Spot The Speculator #85 – “They’re trying to sell their downtown condo into a weakening market, but now they’ve doubled their exposure. A few months ago it would have taken more than a 50% decline to wipe out their entire net worth, but today it would take just a 20% drop.”

“My friend wanted to trade up from a $400k condo to a $900k house. I helped to convince her that the market was likely to go down. Disaster averted.
Next thing you know, she’s borrowed $45k from her father and appropriated $5k from her unwilling but helpless husband to buy a presale for a $450k condo that “should be available for move-in by August.” (It’s a bit bigger and nicer, but it’s North Vancouver instead of Downtown.)
They’re trying to sell their downtown condo into a weakening market. The “price” has declined 5% in the last two months, but now they’ve doubled their exposure. A few months ago it would have taken more than a 50% decline to wipe out their equity (their entire net worth, of course) but today it would take just a little more than a 20% drop.
Remember, she agreed that prices were likely to decline. Her justifications for going ahead with the condo aren’t in any way rational, and amount simply to the “because I want it” logic of a four year old. She dismiss any opinions that didn’t support the outcome she desired, even going so far as to threaten her marriage.”

Rick at VREAA 3 May 2012 9:07am

Just regular Vancouverites doing regular things with real estate.
If you had to try to do the same thing with any other asset class, you’d be laughed out of your bank.
How much they’ve all been gambling will only be widely apparent once the market reverses.
– vreaa

57 responses to “Spot The Speculator #85 – “They’re trying to sell their downtown condo into a weakening market, but now they’ve doubled their exposure. A few months ago it would have taken more than a 50% decline to wipe out their entire net worth, but today it would take just a 20% drop.”

  1. Im not sure how many posters here are female. I have no figures to back this up, but it appears to me that many of these decisions are being forced by women “who want it and deserve it” and the decision is emotional not logical or practical.

    I dont know how many times ive seen postings by people saying that their marriage is under threat if the wife doesnt get what she wants. And they want property. They want a nest and must have home for their babies

    Id be interested in others comments.

    • Joe_Blown_Away_By_High_Housing_Costs

      Taipan: Garth Turner has blogged about the role of women in propelling this real estate bubble. Although I tend to avoid gender stereotypes, I do think there is some truth in your observation that women’s nesting instincts have something to do with the irrationality of the housing market. By the same token, you could argue that men’s desire to get laid causes them to make irrational decisions and buy condos just to impress the girls. I believe Garth blogged about that. There’s quite a bit of sex and gender commentary on Garth’s blog–far more than you’d expect from a Conservative economist.

      • “By the same token, you could argue that men’s desire to get laid causes them to make irrational decisions and buy condos just to impress the girls.”

        20 years ago when I was in uni, being able to play the guitar and sing was enough to get me laid on a regular basis… glad I’m not dating now 🙂

      • “There’s quite a bit of sex and gender commentary on Garth’s blog–far more than you’d expect from a Conservative economist.”

        Garth is a licensed financial advisor, but his university degrees are in English literature. I would hesitate to call him an economist.

    • Taipan, good to see you here.

    • Interesting.

      Well, most women wouldn’t want to raise their children in a cardboard box, that’s right.

      Now let’s talk about women who did the research and were the prime movers about buying a house at the right time in Vancouver, and then selling at the right time.

      I’m sure their husbands and children are happy about the profits and financial security that were achieved.

      I won’t go into detail here but let’s just say I have some excellent anecdotal evidence.

    • I won’t step all the way into the gender minefield, but in my family’s last move (in the US) I really wanted to rent a house for a year or so to increase our buying power. I knew prices would be lower. My wife really wanted to get established in a good school district and basically wasn’t having my argument.

      For a range of reasons, I’m happy enough with the move. We found a motivated seller and I think got quite a good price, so even with continuing trickling declines, I’m still satisfied for now. My current assumption is that prices in our area and neighborhood are likely to finally bottom by the end of 2013, maybe down another 3-5% from today. It helps that we don’t want to move again for decades and this is a home, not an flip.

      • Let’s not forget too that renting in many places in Vancouver now would be a highly unstable situation for many families, due to all the speculation that’s gone on. Ever packed up a dwelling-place, moved into another one, and gotten your children settled into one school district, only to have your speculator landlord decided he’s going to sell?

        In how many households do the responsibilities for finding the children’s schools and doing the househunting and moving work fall on the women? I’d say many.

        Of course, buying in Vancouver now would be even more foolish, but the renting alternatives would not look enticing from, to use Taipan’s words, a logical or practical standpoint either, to many families at this moment.

    • Relaxed & Happy Islander

      Hello Taipan
      Your “who want it and deserve it” remark reminds me of a theory I have: so much of the evolution from a market economy to a market society that we’ve undergone I believe has its roots in one of the most successful ad campaigns of all time: L’Oreals’s “Because I’m Worth It!” which dates back 40 years…

      • The evolution from a market economy to a market society is due to a women’s cosmetic ad?

    • All of the real world bears I know are, actually, women. IF you’re in charge of the household budget and interested at all in investment, it doesn’t make any sense to buy. Conversely, all the real world bulls I know are men.

      That said, and the women I know who are VERY bearish tend to also be leaving to cheaper pastures for the buying of property. It really does seem to be a major goal, enough to move.

      I’m not one of them, but I grew up in rentals, so there’s not the same amount of emotion in it for me.

    • Taipan, you wrote “I dont know how many times ive seen postings by people saying that their marriage is under threat if the wife doesnt get what she wants. And they want property.”

      Probably about as many times as I have read male bank economists (and let’s not forget Sherry Cooper either), Flaherty, Carney, Peter Simpson (CEO of BC Homebuilders Association or something), developers (anybody know a female developer), Bob Rennie, the current (male) head of the Greater Vancouver Realty Association or whatever it is and posters to this blog (Fred, F1, Reality Check) whom I assume are male — about as many times as I’ve heard them reassuring people that we are not in a bubble, that it’s a good thing to buy real estate, blah blah blah blah.

      I didn’t really want to get into gender wars on this blog, but that was a pretty provocative comment you made, suggesting in part that a lot of the mess we’re in is about female selfishness and greed. At least women who have children can’t be faulted (can they?) for wanting to have a stable place to live. What’s Bob Rennie’s excuse?

      • Hear, hear epte. I agree with most of your comments but suggest that F1 et al are posting here to reassure themselves rather than us that we are not in a bubble.

        BTW I’m the male half of a bear couple with cubs. Perhaps we just don’t love them enough to buy 🙂

        P.S. Bob Rennie’s excuse is that he’s a big girl.

      • Bally, I’m trying to reply to what you said below, “BTW I’m the male half of a bear couple with cubs. Perhaps we just don’t love them enough to buy.”

        I would never suggest that people sensible enough to rent (and courageous, at this point in Vancouver’s history when the rental market has been destabilized by speculation) don’t “love their children enough to buy.” Only Fred would say that (and he has, repeatedly). Obviously anyone who buys now is putting his/her family at a terrible risk.

    • Taipan,

      You’re right but you’re mostly wrong. Women are liberated today so it’s natural they take 50% of the decisions, financial or otherwise. It’s also true they’re the most frantic people at open houses, wide-eyed and looking all panic-striken especially when they have a newborn in their arms. I’ve seen it myself.

      But I have to put this disservice to women I keep reading on the blogs to rest. It’s a bubble. We’re living through a bubble. The first bubble happened in the 1600s when women had no say in financial matters, and the bubble blew to epic proportions. I’ve heard people blame the media too. But there was no media back then, just whispers, panic, greed and wanting not to be left behind. No, I”m afraid. It’s not women’s fault anymore than it’s men’s fault. Joining the herd in a run is 100% human.

      I’m not planning on joining the pack in blaming women. In my experience, many male friends are completely deaf to any consideration that house prices can decline. One friend became angry when I suggested he do a stress test on his ability to pay a mortgage at 1 and 2% higher interest rates as the Gov of the BOC had recommended before buying a house. He was really pissed. And his friend who was with us, who also had 3 condos, was pissed at me too.

  2. Double Exposure, back when BC politics had satire.

    • Quote ‘O TheDay!…

      “I frankly believe that there is a double standard.” – President BCGEU, Darryl Walker

      [CBC] – B.C. accused of salary increase ‘double standard’
      Cabinet staffers got average 10-per-cent hike while ‘net-zero’ offered elsewhere

      …”The results of a Freedom of Information request show that nearly half of 34 ministerial employees who were named received a raise in the past year with an average 10-per-cent increase. The lowest increase was six per cent, the documents show. One executive assistant in Clark’s office saw her salary jump from $51,300 to $61,560, a 20-per-cent hike.”…

  3. You can’t fix stupid!

  4. I wonder what she could get at Telus Garden for $450k? I hear that previously unavailable units are suddenly now available. Oldest trick in the book.

    • That’s funny, my insider source I befriended in the presentation center [centre] said there was only one unit and it was being offered to me first, because… well I’m not sure exactly why but she was very friendly but disturbingly urgent I give an answer quickly on whether or not I want it.

      As the saying goes, money has a way of finding its way to its rightful owner.

      • Let me guess, she was easy on the eyes too. BTW, what was your answer? 😉

      • Alas I had reasons for saying no that extend beyond the financial. Turns out she was a bit too easy on the eyes, as viewed by the eyes of vested parties.

      • “Turns out she was a bit too easy on the eyes, as viewed by the eyes of vested parties.”

        Wife not happy? lol…

      • Vested parties. Alas – how many otherwise promising ventures have ignominiously shuddered to a halt following their intervention…

        Speaking of condo-ignominious [Note to Ed: I think there’s a new compound word hiding in there somewhere]… here’s a LittleLoophole for ya…

        [FinPost] – Taxpayers also victims of ‘hot money’ behind Canada’s condo bubbles

        …”The paperwork for these agreements is kept in-house and my source said one intermediary told him that there are no T-5s issued to the speculator or to the Canada Revenue Agency, something that stock and futures market intermediaries must do so that taxes can be paid on the $100,000 trading profits. Instead, the profits vanish, possibly along with the paperwork, and taxes paid will be by the end user if they buy, rent out the unit and make a capital gain down the road. “[Condo] brokers tell me I can flip my assignment and pay no tax and there is no paper trail. They say we do it all day long,” said the investor who asked to remain anonymous.”…

      • Ah yes Nemesis, methinks the auditor general has highlighted there are opportunities for improvement, certainly including reviewing and scrutinizing capital transactions.

        A dirty little secret of all organizations, small and large, is that there is huge incentive to wring money through fines, the proverbial offside trap of Team Government.

  5. theblackboxproject

    This applies to Vancouver, circa 2012.

    “The idea that things that you own — and acquiring more and better of those things — can improve your life, there is such overwhelming evidence that it doesn’t work,”

  6. There is the desire to nest (and I know as many men who need a big house for their junk as women, who honestly mostly want a palette to execute decorating on. (Maybe this is a symptom of my friends’ ages, post breeding…) Anyway, since we also have a speculation component, here are some gender stats on gambling:

    Men are much more likely (in Ontario) to be problem gamblers. This might be a true conservative bias among women. More likely to seek stability in both cases. There is nothing wrong with that, outside of a credit bubble.

  7. Prices in North Vancouver have continued to rise even with the west side sfh market and dt condo markets cooled. Might work out to be ok investment. I never really understood why you could get a very nice home in north vancouver for 2 million with a view and not on a busy road compared to west side vancouver. Much nicer in my opinion too. And when the bubble bursts which 2 million dollar home will hold more value… im thinking the nice house with the view!

    • Relaxed & Happy Islander

      It used to be that having to cross the bridge meant a $250k reduction in property value. Not commenting on the merits of that notion, just saying that was sentiment.

  8. OT/ FYI: CoV recently launched an ideas competition and I think at least a few vreaa blog regulars might like to contribute:

  9. Thanks for the comments. I was recently involved with a proposed development for an Australian version of the Lowes super stores. We spent some time discussing the way these boxes (13,000m2) had been designed and why.

    The whole shopping experience has been designed for women. Dont forget that these are “hardware and home reno” type shops. Coloring of the buildings, air conditioning, layout, music etc was aimed at the party to the conventional marriage who spent the most money. Women.

    Im not saying its right or wrong, but I constantly look to try and understand what is happening and why. On TV a massive amount of TV is now aimed at women. Again why? Because the purpose of TV is not for you to watch shows but for the TV companies to sell advertising time, so they can sell products.

    Somebody above mentioned a whole bunch of men promoting real estate. Thats what they do – and you aim these campaigns at the party where you think your “call to action” will get a reaction and motivation”

    • I forgot that story, thanks for the remind 🙂

      More stories over a beer, when the op presents itself.

    • I didn’t just mention a whole bunch of men “promoting real estate.” There are a lot of women realtors out there flogging real estate. I mentioned a whole bunch of cabinet ministers, politicians, and bank executives/economists saying we aren’t in a bubble. People with real influence changing the course of cities, provinces, a country. Is that what just “they do”? Are they as culpable as the wives we’ve heard about on various blogs henpecking their husbands to buy a house? More culpable?

      As for TV selling ads to women, yes, in the fifties soap operas were described as such because they sold soap to women who watched TV during the day. I think beer ads, car ads, shaving ads show that marketers now understand men watch TV as well.

    • Taipan,

      Please start watching the series Mad Men. It takes place in the glorious old days: overt sexism, racism, smoking, drinking, sex–you name it. You’ll also be able to see Madison Avenue’s traditional and rightly-placed emphasis on the woman shopper.

      Fact is, women do the shopping. Remember? The hunter/gatherer thing? That’s men bringing home money and the women doing the shopping. Plus, they traditionally were the sole users of all the domestic appliances. So Mad(ison) Avenue, ie: marketers everywhere have always built and pitched their wares to women. Nothing new here.

      Now, you’re not going to tell me you’re going to be the last in a millennia-long tradition of blaming women? Eve? Marie Antoinette? Ruth Madoff? Freaked-out chicks at every open house? And now female shoppers? T-Man–they’re more than half the planet. They have the right to move around and even make mistakes. Give it a rest.

  10. Oh and why are many women bearish?
    Because they are too smart for the advertising and the scamming

  11. Unfortunately Garth Turner is known in the investment industry as a contrary indicator, almost everything I have ever written from him (i try to avoid his writing) has been wrong. For example in 2000 he said sell you house as baby boomers will downsize and borrow to invest in the stock. Only when GT changes his view and becomes bullish on the housing market in Vancouver will prices begin to fall.

  12. I think Garth is way too optimistic.

    If Canada gets a nasty external shock you wont know what hit you. French and Spanish elections this weekend

    I leave you with this analogy.

    The world is currently a massive super fine crystal punch bowl full to overflowing with raw sewerage and toxic waste. Already numerous cracks have been noticed but it hs been patched – just

    The sewerage was put in there by the political classes and the international bankers, who thought it would never really be noticed, or they would have long left the party before anybody did, having taken the $ and fled.

    Its then wrapped in beautiful birthday paper, with ribbons and from the outside, it looks wonderful apart from a bit of a stink, and some strange stains on the paper which some people point at, but most at the party would rather not notice..

    But if just one of those cracks widens, the shit is going to be everywhere and there will be a hell of a mess!

    Just make sure, your not one of those covered in it.

    • ++ cronies don’t feel the pain … so they keep pumping in their sewage … unless that changes, the question isn’t if, it’s when … unemployment will be the ‘change agent’

    • I don’t know much about macro but from what I’ve heard Canada, like Australia, has ties to the fate of China’s investment bubble. BC, by its proximity, would be disproportionately affected.

      That said, there is now solid evidence the bottom in the US housing market (employment and activity, not prices) is in. That’s a positive and, if I’m reading this correctly, will mean some good acceleration of job growth in 2013 and into 2014. The recent jobs report was poor but that doesn’t tell all the story, that wage growth is improving. The jobs report IMO was highlighting more how the wealth created in the US is not being shared in the way it was in past decades. That is unfair, perhaps, but not reason to count out the US.

      Hugh Hendry has been in the news recently with his reports and speeches. I don’t know if the guy is right or not but he’s a blast to listen to. He’s long developed nations I believe.

      Do NOT rely on me for investment advice. I’m no business guy.

      • preamble – i’m not a business guy either, not entirely anyway. but i do read a lot of them and can offer a summary, fwiw. if you have any analytical ability and willingness to trust your own work, you can understand macro. but it will take constant repeated efforts. the idiots at the fed have made it everyone’s business, for survival’s sake.

        summary – every time policy makers are presented with “make a tough choice to take your medicine OR print money and pretend it will go away for a while”, which one do they choose? it’s now gotten to the point where “take your medicine” will involve taking down 70%-100% of the banking system and say 30%-50% of the govt, varies with your choice of country. it’s not difficult to see which path is most likely. so, have any of the problems that got us here been addressed? of course not. until they are, money printing can make things appear OK for a while, but the temporary effects of the crack hit wear off and the structural rot worsens. the end of the road for crack addiction / kick-the-can is here, today, for europe … very soon for japan … and then usa. it’s not something 10 – 20 yrs away anymore. for sure <10 yrs and probably more like <5 yrs.

      • have they checked the price of gas, groceries or insurance? wages are rising in asia too – so guess what walmart prices are going to look like. i understand the deflation argument but one has to be careful to note that credit does not behave like base money. it has a very high specificity for particular assets. explosion in base monies measures + implosion in credit measures. important what they put in the inflation metrics. in the end, what must most people use for their daily monetary needs? it’s not credit for housing. biderman has some good real-time us data. i’m surprised even mish, noted deflationist, has gone into silver, which is an aggressive pm play for him. i think jim grant explains inflation/deflation the best. the sgs series ‘feels’ about right. but the us ec is not getting better and we’ll see how far they’ll let stocks sink before QEx. the better guys all seem to have concluded that policy will be print until they can’t. i’m looking for any real signs that won’t happen … haven’t seen any yet.

      • @v. i think you like the elegance of the deflation hypothesis. i too confess a sir_nem_style affinity for elegance of line and form (ogle-ogle, nudge-nudge, wink-wink). see if i can recast to incorporate that view. deflation is what would happen if we had sane policies. how can deflation fail? – if bernanke succeeds. go back to gd1 … deflation prevailed despite policy abuses … why? because usd ~ gold, so the abusers were handcuffed and only managed to debase from $20/oz to $35/oz. now, insert john exter’s inverted debt pyramid with gold instead of usd as the root unit of account … i.e. usd is a gold derivative (well really, that is where it came from) … and you can have your deflation hypothesis back … with an important caveat – for now, everyone still gets paid in $s. how can it fail? – if a plague of sobriety breaks out …RFLOL^10^100 … seriously, i did see signs of plague iceland and china, nowhere else yet. in fact, considering the installed political apparatus for eu, jp, usa, it looks to be plague-free, clear sailing. hence my present position – heavy-ish in hard assets, looking for signs of plague. people go about their business but the concerned are all part-time psychiatrists of the fed – heard it can pay well though.

        aside1: i am a specialist in the business of defectivity … so i always ask why/how can it fail?

        aside2: fun observation someone made recently … 1950 gas ~ 18c
        note present day melt value of 2 silver dimes ~ $4.38 … about a gal of gas …
        so gas isn’t more expensive now than 60 yrs ago …

      • I know Japan looks like an accident waiting to happen and a favourite of the likes of sovereign short demigod Kyle Bass; still since its asset price peak 20 years ago it’s not like the country has fallen into disrepair, rather it seems to have managed OK, just that GDP isn’t the measure that best describes growth after speculative excesses.

      • @j. i think many people misunderstand that there is a very wide spectrum of ‘doomsterism’. kb never said that jp would burn to the ground – just that it has some very serious adjustments to make. the end of the road is at hand for them in terms of avoiding tough choices (kick-the-can). you can also see how the eu tries to resolve – likely the euro will end in it current form and the expelled profligates will just continue on to print and destroy their individual currencies to extinguish debts and social contracts. these are THE reasons why no real recoveries has taken hold – the uncertainties surrounding how those tough choices will be made. life goes on, but we must pay for our sins first, before real growth can return. the refusal of policy makers to confront issues head on puts everyone into a sort of purgatory, awaiting the reckoning.

  13. vancouverbubbleman

    The bubble has popped

    • Some authority on bubbles said it’s more like letting air out of a balloon. I think we need to consider switching to a different analogy. Here are a few to try on for size:
      – Nuclear fission reactor hazards
      – Flood
      – Bubonic plague
      – Tribbles

      But I can be convinced to stick with bubble, man.

      • – Wet Funyuns

      • faulty condoms, fun with eggs in the microwave …

      • serenity now

      • Blowout on the highway. Everything’s cruising and then pop. Momentum keeps the vehicle going for awhile, but better start scrambling for a place to pull over. There’s a group of people with a thin margin between personal debt and the cost to carry a mortgage, like they’re riding on the rims.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s