.5 million $ home, he thought he HAD 2.5 MILLION DOLLARS (and plans about how to spend it). And suddenly, those 2.5 millions have turned into 2.2, therefore he FELT HE HAD LOST $300,000. I now understand better the psychology behind a rush to the exit.
I also realized that for 4 years, he was never living in a home, but just camping in an investment.”

DEFAULT NAME at 15 Jan 2012 at 9:14am

This anecdote interesting from many perspectives:
1. Schadenfreude. (Yes, it does occur in mild mannered Canada).
2. Paper profits imagined as real gains. (Many have planned their futures around the imagined values of their homes).
3. Paper losses experienced as real losses. (And, until losses occur, people underestimate how painful taking losses can be. In this case, an imagined loss, thus far, of $300K after-tax, clear profit. How long would it take ‘B’ to earn and save $300K after tax? The thought of the loss is agonizing… thus, there is accompanying fear of further losses…)
4. Fear as prices fall; Urgent rush to market. (Price drops will beget price drops.)
5. Housing as a financial instrument rather than shelter.
6. Owners are almost all speculating on future price strength.
– vreaa

“A friend from Kelowna phoned me wanting to borrow some serious money ($50K). It is time for them to refinance their mortgage; Kelowna prices have collapsed since they bought 4 years ago; they paid $450k a house which is now worth $370k; to refinance at these new rates the bank said they have to bring up their equity to positive status.”

“A friend from Kelowna just phoned me recently wanting to borrow some serious money ($50,000). Of course this friend didn’t expect me to supply all of it but would be grateful if I could chip in a good $10k and they would try scrounge around the rest from other friends and family. Obviously, they had to explain why they needed so much money urgently. According to the explanation:
It is time for them to refinance their mortgage (or is it renew the mortgage). Pardon me, I have never had a mortgage before. Unfortunately, Kelowna prices have collapsed since the time they bought (about 4 years ago). They paid $450k for this nice suburban house which is now worth around $370k. I even went onto MLS and verified the prices in their neighborhood. My friend tells me that in order to refinance at these new juicy rates the bank said they have to bring up their equity to positive status. That is where the $50k shortfall comes in. My friend is at his wits end now. Keep in my mind my friend was being very incoherent during the phone call – I guess a result of the panic and desperation. As a result I had to do my best to piece together the pieces of random information he was throwing at me. However, he did specifically mention regret about getting in at the peak instead of having just rented a place until the crash. Strange! coming from someone who claimed rent was throwing money down the drain when justifying the house purchase a few years back. Also, he is worried about the security of his job.
I sympathize with his situation but, unfortunately, can not lend him the money because I know there is no chance in hell of me getting back my $10k. Also, my $10k will not make any difference considering that it will be almost impossible for him to raise the other $40k. That means I will have to finance the whole 9 yards – now what are the chances of him paying back $50k. I am personally moving to Alberta next month and will be buying my first home and therefore will need all the cash I can get my hands on.
If this is where Vancouver is headed, then there is gonna be some serious misery in this town. Already, Victoria is headed that way. Refinance day will be judgment day (that is if you have not already been laid off before that date). Family and friends will not help you out of this one. Especially, local friends who will also be in the same predicament.”

– IamOuttaHere, sent via e-mail to VREAA, 14 Jan 2012 [Thanks, IAOHere! -ed.]

Condo Sellers Are Already Losing Money – “Owner bought pre-construction for $525K. Building occupied 2008. Net rent is about $800/mth. Decides to sell over renting again. Listed for $399K.”

“Gave notice to vacate my rental condo as I found a place much cheaper, suits my needs better.
Owner bought pre-construction for $525K
Building occupied late ’08
I was the second tenant.
After taxes and strata net rent is definitely not over $800/mth
Owner decides to sell over renting again.
Listed for $399K
Two showing about the day the listing hit the airwaves two weeks ago, not one since.
I’m sure this ‘investor’ when queried about his ‘real estate investments’ will say he ‘did OK’ or ‘lost a little bit’ or even brags about real his estate prowess.”

chilled at 14 Jan 2012 10:48am

“This anecdote got me thinking so I ran some numbers. Took all attached properties in REBGV between 398,000-399,000 which are between 2-4 years old. Where are these sellers at? Of 24 items in my sample, 13 would net a loss on sale for an average loss of 31,000 if they sold at asking price and 16 would net an average loss of 44,000 if they wold for 5% off asking price.
OF the gains, there were some. Could also be location / timing of pre-sale that drove the gains.
For some actual data, took all sales since November 1, 2011 with selling price between $385K and $395K. This resulted in 14 sales.
The results were all over the map but 8 properties sold for an average loss of $32,000 and 6 properties sold for an average gain of 75,000. Overall average was break even.
If you look at market psychology, it is easier to take a sale where you are going to make profit and thus this is an interesting sign that 8/14 transactions were at a loss. 3 of the 6 gains were in downtown and they seemed to have almost artificially low pre-sale values (which could mean they were insiders). Biggest losses were Richmond and Burnaby.”

ZRH2YVR at 14 Jan 2012 11:33am

“I know a contractor currently putting $800k into a house near UBC that will be listed in the spring. Sale price should be over $4 million. Big chunk o’ change.”

“I know a contractor currently putting $800k into a house near UBC that will be listed in the spring. Sale price should be over $4 million. Big chunk o’ change.”
thinktom (a local realtor) at RE Talks 11 Jan 2012 9:05pm

Would very much like to see more figures on this kind of venture.
How big is the profit margin on such a buy-reno-sell spec?
How large a ‘can’ are these contractors carrying? Risky business given market developments.
– vreaa