“I can’t imagine people buying such a thing without speculating on the price.”

“I frequent North Vancouver, especially the mid-Lonsdale area around 13th st to see my significant other. There’s been quite a few large scale developments in the area, and more planned down the road. Last year I dropped by “The Vista,” a two building high rise project just off 13th and Lonsdale. I saw a 4th floor 2 bedroom apartment, barely 1000sqft, that was asking 600K. At the time I thought that was crazy. Today the SO and I dropped by The Kimpton to have a look around. I was blown away. The “luxury” building is 5 floors, and the asking price for a 2 bedroom was 710K! Unbelievable. Of course, everything that could sparkle in that ~1000sqft condo did, and the sellers said “concrete” about 15 times during our 10 minutes there, but there was a suspicious inconsistency in the “luxury” presented. The kitchen and bathroom were all fine (complete with a bow-tie on the toilet!), but for some reason there was a sliding door to the master bedroom, but not to the 2nd bedroom. There was a sliding door to the bathroom for the 2nd bedroom, but a regular door for the bathroom in the master bedroom. And instead of an actual fireplace, there was some weird graphical device that showed something that looked like a really bad CG fire. Anyways, it seems builders in a very non-posh neighbourhood of North Vancouver think they can sell people a 1000sqft concrete box just barely off the ground for $710,000. You’d think it was a 2000sqft penthouse in Downtown/West Vancouver. Oh, they said they only had a couple units left. I guess they can get away with it, although I can’t imagine people buying such a thing without speculating on the price.”
– from ‘R’, via e-mail to VREAA, 26 Apr 2012

54 responses to ““I can’t imagine people buying such a thing without speculating on the price.”

  1. SavoyOrangeJuice

    I grew up in West Van but don’t think I would move back there even if prices went down by 90%. Maybe North Van is okay these days. I can’t say; because, like the posters in the previous thread I moved out of Vancouver a number of years ago. I knew house prices were going up when I left, but my reason for going had more to do with adventure.

    The interesting thing about being in London (UK) is the number of other Vancouver ex-pats I run into. It seems like half my high school is out here (all mid-thirties now). The ones that aren’t, are in Toronto, NYC, Seattle and LA. I know a few, like myself, have expressed interest in returning with our families.

    While I fully expect this credit bubble to pop, what I don’t understand is… is everyone, ex-pats and waiting locals, hoping on buying a house in Vancouver proper when it pops? It seems like so many ugly houses have been built and still exist in Vancouver. It’s a shame the bubble didn’t result in loads of charming houses getting built. I can’t really imagine moving back into a neighbourhood filled with ugly houses, retired people and foreign-born non-English speakers?.

    Looking around on mls, some of the housing getting built in Langley looks more appealing. If those $600k houses became $300k ones, all the better. The new Port Mann bridge should make it more accessible. Isn’t that where the regular native-born Canadians with young families are going? Is it any worse than suburban North America any where else?

  2. Relaxed & Happy Islander

    Love the handle, Savoy, is oj really $16 a glass?

    Interesting question you pose – how many BPOE ex-pats would return post RE bubble?

    For us, leaving was about more than just the money, the character & nature of Vancouver has changed so much, and not necessarily for the better (I see on the Sun’s website the dog-owner/non-dog-owner hostilities are heating up again). If maintaining the lifestyle has created so much stress now, I suspect it will only get worse if/when RE prices go down

    VREAA: if you decide to do a poll, chalk us up in the ‘no plans to return’ side.

    • Try the SundayRoast, R&HI… you won’t find better value for that venue (or elsewhere in the BigSmoke a leisurely stroll’s distance of WhiteHall, for that matter)…

      http://tinyurl.com/bod77y7

      • Relaxed & Happy Islander

        Wow – that does sound wonderful & worth trying

        At the risk of turning this into a food blog, of those Vancouver things I miss/have yet to find an equal…the spring rollsfrom Victoria Restaurant…the Diplomat from Notte’s Bon Ton…the Pavlova from Sweet Carries – considering this thread was discussing condos in North Van, maybe there’s a premium to be paid to be within walking distance to that Pavlova..there it’s now back to a RE discussion

        [Note to R&HIslander – for absolutely no reason we can discern, your earlier version of this comment was automatically held up in the moderation queue (by wordpress filters), but this one got through! – ed.]

      • Of course… If you’re feeling like ‘splashing out’, RHI… you could always indulge in Blighty’s most expensive ‘AfterNoonTea’… at ClivedenHouse, Berkshire [a favourite haunt of ‘PrivateBankers’ vs. BankersPrivates]…

        http://tinyurl.com/dxr9bes

      • I neglected to add, if that seem’s a trifle dear… Well, there is always DougieLuv’s “DragonDog”… albeit, I think neglecting to enfold his SausageRoyale in GoldLeaf [like the GateauChocolat @ CliveDenHouse] was an inexcusable bungle!

  3. Renters Revenge

    Doug Sanders in the G&M suggests a Land Value Tax in response to global housing affordability crisis.
    http://m.theglobeandmail.com/news/world/doug-saunders/a-housing-crisis-of-global-proportions/article2416043/?service=mobile

    • Relaxed & Happy Islander

      http://www.economist.com/node/21553459

      This article asks more questions than it answers, but is interesting none-the-less

    • Renters Revenge

      RHI, This was an interesting point:
      “Just as the best way to view equities is as the discounted value of future cashflows, the best way to view property is as the discounted value of future rents. The temptation is to think that, as real rates fall, the present value of housing must rise. But why are real rates low? They are being held down by central banks which are worried about the economic outlook. If the central banks are right, then rents will surely grow more slowly in future. A paper* by Christian Hott and Terhi Jokipii calculates that on this basis, British, Irish and Spanish house prices are still well above their “fundamental” value, while those in America are about right.”
      WHO in Vancouver possibly uses the discounted value of rents!!!!! Which is what a LVT would accomplish, forcing that consideration to be made.

    • Basement Suite

      Or they simply could raise mortgage rates and problem solved.

      • Renters Revenge

        Obviously raising mortgage rates is anything but simple.

      • Basement Suite

        That’s not the point. The point is, do one thing, raise rates, and the problem is SOLVED. Screw all this fancy CHMC this, income validation that. Stop being penny wise, pound foolish. Raise rates, and bubble dead. It’s not hard. The reason they are low now is that central banks have designed them to be low with their emergency targets. Change that fact, and wean people off free money. It IS simple. People in power have decided to have money be free for so long, that the population has been brainwashed into thinking it is really complicated and impossible to every raise the cost of borrowing. Someone the laws of physics will be violated. Stop all the free money and the bubble goes away. That IS simple.

      • I don’t think the 5 year would behave if overnight rates were to be shoved higher. What will make a huge difference is the countercyclical capital buffers that are likely being implemented later this year.

      • Basement Suite

        I don’t think countercyclical buffers would have a very dramatic effect on mortgage rates or credit availability. Small effect maybe, but not what is needed. It’s another tweak, like “tighter oversight” of the CMHC, income validation, various land taxes, what-have-you. To me it all boils down to the mortgage rates, the rest is lipstick on the pig. I do think when overnight or target rates (whatever a central bank calls them) go up, mortgages follow, according to central banks themselves, the lending institutions themselves, journalists, and historical charts. Following that come price drops. Real price drops. All the rest is just tweaking.

      • Hey basement, how much and how often do you think the rate should be raised ? The reason I ask is that if you check the US historical rate increases, they appeared to be too aggressive and brought down the house!

      • Basement Suite

        It fell hard because it inflated too much. Tulips fell hard in Holland too. Million dollar flower bulb has a long way to fall. I don’t want the “soft landing” that means 30 years of erosion to high inflation and never buy in our lifetimes, doesn’t sound so “soft” to me. So I’m not talking a paultry .25 increase over the next 5 years so idiot Carney can say he did something prudent. I’m talking an END to the nearly interest-free real estate loan. Lets raise rates by at least 3% over the next 5 years, starting NOW with a .25, or else when? From there, go higher if the economy can handle it. I wager that only RE would really suffer, yes there’d be a slowdown due to no more ATMs per HELOCs spitting out more free money, but that’s inevitable and must end eventually, sooner the better. Most other businesses to not NEED all the free loans. Raise rates by 3%, big deal, that’s still a 4% “target”, historically LOW, but high enough to wipe out the bubble because mortgage rates would rise by about that amount. I’m so tired of the “new normal” in free money and the damage it has and is causing. Enough already. Fire Carney and raise rates today.

      • Are we really comparing Dutch tulips to real estate? Can you rent tulips out to generate income even in the best of times. Not even gold has the ability to generate income like real estate.

      • Basement Suite

        RE has become like tulips were, hotcakes to be flipped for huge profit after 6 months. Even rents in Vancouver have gone to the moon thanks to the RE bubble. You don’t see any problem with real estate pricing because there is some intrinsic value? Then cars could be a million bucks each, because people have to drive, and taxis even get rented out. What do you prefer, never pop the bubble? Apparently yes.

      • I agree with you, prices are ridiculous and a moderate and sustainable retreat would be in everyone’s best interest whether they know it or not.

        It’s just that you’re using depreciating assets to compare with real estate that differs in its ability to generate income (renting). Well i suppose delivery vehicles and flower shows could generate income too.

        I share your frustration but perhaps the focus should be the state of the global economy and not so much Canada. No point in getting upset at high tide when it is the moon’s fault.

      • Basement Suite

        I acknowledge that raising rates would have other effects, such as raising our dollar. That makes it harder. But doing nothing is not the answer. There should be a middle ground somewhere. Leaving the target at 1% for 13 “decisions” in a row while blabbing about Canadians taking on too much debt is absurd and insulting. Rates need to rise. It’s not just Canada that is to blame, but that’s where we are so that is my focus. To be honest, I equally blame the US fed since their policy is the number one reason ours is what it is.

      • God, if I say I agree with you, will you say something else?

      • My hairline is receding. If only they would raise interest rates!

  4. reality check

    The Senate gave Carney major grief over his talk about raising rates.

  5. Quick question: do you really thing that raising mortgage rates would help?

    People in Romania .flocked to 30 year old, russian-designed 700 sqft condos at 120k euros(160k USD/CAD) (up from around 20k euros in ~ 4-5 years) At mortgage rates of over 10% for euros, mind you, and at 10km from the city centre (Bucharest). With the usual arguments of salaries always going up and “house prices grow. always and forever” and “rent is money thrown out the windo”

    Prices have gone down since 2008 to about 45% even with special, government subsidized rates of around 5% which are still variable (fixed + euribor). I think they’d go even lower without that, granted, but it’s mostly because they think “if the government guarantees it, it must be kinda free and safe”.

    By the way, my personal theory is that “government securitized mortgage” organizations are extremely harmful. They send the wrong message, just like with the recent subsidies in Romania: “The government says it’s ok, so it’s ok. The government certainly does what’s best for us.”. Dismember the CHMC, see Spot run.

    Another issue is that all big government does, even if it’s to the far left, is just provide a bigger target for lobbyists. If the regulations can only be jumped by the ones who can bribe the government, then of course self-regulation fails completely.

  6. Pardon my English, I’m fairly tired and forgot to re-check before i posted.

  7. Last thing: I don’t live in Canada, don’t plan on emigrating. A friend of mine finds Vancouver fascinating, I don’t know what to make of it, it certainly is no Mediterranean or Californian town… 8 months of raining per year in wood-chip housing?

  8. I’d gladly speculate on the price. Straight f’n down, is what I’d bet.

  9. Raise rates and the CDN will go up meaning even more hot money will want to flow into Canada and eventually into Vancouver real estate. It would also slow down the Canadian economy. Can’t only raise rates in Vancouver and not in Edmonton!

    • Basement Suite

      Real estate prices would NOT go up if rates rose substantially. Very much the opposite, they would TANK.

      • Did i say real estate prices would go up? Yes it may very well drive down prices but with collateral damage to the broader Canadian economy.

        Higher interest rates = foreign money will want to park their cash in Canada even more so than now. Australia is facing the same problem.

        In the end, locals will still find it just as difficult to climb the property ladder if they they are competing with even more foreign money + higher interest rates.

      • Basement Suite

        Uh, yes you did, and just did again. Did you read your own comments?

        “even more hot money will want to flow into Canada and eventually into Vancouver real estate”

        Then just now you made that argument again.

        I am saying that is false. RE will tank. If HAM wants dead RE, so what, it’s still tanked.

      • Basement Suite

        Ps. F**k this collateral damage argument, then never pop any bubble, never bust any ponzi scheme, too bad Bernie Madoff got found out? RAISE RATES ENOUGH FREE MONEY YOU SPOILED F**KING CANADIANS WITH YOUR INTEREST-FREE RE LOANS.

      • nobody you know

        “Ps. F**k this collateral damage argument”

        Amen to that. I’m tired of hearing the “Oh, but think of the damage it might do” argument whenever I suggest a correction is in order. Inflated prices are a problem and keeping them inflated is not a solution.

        The harm occurred when people agreed to overpay for real estate and the correction will merely reveal the extent of the damage that has already been done.

  10. Let’s say interest rates become 8%. RE prices retreat. But imagine how many Americans (and the world) will park their money in Canada when most of the developed world are working off 1/8th of our rates.

    That parked money will go into bonds (not enough to go around) and real estate, maybe a bit of stocks.

    Real estate prices may fall, as they should, but locals will be competing against even more foreign money (lowly leveraged) with high interest rates to boot! How will this make real estate more accessible for us?

    I’m not saying this is the way it must play out but can we rule it out? If you were an American with savings, wouldn’t you be tempted to move some of your money to Canada to earn 5% interest in the bank rather than .25% at home? For the wealthy, why not a property too when I can borrow at 2% back home while poor Canadians have to borrow at 8%?

    Immigration and investment policies are the only way to go if we are serious about the problem (though I think there will be unforeseen ramifications).

    • Basement Suite

      “Real estate prices may fall, as they should, but locals will be competing against even more foreign money (lowly leveraged) with high interest rates to boot! How will this make real estate more accessible for us?”

      Foreign money is irrelevant. If you make the same wage, and a house costs half as much, that makes it easier for you to buy, everything else is irrelevant. If foreign money were a problem prices would not be low, but the fact is they WOULD be low with higher interest rates.

      Now granted, if interest rates are higher, then maybe the monthly payment on the house is about the SAME as now, since lower principal plus higher interest equals the same monthly payment over 30 years am. What’s so great then about popping the bubble with higher interest rates? Because those who are prudent, with bigger down payments, big early payments, who pay off a house much faster are rewarded with huge savings. As it SHOULD be. Those however who make the minimum payment over the maximum time frame would actually have to pay MORE in the end. That rewards prudence. Right now, with near interest-free loans, most of the cost is principal. You could pay off a house today with cash and still pay a fortune, a million plus for that that 1950 “character home”.

      This bubble rewards the financially irresponsible and punishes the prudent. “Popping the bubble with higher interest rates” can equally be termed “Normalizing real estate prices and the cost of borrowing” so the prudent in society actually have a chance.

      • Foreign money is VERY relevant in any open economy.

        What you’re saying makes complete sense. It is how Pleasantville should be. The folks in Ottawa are fully aware of your argument and must agree with it personally.

        But they’ve got other responsibilities too other than housing prices, such as jobs and the competitiveness of our companies on the global stage. For them, they need to find the balance between helping businesses to grow (jobs) Vs normalizing real estate prices.

        Break it down from Ottawa’s point of view, do we help Vancouver (and Toronto to a lesser degree) or the rest of the country?

      • Basement Suite

        I just don’t think that essentially FREE loans are required to somehow keep us alive. That is a myth we have all been brainwashed into. There is a middle ground that could deflate housing while keeping money plenty cheap for businesses. Cheap money does not have to mean free. Rates could rise, and money would STILL be plenty cheap.

      • Basement Suite

        Ps. Foreign money is not relevant in the context you described. Per my argument above. If a house costs 5 bucks, then a house costs 5 bucks. Who cares who’s buying it. Foreign money is a problem when it causes a house to cost MORE than 5 bucks. Under the premise that higher rates=lower prices, that is not the case.

  11. We can discuss this in a civilized way but if you’re going to be aggressive about it, I’d rather not.

    If we unnecessarily raise rates (rates are where they are now because of the markets not because of one man in Ottawa), then we as Canadian suffer and effect paying the price for Europe and the US’ troubles.

    We live in a global economy more so now than ever. Who was it that once said ‘no man is an island’? Well, no country is either.

    • Basement Suite

      “We can discuss this in a civilized way but if you’re going to be aggressive about it, I’d rather not.”

      Then don’t respond to my comments if you don’t like the response.

    • Basement Suite

      Ps. I must apologize if I came across as rude, that was not my intention, it may be due to that I have to fight to the death every time I dare mention interest rates here. But I prefer civil also, and while animated, will/do attempt to keep it that way.

  12. Thanks for the discussion all, esp to BLM and Basement over recent hours.
    Some frustration is valid; so too are requests for civil discussion.
    We’re attempting to wrestle with difficult subjects; lots of variables where we don’t fully understand the way they interact.
    .
    Questions:
    Isn’t there a way of essentially raising mortgage rates without raising BOC rates?
    Can’t the banks be encouraged by monetary/fiscal policy to find mortgage lending less attractive, but still keep cheaper money available to other parts of the economy?
    If rates did go up, wouldn’t the drop in the housing sector and the consequent negative effect on the economy make the loonie paradoxically less attractive to foreign investors? Wouldn’t a housing slowdown result in a weaker loonie? (I don’t think the higher-rates-higher-loonie relationship is a absolute given, is it?)
    What’s happening in Australia may be relevant. Higher rates, what happened to the Aussie dollar?

    • Basement Suite

      “I don’t think the higher-rates-higher-loonie relationship is a absolute given, is it?”

      EXCELLENT points. Carney, are you reading this?

    • Recent Aussie dollar movements appear to support centralbankratesup-dollarup relationship :
      http://newmatilda.com/2012/02/17/slash-interest-rates-says-keen
      .
      But then, has the Aussie RE market really begun to fall and weigh on other parts of the economy yet?

      • It hasn’t fallen but it has limited upside due to some foreign ownership restrictions. Australia is Canada on steroids so worth watching closely. Our currencies fluctuate somewhat in tandem.

    • Basement Suite

      Weird how my apology got tied up in the filter. Oh well, there is one in the pipe BLM.

      • Yeah. Moves in mysterious ways. Perhaps use of word ‘rude’ (!).
        Needless to say, now released from purgatory.

    • Hi vreaa, just warming up your readers to tomorrow’s post. Wasn’t quite expecting such a punchy crowd but that makes it worthwhile.

      For the record, I am not a licensed or a real economist but I do work closely with the markets. So I’ll attempt to shed some light into the great questions you’ve asked.

      Isn’t there a way of essentially raising mortgage rates without raising BOC rates?

      Unless the banking system or economy were not functioning as an efficient market, then no. Policies can be put in place but most governments will implement on the property market rather than the banks as they are core to a functioning economy.

      Can’t the banks be encouraged by monetary policy to find mortgage lending less attractive, but still keep cheaper money available to other parts of the economy?

      Monetary policy really needs to be independent which is why central banks around the world don’t always see eye to eye with their equivalent of the ministry of finance. It’s a check and balance system. If you are referring to policies on banks to restrict lending, as mentioned about, it is usually implemented on the property market rather than the banks. The banks are ultimately for-profit entities with its citizens as shareholders so they have a duty and responsibility to make as much money as possible. Governments normally don’t want to be seen as directly manipulating any businesses – of course unless they step in to bail them out like some of the American and European banks.

      If rates did go up, wouldn’t the drop in the housing sector and the consequent negative effect on the economy make the loonie paradoxically less attractive to foreign investors? Wouldn’t a housing slowdown result in a weaker loonie? (I don’t think the higher-rates-higher-loonie relationship is a absolute given, is it?)What’s happening in Australia may be relevant. Higher rates, what happened to the Aussie dollar?

      On higher interest rates and a stronger loonie, It is not an absolute given but with Canada’s economy, vis-a-vis the world economy, it will be like peanut butter and jam. Yes, a slowing economy may make Canadian assets less attractive but because we are a resource economy, there is inherent value in our currency. Nor would our central bank stray away from their mandate of jobs and a growing economy just to normalize property prices in select cities. Why wouldn’t Americans move some of their money up North if rates in the US stay low and Canada offers a higher return? Housing will likely slow down, extremely so, in cities with little foreign capital and even places like Vancouver would most likely see meaningful declines because local buyers are still the key drivers of market price movements.

      I’m glad you asked about Australia because the parallels are there in that we are both Commonwealth countries with resources. The resource states like Queensland, Western Australia, etc, are doing great like our Alberta. States like Adelaide are not doing so hot. Vancouver and Toronto are like Melbourne and Sydney and yes they do have some foreign ownership restriction – but I digress. What’s happening there is you’ve got the Chinese as their largest trading partner (for their resources) and that is driving a massive boom for their economy, much more so than Canada. The central bank there is faced with inflationary pressures so they have had to keep interest rates higher than most developed Western countries in the world. The rest of the world, especially the Japanese, have been parking their money in AUD savings accounts, bonds and property over the past decade – even money in a plain vanilla savings account can earn 3%+ with some structured savings accounts offering close to 10%! Needless to say, the Australia dollar has been rapidly appreciating over this time and they face the same issues of high property prices as Vancouver and Toronto.

      The fact is there just aren’t very many large developed countries with strong economies to diversify your money into. Canada is one of the few. If they build that pipeline from Alberta to Kitimat and ship oil to the Chinese, watch out.

  13. BLM Thanks a lot for your comments. Very enlightening.

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