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


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

61 responses to “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.”

  1. Hey, anyone not want to see these greedy developers get slaughtered?

    Good fun watching them squirm over the next year or so due to massively overbuilding.

  2. Builders keep on building…
    Salesmen keep on selling…
    Lenders keep on lending…
    Borrowers keep on borrowing…
    (Until the music stops, that is…)

    Hat tip to Stevie Wonder…

  3. I should have clarified: when I said “affordable” above, I should have said “formerly affordable” or “once and future affordable” — houses like those bungalows that, before the bubble, used to be within the reach of first-time SFH buyers, for example.

  4. This stain showed up on the pages of the G & M yesterday:

    Sorry for the long link. I don’t have my copy-&-paste hyperlink HTML code handy. The end of the first paragraph is particularly vomit-inducing:

    Bidding wars, unfortunately, may be here to stay so here’s some advice that may help you to secure your next property.

    As we know, bidding wars went extinct in most major centres over the summer. With that in mind, does not this read like a desparate, pathetic, brazen attempt to manipulate public sentiment into believing that bidding wars are still the norm – not to mention permanent?

    The article was lifted from Canadian Real Estate Wealth Magazine. No surprise there. But why would the G & M uncritically reprint an article that makes an obviously misleading statement about current market conditions in its first paragraph? I don’t care what kind of agreement G & M has with the magazine, the editors still have final say over what gets printed.

    The headline itself should have set off alarm bells. “Winning” a bidding war is like winning a speeding ticket because all the other speeders weren’t going quite as fast.

  5. From my analysis density increases have been pricing in for a generation in Van West. At some point the pressure to redevelop is going to be immense.

    I doubt the large builds recently popular are the best way of adding density, but they do yield more bedrooms than the incumbent older vintages.

    And there are some interesting clues about permits for detached vs house prices. When prices fall so will the permits. I’ll find the graph for you when I get a chance.


      See graph here. The correlation is 0.95 over the past few years, not stating that means anything going forward but it seems permit activity tends to be more robust when prices are higher. I would be surprised if permits issued stay high if prices drop substantially over the coming years. As a spec developer, your margin is wiped clean with changing land costs so there is close to no incentive to build without an in-place and iron-clad purchase contract.

      • Wow. That looks a lot like charts of stock price against sentiment: in other words, folks who get more and more optimistically bullish as prices rise, and more bearish as prices drop. Dumb money reactions.

    • Also re density increases, look at this graph that M- produced a few years ago here. Van West SFH is green, Richmond SFH is blue. It’s a bit blurry but Van West has been appreciating faster than inflation for over a generation. That can be due to a combination of three broad factors
      1) Incomes are increasing faster than other areas of the region
      2) Van West is running out of land and it’s a desirable place to live
      3) Massive irrational land speculation

      Ignore the run-up in the past ten years and look at the longer trend. Here is one possibility for what has been happening:
      – Van West is seen as a desirable place to live
      – Van West de facto incomes are increasing faster than the region — it is gentrifying
      – Despite gentrification, people will be willing to live on smaller lots to live in Van West
      – Incumbents are loath to markedly increase density
      – Rental yields of low density properties have plummeted
      – Most older low density properties are going to be the targets of developers

      Not saying all the recent speculation is rational but from where I sit, Van West is going to be facing relentless density pressures for a very long time no matter what.

    • From my own observation (and I’m happy to say it keeps matching up nicely with statistical data!), I think the large builds are definitely not adding density. I know of many large builds that are either empty or have no more than three people in them (or sometimes one, a caretaker).

      The West Side is actually being depopulated!

      • “The West Side is actually being depopulated”

        Population growth is negative in certain neighbourhoods, yes. Some of that is due to land speculation, some likely due to demographic shifts (empty nesters or whatever), however a large 6 bedroom house with a laneway house seems to add more bedroom supply than a small older vintage 3 bedroom house on the same lot. I expect these newer properties to be more thoroughly used in the years to come, though I don’t think they’re the best choice, and I don’t think I’m alone in thinking this. (My “best choice” is not keeping existing low-density properties to provide cheap rentals.)

      • Relaxed & Happy Islander

        This conversation reminded me of one I had with a salesperson with one of the moving companies we invited to quote. Upon arriving at our old house, she said how delighted she was that it was a bungalow, because she knew it would be full of furniture/possessions. She said when they pull up to one of the 4000 sq ft McMansions more often than not, numerous of the rooms are unfurnished and they are unable to charge as much as appearance may suggest. (Moving companies charge by weight & their salespeople are on a commission formula.)

      • Thanks for your as-always helpful analysis, YVR Housing.

        Remember some months ago I told this blog that according to a well-informed estimate, there are (I think this was the figure) 70-80,000 empty beds on the West Side.

        So yes, let’s hope more of them get filled up in the future. But I’m not sure I see that happening until prices are down 50% or further. Who can afford these joints now?

        Relaxed & Happy Islander, that’s a marvelous anecdote.

      • Whoops, that figure I quoted above (for empty beds) may be for the entire city, not just the West Side.

        I realize that makes a difference!

        Still, it’s a startling number.

      • Also, with respect to low-density housing such as bungalows — has anyone done any demographic studies of family size in Vancouver now and also projections for such in the future?

        These big new builds with their 5 bedrooms and 6 bathrooms, and the basement suites (for servants? Mom & Dad?) — I mean, how many people have as many as four children anymore? And how many families really do or will house multiple generations?

        I know the argument is that these big houses would be used for extended families, but I’m not sure a lot of them are being used that way, or will be in the future.

        Someone should do a birth-rate study in Vancouver.

      • Relaxed & Happy Islander

        Thank you for valuing my comment, Epte. I read that you and your family are planning a move away from Vancouver, and wish you success and happiness with that.

        I also wanted to comment about the ‘low-density bungalows’ of yesteryear and how interesting it was that they could house a nuclear family of greater numbers than today’s big builds. And, this may be opening a can of worms, the LATimes reported a story a few weeks back on the win-win of using multi bedrooms homes for social housing – the owners were able to collect higher rents (the housing vouchers from 5 or 6 tenants), and the city/agencies didn’t have to operate as many rooming facilities.

      • “I’m not sure a lot of them are being used that way, or will be in the future.”

        I hear you epte, it’s certainly not an ideal solution but, if housing does turn back towards its utility, people will need to figure out how to use existing structures as efficiently as possible. In the case of older housing close to post-secondary it becomes student housing. Otherwise…here’s a chilling look back into the future:

      • Relaxed & Happy — thanks in turn. I was glad to read earlier in the year that you and your family had escaped the madness!

        Love the idea of using some of the new builds for social housing.

        Failing that, frat houses — ?

      • Even better idea, epte: recovery houses. Seems ironic, a house built due to an addiction to real estate speculation being used to help treat those with demons of their own.

        Yes. I’m definitely liking this idea a lot.

      • YVR Housing — brilliant!

        “Full House” (gracias, Nem) one way or another, that would be ideal.

  6. I am in the top 0.5% of income earners and even I can’t afford a new build in Killarney, where I grew up and where new builds are going for over 2 million. Unless mainlanders are still coming over by the boatloadsthese builders are in for a rough ride.

  7. Builders Don't Care

    Builders aren’t dumb, they know their business. They keep building until the market turns and a project goes bad. They don’t try to time the market because the cost missing a bull market is worse than getting caught in a bear market.

    If they listened to the real estate bears they would never had made piles of money.

    If they listened to the media and ‘professionals’ they would have stopped building in 2008 and missed 4 years of great business.

    They’ve had more than a decade of fantastic business. So what if their next project is a flop? They’ll be waiting out this downturn in their blueberry mansions sitting on piles of money.

  8. Re – The late to the party theme – agree on that, history shows plenty of builders and related professions will be hurt and sidelined. The take on this is that most people will not quit their jobs or abandon their business, after all how will they make the money they had in the past in a totally new career? Builders, developers are doing what they know how to do and what has always paid. Until interrupted by a harsh reality, of can’t sell at price needed, can’t make money they will continue. It is not a game of forecast, it is a situation of recency and inertia. Proof of this is the leading profession – realtors – running into a situation where they can’t sell, why didn’t they make a move last year? — because it was still working at that point. It’s as simple as that. Now that it doesn’t work, many will be forced to change, but understand that it is force not pro-active action.

    • …”many will be forced to change.”….

      [NoteToEd: I sense an imminent, hilariously illustrated SideBarOpportunity along the lines of, “What They’re™ Doing Now”]…

  9. Oh, please. Yeah, a few dumb one will get creamed. But the worst case scenario for the vast majority of them is that they are going to lose a small down-payment and fold their shell company.

    Do you think these guys are playing with their own money? lol. Get real.

    • “Do you think these guys are playing with their own money?”


      If it’s like other industries I’m familiar with, and if it’s like the residential construction industry in the US, I don’t think there’s much doubt how close to the bone many builders can become. If you mean that well-managed developers will be able to weather significant storms, sure, but that won’t prevent more than a little carnage if what vreaa is portending comes to pass.

      • Then you don’t know much. They get a loan for every stage of development. From the foundation on up. There’s even CHMC insurance available for new home builders.

        All you need is a business plan and a down payment. It’s called financing. Welcome to the new era.

      • Like you say HW “all you need is a business plan and a downpayment” which is about all plenty of the Ma and Pa speckers have to work with. I know a few. Leveraged to the hilt and about to go down in flames.

      • “Then you don’t know much”
        What, because banks are just going to lend non-recourse money to a numbered corporation with little to no collateral? Yeah, well if that’s the case then there’s problems coming out the other end.

        All I can tell you is that I know a few developers with a bit of their own money “at risk”.

    • Failed flip? MLS V975118: New on market for $1.928 million. Apparently sold c. March 2012, within a week, asking price $1.999 million. I’ll be interested if an insider can tell us difference between actual sale price earlier this year and what it sells for this time. (If it does sell again.) In the meantime it has, of course, been uninhabited.

      • Not only has it been uninhabited, the workers who prepped it for the sale came not only during the week but on Sunday, to saw, hammer, etc.

        Construction noise is illegal on Sunday.

        Current owner and/or Winnie Chung (listing realtor — or are you one and the same person), are you aware of this?

  10. Relaxed & Happy Islander

    Could the adoption of the ‘Affordable Housing Plan’ serve as a means of keeping the party going?

  11. At the end of the day, there are still thousands of people who want to buy in the Westside, even if they already own a property there. I know at least 5 myself. I wouldn’t be surprised if we actually see a pickup in residential sales starting in Dec/Jan. Houses that are built well and marketed properly are still selling perfectly fine. It’s the ‘they’ll buy anything’ crowd that is in for a reality check.

    • When one loses contact with the ocean floor, one doesn’t know how deep the waters run.

    • Ah yes, the “Averaging Down” theory… More like “throwing good money after bad”.

    • @SimeonG: “Houses that are built well and marketed properly are still selling perfectly fine”?

      Odd — every single day I walk or drive past supposedly deluxe houses listed by the most successful realtors in Vancouver, and they’ve been on the market for months (in some cases, over a year).

      So maybe some houses are still selling. A hell of a lot of others definitely aren’t.

    • @SimeonG – can you please give my sincere thanks to all the thousands of people who want to buy in the Westside, even if they already own a property there – or to at least to these ones 5 that you know yourself. Really – other countries like US are going deeper and deeper into the national financial debt in order to stimulate the economy and there are some really nice Canadian people that doing the same on the personal level – going deeper and deeper in debt buying the properties that are on decline – to keep the economy going! I just hope that your friends have something to show as a proof of legality for their income, I really do not expect them to be the successful in a legit business and dumb in the same time.

  12. Check this “comes with its own live-in caretaker”!!!

  13. Gee, d’ya think the “live in caretaker” might be the owner/developer who would take a hit if he sold in this market?

  14. Alternative thought… some are parking cash in “capital assets” because if interest rates do not rise the dollar will continue to devalue. Contracts/carrying charges arranged today may look like a bargain in the future despite a loss in equity. Where would you park millions if you knew the value of the $ was eroding? As bullion is again being considered a tier 1 asset by central bankers, I suspect govts themselves have no faith in the dollar by not advocating interest for its use.

    Over the summer it was time to amass cash, now is the time to find haven investments. Investors today are seeking markets to preserve wealth, not necessarily make a windfall. Vancouver may or may not be in that asset mix. The question, will residential assets depreciate as quickly as cash?

    YVR Housing Analyst wrote above:
    Van West has been appreciating faster than inflation for over a generation. That can be due to a combination of three broad factors
    1) Incomes are increasing faster than other areas of the region
    2) Van West is running out of land and it’s a desirable place to live
    3) Massive irrational land speculation
    In today’s climate, I would add a fourth, perceived haven investment. The weather is so nice today, I would almost buy a condo if I didn’t have my wits about me.

    • Relaxed & Happy Islander

      Interesting take. Preservation of capital is just that, and accepts a lower reward for a riskless investment. If a person was employing this strategy and wished to avoid depreciation thru the use of residential assets, would they not be looking at investing where there’s perceived less risk of (further) depreciation, ie, the US?

    • Good point about seeking safe havens. In this environment and with the sales crash we are now witnessing you just cannot turn that house into cash fast enough. Most who ignored our bleatings in the past have already missed the boat. As a general rule you do not want to buy real estate during the onset of a deflationary cycle for assets (like now).

      • I do not think that there are enough people tasked with the capital preservation to significantly influence the RE market situation. It is not the average Canadians situation. As we all know, the official stats reveal that the average Canadians are in a deep, deep debt already. Overseas money might need a parking spot, but it is hard to say what are the numbers there. We still have a number of the high end properties SFH sold in Sept in Richmond – less than usual too – but there are numerous properties of the low end that went off market during the summer. Condos, smaller lots, older houses, smaller townhouses are out of the game already.

    • “perceived haven investment”
      “Perceived” is the key there. I would abstract that to “irrational land speculation” but yeah you can treat it differently if you like.

    • Renters Revenge

      How is overbuilt residential real estate possibly considered a safe haven? Productive farm land or precious metals, yeah, but not a fancy house with granite counters on a 33′ city lot.

      • As far as I can determine property has value because other people value it. Try pitching that one to a VC firm.

    • Wouldn’t a certified 2 carat+, IF/VSS, excellent cut, pink diamond be a much better preservation of value?? I mean a 2.5 carat stone weighs less than 50 grams(?) with a value of over $250K+ USD. It’s much easier to move/carry 10 of these little babies and convert them into cash than 1 big $2.5M house with annual property taxes and maintaince cost. I’m excluding insurance costs since I would imagine you want to insure the diamonds too. Even 100 regular 2 carat white diamonds is still a much more portable, concealable store of mobile wealth?

  15. Are hookers cheaper if there’s more of them in an area?

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