‘Vancouver Sun’ Paywall Will Decrease Readership

“The paywalls increasingly installed by news sources (eg. Times, G&M, Vancouver Sun, etc) are going to limit conversation to only those people who chose to look at a specific source. No-one is going to pay $20/month for each source – they will just choose one.So for example, G&M comments are going to be limited to people who prefer to read the G&M. That means less diverse opinions. I think that’s a loss for all of us.”
– kcash, comment at The Globe and Mail, 3:20 PM on October 27, 2012

I’d agree. Paywalls are a step backwards.
We are almost exclusively going to be headlining articles and anecdotes that are freely available on the web.
We’ll tend to avoid articles where access is limited.
(Are RE ad revenues falling?)
– vreaa

“Pegeen and Michael have invested heavily in the B.C. real estate market, which poses some risks if prices fall. They have about 64% of their wealth in real estate [actually, 81%]. As a benchmark, pension funds tend to target 10% to 15%.”

“I see no problem having 81% of my wealth in real estate…”

“Midlife reflection led Michael and Pegeen to feel their lives would be fuller if they adopted two children, so they have set the process in motion. Their plan is to adopt siblings between the ages of 5 and 10 years.
The couple can afford the new additions to their family. Over the years, they have built a consultancy that pays them well even though they have plenty of time off to travel. They spend about a quarter of each working year out of the country.
“We hope this won’t change once we have kids,” Michael writes in an e-mail. When the children join them, they will have to move from their two-bedroom Vancouver condominium to a three-bedroom home. High prices in the city mean they will likely have to rent, Michael writes.
With no company pensions, they have to provide for their own retirement. They are well-fixed to do so now, but they know having children will change things. They have an investment adviser “but don’t really have a plan,” he adds.
Their major assets are a portfolio of stocks and B.C. real estate – their condo, a vacation property and a half interest in a rental property in a smaller city.
Their goals including scaling back to working half-time so they can spend more time with the children, continuing to travel abroad on business, maintaining their current lifestyle while still providing for the new additions to their family, and “retiring early at 60 with few worries and the kids’ education taken care of.” Neither one has life or disability insurance and they wonder whether they should buy some.”

“We asked Eric Davis, a financial planner, investment adviser and vice-president of TD Waterhouse Canada Inc. in Kamloops, B.C., to look at Michael and Pegeen’s situation.
“Life is pulling this family in many directions,” Mr. Davis says. … They need to give some serious thought to setting their priorities. …
If they sold their existing real estate, they would have enough money to buy a three-bedroom house in Vancouver if they chose to, Mr. Davis says. Because of the nature of their business, which takes them out of the country part of the time, “they could consider buying a cheaper property outside the expensive Vancouver market but [that is] still accessible to airports.”
Mind you, Pegeen and Michael have invested heavily in the B.C. real estate market, which poses some risks if prices fall. They also carry substantial debt in the form of a $390,000 line of credit.
“From an asset allocation standpoint, they have about 64 per cent of their wealth in real estate,” Mr. Davis says. “As a benchmark, pension funds tend to target 10 per cent to 15 per cent.” …

Monthly net income: $10,000 (variable)
Assets: Non-registered portfolio $380,000; RRSPs $80,000; TFSAs $40,000; U.S. IRAs (individual retirement accounts) $160,000; condo $600,000; vacation property $500,000; share of rental property $75,000. Total: $1,835,000
Monthly disbursements: Housing expenses $630; transportation $200; groceries $800; clothing $100; line of credit $1,000; charitable $100; vacation and travel $500; personal discretionary (drinks, dining, entertainment, pet expenses, sports, hobbies, subscriptions) $1,410; dentists, drugstore $150; telecom, TV $185; RRSPs $815; TFSAs $410. Total: $6,300 cct
Liabilities: Investment line of credit $390,000

– from Mid-life couple need to set their financial priorities, The Globe and Mail, 26 Oct 2012
—

This ‘Financial Facelift’ is noteworthy in that it is the first that I can recall where any advisor has explicitly mentioned the possibility of Vancouver RE dropping in price.
Relatively minor point: We disagree with the math – Their net-worth is actually $1.445M (subtract their liabilities), of which $1.175M (or 81.3%, not 64%) is in RE.
That aside, look at the advice: They are in ‘midlife’ (40s?) and it is suggested that they are being unwise having ‘64%’ of their wealth in RE; the wisdom of a far lower figure is implied.
Think about it: what percentage of Vancouver homeowners in their forties have less than 64% of their net-worth in RE? Many (most?) have a far greater percentage in RE simply by virtue of the cost of their homes. We don’t know the exact numbers, of course (we’d love to know them) but we suspect it’s a very substantial portion.
As a group, Vancouverites are woefully overdependent on RE for their future financial health, “which poses some risks if prices fall”.
– vreaa

Household Debt Growing Larger At A Slower Pace

He knows

“There are some signs that accumulation of household debt is slowing… So the pace is slowing, it’s still accumulating… and that some adjustment appears to be under way in the housing market. This requires continued vigilance by all parties and we intend to play our part in that.”
– Bank of Canada Governor Mark Carney, 30 Oct 2012, in response to a question from a member of the House of Commons Standing Committee on Finance (Reuters)

Ever had that experience in a station where a train passing yours makes you feel like you’re going backwards, even though you aren’t?
Me neither, but I’ve heard it happens.
Household debt expansion and spending is still growing, but the slowing pace sure feels like it’s stopped all together, or even reversing, doesn’t it? And when household debt load actually stops expanding (or, the mind boggles, starts shrinking) our economy is going to feel like it’s running backwards at significant speed.
– vreaa

The Post-2009 Global Housing Bubble – “$1,050,000 will only buy a tiny house that is merely “livable” in Vancouver, where median real-estate prices are an astounding 9.5 times median household income.”

“After the cataclysmic mid-2000s housing bubbles in the U.S. and European PIIGS nations, one would think that the world would never allow another housing bubble to rear its ugly head again. Unfortunately, this thinking is completely wrong. Since 2008, the world has openly embraced new housing bubbles with astounding vigor in complete defiance of all lessons taught by the Global Financial Crisis.” …

[Amongst accounts of about 16 RE bubbles, the following:]
“Canada’s Housing Bubble
Canada is experiencing a classic bubble economy that is driven by a commodities export boom (which is part of the commodities bubble) a massive housing bubble that is larger than the U.S. housing bubble was at its peak, a consumer debt bubble and global “hot-money” investment inflows.
Canada’s bubble economy is driving a U.S. export boom that has helped the U.S. economy recover from the Great Recession – this is just one of the many reasons why the U.S.’ recovery is actually a “bubblecovery.”
Canada’s housing bubble is now nearly 40% larger than America’s bubble at its 2005 peak. Price-to-rent ratios, a common real estate valuation measure, are flashing clear warning signs of a bubble as well. Even the IMF is warning of a Canadian housing bubble (but seems to understate the extent of the bubble and its risks as “official” organizations tend to do).
Vancouver homes are now pricier than NYC homes, thanks partly to Chinese investors. $1,050,000 will only buy a tiny house that is merely “livable” in Vancouver, where median real-estate prices are an astounding 9.5 times median household income.” …

“The world is experiencing a massive Post-2009 Housing Bubble that will pop and finish where the U.S. and PIIGS housing bubbles left off in 2008. The global economy has “recovered” from the Great Recession on the backs of more housing bubbles – this is why I call the recovery a “bubblecovery.” Believe it or not, the Post-2009 Global Housing Bubble has the potential to grow larger due to global central banks’ incredibly stimulative monetary policies that have been implemented as a response to the Global Financial Crisis. When this epic pan-country housing bubble finally pops, it could conceivably throw the world into a devastating depression.”

– from The Post-2009 Global Housing Bubble or Housing Bubble 2.0, Jesse Colombo, at Stock Market Crash!, undated article

Deputy Minister Of Finance – “The housing market is cooling and slowing. We read a lot of press commentary saying it’s because of the government’s changes to mortgage insurance rules. I think it’s actually too early to make the direct link.”

“Canada’s deputy minister of finance says he isn’t convinced tighter mortgage rules his department announced in June are behind the recent cooling in the housing market.
In a rare public speech, Michael Horgan argued that recent comments linking the two are premature.
“There’s some evidence that the housing market, particularly in some markets, is cooling and slowing at the moment,” he said Monday during a presentation to business students at Carleton University. “We read a lot of press commentary that’s saying it’s because of the government’s changes to mortgage insurance rules. I think it’s actually too early to make the direct link.” …
It is the kind of analysis that leaves Mr. Horgan unconvinced. While he says there is likely some cause and effect at this point, he suspects it is more likely that Canadians are starting to realize their household debt levels need to be addressed.
Mr. Horgan pointed to data released this month that the ratio of market household debt to disposable income hit 163 per cent in the second quarter, which the deputy minister noted is at similar levels as those in the United States before the recession.”
– from ‘Finance official questions link between cooling housing market, mortgage rules’, Bill Curry, G&M, 29 Oct 2012 [hat-tip allen]

We agree with Mr Horgan.
See our post from last month ‘Erroneous Theories For Falling Prices #5 – Tightening Of Mortgage Rules Caused The Crash‘
The Canadian bubble was already beginning to collapse under its own weight; mortgage rule tightening may have helped it along a bit.
Posters on this site have already pointed out that in Vancouver our RE sales, and, to a lesser extent prices, were already in decline before the new rules were even announced.
– vreaa

“The most extreme example was a house on Wesbrook Cr that had just sold for $7M. It was a crappy house being rented for ~$2K/mo, but it was on a fantastic piece of land. It had been bought by a family from China that was planning to hold the property and eventually build on it.”

“Recently when I was looking for a new rental, I came across numerous examples of recently-purchased foreign-owned houses that were being rented out. The most extreme example was a house on Wesbrook Cr that had just sold for $7M. It was a crappy house being rented for ~$2K/mo, but it was on a fantastic piece of land. I spoke to the rental agent, it had been bought by a family from China that was planning to hold the property and eventually build on it.”
– M-dash at VCI 27 Oct 2012 7:30pm

This strongly suggests that the buyers bought believing that similar properties would sell for considerably more than $7M in years to come.
So much so that they are shouldering considerable carrying expenses to simply hold the property.
– vreaa

Berlin’s ‘Bubble’?

“Prices have risen, for residential properties, by almost a third, in the past five years.
In fact, George Soros has warned of a property bubble…
Not the view of the local real estate agents…
Apartments yield an average of 5 to 5.5%.”
– from ‘Could Berlin Be In A Property Bubble?’, Bloomberg, 28 Oct 2012

In Vancouver, we know that prices have to double or treble, and yields have to reach real-negative numbers, before you can really boast of having a bubble. What’s German for ‘wussy’? Try harder, Berlin.
– vreaa

“Three houses in my neighbourhood no longer have for sale signs up, as of today. Guess they gave up. I’m sure they’ll be back trying to sell in the spring.”

“Did a walk around my neighbourhood today in south surrey and noticed 3 houses that have been for sale since at least spring that no longer have for sale signs as of today. Guess gave up, I’m sure they’ll be back trying to sell in the spring. Inventory will probably drop off significantly Nov 1 after October expirations.”
– Groundhog at VCI 26 Oct 2012 5:33 pm

Yeah. Spring inventory will very likely be made up of:
1. Normal annual spring new-listings, plus
2. Everybody who couldn’t sell in 2012, plus
3. Those who have gotten wind of where prices are heading and have decided to come to market earlier than intended.
In other words, regular supply, plus that left over from the past, plus that sucked forward from the future.
A convergence of supply.
– vreaa

Distressed Condo Owners – “So many owners have spent all but their last dime buying the place. Some already spend half or more of their income on mortgage payments and strata fees. The special assessment was defeated because more than half said they couldn’t afford it.”

“It’s often difficult to get the majority of owners to agree to the appropriate monthly fees to cover ongoing maintenance, operation and replacement.
It’s difficult because so many owners — especially in the Lower Mainland — have spent all but their last dime buying the place.
But it only gets worse as buildings age and expensive repairs become inevitable. The Condominium Home Owners Association of B.C. estimates that 10 per cent of the province’s condos are now between 30 and 45 years old and in need of major renewal.
Some are in such disrepair that owners are openly discussing how to liquidate the strata corporation so they can sell the property for redevelopment.”
…
“Until 2009, big-ticket repairs such as replacing plumbing, decks, windows, elevators, roofs and renovating common areas had to be financed through special levies, which require approval by three-quarters of the owners at a general meeting.
They’re difficult to get passed.
Some owners are tapped out, with some already spending half or more of their income on mortgage payments and strata fees.
There’s also a cultural gap, Tony Gioventu, CHOA’s executive director, says.
“It’s a foreign concept for some ethnic groups to repair and maintain buildings … There are some specific ethnic groups who will run a building to failure rather than maintain them to longevity.”
He declined to name the ethnic groups.
There is also an increasing number of owners on limited pensions.
Gioventu cited a recent case where the mainly retired owners in one North Vancouver condo all agreed that balconies and decks in the aging building had to be fixed. But the special assessment was defeated because more than half said they couldn’t afford it.”
– from ‘Condo life is rife with conflict’, Daphne Bramham, Vancouver Sun, 26 Oct 2012

More stories of people who can’t afford their own homes.
– vreaa

“The purchases are the fifth and sixth properties that Forsgren owns and plans to rent.”

“Don Forsgren has heard pundits speculate that Vancouver home prices will drop by as much as 40% during the next five years – but he’s not having any of it.
The Intracorp Canada president recently committed to buying two units in his company’s MC2 development near southwest Marine Drive and Cambie Street. Another 18 units in that project have sold to insiders while the remaining 425 condominiums will be made available October 27 to the 6,500 people who have registered to be eligible buyers.
The purchases are the fifth and sixth properties that Forsgren owns and plans to rent.
“Vancouver has a good base level of demand from immigration and population growth,” he told Business in Vancouver. “That’s not going to change over the long term, so we’re quite bullish about the prospects of the market from a stability point of view.”
That bullish sentiment is clear from the spate of Metro Vancouver housing projects that Intracorp has in the works, many of them near transit hubs”…
“Our target is to do about 1,000 homes each year in Vancouver and about 500 in Toronto. We’re on track to do that in 2012, 2013 and 2014.”
– from ‘Don Forsgren: Home maker’, Business in Vancouver, 23 Oct 2012.

We suspect that, unlike the case of the man-in-the-street investor/speculator, the housing market could tank and Don would still be fine despite his advertised RE holdings. Those 6 units are surely purchased cheap, and likely represent a risk of only a small percentage of his net-worth. A bit like a chef dining at his own restaurant, a clothing chain CEO wearing his own suit brand, or a car dealer driving his own stock.
– vreaa

Arguments With Myself – “The perception of offshore money pouring into the area to acquire properties without foreigners even visiting them has been overstated.”

“The perception of offshore money pouring into the area to acquire properties without foreigners even visiting them has been overstated, said Cameron Muir, chief economist at the B.C. Real Estate Association.” – from ‘UniverCity condo project feels market chill’, G&M, 23 Oct 2012

Gee. And where would people have gotten that impression?:

“There are high-net-worth Asian purchasers buying as investments, as second homes, or for satellite families.” – Cameron Muir, chief economist for the British Columbia Real Estate Association, Businessweek, 24 Jun 2010

—
Off-shore buyers have had a small but significant direct effect on prices, and a very, very large indirect effect as a story that has fuelled locals in their speculative buying. We’ve consistently believed that.
– vreaa

“73% of homeowners can’t afford their own homes”; “Mark Carney admits to ‘droning on in public about the dangers of household debt'”; “They offered me close to a million last year (25 years old) just because I’m in Fort McMurray.”

“Canadians will learn an ugly lesson if they keep piling on debt the way they are at the moment.
The Bank of Montreal report that came out Monday and noted that almost three-quarters of homeowners would feel a significant squeeze from even a small rise in interest rates shows just how close Canadians are to falling over the edge of their finances. What it means, in essence, is that 73% of the people surveyed can’t afford their own homes. And a lot of them are already feeling the pinch.”
—
“This is at a time when interest rates are at historic lows, which means they can only go up from here. That they will rise, eventually, is inevitable. Yet 16% of the people in the survey said they might not be able to make their payments if rates rose by even a tenth.
You don’t have to think hard to imagine what the fallout would be from an event like that. You can picture the headlines — “Canadians driven from their homes by rise in interest rates” – and the panic in Ottawa. The papers – well, some of them, anyway – would be full of stories about innocent families who insist they had no idea they were getting into such a mess when they took out the mortgage on their “dream home.”
—
“Mark Carney, the Bank of Canada governor, has wagged his finger at big borrowers so often he seems almost sheepish about it.
“Me droning on in public about the dangers of household debt is a way of reminding households that: don’t assume that current levels and the current situation will be there forever,” he said on one recent address.
—
“As the housing market cools and home prices slip, a lot of people could find themselves making monthly payments they can barely cover for a house that isn’t worth what they thought it was. If you can’t cover the mortgage, you just have to pray the roof doesn’t start leaking or the furnace fail.
And borrowers won’t really have anyone to blame but themselves. The warnings are out there. The examples are rife: all anyone has to do is examine the experience of U.S. homeowners over the past few years. The dangers aren’t a secret, they’re just being ignored.
But people keep borrowing, because it makes them feel good to spend, because they’re too busy to think about it, because they figure they can cover the payments in the short term and will deal with the future when it comes. And because they can always blame it on someone else when the roof caves in.”
—
– from ‘Hard-pressed homeowners just close their eyes and borrow some more’, Kelly McParland, National Post, 24 Oct 2012

And from the comment section below that article:

“When I was shopping for a house in 2010, the bank told me I could afford $850k. I am a compulsive budgeter, with detailed spreadsheets, played with various amortizations, and incorporated all of my expensive, housing-related and otherwise, and the amount I concluded that I could afford was $500k. That’s a huge difference.” – Jc

“They offered me close to a million last year (25 years old) just because I’m in Fort McMurray. Didn’t go anywhere near that mark.” – doodles

“I was also offered a $750K loan 10 years ago, and only borrowed $500K upon my own analysis (based on property costs < 30% of gross income). The Scotia loan officer told me that I was smart, and that she feared for others that were borrowing all they could get." – cash0

“We wanted to move a year ago and decided we could afford about $400K. Bank offered us $750K. We spent $362K fully expecting to pay higher interest rates eventually.” – chmilz

—

No surprises; Lenders have allowed borrowers to overextend.
Headlined for the record.
– vreaa

Mortgage Prisoners – “Something like that will never happen in Canada”

“How it happens
Here is a fictional but typical example:
A shop owner moved home in 2006, after being offered a mortgage without needing third-party corroboration of their income.
The interest tracked base rate at 1% over bank base rate for five years, after which the rate would revert to the lender’s standard variable rate (SVR).
The lender was happy to lend the money on an “interest-only” basis, where the repayment of the loan would come from future profits in the business, or from an inheritance, or from the sale of the property itself.
With the Bank rate at 5%, the interest stood at 6%, so the householder had to pay £2,000 a month.
In 2007, the Bank rate increased to 5.75%, so repayments increased by a further £250 a month.

Changed circumstances
It is now 2012, the High Street is suffering, and the shop owner’s current income is only £50,000. The property might be worth only £570,000.
From April 2008 until March 2009, his mortgage costs dropped from £2,000 pm to £500 a month as the Bank rate fell to a record low.
All appeared well until the end of the five-year Bank rate tracking product in November 2011.
Now, payments have gone from 1.5% (£500 a month) to the current SVR of 4.25% (£1,416 pm).
Traditionally over the last 25 years or so the answer to this issue of increasing costs would be have been to remortgage to another lender.
However in the current environment things are different, with lenders being much more conservative.
The shop owner would find it difficult to find a new loan on an interest-only basis.
The loan is now at 70% of the value of the home, so almost every lender would require him to take a repayment loan.”

– from ‘Mortgage prisoners’ are locked in to home loans, Simon Tyler, BBC, 25 Apr 2012

Hat-tip Erebus at VREAA 25 Oct 2012 for this link, and who added:
“My co-worker’s response to this: “Something like that will never happen in Canada” “.

Note that in the above example, problems have arisen even with property prices rising.
Yes, there are some differences between UK and Canadian mortgages, but the broad principles of those in debt coming under increasing pressure, as the virtuous cycle turns vicious, are the same.
– vreaa

Cost To Rent A Luxury Two Bedroom Unfurnished Apartment In Desirable High Income Cities, And In Vancouver

– from ‘Sticker shock: Cost of living varies widely’, Mercer, 9 July 2012 [hat-tip clive]

Vancouver rents are pretty much in line with incomes; RE prices aren’t, yet.
– vreaa

“The Accountant was advising people to retire without any debt. The Radio Host says in an incredulous tone “But is that REALLY possible???”

“This was the topic on this morning’s financial tips spot on CBC radio. A CA was advising people to reconsider if they are liquidating their RRSPs in order to fund a bad real estate investment (or something like that, was half-listening for part of it). One thing that caught my attention, the CA was advising people to retire without any debt. The radio host says in an incredulous tone “But is that REALLY possible???” WTF? I for one, don’t understand how someone who is in their 50 or 60s, bought their house in the 1970s or 80 for at least 50% less than what prices are today, can have an enormous amount of debt going into retirement. But I guess people have been taking money out of their houses in the form of HELOCs so it shouldn’t be so surprising. But it really shouldn’t be this way. People are counting on their houses being worth so much when they retire, but maybe they shouldn’t.”
– pricedoutfornow at VCI October 23rd, 2012 at 10:03 am

A significant number of Vancouverites close to retirement are overly in debt and overdependent on the market value of their homes for their future financial health.
A significant number of radio show hosts, and other commentators, are unable to imagine how this could be any different.
– vreaa

Westside SFH Example – Sold May 2011 For $2.47M; Back On Market Oct 2012 Ask Price $2.48M

4550 Blenheim St, Vancouver Westside (McKenzie Heights)
Built 2009
3,370 sqft SFH, 46×122 lot
6 bedrooms, 4.5 bathrooms, 3 car garage

Listed 12 Mar 2011, Ask Price $2.59M
Sold 15 May 2011, Sale Price $2.47M

Now, Listed 12 Oct 2012, Ask Price $2.48M
—

1. Motivation for sale?
2. One (of many) to watch.
– vreaa

Mark Carney Magic – Soft And Strong At The Same Time

“The Bank of Canada softened its stand on raising interest rates , a shift that reflects an economic outlook that has deteriorated markedly since the spring.
Canada’s central bank also left its benchmark interest rate at an ultra-low setting of 1 per cent for the 25th consecutive month, and left its economic outlook for the next few years largely unchanged.”
– from ‘Bank of Canada softens rate stand, flags debt concerns’, Kevin Carmichael, G&M, 23 Oct 2012

“The Bank of Canada strengthened its bias for raising interest rates, retaining its outlier status among the Group of Seven nations while signaling concern about record household debts it says will keep growing.
Policy makers led by Governor Mark Carney kept the benchmark rate at 1 percent, where it’s been more than two years, and said “some modest withdrawal of monetary policy stimulus will likely be required.”
– from ‘Carney Strengthens Bias to Raise Rates as Debt Risk Grows’, Greg Quinn, Bloomberg, 23 Oct 2012

The speculative mania in Vancouver RE will resolve itself regardless of whether rates stay low, or whether they strengthen slightly. Either way, there is too much debt, and the market is collapsing under its own weight.
Fortunately, our predictions are not dependent on trying to read the BOC’s intentions.
– vreaa

“I used to go to the parking lot with my co-workers, point at the realtor section and say: “See these cars? They’re bought though fees and commissions you paid when you took out the mortgage. When you buy property, you purchase a BMW as a gift for somebody else.”

“My name is Stan. I live in Vancouver, BC. I’m 30. I rent and plan on doing so for as far into the future as my eye can see. I carry no debt. Have enough diversified savings to last about 2 years if I happen to lose my $65K / year job. I’m the sole bread winner in my 3 member family, which may become 4-member family if my mother doesn’t find a job soon.

I keep hearing about boomerang kids and those that live in their parents’ basements into their 30s. To me, a fall back option such as this, would be a luxury. I face the possibility of housing “boomerang parents”. Each time the media mentions someone returning to someone else’s house, I cringe.

Despite being told all my life that renting meant throwing money away, I could never bring myself to invest in a mortgage. Signing a contract that amounted to a promise to remain in good health and financially stable for 30+ years never made sense (regardless of the premise). Not knowing what the next year might bring, how could I commit to anything forcing such obligation?

My previous place of employment shared the building with a realtor firm. Their parking lot was always full of top of the line BMW’s and Porsche’s. My young friends were all starting families and jumping into mortgages at that point. They thought they could afford the $1 mil homes they were going for (while earning roughly less or as much as I did).

I used to go to the parking lot with my co-workers, point at the realtor section and say: “See these cars? They’re bought though fees and commissions you paid when you took out the mortgage. When you buy property, you purchase a BMW as a gift for somebody else.” My friends laughed, but they’re not laughing now… neither are they my friends anymore.

Yet with many of my, now underwater, former friends no change has taken place. They still occupy the properties, having missed out on the blessing of a faux recovery. Not everyone gets a second chance to get out of the market and they totally blew it. I still cannot understand what pushed most of them into “ownership”. I had no data, no projections when making my decisions, just a simple set of observations. The parking lot and my own clunker told me more about the state of the housing market than all of the mainstream economists, university professors, and TV newscasters combined.”

– Stan from Vancouver, as relayed by Garth Turner at greaterfool.ca 21 Oct 2012

Sitting With Equity And Eager To Use It – “They purchased the three-unit brownstone, in the up-and-coming area of Bedford-Stuyvesant, for $725K, by re-mortgaging their Vancouver house for around 80 per cent of its value.”

“Meet Rodney Hynes and Thomas Hunt, Vancouver owners of a new brownstone in Brooklyn, N.Y.
“We’d like to thank the over-priced Vancouver real estate market for making it possible,” says Mr. Hynes, dryly.
Mr. Hynes, who works for Aboriginal Affairs, bought a home on Vancouver’s east side with Mr. Hunt, a TV producer, nine years ago. They purchased the house, which needed a $200,000 renovation, for $268,000. According to a recent appraisal, it’s worth $850,000.
They purchased the three-unit brownstone, in the up-and-coming area of Bedford-Stuyvesant, for $725,000 (U.S.), by re-mortgaging their Vancouver house for around 80 per cent of its value. Because the Brooklyn property will bring in rental revenue of $7,000 U.S., their mortgage and other expenses will be more than covered.

Full disclosure: I’ve known these guys through friends and media connections for a number of years. They are a perfect example of Vancouver buyers who were initially reluctant to jump into the market, but once in, soon embraced the seemingly endless ride, as, year after year, the value of their home climbed. They were smart, or lucky enough, not to lock into a five-year rate, but instead went with a variable rate so low that they rapidly paid down a hefty chunk of their principal. It meant they were sitting with a lot of equity, and they became eager to use it towards another purchase.

You won’t hear the Suze Ormans of the world advising consumers to mortgage one’s home to the max. Most every money expert will tell the average middle-income earner to pay down the mortgage, not borrow further on it.

Mr. Hynes and Mr. Hunt had almost paid off their Vancouver home but chose to mortgage it to the max so they could own the brownstone clear title. I spoke to a few Century 21 realtors in Vancouver and Toronto who help clients liaise with realtors south of the border, so they can work their way into the U.S. market. When I ran the idea of maxing one’s mortgage to make a U.S. purchase possible, the realtors weren’t so sure they’d personally go that far.

Mr. Hynes and Mr. Hunt say they have already endured shocked reactions from friends, of the “are you crazy?” variety. But the couple regularly travel to New York, and one day, when they’ve paid down the mortgage, they will reserve one of the small suites for themselves, as a pied-à-terre.

“Canadians are very conservative, especially around matters of money,” says Mr. Hynes.

Says Mr. Hunt: “What’s interesting is when you go to New York and you’re doing what we’re doing, you see it’s as normal as can be. There are people from all around the world purchasing real estate, and being entrepreneurial about it.

“We’re not worried.”

Mr. Hynes and Mr. Hunt aren’t alone in their quest for U.S. real estate. Overall, foreign purchases of U.S. properties have gone up 24 per cent in the last year, according to a recently released report by the American National Association of Realtors (NAR). Canadians are, by far, the greediest buyers. We account for 24 per cent of the foreign sales stateside in the last year. Meanwhile, the second-biggest buyer, China, is responsible for 11 per cent of sales. Toronto realtor Paul Indrigo said he relies on such stats to help Canadians find properties in popular hot spots in Florida, California and Arizona.

But it’s not a straightforward process, purchasing an American investment or holiday property that’s nowhere close to home.

If Mr. Hynes and Mr. Hunt want to renovate, which they do, their property management company will have to hire contractors. To do the work themselves would require a work visa. As well, non-residents of the U.S. are expected to pay a 30 per cent withholding tax on gross rental income – unless, of course, they find an accountant who can help them file the forms that will save them from having to take such a hit. Fortunately, there are local accounting firms who’ve become expert in U.S. tax laws and one of them, a Surrey firm, helped guide the way for Mr. Hynes and Mr. Hunt.

“There will be challenges every step of the way,” says Mr. Hunt. “Taxes are huge. Expenses are really high. Insurance is high. Water has to be paid for separately. We have to budget for maintenance.”

And the vacancy rate isn’t the same as Vancouver, adds Mr. Hynes. In an up-and-coming neighbourhood like Bed-Stuy, they say demand is so much lower that people might not show up for an open house on a rainy day.

However, compared to Vancouver, the New York market is a breeze, says Mr. Hunt.

“We spent two years looking for a house in Vancouver, and the fact that we survived a sellers’ market here meant we didn’t freak out about the New York purchase.

“The market in Vancouver was way more intense.”

– ‘Going all in: Canucks max out their mortgage to buy in Brooklyn’ Kerry Gold, The Globe and Mail, Oct. 19 2012 [hat-tip Jack]

So, this couple paid $468K ($268K purchase, plus $200K renos) for a house that now has an appraised value of $850K.
This means they could have liquidated their RE for a profit of about $382K (minus commissions and fees etc).
Instead of doing that, or of being content with having a paid off home in desirable Vancouver, they decide to go ‘all-in’ real estate, with leverage.
They borrow 80% of the current value of the East side property ($680K), and purchase the $725K US property.
Thus, by our very rough math:
Value of RE carried:
East side $850K + Brownstone $725K = $1.575M
Mortgages:
Eastside $680K + Brownstone $45K = $725K
(Is it also fair to assume that, because this couple paid down their mortgage rapidly, and because they required a 80% HELOC to purchase the US property, that they don’t have much else in the way of savings/investments?)
Thus they are very likely leveraged RE:net-worth at about 2:1.
Overall, this looks like a situation where a household is overextended into RE and very vulnerable to RE weakness ahead.
On their side, they likely purchased the US property at a reasonable value, and it is currently cash-flow-positive.
The US housing market may have bottomed, but quite possibly not; the Vancouver RE market has only now begun to descend.
– vreaa

“My uncle, a retired nurse, bought a 2br condo in Coquitlam last year and is now renting it out for $1500 a month, which will barely cover his mortgage plus fees. He is convinced that he can sell it for a profit at anytime. He knows nothing about real investments.”

“Talking with my dad the other day. He speaks a lot to my uncle, a retired nurse who really is clueless about a lot of things. He bought a 2br condo in Coquitlam last year and is now renting it out for 1500 a month, which will barely cover his mortgage plus fees.. He is convinced that he can sell it for a profit at anytime. Wonder if he can make any profit on it. Meanwhile, my dad says my uncle knows nothing about real investments (my portfolio is up 40% this year not including dividends that are reinvested) and is just buying into this bs about how real estate never goes down. There are still idiots out there.”
– Dave at VREAA 18 Oct 2012 at 7:06pm

A large percentage of the local population have been led by recent experience to believe that RE is the only asset class that is safe and performs well. Contrarians know that this is a reason for caution.
– vreaa

“A lawyer, a public company financier, a real estate marketer, a cop, and a real estate agent walk into a diner…”

“I went out for lunch with a few old university friends yesterday. One was a lawyer, one a public company financier, one a real estate marketer, one a cop, and of course, one of whom was a Real estate agent.
Needless to say, the conversation ultimately led to the fact that we all hate our jobs! When it came to the police officer’s turn to gripe, he expressed that after 10 years on the force he was finding his work becoming particularly mundane. In fact he had taken to framing houses on the weekend with a carpenter friend of his in return for free help with a renovation he was doing at his own residence. He said he really enjoyed the labor/results aspect of the work versus what he deals with at his 9-5. But when he began saying that this framer buddy of his and he wanted to build a few houses out in Port Moody and sell them I damn near pulled out his pepper spray and gave myself a good spritzing.
I did my best to casually offer a warning of dabbling in the dark arts of amateur development… but hell, what’s the worst that could happen?”
–nom nom no at VREAA 19 Oct 2012 7:53am

We’d submit that a major reason that so many in mid-career find their jobs ‘mundane’ is the era of bubbles. In typical times, one develops a profession or a trade, strives to do it well, and is rewarded by society for one’s work.
Since the 90’s, we have heard so many stories of those speculating on tech stocks, housing, and sector-whatever, making ‘x’ times their annual income in ‘y’ months, that the fabric that holds together part of the reason for working unravels.
Why should I continue to be a perfectly competent dentist when society will reward me better for flipping condos or trading stocks in my pjs?
This distraction is part of the misallocation of resources that occurs in times of speculative mania/s.
We need police officers to be good police officers, and dentists to be good dentists; not to be taking off to build and flip houses.
– vreaa

The BlackBerry and Vancouver RE – “You can’t do anything with it. You’re supposed to, but it’s all a big lie.”

“Rachel Crosby speaks about her BlackBerry phone the way someone might speak of an embarrassing relative.
“I’m ashamed of it,” said Rachel Crosby, a Los Angeles sales representative who said she had stopped pulling out her BlackBerry at cocktail parties and conferences. In meetings, she says she hides her BlackBerry beneath her iPad for fear clients will see it and judge her.
The BlackBerry was once proudly carried by the high-powered and the elite, but those who still hold one today say the device has become a magnet for mockery and derision from those with iPhones and the latest Android phones. Research in Motion may still be successful selling BlackBerrys in countries like India and Indonesia, but in the United States the company is clinging to less than 5 percent of the smartphone market — down from a dominating 50 percent just three years ago. The company’s future all depends on a much-delayed new phone coming next year; meanwhile RIM recorded a net loss of $753 million in the first half of the year compared with a profit of more than $1 billion a year earlier.
…
As the list shrinks of friends who once regularly communicated using BlackBerry’s private messaging service, called BBM, many a BlackBerry owner will not mince words about how they feel about their phone.
“I want to take a bat to it,” Ms. Crosby said, after waiting for her phone’s browser to load for the third minute, only to watch the battery die. “You can’t do anything with it. You’re supposed to, but it’s all a big lie.”
The cultural divide between BlackBerry loyalists and everyone else has only grown more extreme over the last year as companies that previously issued employees BlackBerrys — and only BlackBerrys — have started surrendering to employee demands for iPhones and Android-powered smartphones.
…
Out in the world, the insults continue. Victoria Gossage, a 28-year-old hedge fund marketer, said she recently attended a work retreat at Piping Rock Club, an upscale country club in Locust Valley, N.Y., and asked the concierge for a phone charger. “First he said, ‘Sure.’ Then he saw my phone and — in this disgusted tone — said, ‘Oh no, no, not for that.’ ”
“You get used to that kind of rejection,” she said.
“BlackBerry users are like Myspace users,” sneers Craig Robert Smith, a Los Angeles musician. “They probably still chat on AOL Instant Messenger.”
BlackBerry outcasts say that, increasingly, they suffer from shame and public humiliation as they watch their counterparts mingle on social networking apps that are not available to them, take higher-resolution photos, and effortlessly navigate streets — and the Internet — with better GPS and faster browsing. More indignity comes in having to outsource tasks like getting directions, booking travel, making restaurant reservations and looking up sports scores to their exasperated iPhone and Android-carting partners, friends and colleagues.
“I feel absolutely helpless,” said Ms. Gossage. “You’re constantly watching people do all these things on their phones and all I have going for me is my family’s group BBM chats.”
Ryan Hutto, a director at a San Francisco health information company, said he frequently depended on others, often his wife, for music playlists, navigation and sports scores. “After two or three questions, people start to get irritated,” Mr. Hutto said.
His wife, Shannon Hutto, says with a sigh: “Anytime we go anywhere, I always have to pull up the map. If we’re searching for a restaurant, I pull up the Yelp app. If we need a reservation, I pull up OpenTable. I kind of feel like his personal assistant.”
…
RIM’s most recent efforts to hold on to loyal customers, as well as software developers building apps for its next generation of phones scheduled to be available next year, have elicited universal cringes. In a recent promotional video, Alec Saunders, RIM’s vice president for developer relations, is shown belting out a rock song titled “Devs, BlackBerry Is Going to Keep on Loving You,” a riff on the 1981 power ballad by REO Speedwagon “Keep on Loving You.”
“This is the sign of a desperate company,” said Nick Mindel, a 26-year-old investment analyst. “Come on, BlackBerry, I always had some faith, but you just lost a customer. Frankly, I don’t think they can afford to lose many more.”
After eight years with a BlackBerry, Mr. Mindel said he just joined the wait list for the iPhone 5. When it arrives, he said, “I’m considering removing my BlackBerry battery, pouring in cement, and using the BlackBerry as an actual paperweight.”

– from ‘The BlackBerry Stigma, J. Emilio Flores, The New York Times, 15 Oct 2012
—

Hero to Zero, in 60 months.
Sentiment changes, and products that seem bullet-proof fairly rapidly can become objects of derision.
Five years ago, who would possibly have believed that the ubiquitous and proudly paraded BB would be giving up death rattles? How many believe that Vancouver RE prices can drop over 50%?
“But what function will Vancouver RE be struggling with?”, some may ask.
The function of being a powerful financial instrument, is the answer.
“Damn, this 7%-10%-per-annum-price-appreciation key is broken!”.
You’re supposed to be able to sell it, anytime you like, at a steady and ever increasing profit, but you can’t.
“It’s all a big lie.”
– vreaa

Afterthought:
Crackshackberry?

“It’s funny how quickly things change. Just a year ago, I was ridiculed during a conversation for just mentioning that maybe the RE market was over-inflated.”

“One of my friends is currently on a 1-year long maternity leave. Hubby is a realtor and has not closed a deal for quite some time now (and being very frustrated about it). I don’t know if this is because they can no longer pay the mortgage or because he sees the writing on the wall (probably a bit of both), but they’ve just put their 2-br-$800K condo up for sale (good luck with that one in this market!).
It’s funny how quickly things change. Just a year ago, I was ridiculed during a conversation for just mentioning that maybe the RE market was over-inflated, that maybe a correction might eventually occur, and that flipping a property at this point might not be a good idea. Oh well, I may not sound so stupid anymore, I guess…”
– Makaya at VCI 16 Oct 2012 2:47pm

Awareness of the bubble is going mainstream.
– vreaa

“Canadians are even more in debt than anyone imagined. Revised Statistics Canada calculations place household credit market debt in the second quarter at 163% of disposable income, well above the previously reported 152%.”

“Canadian households are even more in debt than anyone imagined, according to a revised Statistics Canada calculation that gives a more accurate picture of family finances.
The revisions place household credit market debt in the second quarter at 163 per cent of disposable income, well above the previously reported 152 per cent, although the two levels are no longer a direct comparison.
The new numbers remove non-profit institutions from the household category, giving a more accurate accounting of family finances. The revision shows debt growth over the last decade that looks “eerily similar to the U.S. experience, just before their dramatic housing bust,” said David Madani, an analyst with Capital Economics.
“Overall, this supports our bearish view that Canada’s housing boom is unsustainable and the eventual correction, which we think is already underway, is likely to have a material negative implications for growth,” he said.
The revisions show a much steeper climb, with debt growing in each of the past six quarters.”
– from ‘Canadian debt even higher, stats show’, Julian Beltrame, Canadian Press, 16 Oct 2012

No surprise. All part of the same big theme.
– vreaa

“Just came back from Portland, Oregon. One heck of a beautiful place. $250K-$300K for a lovely home. Drive up to Vancouver, pay 5x more for a house. Makes perfect sense, right?”

“Just came back from Oregon. Portland is one heck of a beautiful place.
Houses? $250-$300 for lovely home.
Coast. Fishing. Skiing. Hiking. Hunting. Motorcycling. All close. Drive south to CA for beach long weekends. Drive up to Vancouver, pay 5x more for a house. Makes perfect sense, right?”
– Sebee at greaterfool.ca 16 Oct 2012 1:03pm

“The political strategist and lobbyist behind Gordon Campbell and Christy Clark’s rise to the premiership has slashed the price of his Shaughnessy mansion by $1.082 million.”

“British Columbia’s man of political intrigue is reaping the rewards at the racetrack, but not so much in the luxury housing market.
Patrick Kinsella was the leading co-owner at Hastings Racecourse for the 2012 meet that ended Sunday. The political strategist and lobbyist behind Gordon Campbell and Christy Clark’s rise to the premiership has slashed the price of his Shaughnessy mansion by $1.082 million.
The 100-year-old, four-storey, 6,441 square-foot house at 3839 Selkirk was listed in July 2011 by Rennie and Associates Realty for $7.28 million. There were no takers. Kinsella and his wife Brenda switched agents to Macdonald Realty BGW, which is now asking $6.198 million. The price has fallen 14.8 per cent since July 2011.
Kinsella is not alone. Real Estate Board of Greater Vancouver figures show there were 32.5 per cent fewer sales in September 2012 than a year earlier. The Vancouver West benchmark price fell 6.5 per cent to $2.09 million. It was the worst September in a decade.
University of B.C. associate professor Tsur Somerville said west side, West Vancouver and Richmond properties are under pressure. Immigrants and investors who were snapping up properties in 2010 and 2011 have “moved from getting a unit at any price to — if they are buying — buying for the best price they can,” he said.
“In any downturn, luxury homes tend to be more cyclical than starter homes. In the slowing market the luxury homes tend to get hit harder,” Somerville said.”
– from ‘Mansion Market Slide Hits Kinsella, Powerbroker to Campbell, Clark’, The Tyee, 15 Oct 2012 [hat-tip Terminalcitygirl; many thanks]

Sorry, now I’m confused…
Are Westside homes resistant to any downturn, or are they expected to “get hit harder”?
For the record, for new readers, we are on record as having asserted that, in the end, all property types and all property areas will get hit by about the same devastating percentage loss, peak to trough.
– vreaa

“I want my tenants to have some hope in the future so they can be motivated enough to get out of bed every morning to go to work to pay my mortgages.”

“I absolutely love the situation we are in right now. It is so damn hard to qualify for a mortgage, forcing the perpetual renters to be forever priced out in a big city like 416 or Vancouver. At the same time, people with existing mortgages can enjoy this low interest rate for a long time. By the time rates normalize, the tenants would have paid off their properties.
I wish you luck being liquid. I would rather pay the bank 2.15% to use your money (for which you probably get 1.05%) and invest it in providing shelter for you so i can take your rent check every month and build equity for myself.
I always tell my tenants that i think real estate will definitely crash by at least 90% when i stop by to pick up my rent check. I even refer them to this blog. After all, i want them to have some hope in the future so they can be motivated enough to get out of bed every morning to go to work to pay my mortgages. It’s going to be a nasty CRASH, renters, a nasty CRASH.”
– Bryan at VREAA 15 Oct 2012 3:01pm

What’s the most remarkable thing about any market?
It’s that, regardless of conditions, for every trade there is both a seller and a buyer, each convinced that the other is doing the wrong thing.
– vreaa

“One of our best friends thought her house would sell at over $1.2M. She was really pissed when the realtor told her bluntly that it would not sell for over $999K, as nothing was moving over $1M, and that at under $1M it would take 6 months if she was lucky.”

“Interesting comments from one of our best friends today. They had a realtor “evaluate” their house for sale. Looks like my constant bubble talk is “perhaps” getting through? You guys may remember that they were featured in my post a while back [VREAA 8 May 2012], about the wine soaked Calgary dinner party I attended at their place a few months ago, where RE was the topic of discussion over cocktails.
She told my wife today that she thought her house would come in at over $1.2MM. She was really pissed when the realtor told her bluntly that it would not sell for over $999K, as nothing was moving over $1MM, and that at under $1MM it would take 6 months if she was lucky. Now she doesn’t want to list as the market “will come back” and RE only goes up. Well, they only owe about $200K. And in 5 years from now it will be paid for, but probably only worth $500K.
They are my dear friends and a hit of that magnitude would not dent their net worth by >10%. But still, “a fool and their money”…”.
– Carioca Canuck, at VREAA, 12 Oct 2012 6:47pm

“How much can it drop?” – $412K (23%), plus one car, and counting…

A Long Way Down

2575 7TH Ave W, Vancouver, BC, V6K 1Y7, Canada
1721 sqft triplex townhouse.

This unit featured on ‘Vancouver Housing: Bubble or Bust?’, The National, 20 Sep 2012 and archived and discussed on these pages [Realtor/Speculator On ‘The National’ “Trying To Sugar Coat The Ugly Reality That Prices Are Tanking”, VREAA, 23 Sep 2012]. Excerpts from The National piece:
CHRIS BROWN: “At first glance Philip Chan’s property in popular Kitsilano would seem to support those who believe the crash is upon us. It’s a very nicely finished 1,700 square foot newly built unit in a triplex. Back in March it came on the market for $1.79 million, including sales tax. It’s now 1.57 million. That’s an almost 12 percent price drop.”
PHILIP CHAN: “Unit like this, I think you can find no more than 10 on the market at this moment. How much can it drop?”
CHRIS BROWN: “At his Kitsilano property owner and realtor Philip Chan is sounding confident the market won’t slip much further from the 10 or 12 percent it already has.”

“How much can it drop?”

—
UPDATE 14 Oct 2012

Thanks to joey jo jo who writes:
“Remember Philip Chan the realtor who was profiled on the CBC National report? He was commenting on how the market had “adjusted” and he had recently reduced the asking price on a property he owned by 220k. It looks like that same property is still on the market but for another 197k less than what he was asking in the September 20 report. AND he’ll throw in a new FIAT 500!!”

2575 7TH Ave W, Vancouver, BC, V6K 1Y7, Canada
Ask price now: $1,373,000
From Phillip Chan’s website:
“A brand new 2012 FIAT 500 Pop is a present to you if you purchase 2575 W7th Ave! As seen on CBC News The National “Vancouver housing: bubble or bust?” on September 20, 2012.”

$417K [23.3%] drop in ask price, thus far. Plus one car.
For the record, we don’t think prices will fall 39 km.
But 50%-66% from peak, highly likely.
– vreaa

Erroneous Theories For Falling Prices #6 – Toronto Bankers Caused The Crash

“But what if on the way to try to address the housing crisis, Mayor Gregor Robertson and council overlooked a key consideration? Housing isn’t built in a vacuum. It invariably requires financing. And according to several people contacted by the Straight this month, it appears that Toronto bankers are far less keen to underwrite projects unless developers can pony up more money up front to justify the risk.
So no matter how much the city tries to encourage the construction of homes for sale to middle-income home buyers, it won’t happen if financiers aren’t prepared to open up their wallets to developers. “The banks are holding their feet to the fire,” Cameron McNeill, president of MAC Marketing Solutions, revealed to the Straight by phone.”
– from ‘Toronto bankers put the squeeze on Vancouver real-estate developers’, Charlie Smith, Georgia Straight, 11 Oct 2012 [hat-tip ‘allen’ and ‘Where’s the HAM?’]

The argument is a slight variant of blaming ‘the Conservatives’ and ‘the tightening of mortgage rules’, but it’s a variant nonetheless.
– vreaa
—

Regarding this series:
There is only one BIG reason for falling prices in Vancouver RE: the speculative mania is over.
That is all you need to know to explain the price action that will play out over the next few years.
On the way up we had people attributing price strength to all sorts of bizarre and invalid causes: the Olympics, running out of land, etc. On the way down we expect similarly bizarre arguments for price drops; commentators will offer many erroneous theories as to why prices are falling. We’re already beginning to see them, and the crash has barely commenced.
We’ll collect them; please submit new examples you come across. – vreaa

“Built into this situation is the eventual and inevitable fall. … Something, it matters little what – although it will always be much debated – triggers the ultimate reversal.”
– John Kenneth Galbraith, in ‘A Short History of Financial Euphoria’

#1 – Climate Change Caused The Crash
“Prices will continue to fall, as outside buyers from other Provinces such as Ontario, Alberta and Manitoba finally realize that climate change has now become an important issue in British Columbia. What was once an enviable temperature and small secret now has become a drag, as the winter, spring and summer months are now cooler and wetter than before.”
– thinkandact, commenting at the Globe and Mail, 2 Aug 2012

#2 – The Conservatives Attacked The Vancouver Housing Market And Caused The Crash
“The reality is that because banks also own investment dealers, their CEOs would prefer to see more Canadian money flowing into the equity markets rather than into real estate. … I wouldn’t be surprised if Prime Minister Stephen Harper, a trained economist, has been influenced by a Zambian-born economist in crafting mortgage-amortization policies that may kill the Vancouver housing market and create significant hardship.”
– Charlie Smith, Georgia Straight, 3 Aug 2012

#3 – Vancouver RE Bears Caused The Crash
“The common theme I see in your “anecdotes” is YOU! There is no shift in the “general mood”. YOU are the catalyst bringing down the mood among your friends. I can only hope you don’t have too many friends, or you will singlehandedly bring down the market.”
– ‘Anonymous’, at VCI 21 Aug 2012, in response to ‘Makaya’ posting two stories of people becoming bearish on the Vancouver market

#4 – An Invisible Force Caused The Crash
“An invisible force has guided Buyers and Sellers of Vancouver homes. An unprecedented number of Sellers have listed their homes for sale while at the same time many Vancouver home buyers have decided that they are ‘not buying now’. This collective behavior is often called a ‘murmuration’. It is fair to say that human behavior is at times shaped by invisible forces which lead us to behave in ways that may not be in our best interest.”
– ‘Invisible Force Guides Buyers and Sellers of Vancouver Real Estate?’, Larry Yatkowsky, 13 Sep 2012

#5 – Tightening Of Mortgage Rules Caused The Crash
“The real key thing for the [weakening of the] ownership markets was the reduction in the maximum amortization from 30 years to 25 years.”
– Cameron Muir, chief economist at the BCREA, ‘Mortgage rules exacerbating B.C. housing sales slump’, Vancouver Sun, 17 Sep 2012

#6 – Toronto Bankers Caused The Crash
“According to several people, it appears that Toronto bankers are far less keen to underwrite projects unless developers can pony up more money up front to justify the risk.
So no matter how much the city tries to encourage the construction of homes for sale to middle-income home buyers, it won’t happen if financiers aren’t prepared to open up their wallets to developers. “The banks are holding their feet to the fire,” Cameron McNeill, president of MAC Marketing Solutions, revealed.”
– ‘Toronto bankers put the squeeze on Vancouver real-estate developers’, Charlie Smith, Georgia Straight, 11 Oct 2012

HuffPost – Vancouver ‘No Fun City’ – “Ludicrously expensive housing prices…”

“There’s the ludicrously expensive housing prices downtown and shortage of young professionals…”
– from Welcome To Vancouver: ‘No Fun City’, Mitch Moxley, Huffington Post, 5 Oct 2012

Headlined largely for the description of the housing prices.
Read the whole article. 867 Comments, and counting.
Also see our own post on this ‘issue’: “What’s REALLY Good About Vancouver?”, 14 May 2012
– vreaa

“The neighbour put her house up for sale when her husband died, borrowed from her line of credit, and bought an apartment. The house has now sat on the market for months, crickets, and she is freaking out. Now trying to sell the apartment.”

“The neighbour put her house up for sale when her husband died, she couldn’t stand being there alone.
Borrows from her line of credit and buys an apartment.
The house has sat for months, crickets, and she is freaking out, she is now trying to sell the apartment because her overhead is through the roof.
It’s these sort of s****y situations that are going to force the housing prices down, selling out of need not choice.”
– TNT at VREAA 11 Oct 2012 8:42pm

What’s Another $15,000 On The Visa? Nothing! – “Friends of mine just bought a Burnaby condo. They told me that they have nothing left over at the end of each month.”

“Friends of mine just bought a Burnaby condo. The realtor told them what a great deal they were getting, then pointed to the comparable unit in the same building listed 50k higher, and expressed his frustration with the owner (also his client): “see – their place has been listed for a year but they will never sell, because they refuse to lower their asking price. You can’t work with them. They will stay unsold for years.” He then said that he liked working with the seller of the unit my friends bought, because she could be talked down to a price that would sell.” …
“As for my friends who bought… I shed a tear for them. They just moved from a $900 co-op unit into a $440k mortgage at 1800/month plus 300 strata fees. They told me that now, there is nothing left over at the end of the month…. holidays will be camping trips to kelowna. And, the husband, who was heavily persuaded to buy by the wife, said that he couldn’t believe how much all the house stuff cost: $1,000 to paint the unit; $500 to have screens put in, some mirrors changed, bathroom stuff… it’s all money, money money, he said. And then saddest of all – he said that “I used to hate debt – I would do whatever it took to not spend on credit cards I couldn’t pay back right away. Now, I am $440,000 in debt. So what is another $15,000 on the Visa? It’s nothing. I just put whatever on the credit card now.”
– TPFKAA at VCI 28 Sep 2012 at 10:41 pm and 10:49 pm

Almost All Buyers Are Very Leveraged – “41% have less than 10% down-payment, a further 21% less than 20% DP. Only 39% put down more than 20%.”

“According to the latest data from Will Dunning, Chief Economist of CAAMP, less than 4 in 10 buyers have 20% down payments.
For those purchasing from 2010 through spring 2012:
41% had less than a 10% down-payment
21% had a 10-19.99% down-payment
Only 39% put down 20% or more.
(This survey included both first-time and repeat buyers. First-time buyers accounted for 56% of the dataset. Totals don’t add to 100% due to rounding.)”
– jesse (‘YVR Housing Analyst’) at VREAA 8 Oct 2012 10:55am, quoting from a Canadian Mortgage Trends article on the recent CAAMP released figures.

Headlined for the chronological record.
The vast majority of buyers are very leveraged to RE prices.
The Vancouver subgroup is likely worse, given our price levels.
This flies in the face of those who claim that Vancouver is supported by vast numbers of cash buyers.
And, as we all know, if an owner has less than 20% equity in a house, they lose it all when prices drop 20%.
– vreaa

“It allows people to pay too much for a property. The lender still lends the money, the guy still buys it, and the only person hurt in the whole deal is the person who paid too much.”

“Flaws in a national databank that helps determine the value of houses across Canada have helped fuel inflation in home prices, putting mortgage lenders and borrowers at greater risk, key players in the housing sector have warned.
Documents obtained by The Globe and Mail detailing confidential statements from banks, appraisers and mortgage insurers show rising worry over the use of a database operated by the Canada Mortgage and Housing Corporation (CMHC). The documents suggest the data are flawed and help push home prices up. …
Introduced in 1996 as a way for the CMHC, banks and other lenders to quickly and inexpensively determine how much money can be lent against a residential property, the database known as Emili is relied upon too heavily by lenders, the documents suggest.For home buyers, or homeowners with home-equity lines of credit, an inaccurate valuation by the database could allow them to overpay or borrow much too heavily for the home, industry members argue.” …
“It allows people to pay too much for a property,” Rick Sieb, president of Intercity Appraisals Ltd. in Vancouver, said in an interview. “If the property is worth $300, and somebody comes through and the realtor has convinced him to pay $330, so he’s 10 per cent out, and they submit it through Emili or another AVM, it will just say ‘yeah, that’s fine for that area,” Mr. Sieb said. “So the lender still lends the money, the guy still buys it, and the only person hurt in the whole deal is the person who paid too much.”
The Canadian housing market has been on a tear for much of the past decade but is now showing signs of petering out.” …
“During a hot housing market, a wider margin of error on estimated values was less of a concern, since there is smaller likelihood a mortgage or loan refinancing will end up under water. But if the market starts to fall, as some economists expect, the accuracy of appraisals becomes paramount. When a lender is forced to liquidate a home in the event of a default, it could incur a loss. In the case of CMHC, the federal government would be left picking up the tab.”
– from ‘Potentially flawed data used by banks and lenders bump up house prices’, G&M, 10 Oct 2012

Yup.
One relatively minor facet of the ‘people-overextended-themselves’ story.
As predicted, when a market turns, the strain starts showing all over the place.
‘Virtuous’ cycle turns vicious.
– vreaa

“You will buy this unit, and four others like it…”

– image from ‘Vancouver Housing Bubble Doesn’t Scare Chinese Investors’, Huffington Post BC, 4 Oct 2012

Headlined for the nature of the image, and the quality of the emotion portrayed. 
Infatuated. Besotted. Entranced. Lustful.
When price drops establish themselves, these feelings change to disillusionment; guaranteed.
– vreaa

“My parents have a paid off home and approx. $300,000 in retirement savings. It’s gonna be a tight budget to make that money last 20 years or so.”

“My parents paid off their home 15+ years ago. As far as they were concerned then, they thought they would be ok: $100,000+ in RRSP’s, a paid off home. My mother quit her job cause they no longer need the income etc…. Who wouldn’t – in fine shape with a paid off home???? Well my dad didn’t put away more in RRSP’s (I guess he thought what was the point with a paid off home?) and at 65 was told he didn’t have enough to retire. So he worked two 2 years more of physically draining work 8-10 hours a day, cause he wanted to travel some, go back to visit relatives etc… Then he had a stroke so he’s essentially retired.
They now have a paid off home and approx. $300,000 in retirement savings. Even with $300,000+ it’s gonna be a tight budget to make that money last 20 years or so. They’re hoping for $1000 a month from their RRSP’s on top of approx $1800 a month in OAS and CPP. I’ve run the numbers and its not pretty.
That will probably mean no travel to see relatives, maybe no car in the future, cable may have to go.
I’ve never seen that many seniors out there say, “I own my home so I’m the happiest person there is”, what I do see is alot of cranky seniors who COMPLAIN about the cost of EVERYTHING. If you knew how much it cost to run a home, shouldn’t you have saved money for those costs in retirement?
Its easy to think that owning a home is FANTASTIC when your retired, but its a bitch when just maintaining a roof over your head eats a big chunk of your lowly income.”
– Arshes at VREAA 12 Sep 2012 at 3:57pm and 4:10pm

“Sure, But She Has A House To Die For…”

“The Chamber’s Guest House Bed and Breakfast in North Sydney, N.S., where a Fred and Millie Weeks stayed, is shown on Monday, October 1, 2012. Media reports in Nova Scotia say a 77-year-old woman arrested in connection with the suspected attempted murder of her husband in Cape Breton is a woman who became infamously known as the “Internet Black Widow.” The reports say the woman arrested is Melissa Ann Friedrich, also known as Millie Weeks. …
Weeks had been convicted of manslaughter in the death of her husband, Gordon Stewart, in the 1990s in Nova Scotia. She also received a five-year prison sentence for theft and forgery in 2005 involving a man she met online. Two of the men she dated in Florida had fallen ill and one of them died, but no criminal charges were laid, according to the Halifax Chronicle Herald newspaper.”
– image and text from ‘Internet Black Widow’ arrested, G&M, 1 Oct 2012

For the gorgeous character house above, many Vancouver men would take their chances.
– vreaa

“How is it Seattle, just 3 hours away, can produce the people and capital to create and run such great engines of capitalism, but in Vancouver all you have are greedy rats flipping their homes and telling themselves it’s the best place on Earth?”

“I just looked at a beautiful 580 sq foot first floor studio in Seattle’s Capitol Hill, about a 10 minute walk to downtown, for $179,000 dollars.
Here in Seattle there is Boeing, Microsoft, Amazon, Costco, Jones Soda, Starbucks and a company that every real estate board in Canada would prefer that you never ever ever know exists, namely zillow.com.
All of these companies were founded in Seattle. There are dozens of others that have their US base here like Nintendo, Expedia and Holland America Line.
How is it Seattle, just 3 hours away from Vancouver, can produce the people and capital to create and run such great engines of capitalism and in Vancouver its like greedy rats flipping their homes and telling themselves its the best place on Earth?
My reading of the situation is simply that the level of cognitive dissonance and delusion is just absolutely beyond comprehension.
Please Vancouver, explain yourself. Actually, never mind: the market and its natural forces will deliver the explanation to you in a hurricane like catastrophe soon enough.”
– Bob at VREAA 6 Oct 2012 at 5:59pm and 6:07pm

It is fair to compare Vancouver RE with that in Seattle, and we come up sorely overpriced.
– vreaa

The Mayor – “When mortgage and rental costs eat up the discretionary income of a large swath of our population, it depresses spending in the local economy. When our communities start losing young families and seniors on fixed incomes, we lose vitality and a sense of generational continuity. Unaffordable housing is damaging Vancouver’s community fibre.”

“…each street will be about this wide…”

“Nearly every day since I became mayor, I’ve heard from family after family and business owner after business owner about how the high cost of living impacts their lives.
One day, it might be a young couple whose second child is on the way, and who’ve decided it’s time to buy a home. And they’ve come to the conclusion they simply can’t do it in Vancouver’s housing market, and they’re planning to move to the Fraser Valley.
The next day it might be a senior, someone who can tell me the names of the families who’ve lived on their block going back half a century … but with a fixed income he just can’t afford to stay in his neighbourhood.
I’ve spoken to people in deep distress because they hold down three jobs and it’s still not enough to make rent. I’ve talked to owners of major companies who can’t fill positions because their workforce is leaving the city for somewhere more affordable.
And I lost count a long time ago of the number of people who just laugh off the idea of ever owning a home here.
The lack of affordability imposes a burden on everyone. When mortgage and rental costs eat up the discretionary income of a large swath of our population, it depresses spending in the local economy. When our communities start losing young families and seniors on fixed incomes, we lose vitality and a sense of generational continuity.”
– from ‘Unaffordable housing is damaging Vancouver’s community fibre’, by Mayor Gregor Robertson, Vancouver Sun, 8 Oct 2012

Bingo!
Interesting that anyone is capable of writing anything at all about Vancouver housing without mentioning the pachyderm squatting on the coffee table: the speculative mania, the bubble, preposterously overvalued homes; whatever you want to call it. Homes are overpriced by a factor of two or three.
Let’s wait and see what happens to affordability once home prices drop to the vague vicinity of those determined by economic fundamentals. There will still be challenges, but they’ll be very different from the ones that people are pretending to try to solve now.
– vreaa

Financial Post – ‘Everything you need to know about Canada’s housing ‘bubble’’

‘Everything you need to know about Canada’s housing ‘bubble’’, by Mamta Badkar at the Financial Post [4 Oct 2012] is a noteworthy article, starting with the title. Not ‘Does Canada have a RE bubble?’; by now, the fact of the bubble is a given. All of the arguments in the article are familiar to readers of these and other ‘bear-blog’ pages. It is noteworthy to see them summarized in a national newspaper. Read the entire article. Here follows a point-form Vancouver-relevant summary, for the record:

1. Canadian home prices have been rising for some time other than a brief blip during the the recession.

2. Canada’s homes were more unaffordable in the second quarter than their historical average.

3. This was the second straight quarter in which the cost of owning a home, as a percent of income, increased.

4. Vancouver is the least affordable market in Canada, and Toronto’s affordability also worsened for a second straight quarter.

5. The home price index for Vancouver topped out in May but its still the least affordable city for homes.

6. While lower interest rates could explain some of the rise in home prices, the divergence between Vancouver prices and rents has been very stark.

7. Rising interest rates could send affordability to “dangerous levels”.

8. The sudden decline in home sales is extremely worrisome for the housing market.
“In Greater Vancouver residential property sales are 41.6% lower than the 10-year average.”

9. And it doesn’t help that Canada’s sub-prime market is “booming”.
Canada’s sub-prime mortgage industry is growing and there are $500-billion in high-risk mortgages in the Canadian housing market. That is nearly 50% of the market.
Moreover, the Canada Mortgage and Housing Corporation (CMHC) which insures all mortgages approved by banks, has a legal limit of $600-billion for mortgage insurance, and this limit has already been raised twice since the end of 2007.
“If these high risk mortgages run into problems, the Canadian taxpayers are the ones on the hook for the loss of investment on what could prove to be toxic assets. In addition to the CMHC, the government also insures 90% of the portfolios of Genworth MI Capital and Canada Guarantee. When taking these corporations into account, the Canadian people have over 1T in exposure to insured mortgages.”

10. The debt to disposable income ratio for Canadian households is at nearly 155%. Household debt in the U.S. was at 160% before its economic crisis.

11. The use of Home Equity Lines of Credit (HELOCs) has also been worrisome.

12. David Rosenberg thinks Canadian houses are carving out a top as U.S. homes are carving out a bottom.

13. Robert Shiller is worried “that what is happening in Canada is kind of a slow-motion version of what happened in the U.S.”.

14. Regulators have been changing policies to cool the housing market…

15. Some expect the housing correction will be mild…

—

“Vancouver home buyers are ‘seeking their revenge’ after a long running housing boom”.

“Vancouver sales are 40% below the ten year September average. And as the Bank of Montreal’s Sal Galteri puts it “Vancouver home buyers are seeking their revenge after a long running housing boom”.
– from ‘The ‘revenge’ of the Vancouver home buyer’, video clip by Michael Babad, G&M, 3 oct 2012

Archived for the chronology, largely for the interesting turn of phrase.
– vreaa

REW’s ‘House Hunter Chronicles’ – “I had wanted my dream house right away. I wanted to skip the steps. But now I’m thinking short-term house and long-term house.”

A serialized story called ‘House Hunter Chronicles’ was posted through the summer at the website REW.ca. Here it is, for the record:

“Follow local house hunters as they experience the highs and lows of buying a home in the intense Vancouver real estate market. Elaine L. is the first to share her search with us. We’ll check in with her every couple of weeks to see how it’s going.”

Elaine L
Family size: Two — a single woman and her mom
Currently: Own a condo
Budget: $800,000 – $ 1.1 million
Neighbourhoods Collingwood, Fraserview, Renfrew, Renfrew Heights, Killarney
Looking for 2000 – 2500 sq. ft. newer detached house with rental suite down, move-in condition

1. Meet Elaine L. (June 16, 2012)

Elaine L. is only in her twenties, but she’s already a veteran in the Vancouver real estate game. She and her mom, Patty, sold the first condo they lived in back in 2004. They rented for a while, thinking Vancouver house prices would go down, but when that didn’t happen they bought their current condo in 2008.

Since then their condo has appreciated by $40,000, and its 880 square feet are starting to feel a bit cramped for the two of them and their dog. When one friend bought a rental property and another bought a house, Elaine was inspired to start house hunting again.

So she’s contacted the same Realtor they worked with before and asked her financial advisor what kind of price she can afford, and the house hunting is on! She hasn’t put her current home on the market yet, and there’s no deadline for buying, but she’s started doing a lot of online research and visiting open houses.

Elaine and Patty would like to stay in southeast Vancouver, where they are now. Finding the right neighbourhood involves researching crime and average income statistics and using Google Maps Live View to check out the look and feel.

Her ideal house is at least 2000 square feet with a mortgage helper in the basement, living area on the main floor and bedrooms upstairs. Elaine says that it’s mostly older houses that offer that layout, and they tend to be out of her price range. But more affordable Vancouver specials, both the classic ones and the newer versions, have suites on the main floor and living and sleeping areas up, all on the same floor.

Chinese traditions also play a part in her search for a good house; for instance, if you need to go down a couple of stairs to get to a house, it’s off the list.

Is she looking for a fixer-upper? Definitely not. “I can build IKEA furniture — that’s about it.”

Elaine credits her friends with keeping her on course. “My emotions get the best of me sometimes,” she says. “I look at a house and I don’t really like it, but I talk myself into it, and then I have to get my friends to talk me out of it.”

2. Elaine Loves and Lists (June 22, 2012)

Follow local house hunters as they experience the highs and lows of buying a home in the intense Vancouver real estate market. Elaine L. is the first to share her search with us. We’ll check in with her every couple of weeks to see how it’s going.

It was a bit like falling in love. The house ticked all of Elaine’s boxes: 2300 square feet, 3 bedrooms on the top floor with the kitchen and living area downstairs, and a 2 bedroom rental suite on the same floor that would cover $900 of the mortgage. It was built just last year, so it’s like new but without the HST. Her mom, Patty, liked it too.

Perfect.

But alas, her love was unrequited. When her Realtor inquired about putting in an offer subject to the sale of the condo the seller said, Don’t bother. “No one wants to sell to you if they have to wait for you,” Elaine says.

That’s why every day last week Elaine and her mom were hard at work — lugging a heavy elliptical trainer down to the storage locker, taking boxes of bric a brac over to a sister’s garage and removing all traces of Elaine’s Hello Kitty collection. They’re staging their condo, and by next week they hope to be able to get their Realtor in to take pictures and put the condo up for sale.

“I don’t want to go through that again,” says Elaine about having her subject-to-sale offer rejected. “We have some places where we can stay for a few months if we don’t find anything. And when we sell we’ll try to set a really late possession date.”

Meanwhile, “It’s a great feeling to be tidy. We’ve decluttered and depersonalized it to get an open, contemporary look. We had the floors redone with a dark laminate and it really opened up the space. We’ve cleaned all the walls. The place looks fantastic.

“A friend warned me not to fall in love with it and decide not to sell. But I want to live in a house.”

The house she fell in love with — actually a half-duplex — has been sold. But the good thing is that there are lots of similar places in the same neighbourhood, so Elaine’s optimistic that something with the same appealing layout will come up… after she’s sold the condo.

“It’s around $900,000, and at first I thought it was expensive for a half-duplex, but it feels just like a detached house. The two halves barely share a wall. Only the rental suites connect. I haven’t seen anything like it in Vancouver.”

Though Elaine was looking to buy a house in Vancouver, this place is in Burnaby, which hadn’t been on Elaine’s radar until a friend alerted her to the listing. It turns out, it’s just across the Burnaby border, only two minutes from where she is now, so she’d still be close to friends and family.

Of course, that’s if all this works out.

The upheaval is stressful. Elaine says “I’m always worrying. What if we sell this and don’t have another place to live? What if the market crashes and my house ends up not being worth what I paid for it?

“But then I remind myself that I’m not biting off more than I can chew. I’ll be living comfortably, even if the market crashes. I always plan for the worst case scenario, so I’m planning everything as if the suite isn’t rented. We’ll be okay.”

3: Keep it Clean (July 18, 2012)

Now comes the hard part: living in a home that has to be clean, shiny and spare at all times.

“Having to clean up after myself all the time is making me want to get it over with,” says House Hunter Elaine L. “I want someone to buy it so I can leave”

The condo she and her mom share has now been on the market since the beginning of July. After hauling out everything that wasn’t nailed down, and getting new flooring installed, she’s thrilled at how great the place looks. But it has to be kept that way.

“I gave my dog a haircut!”
The dog was the worst culprit in the keep-it-clean campaign. Elaine’s mom, Patty, had been spending part of every day vacuuming up the dog hairs that showed up particularly well against the dark wood of the floors — one of the new selling features of the condo.

A canine cropping took care of that problem. Now it’s a matter of always putting things away, dusting and doing the dishes.

All that upkeep is worth it. Their Realtor says that it shows really well, and he’s had favourable comments from people viewing it. Considering there are three other condos for sale in the same building, that’s hugely important. Elaine and Patty indulged in a little spying, going to the open house at one of the other condos to check out the competition, and they’re satisfied that their efforts have given them the upper hand.

The other side of feng shui
They’ve even had some serious interest. A mom and daughter came to look at the condo twice, but they rejected it because the mom said that the ensuite bathroom door facing the bed was bad feng shui. Elaine and Patty are Chinese too, and they have a few criteria based on feng shui principles. But not that one.

“The bed can be moved.” says Elaine. “We’ve lived here for four years and haven’t had bad luck!”

As her Realtor — and every Realtor the world over — says: It’s just a matter of finding the right person.” There are three showings coming up; three chances to find that right person. And with all those prospective buyers coming through her home, Elaine’s decided not to spend the week constantly keeping everything spotless. She’s going to Vegas instead. She’s got a phone with a US number, so anything that needs to be handled can be handled from there.

Let’s hope Elaine and Patty’s luck holds.

4: Elaine’s Las Vegas Luck (July 27, 2012)

Last time we talked to House Hunter Elaine L., she was off to Vegas with a group of friends. She was fed up with having to keep her condo spotless and ready to show at a moment’s notice, so she figured she couldn’t make a mess if she wasn’t there. Problem solved.

So there’s Elaine enjoying a delicious lunch in Sin City when her phone rings. It’s her Realtor. He’s got an offer. Can she look at it now?

They talk a bit and work out a counter offer and the Realtor sends it off. Lunch is interrupted several more times as offers and counter-offers fly back and forth. Finally, when Elaine is in the back of a cab on the way to an outlet mall, the Realtor calls with the final offer. He scans it to her phone and Elaine signs it, gets it witnessed, returns and continues to the mall… with considerably more to spend than she had when she set out.

Jackpot!

Digital transactions like this are more and more common with the advent of wi-fi, tablets and smartphones. So far there’s never been a problem. Digital signatures are informally accepted as valid, although the real estate industry has not yet had occasion to test them in court. The Realtor also took the contract to Elaine’s co-owner — her mom, Patty — for an ink-on-paper signature.

The condo was on the market for exactly two weeks before the offer, with one open house and 10 private viewings. The buyers saw it in one of the private viewings. The time on market is bang-on for Elaine’s Collingwood neighbourhood. Since May, the majority of comparable condos there have sold within 18 days.

Elaine says the condo had numerous advantages that helped it sell so quickly. First was all the work she and Patty put into it.

“We took so much time to clean it up perfectly,” she says. “We got rid of every trace of our everyday life. It was completely staged. I don’t think other people go to that extreme. We saw other places, and they weren’t as perfect as ours.”

It was also listed in the mid-400,000s — a price that appealed to people getting into the market. Elaine says she’s seen more expensive condos sit ounsold. “A friend of mine has a sub-penthouse that’s selling for $150,000 more than mine, and she’s had it on the market for a year now.”

On top of that, the location is perfect: it’s right by the SkyTrain and close to an elementary school.

The couple who bought have two young daughters. At 880 square feet, the condo will be a tight fit, but in the Vancouver market, condos have replaced fixer-upper detached houses as the first rung on the property ladder for first-time buyers and new Canadians.

The buyers’ bank sent an appraiser, the home inspector did a report and the subjects were removed a little over three weeks after listing. The completion date is August 23. That’s too soon to find a house and move in, so Elaine and Patty are staying with Elaine’s sister for a bit.

“It’s nice not to have a set date for leaving. We can look around until we find the right place. But it’s a motivation as well. We don’t want to impose on my sister for too long.”

Elaine’s excited and a little apprehensive now that the deed is done. “It’s kinda scary. I don’t know where I’m going to live, and I’m going to be taking on a big mortgage. Plus, I’m worried that the market might go down and I will have paid more than the house can sell for,” she says.

But, “Mom believes that in the Vancouver market things won’t go down that much unless something big happens.” So even if the market starts to dive, that’s not going to keep them from looking… or buying

The search is on in earnest now.

5: Know the Market (August 16, 2012)

“I had wanted my dream house right away. I wanted to skip the steps. But now I’m thinking short-term house and long-term house.”

Elaine L. is finding the search to buy a house in Vancouver more frustrating than she had expected, now that she’s in serious search mode. She and her mom, Patty, are camped out at her sister’s place, and they don’t want to be an imposition for too long. On top of that, Elaine was recently promoted at work so her days are super busy. Her evenings are almost entirely occupied with searching online for new listings and going out on viewings or drive-bys.

She’s no longer thinking about a duplex. “It doesn’t feel like the responsible thing to do. I think it’s better to buy a whole piece of land because that’s where the money is, that’s where the resale value is. It just seems more secure.”

But even though she can buy a house up to $1.1 million, she’s finding it tough to find her dream home in Canada’s priciest real estate market.

There was one perfect house made even better by the fact that it was priced in the $840s. She found the listing as soon as it was posted and jumped on it, but despite her quick action, the house was sold before she got to it.

Then there was new Vancouver special that looked more like a heritage house. Not only did it have a unique look, it had the layout she’s after. But by the time she found it, the owners had taken it off the market.

The capper was the three-storey house with an above-grade basement suite downstairs. It was quite new and priced at $799,000. It looked like a steal… until she found out it was a former grow-op.

Lesson learned.

If it sounds too good to be true, it is, and for Elaine that includes any house priced under $800,000. With all the research she does, she knows house prices in her chosen neighbourhoods inside out, and she’s learned to distrust any listing with a price that seems too low for the area.

So the dream house is just going to have to stay in the future. “For now we’re going to look for one with lots of rental income and save up for the one we ultimately want,” she says.

The decision has lightened her load at a highly stressful time. It’s broadened the range of acceptable houses. She can look at the new Vancouver specials that she used to reject because they always had a rental suite on the main floor, and she wanted the main floor and upstairs for herself.

Now that first-floor rental suite is a desirable feature. The income from that will help her get to her ultimate goal, to buy a house in Vancouver that’s exactly what she wants.

[As of 6 Oct 2012, no apparent further updates. -ed]
—

The final chapter sounds like a dangerous recipe: a rationale for overpaying for a property that is very suboptimal for the owner (a house with the (necessary) rental suite on the main floor!). If Elaine takes the plunge, she could be regretting the decision for a decade or two. – vreaa

“My dad is a boomer and ex city planner. My parents would have a spaz attack if they found out we were buying houses in this market. They’ve been talking about the bubble for years.”

“My dad is a boomer and was a city planner for years. He left his job because of the insane amount of corruption within the department and because council was mostly made up of developers, real estate agents and the like. He couldn’t make a difference any way he tried and basically had a meltdown in the end.
My parents have a good retirement plan that does not include equity in any way. They would also have a spaz attack if they found out we were buying houses in this market. They’ve been talking about the bubble for years.”
– pips at VREAA 13 Sep 2012 10:53am

Some boomers see very clearly what has happened in the RE market in Vancouver, and have prepared accordingly.
Most, not so.
– vreaa

And with regard to city planning, see this comment from Snats, in response to ‘pips’:
“I have a masters in urban planning. While in graduate school I interned at a city and worked there a year afterward.
Since then, my professional track as been about me trying to distance myself from that stuff as quickly and throroughly as possible. Luckily I also studied real estate development at the same time which helped me move into the private sector.
Modern city planning is generally a collection of ideological positions about density and the morality of cars with very few hard facts or data to back it up. Planners tend to cite each other as sources, and if you follow the trail of expertise, there is not much at the end of it.
In my city, it is amazing the extent to which current planning dogma and developer/large property owner interests have become completely aligned. Planners are absolutley convinced they are “doing good” for the public while we subsidize development in any number of ways with tax payer dollars.”

“If house prices here don’t revert, ever, when I die at 100, I will have lived 100 years in rentals.”

“If I die tomorrow, I would have lived my entire 38 years (whole life) in rentals. And if house prices here don’t revert ever, when I die at 100, I will have lived 100 years in rentals, too.”
– Ray at VREAA 12 Sep 2012 12:35pm

Buy Now At 20XX Prices!

441 E 38th
Asking $899K, then $829K. Sold for $820K.
Purchased in December of 2010 for $810K.
“Are we at Dec/10 pricing already?”
– timber2012 at RE Talks 4 Oct 2012 1:40pm

There is valid ongoing debate regarding which price measures to use to best monitor the decline.
Not a simple task: Mean, Median, Teranet, Benchmark?
Teranet, using (by our understanding) Case-Shiller-type sale-resale single-property methodology, is likely the most valid price to track.
At the single example level, time1 to time2 anecdotes will always be powerful.
A house that sold for ‘x’ in 20XX, now selling for ‘y’ in 201X, doesn’t necessarily reflect the whole market, but still grabs the attention of prospective buyers.
“Gee, I could buy that now for less than I’d have paid in 20XX!”.
– vreaa

RE Bought And Sold – “I concluded that the taxpayer had numerous foreign assets that were not previously disclosed.”

– 3275 Campion Rd, Victoria, BC
9,300 sqft SFH on 8.4 acres; ask price $6.7M (down from $15M).

“The Appellant resides at 3275 Campion Road in Saanichton, Vancouver Island, British Columbia.”
…
“When the Appellant filed his Canadian income tax returns for the 2002 and 2003 taxation years, he reported the following income:
2002 Net Rental Income $20,000; Net Income $19,100
2003 Net Rental Income $20,000; Net Income $22,312” …
“After completing the Net Worth Analysis and reviewing the Notices of Objection, officials of the CRA concluded that the Appellant earned and failed to report the following income:
2002 $287,340
2003 $177,380
(Note: Pension income of $2400 was also included for each year.)”
…
“Q. Okay, and in particular what did you gather from this new information? What did it tell you?
A. That there was some accounts and assets held outside of Canada that I had not previously been aware of.
Q. So with respect to the assets then, what did that screen from the bank indicate?
A. That the UBS account value was [$] 2,097,000. There was also an account in Germany that had a value estimated at [$] 200,000. And there were blue-chip stock holdings in Iran worth [$] 800,000.
Q. And I notice also it indicates there was a Banker’s Acceptance worth [$] 200,000, is that right?
A. Yes it does.”
…
“It should also be noted that the Appellant sold a home located at Beech Drive in Victoria for $4,500,000 (original purchase price was $1,075,000 and significant improvements were added). The Appellant’s home at 3275 Campion Road is currently for sale. The original asking price of the Campion Road property was $15,000,000. The current asking price is $13,500,000.”
…
“Based on the comments as outlined above, I believe that the gross negligence penalties imposed by the Minister should be upheld.
Before concluding, I wish to quote from United States Supreme Court Justice Oliver Wendell Holmes. Justice Holmes said:
“Taxes are the price we pay for civilized society”.
I believe that this comment by Justice Holmes applies in this situation.”
…
– from ‘Saeed Korki v Her Majesty The Queen’, Tax Court of Canada, Docket 2008-74(IT)G, 2010
[hat-tip to ‘oh oh’ at VCI 23 Sep 2012 3:06pm for alerting us to this case. – ed.]

“Just Sign Here.”

These images from our indomitable correspondent, Nemesis, who also writes:
“They’re such strange cultural artifacts – the MassProduced “ManufacturedHomes” [and by extension the identikit developments marketed as “communities” comprised entirely of these structures].
These examples are to be found on the grounds of EagleHomes.ca PresentationCentre… adjacent to the TransCanada Highway on the outskirts of SalmonArm.
There’s something vaguely disturbing about the whole tableau…. the “WhyRent” signage… as though, tacitly, we could expand upon the marketing enticement, “Home & Land Packages”… to read, “Home, Land & Family Packages!”…
Id est – it’s all right here… just waiting inside… for you.
Boxed. ShrinkWrapped. BarCoded.
The husband/wife, child, job, ‘life’ that you always wanted but which, until today, had somehow eluded you…
“Just sign here.”

For the uninitiated, Nemesis is responsible for the indispensable ‘Postcards From The Blast Radius‘ photo essay/poems. Since his last post, the periphery has marched further towards the centre.
Thanks, Nem!
(We highly recommend that you click on the photos to view them in large format glory.)
– vreaa

[Images Ⓒ​2011 ‘Nemesis’ – All Rights Reserved]

Builders Could Not Possibly Have Timed This Any Worse – “As I’m writing this, I can hear the hammers on some of the seven new luxury single-family houses being built within *one block* of my own West Side rental.”

“As I’m writing this, I can hear the hammers on some of the seven new luxury single-family houses being built within *one block* of my own West Side rental. Indeed, there are not only For Sale signs on literally every block near me, there are often multiple houses/apartments for sale. Furthermore, there seems to be at least one SFH going up on nearly every block near me, sometimes more.

Builders still don’t seem to be getting the message about the housing market slowing down. After I read the Mayor’s excited comments a few weeks ago about a billion dollars’ worth of new building permits, I wrote to someone on City Council saying that what was being built near me, just as one example, didn’t look like it was selling well at all.

It’s the same old story: formerly affordable (some of it admittedly not in good shape) housing going down in favour of new builds that are way out of reach (statistically even!) for Vancouver incomes. I predict the West Side will have tumbleweeds rolling through it by next summer.”

– epte at VREAA 13 Sep 2012 9:28am

ADDENDUM:

Ben Rabidoux, at ‘The Economic Analyst’ posted a ‘quick note’ [3 Oct 2012] that documents Vancouver’s current sales weakness, making the excellent point that the weakness was present in Vancouver sales by April 2012, but that new mortgage rules were instituted in July – thus attempts by commentators to blame the low sales on the new rules are just dead wrong. Ben’s post also contains the following chart, which nicely complements epte’s anecdote above:

As Ben says: “High existing inventory and weak sales will only be compounded by rising new unit completions set to begin in early 2013. Builders could not possibly have timed this any worse.”

In most markets, insiders are a leading indicator of future market direction.
In real estate and construction, however, developers appear to be consumers like everybody else, and their analysis of market conditions is no better than the man or women in the (noisy) street.
When any RE bubble deflates, there are scores of late-to-the-party builders left high and dry; it appears ours will be no different from the rest.
– vreaa

“We are in fact like a mini Manhattan/.. Yaletown, one of the boroughs within downtown Vancouver/.. Vancouver is the Swiss bank account of international real estate/.. Just too strong for any sort of bubble circumstance to happen/…In Vancouver you can today buy a condo, and have 40 people lining up to try to rent that condo.”

CAMERON McNEILL: “Whenever the market goes near the top part of the cycle we always do hear pessimistic economists talking about bubble, et cetera. But the reality is that the fundamentals that are driving the market below the surface are just too strong for any sort of bubble circumstance to happen.”
—

CAMERON McNEILL: “We are in a, in fact, like a mini Manhattan and people want to live in this dense population.”

CHRIS BROWN: “There’s been a culture shift in Vancouver, he says. Living in smaller spaces is seen as okay. For many people, including families, getting along with less space is expected, even desirable.”

CAMERON McNEILL: “In Yaletown, one of the boroughs within downtown Vancouver over my shoulder here, just 10 years ago you wouldn’t see a baby carriage. Today they have six or seven daycare with waiting list and they’re happy to have the coffee shop as their living room, they’re happy to have the park as their backyard and they’re happy to have the seawall as their playground.”
—

CAMERON McNEILL: “The fact of the matter is in Vancouver you can today buy a condominium, you can rent it out and you will have 40 people lining up to try to rent that condominium. They’ll be paying a very, very high and a fair rent. If you have that much desire for people to — to live in a condominium, you know, I think that the market’s got no problem sustaining itself.”

CAMERON McNEILL: “I always say Vancouver is the Swiss bank account of international real estate. It’s a — it’s a funny little quote that I say because sophisticated people, whether they live in Vancouver or they’re international, they — they recognize Vancouver as a safe, long-term place to park some money when it comes to real estate.”

CHRIS BROWN: “In the months to come that assertion will be tested. Are we looking at a bubble that’s bursting or a boom that’s just had a little hiccup?”

– excerpted from ‘Vancouver Housing: Bubble or Bust?’, The National, 20 Sep 2012. [Transcription generously provided by ‘AP’.]
—

Other excerpts from this CBC previously archived.
These quotes headlined here, for posterity.
– vreaa