Macleans – ‘Time to panic about the housing market; Why is everyone ignoring this unfolding disaster?’

“Nicole Austin, 31, and her boyfriend, Jim Varlas, know the mania all too well. The couple decided to sell their downtown Toronto condos and buy a house in Markham, a suburb north of the city. They moved in with Varlas’s parents and started shopping around for a house with a budget of $400,000. “Either the homes in our price range were really outdated and hadn’t been touched since the 1970s, or they would need to be renovated,” Austin says. They upped their budget to $500,000 and bid on three homes. They lost all three in bidding wars that pushed prices up as high as $575,000. “In some cases we knew what the house was worth and there was a certain point where we’d just walk away because it was getting ridiculous,” Austin says.
Earlier this month, the couple settled on a new build, paying “in the mid-to-high 500s.” But Austin says taking on a larger mortgage than expected was a fair tradeoff for finding a house in their chosen city. The couple say they expect prices to crash, but that doesn’t matter much since they plan to be in their home for at least 10 years.”
– from ‘Time to panic about the housing market; Why is everyone ignoring this unfolding disaster?’, by Tamsin McMahon, Macleans, 28 Feb 2012

The entire article is a ‘must-read’. Startlingly bearish for such a prominent, mainstream publication.
This issue’s cover was previously archived here.
Excerpts:
“Here in Canada, we patted our backs for not falling into the same trap, and basked in the spotlight as the world’s new beacon for financial stewardship. It’s a compelling narrative that has been promoted by the federal government and the Bank of Canada as they encouraged Canadians to spend their way through global economic turmoil.
But pry through the pocketbooks and bank accounts of the average Canadian and the country looks remarkably like the America of 2005—or even worse by some measures—complete with record house prices and unprecedented debt.”
…
“Since 2008, Canada’s ratio of debt to after-tax income has exploded. By the third quarter of 2011, Canadians owed an average of $1.53 for every dollar they brought in, up 40 per cent in the past 10 years and just below where the U.S. was before its housing crash. By the end of 2010, the average homeowner had just 34.3 per cent equity in their home, the lowest level in two decades and a 20 per cent drop in just four years.”
…
“There’s also a sharp rise in home ownership rates, which at about 68 per cent of Canadians mirrors closely the 69 per cent at the top of the U.S. bubble.”
…

All of the dots are laid out so obviously now, but it’s still extremely painful for most to draw the logical conclusions.
People ‘know’ that this is a bubble, but they refuse to really accept what that means.
Fantasies of mild pullbacks satisfying the ‘bubble gods’ abound.
Speculative manias only end when the excess is wrung out, when prices drop to levels supported by fundamentals, and, usually, there is overshoot to the downside. For Vancouver RE, this means price drops of 50%-66%, perhaps even more.
– vreaa

Learn From The Hindsight Of Others – “Your mistake was buying a house that was overinflated by over 100% of its actual value and not seeing that housing prices can’t keep increasing 10% a year indefinitely.”

“I found a blog post through the Wall Street Journal and while the post is from mid-2011 and pretty standard, the comments from US RE victims was very interesting. Take a look at the post for a good example of fallout.”
– ‘MC’, via e-mail to VREAA, 27 Feb 2012 [Thanks, MC. -ed.]

In the article, the blogger ‘Thursday Bram’ writes: “When you purchase a house, the general rule is that you want to be sure to be in the same location for at least five years. Otherwise, financially, you’re probably going to take a hit.”

Some comments on the post:

‘houseregrets’, June 6, 2011 at 7:06 am –
“You might want to take into account the millions of people like us who bought a little starter home back in 2006 (just to get in the market– advice was to get in and build equity to sell for a bigger home). We didn’t buy at the top of what we were told we could afford, and we chose a 30 year fixed mortgage, not being persuaded into an adjustable rate. Now, two kids later, 5 years later, our house is worth $100,000+ less than what we paid, we have way outgrown this starter home. With 2 stable incomes, we aren’t approved to do a short sale and just have to live with the situation. With forecasts that the bottom hasn’t yet hit and might not for a few more years, you might want to adjust this advice to say it’s a 10+ year rule.”

‘Also bought in ’06’, June 12, 2011 at 6:03 am –
“I agree with houseregrets. We bought a modest starter home in early 2006, snagging a 3 bedroom, 1500 square foot Cape in a quiet neighborhood. Rather than doing stupid things with balloon or interest-only junk loans or maximizing our borrowing power, we calculated a comfortable payment and worked backwards to figure out our max house price. We have a 30 year fixed rate loan and got a wonderful rate. The assumption we made was that we would likely sell and move up to a bigger/better house in 5-7 years. 5 years later, comps in our town have nosedived in value. If we had to sell today, we would be lucky to get what we owe on the house (and it would take 6-12 months to sell, assuming it did). After realtors’ commissions and closing costs we’d walk away owing money. So paying our mortgage faithfully and on time for 5.5 years has gotten us zero equity, and in fact we have essentially “lost” the tens of thousands of dollars we put down on the house and have invested into improvements.”

‘Michael Henson’, October 30, 2011 at 11:14 pm –
“Not true. I bought for $300K in 2006, put $60k down, made all payments on time, and I even paid an extra $20 k on the principle. My rate is 6.5%. My house is now worth $125k, if I’m lucky. I now owe $209K. So where was my stupid mistake and overstepping my means?”

‘Pete’, January 4, 2012 at 7:59 am –
“Your stupid mistake was when you bought a house that was overinflated by over 100% of its actual value and didn’t see the writing on the wall that housing prices can’t keep increasing 10% a year indefinitely.”

“After two years of convincing my friend of a housing bubble, he decides to list his Burnaby condo. Open house over the weekend, no one came.”

“After two years of convincing my friend of a housing bubble, my friend decides to list his 1 br Burnaby condo.
Open house over the weekend, no one came.”
– 4SlicesofCheese at VREAA 27 Feb 2012 11:47pm

Ian Watt, Realtor – “I don’t like to do predictions on real estate. I own a few properties, and I’m not selling them anytime soon. My plan is to hold them for the long term.”

“I’m not an economist, I don’t understand any of that, I am very uneducated when it come to the economy, what I do know, though… I don’t like to do predictions on real estate, I’m hired, basically, to market, expose and facilitate a transaction, that’s pretty much it.. that’s all I’m hired for… I’m hired to get the best dollar, at the best price, for the present market conditions, no matter what’s going on”

“So, I don’t really know the answer.. if we’re in a bubble or not. But, I don’t think there’s anything that indicates that our real estate can go up any higher in the next year or two… probably, if I were to bet if it were to go up or down, I’d probably say that it has better chances of going down than going up, in the next year… Having said that, I do own a few properties, and I’m not selling them anytime soon. My plan is to hold them for the long term.”

– Ian Watt, local realtor, self-posted video at youtube, 25 Feb 2012

—

The first paragraph is very, very smart realtor talk. We believe that that is precisely how good realtors should present themselves… as expert deal facilitators and not market predictors. Most don’t, of course, and can’t resist predicting future market strength.
Ian is himself on record as having made statements like “I don’t think that [Vancouver RE prices] are going to drop 30% back to prices of 15, 20 years ago. I just don’t see it happening” [VREAA 9 Nov 2010], so he seems to at times break his own rules.
Ian tells us he owns “a few properties” and it would be interesting to know what percentage of his net-worth is in Vancouver RE.
Also, it’d be interesting to know how strong his hands are… would he keep holding at 20%-, 25%-, 30%-, 35%-off?
– vreaa

[PS: Yes, connoisseurs, that’s another gorgeous back-alley shot that Ian has scouted. He remains Vancouver RE’s “undisputed King of the DashCam”, and more of his work can be seen in our ‘Realtor DashCam Gallery‘, where he still holds poll-position. -ed.]

One Of These Things Is A Lot Like The Other – “Australian prices matched other countries’ bubbles until 2008. But while the real estate process elsewhere has since been deflating, Australian prices marched higher after a brief respite. The sharp deviation of rents from rapidly growing house prices completely refutes the bullish case for a housing/land shortage.”

.

Australian fundamentals, or lack of them. Enough to make a Canadian homesick.
—

“It’s different from the US. The Australians have a very strong economy. China is buying our coal and iron ore like crazy! That’s not going to stop any time soon.”
…
The Australian economy today
What the bulls will tell you:
“The Australian economy is a true success story compared to those of other developed countries. It almost completely escaped the “Great Recession” and with its GDP slightly dipping for only one quarter in late 2008, its unemployment stands today at an enviable 5.1%. Real estate is booming. Until recently, the Reserve Bank of Australia was raising rates to fight inflation and “economic overheating.”
Reality:
The reality is starkly different: Australia has a very vulnerable economy where upcoming bad news has not been “priced in” at all. The country suffers from an epic real estate bubble that greatly exceeds those of US, Ireland, and Spain. The average Australian consumer is completely tapped out. Take out a “consumer credit” punchbowl and reduce the Chinese voracious appetite for iron ore and coal, and the Australian economy will collapse like a house of cards.
…
Australian Real Estate Bubble
What the bulls will tell you:
“We hear bubble warnings all the time today as many people see bubbles everywhere where a price has appreciated. You can hear about “commodity bubbles”, “treasury bonds bubbles”, “new dot.com bubbles”, etc. Australian housing is built on solid fundamentals due to economic and population growth. There is not enough land in large cities to build houses to meet ever-increasing demand.”
Reality:
It’s always instructive to take a look at historical trends and plot a “mean-reversion” graph before concluding that something is significantly overpriced.
Optimist’s claims are not supported by any other data such as high GDP growth rate, rising rates, or increasing construction costs.
What’s truly remarkable is that the Australian economy had sub-par GDP growth rate (under 2% vs. USA over 3%) for the last 30 years, while real estate prices significantly outpaced those in the USA. The fact that the Australian real estate bubble is probably 30 years old is missed by many observers who plot data from the year 2000.
Australian prices matched some of the other country’s bubbles until 2008. But while the real estate process elsewhere has been deflating, the Australian prices marched higher after a brief respite.
The sharp deviation of rents from rapidly growing house prices completely refutes the bullish case that Australia is experiencing a housing/land shortage. The rising income and rising construction costs were (at best) only minor contributing factors to the price rise.
…
What may “pop” the bubble
The Australian real estate bubble has run longer and deeper than recent property bubbles in the USA, Ireland, and Spain. Heavily indebted Australian consumers, just like those in America, have a large portion of personal wealth tied-up in real estate. The price correction has not yet run its course (the mortgage defaults hover around 2%). When it does, it will certainly plunge the Australian economy into a severe recession.
…
– from ‘An Epic Australian Bust’, Igor Novgorodtsev, Seeking Alpha, 27 Feb 2012 [hat-tip Farmer]

“Another two people I spoke to in passing have just decided to list their homes because they fear impending price declines.”

“Another week, and another two people I spoke to in passing have just decided to list their homes because they fear impending price declines… One of them told me their realtor showed them an inventory graph that sounded remarkably similar to the one from VCI, and also said the shit will hit the fan in spring, and that they should really hurry and list to try to catch the last of the HAM before the China crash tightens up the availability of funds from there… and that SFHs will see large declines in sale price this year.”
– TPFKAA at VREAA 24 Feb 2012 at 8:07pm

“I was at supper with a large group of friends earlier this week, many who are Westside owners, when one who had never mentioned RE before piped up “Sometimes I think we’re fools not to take advantage of these high prices and sell.”
– West-side Frank, via e-mail to VREAA, 23 Feb 2012

—

Pumps are primed (People ‘know’ it’s a bubble).
It’s going to happen (Rush to realize profits; sellers storming to market; buyers backing off; steep price drop; self-perpetuating further drops).
– vreaa

West-Side Report – “8 yr old SFH; $3M+ ask price; 150 people through multiple Open Houses; No bids yet; Seller has already bought a new house nearby”

“Over here on the West Side, I’m starting to hear some noises like those made by untied, inflated balloon when they are let go.
Stopped by an Open House for a place built in the last 8 years, a few blocks away from where there have been recent bidding wars for teardowns. $3-million plus pricetag for this place. The listing realtor said close to 150 people had come through over the course of multiple Open Houses. No bids yet. The would-be seller has already bought a new house in another nearby neighbourhood. I got the feeling that not only the listing realtor but the seller was starting to get nervous about unloading this house.
Saw another very unbusy Open House a few blocks away for a $2-million- plus newer place, built in the last 15 years and reno’d 3 years ago.
Teardowns look like they may be the most popular right now in this neighbourhood, but I’m wondering if the first signs of a real West-Side SFH slowdown are appearing, as I’ve suggested before, in the more newly-built inventory.”
– Vesta at VREAA 19 Feb 2012 5:20pm

“This City is different.” [‘Vancouver RE-Verse’; Found Poem]

A recent children’s figure skating performance
at Sunset
brought in an inordinate number
of BMW, Land Rover,
and Mercedes.
I watched it all
while sorting through garbage
looking for cans
for deposit.
.
This City is different all right.
The kicker was the 7 series Bimmer
double parked at the entrance.
Any other town
I’d say it was a drug deal.

.
– jesse at VREAA 25 Feb 2012; spotted by zerodown.

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

Firm Investing In BC, ON & Texas RE Seeks Protection – “Former clients raise spectre of Madoff.”

The distance from the gleaming towers of Canada’s financial district is not just physical: horses, feed stores and winding roads surround First Leaside. The large, black-gated property that housed First Leaside Group of Companies was also where the firm’s chief executive, David Phillips, lived.
Yet, about 1,200 investors, some in the prime of their professional lives and others in retirement, poured their savings into the unlikely spot, to the tune of some $370-million.
…
In reviewing how they came to invest in First Leaside, which owned and was refurbishing multi-unit real estate properties in Ontario, British Columbia and Texas, some investors now wonder why they received so many phone calls — or cold calls — trying to entice them. Others who were referred by family members or co-workers remark now that the firm’s operations did not resemble a typical investment office.
First Leaside was run from buildings on a property in rural Uxbridge, including the home of Mr. Phillips, the firm’s co-founder and chief executive.
…
In light of the revelations in the Grant Thornton report, some investors with their life savings on the line say they think the regulators were too slow to act. They wonder why they were able to make investments in First Leaside in the first place, especially since they have now been told protection under the Canadian Investor Protection Fund that comes with IIROC membership may not apply to them.
– read the details in ‘Investment firm First Leaside Group seeks protection, as former clients raise spectre of Madoff’, by Barbara Shecter, Financial Post, 25 Feb 2012 and ‘First Leaside enters creditor protection’, FP, 23 2012

Thanks for the links to the above via e-mail from ‘CM’, who adds:
“This jumped out at me:
But, according to the court filings, the economic downturn created or exacerbated problems at First Leaside, where real estate investments were highly leveraged as a result of the business model.
“Unfortunately, due to the recent recession and its negative impact on the real estate markets in Ontario, British Columbia, and Texas, it has become difficult to achieve First Leaside’s estimated rental revenues,” the court document states.
Maybe everybody bought and there was nobody left to rent to? Also:
In a startling series of revelations beginning in early November, First Leaside told investors that a probe by regulators had resulted in a curtailing of the firm’s operations.
The regulatory concerns came with a warning that it was “not appropriate to be using money raised from new investors to fund operating losses, rehabilitation costs and distributions to existing limited partnerships.”
It sounds like it started out legit, then as the losses stacked up, new money was used to plug holes in older accounts. Same old same old.”

Further info:
On September 8, 2011, First Leaside also acquired The Shores Retirement Residence, Cherry Park Retirement Residence and Orchard Valley Retirement Residence in British Columbia from PrimeTime Living for an aggregate purchase price of $25.4 million.
The purchase price for the British Columbia properties was paid in cash and financed by a $19.4 million mortgage provided by The Toronto-Dominion Bank.
– Borden Ladner Gervais website
[Any other known BC projects for First Leaside? -ed.]

Archived here because any news associating ‘BC Real Estate’ with distressed investors, and words like ‘Madoff’, is noteworthy at this time, given the developing skittishness and widening acceptance of the existence of our ‘bubble’.
– vreaa

Opinion; Food For Thought – “The people of this region have a near infinite capacity for diminished expectations. Personally, I’m planning to move because I want something better.”

“It may not end.  The people of this region have a near infinite capacity for diminished expectations.  They seem to always do what they are told and accept what they are given, and no matter how ridiculous it is.  They will pay more and more for less and less.  Today it’s $700k for an old basement on a busy road in hookertown.  Tomorrow it could be $1 million dollars for a tent and a license to beg in the rain.  It’s the best place on earth you know.

That’s the true value of Vancouver: chumps.  There is an inexhaustible supply of fools who will never look elsewhere and the media apparatus to direct them.  Pay $10 for a hot dog?  Lineups for days.  Why not $100?  Limited time only.  Buy now.  These people will pay anything and do anything, regardless of whether it makes sense, and that’s why Vancouver is so valuable.  It’s not the land, or the scenery, or the climate, and it’s certainly not the standard of living.  It’s the people.

You can argue from simple mathematics that eventually this must end.  The population will be unable to pay for it.  This is true, but don’t ignore the fact that so many 60 year olds have 40 year mortgages.  When the general population can wield sums of money that they have no hope of repaying the integrity of the system is lost.  Money doesn’t mean anything in Vancouver, and under current policies Canada is sure to follow.  We have socialized credit and destroyed capitalism.  Newcomers don’t own anything in Vancouver and won’t get the opportunity.  It’s like a communist country, which is maybe why HAM finds it so appealing.

As for options, with the precedent established and the trend so firmly in place, there is no reason to bet on a reversal.  In 2008 this new system cracked and the authorities handed out gobs of money to favoured groups until it was fixed and the transformation could continue.  They invited corrupt CPC officials to immigrate and launder an unprecedented amount of money through Canada.  Anyone betting on an ounce of fairness or responsibility was badly burned.

That’s it as far as I’m concerned.  The social structure in Canada is ossifying and the economic structure is in decline.  Our neighbours to the south have once again shown the way, by restoring balance to their system after only a few crazy years.  Despite this enormous cost (or actually, because of it) sensible investment opportunities exist in the United States.  That country is dynamic again.  The fact that an American dollar today buys twice as much food, twice as much house, and twice as much gas is a harbinger of things to come.  Canadians foolishly think they are better off, but Canada is going nowhere.  Trade your Canadian dollars at par while you can, and move to the US to enjoy the standard of living you expect and get the opportunities that everyone deserves.

The worst thing you could do in life isn’t buying a $700k Vancouver basement suite, it’s sitting around waiting for that to change.  It may not change, or if it does, it may take too long, or you may not like it anymore.  So you better have a plan in motion.

Personally, planning to move because I want something better, full stop.  Vancouver is just crap with a zero on the end, and Canada is grossly overrated too.  I’m 50% out of Canadian assets because I don’t think our dollar is worth what the world says it is.  I see China imploding instead of leading the world.  Their model of over-investment is near an end.  I think the next great invention will come from the United States, and the next bull market will be born there.  They have so many small companies working on the next big thing, you have no idea.  If you want opportunity, it’s there.  They have nice houses for $100,000.  Buy one and get on with life.  It doesn’t have to be perfect.  It’s as close to economic freedom as you are ever likely to get.  I am astounded that people on this website could be offered this and somehow turn it down.

Real estate and credit bubbles were the last decade, so why is Canada still mired in it?  Who even gives a shit?  In the greater world, nobody.  And nor should they care.  And nor should you.”

– rp1 at VREAA 26 Feb 2012 1:37am

Spot The (Wannabe) Speculators #73 – “A home is their best non-taxable investment, and besides, they have to live somewhere.”

“Jean and Gary plan to marry in April, pay off Gary’s student debt and save up for a month-long backpacking trip to South America. Easily done.
Their longer-term aspirations will take more effort. Mind you, at 28, their dreams look possible – a home, a family, a “robust” investment portfolio. Jean will graduate this summer and hopes to get a job, perhaps with a municipal government, paying in the $60,000 range. In the meantime, she gets about $2,100 a month working as a research assistant. Gary earns about $60,000 working for a regional transportation authority.
Already, they’re thinking about their financial future.
“We think we are generally pretty wise with our money but are keen to learn about financial planning and investing,” Gary writes in an e-mail. Once Jean starts work, they intend to begin saving to buy a house in Vancouver in about five years.
“We are unsure if we can afford to buy a place and wonder if we should continue to rent for the longer term,” Gary adds. Their rent in Vancouver is $1,600 a month. They figure a house that will meet their needs will cost at least $800,000 in that market. Alternatively, to get a foot in the real estate market, they are mulling buying a rental property in Gary’s hometown in small-town Ontario.
…
Once Jean starts working at a salary of $60,000 a year, the couple’s cash flow will improve substantially, Nancy Woods (investment adviser and associate portfolio manager with RBC Dominion Securities Inc.) says. …
Once the student loan is paid off in 2014, the couple will have a surplus of about $13,065 a year or about $1,090 a month if they keep their expenses in check. That’s on top of their registered retirement savings plan and tax-free savings account contributions. This money can go toward saving for a down payment.
With time and compounding at 5 per cent a year, they could conceivably save more than $160,000 by 2017, the planners calculate. They could withdraw $35,000 from their RRSPs under the federal Home Buyers Plan, $74,410 from their TFSAs and $52,000 from non-registered savings, for a total of $161,410.
Even so, they may want to rethink that $800,000 price tag on a home. If they put $160,000 down on an $800,000 house, they’d be left with a $640,000 mortgage. Amortized over 25 years with an interest rate of 5 per cent, the loan would cost $3,700 a month in principal and interest. If, instead, they bought a $600,000 house with the same down payment, their monthly mortgage payments would be $2,560. …
For their first home, Jean and Gary may have to start with something very small and out of their current area, the planner says. “A home is their best non-taxable investment, and besides, they have to live somewhere.”
…
– from ‘Building a foundation for long-term dreams’, Globe and Mail, 24 Feb 2012

Hey, with a household income of $120K, if they save diligently, they could afford to buy a basement suite in South East Vancouver, in 2017, for $600K. But, wait!… at the assumed annual property price appreciation of 7% to 10%, in 2017 that basement suite will cost them anything between $840K and $966K… The price will appreciate much faster than they can save! So, wouldn’t it be better for them to go all-out right now, get together as big a downpayment as possible (cue boomer-parents bearing HELOC derived gifts), borrow as much as they possibly can, and get into the market ASAP? Otherwise, they’ll be priced out, right? No chance of ever owning anything!
Okay, ‘/sarcasm off’; but you get the picture.
This is precisely the kind of perverse thinking that has gotten buyers of almost every stripe to overextend themselves, as early as possible, into as much RE as possible, in order to catch the Vancouver RE train. All premised on future price rises.
The couple in this story will possibly be okay. Our hunch is that a fair number like them won’t over-extend into anything just yet, largely because what they can get now at the top end of their budget is barely what they’d define as a ‘home’. Then the crash will bail them out.
Sometimes it pays to be so late to the party that it’s over when you get there.
– vreaa

“I’m American and planning a move to Canada and believe me, I’ll rent. I’ve seen this movie before. How some people keep saying that “it’s different this time” boggles the mind.”

“I’m American and planning a move to Canada and believe me, I’ll rent. I’ve seen this movie before. Record debt levels, low or zero down payments, long amortizations, prices screaming past any kind of wage growth, and absurd moral hazard conditions with the lending industry (everyone in Canada seemingly thinks that all the loans given out to people who couldn’t afford them in the US were perfectly within the rules, but that wasn’t the case, the banks just turned a blind eye and faked it during a period of “irrational exuberance”), just every factor in Canada seems to be what you’d see right before a crash.

I live in Boston, a very well protected city during the recession due to our medical, scientific, and educational economic core, and in particular, I live in a very posh area where no one defaulted and there weren’t any financial problems during the depth of the crash/recession, nevertheless, my condo at the low point was about $100K off from the high point. (My place dropped by about 1/3 at the low. EVERYONE got slammed.) If I would have sold when I saw the warning signs here (about 2007) I could have rented the exact same unit a floor above me and still be more than $30K in the black if I would have rented this entire time. When a correction hits, it hits everyone across the board and overshoot. People who think that only TO and Van will be effected are wrong. I’m planning to move to Sudbury, ON, a relatively remote place with limited economic opportunity, limited amenities, relatively low income levels, cold weather, and infrastructure problems, nevertheless, the prices there have probably doubled or more over the last five years. Just like in the US, if you give people access to cheap money, they spend it, quickly. And as to foreign investment, we had more then you do and those areas are some of the hardest hit because those foreign investors pull their money at the speed of light when things tend to go south.

I love Canada, I wouldn’t be moving there if I didn’t, but Canada has let itself go down the same path as the US and it kills me. Why so many Canadians look over to this side of the border and constantly tell themselves that they’re better is beyond me given that you keep repeating our history over and over again, be it a housing bubble, or torture, or bills which strip away privacy, or “tough on crime” legislation which has no effect other than to bankrupt the taxpayer, just on and on. How some people keep saying that “it’s different this time” boggles the mind.”

– this comment by ‘farrelli77’ at Globe and Mail 23 Feb 2012. 115-net ‘thumbs up’ at last count.

Basement Suite In East Vancouver Sells For $590K

“You can’t make this sh*t up. I posted a week ago about the insanity of the East Vancouver market giving the example of a builder who converted a 33×120 lot into a house with a strata titled main floor and basement, as well as a lane house.
Main house – V930752 – 1.2 mil
Basement suite – V930763 – $590K for 1,175 sq ft
Laneway home – (still completing) – +$900K
So, some guy thinks that a fully developed lot near one of the noisiest intersections in Vancouver proper (Kingsway & Knight) should be fetching him 2.7 million dollars. Another funny piece of info was that the stereo was pumping in the basement to drown out the sound of walking from the upstairs unit. Quality is job one.
Well, the basement of the main house has sold:
MLS # V930763
1262 East 19th Avenue
2 BR ‘Garden’ Suite; Strata
1175sqft
SOLD; Ask price $590K” [sales price yet to be verified]
– mflat at vancouvercondo.info 13 & 24 Feb 2012 10:02am

mflat is right, you can’t make this up.
It’s going to be ironic when the price of entire houses in East Van return to less than the price of a bubble basement.
– vreaa

UPDATE 8 Mar 2012:
This basement suite was featured on Global TV News, 7 Mar 2012
Video archived by Greenhorn; [story at 2:20]

“A lawyer knocked on the door of my rented house on the Westside of Vancouver this afternoon, and offered me $2.4M. He was going door to door asking if anyone wanted to sell.”

“A lawyer knocked on the door of my rented house on the Westside of Vancouver this afternoon, and offered me $2.4 mil. He was going door to door asking if anyone wanted to sell. He said he could by-pass any realtors and left me his card. I am trying to think of a way to sell him this house!!!!!!LOL!!The insanity continues”
– Westsider at greaterfool.ca 23 Feb 2012 11:29pm

Sounds like a normal market to me. – vreaa

UBC Condo Selling Pressure?

“55 new listings at UBC in the past 2 weeks.
HAM dump.”
– Best place on meth at vancouvercondo.info 23 Feb 2012 3:05pm

“I wonder what the total inventory is at UBC vs recent sales. There are lots of cranes, plus many signs warning of more. All for a 99 year leasehold and high maintenance fees. If there is a place in van west that is ripe for carnage this should be it.”
– ubc at vancouvercondo.info 23 Feb 2012 6:23pm

“38 for sale in Hampton place alone !?!?!?!? (UBC)
This is pure insanity.
People are rushing to the exit.”
– jumpin in at vancouvercondo.info 23 Feb 2012 6:40pm

“Speaking with a few owners here in Hampton Place. There are still a bunch more waiting to list. All 3 hi rises here have significant issues that need repairing. One has already had an special assessment with the other 2 still waiting to figure out what direction to take.”
– condo conundrum at vancouvercondo.info 23 Feb 2012 8:29pm

—

Is this change confined to one development?
If not, and MOI of UBC condos as a whole is rising, combined with news of low sales of Westside new-builds, this could indicate an important drop in Westside buyer interest.
We continue to watch the Westside closely because it remains the epicentre of the bubble.
– vreaa

Sticky Price Seller Shoots Self In Foot, Slowly – “$488K, listed for 13 months, negative cash flow, unable to come down in price at all due to “circumstances”.”

“The unit at # 205 28 POWELL ST, MLS listing V917709, was listed on Craigslist as being for rentfor $1,800 a month (I think they’ve managed to rent it out now as MLS lists it as “Tenanted”). Here is the e-mail one would receive back upon contacting the rental agent:

“Full Disclosure: I am a rental agent acting on behalf of the owner, no fees will be charged to you. The owner has the property listed for sale. It has currently been on the market for 13 months with no buyers. The owners due to circumstances are not able to come down on the price and the unit will likely remain on sale. The realator will meet with you after you move in to discuss how you would like to handle any showings (there have been 6 in the last year). We will offer any renters a month to month contract. In the event of a sale you will be given two months notice, as well as the standard one month of free rent (If you are in the unit or not). The owners will also pay for movers and moving related expenses (move in fee etc..) to help make your transition easier.”

$488,000, listed for 13 months, unable to come down in price at all due to “circumstances”. A mortgage on that unit, 5% for 25 years, would cost just under $3,000 a month, before strata and taxes and all that.
Or you could rent it for $1,800 from the sucker who owns it….”

– data junkie at VREAA 22 Feb 2012 11:43am
—

Obliquely related:

“At the top in the UK, people clung on, telling themselves they didn’t have to sell & kept the prices high. There are documented cases where people REALLY didn’t have to sell (retirement, etc) and in those cases, houses stay on the market for 2 years ++. There are also well-known cases where the sellers have had to drop big-time. I’ve got my eye on a couple of places on the North Shore in YVR and I’m amused (as a current non-participant, but future possible) to see that real estate guys in YVR are no different from the UK, i.e. some of the prices have been quietly dropped by 5-10% in recent weeks with no great fanfare.
Next step? Watch out for the “independently valued at CDN$900,000, a steal at only $750,000″ headlines on the websites, etc… and so it begins…”
– Craig Sterling at VREAA 23 Feb 2012 12:46pm

Even More Bubble Warnings And Mentions In The Mainstream Media. A Whole Flurry, In Fact.

– Maclean’s latest cover ‘You’re About To Get Burned’

“The resilience of the Canadian housing market continues to confound experts. … this sector has become even hotter, exhibiting strong signs of a classic bubble. More than ever before, I believe that Canada’s housing market is due for a severe correction.”
– from ‘Canada’s housing bubble: This time is not different’, George Athanassakos, Globe and Mail, 23 Feb 2012

“A fall in house prices decreases the value of collateral held by households, leading to a deterioration in the state of household balance sheets,” the central bank said, noting that many families “could therefore experience a significant shock if house prices were to reverse.” …
Finance Minister Jim Flaherty, meanwhile, said on Thursday in Toronto that authorities are keeping an eye on the hot condominium market in some cities, and urged borrowers to resist buying “the most expensive house they can possibly buy.”
– from ‘Central bank targets home-equity credit lines’, Globe and Mail, 23 Feb 2012

“An indebted household, particularly one that has borrowed against home equity, is one that is vulnerable to the forces of depreciation.
The behaviour of the Canadian housing market over the past several years alone has some convinced of an impending correction.”
– from ‘Why we’re in trouble if housing craters’, Financial Post, 23 Feb 2012
—

“Okay.
Show of hands.. Anybody who hasn’t heard that Housing in Canada is in a ‘Bubble’?
Nobody?
Okay… so we’ve all heard.
Pumps are primed.
Now class… How are we going to respond to initial price drops?
Anybody?”
– vreaa

[hat-tip Makaya for three of the above links -ed.]

West-Side Detached Specifics – “The cycle of buy / tear-down / build / sell is not completing. There are really no sales of new-builds.”

“Van-West gives the impression that inventories are high. Now they are definitely seasonally high right now but when you get into the details, it tells an interesting picture. To do the analysis, I took all sales going back in time such that the total sales was the same as current inventory (approx 800 units). To get 800 sales we have had 225 days of activity and takes us back to mid-July. That’s not a great stat. However what’s more telling is how the cycle of buy / tear-down / build / sell is not completing. There are really no sales of new-builds. One may say this is HST and that is possibly some impact. However, It is very dramatic such that you would not expect it to be so significant.
For “new” properties, there are 17 months of inventory. Compared with a 7.5 average for the whole market. When breaking all properties by price, there is a very strong drop off in sales above the $2.8 million level. I know it’s not a bargain but I’m just telling the facts. For properties under that level, MOI is only really about 4 months – which would indicate quite tight supply. However, above that value, it immediately jumps over 10 and reaches 24 months at the 4 million level. this would not normally mean much as these units take a long time to normally sell but there are not normally 450 units for sale over 2.8 million. That is a crazy amount. you have to wonder how many are spec builders who will eventually have to bail. Or builders who will now have their capital tied up in these projects such that they can not buy a new tear-down. Or is it flip investors who suddenly will realize the game is over.
Volumes for the month are not great but not bad. I would say for Van-West they are above the 10-year average (unlike most other regions). However, are these now the last suckers who want to make some money and now who will be left with large losses? It appears that the cracks are showing.
How did the US housing market start it’s fall? Something about new home sales coming to a stop? The stats are interesting. Next analysis at month end will be on the Vancouver condo market. This is now showing signs of cracks – sales are really low, inventory is starting to really increase.”
– ZRH2YVR at VREAA 22 Feb 2012 at 2:18pm
[Thanks for this considered analysis, ZRH2YVR. -ed.]

Some of the comments that followed the above post:

“I’m fascinated to see, via what you’ve revealed, that what I thought I was observing here with my own eyes really is supported by statistics (new homes are not selling. This is also what the speculator I spoke to who was considering a bid on 6225 Balsam said).” – Vesta

“Your analysis re west side housing is spot on. Quilchena has many new homes for sale but only the original houses are now selling at even higher prices than last year. Hopefully these aren’t being purchased as tear-downs.”
Maybe, just maybe, buyers have caught on that these new particle board McMansions aren’t so great after all. Does anyone really need 7-8 bedrooms and 7-8 bathrooms in a SFH? As well, it’s very costly to maintain these huge houses!” – West Coast Woman

“Richmond is screwed big time! As of yesterday for the month of Feb, 937 sfh total listings, 32 sold. West Van sfh total listings 434, sold 34.” – Van Guy

Vancouver still appears to be nuts, the rest of the province should be causing mega concern for politicians. If prices start cratering another 10-20% that’s going to cause significantly more distress than the previous 10-20%. – jesse

Vancouver ‘Hotel Condo’ Prices Plummet

“Developers must find a fresh financing formula as prices for shared hotel units in British Columbia prove a fiscal bust for investors”
– tagline for ‘Hotel condo prices plummet’, Business in Vancouver Magazine, 21 Feb 2012.
[Full article awaited; hat tip Clipper]

“The hotel/condo pricing article is completely correct. Prices at ‘Shangri La’ have been dropping 20-30 percent in the last year and now 2 units on the 2nd to top floor just came on the market at way under what anyone else in the building was asking and now other people have to lower their units at least 1 million to even be competitive.”
– jj at VREAA 22 Feb 2012 5:07pm

So perhaps the very, very high end is showing strain; albeit in a specific property line.
– vreaa

“Crazy Land” – 9% of the working population employed in construction.

Chart via Kevin at saskatoonhousingbubble, who also points out “The long term average of the Canadian labor force employed in construction is just under 6%. Right now it is over 7%. … BC is in absolute crazy land with almost 9% of the working population employed in construction.” [Thanks Kevin.]

More misallocation of resources.
Sheds light on why the Provincial Government would want to keep this going.
After the housing mania ends, by the next price trough, about 40% of those construction jobs will have evaporated. Possibly 50%.
(Aside, for TA lunatics: Failed double-top.)
– vreaa

Vancouver’s Too Expensive For Entrepreneurs – “Last night during a meeting we realized that of five, only two of us aren’t thinking about leaving the city in the next year or two.”

“Over the past year I began working with a loose group of consultants; there are five of us who work together in complementary ways. We’ve taken steps towards forming a more formal business together, but last night during a meeting realized that of five, only two aren’t thinking about leaving the city in the next year or two. Vancouver’s too expensive to be an entrepreneur and have a family, and we all want other things – like retirement funds, or the ability to travel and take vacations, etc.”
– Absinthe at VREAA 20 Feb 2012 11:37am

BC Budget: Taxpayer Debt To Support The Construction Industry – “Every young person out there today understands the challenges of getting into the housing market.”

“Every young person out there today understands the challenges of getting into the housing market. As parents and grandparents, we worry about the struggles our children and grandchildren have trying to save for their first home.
Even with the relief we provide to first-time buyers from the Property Transfer Tax, it is still difficult for many British Columbians to save up enough to make a down payment and still have money left over to cover all their other costs.
That is why, as part of this budget, we are introducing the B.C. First-Time New Home Buyers’ Bonus. It is a temporary, refundable income tax credit for first-time buyers who purchase newly‑built homes effective today until March 31, 2013.
They will receive a cheque for up to $10,000. Just think of the difference that’s going to make.”
[Yeah, it’ll almost definitely result in the prices of New Homes purchased by FTBs rising by an effective $10K, resulting in absolutely no net-savings to the purchasers, who will continue to purchase at the very limit of their monthly-payment ‘affordability’ level. -ed.]
“It complements the measures we announced last week — which included raising the threshold for the existing HST rebate to $850,000, and making a similar grant available for new secondary homes outside the Greater Vancouver and Capital regional districts. Over 90 per cent of all new homes in the province are below this threshold.
Together, these measures serve the dual purpose of giving consumers a break, while supporting the new-home construction sector.”
– BC Finance Minister Kevin Falcon, Budget Speech, 21 Feb 2012

This in a budget that will come in with a spending deficit of about $1 Billion.
Taxpayers are spending borrowed money to support the construction sector.
And note the glib assumption that “every young person” needs to “get into the housing market”.
Next up, assistance for toddlers interested in buying their first condo.
– vreaa

Addendum:
Find the ‘fact sheet’ regarding this bonus here:
2012 First Time Home Buyer’s Fact Sheet
[And see the end of the sheet for the hilarious example that some government wag came up with: a home for $150K! Unfortunately the home has to be in BC, Canada. – ed.]

“Many of my boomer contemporaries think they will “live off the real estate equity” forever.”

“I am a boomer (sold, sadly before the huge boom, and now rent) and can say that many of my contemporaries do indeed think they will “live off the equity” forever. Several of my friends and acquaintances have purchased houses, condos or whatever in places like Vernon or Chemainus, where prices appear cheap, in the hopes of renting them out at Vancouver rents to provide income for a pleasant old age. In every case, when an emergency has come up in one of these far-flung rental properties the costs have skyrocketed and home equity loans or lines of credit have been tapped. When interest rates go up, along with all the other costs associated with owning, these pensionless people will be screwed big-time. The other group of people that should keep bankers up at night are those that took out second or third mortgages to become “property developers” near their own homes. There are several older individuals that I know on the west-side that bought knock-downs for well over $1 million and had houses constructed thinking that they will be able to sell them for a huge profit. Almost every one of the houses I know of is still for sale after hitting the market last year. These are the types that will have to sell at some point or risk losing everything. The other thing that I’ve noticed is the sheer number of empty houses for sale – how long can and will they sit there before the owner/developer hits the wall and is forced to sell?”
– Observer at VREAA 19 Feb 2012 at 11:58am

Vancouver – “Where my friends/mom/society/tourists think I live; Where I actually live.”

– found on Facebook by Makaya, forwarded to VREAA 20 Feb 2012.
[Thanks. -ed.]

Ben Rabidoux, ‘Where We Stand’ – “While it may be too early to call a definitive peak in Vancouver, things aren’t looking good.”

This from Ben Radioux, at ‘The Economic Analyst’, 20 Feb 2012.
An account of ‘Where We Stand’. Thanks to Ben.

“Keep in mind that this type of data is backwards looking. It tells us what has already happened. Inventory and sales levels can give indication of short-term price pressures, but in a credit-driven market, the real story of future price movements is found in changes in mortgage demand/availability, which I cover in a separate report. The bottom line on that front is that the recent incremental changes in mortgage requirements may prove to be more significant than any month-to-month sales trends. These recent changes include tightening stated-income and business for self mortgages, tightening of CMHC bulk portfolio insurance for big banks, some lenders capping max mortgage amounts at $1 mil, and reports of general internal tightening via lenders and CMHC. The problem is that with 15% of all mortgages originated through the broker channel being originated through explicitly subprime lenders (the highest on record), it strongly suggest that the marginal buyer is the main support of this current market. Prime buyers, by and large, are already in the pool. So these types on incremental changes, which affect marginal buyers the most, can sometimes have far greater consequences than anticipated.”

“Vancouver: Y/Y prices are now negative for the second month leading to a decline in the 12-month moving average for the first time since early 2009. January sales were the second weakest in the past decade (second only to January 2009), while new listings were the highest of any January in the past decade. Consequently, the sales/new listings ratio was extremely weak (0.27) while months of inventory ballooned to 8 in January. Sales will pick up in subsequent months, but rising inventory and weak sales will likely persist, meaning downward price pressure will remain intact. The last time we saw sales this weak, the BoC was in the process of cranking rates down to zero. The ‘shock and awe’ from low rates are now long gone. I’m not sure what will reinvigorate sales in the short term. While it may be too early to call a definitive peak in Vancouver, things aren’t looking good.”
—

We agree with the flavour of Ben’s framing of the stats. Yes, one can’t be sure that last summer was a top, but, if it were, this is one way the decline would start to play out.
The emphasis on incremental change in lending standards (and other factors) on the marginal buyer (and, ‘marginal holders’) is crucial, and a concept that most market participants do not fully understand. As prices remain stagnant or drop, thresholds will be crossed which result in non-linear changes (a ‘wall’ will be hit, or at least a very steep part of a curve; and demand/supply will deteriorate more rapidly than most imagine).
Also: less space, appetite, and will for bail-out, this time around.
– vreaa

“I am amazed financial gurus seldom suggest buying a second property. We live in a real estate hot spot. If you buy a house or condo with 25% down and it appreciates by 25%, you have doubled your money.”

“I am amazed financial gurus seldom suggest buying a second property. We live in a real estate hot spot. If you buy a house or condo with 25 per cent down and it appreciates by 25 per cent, you have doubled your money.
Rents in Vancouver have seen stagnant periods but have rarely dropped, allowing the investor to wait out temporary downward blips in the market.
There is no tax payable on appreciation until the property is sold and then capital gains tax apply based on the owner’s (retirement?) income.
Obviously such an investment requires some management effort but in the past 35 years a 33-foot lot in Vancouver’s West Side has risen in value from $14,000 to over a $1,000,000 ($28,000 per year!) and I’m sure the next 35 years will bring golden returns to lucky owners.
I wish my RRSP (registered retirement saving plan) had done that well!”
– ‘Saving for retirement? Real estate is your best bet’, Andrew Renton, ‘Opinion’, Vancouver Sun, 18 Feb 2012 [hat-tip E.G.]

Haven’t we been saying we’re in speculators up to the eye-balls?
Most are ‘shadow’ speculators, unaware themselves that they are speculating.
But guys like Andrew are aware of what they are trying to do, and are examples of one of the purer breeds, just one step away from the pure short-term flipper.
How do these RE holders respond when “golden returns” don’t accrue in the imagined fashion?
When 15% drops mean you’ve lost 60% of your money, and prices then keep dropping??
They bail — All those second and third and fifth properties become supply.
Also, they cease to be demand.
– vreaa

“Comparing Vancouver to NY is about the most preposterous claim I have heard in this lifetime and the next.”

“This is hilarious! As a New Yorker (professional) now at my firms offices in Toronto (till the summer) and having been to Vancouver numerous times, let me say comparing Vancouver to NY is about the most preposterous claim I have heard in this lifetime and the next. I mean despite the weather Vancity ain’t even half of what Seattle is. And trust me no way Calgary (which I also know well) even at its worst is anything approaching the abysmal city of Cleveland. Frankly, Toronto is the only city that has some semblance of NY flair, power and commercial/corporate muscle in Canada, but Montreal is truly Canada’s only international city even with the horrible weather and all. And really they have to pay better in Vancouver — I mean how can you have such house prices on the MacDonald’s salary they pay out there!? That is just criminal!”
– comment by ‘Demrep’ Feb 2012, in response to ‘The real problem with Vancouver’s outrageous house prices’, Maclean’s, 1 Jun 2011

“I know a lady who spent more time haggling over the price of a table and chairs that was on sale at the Brick than she did buying her condo.”

“I know a lady who spent more time haggling over the price of a table and chairs that was on sale at the Brick than she did buying her condo. She was apoplectic that the salesman would not cut her a break. The table had scratches. Boo Hoo.
Then she goes out and drops a decades income on a box without any thought at all and brags to everyone about its great location, close to friends and work blah, blah, blah. And I had to listen to all that BS without pulling my hair out.
Laugh or cry. Your choice.
Who in their right mind would buy a house without inspecting?”
– Farmer at VREAA 18 Feb 2012 7:27pm

Discussion with Tom Davidoff – “A huge fraction of near retirement Vancouverites must have 75%+ of their wealth in home equity.”

Here follows an exchange via e-mail with Tom Davidoff regarding his recent talk:

“Glad to hear it went over well. I don’t think AV is available, but I hope the slides are self-explanatory. There is at least one typo that flips the sign of an idea, and I would be happy to clarify anything. I appreciate the standing offer of a soap box for my actual point estimates. I have a hideous schedule the next couple of months, but will absolutely maintain the idea on the back burner.
As you mention on the blog, a point estimate is in some ways more helpful than generalities. If I offer a point estimate, I will almost certainly be wrong. As I suggest in the slides, a fall of 30% over the next two years would not shock me at all. But I don’t think that’s the highest probability outcome. I would put something like 20% probability on a rise in home prices of 15%+ over the next two years. Not more than 40% probability of the giant drop in my mind. Between the two extremes I don’t have much to say. For the most part, prices here are driven by demand, and what people are willing to pay is in large part determined by what other people are willing to pay. That means that at any given date there must be “multiple equilibria.” External events like interest rate changes, mortgage generosity, and GDP fluctuations matter, but (a) I am not a macro forecaster and (b) I don’t think forecasters know much right now. Look at the S&P 500 over the last year: the market doesn’t know the right level within 20%, and I would guess that “smart money” drives stock prices more than it does home prices. Summarizing: I can’t tell you much you don’t already know.”
– Tom Davidoff

“You asked a specific question about a 58 year old.
If that 58 year old were an empty nester planning to exit Vancouver within 3 years, I would encourage her to think about cashing out and
renting. Why gamble with most of her wealth?
If she were planning to die in her Vancouver home and didn’t want to downsize, I would be reluctant to tell her to get out.
If she were rattling around a 5 bedroom home on the West Side but wanted to die in Vancouver, I would tell her to sell.
In between?”
– Tom Davidoff

Your probability weightings regarding future prices aren’t a million miles from mine…
I do lean more towards a higher chance of a big correction (I’d put it more at 60% chance), but agree there is a modest chance of ongoing strength.
And I agree with your estimations regarding the different possible 58 year old scenarios.
The crucial thing is that people can own in comfort if they are capable of withstanding a substantial downswing:
both from the point of view of whether their fiscal health is dependent on RE ‘wealth’,
and from the perspective of being able to refinance a mortgage against a devalued property.
But what are the numbers on this?
How many in Vancouver are consciously (or unconsciously) dependent on the presumed future value of their primary residence for their future fiscal well-being?
I’d estimate that it was, by now, a fairly large minority (25%? even 30%?).
Even a relatively small percentage of people in this position (say 10%-15% of total owners) could have a very large effect on the market if they try to realize paper profits in the face of a modest drawdown.
(Of course the flip side of this is how demand will respond to price drops.. I believe net demand will back off; others believe that people are waiting eagerly to ‘buy the dips’. I agree this is very hard to quantify/estimate.. we’ll simply have to wait and see.)
– vreaa

“I agree with your remark about dependence. A huge fraction of near retirement Vancouverites must have 75%+ of their wealth in home equity. I would guess most of these people would require a very high probability of success to gamble, say, 30% of $2 million, but by retaining ownership they are doing something pretty similar.
I suspect, but don’t know, that home equity extraction has fed a lot of spending by locals here. I have put zero effort into looking at the
“home ATM” phenomenon here, but someone should.”
– Tom Davidoff

Tom Davidoff’s ‘Fantastic, Pragmatic Lecture’ – “Vancouver RE price future is uncertain, with clear downside risk. Prices could, absolutely, fall 50%. But long run growth is easy to envision, and Vancouver will never be cheap.”

“Today [16 Feb 2012] the UBC Faculty Association hosted a lecture titled “Is Real Estate Part of Your Financial Plan?” as part of their Financial Planning Lecture Series. The speaker was Tom Davidoff, Assistant Professor at UBC Sauder School of Business. In the past Prof. Davidoff had been interviewed on CTV, and discussed on this blog.” [1. ‘Tom Davidoff, Sauder School of Business, UBC – “There’s not going to be any free lunch in Vancouver. There’s no entitlement to own a nice home in the most beautiful place on earth. So I think people need to be prepared just to accept that reality.”, VREAA, 1 Dec 2012; 2. ‘Tom Davidoff, Sauder School of Business, UBC – Clarification’, VREAA, 2 Dec 2012; 3. ‘Tom Davidoff Knows About RE Cycles’, VREAA, 4 Dec 2012 -ed.]

“Today’s lecture was fantastic. He did not adopt a dogmatic bull or bear stance, but instead was quite pragmatic.”

“His main points were:
1) It’s ok to rent
2) Discussion of legitimate rationalizations of owning
3) Vancouver price future is uncertain with clear downside risk
4) Vancouver is not going to be cheap anytime soon
5) Owning housing can be viewed as both risk and insurance.”

The slides from his talk are available here, and here:
http://www.facultyassociation.ubc.ca/docs/fpls2012_L4.pdf

“I jotted down some interesting remarks, some of which are taken from the slides:
– (concerning slide 4) “If you want something to be distressed about, try this. Vancouver vs Seattle: the rents are the same, but prices are 40-50% greater, even though the tax rules tell us it should be the other way around.”
– (concerning slide 13) “Prices here have risen way faster than rents. This is worrisome and reason to be pessimistic”
– “Vancouver is the nicest city in China” (slide 19)
– “Short run risk of bubble collapse in China” (slide 19)
– “There is a risk of a bubble. Prices could absolutely fall 50%.”
– “There are other nice cities on the coast, but you can’t buy citizenship there like you can in Canada”
– “20-50% of sales are mainland Chinese buyers” (did not state precisely where or what)
– “If you need a 20% downpayment on a $1m home, which in Vancouver is a starter home, and not a very nice one, then it will be very hard to achieve this [if you a UBC employee] with a PhD in English”

“I commend Prof. Davidoff for being the first Sauder faculty (that I have seen) to publicly give a useful and rational discussion of the Vancouver housing market. I apologize for any erroneous quotations.”

– the above account and commentary from ‘Anonymous UBC Professor’ forwarded to VREAA via e-mail 16 Feb 2012
—

Thanks, indirectly, for the talk, Tom Davidoff; and thanks for the reporting thereof, ‘Anonymous UBC Professor’.
For those of us who weren’t at the talk, the pdf slides give a fairly good idea of the material covered. It’d be great if video, or audio, or transcription, of the entire talk emerges.
Davidoff discusses Vancouver rent vs buy, and pricing, in a more complex and more subtle way than we have seen elsewhere. Ideas regarding interpersonal differences in desire for mobility and stability involve important (and very difficult) calculations.
He honestly states that there is a possibility of large magnitude price drops, and is open about his lack of certainty going forward. When Tom states: “Easy to see downside risks; Easy to envision long run growth”, we wonder about how he would weight the probabilities of various different outcomes.
What are his best guesstimates regarding chances of ongoing growth; chances of a crash?
When a careful student of RE markets says “I can’t say if we’re in a bubble or not”, and “Prices could absolutely fall 50%”, but also “It’s easy to envision long run growth”, how are prudent owners and prospective buyers to respond?
When we ourselves join the available dots that the current market lays out, we continue to see very prominent downside risk, with only a very small chance of an ongoing price growth scenario. But we, too, acknowledge lack of complete certainty.
Isn’t that always the way in markets?: One can never be certain, but, one way or another, you have to take a position. You assess and weigh the probability of various outcomes as best you can, and then make decisions about how to position yourself, keeping in mind the consequences of various outcomes, and the particular effects they could have on you. Thus, a couple in their 20’s with 5% down on a condo, and a retired couple worth $10M who own their own $3M westside home outright, may have very little quality of life to lose from a RE crash, and may happily go on owning. But a 58 year old with 3 dependents, inadequate retirement funds, and more than their entire net-worth in a $1.3M east-side house, may suffer devastating consequences from the very same crash. We’d expect the 58 year old to be worried about even a low probability of crash outcome, because the consequences would be so dire, and for them to take up a more defensive stance towards their RE exposure. At what ‘best estimate level of crash-probability’ should the 58 year old sell? 30%? 15%? 5%?
Davidoff is reluctant to jump on what he appears to see as some kind of ‘bubble-caller bandwagon’. Perhaps his perspective is at least partly the result of his US post-bubble experience, where, post-implosion, everybody came out of the woodwork with “we-knew-all-along” fudging. Here in Vancouver itself, ‘bubble callers’, amazingly, remain in the small contrarian minority. Tom says “Many are willing to declare a bubble”; but we can think of few local examples. At least he is now on record as saying we’re possibly in a bubble. We agree, of course.
Overall, a stimulating series of slides, and as our invaluable reporter-on-the-ground says, the talk appears to have been both “fantastic” and “pragmatic”. Tom Davidoff’s analysis is a welcome addition to the local discussion. We continue to extend an open invitation to him to post a piece discussing Vancouver RE on these pages. We’d just as eagerly like to see a comprehensive essay by him in the local press.
– vreaa

PostCardsFromTheBlastRadius #15 (2012Teaser) – “Oki CourtOrdereds… LookLikeThis…‏”

—–
Photos and commentary for the ‘BlastRadius’ series by ‘Nemesis’.
[Images Ⓒ2012 ‘Nemesis’ – All Rights Reserved]

“You’ve Got A Bubble, Canada” Article #47 – Bloomberg – “Canada Housing Poised for ‘Severe’ Drop”

The chart above from Bloomberg shows Canada’s housing investment as a percentage of gross domestic product, and the declines in inflation-adjusted house prices that follow when this ratio tops 7 percent.

“Canada may be on the cusp of a “severe” housing correction as real estate investment surges above a tipping point relative to economic output, according to George Athanassakos, professor of finance at the Richard Ivey School of Business. “Eventually, everything boils down to demand and supply,” Athanassakos said in a telephone interview from Western University in London, Ontario. “Whenever this ratio goes over 7 percent, it signifies overinvestment in housing and two or three years later, we have a severe correction.”
Canada’s housing market is booming as historically-low interest rates fuel purchases, driving up home prices and adding to record household debt. Canada’s ratio of housing investment to GDP has averaged 5.8 percent over the last 50 years and is currently at about 7 percent, based on Statistics Canada figures as of the third quarter of 2011, Athanassakos said. Housing investment includes spending on new homes, renovations and real estate transaction fees.
U.S. housing prices plunged by a third between the peak in July 2006 and November 2011, according to the S&P/Case-Shiller Composite-20 Home Price Index. By comparison, Canadian housing prices rose 30 percent in the same period, according to the Canadian Real Estate Association.
“We have experienced bubbles and busts before in Canada, it’s nothing new,” Athanassakos said. “I don’t know why this time would be different.”
– from Canada Housing Poised for ‘Severe’ Drop, Doug Alexander and Ilan Kolet, Bloomberg, 17 Feb 2012 [hat-tip ‘Told-you-so-in-2007’]

We’re joking a bit about the “#47” thing — but there do seem to be an awful lot of articles in the US and international press about a Canadian housing bubble.
We haven’t been headlining all of these articles, but this one is noteworthy because of its focus on the ‘third’ fundamental, namely ‘price’ to GDP. (The other two fundamentals, of course, are price:rent and price:income). By all of these measures Vancouver RE is overvalued, likely by a factor of 2 to 3.
– vreaa

What happens to vocal housing bulls after a RE bubble pops?

“You know the exploding rate of Foreclosures? It’s actually quite funny. With it being about the Okanagan, that is.
From about 2005 onward, I posted quite a bit on the Castanet forums (the local news site) about how Kelowna home values were wayyy too high, and that we were in for a catastrophic collapse, and that the rate of foreclosures would be one of the first signs of an impending collapse.
From the moment I started to post on their forums, I was overwhelmed by bubble deniers who openly mocked me. There was at least a 20-to-1 ratio of bubble deniers that openly refused to believe that home prices could ever crash, compared to those who said I might be right.
In fact, one of my threads (started in December of 2007) became one of the biggest ever on Castanet (5,665 posts) before someone politely asked to have all threads dealing with Real Estate deep-sixed into the smallest, deepest and least-visited part of the forum. Even though most of said threads were clearly about Kelowna, and had nothing to do with the “Economic Crisis” category they were thrown into.
In the end, the subject ended up getting as many visitors in a month as it used to get in a single day when it was in the Kelowna category of the forum, so it was painfully obvious to me how loudly money talks, especially money of the advertising variety.
What I find so amusing now is how so many of the hard-core bubble deniers have been quietly changing their tune, even up to the point of denying that they were ever bubble deniers. Yes, Dirtrider, I’m looking squarely at you. Nice for you to finally realize that things are NOT different here.
Oh, and that news article that is all over CBC.ca and other news organizations, about how the number of foreclosures in the Central Okanagan have pretty well exploded? Not a sign of it on Castanet’s front page yet as of 2012-02-15 1841hrs UTC-8. In fact, a Google search shows that the news isn’t even on the site, just on the forums.
And yet, they’ve got OMREB-authored “news articles” about increased housing starts in the North Okanagan.
Oh, yeah. Money talks, all right.”
– René Kabis on at greaterfool.ca 15 Feb 2012 at 10:47 pm

“What happens to vocal housing bulls after a RE bubble pops?”
They disappear.
Worse, they tell themselves that they saw the crash coming.
No, seriously. That is what happens.
The wonders of the human psyche at work.
– vreaa

Kelowna Foreclosures – “Realtor is worried the number of foreclosures will bring the overall market down, hurting anyone who wants to sell their home; now up against something they didn’t see coming.”

Home foreclosures are on the rise in B.C.’s Central Okanagan in recent months. … There are more than 170 court-ordered sale properties on the market in the Central Okanagan, more than 10 times more than three years ago.
…
Real estate agent Jason Neumann says according to his estimates, in the last 30 days alone 60 new foreclosures were put on the market, and he calls it a disturbing trend.
Neumann is worried the number of foreclosures will bring the overall market down, hurting anyone who wants to sell their home.
“What do you tell your sellers that are not in foreclosure that are now up against something they didn’t see coming? It’s one of those things where the bank is going to have to do what it’s got to do to get it sold.”
…
– ‘Home foreclosures skyrocket in Kelowna’, CBC, 15 Feb 2012

Almost everybody has heard that “prices are set at margin”, but the majority of market participants don’t really get what that means; they don’t have an understanding of the full implications.
It doesn’t matter that 70%, or 80%, of owners may be very happy with their homes, and sitting tight: it only takes about 5%-7% of owners with an eager desire to sell to crash a market.
This is very relevant to Vancouver: we often see bulls arguing that most owners are very happy in their homes, they’re in it for the long run, they don’t care about price fluctuation, etc … even if all that were true, the market doesn’t really know or ‘care’ about these happy holders…. It’ll crash based purely on the behaviour of a small minority.
And, of course, the resultant price action may change the way the happy 70% or 80% feel; and so on.
– vreaa

Buy The Dip! – “There’s yet more indication investors are finally getting the break they need to beef up their portfolios, with the B.C. Realtor association confirming a near-8 per cent dip in the value of properties sold during the first month of the year.”

“There’s yet more indication investors are finally getting the break they need to beef up their portfolios, with the B.C. Realtor association confirming a near-8 per cent dip in the value of properties sold during the first month of the year.”
…
“Provincial sales activity was down in January from year ago levels,” said Cameron Muir, chief economist with the British Columbia Real Estate Association. “Increased market activity outside the Lower Mainland in January was offset by fewer sales in Vancouver and the Fraser Valley” (where residential sales declined by 10 per cent). …
“That overall drop in prices bodes well for investors across the Lower Mainland, who have had acquisition plans put on hold over the last year, as sellers ratcheted up asking prices in order to capitalize on foreign demand for Vancouver-area properties.
That demand has since waned, say analysts, and sellers have finally started to bring down their asking prices or take their properties off the market, effectively encouraging others in the market to drop their own pricing.
BCREA’s January numbers will likely add to that momentum.
Yet more sellers will have to leave the market to increase demand from investors and other buyers in B.C., argues one industry veteran.
“Despite the low interest rates clients are in no rush to buy,” Morris Briglio, president and senior mortgage consultant with The Mortgage Advantage, said. “There’s simply too much inventory on the market.”
…
– Excerpts from ‘Cooling market offers investors a ‘in’, Canadian Real Estate Magazine, 15 Feb 2012

We’ll register this as the first “It’s-only-a-flesh-wound” sighting of the down-cycle that is now underway.
Note how peppy lots of the commentary is: “getting the break”; “beefing up” RE “portfolios”; “bodes well”.
Note also the fascinating logic from the ‘industry veteran’: “Yet more sellers will have to leave the market to increase demand from investors and other buyers”.
Sure, I can just see those sellers stepping back: “No, please, you go first.”
– vreaa

‘The Economist’ Poll – “Are Canadian house prices a bubble waiting to burst?”

– from ‘The Economist’, 2-13 Feb 2012 [hat-tip ‘anonymous guy’]
Results: 65% ‘Yes’. 35% ‘No’

From the readers’ comments below the poll:

“There will be a correction in the larger markets (Toronto, Vancouver) to be sure, but unless interest rates spike (not likely), it will be a softer landing (maybe 5%-10% drop). After that, prices will probably stay flat for a while. Canadian lenders have been relatively more responsible than their American counterparts over the years, and so quality of mortgage loans are better.”
– ‘SHDN’

“I live in Vancouver, and I make a top-5% salary, and buying my very-nice-but-not-fancy current house in the suburbs at current prices would give me cold sweats at night.
I look around, and I cannot understand how any normal human being entering the market can afford a house. I ask real-estate agents how this can keep on going, and they tell me it’s all Asian money.
It just can’t continue. All we can hope for is a soft landing.”
– ‘pun.gent’

“At coffee break today a guy was reading an ad for one of the housing lotteries. We all looked at the choices (a few houses, condo in North Van, or $1.8M cash). Not a single person would take the cash. Most agreed housing would go up.”

“The denial can be pretty funny. At coffee break today a guy was reading the paper and saw an ad for one of the housing lotteries. We all looked at the choices (a few houses, condo in North Van or $1.8 mill cash) and said what we would take. I generally stayed out of it, but not a single person would take the cash. Most agreed housing would go up and it’s better to just take a home and sell later. One guy had been keeping up with the news a bit more and said some places are actually down a little bit. Condos are starting to fall, but he didn’t think the houses would fall in value much, and didn’t go as far as to say he would take the cash.”
– davers at VREAA 14 Feb 2012 11:23am

From the lottery website:
“Now with 5 Super Grand Prize Choices! Choose from the majestic Cape Cod Style Beach Home package in White Rock – worth over $2.2 Million; or enjoy the beautiful Vancouver Skyline from our $2.1 Million+ grand prize package at Atrium at the Pier in North Vancouver. For those who enjoy the Island Life, you might choose the Circle at Swallows Landing grand prize package – worth over $2 Million. Our Craftsman-style grand prize home in South Surrey is a gorgeous family home, and that package is also worth over $2 Million! Or you can choose to just be rich – with a $1.8 Million Cash option. 5 Super reasons to buy a BC Children’s Hospital Choices Lottery ticket! Winner will choose one prize option; the other prize options will not be awarded.”

“Own RE in Vancouver, or Just Be Rich!” (Interesting. Lotteries aside, that reflects the choice for many owners, and prospective owners, alike!)
When the price descent is firmly established (10%-15% off and beyond), everybody fantasizing about wins in these lotteries will ‘take the money’, even when that is clearly the worse deal.
At the bottom, there won’t be housing lotteries. The idea of RE will so repulse people that you won’t be able to use it as a lure to raise money.
– vreaa

“I’m ecstatic. My boomer parents called today to say they’ve finally sold our long-time house in cow town. Assessed $490k, listed last fall at $560k, no bite; re-listed at $490k last week, sold at $480k.”

“I’m ecstatic. My boomer parents called today to say they’ve finally sold our long-time house in cow town. Assessed was approx 490k, listed last fall at 560k, no bite after 3 months so took off market; re-listed at $490k last week, sold at $480k. According to the realtor (who only charged $3.5k in fees), these days most sales in the city (even near university / good high schools) are sold below-assessed value.
They’ve heeded my advice and already signed a 1 year lease in a newly renovated 1200 s.f. 3BR upper floor of duplex in a convenient area in GVA at $1275/m (after a $125/m reduction due to them being desirable tenants). It’s complete with new stainless steel appliances, granite counter top, and brand new carpet/cabinets. The owner is an elderly gentleman who just moved into a nursing home, so his son took over, renovated, and rented the half of duplex out, aiming for long-term tenants.
The duplex itself was assessed at $1.3M, so ~$650k for my parent’s side. I’m happy to have dissuaded them from buying in GVA (took me 2 years of nagging). My next goals are to keep them happily renting in next couple years, and to get them to sell their investment condo property in downtown cowville (currently rented out via an executive rentals company). That’ll take some more nagging.”
– VMD at vancouvercondo.info 14 Feb 2012 3:30am

Open House Investigative Reporting – “He said he considered buying this for the lot value, because lot prices are still going up. However, he also said that he noticed many new/newer houses are not selling at all. This confuses him.”

“Just went to the Open House at the recently discussed 6225 Balsam property. While I know what I’m providing is only anecdotal information about one house, it may be helpful.

First, the listing realtor said she’d had “only” 10 people through in the first 90 minutes. She said that last year she would preside over Open Houses where there wasn’t room to exit by the front door, the crowds were so large.
Nine more people came through in the last half hour, so a total of about 19 people saw the house, she said, including other realtors. The realtor still seemed to feel discouraged about the low numbers, but she did say she expected multiple bids.

I went back and forth to the house twice and spent almost an hour there total. I couldn’t talk to other people viewing it because with the exception of one multilingual Asian couple and two South Asian viewers, one of whom was I think a builder and one who was an investor (see below), the 13 other people/groups I saw throughout this process were all Mandarin-speaking.

Afterwards I did speak at length to that one other person who had attended the Open House with whom I could converse. The VREAA host has often reminded us that the speculative mania here depends a great deal on local speculators, and, as it turned out, this man was one. He had just sold his house a month ago and immediately bought another lot with an older house, where he said he and his extended family would live for some months until he saw what the market was doing. He had bought and sold at least two other properties in the past few years.
I asked him if he would bid on this house. He said he had done a lot of research in the past year as he had scouted various properties to buy and flip. He said he had considered buying this lot for the lot value, because according to his research, lot prices are still going up. (“Lots”, for anyone who likes older, smaller Vancouver houses, as I do, refers to “teardowns.”) A block away from 6225 Balsam, a very small bungalow had just sold, he said, after a 12-party bidding war, for $1.6 million (standard-size lot). This man also described two lots at 38th and Dunbar, which had recently sold for $1.6 million and — a week later, the second lot, the exact same size — $1.9 million, respectively.
However, he also said that he noticed many new/newer houses are not selling at all, just sitting. This is what confuses him, he said. Though he was very bullish on Vancouver RE, like the listing realtor here, insisting that “Chinese people” (his words) will keep buying and don’t care if the market goes down (the listing realtor said to me simply, “Vancouver RE always goes up”), he said that he wondered if he did build a new house here if it would just sit like other new houses he’s observed doing so now; that since December 1, only six new houses on the entire West Side of Vancouver have sold. (Of course, as more people like him start wondering the same thing, the market for lots may fall.)
When I suggested that some wealthy global investors might seek to buy in the U.S. instead of here, he said “Oh, no.” Then he gave as an example that “Chinese buyers have already bought up all the expensive places in San Francisco. They want to come HERE [i.e., to Vancouver].” This struck me as perhaps overconfident.

This local investor, it should be noted, told me he’s a “licensed realtor.” I think he has a license not to work as a realtor on others’ behalf, but to avoid transactional costs as he speculates with local properties.
He also complained that the listing realtor was acting “weird” because she was refusing to show anyone the title to the house, just saying that bids were due Wednesday. (Does anyone know what this might mean, I wonder?)

Finally, I had a chance to learn more from the current tenant at 6225 Balsam. He revealed that the current owners of the house had bought it last spring (at $1.4 million) with the thought of building on the lot themselves. Apparently they’ve changed their minds. Wonder if they also are worried about not being able to recover their initial investment by building?
One of the saddest aspects of all this for me is that, while it would need a lot of work, it’s in many ways a nice house, with historic features (some older, charming cabinetry, doors, doorknobs, etc., and hardwood floors, nearly all of which will of course go to the dump), and a nice yard. In a “normal” market, it would have been a good place for a young family.”

– Vesta at VREAA 12 Feb 2012 4:54pm onwards
—

Many thanks to Vesta for this account.

+ [certain belief that Vancouver RE always goes up]
+ [“new houses aren’t selling at all”]
= [local speculator “confusion”]

Interesting that this speculator can’t take the next step and ‘speculate’ as to the meaning and implications of a possible softening of the market in end-product.
There are a good number of people like this gentleman who have profited from buying and selling Vancouver RE over the last 10 years. Only a minority have banked all their profits, most have been rolling their gains into more RE projects. Many will be injured in the bust, some will be caught red-handed holding far too much RE and will be destroyed. Their bottomlines will only really be assessable once the dust settles.

Further: we are going to be interested to see the “Chinese-people-will-keep-buying-and-don’t-care-if-the-market-goes-down” hypothesis tested.
We believe that many, many buyers are naive momentum investors who have chased prices up and will add to supply by selling on the way down. Momentum investors hate markets that are plummeting, they bail.

– vreaa

‘The Most Overpriced Housing Market In The Developed World’

– from ‘The Most Overpriced Housing Markets In The Developed World’, Business Insider, 13 Feb 2012. [hat-tip sempre]

Canada pretty much ties for ‘first’ with Belgium (56%).
Note that this is for our whole country; Vancouver is in a class of its own.
– vreaa

Mayor’s ‘Housing Affordability Task Force’ – “Vancouver must be a city where our children can afford to live and raise their families.”

“Vancouver Mayor Gregor Robertson has drawn deeply on all sectors of the housing industry to represent his new “housing affordability task force” in the hope of finding realistic solutions to the city’s housing problems.
From developers and builders to academics, housing finance groups and operators of not-for-profit housing, the 14 members will assist the mayor and co-chair Olga Ilich to try to find new ways to soften the effects of the city’s systemic housing affordability crisis.
They will prepare an interim report by March 12, which will then be opened for public consultation. A final report is due June 30.
Robertson said Vancouver faced extraordinary challenges in creating affordable housing and he wanted the task force to look at ways to both protect existing housing and to create more. The city has a 10-year housing and homeless strategy of creating 38,000 new affordable homes, including 5,000 new purpose-built rentals and 20,000 new housing units.
Over the years, successive councils have grappled with the seemingly intractable problem of stimulating affordable housing without destabilizing the existing stock.”
…
“The 14 members will help mayor and co-chair find new ways to soften the effects of the city’s affordability crisis.”
In addition to Ilich and Robertson, the task force includes:
Alan Boniface — Principal, DIALOG & Urban Land Institute B.C. Chairman
Nathan Edelson — Senior Partner, 42 Street Consulting
Leonard George — Director, Economic Development, Tsleil-Waututh Nation
Marg Gordon — CEO, B.C. Apartment Owners & Managers Association
Mark Guslits — architect, principal, Mark Guslits & Associates Inc.
Colleen Hardwick — founder and CEO, New City Ventures
Howard Johnson — CEO, Baptist Housing
Kenneth Kwan — Chairman, Building Committee, SUCCESS
Michael Lewis — Executive Director, Canadian Centre for Community Renewal
Eric Martin — VP, Bosa Development Corp.
Karen O’Shannacery — Executive Director, Lookout Society
Al Poettcker — President & CEO, UBC Properties Trust
Peter Simpson — President & CEO, Greater Vancouver Home Builders Association
Bradford Tone — President, Tone Management
“The members of the Housing Affordability Task Force bring a broad and diverse array of experience, leadership, and vision to our work on the pressing challenge of affordability,” Robertson said in an emailed statement.
“Vancouver must be a city where our children can afford to live and raise their families. This is not a simple challenge but it is one that we have to address — and I believe this task force has the ideas and expertise to provide new affordability solutions for Vancouver.”
– from ‘Vancouver appoints ‘housing affordability task force’, Vancouver Sun, 6 Feb 2012
—

“Foxes To Design New Henhouse?” – Actually, such criticism would be too easy, too glib, and, we would hope, incorrect. Not everybody on the task force is a developer. Still, interesting that people trying to solve the problem should come from “all sectors of the housing industry“. Isn’t there a possibility that some important solutions may involve steps that are not in the best interests of “the housing industry”, and that those would be avoided by this task force?

Having said that, we’re sure that there are members of this task force who are well-meaning, and have a genuine desire to attempt to ‘solve’ the housing ‘problem’ that faces Vancouver. We’ll be genuinely interested to see what they come up with.
Forgive us our jadedness, but we’d expect their ‘final report’ to include:
1. Opening and final statements regarding the importance of ‘affordable housing’ to Vancouver, our futures, our communities, our children, etc.
2. Suggestions for projects that involve small and/or low quality units at lower prices, but essentially still at ‘market prices’ for what they are. As per the ‘two parking spot’ bachelor suites released last year.
3. Projects that benefit “the housing industry” at the expense of tax-payers.
4. Absolutely no mention of the real cause of the housing crisis in Vancouver, namely the massive speculative mania driven by overextended locals high on cheap debt.
5. No plans that would risk ‘destabilizing’ current housing prices.

Regular readers know that we believe that Vancouver is in the grips of a very large bubble in housing, and that prices are at levels 2 to 3 times those supported by fundamental values. The speculative mania so distorts the market that any current talk of trying to make changes to improve ‘housing affordability’ is rendered trivial and cosmetic. Once the bubble bursts and prices drop 50%-66%, the whole ‘affordability’ picture will look very different. Thereafter there will still be a need for sensible housing policy for the city and the region, and perhaps a task force will be helpful at that point. Until then attempts to address ‘affordability’ are rearranging the proverbial deck chairs on the proverbial Titanic.
– vreaa

“The house and lane house were empty and converted into 7 or 8 suites between the two. The owner couldn’t meet me on time as he was showing one of his other six properties.”

“I’ve been helping a friend who is relocating from elsewhere back to Vancouver find a rental property. I went to view a house around 14th & Cypress which had a lane house. Both the house and lane house were empty and converted into most likely 7 or 8 suites between the two. The owner couldn’t meet me on time as he was showing one of his other six properties “like this”.
May I note, the renos looked shoddy, window surrounds without a straight line, plus, really, would you like to pay $1600/mo for a 1+loft on a property where 8-18 people will be living, coming and going on a boxed in lot? I viewed this place within the last three weeks.”
– Aldus Huxtable at VREAA 9 Feb 2012 3:07pm

Densification, unplanned.
– vreaa

Tsur Sommerville, Time Machine – “Let’s not let the housing market be driven by a wave of cheap and easy-to-access money.”

While Canada’s banks are tightening lending standards in a move to avoid a U.S.-style housing correction, experts say Vancouver’s robust housing market isn’t expected to face a severe price correction.
Canada’s banks are in talks with the federal government about ways to curb mortgage lending in response to a “genuine concern” about the country’s housing boom and rising consumer debt levels, said TD Bank chief executive officer Edmund Clark.
“Household debt numbers are coming up to U.S. levels, so that is causing us a concern,” said Clark.
…
Although the Vancouver housing market may be out of equilibrium, a significant correction is not expected, said Tsur Somerville, director at the University of B.C. Centre for Urban Economics and Real Estate at the Sauder School of Business.
“I think there’s some concern that prices don’t get so far out of whack that there’s a substantial correction,” Somerville said. “All you have to do is look around and you’ll see that if [a substantial correction] does happen, that would be a real big problem. So let’s not let the housing market be driven by a wave of cheap and easy-to-access money.”
The Bank of Canada is trying to reduce the exposure to mortgage debt and put the brakes on the housing market without using “really, really big hammers,” like raising interest rates, Somerville said.
“The government has already taken steps to control mortgage lending through its regulations and I think there’s a wariness about tightening those too much, so they’re encouraging the banks to look at their mortgage book more closely.”
…
With immigrants still streaming in from China and elsewhere, and the city frequently rated one of the most livable on the planet, most experts see prices fizzling rather than imploding with a bang.
Vancouver price rises peaked at a stunning 19.8 per cent in 2006, dipped in 2009, and came roaring back with double-digit growth in both 2010 and 2011.
A house bought for $500,000 in 2001 would have fetched about $1.2 million a decade later, based on average price changes.
But the latest month-to-month figures show Vancouver prices fell in five of seven months from last June to December, including drops of more than 5 per cent in November and December.
…
– from ‘Vancouver’s housing market unlikely to face significant price correction: expert’, ‘Bloomberg, Reuters and Vancouver Sun’, 10 Feb 2011 [hat-tip MM]

“Let’s not let the housing market be driven by a wave of cheap and easy-to-access money.”
Well said sir! — if you’d made that statement 7 years ago, that is.
To hear this said now, suggesting we shut the door after the very last of the frail and decrepit horses have been dragged and shovelled out of the proverbial stable, is just simply beyond belief. “Cheap and easy-to-access money” is precisely what has driven the Vancouver housing market, since as far back as 2003 and very definitely since 2006. Thirty, 35, 40 year mortgages; ‘Emergency’ low interest rates; Very low down-payments; Cash back offers; No-income-verification loans; HELOCs as down-payments; Mispriced insurance care of CMHC; etc. Cheap money and easy lending is the stuff of which our bubble is blown.
The Vancouver RE market is, first and last, a speculative mania driven by locals overextending themselves with cheap borrowing. When it turns, there will be nothing but fresh air between these price levels and those supported by fundamentals, far, far below.
And, yes, that will result in “a big problem”.
– vreaa

Out of interest, here is a page from the UBC Centre for Urban Economics and Real Estate at the Sauder Business School website:

Vancouver Realtor Pam Allen – “Since October, it was like someone turned off the tap. It became absolutely dead.”

Emily Yao admits to disappointment when her bid on a three-bedroom condominium in this desirable West Coast city was turned down last October. But a month later the systems programmer, who moved to Vancouver from mainland China six years ago, snapped up the still-unsold condominium on Vancouver’s East Side for $550,000, a difference of $9,000 below the original price tag.
It’s a pattern being replicated across the Pacific port city, in a dramatic turnaround from the bidding wars, show day stampedes, and above-market offers that long dominated North America’s costliest property market.
“Since October, it was like someone turned off the tap. It became absolutely dead,” said long-time realtor Pam Allen.
What’s taking the sizzle out of Vancouver prices and putting the brakes on sales are expectations that rock-bottom Canadian mortgage rates will stay low, so there is no rush to buy.
At the same time, Chinese investors, who have long helped to underpin the city’s red-hot market, are holding back because property market curbs back home means they have less cash available.
But with immigrants still streaming in from China and elsewhere, and the city frequently rated one of the most livable on the planet, most experts see prices fizzling rather than imploding with a bang.
…
No official figures are available on the percentage of Vancouver home sales to investors from mainland China or Chinese immigrants. But local realtor Tom Gradecak says that in popular areas such as the West Side, a leafy block of land flanking the university, it could be 50 per cent, rising to up to 75 per cent for homes selling for more than $3 million.
“Chinese money is a big factor … today as it was in the period after 1986,” said David Ley, author of the book “Millionaire Migrants”, which examines the impact immigrants had on Vancouver’s housing market.
“House prices in greater Vancouver bear no relationship to the local labor market. Prices are kept high by offshore capital arriving from immigrants and from foreign investors.”
…
Despite a mid-recession dip around 2008, Canada’s housing market has remained resilient for the past decade, and the Vancouver market has outperformed the rest of the country for seven of the last 10 years.
Vancouver price rises peaked at a stunning 19.8 per cent in 2006, dipped in 2009, and came roaring back with double-digit growth in both 2010 and 2011.
A house bought for $500,000 in 2001 would have fetched about $1.2 million a decade later, based on average price changes.
But the latest month-to-month figures show Vancouver prices fell in five of seven months from last June to December, including drops of more than 5 per cent in November and December.
…
There is always talk of bubbles, of course, but experts don’t see the Vancouver market crashing as the U.S. one did.
…
“I would anticipate Vancouver house prices falling further. We don’t know by how much,” said Sal Guatieri, senior economist at Bank of Montreal, co-author of a report entitled “Will Canada’s Housing Boom Forge On, Fizzle Out, or Flame Out?”.
“But that is one area that appears ripe for some sort of correction, though we are not anticipating a severe correction.
…
Realtor Tom Gradecak, who specializes in property in Vancouver’s pricey West Side, says it is too early to see any impact here, though he expects there will be some domino effect. In the business for the past 20 years, he remains sanguine about Vancouver’s real estate prospects.
“We will see ups and downs, but I think five years from now the prices will be higher than they are today,” he said.
– from ‘Vancouver home prices to fizzle, not pop’, Reuters/Vancouver Sun, 9 Feb 2012

“Expert, texpert choking smokers
Don’t you think the joker laughs at you?”
– Lennon/McCartney

“I’m a Realtor and it’s not a buyers market at all. Based on Vancouver’s historic benchmark price chart I would be hitting the sell button asap.”

“I’m a Realtor and it’s not a buyers market at all. Most of my income is derived from trading stock’s thank god they are liquid unlike houses and condo’s. I love having a diversified income stream otherwise I fear I might be inclined to shovel the whole “good time to buy and good time to sell” routine. That whole sentence is pure B.S. When I buy a stock it’s usually because it’s become temporarily unpopular with the investment community. Vancouver’s real-estate is the polar opposite everyone want’s a piece of it. If I were put Vancouver’s historic benchmark price chart over anyone of the stock’s I hold or have held I would be hitting the sell button asap. I have instructed several client’s to hold off and buy at a discount down the road. This has cost me financially but cost me nothing morally and ethically. P.S. my condo in florida was purchased at a 50% discount and i did not time it perfectly. The herd is falling off a cliff right now and there’s no safety net waiting for the lambs.”
– Big D at VREAA 6 Feb 2012 11:35pm

“When I asked why the owner is selling, the realtor said the owner “Has too many properties, wants to get rid of some”…”

“Speaking of the west side of Vancouver — another appalling/risible anecdote for all to wince at.
6225 Balsam St., an appealing-looking but now somewhat shabby, small older cottage, sold last spring for $1,288,000.
In the last few minutes I noticed a new For Sale sign on the property. Apparently the sign went up today; the property will not even be visible on the web until 3-4 days from now.
New listing price? $1,488,000.
The realtor said this is “below market value,” because the land alone is worth $1.7 million. (The lot is “extra-long” at 125.8 feet as opposed to the customary 122.)
The realtor said she had already had “quite a few” calls about the property and is expecting “multiple bids.”
The property is currently tenanted with renters, so there will be no open houses.
When I asked why the owner is selling, the realtor said the owner “has too many properties, wants to get rid of some.”
I don’t know why I should still feel surprise at some of what continues to happen here.”
– Vesta at VREAA 7 Feb 2012 4:35pm

“Vesta – per BC Assessment, 6225 Balsam sold for $1.420M last May 2011. It is currently assessed for $1.502 M. Will be interesting to see what it goes for.”
– homelessindunbar at VREAA 8 Feb 2012 12:34am

1. “Below market value”: Hahahaha, really risible. What, the owner is feeling charitable?.. passing on a free $200K to the buyer out of goodwill? Of course, in actual fact, whatever it sells for is ‘market value’. You know the realtor is being disingenuous based on this comment.
2. “The owner “has too many properties, wants to get rid of some.”: More laughter. What, too much of a good thing? More BS. This is the seller’s way of answering the question “If RE in Vancouver is such a good investment, why are you selling?”… “I have so much, I’ve decided to give some away…”
3. Yes, given our knowledge of the May 2011 sales price, it’ll be interesting to see what it now sells for. It is possibly priced in the hope of a bidding war. With all the benchmark changes and so forth, this kind of single property sale/resale may become increasingly important in trying to assess market direction and magnitude of price changes.
– vreaa

“My wife and I could never buy into a life of servitude to a bank. We just aren’t built to borrow money and don’t consider life as a one track job in order to buy a building.”

“For our family it’s been about enjoying life. My wife and I could never buy into a life of servitude to a bank. It’s not in our DNA. We just aren’t built to borrow money and don’t consider life as a one track job in order to buy a building. We travel and explore BC and paid the university education for two kids. When we first moved to the LM from the Okanagan, we stopped at Haro and Jervis for several years (when a one bedroom was $400/m) and watched the tone of the city change from a cultural oasis to a financial oasis. I almost bought a suite for $90k, but the spirit changed. We wanted out. Now we live on a five acre farm near Golden Ears for $900 a month. We do lots of care taking and the owner keeps the rent low. Fresh eggs, beautiful scenery, and slow paced neighbors who are more interested in gardening than real estate. We’ve saved enough to buy a house for cash near Merritt and have our RRSP’s topped up.
I can appreciate that some folk want to acquire, however that need is at the jeopardy of a full rounded community with contributions from all walks of life. There’s some wonderful people in Vancouver, friendly, but there is a shift in attitude. It’s more about ‘stuff’ now. I don’t know, it might become a haven for the world’s rich, but at what expense to the people who were raised here? It’s like the pipeline up north—we pay carbon tax while the government and corporations pump our fossil fuels to Asia. There’s an underlying hypocrisy in many aspects of Vancouver and British Columbia’s growth. I don’t think the government made good decisions about sustainable living for the citizens of BC. I do believe their priority has been a tax base and many other aspects of culture and affordable living have been secondary. I know some real estate agents and I hold them personally responsible for jacking up prices at every turn. They were born to sell anything for a profit, and I am afraid they are now influencing public policy.
Can Vancouver survive an era of personal gain and self gratification? The same attitude didn’t prepare another glamor town very well, Las Vegas was hit very hard and it still hasn’t recovered from 2008. Two more years and our family is out. We are taking our design and manufacturing business as well. Freight on board out of Merritt is cheaper than expanding into a commercial site here.
Will be back to visit.”
– debtless in poco at VREAA 7 Feb 2012 9:25am

Talk of life without debt, fresh eggs, beautiful scenery, slow pace, neighbours, community.
Freaks!
– vreaa

Philadelphia Church of God Trumpets: “Falling house prices is an idea that many Canadians laugh at. Americans laughed too before America’s bubble burst.”

“You have to empathize with people in Canada who want to buy a house. In boom cities like Regina, Saskatoon, Vancouver, Calgary and Toronto house prices have inflated virtually non-stop for more than a decade.
Income growth though — what income growth?” …
“Canadians rarely seem to consider the fact that their biggest investment might (read: will probably) go down in value.
Falling house prices is an idea that many Canadians laugh at. Americans laughed too before America’s bubble burst. Now, many Americans are locked into paying mortgages on houses that are becoming worth less and less each year.” …
“In Vancouver, so many people are buying houses, second houses and investment houses, that the ratio of home prices to incomes is the highest in the English-speaking world, according to consultancy firm Demographia. The survey labeled it the second-least affordable city in the world! An average house there costs over 10.6 times the average pre-tax income. For further bubble evidence, check out this $1.2 million dump.” …
“Last month, Merrill Lynch called Canada’s housing market overvalued, oversupplied and driven by speculation.” …
“Canada’s bubble is getting close to bursting, and when it does, expect a massive economic implosion. Unemployment will soar, banks will fail or ask for bailouts, and the dollar will plunge in value. Millions of Canadians will be left paying a fixed mortgage on a rapidly depreciating asset that will destroy their financial lives.
Five years following the popping of America’s housing bubble, Canadians may be about to wish they had learned a lesson. Get your ear plugs ready.”
– from ‘Canada’s Housing Bubble Is Stretched to the Limit’, The Trumpet, 7 Feb 2012
From the website:
“The Trumpet magazine is published 10 times a year by the Philadelphia Church of God.
The Trumpet uses a single overarching criterion that sets it apart from other news sources and keeps it focused like a laser beam on what truly is important. That criterion is prophetic significance. The Trumpet seeks to show how current events are fulfilling the biblically prophesied description of the prevailing state of affairs just before the Second Coming of Jesus Christ.
The Trumpet has a long history of accurate forecasting of major global events based on this predictive model, tracing back to the beginnings of the Plain Truth magazine in 1934 under the direction of Herbert W. Armstrong. To explore these forecasts, read our booklet, called “He Was Right!—Remembering five decades of accurate forecasting by Herbert W. Armstrong.”
—

“Laugh now, but you’ll learn your lesson!”
We always knew Vancouver’s RE implosion was going to look like Armageddon, just not literally.
(BTW, as far as we know this is a first: religious prophecy meets our speculative mania.)
– vreaa

Avoiding Vancouver, Recent Stories

“As a home owner in Vancouver, I never could save for retirement. We sold and moved to the best big city for a family – Ottawa. Wow, we’ve not regretted that move.
Bottomline, we listen to our gut… we felt the times are changing, RE is not where we should be.
In Ottawa we rent.
At no cost, we evicted the squirrels, have a new stove, water system, and a few more “details” and my kids love the acres to play !!!
I max out my TSFA, RRSP, RESP (for 3 kids) + more because I don’t believe in home ownership (for now).”
– Carp at greaterfool.ca 27 Jan 2012 12:54am

“Finally, after years of waiting for some sanity and affordability to no avail, I am moving next month to California.
Got the E2 visa today.
I never thought it will come to this, but I see no opportunity here other than selling real estate to rich Chinese.
I am confident fundamentals will eventually prevail, but I cannot live on the expectative for ever.
I mostly agree with the bear argument, yet the reality is that for the last 10 years it has been so wrong. Ant that is a very long time.
I only hope bears will eventually be right for the sake of the new generations. I am out of here. Good luck.”
– paradox at vancouvercondo.info 26 Jan 2012 11:35am

“Just had another ex-Vancouverite who got hired here in Calgary. She was living with her husband in his parents house in East Vancouver because of the unaffordability and they wanted to save money. She also was blunt and said her husband will make about 50K more working in Alberta compared to Vancouver!”
– calguy at VREAA 2 Feb 2012 6:57pm

“My wife and I have decided to take our $750,000 deposit money and seek fairer value — and potentially better jobs — elsewhere in Canada when we begin our search to return from Europe come the spring. So chalk three more (including our son) up to the number of people who are deterred from coming to Vancouver. A shame, cos I grew up on the North Shore, partly. But needs must!”
– Craig Sterling [not his real name] at VREAA 23 Jan 2012 6:33am

“She tells me that she isn’t worried because the prices cannot drop below what she paid.”

“My sister-in-law bought her place 5 yrs ago, and saw her house price double last year. She tells me that she isn’t worried because the prices cannot drop below what she paid. Only time will tell.”
– eagle eyes at greaterfool.ca 2 Feb 2012 1:13am

These are the owners who may well end up being most surprised by the coming deflation.
After sitting on what felt like certain profits for years, they will give them back, and more.
The mania was already well underway by 2006; prices could end up going back as far as those of 2000, 2001.
– vreaa