“I visited a few open houses today. At every one, I was the only visitor, and the sales pitch was the same – buy now, do a few quick fixes and sell higher. Nobody assumed that I may actually want to live there.”

“I visited a few open houses today. At every single one of them, I was the only visitor. The used house salesmen seemed generally lethargic. When I talked to each of them, I always got the same sales pitch – buy now, do a few quick fixes (or not) and sell higher. It’s all about flipping. Nobody assumed that I may actually want to *live* there. They were not concerned about quality of life for me, or having a family there, or entertaining guests, or proximity of amenities. It was always about selling down the road, one or two years from now for a profit of a few hundreds of thousand dollars.”
bubbly at VREAA 30 Sep 202 6:51pm

Homes in Vancouver have become priced largely as financial instruments, and far less so for their utility as dwellings.
Now inventory is high, sales are slow, and prices are showing the initial signs of weakening. Open houses are very quiet.
As the bubble deflates, prices will approximate those determined by true underlying value.
By my calculations, this means prices will fall by somewhere in the range of 50%-66% from the peak.
– vreaa

36 responses to ““I visited a few open houses today. At every one, I was the only visitor, and the sales pitch was the same – buy now, do a few quick fixes and sell higher. Nobody assumed that I may actually want to live there.”

  1. Hi VREAA – just a question for you. If your prediction comes true, would that make Vancouver the biggest housing bust in history? My own view is around -40%, but the top end of your estimate is I think pretty unheard of – only Belfast, in Northern Ireland, has ever seen anything similar to my knowledge. So you would see an SFH price of around $450K? If that comes true, then that would be huge… best wishes, Craig

    • Craig, thanks for the comment.
      I suspect that, if that upper bound prediction comes true (66%, real), there will be a good number of examples of other markets with similar losses. For instance, I don’t think the US has yet bottomed.

    • Miami was ~ 50% from top to bottom, Phoenix and Las Vegas crashed about 70%.

    • “Las Vegas-area home prices, hit hard by the recession, are down a whopping 61.8 percent from their peak in the first quarter of 2006, Fiserv Case-Shiller data show.”

    • Further, to Craig: And yes, your implications are correct, this could well be the biggest global RE bust, ever.

      • Cranston Snord

        Given the historically anomalous climb in median (or mean!) real estate prices over local incomes and financial solvency in Vancouver the prediction of an essentially historically unprecedented decline isn’t totally out of line.

        What remains to be determined is if “it really is different here” or market patterns are relatively universal. The next twelve months should tell us.

        As much as I distrust graph porn (and I’m a benchwork scientist that enjoy academic masturbation to graphical representation of data) I’d like to highlight what was posted at http://housing-analysis.blogspot.ca/

        https://docs.google.com/spreadsheet/oimg?key=0Aku6wWaKdvsQdHo1aGVHV3ppUzdfVWMxSzRnVk9WYnc&oid=9&zx=i7saqkqmmxmu

        The climb up has mirrored many recently established true real estate bubble markets. If Vancouver follows the same pattern and it’s hit peak or is already in decline, we will definitely know by this time next year.

      • I extended that graph back to -144 months, just to show Vancouver’s major run-up in the mid-2000s compared to the American ones. If one finds solace in symmetry, Vancouver is in for one heckuva bull trap in 4 years’ time!

      • Reductions of 66-75 percent would take us back around 10 years, or a little more. Particularly if you’re 35 or over — i.e. you’ve been an adult for that decade — think about exactly how much has, and hasn’t, changed about Vancouver, Canada, the industrialized world in that decade. Is it impossible to imagine real estate costing about what it did at the beginning of that decade, adjusted for inflation? (Which has been fairly low in many other areas of the economy — if you still have utility bills from 10-12 years ago, compare them with what you pay today. My monthly gas bills peaked in 2001-02.) And keep in mind, that by historical and national norms, Vancouver real estate was expensive then, on the verge of insupportably expensive. If 2001 prices seem impossibly low (and affordable) by reference to your salary, consider whether your salary has gone up due to inflation or because you’ve advanced in your career. It’s not surprising that a given price for a house or condo should seem cheaper to a 45-year-old than to a 35-year-old; the 45-year-old usually earns more, controlling for factors such as location and occupation. The bubble mentality and behavior have been so intense that they’ve affected the judgments even of many who consider themselves bears. Just because the bubble has lasted an unusually long time doesn’t mean the rules of the world have changed. Reversion to historical norms is actually, well, normal.

      • Cranston Snord

        Canis, the scary thing is that even though I’m in my (very) late-20s it’s hard for me to remember a time when the real estate market wasn’t bubbly. However, I also grew up in Calgary and remember a time when buildings sat as unfinished foundations for many years and things were grim.

        When I talk to some of the younger Vancouverites I work with, they obviously can’t conceptualize a market where housing prices decrease. They literally laugh at the idea- “Like that will ever happen! This is Vancouver!”

        Too bad their parents’ on paper wealth will be soon wiped out.

    • Prices in Florida in the seventies dropped by 90%

  2. Crashes. Where few know how deep the water really is.

    • Agree, myself included, of course.
      All predictions are best stated as probabilities… the 50%-66% price drop outcome that I foresee is what I think has the highest chance of transpiring… small chance it could be even worse, modest chance it could be less. And I’d go as far as saying that the chances of the Vancouver ‘correction’ being less than, say, 33%, are slim to nothing.

      • What I think you’ll find is that your predictions will become more mainstream over time.

        The analogy I would use with housing crashes is running a marathon. At first it’s fine, you think you have control over your stamina but as time passes it becomes more and more unbearable, and most collapse after 20k or so and it’s not even halfway.

        Unless you’ve run one before you cannot imagine how painful the back leg is until you experience it for yourself.

        I expect the length and severity of a downturn you predict will go beyond a 5k Fun Run.

      • Our predictions will become more mainstream as they approximate reality.
        😉

        Only partly stated in jest — mainstream opinion is notoriously rear-view commentary rather than having any predictive capacity.
        That’s why, at the bottom, everybody is certain that prices have nowhere to go but further down. (The opposite of everybody’s position at the top).

        This all may seem glib, but it’s simply the way that markets always work.

  3. How fast do you believe prices will fall 50-66 Vreaa% Thanks for your great work !!!

    • It’ll all play out this decade.
      I expect large drops over next 3 to 4 years; perhaps the bulk of the whole move down over 3 years? And the bottom will likely come with the proverbial whimper, as well as disgust.

      Of course, for buyers at the peak, it’ll take up to two decades to see those prices again, in real terms… perhaps longer.

      • Cranston Snord

        From what you’ve posted, we’re well in to Act III then?

        The only thing that hasn’t obviously happened yet is a drop in rents and increase in Vacancy.

  4. I lived and profited from the Vancouver area housing bubble from 2002 to 2007. (As a single house owner, not a speculator.) A former Montrealer, the Vancouver real estate market was my introduction to the term “suite-able” a word unknown elsewhere in Canada. (Well, perhaps known in Toronto, recently.)
    As an outsider, I didn’t understand the prices then, even after extensive research.
    Asian influx? Maybe that explained Richmond. Americans? I’ve met many of middle and upper middle class Americans,and in (admittedly casual) conversations I’ve found that they are remarkably and happily unaware (“So Toronto is east coast, huh?” ) in regards to Canadian real estate. Obviously after 2006, Americans were soured on real estate, anywhere. BC largest cash crop? A lot of grow ops to be sure, but it’s just one industry. Most people looked pretty sober. Touristic area? Well, if you have seen Nova Scotia and Newfoundland, you know they are equally stunning. The weather? Yes, Vancouver stays above freezing for almost all winter, but I can think of more attractive scenarios than months of grey, damp, drizzle. Surely it wasn’t the high crime rate. Unless thieves were doing a lot better than was commonly believed.
    But well paid cops, teachers, nurses were living in basements. Local folks shrugged and said “That’s the way it is here” A UBC economist that I met at a party mentioned some theories, but didn’t really seem convinced by them himself.
    I came to the conclusion that no one could reconcile house prices with Vancouver’s average incomes. (I put aside RE companies and their explanations-consider the source!)
    So if they go up on the basis of speculation, why can’t they come down? Way down? The answer is… there is no reason why not. They came down in the USA, in Spain, in Australia . (still falling)

    And consider this. I live in Ottawa now. Average house price here? About $350k. (And hey, they are usually not “suited”.) This in a city where about 65% of the working population are working directly or indirectly for the federal government. (Read: steady, full time, long term employment.) A city which has been named one of the top three cities in Canada to live in by McLeans magazine, for several years in a row.
    But sales in the last two months have been pinched to a trickle and markdowns are de rigeur. There’s no “reason” for this slowdown, except for the realization that even here the moderate house prices are too high. We sold our large, (Vancouver-profit-financed) Ottawa house in exchange for a small bungalow this spring, net divesting ourselves of about 30% of our investment in real estate. Apparently just in time.

    Vancouver? You are so toast.

    • “As a single house owner, not a speculator”

      You may have not been a “speculator”, but if you don’t mind me saying, you seem to have profited nonetheless.

      “There’s no “reason” for this slowdown”

      An astute, seemingly obvious, but rarely-heard comment. I suppose it’s not surprising people are looking for cause-effect. On twitter I used a chemistry analogy — the reason an unstable system changes state is because it’s unstable, not because an intern sneezes.

      • Profit is now a dirty word?

      • Cranston Snord

        Everyone who buys or sells in the 2001-2016 bracket willingly or unwillingly ends up being a speculator with the market extremes we’re observing. It’s a dirty truth. Some are just people trying to make a living and own a house, others are actually looking at it as an investment.

      • “Profit is now a dirty word”

        I do not preside judgement over right and wrong, allen, I could care less a buyer’s intent in part because intent can change over time. I no more malign profit incurred by a greedy speculator than I would a loss incurred by a God-fearing family who bought at the wrong time. I cannot care, first because of an undiagnosed mental condition, second because it does a disservice to the investors who bankrolled these purchases.

      • “I could care less…”

        So why did you make a point of it?

      • I cannot care, first because of an undiagnosed mental condition,

        Hmmmm?
        Are you a banker?

      • “So why did you make a point of it?”

        To explain to someone who made “a point of it” why it doesn’t matter.

        I am not a banker, but

    • UBCghettodweller

      >(Read: steady, full time, long term employment.)

      Sinvil servants might get kicked around at times but never discount how valuable a good pension plan is either.

  5. Let’s put it this way : when the best time to buy comes along again, it will be socially very unpopular to do so. You’ll tell your brother-in-law you’re looking to buy a house and he’ll look at you like you have 2 heads. People love the phrase “buy low and sell high”. But few realize that, by definition, it implies making decisions that are socially perceived as “crazy”.

  6. 50-66% off of when? Assuming there won’t be a rally that creates a new peak, when was the peak? Last summer?

    • Yeah, when all is said and done, it’ll look like we peaked in the summer of 2011 (with some examples of still high priced sales all the way into 2012 -> buyers who missed the memo).

  7. “You may have not been a “speculator”, but if you don’t mind me saying, you seem to have profited nonetheless.”

    Profited? I plead guilty. I was trying to differentiate myself from those people who put deposits on new condos purely as a financial play, without any intention of moving in
    We were lucky. If you look at the time graph of the Vancouver area house prices, the 2002- early 2007 part of the graph is particularly steep, with no pull backs. But to my wife and I, a house has never been an investment. It’s a place to live. Because our first mortgage was at 9%, back in the 1990’s , we got into the habit of paying down our house mortgage asap. Paying down the mortgage was the highest paying, lowest risk investment around. Because of that, we built equity, which allowed us to buy a much more expensive house when we moved to Maple Ridge 2002 with only moderate pain.
    The idea of a HELOC to us is repugnant.. But I can see why people in recent years were no longer interested in paying off their mortgage. With interest rate so low and the price appreciation so high, It’s a better play to sit and wait. Maybe buy a truck or RV or heck a summer house while waiting. I saw my American colleagues do the same moves in 2003-2005.
    One bought a $56,000 boat, and his banker told him he was using only a fraction of his house’s new value. Don’t even ask…
    Didn’t anyone else see this movie?

    • Berniebee, you combined a bit of lucky timing with some wise decisions. You have nothing to apologize for or defend.

    • ” I was trying to differentiate myself from those people who put deposits on new condos purely as a financial play”

      What was found in the US was that those who had claimed they were not “speculators” found themselves more panicked than they first imagined, when prices started dropping in earnest.

      I wouldn’t sell yourself short buying when prices were reasonable. Perhaps you were “lucky”, but based on your comments you would have had a more difficult time making the decision to buy should you have been born ten years later.

  8. Anybody who bought property solely, or in any part, based on the expectation that prices would rise, rather than purely for the utility of the property, was involved in speculation.

    • As I mentioned above, the US experience saw many professing to be buying for utility find out they MUST think about it as an investment too, in part because prices fell to the point they couldn’t sell and the market was illiquid. Whether they liked it or not they were speculating, they just didn’t realize it.

  9. Carioca cCnuck

    YVR Housng Analyst……..

    I have finally stopped laughing after watching that classic Monty Python skit. It isone of the best ones they ever did. The sad part is that it is just sooooo true when it comes to describing those folks, several of whom I could count as my clients over the last two decades.

    Thanks for putting it up.

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