Monthly Archives: June 2012

“It’s not easy to get out of the market… but we just did that. Such a feeling of relief. Housing as a speculation is over with for me.”

“It’s not easy to get out of the market… but we just did that, and last week got the check. House is sold, money in the bank, and we rent now for about 70% of what it would cost us to own that house. Better rentals out there, but this one is exactly where we need to live.
Such a feeling of relief, after 8 months of having the house listed, and a gazillion people tromping through, 2 offers that collapsed, 5 price decreases, two listing changes… and then that magical first time home buyer who liked how new the house was! (Thanks B.C. for the tax break to first time home buyers)
Housing as a speculation is over with for me.”

Trader at greaterfool.ca 3 Jun 2012 8:54pm [hat-tip RE Lurker]

David Lepoidevin on BNN – “Yes, there is a Canadian housing bubble; The numbers don’t lie; We’re beginning to see cracks coming from my home town, Vancouver; If you do an Internet search for ‘boom’ and ‘soft landing’ there are no entries.”

“Where we are concerned is regarding the value of Canadian real estate. The lessons from the world have been that real estate has had greater implications than just the value of your investment properties.”

“In Canada if you look at the actual numbers, the numbers don’t lie. If you look at median real estate prices compared with those in the US, at their peak the median US housing price was $265,000. Today in Canada, the latest figures we have is $375,000 for the median real estate price transaction. So therefore we are 42% higher in Canada today that the US was at the peak. And we’re [about twice] the median price in the US today.”

“Many of the banks are more exposed [to the mortgage market] than they have ever been. CIBC has 50% of their loans in real estate. When we got into trouble in the early 1990’s, the average Canadian bank was about 13% exposed to RE, and we know we got into a heap of trouble then [with overexposed institutions].”

“The Canadian bubble has extended far beyond the US bubble. We’re beginning to see cracks in the system and the cracks are coming from my home town which is Vancouver, which may have been the epicenter of the bubble. A stand-alone house in Vancouver was over $1 million and still is over $1 million.
Reports are coming in that Asian money is slowing to a trickle. [Real estate prices in China are dropping.] The frenzy had spilled over into Vancouver almost as a suburb of China. [The money has stopped because the Chinese real estate market has slowed but also because the investor immigrant program has ‘shutdown’.”

“If we look at the percentage of jobs in actual construction (this isn’t realtors this is actually guys swinging hammers) … we can see that Canada, the red line, is way above not only where the US is today, but we are significantly higher at 7.5% compared with 5.5% in the US at their peak.”

“So we need to define whether there is a bubble and what I’m trying to point out to people is, yes, there is a bubble.”

“The myth in Canada is that real estate cannot go down unless there is a spike in interest rates. In the United States interest rates of 2% lower than they were when housing prices will almost double what they are today. So it wasn’t a spike in rates that caused house prices to go down it was a reduction in the availability of credit, tightening credit. We now have the first Canadian majority government we’ve had in 8 years and they are beginning to put the brakes on.”

“If we did an Internet search for ‘boom and bust’ you will find hundreds of examples in history, in various economies, of boom bust cycles. If you do an Internet search for ‘boom’ and ‘soft landing’ there are no entries. There are none. ‘Soft landing’ are the scariest words in investment history because they don’t happen. We are trying to engineer a soft landing in real estate just as the Chinese are. The NASDAQ bubble, the US housing bubble,The Canadian housing bubble… You will not find a soft landing.”

– excerpts from BNN interview with David Lepoidevin, VP & Portfolio Manager, Lepoidevin Group, 8 Jun 2012 [Hat-tip to 4SlicesofCheese]

Regular readers will recognize David Lepoidevin’s opinion as being very similar to our own:
– “Yes, there is a Canadian housing bubble.”
– The numbers show our bubble to be very large: comparable to that of the US, perhaps worse.
– Interest rates do not have to rise for the bubble to implode.
– It is not possible to orchestrate a soft-landing.
– The economic implications of the deflating bubble will be unfortunately broad, reaching beyond the immediate RE effects.
— vreaa

“An unemployed chef, with his unemployed wife, carrying 850k of debt over 2 un-sold properties.”

“How about an unemployed chef with his unemployed wife and carrying 850k of debt over 2 un-sold properties. They are making payments with a line of credit. He sat down with my wife over coffee and she said he looked really depressed. He is wondering why the media still says the market is balanced when clearly it has collapsed”
Pat at VREAA 4 Jun 2012 8:35am

“I recently left Vancouver with my family, we sold our house and moved to the island. If we had stayed we would have had a mortgage for 20 more years, pouring all our extra money and time into our house.”

“I recently left Vancouver with my family, we sold our house (Feb 2012) and moved to the island. We were in Vancouver for 11 years and both our kids were born there. We traded our large mortgage on our old house (we did a ton of work on it but it still needed about a 200k reno on it) for a brand new house with a mortgage that will be paid off in one year (it also has a rental suite). You would not believe the amount of stress that has been removed from our life. There is no more stress as what would happen if one of us lost our job or don’t make bonus one year. My wife and I will be 42 and mortgage free, time to travel with our kids, save for retirement and RESP’s. If we had stayed in Vancouver we would have had a mortgage for 20 more years, pouring all our extra money and time into our house just so that we can live in Vancouver? Its just not worth having that debt hanging over our head for the next 20 years just to live in Vancouver, Vancouver isn’t that great. I don’t get why someone who has 1 million to 2 million in equity (paper equity???) would not sell and leave Vancouver. I understand for some people its not possible, but take a look around the rest of the world, real estate does not always go up, and no its not different in Vancouver. People work their whole lives and don’t make that kind of money especially after tax. You could put that amount of money in a diversified portfolio of dividend stocks and make $50,000 a year in income or more. Take the money and run… run away and live a life with less stress, more travel, discretionary income and a more secure future. Just my two cents worth, but its coming from someone who has done it and has never been happier. If one day I begin to miss what Vancouver has to offer I will go over for a weekend and stay at the Pan Pacific…guess what I can afford it now!!!”
‘debt free = stress free’ at VREAA 5 Jun 2012 9:59am

All You Need Is Love – “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.”

“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.”

jesse at VREAA 10 Jun 2012 12:02am

Imagine all the people, living for today. You may think I’m a dreamer, but I’m not the only one. I hope someday you’ll join us, and the world can live as one.
Seriously. Why not?
Perspective, people.
(At the same time, we have to deal with this.)
– vreaa

A Vancouver RE Bear Unashamedly Anticipates Schadenfreude – “I do want this correction to happen. I don’t give a rat’s ass about the families who will lose their houses, or the investors that will lose their rental properties, or the carpenter who will lose his window framing job.”

“I’ve been renting for a while, I have no debt, bunch of money saved and invested in a pretty diversified portfolio, and I’m extremely happy with my current job. Could’ve bought, like many others did… I mean rented from the bank, but I didn’t. For some reason, as opposed to the grand majority, I’m still scared shitless of debt, I hate owing money, and just couldn’t wrap my head around the idea of being tied to a loan for 20+ years. It’s kinda hard to explain to the average Joe why Lucy the hair dresser lives in a 750K McMansion, while Mike Hunt the engineer “hasn’t been able” to do it. I do want this correction to happen. I don’t give a rat’s ass about the families who will lose their houses, or the investors that will lose their rental properties, or the carpenter who will lose his window framing job. Many relatives and close friends have done the 5/35 or 5/30 deal. They’re responsible adults who signed the dotted line and now have to live up with the consequences. Yes I’ll be affected too… but you know what… I don’t care. Higher taxes, zombie economy, unemployment, doom & gloom, financial crisis, ..whatever. At least I won’t have an underwater mortgage. Man that’s one scary thought. I’m ready. I got my shorts for when the tide recedes. Schadenfreude.”
Mike Hunt at VREAA 6 Jun 2012 1:08am

‘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

30s Grind #6 – “I grew up here and recently moved back after having lived in NYC for 5 years. Vancouver is not a world class city which begs the question how prices are ridiculously expensive here.”

“I grew up in Vancouver and recently moved back from having lived in NYC for 5 years. By comparison, Vancouver is not a world class city which begs the question how prices are ridiculously expensive here. Real estate prices in world class cities are high due to their being international business and cultural centres where the residents get paid high salaries and the rich foreign investors from ALL parts of the globe keep the property prices high in a city where they want a piece of the action, know that housing prices will very very likely go up over time and the demand for real estate will always outweigh supply because it’s the IT place to be. (Even in NY after the 2008 debt crisis housing prices dropped a mere 15% initially and are now back up – it’s a resilient market due the make up of the purchasers drawn to the city itself). In comparison, Vancouver isn’t the heart of a ton of action, has a small business and cultural centre even compared to other Canadian cities, and the majority of foreign money is Asian or probably grow-op money – so it’s likely that once the economy in Asia softens or drugs become legalized, the price of property in Vancouver will fall as Vancouver’s small business and culture scenes couldn’t and (probably, at present, doesn’t) attract the masses with money from elsewhere otherwise. Quick question, i find greater Vancouver and the burbs to be an endless massive residential sprawl – what jobs are everyone doing? Am i missing something? Is everyone reverse commuting for work? ‘Cause the downtown is teeny weeny in comparison.”
Anon at thethirtiesgrind 8 Jun 2012 7:25pm

30s Grind #5 – “We own a house in Vancouver partly because we got into the market elsewhere about ten years ago & leveraged our way up to a house (with basement suites).”

“We own a house in Vancouver partly because we got into the market elsewhere about ten years ago & leveraged our way up to a house (with basement suites). However, another big reason we can afford to live where we do is that we have a frugal lifestyle: no expectations of a huge house with a designer kitchen & a bathroom per person; we don’t buy a lot of electronics & other consumer goods or eat out at expensive restaurants; plus, we have no car–bikes, walking, bus & Modo are all really easy in East Van. We do spend more money that some people might on some things–we eat mainly organic food (I actually shop at ‘Whole Paycheque’ every few weeks), we go out for coffee/lunch/dinner fairly regularly at cheaper places & we enjoy our craft beer; we take trips in BC a few times a year & to Europe every few years.”
Lisa C at thethirtiesgrind.com 1 Jun 2012 2:23pm

This couple are playing the role of building superintendents in their own home, overseeing their tenants in the basement suites (plural, note). Would they choose to purchase a rooming house if they knew that prices will remain static in real terms (rise with headline inflation, currently at about 1-2% pa), or possibly even drop?  We don’t think they would have seen it as worth their trouble: They are speculating that future housing price gains will make it all worthwhile.
– vreaa

30s Grind #4 – “We bought about 10 years ago and took about 9 years to renovate. It is now worth over a mil at least. We make about 85k combined. We struggle most months to pay the bills.”

“We live in Vancouver I work full time, he works part time so that he can manage more of the house stuff, kids etc. We bought about 10 years ago and took about 9 years to renovate (we did most of the renos.. Blood, sweat and tears) It is now worth over a mil at least… We make about 85k (total combined salaries). We struggle most months to pay the bills. There are no extras, vacations, dinners out, babysitters etc. We are so careful with our $$ and it boggles our minds how most families (parents have regular jobs… Nurse, firefighter, teacher, med tech etc) in our circle take exotic vacations, shop at Whole Paycheck, drive expensive cars and have huge mortgages (the bigger the mortgage, the more exotic vacation it seems). We assume that they have parents with deep pockets… We can’t imagine they live off credit..heck these are educated people… Wtf??”
Sandy at thethirtiesgrind.com 31 May 2012 8:17pm

Question: How long would it take this couple to save “over $1M”, after tax? A lifetime? Two?
That was a mental exercise to show how disproportionate the run-up in home prices has been compared with real actual money that people are capable of earning and saving.
If this couple do not realize their paper profits by selling, there is an extremely high chance they will be talking about this missed opportunity for the rest of their lives.
– vreaa

30s Grind #3 – “The only way we can afford our house is because it’s our third residence since 1997, and we’ve made good money on each sale.”

“My spouse and I earn about $225K/annually. We live and work in Richmond, our house would sell for about $1.2M (it’s a nice, newer house with a good-sized yard). We are early 40s. We are paying on a $450K mortgage locked in till 2017 at a low interest rate. We contribute to our own RRSPs, but are also relying on husband’s awesome pension plan (we know he is lucky). Most of his income goes towards the mortgage and other “big” expenses (his new leased car, the insurances on house and car, and property tax). I pay for most everything else – clothing, food, household bills, personal cell phone, kid’s activities (hockey is NOT cheap!). Our second car is 7 years old and completely paid for. The only way we can afford our house is because it’s our third residence since 1997, and we’ve made good money on each sale. We do not get any money from our parents or any other family members. But, we do have grandparents who do our after-school childcare, which allows us both to hold full-time jobs without having to pay for daycare (we support them financially in other ways but we don’t actually pay for their babysitting). I shop at big-name grocery stores like Save-On and Safeway and rarely at Costco (mostly because I can’t stand shopping at Costco….). We have a pet who costs me $40/month in pet insurance, and even more in prescription dog food (sensitive stomach). We rarely travel for work, so we have to pay for our flights for when we flight for our vacation. We fly across the country every 2 years for vacation and that costs us about $7,000-$8,000 for two weeks (accomodation, flights, and car rental). Alternate years, we only spend $3,000 on vacation. We keep our credit debt (outside our mortage and leased vehicle) under $5,000 and use a line of credit instead of credit cards. Overall, I think we live modestly and we’ve never gone to Disneyland or Hawaii, much to the chagrin of our children. I guess that’s how we afford to live in the Lower Mainland.”
Anon at thethirtiesgrind.com 29 May 2012 9:04am

House value $1.2M – Mortgage $450K = Home equity $750K
50% price drop scenario:
House value $600K – Mortgage $450K = Home equity $150K
Leverage works both ways, and even those with apparently robust low-ratio mortgage set-ups are vulnerable when a bubble pops. These guys would lose 80% of their equity with a 50% collapse.

With each move up, this couple’s market exposure has increased. Many who accumulated paper equity through the bubble will give it all back in the coming collapse.
– vreaa

30s Grind #2 – “I lived in Kits for many years and it was very hard to let go of the dream of staying in Vancouver as I got older. The people who are living in debt to stay there need to think hard about it.”

“I lived in Kits for many years and it was very hard to let go of the dream of staying in Vancouver as I got older. I think at some point the people who are leveraging their futures in debt to stay there need to think long and hard about it. Vancouver is wonderful, but so is having a back yard for your kids, a savings and retirement account, and the ability to splurge (without debt) on trips, fancy shoes, restaurants and anything else you can think of that makes life enjoyable for you and your family.
It was hard to let go of Vancouver but now that I have kids I realize the things I enjoyed doing in the city would be nearly impossible with young kids anyway. My husband and I get the grandparents to babysit once in a while for the night and we spend a night in the city in a fancy hotel. I honestly gain more enjoyment from Vancouver that way than I ever did living here because I know I have to soak it all in!
I thought I’d be devastated to leave but it’s really been fine. I view Vancouver now as a place for only the very wealthy or the very young who are OK to live in 500 sqf.
FWIW, Fort Langley is an awesome place to live too! It really doesn’t have to be all or nothing where Vancouver is concerned.”
Em at thethirtiesgrind.com 29 May 2012 12:25pm

30s Grind #1 – Sorry to freak everyone out, but I am not sure who can live and own in Vancouver unless you make at least 500 G’s+ a year.”

A post from Melissa Carr’s local blog, ‘The Thirties Grind‘, was recently headlined here: (“Are we all lying to each other? How the f*%#k are people affording to live in Vancouver?”, VREAA 4 Jun 2012). Various archive-worthy anecdotes appeared in the comment section at ‘the grind’, and we’ll headline and save them as a series here.
– vreaa

“My guy & I are both almost 48 and living in Vancouver. We make great $$ and still find it hard to get by. Everything we make goes into our lifestyle which means a 1300 sq. foot home we RENT in Kits, 2 great vehicles (Lexus SUV and BMW 328i) that are not excessively “fancy” schmancy, 2 vintage cars that are sentimental, a vacation home in Palm Springs, which is fully paid for, and 2 sweet senior Bichon Frise dogs who have their own set of expenditures…I do not think for a minute our lifestyle is over the top and we have RRSP’s but not nearly enough to retire on…I have not really ever saved and for the life of me I worry all the time about money!!!! Sorry to freak everyone out, but I am not sure who can live and own in Vancouver unless you make at least 500 G’s+ a year.”
TP at thethirtiesgrind.com 29 May 2012 3:15pm

“From my field of cronies I can state that most don’t have defined pensions anymore and are expecting to live off “their equity”, as most of them put it.”

“As an aging individual I feel I can make a purely anecdotal comment on “boomers moving to Vancouver”. From my (limited) field of cronies I can state that most don’t have defined pensions anymore and are expecting to live off “their equity” as most of them put it. The ones that have loaned or gifted their adult children down payment money tend to regret it since that is money that will never be available for lifestyle needs of mom and dad. No one is moving to Vancouver to downsize – they may be moving down here for access to better medical care but that’s about it. As well, many boomers have had to look after their own adult parents and have discovered that elder care is extremely expensive, even getting a part-time caregiver in to help with chores runs about $20.00 per hour. The other fly-in-the-ointment is that many of the boomers parents did downsize and stay in Vancouver so one generation back the family home was sold, mom and dad moved into either an apartment or facility so there is very little equity left to leave to boomer parents, who in turn, will have little left to leave to their children.”
Observer at VREAA 5 Jun 2012 7:57am

“I can add that both my inlaws and a friend’s Boomer parents cared for their elderly family using sales of “the family home” on the West Side of Vancouver. Both are retiring away from Vancouver, because Vancouver is too bloomin’ expensive. My mother will also retire away from Vancouver.”
Absinthe at VREAA 5 Jun 2012 1:13pm

“My Confession: Bought a house in 2003, around $400K on the East side. Sold in 2005 for around $600K. Thought I did great. Now that same house is probably valued around $1.1-1.2M.”

“OK here’s my confession:
Bought a house in 2003. around $400K in the East side. Sold in 2005 due to personal reasons, for around $600K. Thought I did great.
Thought I will wait out the house market because it is too overvalued. Still waiting. Now that same house is probably valued around $1.1-1.2M.
I still believe it will crash, been following this blog and others for ages. But so far no luck. Been waiting 7 years. Very tough with all the friends and family saying I’m stupid.
However, renting a beautiful house on the west side in a neighbourhood I could never afford to buy in, so life is good overall. Actually living in a house nicer than all my friends and family for the monthly cost of a mortgage on a crack shack in east van.
So not feeling too bad actually! Still looking forward to the crash… hope it happens this year.”

popgoesthebubble at VCI 1 Jun 2012 7:53pm

It’s tough being a bear in a speculative mania.
The crash will be a ‘process’. It certainly won’t happen in a single year.
– vreaa

“A friend of mine listed his place in Kits for $1.7M. No offers. Dropped the price $100K, still no offers. Withdrew the listing. People aren’t getting the prices they think they deserve.”

“A friend of mine listed his place in Kits for $1.7M. No offers. Dropped the price $100K, still no offers. They withdrew the listing and decided to stay put. That is probably happening in many cases, as people aren’t getting the prices they think they deserve.”
popgoesthebubble at VCI 1 Jun 2012 6:44pm

A common occurrence at this point in the cycle; part of the ‘sticky prices’ phenomenon. Many of these sellers will end up putting their properties back on the market at 10%, 20%, 30% below current prices. Represents one component of the ‘shadow inventory’ waiting in the wings.
The market doesn’t believe that anybody ‘deserves’ anything.
– vreaa

Bear Exhausted By Tenacious Bullishness – “Over the long term real estate never goes down besides there is so much money coming over here.”

“Talking to a colleague. Her and her brother were looking at places in my neighborhood last night. He sold his place in the sticks and is now looking to move closer to the city. I asked her why doesn’t he just rent, “he feels that interest rates are going to rise and he wants to lock in a low rate.” Wouldn’t it better to sock away the money and wait for rates to rise, values to decrease and then buy, I asked. “Over the long term real estate never goes down besides there is so much money coming over here.”
The rent for my one bedroom is $1,550 and similar apartments are listed for $490k. meaning it would cost me almost $3,000 a month to own a comparable apt. — based on 5% down with a 5-year fixed at 4% with a 25 year amort.
I am so very, very tired of being wrong about Vancouver’s RE market. It appears that there is just no shortage of people who truly believe that we are running out land, that real estate always goes up and that everyone wants live here.”

Manna from heaven, at VCI, 1 Jun 2012 11:19am

“What do you mean you were wrong? Average price is down 12% YOY. It sounds like you were right.
Bears have been wrong so long they can’t recognize when they are right!”

WFT? at VCI 1 Jun 2012 12:15pm

Wealth Transfer? No, Wealth Destruction – “Since it’s our retirement money that we are using, it is a stretch. But I just don’t see how they could afford to buy a place otherwise.”

Anecdote 1:
Thirtysomething condo owner Shara Bruce says that despite her relatively high-paying job, she still couldn’t afford to buy the condo she owns in the Woodward’s building.
That’s why Ms. Bruce’s mother made the down payment.
“There’s no way I could save that kind of money for a down payment living in Vancouver,” she explains. “And I don’t make a small amount of money. I make a fairly good salary as a construction contractor.
“I can totally pay her back, or it can be part of my inheritance.”
Her mother, Ruby Bruce, says she also paid her other daughter’s down payment on a Vancouver condo.
“It’s tough for them to get the money together,” said the elder Ms. Bruce. “The other daughter paid me back when her place sold.”
Ms. Bruce’s mother is part of a demographic that has done better than most in terms of real estate. … Ruby Bruce bought her Vancouver home more than 36 years ago for $54,900, and today it is worth $750,000
[Return of 7.5% p.a. nominal; 3.5% p.a. real]. Because parents have clear title to their homes, they can borrow against that equity or use their retirement savings to help their kids.

Anecdote 2:
Victoria-based homeowner Gail Argatoff says she and her husband recently bought a condo in Kitsilano for their daughter and son-in-law.
“We got them a condo and they are going to work on paying us back when she finishes law school,” Ms. Argatoff said. “Instead of them paying rent, they are gradually paying us. … We have another daughter and we’d like to do the same for her one day because she’s single.
“Since it’s our retirement money that we are using, it is a stretch. But I just don’t see how they could afford to buy a place. I don’t see how affordable the city will be for the future generation.”


Anecdote 3:
Robert MacKay, senior marketing and communications manager for PricewaterhouseCoopers, says he plans to buy a two-bedroom condo in North Vancouver for his three children.
“It’s using the equity out of the family home to buy the condo and they can pay rent to cover the mortgage, and then they have something. It’s just a matter of letting them stay in town so they can go to university and whatnot.”
Mr. MacKay says he and his wife will also be the recipients of an equity transfer in the form of inheritance.
“We don’t like to think about it that way, but [our parents] are not going to be on their own for very much longer.” …
Mr. MacKay believes that most young people won’t have land-rich parents.
“There are still a lot of people my age who don’t own a huge chunk of real estate.
“I think [unaffordability] is a very significant issue,” Mr. MacKay said. “So be nice to your parents,” he added, laughing.


“Vancouver is extremely expensive, so most young people buying are doing so with assistance from their parents,” Ross McCredie, president of Sotheby’s International Realty Canada, said. “A lot of companies, like ours, are advising baby boomers to set up a succession plan, and part of that includes saying to your kids, ‘We don’t want to waste our inheritance, so you buy real estate with it.’
“We see it in a significant way with Mainland Chinese families who may have immigrated here and bought assets here. They are buying real estate for their children.”


“I believe that the baby boomer is now so risk averse that they are taking their money off the table and consolidating, and the first-time buyer is a benefactor of this aging demographic,” Bob Rennie told a sold-out audience at the Urban Development Institute’s annual general meeting last week.
Mr. Rennie forecasts that the wealthy demographic will continue to transfer its equity to the younger generation, and “buy down” while maintaining their lifestyle.
“I believe that this room’s [RE professionals] success will be to understand what this risk averse, buy-down baby boomer will buy next,” he told the audience of developers, marketers and industry players.


– excerpts from ‘Land-rich boomers buying nests for their young’, Kerry Gold, Globe and Mail, 1 Jun 2012 [Hat-tip evilfred]

From the comments section of the same article [Hat-tip Joe_BABHHC]:

“As a boomer who owns a home with free title I personally would rather have it priced realistically so my kids could live in the neighbourhood instead of the basement. While it is of course nice for parents to help their children this does nothing but contribute to the problem of excessive market values. If the new generation of buyers lived by the same rules as their parents , saving and waiting, the market would adjust downward and we would all be better off.” – dbh 2 Jun 2012 10:59am [If we issued awards for ‘getting it’, dbh would get one. -ed.]

“The boomer parents need to consider the risk they are setting their children and themselves up for.
As a home owner, you need to be able to absorb unexpected expenses (special assessments, leaky roofs, etc). If the children cannot save up a 5% downpayment, how will they deal with the unexpected?
And what happens when prices fall? The children now owe more than the property is worth. And the parents may no longer have enough equity in their house for a comfortable retirement.”
– MM_van 2 Jun 2012 11:34am [Another award here, please. -ed.]

“Twenty something years ago when interests rates were north of 17% and we bought our first house, we were over the moon when our folks bought us and washer and dryer. Boy, have things changed.” – BikeQueen 2 Jun 2012 12:32pm

“That’s why my wife and I just bought two condos as rentals so when our 6 year old twins grow up the can have their own places or sell then for down payments.” – AHappyGuy
“Can’t tell if this is sarcasm . . . I call a top.” – wezvv
“What is a top? This isn’t sarcasm. It’s what we’ve done.” – AHappy Guy
– exchange 3 Jun 2012 12:40pm onwards
[‘A top’ is a child’s toy. -ed.]

Households who have overextended and overleveraged themselves in RE are very vulnerable at this point in the RE cycle.
This includes, if you like, the ‘multigenerational household’… elderly parents, young (almost boomer) children, adolescent grandchildren (and variations on this theme). Over the last 10 years, some of these ‘extended’ Vancouver families have overextended themselves into RE and, on paper, appear to have done very well. It is very hard for people to see that this state of affairs won’t continue. Even at this late stage of the cycle others are still emulating them.
As commenters quoted above imply, there is a high risk of wealth that would have been transferred rather ending up destroyed. Worse, some children may see inherited assets turn into liabilities. For instance, instead of one fully paid for home, a family may end up with two or three or four underwater properties.
– vreaa

Last word from Ralph Cramdown [also from the G&M comment section, 2 Jun 2012 3:18pm; here with editorial poetic license]:

“Dear Auntie G&M,
I’m nearing retirement, and have most of my net worth concentrated in a single asset which is very pricey right now. Although completely undiversified, I’m bored. Maybe it’s the lack of leverage? Any advice?
Regards,
Basil Lacklever”

“Dear Mr. Lilyliver
Lever up! Don’t diversify into another market or a different asset class, buy another property in the same market.
Yours,
Auntie Alluneedisahree”

Easy Money Fuelled The Vancouver RE Mania – “Suddenly in about 2006 or so, we were able to borrow as much money as we wanted and didn’t have to prove anything.”; “I work in the financial industry and I see people with huge loans their incomes can’t justify all the time.”

“A lot of first time buyers don’t realize how qualification for a mortgage has worked historically since the about 1950. We have had multiple mortgages since 1987. In order to qualify for a mortgage between 1987 and 2006 (approx.), we had to prove income as follows:
1. three most recent tax returns
2. they averaged our income over those three years
3. provision of pay stubs
If you were self employed:
1. three most recent sets of financial statements
2. they averaged the income from those three years
3. provision of pay stubs for any supplementary income
We were never able to borrow more money than proven income could justify. With our last mortgage before all the EASY credit, the bank didn’t even want to give us a 25 year amortization, since we were approaching 50 years of age.
Suddenly in about 2006 or so, we were able to borrow as much money as we wanted and didn’t have to prove anything. In addition, we were able to change our amortization in the middle of our mortgage term, without penalty (reduce our monthly payment). No income verification took place and we were offered a 30 year amortization automatically.
Now everyone wonders how we got here? Lending money to people who can’t afford to pay it back is a recipe for disaster. Welcome to disaster.
We don’t own a house anymore, we are sitting on a pile of cash and renting…happily.”

– Canayjun at VREAA 5 Jun 2012 10:24am

“I work in the financial industry and I see people with huge loans their incomes can’t justify all the time. It astounds me. I spoke with a mortgage broker who told me that in recent years, people would apply for a mortgage and show their notice of assessment from their tax returns. The income on the NOA would be about $10k, however they would state their income much higher, and the mortgage would be approved based on this higher amount. It was ridiculous. A mortgage broker from a bank also called me to verify that one of my clients was self-employed “Sure,” I said, “but he’s never actually made a dime from this business, in fact he’s always had losses.” The mortgage broker assured me that that was no problem, they just needed to know he was “self-employed.” And I know for a fact that this individual was not rolling in unreported income either, maybe a little ($10k at most) but not a lot. He and his wife are essentially living on credit. There is big trouble coming.”
– pricedoutfornow at VREAA 5 Jun 2012 10:59am

“Friends are still in denial, scared because they paid $1M for house on a 25×100 lot in Vancouver Main area last year and don’t want to believe they are about to lose all their equity.”

“So it has begun to pop. Friends are still in denial, scared because they purchased last year and don’t want to believe they are about to lose all their equity in the next year. They paid 1 mill for a 25×100 lot house in vancouver main area, they had 30% down so they can afford the downturn. But who really wants to realize it. I can’t wait to buy in the same area, with a bigger lot and nicer house for 1/2 the price. Btw, I personally sold a few months ago, now renting for cheaper than my mortgage. New place is double the size, nicer area, yard, and so on.”
Finally at VCI 3 Jun 2012 9:26pm

“I’m a stay home mom and my hubby is a lawyer making over $100K but we cannot live a decent life style here in Vancouver. We have decided to move out of province for a better paying job and affordable housing.”

“I’m a stay home mom and my hubby is a lawyer making over $100K but we cannot live a decent life style here in Vancouver. We are renting a 960sqft 2 bedroom suite in North Van but a nice three bedroom house cost about $3000 for rent. Vancouver is great but it really rains too much and to be honest the housing is the killer. It’s only for uber riches or those who have been here for a long time. We could move out of Metro Vancouver to other parts of BC but then salary would be much lower. We have decided to move out of province for a better paying job and affordable housing and good education for kids. Which city would fit the bill? I would be happy to pay $2000 for a newly updated 3 bedroom town house and the priority would be where good public education is.”
sora at mothering.com 27 Apr 2012 6:43pm [hat-tip Jeff Murdock (and ‘Anonymous’ at VCI)]

An Ambivalence Of Riches – “Its HARD to leave once you’ve lived in Van. Had I never left Calgary I could have lived there for the rest of my life and been satisfied.”

“My husband and I moved to Vancouver from Calgary 3 years ago. In terms of employment and housing, were not doing so hot out here. So why do we stay and rent a crappy basement suite?…the reason is you think Calgary is nice and green until you move to Van. That’s when you realize how truly cold Calgary winters are and how not-so-green it really is (just some random pine and poplar trees spread out over fields, really). Its HARD to leave once you’ve lived in Van. Had I never left Calgary I could have lived there for the rest of my life and been satisfied (perhaps, happy) and would have never seen the weather and beauty Van has to offer. Now we have to make the difficult decision to go back to Calgary since living in Van has cost us a lot. We have family and friends back home (Calgary) and they’re all in their late 20′s like us, they’re getting great jobs, have money to travel, and are buying up 300,000 houses (not apartments, not townhouses…actual houses with 3 or more bedrooms and a backyard). My advice to anyone is, if you live in Alberta, stay there, don’t TRY Vancouver, it’s very hard to leave once you’re here just because of how beautiful it is.”
LisaMK at VREAA 3 Jun 2012 1:07pm

Full and satisfying lives can be had in Vancouver and in Calgary… and in hundreds of other places around the globe.
– vreaa

“THREE SINGLE HOUSE READY MOVE IN (VANCOUVER WEST)” – “Still lots of speculation going on out there.”

“vancouver, BC craigslist > vancouver > housing > apts/housing for rent
$4500 / 5br – 3600ft² – THREE SINGLE HOUSE READY MOVE IN (VANCOUVER WEST)
Date: 2012-06-01, 3:21PM PDT
Reply to: xxxxxx@gmail.com [Errors when replying to ads?]
1.1936 W 35 AVE 5BR 4BA 3600SQFT GOOD SHAPE,MOUNTAIN VIEW. $4500
2.836 W 31 AVE. 7BR 6BA 4000 SQF,VERY WELL MAINTAINED,4000SQFT, $4800
3.3847 W 24 AVE BRAND NEW HOUSE.5BR 5BA 2780SQFT $48OO(NO PET FOR THIS ONE)
ONE YEAR OR LONGER LEASE.
SERIOUS TENANT PLEASE.
STABLE INCOME AND GOOD REFERENCE REQUIRED.
PLEASE SEND TEXT MESSAGE TO GARY 604 xxx xxxx
PostingID: 3051764634″

craigslist ad 1 June 2012. [Spotted by Patsan at VCI 1 Jun 2012 4:35pm]

“This Gary guy has at least 12 West Side and Richmond properties advertised for rent. They are all vacant and available now and if you goggle the address all were recently purchased. Most of the properties on the West Side sold for close to 3 million and the Richmond ones are in the 1.5 million range. The guy must be a rental agent or ring leader behind investors who have recently dropped at least 20 to 30 million on houses to rent. The ads all state minimum 1 year lease so they are not looking for quick flips. None of the ads have photos or much details. The guy doesn’t have any houses advertised that appear to have been previously rented so he must be a newby to the game.
When you look at the yields they will get if they do get their asking rents they are below 2% after property taxes. Still lots of speculation going on out there. Actually considering the poor sales on the West Side and Richmond of late maybe speculators are the only ones buying.”

Anonymous at VCI 2 Jun 2012 7:25am

A point of interest for those watching Vancouver RE is whether momentum-style speculators who have bought Vancouver SFHs will attempt to sell if price trajectories start to suggest we’re joining other failing housing markets around the world. We are of the opinion that many will.
– vreaa

“Are we all lying to each other? How the f*%#k are people affording to live in Vancouver?”

“Today I read an article in the Vancouver Sun, which stated that …the combined cost of mortgage payments, utilities and property taxes costs the average Vancouverite 88.9% of their household income. … Something is really, really wrong here. How the f*%#k are people affording to live on less than 12% of their incomes?

My husband and I scratch our heads about this all the time. We feel like we are beyond cash poor. We’re certainly not financial wizards, but we take pride in the fact that we manage our debts and try as much as we can to live within our means. Meanwhile, we see people renovating homes, buying new cars, new clothes, paying for daycare, nannies, dinners out, vacations etc. etc. Are all of these people getting by on 12% of their incomes or is there a massive amount of credit spending happening behind closed doors? Are young families around this city floating their lifestyles with plastic? I fear, for many, this may be the case.

For most of us in the “young parent” stage of life, we’re literally “just getting by”…however, I think our definition of scraping through a month has drastically changed. There are conveniences and luxuries we have become used to that are nearly impossible to imagine forgoing. I’m guilty myself of not using up everything in my pantry and going out to buy more groceries (although I don’t shop at the infamous “Whole Paycheque”…something that completely boggles my mind – how in the heck to people afford to do their shopping there??).

Aside from our own needs, which can largely be attributed to growing up in a culture that values consumerism (an entire conversation in itself), and our government’s role in the state of our economy, there is definitely something askew when home ownership becomes so coveted and, at the same time, overpriced that people literally finance their lives away. Now, I’m no economist, but what then happens when the s*%t hits the fan, interest rates rise and these families are not only sat with mortgages they cannot afford, but massive amounts of credit debt incurred to actually “live”?”

Melissa Carr at TheThirtiesGrind 29 May 2012 [hat-tip to OH YAH]

Nobody in Vancouver is living on just 12% of their income. The math reflects that the average bungalow in Vancouver would cost an average Vancouver household 88.9% of their (get this) pre-tax income. So, in short no average households are buying average bungalows any longer… they simply can’t afford them.
Which is not to say that Melissa’s indignation and exasperation isn’t justified. It is. Vancouver is very, very overpriced, and the 88.9% figure indicates how spectacularly overpriced it is… prices are two to three times those determined by fundamental value.
Housing bulls argue that this simply means that, as in Manhattan, Monaco, and Tokyo, bungalows have become a coveted property, only for the mega-wealthy, and that ‘average’ Vancouver families should accept the ‘new average’ — that they should be happy with properties like a condo or town home in New West or White Rock, or a modest condo closer to Vancouver, or perhaps a basement suite.
We disagree. Just fly into or out of YVR… does that look like Tokyo?.. No! Bungalows as far as the eye can see! (Bungalows, and land, by the way.) Bungalows in Vancouver will never be cheap, but they will certainly become a lot cheaper than they are now.
– vreaa

Renter Lease Condition ‘Experiment’ – “I have a friend in our office who is looking to rent. He commented how “fishy, desperate, and deceitful” most of the landlords he had spoken to seem to be. He didn’t trust any of them. I told him to try my experiment…”

“I have a friend in our office who is looking to rent for his family as he just moved here from BC, and he was commenting the other day how “fishy, desperate, and deceitful” most of the landlords of the numerous vacant properties he had spoken to seem to be. He didn’t trust any of them to be frank and he felt that he was getting set up as the renter “in situ” to increase the listing value and prospect of selling the property he was looking at moving into. As he asked my advise a few weeks ago about his concerns, I told him to try my experiment:
Tell your prospective landlord that you “will” sign a long term lease (12+ months) on one proviso that will be written into the contract.
If the property is listed, or the ownership changes hands for any reason, the lease becomes null and void and you can exit the property without penalty and after 30 days notice upon becoming aware of either the listing, or the transfer of ownership, and that they are legally obligated to advise you of same when it occurs.

No one agreed to it, a couple of them had the blood rush out of their faces after repeatedly telling him they were not going to list the place during his interviews (so why would this condition matter then…..right ?) and one confessed the place was getting listed as soon as she put someone in it. He has decided to rent a purpose built luxury condo rental from a national property managment company instead……someone that I used to rent from.”
Carioca Canuck at VREAA 27 May 2012 9:54pm

“Looked at a place to rent this weekend. Owner is divorcee and moving to the island. She tried to sell it for 6 weeks with no luck.”

“Looked at a place to rent this weekend; looking for a little more space. It looked really nice, reno last year and clearly looked staged to me. Owner is divorcee and moving to the island. She tried to sell it for 6 weeks with no luck. She is so frustrated and doesn’t want to pay for the staging anymore as she has to move soon. Asked of she was still selling and was told no, going to keep it and will sign a lease.
First, she couldn’t sell, I really felt like saying you should just drop the price as holding out will result in a much lower price when you eventually sell. She has never been a landlord before so my guess is lease or not it will get listed very soon in the near future. We said thanks but no, not unless she signs a two year lease that says the new owner cannot move in until the lease expires.
We’re not moving.”

yltnboomerang at VREAA 27 May 2012 6:13pm

Mancouver – “I just spent a week in Manhattan and there are a load of gorgeous studios and 1 bedrooms in the $300K to $440K price range.”

“I just spent a week in Manhattan and there are a crap load of gorgeous studios and 1 bedrooms in the $300,000 to $440,000 price range, and I’m not talking crap neighbourhoods in Manhattan, I’m talking about some very cool hoods. The condo fees are definitely higher, but include heat and air conditioning……and seriously we’re talking about N.Y, not to mention that the actual apartments are waaaaaay cooler than Vancouver’s ugly crap boxes with 8′ ceilings and “granite counters”.
So much for that stupid argument “Vancouver is cheap compared to New York and London”.

vangrl at VCI 12 May 2012 11:04am

MarketWatch – “No real estate bubble pop expected in Canada” – Source: Two Realtors

“What makes the big picture unclear is that a lot of new homeowners in Vancouver aren’t leveraged at all. Realtors tell me that a lot of their recent sales are to buyers fresh from China and flush with cash.”

“Housing in Vancouver still seems cheap to many of my Chinese clients,” a Realtor here told me. “That’s because in some cities in China, housing is two or three times more expensive than here.”

“I lived in the San Francisco Bay area for over 20 years, and I’ve seen skyrocketing real-estate prices firsthand. I’ve also watched the price of the wine-country home we sold there in 2006, near the top of the market, drop by 60 %. The current Vancouver run-up looks eerily familiar — like those new ‘For Sale’ signs here that reflect the “Buy low, sell high” truism.”

“The current real-estate market here is reminiscent of the one I experienced a few years ago in California, when a few were poised and ready to sell at the top of the market. We nearly succeeded, but we were able to become what Washington state Realtors call California “equity refugees.”
One old-pro Vancouver Realtor told me, “Look, interest rates are going to go up in Canada. Maybe later than sooner. We all know that. But you’re not going to see a real-estate bubble pop, like it did in the United States. What we’re starting to see here now is some of the air slowly coming out of the bubble. We don’t do things here the way you do in the States.” Thank heavens for that.
A soft landing for Canada’s real-estate market, in other words, is expected by many.

‘No real estate bubble pop expected in Canada’, Bill Mann, Marketwatch 24 May 2012

“In the USA, you have humans; here in Canada we have… wait a moment!”
No mention of fundamentals; pretty much a non-article.
Noted as yet another external mention of Canada’s RE bubble.
– vreaa

‘Safe As Houses’ Episode From Niall Ferguson’s ‘The Ascent of Money’


– ‘Safe As Houses’ episode from Niall Ferguson’s series, ‘The Ascent of Money’.

Watch this, if you haven’t yet done so.
Industrious readers may want to cite quotes from the episode pertinent to the current Vancouver RE market.
– vreaa

Inventory Up; Sales Down; Prices Softening – Fate Of Market Still “Uncertain”?


– chart care of b5baxter at VCI, 31 May 2012, who adds “Inventory has reached another milestone. It is at the highest point in the past ten years for this time of year. It has also passed the 2010 peak for the year. Only 2008 peaked higher out of the last ten years.”


– chart care of Larry Yatkowsky at yattermatters, 1 Jun 2012, who adds “Vancouver’s detached average home prices continued a slow retreat from February’s high of $1,235,244 receding to a current average price of $1,073,331 down 12% YOY. Two years of gains are on the block as this market approaches the low not seen since November 2010 when the average was $1,043,161.
…Active listings are at an all time high… up 23% YOY,… with sales down 24% YOY…”.


“Vancouver’s real estate market has taken another interesting turn, with listings up and sales down during what is usually a busy time of year.
In May, average prices for houses have dropped about $150,000 compared to one year ago. That 12-per-cent drop wiped out two years of price increases.
The reason appears to be that too many more sellers are trying to cash in at the same time. Listings are up by 23 per cent, but fewer are buying: sales are down 24 per cent.
“Probably, on average, about a 150 or 160 homes in Vancouver are reducing their price every day in the hope of catching, getting ahead of the train and maybe get out before they can’t,” said realtor Larry Yatkowsy.
Predictions of a bursting real estate bubble have swirled around the Vancouver market for years. Despite the indications, economist Tom Davidoff, of UBC’s Sauder School of Business thinks it’s too early to name it yet.
“It’s going to take several months of data-confirming of what we seem to be seeing before I would be anywhere close to be prepared to say, ‘That’s it, we had a bubble and now it’s bursting,’” Davidoff said.

– from ‘Uncertain fate for Vancouver real estate prices’, CBC News, 2 Jun 2012

The most straightforward way of explaining the evidence at hand (prices compared with fundamental measures such as income, rents or GDP; ownership levels; household debt levels; market price/inventory/sales action; etc.) is that Vancouver has suffered a lengthy speculative mania in housing, and that the bubble is now very likely in the early stages of collapsing.
– vreaa

The Night Before The Morning After – “Within my half hour walk through the downtown core at 11pm last night I overheard three groups of staggeringly drunk people conversing, arguing and yelling at each other about real estate, renting and mortgages. It was a tad surreal.”

“I had the fantastic endeavour of walking through the downtown core at 11pm last night [Saturday 2 Jun 2012]. Within my half hour walk I overheard three groups of staggeringly drunk people conversing, arguing and yelling at each other about real estate, renting and mortgages. It was a tad surreal.
I was entirely sober, walking home from a late work meeting. I usually treat myself to a walk and a listen to an album from start to finish, but on a weekend late night around Granville, it’s not the time for headphones for safety reasons.
I’ve never heard conversations like this before. Women yelling at each other that “it doesn’t matter if I can’t afford the payments one day, I can always go back to renting” another young man saying to his friend “no way man, I just want a place that’s worth $500,000. It’s gotta be worth $500,000″
To hear one conversation, no big deal, coincidence, to cover twenty blocks and encounter three passing conversations seems worthy of mention.”

Aldus Huxtable at VREAA 3 Jun 2012 8:59am and onwards

Coming next: Morning-after guilt; regret; shoulda-coulda-woulda; nausea; incomplete recollections; rewritings; “what-happened-to-my-wallet?”; blame; denial; repulsion; resolutions of abstention.
– vreaa

“I have a friend in Vancouver who bought 2 houses; no stable income. He borrowed money from his properties to pay his mortgage and his daily expenses.”

“I have a friend in Vancouver who bought 2 houses, and he doesn’t have a stable income. He borrowed money from his properties (HELOC) to pay his mortgage and his daily expenses. What if the housing market drops?”
‘A in Vancouver’ at greaterfool.ca 1 Jun 2012 3:12am

“My father-in-law told me flat out, that a drop in prices in their Surrey neighborhood will “never happen” because they’ve been there since 1978 and it’s never happened before.”

“Was at my inlaws this weekend. They own a house in Surrey BC, no mortgage, are about to buy an estate-type retirement home and are totally sure there’s no reason to worry about real estate, convinced their place is worth about $500K. My father-in-law told me flat out, that a drop in prices in their neighborhood will “never happen.” (his words), because they’ve been there since 1978 and it’s never happened before.
Oh, and also, I think they’re starting to get worried about money. I know they lost a ton in 2008, and the other day my MiL mentioned casually that she wished they drove a car more like my 8-year old vw than the $60,000 Lexus they bought in 2009, brand-new, for cash, after inheriting some money. …
To me, it seems like the only smart play is, sell, rent a nearly identical place for a grand or 2 a month, and if you really insist on home ownership, buy in a few years after prices fall. A total no-brainer. Like, if you can count past 21 without removing your shoes and your pants, this should be obvious, right?
Then today it clicked. They think that renters are second-class citizens. They were looking at possible locations to re-locate to, and my father-in-law basically vetoed any place that would have renters in the neighborhood. I swear to god, I’m not making that up.”

Darren at greaterfool.ca, relayed by Garth, 29 May 2012

“A very senior colleague refinanced his home repeatedly to acquire new properties. Freaked me out, the 7-digit loans.”

“A very senior colleague refinanced his home repeatedly to acquire new properties. I knew about his acquisitions, as I was asked to witness some documents. Freaked me out, the 7-digit loans.”
ToL at VREAA 28 may 2012 11:16pm

Looks great on the way up; ghastly on the way down.
Or, for the benefit of those who haven’t heard how Buffett put it: “When the tide goes out, we’ll find out who has been swimming naked.”
– vreaa

“When my family and I were pondering a move out of Vancouver, the line I heard more than once was “Don’t sell your house, you’ll never get back in.” It almost made sense, until I looked at the mountain of cash we would be leaving town with. For now I remain a Vancouver homeowner. The abstract concept of my net worth remains a fictional number.”

“Real estate is a hot topic these days amongst my neighbours. We’ve all heard the stories of little bungalows along the Cambie corridor selling for north of 2 million dollars. These were homes you could buy for a third of that before the construction of the Canada Line system was announced.”
“Where does it end? That unfortunately is a scenario we humans are not all that good at seeing. If it is indeed a bubble, it will remain invisible to all those but a chosen few. Those few will be madly blogging about it and preaching their gospel of “sell now” at cocktail parties, desperate to be proven right. And even if history does prove their predictions about a real estate crash to be correct, we’ll still find them annoying and usually find a way to avoid them at the party.”
“The cruel truth is that a bubble does not become visible until that bubble has popped, leaving drops of soapy fluid on the ground that we will be slipping and sliding on for years (as we make our way to the bank to renew our mortgages at a higher interest rate, realizing just how much money we owe on a property that suddenly doesn’t seem as sexy as it once had).”
“Last year, when my family and I were pondering a move out of Vancouver, the line I heard more than once was “don’t sell your house, you’ll never get back in.” It almost made sense, until I looked at the mountain of cash we would be leaving town with. Thankfully I haven’t had to make that decision yet… and the abstract concept of my net worth remains a fictional number.”
“So for now I remain a Vancouver homeowner. At least I know where to buy a carpet for cheap. [See body of article for context.] I should ask why they’re shutting down the business though. Maybe they know something I don’t.”
– from ‘The Persian Rugs Going Out of Business Sale!’, Martin Strong, at City Caucus, 30 May 2012 [hat-tip Nemesis]

Many Vancouver homeowners ‘know’ that this is a bubble; they see that the price run up is just too ‘good’ to be true; yet only a very small percentage will capitalize on this windfall before the bust. Most will be unable to overcome the inertia and the inconvenience of selling. And, that aside, it’d only take a relatively small percentage to try to sell at the same time for the market to collapse.
It is very, very difficult to run against the herd. On the way down, of course, the herd is selling…
Martin is correct about the bears being seen as irritatingly annoying by the general citizenry. Witness Larry MacDonald’s article in Canadian Business that we headlined yesterday, where Larry asks the bears to simply go away. As today’s anecdote shows, it’s irritating to have people tell you something that pertains to your circumstances, that you know in your heart is likely valid, but that you can’t bear to act on. Like a large version of being asked whether you shouldn’t get that overdue term paper finished when the big game is on television.
And for how long is the “can’t-tell-its-a-bubble-until-it’s-popped” canard going to be in such wide circulation?
It is very clear that you can identify a bubble from the inside: a market is in a speculative mania when prices clearly divorce themselves from fundamental values, and continue upwards solely because new buyers expect ongoing price strength. That’s a bubble. Capisci? (The bears do!)
Anyway, Martin shows that he has a remarkable amount of understanding about what’s going on, even to the point of talking about what it’ll be like after the bust (“realizing just how much money we owe on a property that suddenly doesn’t seem as sexy as it once had”). He also shows excellent insight in referring to his current perceived wealth as an “abstract concept” and his net-worth a “fictional number”. After the pop, he will doubtless say that he “knew” it was a bubble, and he actually ‘did’. But his own wishful thinking and the seduction/threats of the herd (“you’ll never get back in”) will have prevented him from acting on that which he knew. This is how bubbles work. Powerful, eh?
– vreaa

Local DJ Leaves For The Prairies – “My wife and I had this crazy idea that we could afford a house. Your prices here are insane.”

“Heard something on the radio just now. This DJ on Sonic Radio just announced this was his last broadcast, as he and his wife want to live in a city where they can actually afford a house, so he is moving to Edmonton.”
– S, via e-mail to vreaa, 1 Jun 2012 [thanks, S -ed.]

“I didn’t catch the whole thing, but was listening to the radio this morning, 104.9 FM, around 9:50 a.m. and the DJ was leaving, today was his last day. He said something along the lines of (paraphrasing), “My wife and I had this crazy idea that we could afford a house. Yeah, your prices here are insane. I thought I’d be here longer, but no. I didn’t even stay long enough to change the plates on my car, I still have Saskatchewan plates. That will look really good to the police, ‘Where are you coming from?” B.C. ‘Where are you going?’ Alberta. ‘What’s with the Saskatchewan plates?'” I gathered he was here about seven months. So another one bites the dust. I Googled for a while but couldn’t find anything online about a DJ’s comings and goings at Sonic FM. I don’t really listen, so I don’t know who it is. Would be nice to have a bit more detail for your blog, but c’est la vie!”
– Angela, via e-mail to vreaa, 1 Jun 2012 [thanks, Angela -ed.]

Preparing To Blame The Inevitable Canadian RE Crash On The Bears! – “I wish the perma-bears would just go back to their lairs for a really long nap.”

“For years we’ve listened to housing perma-bears Garth Turner and Ben Rabidoux warn of a collapse in housing prices. But those stubborn price indexes just aren’t co-operating. When is Armageddon ever going to descend?
Actually, I do have a fear of Armageddon. Namely based on the risk that the thicket of gloomy blog posts/tweets eventually whip up homeowner anxieties enough to precipitate waves of selling in a self-fulfilling prophecy. Moreover, the risk of such an outcome could be climbing with the mainstream media picking up on the theme (in a rather uncritical way considering the subtleties of economic cycles and statistics missed by the perma-bears).
As a homeowner, I admit not only to a vested interest, but also to wishing the perma-bears would just go back, frankly, to their lairs for a really long nap. Their proclamations substantially risk devaluating a major asset of mine. Furthermore, if Canadian housing were to crash similar to what occurred in the U.S., there will be a rather traumatic impact on the Canadian economy and all our living standards.”

– image and text from ‘When will housing Armageddon arrive?’, Larry MacDonald, Canadian Business, 30 May 2012

Once a speculative mania gets underway, the fact that it will crash is as inevitable as gravity and sunrise.
The villains of a mania, if there are any, are the many parties that contributed to its expansion, not those who point out the nature of that which has developed.
After years of denial, after ignoring mountains of evidence & years of measured arguments from bears, RE bulls are now suggesting that we all follow the path of even more denial. This is a psychologically primitive response and one that should invoke both laughter and sadness in those who hear it.
The woeful thing is that, despite the fact that this is so obviously a ridiculous argument, some will actually end up believing it, and will blame the coming crash on ‘naysayers’. As though if we all simply linked hands and pretended all was good, it would be so.
This is a truly remarkable, preposterous (and, given it’s publication by ‘Canadian Business’, arguably landmark) article. Mr MacDonald appears to be a homeowner who is likely over invested in his home, and whose future financial well-being is consequently under threat, and who is now allowing wishful thinking to blur his ability to weigh the evidence.
The bubble will implode because it’s a bubble, not because people point to it and say “Look, a bubble!”
– vreaa

“Friend of mine just bought a foreclosure, fully furnished, of a family who hightailed to Asia, leaving a pile of unpaid debt.”

“Friend of mine just bought a foreclosure, fully furnished, of a family who hightailed to Asia, leaving a pile of unpaid debt.
Not sure of the details, didn’t ask too much, but the story is that the family owed money — not sure how much — and simply pulled up their stakes and left. Think it was family of 4. I don’t think it’s that common but who knows. The guy got the place with all the high-end furniture still there.
Banks now require a certain level of capital in Canadian jurisdiction to approve stated loans. Before February 2012 or so they didn’t.”

jesse at VREAA 30 May 2012 3:39pm and onwards

“Talked to a friend tonight who just moved into a $700K rental apartment at UBC. The wood-framed building, on leased land, is two years old and floors are already sagging.”

“Talked to a friend tonight who just moved into a rental apartment at UBC. Building is two years old and floors are already sagging, so much that her closet doors keep opening by themselves, and drawers have a hard time staying closed…
Market value? $700,000, for a wood frame condo on leased land.”

jumpin in at VCI 30 may 2012 10:48pm