‘Thoughtful, Well-Published Local Economist’: “The rats are leaving the ship. I am fairly confident this is what is going on. Can’t wait to pick up the wreckage…”

“Speculation is rife that Vancouver real estate is sliding down the drain.
Wondering, YatterMatters Tweeted this question: “With thousands of listings on the market why are Vancouver home sellers selling?
In what seemed like the mere passing of seconds came a response that wasn’t from a Vancouver home seller.
“The rats are leaving the ship” followed by this adjunct saying, “I am fairly confident this is (partly) what is going on. Can’t wait to pick up the wreckage…”
These words are bold! So bold that you begin to question if these words are representative of a current mind set for Vancouver home buyers. If so, what does this foretell current Vancouver home sellers and does this mind set explain ‘in part’ the limited number of Vancouver home sales?
My surprise at reading these words rests in the fact that I am acquainted with the respondent in real life. The words “can’t wait to pick up the wreckage” seemed at odds with the person whom I respect as a thoughtful, well published local economist. What I didn’t anticipate was the fierceness of their words carrying a tone of carnage. It was something I had not anticipated!”

Larry Yatkowsky, local realtor, at his blog ‘yattermatters.com’, 5 Jun 2012

The post at Larry’s site provoked good discussion. At one point Larry himself commented:
“In 1990 people were buying at about the same ratio as today but today they are not buying at 3.09%/5year rates versus 14% – WHY?
Is it job security, income/mortgage payment ratio, world economic balance, price difference, fear?
What am I missing?”

Some RE bulls imagine thousands of ‘thoughtful’, measured prospective buyers ready to line-up to buy Vancouver RE at 10% or 15% off.
In a similar vein, they can’t imagine thousands of upright owners deciding to sell at the same time. (“Why would they sell a depreciating asset?”, they ask.)
So, yeah, if you don’t really understand the dynamics of a bubble (fresh air between stratospheric prices and fundamental support far, far below), if a 15% pullback is the most you can imagine, you’re going to be a tad surprised with the effects of a deflating speculative mania.
Previously orderly demand/supply dynamics go ‘non-linear’.
Buyers sit on their hands (even those who thought they’d step in).
Sellers come to market (even those who didn’t previously think they’d be sellers!).
The crux is that the fantasy of ever-increasing home prices leaves the building, and that changes everything.
– vreaa

62 responses to “‘Thoughtful, Well-Published Local Economist’: “The rats are leaving the ship. I am fairly confident this is what is going on. Can’t wait to pick up the wreckage…”

  1. Renters Revenge

    Pay back – for all that smug swarminess exuded by home debtors who thought they were financial geniuses because their moss covered crack-shack tripled in value.

    • Renters Revenge

      By the way, I am under no illusions that anyone will really be satisfied with picking up the wreckage. Everyone will get burned, even vengeful renters.

      • You are so right, Renters Revenge. We will all be casualties.

      • Vengeful renters can easily leave!

      • What about VengefulLibrarians!?

        [NoteToEd: 😉 ]

      • Doomcouver

        I agree. Construction, real estate, and banking are such a huge part of our GDP if the market tanks, I don’t think anyone will make it out unscathed. If RE bears think they can easily swoop in after the crash, I think they’ll find it tough to lever up on real estate when they’ve had their salary slashed, or have been laid off. I think renters will weather the storm a little better than most, but the bubble popping will almost surely trigger a very nasty recession that affects everyone.

      • Ralph Cramdown

        Who said anything about levering up? About half the transactions in the US right now are for cash.

      • Some of the 1%ers will likely make out like bandits — as usual. They’ll pick up real estate on the bottom of the next cycle while we all scratch our heads, wondering how they did it. The rest of us however, will be in the $hits.

        Wealth, for the most part, is never truly destroyed, but merely transferred. I think Vancouver will have the unique distinction of having the biggest “pop” in Canada.

        I wasn’t always gloomy with my outlook BTW, I used to get want to get into real estate while I watched alot of people get rich(er), but I was just a broke ass kid back then without nearly enough money to have a dp on a small house.

        But things have changed since 10 years ago, and I think the pendulum is beginning to swing the other way. RE overall in Canada isn’t currently a good deal. I have to agree with Marc Faber on this one. People think that what happened in Ireland, Portugal, Spain, Italy, US, Finland, and now China and Australia Can’t happen here.

        I just think that we’re further behind the curve and may have a more stable currency, but the debt is still there. As things unwind in the Euro Zone and then further affect USA and the UK, we’ll be affected in turn and will feel the RE downwave.

        I see it all as one big grand cycle. I think it might have something to do with the “Creative destruction” that Bernanke talked about. You have to do away with the old debt to bring in the new debt, and new growth. That means big time monetary contraction, and deflation.

      • Doomcouver

        You guys are probably right. Plus I can imagine that when the bad debts start hitting the banks balance sheets, qualifying for a mortgage, or getting a decent interest rate will be way more difficult.

      • Doomcouver: “If RE bears think they can easily swoop in after the crash, I think they’ll find it tough to lever up on real estate when they’ve had their salary slashed, or have been laid off.”

        The distinction between RE bulls and bears is orthogonal to whether one’s career is pro-cyclical or counter-cyclical.

        For instance, perhaps I’m a RE bear but also a bankruptcy lawyer. In which case, I would expect to see business booming after the crash.

  2. unlike the us, i think most people here and in canada do understand it is a bubble … the means were provided and they just choose/chose to take the risks anyway … that is how things are different from the us or europe … and if true, one would expect it to unravel more quickly … anyway, so far that appears to be the chinese experience

  3. who the tweeter?

    • Renters Revenge

      Anke Kessler
      @askessler

      • two things we now know for certain about AnkeKessler. She’s a renter. She’s no longer respected

      • f1, i’m not respected and it’s why i rent

      • C’mon F1. You can be more controversial than that.

      • f1 -> “two things we now know for certain about AnkeKessler. She’s a renter. She’s no longer respected”

        Please elaborate. Surely you’re not suggesting that because she’s a renter she “is no longer respected”? Pray tell.

      • an economist is like a journalist in that they need to keep professional impartiality. We know that Kessler has a vested interest in what she is reporting. Thus, no more professional integrity. It has nothing to do with renting.

      • 4SlicesofCheese

        Much like Tsur, Cameron, and Bob right?
        When was the last time you came out when they were in a story and state they have no credibility.

      • Much like Tsur, Cameron, and Bob right?

        they don’t use words like “rats” and “wreckage”

        Kessler position is an emotional one. The comment is very unprofessional and casts doubt on whether she can report impartially.

      • You’re not seriously trying to suggest that Muir and Rennie are impartially reporting on the market are you?! Only a lunatic would think that (and I don’t think you are that F1). They are paid to pump the market which is exactly what they do. Tsur on the other hand is a media whore who simply likes to get quoted.

        The fact that Anke Kessler allowed her personal bias to enter the public domain is perhaps a little unfortunate but consider the medium and the message…it’s not like she published this in a peer reviewed journal and it’s not like she’s tweeting about her latest research.

        I certainly don’t find I’ve suddenly developed a lack of respect for her academic prowess. Others might feel differently of course but I don’t imagine she much cares what mortgage brokers or realtors think of her.

      • Why do people even respond to f1? He is a [expletive deleted -ed.] troll.

      • 4SlicesofCheese

        Sorry f1, twitter comments cannot be held up to the same scrutiny as staged, prepared statements on news stories.

      • “Rats” and “wreckage” are used metaphorically.
        Like “balloon”, or “frothy”, or “weathering storms”, or “recipe” for higher prices, or “your glass is half empty”, or “too many ingredients in the Vancouver house price soup to determine where the dominant flavour comes from”.

      • Renters Revenge

        formula1 why do you post here?

      • feisty twitter feed – quite political, but everyone has a right to a political opinion

  4. When I hear of hand-wringing either on the upside or the downside, my inner voice keeps telling me, “This guy wants something for nothing.”

    Hey, nothing wrong with that — our economy grows by making smart decisions and none better than buying low — but it does give me paws.

  5. Great commentary Vreaa. I wonder if a “tad surprised” includes the reaction of all the people who might honestly feel suicidal once the real forces of the decline set in.

    Honestly, I think this correction is going to be bitter and very long and a real financial shock awaits those who are in denial that Vancouver can have a hard landing.

    The well is going to run dry soon and the Boomers who are supporting this idiocy will not be able to help their children anymore. They will be very lucky to dig themselves out of the quicksand of debt as the price of homes finally goes under.

    Do they not understand that it is real estate that is holding up real estate?

    Can they not see that property and equity are the insidious fountain of wealth to sustain more of the same? Don’t they know that the wealth effect garnered by low interest rates and vast overnight increases in paper equity can vanish FASTER than it came on the scene?

    When prices fall (as they are already doing), this well will quickly run dry.

  6. I am not sure I conveyed my idea very well in the prior post.

    What I was trying to say was that the major leg of support for Vancouver’s current home prices is the artificial equity generated by the bullish sales activity we have seen to date. The fact of rising prices means that equity has grown which is being revolved into further speculation. So it is only price growth that is giving confidence for propelling further upward momentum. Little else sustains this market (aside from ignorance and false beliefs and faith in Unicorns).

    Take that away and the emperor has no clothes.

    As you wisely noted Vreaa, there is nothing but thin air between here and real support once the decline begins in earnest. I think it is going to be a bloodbath and plenty of foreign investors who speculated with little down will get badly burned.

    Now we can all say a little prayer for them.

    • Hehe. No prayer from me. Burn, baby, burn.

      Interesting comments now over at thirties grind:

      http://thethirtiesgrind.com/2012/06/07/absurd-vancouver-property-of-the-week-june-7-2012/

      The brainwashed “BPOE” drones/realtors are definitely chiming in. One poster sounds suspiciously Cam Good-like, all “Enjoy your life” in the “best place on earth.” Of course, some of us continue to spew our unrelenting message of doom. 🙂

    • Agreed, Farmer.

      One of the almost innumerable interesting facets to the spec mania is how many people talk casually about a bubble without really, really understanding what it means if a bubble does indeed exist.
      We see it in newscasters and RE insiders and other commentators who, at this late stage of the cycle imply we don’t want prices to go up a bit more “or we’ll have a bubble”; or in those who say “we had a bubble, but it popped in 2008”; or various other superficial mentions. Most are along the “wouldn’t want one of those peaky bubble” lines.
      They don’t understand how massive the dynamic is that creates a RE bubble, and how big the reverse process has to be (needs to be; inevitably is) to eradicate the speculative component. So they see those of us predicting 2001-2002 prices as complete lunatics… “The thought of 40% off is farcical” (etc).

      • So true. I know you are one of those who really senses the coming carnage from gut level intuition. You need that to gather a real sense of how much danger is present. The facts, the data and the hard evidence just back up the case but for those others who cannot grasp this for what it really is leads me to believe they live lives of denial and self interest. I just cannot fathom why most are blind to what is coming except that their human nature dictates for a sunnier outlook and deprives them of the clear view into the future.

      • I suspect the crucial variable is experience in other markets.
        Anybody who has closely watched a market in which they are participating, and then seen it implode, knows (really knows) how prices can attain irrational levels both on the upside and the down, and how fickle participant sentiment can be.
        If you haven’t actually been a part of that happening, it’s hard to imagine what it’s like, or to even imagine that it’s possible. Sure, you hear tell of it, but it’s all academic and far away until you’re actually on the ride yourself (up or down; short or long).

      • Pretzels...thirsty

        Good thread VREAA and Farmer

        It is amazing how people making 60-70K per year talk about money as if if they are playing Monopoly. It is surreal when people talk about million plus as 1.2..1.3..with a smug expression to boot.

  7. recall figure being $25B-ish just a couple weeks ago and less than that initially … i.e. will use xerox in lieu of tough choices – always … the political apparatus cannot bridge the large gaps that have opened up; so this will only end in some form of collapse … leadership has no solutions and can’t even understand the pb

    BRUSSELS—Euro-zone finance ministers were discussing a commitment to provide as much as €100 billion ($125 billion) in support for Spain’s ailing banking sector Saturday, an official from a euro-zone country said, as the currency union hustles to contain its worsening financial crisis.
    http://tinyurl.com/6va86yg

    • It really does look like everything is heading towards bail-outs rather than break-ups, doesn’t it?
      So, at some point, inflation will strike (but still down the road a year or two or three, IMHO).
      Vanc RE will still deflate, but those on the sidelines who also ensure they are hedged against inflation will likely do even better than those purely in cash.

  8. One of the best examples of a real estate bubble in recent times is Japan. For the most part, they didn’t see it coming. Harry Dent Jr and other demographics did see it coming, correlating the mania to the massive population explosion in Japan during the 1930-1945 period. (it ended abruptly with the nuclear annihilation of HIroshimo)

    A 45 year cycle is heavily in ‘play’ today. I spend a few minutes every week looking at the political and economic action in 1967 to get a feel for where we are today. I want to better understand where the bombs are in Canada. Two bills back in mid 60’s had a significant effect on birth rates, i’ve mentioned them before, Trudeau’s Criminal Law Amendment Act and Hellyer’s Canadian Forces Reorganization Bill.

    Another topic worth studying because of the HAM influence, is China’s 1966-1969 Cultural Revolution.

    And I look at the ‘stars’, as they are the standard bearer.

  9. 4SlicesofCheese

    Super bearish clip from BNN

    http://watch.bnn.ca/#clip695408

    • 4Slices -> Thank you, thank you, thank you.
      Great clip; this guy totally gets it.
      I’ll headline it with excerpts.
      (paraphrasing) “If you google ‘boom and bust’ you get thousands of hits, if you google ‘boom’ and ‘soft landing’ … there are none.” (Spot on!)

    • Excellent clip, Cheese. It is about time someone representing the investment community started talking publicly about the real risks we face. The silence from most has been overwhelming to date but of course it is the rare person who might be willing to stake his reputation on such a negative prognosis even when it is truthful!

      In the background many are making changes to how and what they invest in even if they don’t speak up publicly. I would agree there is hazard for our banks and that share prices will fall as the deflation in homes commences. Fortunately our banks have done work to diversify away from this economy and are now in the process of digging for alternative revenue streams. They are certainly not immune to posting some ugly quarterly numbers though. Another ace up our sleeve here is that Federal finances are steadily improving and steps are being taken to brace against some of the coming headwinds.

      There are going to be some tough years ahead but I still remain generally optimistic we will get through it as the economy is still diversified enough to offset some of the problems faced by our trading partners. Where I am not optimistic is for the outcome of a few specific real estate markets that look to be headed for an ugly meeting with the reality excessive debt.

    • They’re saying the QC immigrant loophole has been boarded up. Hadn’t heard much on that. Eeeenteresting… it looks like the little outpost on the left coast is raising eyebrows back east.

  10. Er, if the comments really are those of Prof Kessler at SFU, then it looks like she isn’t a renter…..otherwise why would she be on Larry’s homepage thanking him for his help as her realtor?

    http://www.yattermatters.com/about/what-people-say/

    “Your friendly yet competent approach was reassuring every step of the way. You certainly went the extra mile in helping us with our difficult search in this booming real estate market. You never pushed us into a decision we weren’t ready for . We always felt that we could make our choice using our criteria and judgment, nevertheless having your professional support both before and after our decision.

    You were incredibly helpful and understanding through the entire process, and we would not hesitate to recommend you to anybody we know. You started out as our Realtor and ended up as a friend.

    Prof. Anke S. Kessler –
    Prof. Christoph Luelfesmann”

  11. All this talk of Eurocrat sh!tshows is getting me down. Here’s an uplifting anecdote that will leave us feeling suitably unfulfilled.

    Was at a family friend’s birthday party tonight, she is heavily invested in 2 properties in Vancouver. She invited her tenants (4 of them) to the party. One brought a cake from the upscale bakery she works in, another who lives in her basement — she walks the dog and tends to the garden — made a few dishes as well.

    One thing that always got me about Vancouver is how cold it is; not just the summer weather but the neighbourhoods, at least compared to other Canadian cities in which I’ve lived. This party tonight shows me how co-habitation, even with the asymmetric business arrangement inherent in tenant-landlord contracts, can produce wonderful relationships in an otherwise individualistic cityscape. Maybe this basement suite thingy isn’t such a curse after all.

    Epilogue
    I was reading on twitter about some guy complaining how one of his neighbour’s lawns remained uncut and whether he should call the City for “someone” to do something about it. I was thinking to myself, why not just f*cking mow it and invite them for tea next time they’re in town.

    • It might not be the best thing to tend, unpaid and unrequested, to your neighbours property. You could be charged with trespassing, and may not have access to the entire lawn. A wildly growing lawn behind a fence can spread weeds pollen like wildfire.

      A property that hasn’t been been mown all Spring (it is now mid-June!!!) is not a case of someone who got just a bit behind on their chores. The grass must be a few feet high.

      Probably an absentee investor who doesn’t deserve anyone’s help. Sometimes calling city hall is the best way to deal with such leaches.

      • Personally I’d mow the area in front of the fence.

        I heard the same complaints almost exactly 20 years ago.

      • Personally, I don’t believe in lawnmowers or trimmed grass. What a waste of time. Bad for the environment too and wastes water. I won’t likely get my way but I would outlaw front lawns altogether……right along with banning the chemicals used to put dandelions to sleep.

      • Farmer, I take it you don’t have hayfever 🙂 The problem isn’t the unsightliness but the clouds of pollen that come from an untended lawn. This is inconsiderate to neighbours (allergies, spreading weeds and grass). If people don’t they like or agree with tending lawns, then there are many other things they do with their property (rock gardens etc.).

      • Jesse, we are seeing more unkempt properties as the bubble bursts IMHO.

      • You are correct Zeb. I don’t suffer Hayfever. Maybe I am thoughtless but I am a birds and bees kind of guy and I believe in giving Mother Nature a break. Too much effort is spent by people trying to control the natural world instead of just embracing it and accepting the weediness of reality. Everyone wants trimmed grass but almost nobody ever plants a damn tree even though we will each personally be responsible for having consumed many hundreds in our lifetime. From newspapers to toilet paper to construction materials……there is endless consumption and most of it is just wasted for nothing. Then off we go stinkin up town with oily polluting gas mowers, spraying the hell out of everything that lives that we think is objectionable and trying to be like God …….but don’t get me going. The world is too full of ignorance about everything (not just real estate) and it is impossible to fight it all. Like I said in another post, it is my belief we are all going off a cliff together anyway. We are headed for an Easter Island moment and just about nobody can see it. We have to start using our heads to think before it is too late. Social collapse is not out of the question and silly little things like lawns that endlessly waste resources and hurt the natural environment actually matter. It is just if you talk about it out loud you are crazy. Nobody seems to see where this is all headed. Perhaps a depression is a good thing. If we don’t have the money or resources to keep up the chronic pretensions we can all relax and get back to basics……like farming.

  12. “Too much effort is spent by people trying to control the natural world instead of just embracing it and accepting the weediness of reality.”

    But these weeds and grasses are alien species to Vancouver (I believe _all_of them are). I’d be mightily impressed if someone had a wildly growing garden of indigenous flora. 🙂

  13. Have you been to Arthur Erickson’s house yet? Gardens are incredible..
    http://www.ericksongarden.org/aboutfoundation.html

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