There are differences of opinion out there as to whether prices are rising or falling or chopping around looking for direction; this is made more complicated by the fact that people are looking at various different measures of housing prices: averages (mean and median), REBGV benchmarks, Teranet (single home sale/resale comparisons).
6467 Elgin St, Vancouver [image: Google Earth] “V941091
Original Price $790,000
Sale Price $680,000
Just to provide some context of what’s selling above asking… and what’s not”
– jesse at RETalks 29 May 2012 12:57pm
“Awesome deal. Standard size lot, close to (but not bordering) 49th ave.
Again, buy the home not the stats – there are deals out there.
Bears might just be missing yet another correction.”
– eyesthebye at RETalks 29 May 2012 7:15am
To those who expect ongoing relentless strength in the Vancouver market, homes will appear cheap, then cheaper, then cheaper still, as the mania unwinds.
‘eyesthebye’ is a prolific poster at RE Talks, and a very vocal bull, who has widely publicized having bought a SFH in the Knight Street area of East Vancouver for, we believe, $600+K in early 2009. ‘eyes’ is on record as having claimed that (1) SFH prices cannot possibly drop more than 15% in Vancouver, and that (2) SFHs in Vancouver will never, ever, be available for less than $500K at any point in future.
Needless to say we disagree on both counts.
Expect to see bottom calls from bulls all the way down.
As a commenter on these pages suggested recently, it would be worthwhile archiving these hopeful predictions in one place, and we’ll use this post for that purpose. Use the category and sidebar links for convenient access. Please forward all ‘Premature Calls Of “Bottom”‘ you may spot, and we’ll pop them up above, for the record.
Actor and broadcaster Jeff Douglas says he knows there are “more responsible” things to do than take on a mortgage he will likely have to pay until he turns 70. But that didn’t stop him and his wife, interior painting contractor Ana Maria Diez, from charging headlong into the battleground that has become the Canadian real estate market. Mr. Douglas and Ms. Diez fell in love with and purchased a 1,300-square-foot duplex in a middle-class west Toronto neighborhood last month for $632,000. Like an increasing number of Canadian buyers, they sealed the deal after duking it out with several other couples who also wanted the house. They placed no conditions on their contract and finally paid 112 percent of the original list price of $555,000. “It was one of the last houses I think we’d have a shot at because the price of houses in Toronto goes up every week so it was definitely a now or never situation,” says Douglas. “At $625,000 ($632,000 inUS dollars) we feel like we got a bargain.”
… Douglas and Diez may feel lucky. But house purchases like theirs are increasingly fueling concerns that, like their American neighbors a few years ago, Canadians are spending themselves into financial disaster. “What we are seeing is the irrational exuberance that was present in the US,” says David Madani, a former Bank of Canada analyst now with the consultancy Capital Economics. “It has all the symptoms of a disaster waiting to happen.” … Although buyers seems convinced that real estate prices can only go up, Mr. Madani, along with the International Monetary Fund, the Economist magazine, and various independent and bank economists, warns they are already overvalued by as much as 25 percent.
… “If credit tightens tomorrow, the game is over,” adds Ben Rabidoux, an analyst with the US real estate market research firm M Hanson Advisors and the author of the website The Economist Analyst. “I think we will see a decade of stagnant returns and a stagnant economy.”
… Still, Toronto real estate agent Melanie Piche says she expects real estate prices to continue rising. “People see their friends, how much money they have made in real estate,” she said. “And there aren’t a lot of safe places to put your money right now. Where else can you make 10 percent?” Jeff Douglas agrees, and said he thinks of his purchase as an investment, similar to buying into the stock market. “I would say prices are hyperinflated. But for the price of housing to go down in Toronto, that I can’t see,” he said. “Simple supply and demand dictate that as long as the city continues to grow, there will be a demand for housing and that will keep prices up.”
– from ‘Canadians Still Think Real Estate Has Nowhere To Go But Up’, The Christian Science Monitor, 29 May 2012
— “One of the commenters for a G & M article today accused housing bears of being “unpatriotic”. Because a housing correction is bad for the economy, therefore to hope for a correction is anti-Canadian.”
– crankycorvid at VREAA 30 May 2012 7:59pm
Hey!.. who do these guys think they are at the Christian Science Monitor (and the IMF, and The Economist, etc, etc) dissing us Canadians for patriotically supporting our RE bubble in the face of all common sense?
Almost makes one want to drop interest rates further, or go on a rant about health care & immigration & BPOE, or go out and buy a six-pack of condos, just to give the market a boost and show them they’re wrong.
[PS: “Hope” doesn’t come into whether we have a “correction” or not.
Once a speculative mania runs rampant, the collapse is already built in, regardless of what various participants desire.]
“I would love to buy in Vancouver even at a 15% discount. I have waited for over 20 years for Vancouver to become affordable and I have given up.
A lot of my work is in Vancouver. Only a few people I work with are NOT looking to buy. They hate their commute, so want to move closer. They want children, so want to buy secure and adequate housing. They want to build a future, and so despair of handing their money to the landlord. Or they just want Vancouver real estate for whatever reason. All of them are keeping their powder dry for any chance to get in. Then there are immigrants, always more.
So riddle me this, how many people do you think are there who are waiting for their chance to buy in Vancouver. 20? 500? 200,000?
Don’t get me wrong. I could and would buy there at half off. I just do not expect that to happen. I can’t speak for Toronto.”
– PassingAlong, comment at the Globe and Mail, 10 May 2012 11:41am
This logic will prove to be incorrect.
Yes, there are people on the sidelines who would like to own, and a relatively small number will buy in patches all the way down.
But, when prices start falling in earnest, the vast majority will not snap up homes at 10%-off or 15%-off or 20%-off…
The market will be falling from extremely overextended levels, 2 to 3 times fundamental values, and, with falling prices, prospective buyers will lose their appetite to overextend to the max of their affordability levels.
Even some who think they are waiting to snap up 15% off ‘bargains’, will end up sitting on their hands.
The vast majority of market participants have a great deal of trouble buying assets that are falling in value.
“Over the past few weeks I’ve had some interaction with two couples, both of whom are currently renting, and are contemplating house purchases. I’ve outlined the bear/bubble case for one couple, and hinted to the other couple, in more muted terms, that they could be buying at or near the peak. Everyone has been polite, but you can feel how uptight it makes people to hear these opinions. Including other people present at these conversations. It’s as if you’re the dinner party guest pushing your personal religious, political, or social beliefs onto others. It obviously makes people uncomfortable.
That’s the problem with the unbalanced and unethical MSM coverage of real estate in Vancouver. It conditions the vast majority of people to believe exactly what the vested interests want them to believe. And it makes people uncomfortable with legitimate and healthy debate. It’s all opinion, it’s all emotion, but by systematically promoting only one side of the opinion and emotion, Vancouver’s MSM is participating in the manipulation of the citizenry.”
– Froogle Scott, at VREAA, 27 May 2012 12:31pm
1706 West 59th Street, Vancouver [MLS V928779]
2344sqft SFH, 50×110 lot, built 1941
Listed 30 Jan 2012: Ask price $2,180,000
Price reduction 13 Mar 2012: $1,888,000
Price reduction 4 May 2012: $1,680,000
Price increase [huh? -ed.] 28 May 2012: $1,790,000
Ah, yes, those crafty head-fake price rises into a weakening market, designed to befuddle buyers and rekindle price war panic like in the good old days of 2003-2011.
There are over 1000 SFH’s for sale on the West-side, and more arriving each day.
Has Elvis left the building?
“Alexis Lum is building a laneway house in his parents’ backyard for three reasons: It’s more affordable than a two-bedroom apartment; he can rent it out if he decides not to live there; and he can have privacy and independence from his parents, while being close enough for regular family dinners.” “I do love mama’s cooking,” he said, adding that he’s sharing the investment with his brother, Antoine, 31. Lum, 28, is a French secondary school teacher at Southpointe Academy in Tsawwassen. Lum’s situation is pretty typical: laneway houses have been allowed in Vancouver since 2009, and usually they are built as a way for parents to help their adult children get into the pricey Vancouver housing market. Lum grew up in the Dunbar house behind which he’s now building the laneway house for about $270,000, and he’s really excited to get the keys. “I love it. It’s absolutely fantastic — it’s a beautiful, small house,” Lum said of the two-bedroom home in his parents’ backyard. Michael Lyons, vice-president of marketing for Smallworks, a builder of laneway homes in Vancouver, said that at least half of his customers are building these small houses at the back of their lots for the next generation. “They can’t afford to buy in the neighbourhood where they grew up. People want to stay close to their family,” he said. The cost to build a laneway home averages between $250,000 and $270,000; that price includes preconstruction costs of $11,500, excavation and site work of about $30,000 to $35,000 and another $175,000 to $200,000 for the construction, Lyons said. “By the time the dust has settled, you’re in the $250,000 to $270,000 range.” … “With the benchmark price for all residential properties in Greater Vancouver sitting at $679,000 and housing affordability a significant problem in the Lower Mainland, a laneway house could be considered a bargain.” … “We made a decision to support laneway homes as a way to make home ownership more affordable and also to build up the city’s rental stock,” said Colin Lawrence, mortgage development manager at Vancity. … The next generation can get the financing themselves and pay the mortgage, Lyons said, adding that right now a laneway house adds about $300,000 to the value of a property. For homeowners looking for rental income, a laneway home would also be a good investment. The mortgage on $250,000 would cost about $1,200 a month, Lyons said, but laneway homes can rent out for as much as $2,000 a month on the west side, or $1,700 a month on the east side. “Basement suites are renting out for $1,600 or $1,700 a month for a two bedroom on the west side of Vancouver,” he said. “It’s not surprising that a detached house — where you don’t have to live below someone with their kids running around or playing piano above your head — would rent for more. “You’ve got lots of light, you’ve got two floors and you’ve got two bathrooms. Of course it’s going to be valuable.” …
– from ‘Laneway eases path to ownership’, Vancouver Sun, 7 May 2012 [hat-tip Yalie at vci]
All part of the ‘This Is Vancouver; Accept Less For More’ ethos.
We dare anybody to attempt to justify the $270K cost for that structure, sans land costs.
Entire actual houses cost that or less all over the continent.
We’ve collectively gone completely insane.
Group hysteria. Emperor. Clothes.
And it goes without saying that the vast majority of these 500sqft structures will be built with ‘equity’ ‘extracted’ from the fantasy value of the main house, via HELOC.
“Adds about $300,000 to the value of a property”?
Let’s talk once “the dust has settled”.
“New Democratic Party leader Tom Mulcair and his wife have repeatedly refinanced their home west of Montreal, gradually increasing the debt on the property over a series of 11 mortgages, land records show.
Mulcair’s office will not explain why the couple have loaded more and more financing onto the West Island home they’ve lived in since the early 1980s, saying only that it’s a “private matter.”
It is unclear why Mulcair would need to refinance the modest two-garage home in Beaconsfield so many times, bumping the value of the mortgage from $58,000 to $300,000.”
… “They paid $64,000 for the home in 1983, with a $56,000 mortgage from the Caisse Populaire du Lac St. Louis at 10.7 per cent interest — the going rate of the day.
Every few years, new financing with the Royal Bank of Canada was registered on the property with mostly increasing values as the amount owing rolled over.
The couple obtained loans in 1984, 1987, 1988, 1990, 1996, 1997, 2001, 2003, 2006 and 2009.
Nearly a year after the last transaction, Mulcair filed a report with the federal ethics commissioner, saying that he taken a line of credit with his wife from the Royal Bank.
Under the MP’s Code of Conduct, material changes in a member’s assets or liabilities must be reported to the ethics commissioner within 60 days.
The value of the line of credit is not specified.
Today, Mulcair earns $157,731 annually as an MP plus a $75,516 stipend as Leader of the Official Opposition. When in Ottawa, he lives for free at the official residence, Stornoway.”
– from ‘NDP leader has remortgaged his home 11 times since early 1980s’, Ottawa Citizen via Vancouver Sun, 28 May 2012
NDP, Liberal, Conservative… the political ‘stripe’ here may or may not be important, that can be debated. We are of the opinion that many Canadian politicians, across all parties, are, like the general citizenry, overdependent on RE for their financial health.
That said, this piece of information certain won’t help NDP promises of being capable of fiscal prudence.
This anecdote illustrates:
1. a nice concrete example of ‘RE-ATM’; it is now commonplace, with escalating home prices, for individuals from all walks to allow mortgages to balloon over time, rather than to pay them down; many longterm owners still have considerable mortgage debt;
2. our politicians, like our general citizenry, have strong personal interest in the RE market remaining robust.
“We checked out two condo open houses at the H&H building (1133 Homer) today. We liked one that was 950 sq ft, 2 bed, 2 bath, storage room, decent little patio, great kitchen with high-end appliances, in-suite washer/dryer (a very big selling point for the better half). The building’s new and has some nice amenities. Price was $620K. The realtor told me “It’s a great time to buy right now, people are looking around and realizing that prices are going down and interest rates are still low!”
So that’s some nice logic for you. Massive price decrease risk, with higher interest rates at renewal time a near certainty (assuming locked in as long as possible). It’s interesting that a realtor is acknowledging prices have gone down, I wasn’t aware that was the case with Yaletown condos. I didn’t mention a thing, she was the one who brought it up, and I didn’t bother arguing with her. I like the place, might have bought it if it was $250K cheaper.”
– Kermodei at VREAA 27 May 2012 5;20pm
“Canada’s two largest banks, the Royal Bank of Canada and Toronto-Dominion Bank… both said they have seen a distinct slowing of the Canadian housing market in recent months.
A slowdown will have an impact on TD and RBC alike, since they are among the biggest mortgage lenders. However the banks said efforts by Ottawa to cool the market in recent months through new lending guidelines and the elimination of 30-year mortgage amortizations last year, are better for the sector and the economy in the long run.
“Where the direct costs to the banks of a sharp correction will be quite absorbable, the effects of a large correction on the economy warrant prudence,” Mr. Clark said. “At the moment we see signs that the housing market is slowing, and the risk of a sharp correction are diminishing.”
Questions have arisen this year about potential overheating of the housing markets in Vancouver and Toronto, particularly involving condo sales. RBC’s head of retail banking, David McKay, said the bank is watching those markets carefully.
“There are a couple of hot spots across the market that we are watching closely,” Mr. McKay said. “But you can’t really generalize across the country. So it’s very important that you maintain kind of a regional and at times city-specific strategy.”
– from ‘Banks brace for economic headwinds’, G&M, 24 May 2012
This is an expression of hope for a ‘soft landing’.
We would like to see the models that the banks are using to show that, with sales falling and prices beginning to fall, the risk of further price drops decrease.
We ourselves see the markets set-up for price falls begetting price falls, and think that the risk of a “sharp correction” has increased with the market slowing.
Anyway, we’ll see how this plays out.
Dog house – $2500 (port moody)
Date: 2012-05-23, 8:55AM PDT
Reply to: email@example.com [Errors when replying to ads?] “Dog house build to order. Delivery time ca. 6 weeks. E-mail for more info.”
– craigslist ad, 23 May 2012 [screen capture]
[hat-tip ‘anonymous’ via e-mail]
“It’s not the structure, it’s the land value.”
“Clearly a ridiculously low ask price designed to fuel bidding wars.”
“My grandparents bought their house in Point Grey for less than that!”
“Is there a basement suite?”
“Reeks of recent renos and shoddy workmanship.”
“Does the square footage include the porch?”
“On last night’s Real Housewives of Vancouver, Jody was commenting that Mary shouldn’t be shopping at a private shopping event because she’s not ultra-wealthy. One reason/supporting fact? Mary lives in a rented condo! Yes, someone who lives in a rented condo cannot possibly be rich or worthy to attend a private shopping event. In response, another “housewife” Christina also admits to living in a rented condo.”
– space889 24 may 2012 at 11:42am
We’d expect at least three RE references in each episode.
Anybody with the stomach to do the research?
“DBRS, the Canadian headquartered credit rating agency, has joined a long list of organizations that have weighed in on the matter of the Canadian residential housing market.
Like many of those previous studies and against the background of concerns being raised by the federal government and the Bank of Canada, DBRS found some positive — and negative — aspects about the sector that seems to consume Canadians. And with good reason: in many cases, the family home is the largest source of household wealth.
For instance, despite record high levels of household debt, DBRS argued that Canadian households have net worth that could withstand a property value decline of 40%.
But “rising household financial leverage and reduced affordability are of concern, rendering Canadian households stretched thin and vulnerable to liquidity shock or cash flow shortage, such as loss of income or unexpected expenses,” wrote DBRS.”
… “DBRS said that “a combination of higher interest rates, lower property values and a drastic increase in unemployment would be of great concern as mortgage defaults are closely related to employment and individual family situations.”
– from Rising mortgage debt rendering ‘Canadian households stretched thin’: DBRS, Financial Post via The Province, 24 May 2012
‘The Upcoming Real Estate Implosion’ ‘Behind the propaganda and the mania is but a single house. A house of cards. And it’s teetering.’ Gord Goble, Coquitlam Now, 25 May 2012
Is there a housing bubble in the lower mainland? Housing zeppelin is more like it. Bubbles, after all, are soft and cute and harmless. Zeppelins, conversely, hurtle into the ground, spewing flaming wreckage in all directions. And that’s precisely what we’re about to witness in the GVRD.
Consider the factors that have pushed our prices so absurdly high that the average family now spends 70% of pretax income to buy and own a home. Consider that we’ve already rocketed past the danger zone of most cities in the disastrous American run-up. Consider all that’s conspired to morph our region into the top two overpriced real estate markets in the world.
It starts at the top, with the federal government and the Bank of Canada. Despite doling out repeated warnings over our addiction to credit and our per capita debt, which now stands at a deeply troubling $1.50-plus per $1.00 of disposable income, those in charge have continued to facilitate easy mortgage borrowing and a credit culture. Why? For one, housing-related industries account for a quarter of our GDP. We’d look far less impressive globally were we not buying and selling obscenely expensive homes to one another.
And it filters down from there. The media, supported so heavily by real estate industry advertising (“This segment brought to you by Re/Max”), plays up self-serving industry propaganda and consistently portrays deceptive PR stunts as “news,” while blissfully ignoring realities such as plummeting sales and mushrooming inventory in former hot spots such as Richmond and Vancouver West, and an already tanking market in key neighbouring zones such as the Okanagan and the eastern Fraser Valley.
Our banks and lenders, meanwhile, squash accusations of subprime lending (loaning to high-risk borrowers – the same practice that helped crush millions of American families) while actively participating in it. Land developers literally work overtime to catch the end of the mania and the correspondingly sky-high valuations. Realtors pump the “Buy now or be priced out forever” mantra and work to falsely convince us offshore Chinese are grabbing everything in sight. Ultimately, locals are inundated from all sides with stories of unicorns and pots of gold and wrongly believe the pyramid scheme of the past decade will somehow, illogically, continue forever.
But, like The Matrix, not all is as it seems.
When the smoke clears, when developers have glutted the entire region with product (they’re almost there – just look around your neighbourhood), when realtors – mere salespeople – are no longer rock stars and pseudo-financial advisors, when the CMHC stops backing every high-risk borrower that comes calling (the corporation, run by a board with blatant ties to the real estate industry, will soon sport a much shorter leash), when newly introduced mortgage restrictions have sliced and diced the number of potential buyers, when interest rates have jumped from their emergency lows, when local TV producers stop airing dubious realtor PR stunts (helicopters purportedly loaded with offshore realtors, trumped-up condo lineups, marketers posing as investors) as hard news, when the market is flooded with the homes of bailing baby-boomers seeking to fund their retirements, when the imaginary tidal wave of incoming Chinese is revealed as the mere speculative ripple it has been, when fatigued owners realize killer home payments devastate every other aspect of their family’s lives, and most importantly, when the mania dies (manias always die) and when real estate ownership is no longer the Holy Grail, there will be nothing left but you and decades of onerous payments on a crashing asset.
You will wonder what could have possessed you to overpay by fifty or a hundred percent for a creaking “old timer” in a lousy neighbourhood or a “new” slapped-up-in-a-month-by-handymen townhouse in a future ghetto, and you will curse the day you saw the pretty ad that compelled you to do so. Your realtor will not be there to console you, your lender will not hand you free money to extricate yourself. Worse still, there will be no respite to those who, for reasons beyond their control, need to sell. They will do so at a grievous loss.
So…what do you do? If you bought near the peak (roughly mid-2011), and particularly if you’re feeling the strain already, contemplate selling – before the downward spiral picks up steam. If you’ve so far resisted the siren song, continue to resist. Instead, rent.
Renting gets a bad name in a transitory environment where even pizza delivery guys contemplate $300,000 condos, but remember: Renters are immune to exploding zeppelins. Renters are free to invest the money they saved by not buying. Renters do not surrender thousands per annum on property taxes, repairs, renovations, city utility bills, and burdensome monthly maintenance fees. And renters can move without enduring the cost and hardship of selling. Your realtor will tell you “Renting is throwing your money away.” You can tell him he’s a liar.
Buying and owning a principal residence can be a smart move. But not here, not now. Not when mania is at the helm, not while deception remains healthy, and not when the long slide they don’t tell you about has already begun. Many will lose. Heavily. Don’t be a loser.
“We went to a Chinese restaurant near Main St. and who was booming real estate advice to a middle-aged woman but this crazy realtor. He showed her how, using his hand like an airplane, the real estate market would go down by 5%. Then, plane angling up, it would go back up again and that at the end of 10 years it would not lose any money. (Why again are stock brokers forbidden from making similar comments on the market but RE agents aren’t?)
He then tried to sell her on a condo downtown telling her there were good deals there as prices were down (dunno… maybe part of the predicted 5% dip). Then, she said something, we couldn’t hear, and next thing you know he said condos would go nowhere for the foreseeable future and they weren’t a good deal, a way to lose money. The best deal now was a house with a yard. Eventually I had to drown him out by putting my chopsticks in my ears. I don’t know how I managed to digest dinner.”
– mac at VCI 23 May 2012 10:12pm
Realtors are salespeople, and are unwise to be making predictions about market direction.
What if clients took them to task on these predictions later?
“I have a co-worker who used to espouse the whole “buying with family”
strategy. She did exactly that about 2.5 years ago, buying a large (very nice) home in the suburbs with her sister and brother-in-law (co-worker herself is also married).
As a renter (natch) I used to get the whole bull spiel from her– you’re just paying someone else’s mortgage, there’s limited land, prices will only go up, up, up! Familiar refrains to many on this site.
But I’ve noticed a change in her attitude these past few months. Twice now she’s asked me what I pay in rent ($700, includes everything but laundry, and yup it’s a 2 bedroom basement suite in Surrey, so laugh away– I’m loving it). The second time I told her, she admitted “That’s really good”. Confessed to me shortly after that she’s tired of sharing space with another couple. Apparently the brother-in-law is lazy, doesn’t help out equally, and both sister and brother-in-law are very disorganized in paying their half of the bills. Count on her to do it all, with the promise to pay her back.
Guess she’s tired of playing mommy. Her husband apparently rarely leaves their bedroom, preferring the one room where they don’t have to share space. All of their initial plans– convert the basement to a suite, expand the deck, re-finish furnishings– have fallen by the wayside due to lack of help from the other half of the house. She’s just given up, and I suspect she’s just waiting for their 5 year term to be up to sell.
Here’s the kicker– in an attempt to make herself feel better and (I think) redeem her situation in my eyes, she proudly told me about a month ago that she and her husband paid off just under $8000 of their mortgage last year. They have minimal cash savings, so this $8000 is what their “savings” increased by in one year (in their minds, in any case). I didn’t have the heart to tell her that my partner and I had socked away over four times that amount in the same period of time. All made liquid more easily than equity.
I know what the raging bulls will say- “This is the internet. You can say whatever you want here, and nobody can verify it.” Fine. Believe that to your detriment. But I can’t be the only one sensing a shift in attitude. It’s oh-so-subtle, but it’s there. And it’s different than 2008, that’s for sure.”
– Rololo at VREAA 22 May 2012 9:12pm
“This [Toronto] suite is currently listed for 2 million one hundred thousand dollars.”
— “Amy and Chris Poole are looking for a more modest place in Toronto. They are currently living in a small furnished rental with their 2-year-old daughter.”
Amy Poole: “We want our stuff, we want to unpack our belongings, we want our home, we want to plant our feet.”
Amy and Chris have lost out on 4 offers and backed out of 3 others. They say competition at open houses is so intense they’ve seen things get physical.”
— “Most economists agree that real estate values will almost certainly be higher in 20 years, so for a young couple looking to invest over the long term there’s really no bad time to buy, that is if there is something they can afford to buy.”
— “[According to that argument] Toronto is the tortoise that has caught the hare, with real estate prices now in keeping with cities like New York and San Francisco.”
“But David Madani, of Capital Economics, isn’t so sure Canada can rely on slow and steady growth.”
David Madani: “We essentially think it’s a bubble, we think the market is being driven by psychology and being fuelled by cheap credit. So the market is borderline irrational. We see the sharp run-up in house prices relative to incomes, we see the run-up in household debt which is now just as high as it was in the United States, we see the same run-up in the home ownership rate, and finally we see the overbuilding.”
A measured and only slightly cautious piece. But this is the BBC and we don’t expect histrionics.
Interesting in a few ways.
Despite the state of the markets, we still have the urgent buyer psychology.
Again, we have cautious commentary from outside of Vancouver. Every time this happens we are painfully aware of the lack of bearish public voices from within our city. We’re apparently living in a zone of relative silence.
We agree completely with Madani. “A bubble driven by psychology and cheap credit.” Exactly. We would have added low rental yields as a more important fundamental than overbuilding, but the case is the same.
“A little off-topic but I wondered what you guys would make of the rental market. We have been looking to rent for a few weeks now and have seen mostly tower and new condo units (1BR and 2BR) for $1100 to $1450. Most landlords seemed pretty eager, were willing to offer at least $100 off and almost hounded us when we didn’t call back.I can still see the same units on craigslist that were offered 3 weeks ago, indicating an oversupply of rental units (or a price mismatch). Is there an actual excess of housing in BC or do I just happen to look at an unattractive market slice? Do you guys think rents are going to go up (more and more people who assume the crash will happen are waiting to buy, therefore increasing demand for rentals) or down (since desperate investors need to rent out their units even at a loss)?”
– suspectum at VCI 22 May 2012 11:32am
“My hubby owns a condo in Whistler with his sister, they bought about ten years ago when she suckered him into thinking this was a “great investment!” (He didn’t know me then, if he did, believe I would have hit him over the head with a frying pan before letting him go through with this bad investment.) Here are the numbers:
– The condo cost about $225k. It’s in a rental pool, meaning the property management company takes 40% of every dollar earned. The condo owner is on the hook for everything-strata fees, hydro, property taxes, maintenance, updating the suite etc. Oh, and a mortgage.
– Every single year since they’ve owned it, they’ve lost about $10k per year. I did some quick calculations and came up with the strata fees, property taxes and property management fees take up 94% of their revenues. So, even when they don’t have a mortgage on this sucker, they are guaranteed to lose money, or make pennies.
– Currently, the thing is worth about what they paid for it, ten years ago. If they’re lucky. Property in Whistler doesn’t look so hot these days, despite his sister telling me for years she was going to be a millionaire after the Olympics. (Ya, right). I haven’t heard this lately from her. I wonder why.
– The other kicker? They don’t ski. When we go to Whistler, we’re not even allowed to stay in the condo (she’s the majority owner), because it takes away from the potential rental pool revenue. Ya, I’m a bit bitter about this damn investment, hubby’s trying to get out of it, as I’ve been throwing these numbers at him for ages. He just says “Uh huh” and looks pretty glum.
So my point in….never EVER should anyone ever invest in real estate with a family member. It’s bad news. I’ve come to the conclusion that the only person you should buy real estate with is your spouse. At least then if you get divorced you can sell and split the proceeds. With other family members, it can be a horror story if you want to sell, you’ll have to convince them to cough up the cash and buy you out. Good luck with that!!!”
— Dian as cited by Garth at greaterfool.ca 20 May 2012
“My significant other has two sisters, each of whose family has taken out HELOCs on an annual basis (“to get us back to even”) the last three years. Their mortgages are coming up for renewal later this year and I’m curious as to the how much they owe relative to perceived equity. The one sister talks about “moving up” in a couple of years (“Janie and Andrew [their children] will need their own bedrooms soon”), but all I can think about is how she has no idea what is going to hit them. If my hunch is correct, they’ll barely be able to remortgage their current place let alone have the means to move up. I’ve decided to keep my mouth shut when I’m in their presence, however.”
– oneangryslav2 at VCI 22 May 1:36pm
“Two close friends of mine got 50k HELOCs each within the last year. They are at their max right now.
They don’t consider a HELOC a loan but consider it as already “earned” cash that was trapped in the house. And no they are not uneducated hillbillies. One works as senior analyst for the government..i just roll my eyes and pray that god will have mercy.”
– bum at VCI 22 May 2012 12:07pm and 1:59pm
Only a small percentage of overextended home owners need to get into trouble to put considerable downward pressure on prices.
“I keep a fairly close eye on Strathcona, which is a pretty small region with relatively few listings compared to the rest of East Van. I don’t remember seeing this many dots on the map since 2008-2009. You don’t have to like these listings, or the neighbourhood, to recognize that $100k reductions are new and significant.
Strathcona also has a couple of weirdly condo-ized properties that must be bleeding heavily, and are either listed and gathering dust (“Strathcona Edge”, “Strathcona Gateway”) or have been pulled and rented pending a miracle. There are plenty of shoes just waiting to drop.”
– Turkey at VCI 22 May 2012 10:08am
“A relative of mine had his house for sale in East Van, just pulled the listing after virtually zero interest for 3 months. It is old and probably not much more than a teardown but they claimed that prices of comparables had moved about 15% lower over the past 6 months but the data were sparse. Nobody seems to know how to price the stuff that isn’t moving. It’s a long way down…”
– jesse at VCI 22 May 2012 10:53am
6356 Vine St, Vancouver Westside
2,325 sqft SFH built 1931; 33×125 lot
Ask price $1,689,000
“On May 10th, I noticed a nice new listing, character house asking a little over $1.5 million. It stood out considering a Kerrisdale location <$1.7 million. The address is 6356 Vine Street. Curious as to what I'd find, I went to the first open May 12th, when offers were to be accepted. It was a great location and the house was livable, albeit a bizarre floor plan inside. Interestingly, myself and the agent were the only people there.
I guess their anticipated bidding war never occurred- as I noticed today the listing has been deleted and re-listed (under MLS #V951586)… with a significant asking price increase… to $1.689 million. Good luck!"
– harden at greaterfool.ca 22 May 2012 4:01pm
There are over 1000 SFHs for sale on the Westside.
“Investigators have found the body of a Surrey electrician in the rubble of a Kamloops home that exploded after he took his co-worker hostage for seven hours Thursday night.
Following the tense standoff, the 48-year-old man, who burst into the woman’s home with explosives strapped to his chest, released the 44-year-old woman around midnight. Shortly after, three explosions rocked the house and it was reduced to ashes.” …
“During negotiations, police learned the man was distraught about breaking up with the woman two years ago.”
– from ‘Body of Kamloops bombing suspect found, removed from the rubble’, Vancouver Sun, 20 May 2012
“What a waste of a good house and depriving people of their living quarters. Glad to hear the important ones got out alive.
This wacko should have had the courtesy of blowing himself up in an empty lot.”
– commenter‘CasualT’ at vancouversun.com, 20 May 2012 4;44pm
“U.S. ratings agency Fitch examined the exposure of Canada’s six largest banks to mortgage risk and found that household debt fuelled by mortgage credit expansion in Canada is the largest threat to credit profiles.
‘We’re not talking about a U.S.-style situation at this juncture’
“These are quite high levels of debt for households and the movement in house prices, we don’t think this is sustainable in the long term,” said report author Fabrice Toka, senior director at Fitch.
The six banks have a combined $730-billion in mortgage exposure and an additional $182-billion in home equity loan exposure, the report noted.
High unemployment or interest rate shock “could aversely affect the ability of leveraged homeowners to meet their mortgage obligations,” the report said.”
– National Post, 21 May 2012
“Canada’s central bank should move its benchmark target for the overnight rate above its current one per cent level or risk unsustainable increases in the country’s inflation rate and real estate market, the Organization for Economic Co-operation and Development said today.
The bank has held the rate steady at one per cent for the last 13 consecutive policy meetings, dating back to September 2010, the longest the bank has held steady since the 1950s.
“If rates go up something like we are suggesting then mortgage rates will be in more like the five per cent range. People should think twice about continuing to leverage up in order to buy more house than maybe they really need” said OECD economist Peter Jarrett
The OECD made a similar suggestion to Canada’s central bank a year ago, and was ignored.”
– CBC, 22 May 2012
“A 122-year-old, 6,200 tonne building in Zurich is being moved 60 metres westward (over two days) to make way for the expansion of a nearby railway.”
– BBC, 22 May 2012
“Need to demolish a house in the US? Rent a tank.
A tank has been hired to demolish a house which was scheduled to come down in Kasota, Minnesota.
The job was accomplished in less than 30 minutes.”
– BBC, 3 May 2012
“Here’s the story of a little family drama a few years back:
A young couple in the family couldn’t afford the prices in Vancouver (how could that happen ?) so the in-laws offered to buy a new home with a largish basement suite to allow the young couple to get some equity going and thus be able to purchase a home on their own. The young couple bought into this idea and they were subsequently put on the mortgage as co-owners and they paid their half of the mortgage for the next 9 years.
After 9 years the young couple had aspirations of their own and 2 children so they went to the in-laws and said “We want our equity out now so we can buy on our own” . Of course, the boomer parents were outraged. “We won’t be giving you ungrateful losers anything, but you may leave at the end of the month so we can get a renter in”.
One lawsuit later, the house is sold and the proceeds divided up. The in-laws no longer speak with the young couple or their grandchildren. The young couple lives in a nice 3 bedroom town house on the fringes of Vancouver and the in-laws still have a mortgage on their new SFH . . . So, if you hate your parents but just don’t know how to tell them, get into a real estate deal with them and the rest will follow.”
– ‘1drs’ at greaterfool.ca 20 May 2012 1:05pm
– inventory chart at vancouverpeak.com 21 May 2012 care of VHB (the Vancouver Housing Blogger), who also noted: “We are at 1027, which in my records is the highest [inventory on record]. My records (they are incomplete) go back to 2005. We also saw a nice one day +23 spike in VE SFH, but VE has been well below levels we’ve seen in other years–is VE finally joining the inventory party? VW condos are tracking 2008 levels, but much below 2010 levels. We’re now at 827; peak in June 2010 was 1142.” In keeping with this, in the extreme-westside, Point Grey has hit an inventory level of 90 SFHs listed on MLS, as far as we know the highest on record. – ed.
Sure, this is only one sector of the market, but all sectors are interrelated. – vreaa
“8br – 4000ft² – VANCOUVER WEST LUXURY HOUSE JUST BUILT SALE WITH FREE PIANO&FURNITURE
Date: 2012-05-19, 10:05PM PDT
Reply to: firstname.lastname@example.org [Errors when replying to ads?] Address 3243 W 33rd Ave, Vancouver, BC V6N 2G8, Canada View map Bedrooms (#) 6 or more bedrooms Bathrooms (#) 6 or more bathrooms Size (sqft) 4000 For Sale By Owner
hour of the open house: every weekend Fri, Sat, Sun all afternoon 2pm – 4pm
Note: the owner because of a urgent to return China, so the asking price there are a lot of room for negotiation, coupled with the distribution of the total value of 80000 full set of aristocratic furniture, piano, plus on the government’s home purchase cash back, buyers will get a total of nearly 200 000 discounts, which in the vancouver west very expensive premium real estate is very difficult to find such a cheap price, welcome to the OPEN HOUSE to look at the new luxury house just completed! NEAR TO U.B.C!”
On MLS as follows:
3243 W 33rd Ave (V944504)
2,982 sqft* SFH; 33×130 lot; Built 2012
Listed 16 April 2012. [No price changes since. -ed.]
Asking Price: $2,480,000 BRAND NEW high-end custom-built house selling now at the well sough after Mackenzie Height area. This is a dream house that comes with high-end Kitchen Aid stainless steel appliances, HRV, air-conditioning, two gas fireplaces, central vacuum cleaner, crystal chandeliers, electronic door lock, security system with intercom speakers and monitor, jacuzzi tub in master bedroom, granite counter-tops throughout house and granite tiles at the entry foyer. This house comes with just almost everything you need. Possession is AVAILABLE NOW. Open house Saturdays. Will you be this brand new house’s FIRST homeowner?
[* Note: Square footage in the two ads is different, we have no explanation for this. There is a small possibility that the craigslist posting is a hoax, or that they got the address wrong. Readers can decide for themselves. We also welcome any further information, confirmatory or otherwise. -ed.]
Is this a one-off anecdote, or something we’ll hear more of as prices begin to fall?
We have long surmised that foreign demand can rapidly become supply.
And, of course, the story that foreigners are buying can evaporate in a second, causing locals to draw in their horns.
“Currently we are having difficulty renting in one of our downtown Vancouver apt blocks.
Not to mention the surrey apt is not at full capacity either.
You may find that all your potential ‘dudes and dudettes in the basement forking over a g ‘ are rare…and getting rarer.
Good luck finding renters dawg.
We are pro’s at this and we are experiencing the aforementioned lack of renters right now.
Do you really want to have a battle for renters with a national company that has very deep pockets?
We can rent the apts very cheap indeed if we have to.
Give it some thought eh?”
– a post by commenter ‘bill’ on greater fool.ca, 19 May 2012, who appears to be a professional property manager.
“As part of the work being done by the Mayor’s Task Force on Housing Affordability, re:THINK HOUSING, an open ideas competition, is being launched to generate a broader discussion of possibilities for Vancouver’s affordable housing crisis. Aimed at everyone who has an interest in affordable housing, from the general public, to designers, planners and architects, to philanthropists, non profits and financial institutions, the Ideas Competition seeks to create the space for provocative, bold new ideas that address Vancouver’s affordability challenge head-on. It’s a chance to get new perspective on how we build an affordable city in Vancouver, and to garner ideas and possibilities for neighbourhood belonging and better connections across the City.”
… “Vancouver is a growing and diverse city with significant housing challenges. Whether it’s homelessness, a lack of new rental homes, or high prices for single-family homes, Vancouver residents face housing pressures across the financial spectrum.”
– from re:THINK HOUSING Competition, City Of Vancouver
[Thanks to terminalcitygirl for bringing this to our attention, and who adds“Have you checked out this COV initiative? It seems unnecessarily complicated to me but at least they are asking for input from beyond the usual suspects…”]
— We’d encourage all readers to take a look at the re:THINK HOUSING website, and to enter proposals if they see fit. We’re considering possibly submitting one ourselves.
Submissions close 29 Jun 2012.
“While there are certainly those outside the city – including economists at some of our more reputable financial institutions – who think Vancouver is heading for an abrupt decline in house prices, those in the know out here don’t seem to be too alarmed by what they’re seeing.” … “Tsur Somerville, the oft-quoted real-estate economist from the University of B.C., doesn’t see signs of a major real-estate story brewing. He actually holds a refreshing perspective on the local scene. He won’t even go so far as to say that buyers hold the advantage at the moment, even though supply far exceeds demand. “When the average house price is still north of $800,000, then buyers’ market is a term I like to avoid using,” he says.”
… “Some think that while the housing market might not be ready to go bust just yet, the condo arena is. But marketer Bob Rennie, someone who follows this area more closely than anyone in the city, says that’s nonsense. … Mr. Rennie said talk of housing bubbles makes for provocative sound bites but isn’t based in reality. He produced a dazzling array of charts and graphs to back his claim that the future of condo sales has never looked brighter. Now, you might expect someone who sells condos for a living to say something like that. But Mr. Rennie makes a pretty compelling argument that something is afoot that backs his claim. A massive demographic in Greater Vancouver – those between 55 and 74 – is sitting on $88-billion in equity. They are beginning to downsize.”
… “And he may well be right. But for now, the market is colder than it’s been in a while. That may not be a bad thing.”
– from ‘Cooler housing market no catastrophe’, Gary Mason, Globe and Mail, 19 May 2012
So, Global TV (16 May), The Vancouver Sun (17 May), and now The Globe and Mail, have all reported bullish outlooks on the Vancouver RE market this last three days, all citing as sources various combinations of: Bob Rennie, Tsur Sommerville, Helmut Pastrick, and the CMHC.
We would have liked to have seen something less homogenous and more analytical from our media, but perhaps our expectations aren’t low enough.
“A battle is brewing in the village of Lions Bay, B.C., where some residents want to block beach access to people from outside the seaside community.
Lions Bay Beach Park is a picturesque destination with waves from Howe Sound breaking on the sand, two barbeques, manicured grass and a playground. A group of residents complained to village council last week that too many outsiders are using the space and argued for it to be “locals only.”
The push for more exclusivity comes where the average house price is more than $1 million, with a gated waterfront home going for more than $3 million.
“Of course it should be resident-only, we pay the taxes,” said Lions Bay resident Kambiz Azordegan. “The visitors come here and they never behave.”
– from ‘Lions Bay beach ban divides residents’, CBC, 19 Sep 2011
[Hat-tip to Zerodown for bringing this article to our attention, and who added“Guess where I’m going this afternoon?”]
“Bubble? What bubble?
That’s Vancouver condo marketing guru Bob Rennie’s take on concerns that the region’s real estate market is headed for a meltdown because of sky-high prices.
“It’s not a bubble,” said Rennie, director of Rennie Marketing Systems, in an interview following his keynote address to the Urban Development Institute Thursday.
“With the 80 per cent of the [condo] market that traded in [Metro] Vancouver last year, you only needed a household income of $52,800 to purchase. That’s not a bubble story.”
Rennie, who spoke to a full house about the state of the Vancouver property market, said aging baby boomers with billions of dollars in equity will become a much greater force in the condo market as they increasingly downsize from expensive single-detached homes, and put money aside for their children.
He also noted that the number of people between 55 and 64 will increase 38 per cent between 2009 and 2018, those between 65 and 74 will increase 56 per cent, while those between 35 and 54 will only increase by 4.6 per cent.
Because of that, he said, developers should shift their thinking into providing more larger one-bedroom condos to accommodate the downsizing boomers.
“I believe the leaner, meaner baby boomer is the game changer,” said Rennie. “Baby boomers are sitting on $88 billion in equity in Greater Vancouver and they’re looking at their retirement years. That equity will be freed up over the next 15 years [and] when they sell their home, they’ll buy down and help their kids.”
Rennie said there were about 19,000 condo sales in Metro Vancouver in 2011, and that while the average price for 80 per cent of those condos was $315,000, the overall average price was $427,000, which required an income of $66,000 to finance.”
… “Meanwhile, Tsur Somerville, director, centre for urban economics and real estate, Sauder School of Business at the University of B.C., said he also doesn’t believe there’s a real estate bubble in Metro Vancouver, largely because there’s not an explosion in housing starts – typical for real estate bubbles.
Somerville said that while the affordability numbers have been skewed by the higher end parts of the market – “there were double-digit increases in Richmond, Vancouver, Burnaby and West Vancouver, with single-digit increases everywhere else” — the region is still very expensive compared to other cities in Canada.
“Compared to other cities, that income [$52,800] gets you a house. Here, it gets you a condo. That means we’re expensive, but that’s the reality of what we are.
“It’s still an expensive place to live, but it’s not unaffordable. You’ll end up smaller and further away from the core.”
– from ‘Condo king says talk of bubble just a lot of hot air’, Vancouver Sun, 17 May 2012
Rennie’s conclusion that “it’s not a bubble” does not logically follow from “you only need a $52.8K income to buy a condo”. To assess whether we are in a speculative mania, you need to analyze how the fundamental value of that property compares with the price you are paying. In Vancouver rental yields are at extreme historical lows.
Also, note that Rennie is focussed on the condo market, and he is expecting that large numbers of locals will downsize from SFHs and buy condos. But remember, downsizing means you’re partly getting out of the market, and that you are a net seller; who does he imagine is going to be doing all the net buying? Without ready buyers, that paper $88 Billion in RE equity can become $66 Billion then $55 Billion fairly rapidly, as prices plunge. Eventually we suspect it’ll represent less than $44 Billion in paper value.
Somerville, too, chooses not to talk of prices compared to measures of fundamental value, and instead makes the well known “expect to accept less for more” argument, one that can be used to argue for any price level imaginable.
Announcer: “Is the Canadian housing market a bubble ready to burst, or is it steady as she goes? Finance Minister Jim Flaherty is warning Canadians against taking too much debt against the value of their homes, but the latest report from the Canadian Mortgage and Housing Corporation is dismissing those fears saying there is no clear evidence of a real estate bubble.”
Tsur Sommerville: “There is clearly a slowing down in the market you see an increase in the number of listings, drop in sales, all things that create less pressure on the market.”
Announcer: “According to the Real Estate Board of Greater Vancouver home sales were down 19% compared with this time last year.”
Helmut Pastrick: “The comparison to last year was heavily influenced by the change in the federal government’s mortgage insurance criteria which pulled forward a large number of sales into early 2011. So we’re comparing that high point to activity so far this year.”
Announcer: “But don’t get too excited, even though sales are down, home price indexes show a 4% increase in the price of a home in greater Vancouver. … The message to buyers, the economy is in reasonable shape, there’s a lot of supplier there, and interest rates are low. So just because sales are slumping don’t bank on prices doing the same.”
Tsur Sommerville: “We don’t have a sort of financial environment where people are looking at major financial corrections, you know, double digit increase in interest rates, or, you know, huge tightening of liquidity, that just doesn’t seem to be on the horizon, you know, to expect across-the-board 10%, 15%, 20% drop in house prices, I think that being rather, er, hopeful, for a buyer to expect that.”
– from ‘No Bubble In Vancouver Real Estate’, Global TV, 16 May 2012
[hat-tip, and thanks as usual for the video archive, to Greenhorn.]
OK, predictions noted, for the record, namely:
1. Price drops of 10% or more are not to be expected.
2. Tightening of liquidity doesn’t appear to be on the horizon.
3. Again, No bubble.
We believe that the price strength predictions are extremely overly bullish, given the internal market action, and the national and global economic climate.
BTW, when Sommerville says “double digit increases in interest rates”, what does he mean exactly by that phrase?
Does he mean interest rates increasing to double digits or by double digits? – there is a massive difference.
Nobody, but nobody, is predicting the former: In fact, if we thought there was a chance of interest rates increasing to “double digits” we’d change our price predictions from 50%-66% off to 80% off. So, if Sommerville was implying that bears are predicting interest rates of 10% or more, he was just trying to make critics look foolish.
If interest rates rise by double digits, for instance from 3% to 3.3% (an increase of 10%), well, even such a small increase may be enough to speed a price descent.
“This is how I could argue for current price-rent being reasonable (see chart above). Sure you’re back to valuation of 2000-2002, but recent prices were briefly 100% overvalued, then okay again. That time they were fixed by lower yields and credit spreads as well as slightly higher inflation. Next time price might be the adjustment mechanism. How can you go from reasonable value to 2X overvalued in a heartbeat? Answer: a lot of interest rate risk.”
“This is why I still think it’s bad risk/return. Months’ “rent” at risk with 1% change in “interest rate”. No wonder people are selling their basements.”
– charts and analysis by Zerodown, 14 May 2012
[Many thanks, Zerodown. -ed.]
“We’re landlords, and the tenants live beneath us in a ground-floor suite. Just had a switchover of tenants, nothing major to fix, but just painting, cleaning, and dealing with general wear-and-tear chewed up all my spare time for a month, and left me exhausted. The kind of thing realtors don’t mention when they throw around that “mortgage helper” catchphrase.
I can understand people not wanting to bother with running a rental suite. It’s certainly not the ideal situation. We’ll probably get sick of it eventually, and hopefully the numbers will work for us by then so we can look at other options.”
– Froogle Scott at VREAA 13 May 2012 6:50pm
Previous failures of Canadian financial institutions were due to bad real estate lending and sharp falls in housing prices, and these can happen again, Vlasios Melessanakis, manager of policy development at the Office of the Superintendent of Financial Institutions, wrote in documents obtained by Bloomberg News under freedom-of-information law. … “Canada is not immune,” Melessanakis wrote March 21 in internal notes responding to a posting on a mortgage-industry website. “Just because nothing happened in Canada in 2008 (a U.S.-centered crisis), does not mean that Canada is not vulnerable to a housing correction now.” Melessanakis wrote his comments to colleagues in response to a posting on a mortgage-industry website, Canadian Mortgage Trends, that criticized proposed standards published by Canada’s top banking regulator on 19 Mar 2012.
… Ottawa-based OSFI suggested requiring lenders to take “reasonable steps” to verify borrower incomes, establish standards for measuring borrowers’ ability to pay their debts, and limit the size of loans secured by the equity in people’s homes. The draft guidelines are based on mortgage-lending principles set by the Financial Stability Board, a Basel-based group that coordinates global financial rules. “How many new lending ‘guidelines’ can the market bear before it breaks?” wrote Robert McLister, a mortgage planner who edits the website. “The market may break because the fundamentals are not sound (i.e. overvaluation of homes), not because of OSFI guidance,” Melessanakis wrote in response.
… There’s “no question” the proposed OSFI guidelines will curb demand and hurt housing prices, McLister said in an interview. “OSFI had good intentions here, but some of this policy is certainly misguided,” he said, when asked to react to Melessanakis’ comments. McLister pointed to banks’ low arrears rates on mortgages as evidence more rules aren’t needed. Melessanakis wasn’t convinced. “This can change fast,” he wrote in his notes. “Are the banks equipped to handle a 40 percent drop (what occurred in Toronto market in early 1990’s)? Need to stress test to find out.” McLister called the idea of a 40 percent decline in housing prices across the country “farcical.” Such a decline is “not going to happen, period. But in some places like Vancouver, maybe Toronto, obviously you’re going to have greater risk there of price volatility,” he said by telephone. … OSFI’s guidelines suggest lenders limit home-equity lines of credit to 65 percent of the property’s value. The regulator also recommends that HELOCs be paid off over a specific amortization period, like conventional mortgages. While McLister wrote that those rules “portend a big slowdown in HELOCs,” Melessanakis responded that the loans have “contributed significantly to growing overall household debt.” “This is not sustainable,” he wrote. “If (or when) housing prices drop, households will be vulnerable,” echoing comments made by Flaherty and Carney. Melessanakis also disputed McLister’s point that many of OSFI’s recommendations are already employed by “scores of lenders.” “Not all, and not on a consistent basis,” the OSFI official said. “There are some enhancements in lending practices that are needed.”
– from ‘Banks Not Immune to Housing-Related Failures: Corporate Canada’, Bloomberg, 15 May 2012
— Forty percent off is a fair downside target, but we see it going lower.
The ‘farcical’ quote will be archived in the ‘Bull Hubris’ sidebar, for ease of future reference.
“I finally sold my DT Vancouver Loft. Was listed 3 times over the past 15 months by 3 different agents. With 5 price drops, 10 open houses, countless waste my time showings and finally that 1 single offer. I was so scared they would walk I gave into every single one of their demands. Sold 8% below assessment, but I would have gone 20% below if it came down to it. Happy to be renting a place that’s double the size, but at the same price as my old mortgage, maintenance and taxes.
Now I’m sitting on over 500K in cash waiting for the market to crash. I’ll buy a house when it’s down 30%, but I’ll start looking when it’s down 25%. Cash is King!”
– Finally at greater fool.ca 11 May 2012 8:30pm
[Image for illustrative purposes only. Loft in picture not related to loft in story. Any similarity between this loft and any loft in this or any other story, sold or unsold, is purely coincidental. -ed.]
Lofts represent a market sub-sector where it usually takes longer for sellers to find buyers, even in typical market conditions.
Nonetheless, this anecdote does act as a window into the soul of a seller in an illiquid market. With inventory rising and sales slowing, this is what faces sellers in other Vancouver sectors.
A map of the price-to-rent ratio of cities throughout Greater Vancouver.
“Take the house price and divide it by what it costs to rent for a year to get the price-to-rent ratio: Price divided by (Monthly rent x 12) = X.
(Estimates for additional costs of homeownership, such as taxes, maintenance and insurance are factored into the equation.)
If the number is higher than 15, it’s generally not a good time to buy.
If the ratio is less than 15, buying is a better deal than renting, if you plan on living there for at least five years to offset moving and closing costs.
By the time the number hits 20, renting is apparently the way to go, except if buyers expect to stay put for at least 15 years, according to a formula used by trulia.com to rank major urban U.S. centres every year.
B.C.’s numbers, as shown in the graphic, are through the roof, from 29 (Prince George) to 73 (West Vancouver).”
“Local real estate experts say the number is simplistic and doesn’t factor in other market drivers.”
– from ‘Where it’s cheaper to buy (or, more likely, rent) in B.C.’, Susan Lazaruik, The Province, 12 May 2012
Ergo, it is not a good time to buy, anywhere in BC, especially in the LML.
The only other “market driver” of importance is the insanity that accompanies a speculative mania.
Almost all purchases are speculative, and have been so for years.
It is good to see The Province printing something like this.
Will their readers realize what it means?
Vancouver is a fine city, let’s embrace it for its own considerable strengths. Here follows an account of things and qualities that many of us find really good about our city. It emphasizes features that have guts and soul and spirit, and those that are arguably of lasting value.
Suggestions for additions/alterations warmly welcomed, and given due consideration. The quotes in italics are from commenters.
This kind of endeavour, like the city itself, is invariably imperfect.
What’s REALLY Good About Vancouver?
1. The Rain
Large quantities of good, honest water that falls on our heads more days than not; bearing juicy air and verdant lushness.
We live in a rainforest. Celebrate it; accept it. “Nothing better than being in a cedar forest on the north shore during a rain storm.”
Did we mention the rain?
2. The Mild Weather
By Canadian standards. Seems contrary to (1) but, not so. “Not actually needing to use a engine block heater is pretty nice. Not needing to breath through your nose in -30 degrees is also very good.” “This was yesterday in Alberta. For many people that matters.”:
3. The Air
Clean! See (1). “Scent of pine, fir, cedar with hint of salt air”
4. The Vistas; The Mountains
Clear day, from many vantage points around the city, mountains with or without snow, city below; stunning. Sometimes good with cloud, too.
View from Grouse Mountain (whether you choose to ride or grind).
Sunsets over the Burrard inlet, from various vantage points.
You don’t have to leave the city to leave the city. “The splendour and diversity of the natural environment, and the way it interpenetrates the city.” “It’s a dramatic panorama that I haven’t become tired of looking at.”
5. The Seawall; The Ocean
Kitsilano to Coal Harbour, especially the bit near the Lion’s Gate Bridge. “I love walking around the seawall talking with a friend on misty nights in mid-winter when all the tourists are gone.”
6. Stanley Park; The Endowment Lands; The Trees
Wonderful trees, quiet paths, remarkably low traffic. “I like that this big, public, tourist park has hidden seasons and palettes that feel like a spectacular secret, and that in such a busy city you can find quiet and solitude in there.” “The intensity of the vegetation, the size and lushness of the trees.”
7. Easy Access to Outdoor Activities and Wilderness
Sit, Walk, Hike, Run, Bike, Blade, Climb, Paddle, Sail, Ski, Board (Snow & Skate) “The ability to step from the urban environment into true wilderness.”
English Bay; Kits Beach; Jericho; Spanish Banks; Wreck Beach
For hanging out when the sun shines, more than for swimming.
9. Kits Pool
137m of saltwater, in the rain
10. “Walkability/Rideability”; The Traffic
It’s actually easy and pleasant to get around.
The Canada Line: a great start
‘Traffic’ may seem a controversial item, but you can indeed travel in or on a vehicle, across town and back, during business hours, most days, with ease.
The Seabus to Lonsdale Quay
11. City Parks; Street Trees
200 parks; 130,000 street trees
Marine Building; Hotel Europe; Dominion Building; Sylvia Hotel
Museum of Anthropology
The ‘tree-on-top’ building near English Bay
The Marine Building
Art in public places
Vancouver Art Gallery
Art walks; Culture crawl; Commercial galleries; “Hidden galleries”
The Western Front
Emily Carr school annual shows
‘229.5 ARC X5’ by the French artist Bernar Venet, at Vanier Park
14. The Museum of Anthropology
15. Delicious Food; Good Restaurants
[Too many to mention. Imagine your own three favourite restaurant names here] “The variety and deliciousness of much of the Asian food, the excellence of some of the high-end restaurants.” “Fulfilling an almost depraved affinity to HK-style diners”
16. Different Neighbourhoods; Cafe Culture; Easy Urban Living
Parts of Davie, Commercial, Main, Gastown, Kits, East Van, other.
Hanging out. “I love the chaos of Davie Street at night, and the weird festival grinning-atmosphere that it gets when it’s NOT fireworks or Canucks or soccer.”
17. “Relative Tolerance” “For the most part, we get along.”
18. Music; Music venues
The Railway Club
The Orpheum; The Commodore; The Vogue
The Vancouver East Cultural Centre
The Chan Centre; Vancouver Recital Society; VSO
The Vancouver Folk Festival
19. Movie houses
Cinematheque; The Rio; The York (will reopen); The Ridge (will die?); The Dunbar; Many comfortable new vanilla theatres
The Film Festival “It’s not a red carpet affair and all the directors, actors, writers and producers who come here seem to be genuinely interested in talking to the audience.”
21. Comedy; Improv; Poetry slams
Dozens of venues
22. The Vancouver Aquarium
Belugas; Dolphins; Jellyfish “That one seal that seems to recognize us every time we visit”
23. Granville Island
Especially on Canada Day, with ‘The Carnival Band‘
The Aquabus around False Creek
The Crows; Bald Eagles; Coyotes; Bear
“I love watching our crows commute at sunset from all over the region, a ribbon that floats east for the night and confounds researchers because they don’t know why Vancouver crows should be so sociable.”
26. Some really good stuff has been made here…
William Gibson (writer), Jeff Wall (photographer), Douglas Coupland (writer), Arthur Erickson (architect), Jack Shadbolt (painter), Emily Carr (painter), Fred Herzog (photographer), Eric Metcalfe (painter), Jerry Pethick (artist), Joe Average (artist), Attila Richard Lukacs (painter), Veda Hille (musician), The New Pornographers (band), Dan Mangan (musician), David Newberry (musician), Etienne Zack (painter), The Carnival Band (marching band), others
Photo by Fred Herzog, 1958.
27. Character; Grit “The tawdriness of the PNE, Hastings Racecourse, and the Pacific Coliseum.” “The rough-and-tumble nature of the old port city/resource town.”
28. Nostalgia/Eccentricity/Quirkiness “An interesting subculture; a renewed hope that the eccentricity of Vancouver continues.” “I miss the older couple that used to have a Museum of the World on Main St. Anyone remember them? They didn’t have kids, the said, but spent the money on traveling; and when they were older hung pictures of all their adventures and invited the world to come visit them. You’d go in and get tea and a cookie and just walk around looking at their collection.” “The quirkiness of a significant number of the residents.” “Anybody remember the lady who used to walk her dressed up goose in a baby-carriage around Granville?”
Time Top, by Jerry Pethick
29. The Potential “The still-evolving nature of the city. Its lack of establishment.”
Thanks thus far to the following commenters, whose suggestions were incorporated, disguised, and/or ignored: Nemesis, terminalcitygirl, Renters Revenge, pretzels, jesse, BLM, rp1, Absinthe, RE Lurker, chubster, Aldus Huxtable, Paul Streppel, Froogle Scott, epte.
“Mr Ai says he is committed to staying in China, but he is also keen to create a European base in the cellar of the Berlin studio of his friend Olafur Eliasson, a Danish-Icelandic artist. His aspiration is that the space, which Mr Ai describes as a bunker with no light that has survived two world wars, will be renovated into something that functions as both a studio and an artwork. The location appeals to him for “strange, personal reasons”, he says. He had lived in an earthen pit as a child after his father was banished to Xinjiang. Enduring hardship, whether in dirt holes or dark interrogation rooms, is in the artist’s blood. So is making art.
“The art always wins,” Mr Ai says. “Anything can happen to me, but the art will stay.” Mr Ai’s legacy as a human-rights activist remains uncertain, but his sculptures and photographs are lasting memorials to his wit and courage.
– from ‘Artistic licence – China’s most famous artist talks about his work and how it confounded his jailers’ an article in ‘The Economist‘ [5 May 2012] about the artist Ai Weiwei.
Underneath the vibrant, diverse surface of a thriving arts and culture scene, Vancouver faces a loss of its brightest painters, dancers, designers, makers and performers to greener pastures. … As property values skyrocket higher than any other city in the country (second place worldwide), Vancouver’s artists are facing stark choices about their future. Many find day jobs, paint and create in their bedrooms, or gradually drift to the suburbs. But an increasing number are leaving the city in what Red Gate’s founder, Jim Carrico, describes as a “steady migration of artists.” They’re going to Montreal, New York, Los Angeles, Toronto, even Berlin, Germany. “The shortage isn’t of expensive space!” Carrico says, laughing sardonically as he describes Red Gate’s Kafkaesque quest navigating city permits, applications and bureaucracies, both before their eviction and now in the search for a new home. “There’s lot of expensive space around. There just isn’t much affordable space. . . It’s an unsustainable bubble at this point, I don’t think anybody can disagree with that. When median prices in Vancouver are more than twice as any other city in Canada, and yet median salaries are lower.” … “The majority of corporations said to us, ‘Arts and culture isn’t where we put our money.’ Vancouver is notorious for a wait-and-see attitude. It’s very hard to convince anybody in this city to get involved in something before it happens.” … The fear of a Vancouver becoming a hollow Disneyland of a city is one shared by many artists. “It’s a great point, I totally agree,” Kate Armstrong reflects. “There’s a way a city can become so expensive that it (becomes) empty. “This is such a beautiful city, and it’s a huge risk the way real estate is going here. It’s becoming a postcard of itself – so smooth that no one can afford to live in it. It risks becoming increasingly one-dimensional. If we really lost our artists – and we do take them for granted – we would feel it in ways that we can’t begin to describe.” … The loss of Vancouver’s talent to LA, Montreal, New York and Toronto is something that should concern us all, says artist, lawyer and recent independent City Council candidate Sandy Garossino. “We’re draining the lifeblood out of our city with the disappearance of the artists,” she says. “By the time you’re at a certain point in your life, you can’t afford to live here. Garossino rattles off the pros and cons of the various art Meccas on the continent which are pulling some of the city’s creatives away: New York City (expensive, but renowned arts scene); Montreal (mind-bogglingly cheap, and a real arts “incubator”); LA (relatively affordable, great community). …
– from ‘Vancouver’s arts and culture bleeding out in “steady migration”, warn city creatives’, David Ball, Vancouver Observer, 9 May 2012
[hat-tips to ‘Aldus Huxtable’ and ‘granite countertop’]
“I’m not a fan of pre-sales because sometimes you find out that what they release to the media is complete crap. You see, what happens is, a month ago The Vancouver Sun reports that Telus Garden in downtown Vancouver is sold out. However what they didn’t tell is that all these people who lined up and purchased had one week to rescind their purchases without any penalty… so what happens is, of course, not everyone goes ahead with their purchase and Telus Garden is still flogging all their properties, whatever they have remaining. There are still properties remaining at Telus Garden one month later. It has not sold out, no matter what people tell you. I have e-mails from their marketing company saying they still have these units and these units and these units for sale. So if you think the market in the pre-sale market is ultra hot, and you think you going to buy it to flip it, think again.”
– Ian Watt, realtor, self-posted youtube video, 7 May 2012
See also: ‘Telus Garden condos sell out’, Vancouver Sun, 2 Apr 2012
– From that article: “Telus Garden’s 428 condos sold out in about one week. “We’ve been marketing them for a few weeks and we had a tremendous response from the public as well as from Telus team members,” said Andrea Goertz, Telus Corp.’s senior vice-president of strategic initiatives, on Friday. “Demand was stronger than anticipated.”
202 W 13th Ave, Vancouver
2 BR ‘townhome’ (triplex; strata)
* = “Currently the in floor heated garage (192 sq ft) is being used as an office and storage and is included in the square footage.”
– [hat-tip to ‘Hugh’ at VCI for bringing this to broad attention]
We previously featured an East Van basement suite selling for $590K.
The property featured above tops that.
In many parts of the world, basement square footage is excluded from area considered part of the home, let alone garage space.
Perhaps a $1M basement suite will herald the very peak of the insanity.
On the other hand, it looks like we’ve already peaked.
As we have been saying…
People in BC are over-dependent on their RE holdings for their future financial well-being.
So, imagine.. you’re 5 or 10 or 15 years from retirement, you’re dependent on the value of your home for your retirement funds, and housing prices start dropping… 10%, 15%, 25%… what do you do?
[Post-script: When you consider that only 70% of BCers own their homes, that 45% figure is massive… assuming the poll was a balanced sample, it means that over 60% of BC home-owners plan to sell their homes for retirement funds!]
Vancouver Price Drops, by ‘an observer’, is a new blog that monitors price changes both in broad area categories and in specific Vancouver properties. It is a welcome addition to the local RE blogosphere; thanks to ‘an observer’. Vancouver Price Drops is now linked in the ‘blogroll’ sidebar.
“It would be easy to envy Eve her lifestyle. She has a mortgage-free home in a sought-after part of downtown Toronto, work she loves and a rental property that throws off substantial cash flow.
Eve’s world has changed over the years. At 46, she is divorced with shared custody of her two children, ages 10 and 12. The erratic income she has earned as a freelance photographer is dwindling and could disappear altogether before long. She’s worried about finding employment at her age and uncertain about what she wants to do.”
Summary of situation:
Monthly net income: Net real estate income before income tax $2,500; average freelance income, $2,170 and falling. Net income after tax (average, variable), $3,750
Assets: Cash and short-term $6,050; TFSA $2,015; RRSP $44,000; home $700,000; rental property $685,000. Total: $1.4-million
Monthly disbursements total: $3,545
Debt: Mortgages on rental property $375,000; line of credit $20,400. Total: $395,400
“Eve sees her rental property as her pension. She has two mortgages on the property, one that will be paid off in more than 20 years, the other in about 16. Short term, she wants to pay down her $20,000 line of credit and wonders whether she should cash in her registered savings to do so. Longer term, her goal is not to have to work for a living any more.
“I don’t drive a car, don’t eat out at fancy restaurants, don’t take drugs, but play lots of squash, which costs,” she writes in an e-mail. She is apprehensive about the future. “Given that I am not keen to get a real job and don’t think anyone will want me now, how doomed am I?”
Eve wonders if she can afford to retrain for a new career and whether it would be worthwhile. “I’m working for peanuts. I love it but it’s going to run out,” she writes. “Or should I perhaps think about buying another rental property?”
Then, as if having second thoughts: “Am I in a position to have choices?” she asks. “When can I feel safe and retire?”
Many households recently featured in this G&M ‘Financial Facelift’ series involve individuals who are over-dependent on RE for their financial futures. This is not surprising, given how the housing bubble has drawn so many into buying more than one property. Also, the idea of not working and living off your RE gains has become a prevalent theme.
We have little doubt that ‘Eve’ will be better off in future if she decreases her exposure to RE as soon as possible. However, this likely won’t occur to her as a viable option until the market value of her home and rental property drop about 25% (at which point she will have lost 35% of her current paper net-worth, given her leverage). There are people in Vancouver in similar situations, only the numbers involved are usually larger.
Read the entire article: The financial planner, to his credit, advises against buying another rental property (!), but doesn’t bring up the idea of Eve decreasing her exposure to RE.
“I was watching Al Jazeera English via satellite dish. Suddenly one report came up. It was about the buoyant Canadian housing market and the level of household debts that are now a cause for concern. Nothing is new actually but this means the world is now cautious about Canada.”
– ‘Thai-born Chinese Canuck’ at VREAA, 5 May 2012 2:57am