Sentiment & Prediction – “This city is for those with equity. Your governments have abandoned you. Everyone wants the RE gravy train to continue and measures will, and have been taken, to keep the party going. Nobody cares about a small, silent minority of prudent renters. You are invisible.”

“Ah…another year and another year of failed predictions to come for the bears…
I always love January…its the start of the delusional bear “wishful thinking” season…
January rolls around, and out comes the threat to prices from a blossoming inventory; soon, after no price declines, we move into Spring, with the criticism of stupid buyers as bears watch strong sales and inching up prices; then comes summer, with declining inventory, and wails of dirty asian money and cheap money; then comes fall with increasing inventory, but no price declines despite “poor” sales; then comes the next year…
Ah, repeat….for the 7th year of failed predictions for some of you (circa 2005)
You have one life to live bears…
Maybe its time to take a page out of “formervancouverresident”‘s play book, and move on…
This city is for those with equity after not “sitting on the sidelines” for almost a decade and those rich Asians that have no problem laundering their ill-gotten gains here.
Face it, the federal government has abandoned you; your provincial government has abandoned you; and your local government has abandoned you. Everyone wants the RE gravy train to continue and measures will, and have been taken, to keep the party going. Nobody cares about a small, silent minority of prudent renters… you are invisible.
Your family and friends all question your intelligence for sitting on the sidelines, and quietly whisper “I wish they would just do the right thing, and settle down, and buy a place”…
Time to move on boys and girls…”

Move On at vancouvercondo.info 1 Jan 2012 11:35am

Vancouver RE has indeed been in a speculative mania since 2005, perhaps it started as early as 2002-2003, and ‘Move On’ is correct to note that a small group of bears have been pointing this out since then. Remarkable, eh? The audacity!… the tenacity! But that is what happens in bubbles. Bears look sillier and sillier until they suddenly, spectacularly, look right. (Then everybody goes back to ignoring the contrarians, again…).
But ‘Move On’ is wrong about other things:
Just because a bubble expands for a long time doesn’t mean it transforms into a stable entity. On the contrary, it becomes more and more likely to implode, and the implications of the implosion get more dire the bigger it gets.
Also, there are no powerful ‘hands’ supporting the speculative mania. It has been the product of self-perpetuating market forces and myths; the results are far larger than any entities could hope to ‘orchestrate’. Conversely, when the bubble begins to implode, governments will be powerless in attempts to keep it inflated. Market forces are far more powerful than any available ‘measures’.
‘Move On’ will be proven wrong; until then, ‘Move On’ appears to the superficial observer to be ‘right’. This is always the way it is with these market phenomena.
– vreaa

34 responses to “Sentiment & Prediction – “This city is for those with equity. Your governments have abandoned you. Everyone wants the RE gravy train to continue and measures will, and have been taken, to keep the party going. Nobody cares about a small, silent minority of prudent renters. You are invisible.”

  1. “This city is for those with equity after not “sitting on the sidelines” for almost a decade and those rich Asians that have no problem laundering their ill-gotten gains here.”

    The upshot here is that talented and skilled individuals from other cities are increasingly realizing this and will begin to refuse Vancouver-based job offers, hollowing out the local economy in the process.

  2. happy new year. nice chart in previous post. -13% since peak (if that was it) in 7 months, is -22% annualized rate. 2 consecutive years of -20% seems not so outrageous a prospect. i still believe the breakdown for van will be swift due to the recognition factor.

    thought about this over the break and came to the conclusion that the high tax rates are absolutely a factor in driving debt/income levels so high (higher than peak US comps) and driving RE prices to these levels. with fully-burdened tax load >50% and limited other opportunities, one could easily justify jumping into to RE spec. it is an opportunity to retire or at least make a big chunk of it in a few years vs decades of the alternative. stay repressed or get a taste of freedom – fully tax sheltered or cap gains rates on fast income. of course, at best a zero sum wealth transfer exercise for the community since someone must buy overpriced in order for another to sell overpriced.

    interest rates do not need to go up to bring prices down. debt/income is at very high levels and a large fraction of local income is RE-based. without external inputs, there needs to be a high churn level to keep income up to service the debt (each transaction co-opts the savings of buyers directly and that of taxpayers via credit funding). just a big drop off in transaction volume will be enough to drive defaults and prices.

  3. Basement Suite

    “interest rates do not need to go up to bring prices down”

    I truly wish that were true. But I have heard so many stories from people I’ve met who say how much they can afford now thanks to never-ending emergency rates, like actual mortgage rates with a 2 handle. These are real people who are happy to pay a boatload for an old house/condo. This environment favors them. It hurts those with money saved to put down, and income to pay it off fast. If you buy a house almost outright, you still don’t save much in interest because most of the cost is principle what with “emergency” rates. During times of normal rates, if you save money, then put a lot down, and are able to pay it off fast, you are rewarded. The no money down guy who does it all on debt with minimum payments is the winner.

    It’s hard to imagine this thing collapsing without a rise in interest rates, which is not in the foreseeable future thanks to the Bank of Canada’s follow-the-US-fed policy. I wish it would blow up all their faces, but I don’t see it happening. Hope I’m wrong.

    • I think it’s also important to consider the impact of rates not continuing to move down as well. This factor alone is relatively bearish from the perspective of current prices. Probable future credit spread widening and the potential for outright rate increases will eventually determine the rate and extent of RE price drops within the context of other local fundamental factors (ie. the China factor for Vancouver).

    • Basement -> “These are real people who are happy to pay a boatload for an old house/condo.”

      Yes, but these people will not stretch to pay the boatload in a falling-price environment.
      It won’t take interest rate increases for prices to fall… all it will take is for prices to start to fall (if that sounds circular, it’s because it is). Perhaps already begun.

    • Basement Suite

      Airedales and Vreaa, I do hope you are right!

    • Changes in the CMHC mortgage insurance rules (e.g. raising the minimum down-payment to 10%) would probably lead to a rapid decline in house prices even without an interest-rate change.

      • Basement Suite

        Is anything like that really going to happen though? I don’t think any government agency wants to “hurt” the RE market, though popping the housing boil is what the market really needs.

  4. “This city is for those with equity after not “sitting on the sidelines” for almost a decade ”

    Is it equity after prices drop? Some people who bought more recently will be under water and lose all their equity and then some.

    “It’s hard to imagine this thing collapsing without a rise in interest rates, which is not in the foreseeable future thanks to the Bank of Canada’s follow-the-US-fed policy. I wish it would blow up all their faces, but I don’t see it happening. Hope I’m wrong.”

    In the US, interest rates are still fairly low, prices still continue to drop and home purchases are not exactly rosy.

  5. “In the US, interest rates are still fairly low, prices still continue to drop and home purchases are not exactly rosy.”

    I know, but it was the short spike in interest rates there that finally popped that bubble. Does it re-inflate easily? Guess not, and good to see. But the rate spike popped that bubble. I have heard enough personal stories here of people laughing with their 2 handle mortgages on huge debts that they can easily service, that I don’t see it collapsing. Maybe some articles point to some who are having a hard time, but many others I’ve met can service their over-priced RE with ease via a 2% mortgage. Rates wil not go up soon, therefore the bubble will not pop any time soon.

    • For the US, it wasn’t the rates. Funding effectively dried up starting with when Mbs paper with subprime exposure had to be marked down. VCR over the top more likely from exhausting pool of buyers willing to assume big debt loads, not boc or cmhc policy changes. Prices appear to have stagnated and reversed. If outside money does not come to pick up all this spec new construction at profitable prices, especially on the westside, the idea that you can buy high to sell higher is nixed. That would ‘pop’ it and weight of high debt/income does the rest.

  6. Shazbot McShazabator

    Interest rate increases are not going to precipitate substantial price declines. Declining volumes and changes to buyer sentiment will be the drivers for price declines. Those that bought before 2002/2003 will still realize capital gains after the adjustments in Vancouver, but those buying after 2002/2003, especially those buying near the peak in 2010/2011, will not realize a capital gain until the next generational bubble in 20+ years.

    2012 will be a bad year for RE, but a good year for those that are liquid (definitely a minority in Vancouver with so many over leveraged in RE) First time buyers, should keep saving until Fall 2012 at a minimum, buy with a minimum 20% d/p and 5 year fixed term, and demand/negotiate steep discounts.

  7. You eventually have to pay the piper. Sooner or later, you must pay what you owe. I see Global led its newscast last night discussing the numerous general cost-of-living increases we can expect in this already criminally overpriced region. From gas to electric to car insurance to city utilities, it’s all going up baby. And CKNW began its newscast this morning with a quick spot on increasing property taxes (of course one of the delicious side effects of past property value escalation).

    There’s no escaping it. The Very Bestest Best Rainforest On This Here Entire Earth is breaking people, and it will do so far more in 2012 than it did in 2011.

    Meanwhile, as best I can tell, China is a total, sordid mess. Those who look to the far east as our savior had better soon look in a different direction. Except there *are* no different directions. Not now, and not for a good long while.

    IMO, people have viewed the one thing that’s breaking them the most – real estate – as their eventual saviour. Yes, they say, we paid far too much for a large wooden box and we pay far too much for virtually everything else in our lives (have you seen the cost of a case of beer lately?), but in the end, the value of our large wooden box will be so inflated, so immense, that all our financial pain will have been worth it.

    FAIL! It won’t be. It *can’t* be. As VREAA alludes, this pyramid scheme hit its peak in the helicopter-crazed spring of 2011.

    BTW, speaking once again of choppers and shysters – er, realtors – I do find it interesting that heli-pilot extraordinaire Cam Good now sells “investments” in US real estate. That’s right, Cam now urges people to get their real estate groove on not in Richmond or Van West, but in the good old US of A. And it’ll only cost you $50,000 to avail yourself of his amazingly awesome Arizona acumen:
    http://www.terrizona.com/company/founders

    Complete. Joke.

  8. Shazbot McShazabator? I have no idea why that’s funny. But it is.

    • I totally agree. I’m thinking it’s got to be an allusion to an electrical appliance typically purveyed in ‘cloistered’ boutiques and taking, at minimum, two D sized alkaline batteries. Just imagine the infomercial!

  9. 4SlicesofCheese

    Only in Vancouver will you see a newspaper headline that we have a shortage of free crackpipes.

    http://vancouver.24hrs.ca/News/local/2012/01/02/19191986.html

    • They’re giving liquor out for free to alcoholics now; aparently there is no longer any fault or stigma associated with substance abuse.

      Drugs are illegal, what we need is a hospital-jail-combo where if you’re caught using multiple times, you are designated an addict and thrown into a rehab-jail until you are 6 months sober. If you get thrown in again, 12 months sober, keep repeating and eventually addicts will get clean, get a job, and give back to society. Handing out free booze, drugs, and crack pipes may reduce the load on hospitals and policing but will never convert the addicts to contributing members of society.

      On the other hand, just let Darwin take care of things

  10. “Face it, the federal government has abandoned you; your provincial government has abandoned you; and your local government has abandoned you. Everyone wants the RE gravy train to continue and measures will, and have been taken, to keep the party going. ”

    If this truly was the case, inevitably the market would have to crash. The government represents voters and if first time buyers can no longer afford to buy, the most manipulation could do is prevent a decline…for a period. Evenutally those that cannot afford out number those that have bought and guess what, calls will be made to government to bring prices back to reality. If politicians want to keep their jobs, they’ll have to react.

    Of course things won’t roll this way, the safest route for any politician is not to get involved and let the market manage any growth or crash – if you didn’t meddle, nobody can blame you and it is easier to appeal to both sides for re-election.

  11. It certainly is over for me- I’m leaving! There is no scope for even holding the line in Vancouver.

    I am one of the most versatile and competent people you could probably ever get to work for you in nearly any type of business, and have watched all the work move farther and farther out towards the valley since around 1998. I have also watched the quality of jobs deteriorate to the point a large proportion of jobs on offer are contract, part time or consultant, for about half what similar work would pay in other regions of Canada.

    The obsession with RE has poisoned Vancouver- it has been a tremendous mis-allocation of resources, there was a link recently on one of the sites that indicated there are roughly 40 more business licenses in Vancouver than there were in ~1997…this doesn’t bode well for anybody. The idea that wealth is created only via real estate investment or other get-rich-quick schemes has driven investment away from business. What’s more many businesses that might well do OK in Vancouver can’t survive because the businesses that support THEM aren’t here. Warehousing and jobbers have fled the Vancouver area over the last decade, as an example.

    The constant war on automobiles here has made it complicated and costly to operate a car, and I’d remind you, the people in those cars are going to work, who do we think pays for everything? The AirCare fiasco has had one primary achievement, it’s taken away basic transportation from single mothers in the LM.

    I will be moving out of province, to a city I frankly detest, but that I have familial ties to that offers me about twice the income, twice the space, half the red tape and niggling issues, virtually no crime or street people or rain and I’ll visit BC as a tourist next time. 21 years is enough, I am not having my living standards degraded incrementally until I am living like a college student, which is about the nest that could be hoped for here.

    I’ll miss my beach, but little else, unfortunately. Most of the things I consider the good stuff about Vancouver haven’t actually existed here for many years.

    whiteshoes

    • whiteshoes -> Many thanks for posting your story; we’ll headline it.
      We are sorry to hear that you are leaving. As you know, you are not alone.
      We believe you are accurate when you describe the profound misallocation of resources that the Vancouver RE mania has caused. Arguably, the worst of these is the squandering of human capital.

      • Now don’t be tellin’ any fibs, IllustriousEd… WhiteShoes polemic was more eloquently powerful/predictive than any a chart ever was.

        Were’nt it?

        PS – Yes, I would be the first to concede that the pretty graphs have their place – but, as with all mathematical abstractions… they are, perhaps, best kept firmly ‘in their place’; i.e. – useful, in a rear-view-mirror sense but lacking the emotive impact and predictive utility of of TheGrandNarrative… Naturally, that’s just one Zombie’s opinion.

        BonneChance, WhiteShoes…

      • Nem -> I humbly beg to differ (but at the same time am quick to point out that TA is limited and that charts can be abused). I do believe that TA is more than mere rear-view mirror stuff, and that it adds an edge, and, if combined with other techniques (fundamental analysis; contrarian analysis) your ‘edges’ can add up. It’s all about positive predictive value. Quite easy to test in the markets, using one’s pocket-book.

        We’re most likely simply going to have to agree to disagree on this one.
        I’m aware there is no empirical evidence of the value of TA.

        And, yes, ‘Grand Narrative’, is very persuasive.

      • – there’s plenty of empirical evidence for technical analysis with charting just one aspect. If you think market prices are determined by fundamentals, just look at the Vancouver RE market. Markets are not efficient over the short to medium run which is why traders and investors use technical analysis. I’ve known many in the commodity markets who consciously choose to ignore the fundamentals because they can cloud a pure objective / technical view of market price action. My own opinion is that when the technicals and fundamentals line up, it’s go time because the vig is no longer with the house. Vancouver RE is obviously a huge short but most easily traded by leaving or renting as per the current post.

  12. I would much rather listen to a chart that has told me to hold for 4 years than anecdotes that have told me the top is in (every month) for the same period.

    You need to use a variety of indicators (including volume/listings, of course) and you need to pay attention to markets other than the one staring you in the face every morning.

    I am not optimistic on precious metals (or the equities market in general) in Q1-2012, for what it’s worth.

  13. I came here looking for some concrete predictions. Found none. What’s up?

    I’ve got a poll posted for 2012 as well as results for last year.

    BTW, the link to my site on your blogroll is a little off. Should be “robchipman.net” without the “/blog? added, as in http://www.robchipman.net

    Go by and vote you guys! have some fun.

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