“I have been a long time bull but it’s becoming pretty clear that the cracks are showing. Two years ago I laughed at predictions of a 50% drop in prices but it no longer sounds quite as unlikely as it did.
I am tempted to try and sell my clear title home but I love living in it and I still think a decade-long, shallow decline in prices is still possible and I don’t want to sit on the sidelines renting during my twilight years, even though it’s beginning to look like the financially smart thing to do. If I was young I’d be looking forward to my first open house.
I do worry about friends who have second properties (condos) that they rent out, if interest rates climb, inventory explodes and the number of renters doesn’t grow proportionately, things could go very badly for them.
I’m fairly confident my home will be worth a lot less in the not too distant future but not confident enough to take the chance of selling at this time in my life. I do believe current price levels will eventually return but it could take decades.”
– axeless at VREAA 13 Mar 2012 7:21pm
[Thanks very much, axeless, we largely agree with your outlook for the market.]
This is an important story as many Vancouver owners are in similar positions.
How will they respond to relentlessly sliding prices?
We don’t think many will show as much sang-froid as axeless.
We suspect many are dependent on the value of their homes for their financial futures, and will try to realize their paper profits as prices fall.
– vreaa
Vancouver Real Estate Anecdote Archive 
Wave::particle as investment::home
I say yes
You had me at “Wave”, Jesse…
YVR RE, is you know – merely a question of QuantumEntanglement… and SuperPosition…
So, when Schrödinger opens his VancouverBox… does he find a DeadCat or a LiveCat?…
http://en.wikipedia.org/wiki/Quantum_entanglement
And, as we’re discussing Quantum Entanglement & Decoherence…
Today’s Quote[s] ‘o TheDay!… [hint: look for the word “usually”]
[ChinaDaily] – China ‘wealth exodus’ underestimated
…”Last month, Legal Evening News, a Beijing metropolis daily, said 10 billion yuan ($1.57 billion) has found its way abroad annually since 2009.
The figure was based on the investor emigration requirement and the number of investor emigrants publicized by the governments of the United States, Canada and Australia. Investor emigrants to those three countries are believed to account for 80 percent of the total number of Chinese emigres.
However, emigration agents said the figure underestimates the real scale. That’s because many people will transfer more money to their new ‘home’ countries once they’ve obtained permanent residency.
“Usually they will at least buy a house after they get residency,” said Cai Hong, a manager with emigration consulting company HHL Overseas Immigration & Education.
“And they usually make a one-off payment,”Ma said, referring to the fact the emigrants have no need to resort to a mortgage.
Considering the average price of a house in the major cities of the United States, Canada and Australia – the countries where Chinese investor emigrants are most likely to settle – and the fact that around 80 percent of them will buy a house, an estimated 10.3 billion yuan finds its way into the property markets of the three countries per annum.
Adding in the money invested to secure permanent residency, which China Daily estimates to be 21.49 billion yuan, and the estimation that the three countries account for 80 percent of the emigrant population, the total wealth exodus could reach at least 39.75 billion yuan a year.
The Canada case
For its safety, relatively short waiting time to obtain permanent residency and good returns on investment, Canada has always been the premier choice for wealthy Chinese looking to obtain permanent residency through investment, emigration agents said.”…
http://tinyurl.com/7lhaole
Re-> China…
I believe that the impact of Mainland Chinese immigration on Vancouver RE has been grossly under-estimated. Too bad it’s impossible to have this conversation without getting into name calling…
sounds impressive until you do a bit of math on $1.6B since 2009. you very optimistically get something, <5%-ish. similar to the impact on pop numbers for melbourne cited in the article. it's there. it's a factor. but in no way explains the price ramp; which otoh, is mirror image of household debt growth.
ha, a dead cat bouncing.
“No matter if it is a white cat or a black cat; as long as it can catch mice, it is a good cat. ” – Deng Xiaoping [1962, From a speech in a meeting of the Secretariat, actually a Sichuan proverb]…
And the better known, if unattributed/apocryphal, ” 致富光荣 ” [zhìfù guāngróng: To get rich is glorious!]
In the absence of ‘political will’ – i.e. a wholesale revision of prevailing rules/norms that foster an opaque RE market – we may never know (in the absolute, epistomological sense) the true regional impact of Overseas Chinese investment, Makaya…
However, the anecdotal and visual ground truth does lend support to the thesis that exogenous capital inflows are a significant if not the predominant factor driving the appreciation of certain YVR housing types/micro-markets… for example, in the 10 years prior to 2007 the CCP’s Central Commission for Discipline Inspection estimated unlawful capital outlfows in excess of USD 100BN. Assuming approximately 1/3 of those fund flows ‘landed’ in Canada… and that 1/2 of that subset was subsequently invested in RE… you get a pretty big Chunk ‘o Change.
Of course, it’s not at all a ‘Chinese’ thing… it’s a money thing (it just happens, historically, to be their turn in the drivers seat, as it were)… in a different era we’d be looking at different hemispheres and populating our “moral panic” meta-narratives with different “folk devils”.
Personally, I revere traditional Chinese culture… (esp. of the ‘OldSchool’, Confucian variety – albeit, notwithstanding Premier Wen Jiabao’s recent remarks, OldSchool sadly appears to have fallen somewhat out of vogue in contemporary China). The important thing to remember about the Chinese polity… is that it is still conditioned by the psychological baggage of the, “Century of Shame” [ 百年国耻 ].
There’s no duality about money, just flow of electrons. An apt analogy; in the realm of us mortals money doesn’t disappear but instead flows from one host to another.
Also in electrical engineering land, so I’ve heard, electrons flow backwards. I the spirit of duality, don’t think of a house costing $1.45MM, think of the $1.45MM costing a house. When thought in those terms, with this purchase in particular, it makes about as much sense.
” That’s because many people will transfer more money to their new ‘home’ countries once they’ve obtained permanent residency.”
Ah yes the declared wealth issue. The Globe and Mail did an expose on this last year, going undercover into the immigration consulting underworld, and uncovering the challenges associated with declaring foreign wealth, and consequences if you don’t get the declaration just right.
Usually the rumour has it that Revenue Canada has some low hanging fruit that, if picked, will ease the pain of austerity for the grassroots. This is the proverbial “offside trap” of the tax world.
“Applicants can even invest just C$220,000 and obtain a loan of C$580,000 from Canadian banks to bridge the gap. The C$220,000 will be transferred to the bank that issued the loan as interest five years later.”
Oh no.
When you consider the sums involved here, one should always do the financially smart thing.
FYI:
http://business.financialpost.com/2012/03/16/tighter-regulations-needed-against-overheating-real-estate-household-debt-td/
Good comment over at FPost, Gord.
We’ll replicate it here for posterity.
(In the FP article, Craig Alexander, chief economist with TD Bank, is quoted as saying that RE is “between 10% and 15% overvalued nationally”.):
“For a guy who’s business makes so much of its money through mortgages to say something like this is pretty serious stuff. He’s not saying anything that anyone with a brain doesn’t already know, but give him credit for verbalizing it so strongly.
10-15% nationally? I’d say more like 25% nationally and 50% or more in the prime bubble zones such as Vancouver (somehow known locally as the Best Place on Earth) and Toronto. And even then, certain neighbourhoods are overvalued more than others. $1.5 million for a dump in rainy, blah, crime-infested East Van? Shacks like that won’t be worth a half million when the smoke clears.
My thoughts are with those who have been deceived into buying recently. A piece of advice? Sell while you can still recover some of what you’ve put into it. This pyramid scheme will take several years to unravel – several painful years.”
– gordholio at FP, 16 Mar 2012
“I do believe current price levels will eventually return but it could take decades.”
Well, yes, given that inflation will likely be positive over the next few decades, current prices levels will return.
The real question is: will current “price / rent” or “price / income” or “price / USA price” levels return over the next few decades. Probably not.
I think 75% off would be about right.
Agreed, when you put it like that.
That’s a complete meltdown and will destroy the lives of all the middle class. Riots would erupt and the BPOE will be burned down. It ain’t happening to that degrees. Wishing for that is completely insane. If that happens, no one including every blogger here will not buy.
There is a difference between “wishing” and “foreseeing”.
We foresee a crash in Vancouver RE; prices down by 50%-66%.
What we “wish” for is neither here nor there. Fortunately, no markets move based on anybody’s wishes.
Fire economics (finance, insurance, real estate): Nicole Foss, number cruncher, says 90% off Vancouver to Max Keiser, upon which the host offers a wide-eyed shock frame to the camera (5:00). Commenters balk, aghast at such pessimism. The interview is over a year old and might be redundant now, but her scenarios are consistently accurate o date. This is a “deferred” process—a deflationary credit collapse, partially spurred by a small number of investors who pay cash from a pool of limited liquidity. Watch bond rates and gov revenues.
Nicole Foss : Canada’s real estate to collapse by 90 percent
youtu.be/_acwahNKjNU
Vanguy:
That’s like saying that in the tulip market, you would not wish for a crash of 99%. You prefer a tulip bulb be reduced from a million to 700k or so at the worst, or else the Holland economy would be ruined, because it is built up on the tulip bubble, bubble is too big to pop. I didn’t create this bubble, but yes I DO wish it would go bang. If a return to fair prices hurts that much, they shouldn’t have participated to the degree they did. This is NO different than the infamous tulip bubble. A reduction of 99% or more was appropriate then, to return to fair pricing, despite that people got burned, they deserved it. A drop of 75% might be a slight overshoot here, granted, but 66% is BANG ON FAIR VALUE and you are damn right I wish for that.
To be honest 66% is not enough IMO. 75% might be a tad high, I guess. Maybe 70% off is about right, I don’t know. Point is, if a dog turd is going for a million bucks, then a 99.99999% correction IS right, and I DO wish for a return to fair prices, regardless of who loses their shirt over it.
The one thing we can absolutely be sure of is a return to ‘fair prices’, as determined by fundamentals. That always happens.
It’s going to be fascinating to see where the trough ends up.
‘Fair prices’ + overshoot.
“The one thing we can absolutely be sure of is a return to ‘fair prices’, as determined by fundamentals. That always happens”
what fundamentals are you referring to?
As soon as you define your statement I’ll show you locations in the world that haven’t followed “fundamentals” for decades and never will.
You know darn well your position “that always happens” is false.
formula1 -> Okay, let’s just look at price:rent fundamentals.
Give us examples of places in the world where price:monthlyrent ratios have diverged from historic range, as Canada’s have, and stayed there forever.
For a very thorough analysis of Canada’s currently very distorted price:rent ratio, see this article by Ben Rabidoux, in which jesse’s work is also broadly quoted:
Canada Real Estate: Are Price-to-Rent Ratios Flashing Warning Signs?
price to rent is a commercial real estate calculation. It cannot be used when assessing value for residential real estate because owner-occupiers are not investors. You are an investor vreaa. And as an investor I strongly discourage you from every buying residential real estate.
“An important consideration for residential real estate, unlike other investments, is that it is not just investors who are active in the market. Owner-occupiers who prefer to own will be willing and able to pay a premium over rental value for a property, a so-called consumer surplus. In the case where owner-occupiers are heavily active in a market an investor either tags along for the ride, hoping to sell at a higher price in lieu of a low cap rate, or simply sits on the sidelines or invests in better returns elsewhere”
http://housing-analysis.blogspot.ca/2011/03/use-and-reasonably-foreseeable-misuse.html
.
Craig Alexander is using bait and switch: first a little shock and sympathy for the bear case, followed by the all-important “How about a modest 7% down, please not a heavy-handed 10% down!”
The other big change in the world of late, is that there are now a lot of good places to put money. Investors all over the world are asking themselves “Should I keep my money in commodities? Or start moving money to US equities like Apple Inc.?”
Money chases yield – please convince me, anyone, that YVR RE is going to give me better yield then Apple.
I’ve read Apple’s price is supported by large institutional investors and funds, and they can quickly dump and run if the current trend line stalls. I’m considering opening an account in yuan to hedge the dollar, currently trading 6:1 with US and projected to approach 1:1. Silver is, of course, the darling if there’s bond trouble, it has diversified value, tho gold’s easier to pack. Another, I’m watching outlying cottages and acreages often sacrificed to support the main house.
Overcapacity leads to falling currencies. It rises with investment (and overinvestment) and then starts falling long term. Look at the US dollar from 1990-2001, and also the Canadian dollar over that time as commodies bottomed and overcapacity was visible.
The US right now is not investing anywhere near potential. They have decaying infrastructure and domestic corporations are sitting on piles of cash. US dollars must be spent in America! This situation is not sustainable. The US is becoming more and more competitive automatically. The alternatives (Canada, Australia, China) are getting worse and worse. When the next US investment cycle kicks in you will want to be there. China is going bust!
Agreed rp1. I won’t lock into anything. Just floating, liquid. A few hedges here and there. Some stake in a few US manufacturers, some cash flow plays. Tapping fingers, playing guitar, enjoying Lower Mainland like a tourist.
YVR RE has been a great shelter for many over the last few years. But things on the horizon look different now. I have witnessed a significant change in the US economy for the
better, I even read a story of a new influx of Chinese RE investment in So Cal!
…”the cracks are showing”… [for some reason, that always make ‘Nem’ think of plumbers]… in other ‘crack’ related news, Tsur Somerville rewards us with this morning’s Quote ‘O TheDay….
“I think people in general are nervous.” – Tsur Somerville, UBC Sauder School of Business.
[G&M] – Storm clouds forming over Vancouver’s real-estate market
“For the past few years, Bill Liu has sold homes at a steady clip, averaging four or five sales a month in Richmond and other communities in the Lower Mainland. This year, his sales are running at about half that, as the once white-hot British Columbia real-estate market cools off.”…
http://tinyurl.com/745log5
Thanks for finally talking about >I have been a long time bull but
it’s becoming pretty clear that the cracks are showing. Two years ago I laughed at predictions of a 50% drop in prices but it no longer sounds quite as unlikely as it did. | Vancouver Real Estate Anecdote Archive <Loved it!