Getting To Know What We All ‘Knew’ – “I always thought that market was not sustainable. Every local person was juiced out of the market. The average household income on the west side doesn’t support those prices.”

“Realtors say the small boom of sky-high prices for Vancouver west-side houses – one that provoked media around the world to claim with scant proof that mainland Chinese investors were buying up the city – is fizzling out.
Both sales and prices are down at the top end even more markedly than in the rest of the region, which has also seen a general slowdown this spring.

A house on the 3000 block of West 24th Anenue, first listed at near $4.5-million six months ago, sold on April 15 for $3.35-million.
Fresh statistics from the Greater Vancouver Real Estate Board show the number of sales on the west side is down by nearly 40 per cent for the first four months of the year. Only a third of the nearly 400 homes listed in April have sold – one of the lowest rates in the region.

Realtors say the slowdown appears to have resulted from a combination of tighter lending practices by local banks, which now want proof of income to service large mortgages, more restrictions on how much capital can be taken out of China, and fewer immigrants.

“Banks are now requiring borrowers to disclose incomes and assets before mortgages are approved, as of the last six weeks,” said west-side realtor Marty Pospischil, who specializes in selling single-family homes owned by long-term residents. Last year, he says 90 per cent of his 100 house sales were to “offshore buyers” – people not living here yet, who flew in to buy. This year, it’s less than a tenth of that. “We’re now seeing a 50-per-cent collapse rate in deals, when it’s usually more like 5 per cent,” he said.
He and other realtors are saying the west-side slowdown is a good thing because the short-lived boom, which prompted local owners to start listing at increasingly inflated prices, was unrealistic and unhealthy.

“I always thought that market was not sustainable. Every local person was juiced out of the market. The average household income on the west side doesn’t support those prices,” said Andrew Hasman, who specializes in single-family homes on the west side.

Prominent condo marketer Bob Rennie said the high-end house prices in west-side Vancouver were so out of line with the rest of the region and country that it was skewing people’s perceptions of real-estate increases, not just in Metro Vancouver, but in all of Canada.

“In 2010, reports were saying real estate went up 8.9 per cent in Canada. But if you took out Vancouver, it only went up 4.3 per cent,” he said.

The spike in west-side house prices the last two years has provoked intense media coverage – with one Bloomberg News story in late May headlined, Chinese Spreading Wealth Make Vancouver Homes Pricier Than NYC – and debate among residents, politicians and commentators both here and abroad.

Much of it was attributed to “mainland Chinese” buyers, although no one had hard overall numbers to support that. Nor could anyone say whether that group might be 100 or 1,000 people, or whether they were truly offshore investors or immigrants.

But that didn’t stop arguments about the need to limit foreign ownership or to tax speculation to prevent the nebulous phenomenon.

A number of realtors said early signs started appearing six months ago that the market was slowing down, but the difference really appeared in early March. There is usually a surge of buying in Vancouver around Chinese New Year, as visitors from China come to see family or friends in the city and often make decisions to buy.

This year, the buying spree after Chinese New Year was much smaller, and house sales have slowed in March and April instead of the typical pattern of accelerating into spring.

Jean Zhang, with Sutton Group, said her clients, who tend to be immigrants looking to settle here permanently, are waiting longer to make offers.

“A few months ago, people were thinking, ‘I have to get in right away,’ ” she said. “Now, they see there are lots of choices. And they are giving lowball bids. They want to have good bargains in this market.”

– from ‘Sky-high housing prices in Vancouver’s west side short-lived’, Frances Bula, Globe and Mail, 6 May 2012 [entire article reproduced here; not our normal practice, but we really could find anything we’d want to leave out. – ed.]

And so it begins.
We don’t see the described $3.35M sale of a house with a $4.5M ask price as being that big a deal, the $4.5M could have been unrealistic to start, and it’s far from hearing of homes being sold for 25% less than prior sales. But the fact that this “price drop” is announced in the G&M is likely important.
Once ‘falling prices’ becomes an established idea, this will self perpetuate.
Owners dependent on the value of their homes for future financial security will come to market, attempting to realize years of paper profits, now evaporating.
Buyers will either not qualify under the new scrutiny, or will simply sit on their hands.
Lower prices will beget still lower prices.
This is how price collapse starts, but it is only the very beginning.
There are now about 1000 SFHs for sale on the West side.
‘Supply and Demand’ can turn on a penny.
– vreaa

40 responses to “Getting To Know What We All ‘Knew’ – “I always thought that market was not sustainable. Every local person was juiced out of the market. The average household income on the west side doesn’t support those prices.”

    • Very nice.
      1934.

      In the 30’s, you could purchase a home in Vancouver for the equivalent of three years rent.
      We’re not expecting it to get back to those extremes, of course, but to meet somewhere sensible between 3 years and the current 35 to 50 years.

      • Paul Streppel

        1934 song reminds me of the exact Pluto-Uranus square of 1932-1934, (a period when these two planets experienced 5 exact square alignments). “There are two exact aspects in 2012 of Uranus square Pluto, the first on June 24, the second on September 19. These planets square each other within one degree orb from June 3 to October 10 2012. Those things we believe are related to this square have been manifesting for at least one year, such as the financial meltdowns…” darkstar.

        As for the cheapest prices for homes during the 1930’s, the best price data out there for cities, is Washington, DC. With prices reaching the bottom in 1935, also correlated with lowest national fertility rates at that time.

    • knewbie … where’s HAL?

  1. In 2008 when the prices were coming down, it started with the high end properties and condos. Although the prices did come down faster than this time, the interest rates were also higher. Prices went back up as interest rates went down. This time, rates will not slide, it’s garaunteed to go up. When, is the question. And with prices sliding as we speak, how is this market going to react with a hike in rates? That’s why Carney will slowly raise rates. It’s going to be a slow death for many as these rates creep up. The first rate hike (likely a .25%), the public will surely raise their eyebrows. The fear of paying more will settle in and the riots begin. After a .50% hike, prices crash. YES!!! It’s going to happen!! Fear will take over and YES, prices will tumble!

    • Renters Revenge

      This market will crash without rate hikes. Price growth has outstripped income growth. Interest rates going up just adds a nasty twist.

  2. Renters Revenge

    What happens to local incomes when this crash finally gets under way? Look out below!

    • There will, unfortunately, be lots of negative factors perpetuating each other.
      Virtuous cycle turns vicious.

    • Beyond Debt

      Its going to be brutal. I know way too many who owe their living, in some way, to residential real estate. Even more whose self-esteem depends on the rising price of their home. Truly, we can’t even begin to guess the losses on the downside.

      This isn’t 1981, when we had a more diverse economy and savings in our bank accounts.

      Its different this time 😦

  3. Told-you-so-in-2007

    “Banks are now requiring borrowers to disclose incomes and assets before mortgages are approved, as of the last six weeks,” said west-side realtor Marty Pospischil, ”

    Offshore borrowers didn’t have to disclose incomes and assets before six weeks ago? This is complete news to me.

    Cripes, I thought this market was probably hooped before, but now I’m certain of it.

    • That quote seems sort of blase to me, like “now they require income verification, so of course sales will slow down. It’s to be expected.”

      When in fact, this has huge implications for the quality of loans that have been extended over the last five plus years. It should be like a siren going off.

    • Renters Revenge

      Of course we didn’t have “subprime” in Canada.

      Heard that on the CBC just the other day – The Current with Anna Maria Tremonti – at 16:50 in the audio clip: http://www.cbc.ca/thecurrent/episode/2012/05/03/was-there-a-secret-canadian-banking-bailout/

    • Told-you-so-in-2007

      Further to my earlier comment, is anyone aware of what kind of down payment a bank would accept that would lead them to feel “secure” enough in the borrower that they would not bother to verify their current and future ability to repay the loan?

      • >20%, so that they didn’t need to bother with any pesky CMHC rules. Besides, real estate always goes up, so their income hardly matters, since the collateral (the RE) will rise anyway!

      • It’s more than 20%. Banks won’t lend at 80% LTV without a decent hedge in place. Foreign is usually higher because it’s difficult to access collateral.

        It will be interesting to see if there is more focus on income, not assets, going forward when approving loans. Taking a step back I would hope that the likes of OSFI should recognize that housing, especially of the type that is often rented, should produce a positive real return after all expenses are accounted for in and of itself, without supplements from other interests. When regulators see a situation where this is not the case, and the chances of re-using the property for higher uses is slim, they need to ask what the Sam Hill is going on. On that front showing a net income direct from the asset — not supplemented — at a reasonable leverage ratio, should be a test for longer-term sustainability.

        I doubt OSFI will get that detailed, but using primarily income sources and not asset values to judge a loan’s viability is better than nothing. BTW that would kill a lot of loans, or at least kick them up the risk curve substantially. Either way it’s not pretty for more than a few loans, and just wait until they start converting HELOCs into amortizing loans. Manoeuvre past that one.

  4. Thai-born Chinese Canuck

    So my friend in Kunming is right about Beijing’s even tighter rules to rein in “capital flight” of corrupt money to foreign countries, mainly Canada and Australia. The loophole is being closed from abroad. This is a win-win solution for both Canada and China itself. Both Canadians who have used their homes as ATMs and Mainland Chinese speculators would have to take a big hit from the deflating bubble but this is a healthy prescription in the long run.

    • It could well be Canada has been talking to China about ways they can “collaborate”.

      Australia… I think they’re starting to think they kinda sorta could use the money… carry on as they say, no more true than with the Aussie.

    • if blankfein bought a west-side house, how many would complain about corrupt foreign money?

      • Not me. I wouldn’t give him any indication 🙂

      • My former neighbour is the son of a successful machined parts manufacturer, at least that’s what he told me. So I thought I’d probe a bit, and it turns out the son knew a lot about machined parts.

  5. “We’re now seeing a 50-per-cent collapse rate in deals”

    Pesky subjects, it would so much easier if they just disappeared, comments the King.

  6. Can God create one realtor who does not speak out of both sides of their mouth? It’s so f-ing frustrating:

    Bob Rennie now: …the high-end house prices in west-side Vancouver were so out of line with the rest of the region and country that it was skewing people’s perceptions of real-estate increases,

    Bob Rennie 6 weeks ago: [to Bill Good] Foreign buyers are trading West Side house like baseball cards. It’s not for the local buyer any more. We’re a Resort City.

    And I like the way the Chinese realtor is included in the piece on the lack of Chinese buyers and then goes on to comment how her Chinese buyers are bidding on properties now.

    • “Chinese”
      I would put in a youtube clip of a horrifically hilarious Black Dynamite scene but it would probably be a bit too over the top, even for this crowd. Interested parties can look it up: “Why, Black Dynamite? Why?”

  7. All this will do is eventually prompt another increase. Buyers are on the fence waiting for depreciation. Rates and small bank limitations will not stop this market people. I would love to see prices come down but realistically were not there yet. Buyers are simply waiting to see how big of a drop the market will take. Once positioned they will grap deals and opportunities from those who leveraged. Can you say 2008-2009 again.

    Paul

    • any stats on these buyers?

    • what’s the buy signal with that strategy?

      • I guess it depends on the buyers formula. Once he feels his numbers are right he will start hunting for weak prey.

      • I like to use moving averages, the trick is to set the bandwidth properly. Also measurement of Vancouver house prices in ounces of gold gives a great indication of something. But, by far, my personal favourite is to draw straight lines on graphs of previous data. The only trick here is to know what lines to draw.

      • how strong is the center frequency? f0 ~ 1/yr?

    • Before this is all over those who bought in 2008-09 will be behind.

  8. What I noted most from this anecdote was the dissension in the realtor ranks, Pospischil pretty much called out Rennie as a huckster. These cracks tend to show when the existing system can’t be sustained. Enter the blame game.

  9. I went to an open house in Mackenzie Heights on Saturday and overheard the agent talking about offers being presented the next day. There was quite a few people looking, including some asians. It is an old timer, but was renovated and has a basement suite on a 33′ lot, asking 1.79 million. I then jaunted over to the ‘grand opening’ of Mackenzie Greene a townhouse project on the corner of Mackenzie and 33rd. Lots of glamour in the showsuite with drinks, food etc. One of the sales guys reminded me of Cam Good, very slick looking, and asking me questions to basically see if I was a buyer. Anyways these townhomes were minimum 1.1 million and they only had 3 of 10 units left when I got there. Still seems busy from my perspective. Having said that, coming from Calgary, I do feel there seems to be way more listings around town.

  10. I’m Asian and have been in Van 20 years. I have been working and saving to get a place, but it is out of my reach. Not every Asian is rich. Some are hard working people too.

    • It’s fairly common knowledge that Asians helped forge the gold rush into the Cariboo. Many stayed on. There’s a long history with a lot of legacy.

  11. “Last year, he says 90 per cent of his 100 house sales were to “offshore buyers” – people not living here yet, who flew in to buy.”

    Yet, according to most, foreign purchases make up just a small fraction of home purchases in the GVRD because “the statistics just aren’t available”. Maybe, just maybe, the realtors have and know the stats on foreign buyers.

    It’s about time the Canadian government did something about restricting foreign investment in Canadian real estate.

    • What if I told you that Realtors have compiled these data but aren’t sharing them. A perusal of the LTO data will indicate exactly who bought.

      The data are there, nobody wants to look at them or share them because they’re afraid it might require someone to do something about it.

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