Baloney Budgets – “I understand you’re trying to make Vancouver look like a place people would want to live. Every one of these case studies is misleading, and you are doing people a disservice by offering them as accurate.”

“Every one of these case studies is misleading, and you are doing people a disservice by offering them as accurate. I understand you’re trying to make Vancouver look like a place people would want to live (and therefore make money off assisting them with their relocation), but please exercise some ethical restraint. 1) There is nowhere in Kits Allison can buy a month’s worth of groceries for $170, unless she’s living off of plain oatmeal and carrots. Shopping at IGA, Safeway or Choices could easily run a person $100 per week, not including much protein, and she can forget the occasional bottle of wine. 2) Gerald is spending almost 50% too much on his apartment. Back before people thought of housing as a place to sleep instead of one more status symbol, the lender rule was no more than 28% of your gross salary should go towards housing. His $36k/year is $3000/month; 28% of that is $840, so his $1225 rent is $385 too high. An actual financial planner would tell you the same thing. But since he can’t rent a studio in Coal Harbour (or maybe anywhere in Vancouver) for $840, he’d be stuck in a basement suite in Dunbar or Kits. Do any of your prospective clients know how much of the city lives in someone else’s basement? Also, what about paying off his student loans, or did he luck into rich parents? 3) You have not factored in the impact of interest rates returning to their long-term norm of about 7% (never mind the rate reset they’ll face in a few years, courtesy of the bank). What does that do to Mara and Jeff’s mortgage amount? Also, where are these people eating out so cheaply? A nice dinner plus wine four times per month at the listed total means their final bill with tip is $60 every week. Please show me a restaurant where a couple can get a “nice dinner” including a bottle of good wine for $52 including tax; I’d like to go there. Do they have any existing debt to service? 4) Same interest rate problem as Mara and Jeff. Misleading people as to the actual costs of living in this city helps no one but yourselves.”
– Dan, commenting below an article at 2vancouver.com titled ‘Vancouver Money and Budgets: A few case studies’ [23 Nov 2012], that sketches out proposed budgets for people in Vancouver in 4 different situations. As Dan points out, the budgets have elements of fantasy about them. [hat-tip to VCI; posted here for the record.]

It’s expensive to live in this city, largely because of costs associated with accommodation. This is very, very bad for Vancouver: It forces young people away, and diverts resources from other areas of the economy. We’d bet that relocation companies like ‘2vancouver.com’ have some relevant stories they could tell. – vreaa

“I personally know 5 people that have overextended themselves buying multiple houses and condos, planning to sell in the future. None of them have gotten out yet and I know for a fact they are underwater on some of these and hoping to sell in the spring.”

“I personally know 5 people that have overextended themselves with multiple houses and condos that they only bought to sell in the future. These are not realtors or people that have any investmeny knowledge in general, they are people that have owned for a long time and took advantage of the mania of the last 6 years to leverage up to the max on as many propertiea as they could. None of them have gotten out yet and I know for a fact they are underwater on some of these and hoping to sell in the spring.”
– Groundhog at VCI 29 Nov 2012 3:05pm

Of all the ‘springs’ that we’ve been watching over the years, this one is perhaps shaping up to be the most eagerly anticipated.
There appear to be a lot of owners intending to list and sell in the spring. And bears are wondering where the buyers are going to come from.
– vreaa

“A relative of mine was at University, then left in second year, to become a realtor in North Van for the last two years. As of September, he’s returned to classes.”

“A relative of mine was at University, then left in second year to become a realtor in North Van for about the last two years.
As of September, he’s returned to classes. Before then, for several months, the number of facebook updates about multiple bidding wars, a balanced market, or open houses dwindled to zero.
To keep peace in the family, I specifically haven’t mentioned any of my heretical views on the Canadian housing market or asked why an English degree suddenly looked better than being a realtor in the “Best Place on Earth.”
– UBCghettodweller at VREAA 29 Nov 2012 7:48am

The tides; the seasons; breathing in and out.
Trends tend to return to means.
– vreaa

Overheard At Ben Rabidoux’s Presentation On Canadian Housing – “He asked “When do you think the crash will occur?” Ben, of course, said “Right now, sell now.” Shockingly, the guy next to me said “Hey man, that’s my landlord in Yaletown, he’s got 5 properties down there. I can’t believe it. He’s so screwed.”

As had previously been announced here, Ben Rabidoux gave a presentation on Canadian Housing in Vancouver 28 Nov 2012, and it was very well received by the audience of 650. We hope that Ben posts some form of the talk at his site. At VCI, people are relaying summaries of the talk, and sharing their experience of the evening. There were also some interesting anecdotal observations:

“Looking carefully, you also see a lot of “shooters” from the downtown finance scene. I was one row away from one of my friends on the “street” who went there independently, as did I. A few rows ahead was a guy who runs one of the largest investment funds in Vancouver. My read, the leaders in the big money crowd are starting to take the bubble talk seriously.” – HAM Solo

“Going into the seminar, I thought Ben would provide a more soft-moderate outlook to the bubble resolution, probably in line with bank analysts/economists, but he’s all-out hardcore bear armed with numbers, graphs, and a complete frank discussion about what’s out there and what will happen. He explains some stuff we discussed a million time here as well as some new stuff that we haven’t thought about before that will affect the market going forward. I was about 60:40 on soft landing vs crash before and now I’m leaning 90% towards crash.” – RaggedyRenter

“Lots of insider interest; one fellow introduced himself to David LePoidevin after the talk as a local construction insider looking to hedge downside risk by investing in a short-on-RE vehicle David offers.” … “Long story short, Ben is probably responsible for another dozen Boomer mansions hitting the market in January, priced to get out before Armageddon.” – Many Franks

“The people behind me kept asking each other questions about what CMHC was and it was clear neither of them had any clue.” – BLISTERINGAGENT

“The couple behind me decided that it might be a good time to sell their Shuswap Lake property.” – Bailing in BC

“The highlight for me was during the Q&A when a guy got the microphone, he was all dressed in a white pimp suit and asked “When do you think the crash will occur?”, Ben of course said “Right now, sell now.” Shockingly, the guy next to me who looked white said “Hey man, that’s my landlord in Yaletown, he’s got 5 properties down there, I can’t believe it, he’s so screwed.” It was awesome.” – Ray

—
UPDATE:

Presentation now up on youtube:
‘Canadian Real Estate: What happens next?’, Ben Rabidoux, Vancouver, 28 Nov 2012

“When I was in their office last week, I overheard the conversation of a realtor saying his friends have bought homes to flip and they are all stuck with them now. He said the market has fallen so fast, it’s so different from the actual stats.”

“He [a local realtor] says the market is good and he is busy. That’s not what I’m hearing from my realtor friends up at Macdonald realty. In fact when I was in the office last week, I overheard the conversation of a realtor saying his friends have bought homes to flip and they are all stuck with them now. He said the market has fallen so fast, it’s so different from the actual stats. So, by the time you see the HPI move downwards, the market has actual moved much more.” – HAM at RE Talks 28 Nov 2012 10:57pm

A Big ‘Thank-You’ To The Insanity Of The Vancouver RE Market – “I sold my loft in a seedy part of Gastown that I bought for $168K in 2005 for $520K in 2011. Paid $220K for a nice 600sqft 1bdrm in downtown Halifax, and now I’m debt free, with $200K in the bank, at 26.”

“I recently moved to Halifax from Vancouver for grad school and its amazing how much more enjoyable life is when your debt free. I sold my loft in a seedy part of gastown that I bought for 168k in 2005 for 520k in 2011. Paid 220k for a nice 600sqft 1bdrm in downtown Halifax, and now I’m debt free at 26. I’ve got 200k in cash in the bank too, how many 26 year olds can say that?! and I have all of this thanks to the insanity that is the vancouver real estate market! I feel for these people though, our generation really got the shaft when it comes to the economy and real estate. I’ve got plenty of friends who did everything they were supposed to do to succeed in life and are working temp jobs to pay off 100k in grad school debts. If I didn’t have supportive parents I don’t know where I’d be right now.”
– jj at VREAA 27 Nov 2012 9:22am

Well done, jj. You were fortunate with the timing (because 2008 could just as easily have taken you back to pre-2005 prices), but that is now not material.
jj saw that $520K cash was of far, far higher value than a “loft in a seedy part of Gastown”. Anybody who cashes out in the vague vicinity of a top, by virtue of luck or skill, will do fine.
The point is that the person who overextended to allow jj to cash out, and all the thousands of other Vancouver buyers over the last 3, 4, 5 years who have done the same, are left holding the other side of the deal: A property that is worth far, far less than the future earnings that they have promised to pay to buy it.
– vreaa

“If I had bought when I was 20, I would likely be mortgage free right now. In 10 years, I’ll likely be glad I bought in 2011, as opposed to waiting an additional 5 years.”

“The sooner you buy, the sooner you’ll be mortgage free, and then the sooner you can retire/diversify your time with minimal monthly fixed costs. If I had bought when I was 20, I would likely be mortgage free right now. In 10 years, I’ll likely be glad I bought when I did (last year [2011]), as opposed to waiting an additional 5 years.”
– gobigorgohome at RETalks 27 Nov 2012 12:54pm

Appropriate handle.
Timing can be a bitchallenging.*
People who bought near the top in 1981-1982 waited 25 years (yes, twenty-five, not a typo) to break-even in real dollar terms.
– vreaa

[* see what he did there? if only you were all as polite. -ed.]

Shaughnessy Flip Attempt Targets Gain Of $1.7M In One Year

1656 Laurier Ave, Shaughnessy (Vancouver West-side)
6,687 sqft 1925 SFH on 106×200 lot
Sold 2011 $7,000,000 [thanks to jj for final sales price info]
Now listed for $8,680,000
Same realtor.

Cosy.
Anybody know more of the story here?
-vreaa
[hat-tip Beth Seaton]

Reno Flip Gone Rong – “Highly Motivated Seller.”

3955 Blenheim Street, Vancouver West Side
2,595 fin.sqft + 900 unfit.sqft 1927 SFH on 53×110 lot
Current owner paid $1,180,000 back in December 2009.
Listed for sale April 2012 $1,998,000
Listed for sale 14 Aug 2012 $1,699,000
Price reduction 26 Nov 2012 $1,599,000

Blurb extract: “ALERT!!! Investors/Contractors. Upper flat lot 53’x110′ on the Westside of Blenheim. … Easy to build a 4000 sqft mansion with a lane-way house. … New solarium extension 35’x15′ built from ground up by the Fourseasons with warranty. … Reno-permit and engineer drawings in place. Easy to show. Highly Motivated Seller.” [hat-tip ‘westsidefrank’; thanks to Village Whisperer for info re past pricing]
—

If we weren’t locked in the jaws of a speculative mania in housing, this house would very likely still be a simple, functional bungalow going about its business.
As it is, it’s highly likely that it will now be torn down, along with all the work that has gone into what were apparently planned to be flip-renos. Misallocation of resources, again.
I suspect Froogle Scott would have some thoughts on this.
Anybody know any earlier sales history on this property?
– vreaa

Sad, Young, Inquiring Minds Want To Know: “Could someone explain why Canadian housing prices have gone up so much in the last few decades? Why are houses not being built to meet the demand and keep the prices in line with inflation?”

From ‘As a young Canadian, the current real estate market makes me sad. What is your view?’ a thread at reddit.com started 24 Nov 2012. [hat-tip poster_with_many_handles]

“I was born and raised in Canada and as a young adult, I want to be able to start a family and buy farm property in Alberta, not too far from a major city. However, the current real estate market makes this dream rather hopeless unless I want to owe my life to a bank, if I can even qualify for the massive loan I would require. I am curious what other people’s view is on real estate in Canada?” – slowbreeze

“I live in Toronto and I’m probably never going to be able to afford a house if I also want kids.” – Mun-Mun

“Could someone explain why housing prices have gone up so much in the last few decades? Why are houses not being built to meet the demand and keep the prices in line with inflation?” – wugitor
[EXCELLENT questions. Watch how your college economics professor tries to squirm out from under those. Housing costs in Canada should rise at the rate of inflation (more specifically, wage inflation). Period. Speculative manias distort from that, but the effects will be temporary. -ed.]

“My dad and I have the same career (dentist). He bought his 4-bedroom, detached Toronto home in 1979 at the age of 26. This house is now worth in excess of $1,000,000. Imagine a 26 year old buying such a house now! I am 29, and despite having the same career I am unable to afford a home, let alone a detached house. The times they have changed.” – Ostracized

“I just bought a very nice recently renovated tri level split in my city in the nice part for 160k, granted I live in a small city of about 80 thousand, and it isn’t as exciting as Toronto or whatever, but I paid 20% down, and have very small mortgage payments, I make a decent living and have quite a bit of disposable income. I travel at least twice a year and generally buy things I need. I think it all depends on where you live. Live somewhere smaller and you can get a lot for your money.” – PartyMark

“Move to Windsor Ontario. Houses for $50-150k. (And more). I lived in Toronto, moved to Windsor because paying $250k for a condo, or $350-$550 for a starter home is absurd. I bought a 4 bedroom, 2 bath w/pool for $130k.
I would never move out west or to a big city… It is obvious that average Canadians can’t afford to pay off a $500k mortgage. They are just hoping to sell for a profit. Someone is going to be left holding that bag… And it isn’t going to be me.” – Bortology
—

Bortology said: “It is obvious that average Canadians can’t afford to pay off a $500k mortgage. They are just hoping to sell for a profit. Someone is going to be left holding that bag… And it isn’t going to be me.”
Amen.
Sensible young chap.
– vreaa

Spot The Speculators #93 – “Over 20% of listed homes in Shaughnessy right now were purchased just one year ago.”

“Over 20% of listed homes in Shaughnessy right now were purchased just one year ago (this is not including new builds, so the figure is actually higher).”
– Observer, at vancouverpricedrops 19 Nov 2012 [hat-tip Whisperer]

Mark Carney Named New Bank of England Governor

“Mark Carney named new Bank of England governor” – Guardian, 26 Nov 2012, 16.28 GMT [Hat-tip Aldous Huxtable and proteus]

Interesting, but not something that should affect the predicament of the Vancouver RE market.*
Carney is clearly very smart and very competent, so congratulations to him for the promotion, and we and most other Canadians would wish him well with the new job.
At the same time, the appointment is likely the result of larger, arguably ironic, forces: Canada’s accounts have appeared stronger because our debt spending (and closely related housing bubble) has not yet reached its inevitable crisis point. This delay is not Carney’s doing directly, there are too many forces at play to believe that, but he has been part of it. Canada and Carney haven’t by any means actually solved the problem, and have yet to deal with the unwinding. Household debt is at nosebleed levels, and there are clear speculative manias in housing in all major centres. The delay in reconciliation has given the false appearance of strength in Canadian fiscal governance. The UK has quite simply chosen a new BOE governor who looks strong because he’s from a place where the debt bubble hasn’t yet burst.
– vreaa

* – There is a possibility that this will effect sentiment. The BOC will obviously now rush to assure us it has firm hands on the tiller. It also may, interestingly enough, end up as another erroneous ’cause’ for the coming housing collapse, as in “Mark Carney leaving caused the housing market to crash”.

[vreaa comment on Guardian discussion thread 26 Nov 2012 5:16pm]

Phil Soper, CEO, Royal LePage – “I think the impact of mortgage regulation is being blamed far too often these days in what is clearly just a natural cyclical slowdown in the market driven by overpriced homes. We were due for a slowdown.” [We Agree]

“The real estate industry has ramped up its attack on rules making it harder to borrow but its challenges face one big obstacle — mortgage restrictions are working exactly the way the federal government wants them to.
In the past week the Canadian Association of Accredited Mortgage Professionals weighed in with complaints that Ottawa’s restrictions were killing consumer confidence and even raised the stakes further by suggesting the entire Canadian economy was at stake.
Toronto builders joined the fray, calling out the federal government for rules it maintains have a lot to do with the cooling market in the city that saw sales in October dip 14% below their long-term average.”
…
“One executive who says he’s changed his tune on the government’s crackdown is Phil Soper, chief executive of Royal LePage Real Estate services. When the latest regulations came out in July, he was one of the first to suggest the time was wrong, but he’s gone full circle since then.
“At the time, I thought it didn’t make sense,” said Mr. Soper. “I’m being contrary again. I think the impact of mortgage regulation is being blamed far too often these days in what is clearly just a natural cyclical slowdown in the market driven by overpriced homes. We were due for a slowdown. The timing was unfortunate but it’s not a major event. I think chances of it being reversed are close to zero.”
– from ‘As tougher mortgage rules slow housing market, critics call for a reversal’, Garry Marr, Financial Post, 26 Nov 2012 [hat-tip CM]

We agree with Phil regarding mortgage regulations being erroneously blamed. And hats-off to him for admitting his earlier error in judgment. We suspect we’d likely disagree with him on the magnitude of the coming ‘slowdown’, however.
The spec mania was waiting to pop, would have done so with absolutely no precipitant at all (spec manias finally collapse under their own weight; fallacious ‘reasons’ for the collapse are always blamed).
We’ve already started collecting ‘Erroneous Theories For Falling Prices’. Number five is ‘Tightening Of Mortgage Rules Caused The Crash’.
– vreaa

Larry Summers at Sauder – “The housing price graph here is every bit as bad as it was in the US. It looks like the same graph shifted four years over.”

“Larry Summers (former President of Harvard and former U.S. Treasury Secretary) was in town this week. He gave a brief talk to the UBC Sauder community (on Monday 19 Nov 2012)– it was largely directed towards the many undergrads in attendance about significant global economic trends. He did make an aside though about the Canadian housing market.
He noted that the growth in the U.S. economy since 2008 only accounted for population growth and productivity growth. He then remarked that Canada was doing better. Initially he said that this was because Canadian financial institutions fared better than their US counterparts due to the Canadian system of regulation. But he then immediately noted (and this is a rough quote): “I hasten to add yet — the housing price graph here is every bit as bad as it was in the US — it looks like the same graph shifted four years over.”
– this submitted by ‘Sauder Prof’, a Sauder professor, via e-mail to vreaa 23 Nov 2012. Sauder Prof adds “I have very bearish views regarding the Vancouver housing market. … I thought I would let people know that the range of views that get discussed and taught at Sauder is broader than someone outside the institution might think.”

Many thanks to ‘Sauder Prof’, both for the Summers’ quote and for the information about Sauder. We know there are some at Sauder that see what we see regarding the RE market. It’s a pity that the RE experts there didn’t see fit to warn the populace of the risks involved. Too late for that now, though. – vreaa

Vancouver Housing Affordability – Century Long Crisis or Boom ‘n Bust Cycles?

“On Sept. 30, after months of research, the Mayor’s Task Force on Housing Affordability released its final report, outlining the challenges facing renters and owners in Metro Vancouver’s housing market.
“We know that many people across a wide range of incomes face affordability challenges in our city,” it states, “from those with little income and no housing to those with a higher income but who struggle to find affordable, suitable and adequate housing… How Vancouverites decide to address these challenges is fundamental to the future of our city. Should we simply let the market decide what kind of city we want and who gets to live here? Or should we take the actions needed to increase the diversity of affordable housing options, and maintain the vibrancy, diversity and economic competitiveness of our city?
“We believe that this report provides a blueprint for both short and long-term policy directions to significantly increase affordable housing options in Vancouver, and encourage City Council to embrace the recommendations and take action on the most pressing policy issue in Vancouver today — the lack of affordable housing.”
The report goes on to cite high costs and substandard facilities as particular problems — echoing media rumblings about a city-wide “housing crisis” — and concludes that housing affordability is perhaps the most significant issue affecting Vancouverites at the dawn of this century. As it turns out, a look through the city archives reveals that it was also the most significant issue affecting Vancouverites at the dawn of the LAST century. And quite often ever since then. Hm.”
– from ‘Vancouver’s 128 Years of Affordability Fears’, Jesse Donaldson, TheTyee.ca, 24 Nov 2012 [hat-tip to YVRHousingAnalyst]. Be sure to read the whole article for many wonderful quotes from prior speculative manias in Vancouver housing and land.

Here follows the comment that we posted below the article at The Tyee:

“Century Long Crisis or Boom ‘n Bust Cycles?

Many thanks for this article, Jesse. Anybody following the Vancouver housing predicament will find it very interesting. We’ll definitely reference it at VREAA.
By the way: In your reading related to this, did you happen to see any early mention of the “running out of land” idea? It’d be fascinating to know when that was first expressed.
Also: Did you come across quotes from down-cycles, when housing/land ownership was valued far less? In the thirties, houses in Vancouver could be purchased for the equivalent of three years rent. (That figure gets distorted in the other direction during manias.. currently rent:price ratios on some properties make the purchase price the equivalent of 50 years’ rent!)

Our own thesis is that Vancouver is very clearly currently locked in the jaws of a speculative mania in housing, and that, when the mania collapses (it likely peaked in 2011), prices will fall by very substantial amounts.
This will shake things up, and ownership will become more affordable, again. Rents will, perhaps paradoxically, also come under downward pressure, for various reasons.

Vancouver housing will never be cheap, there will always be a mild-weather, beautiful-vista premium, but the current mania has taken prices to more than twice those supported by economic fundamentals, even when that premium is accounted for.
Until prices reconcile with underlying fundamentals like rents and local incomes, affordability talk and action will be the equivalent of rearranging the proverbial deck-chairs on the Titanic.

A number of local bloggers have been bearish the Vanc RE market for years, for good reason.
At VREAA (the Vancouver RE Anecdote Archive) we collect personal stories regarding the impact of the Boom (and the unfortunate, inevitable, coming Bust).”

Also, here’s an excerpt from another comment at The Tyee:

“There was no housing crisis in Vancouver when we moved there in 1955. My first job paid me $1.35/hr and lasted 5 months. The I went into an apprenticeship for .75 cents/hr.my wife was making about the same in various jobs.
Our rent for 2 nice rooms and shared bathroom was $35./mo. Our grocery bill under $20.wk.
There were ads in the Sun for small bungalows in Burnaby for $1,200. A $5,000. house was really something.
We bought our first in 1966 for $500. down and $45./mo. Nobody complained about housing shortages or unaffordability.”
– Ed Deak (‘Fiat Lux’) at the Tyee, 24 Nov 2012

Extreme example of a down-cycle:

Men by makeshift shelters in the “Jungle” of the unemployed, 1931.
[Major Matthews Collection, City of Vancouver Archives, Re N10.10]

Spot The Speculators #92 – “They took whatever money they got from the sale and immediately mortgaged a new house despite the fact that they don’t have jobs or savings or pensions.”

“Husband had a call from a relative recently. This family sold their max mortgaged house in the interior last spring so they could move to Hope and amazingly didn’t lose money on the sale. Of course they took whatever money they got from the sale and immediately mortgaged a new house despite the fact that they don’t have jobs or savings or pensions. He shared that they would like to have us for dinner but they don’t have a table to eat at and no money to buy one. He also said he was trying to look for work but didn’t have enough money to buy gas to drive to Chilliwack which is the only place in the region that might be hiring. He is early-60s with health issues. While I think he is on the extreme end of stupid, I wonder how many other folks are living similiar unexamined lives and trying to keep up appearances.”
– Terminalcitygirl at VREAA 24 Nov 2012 7:57pm

Anybody who can’t see the speculation in this kind of behaviour, and tries to argue that this is just a couple looking to put a roof over their heads, really isn’t paying attention.
– vreaa

“I heard a proud father boasting to his son over dinner tonight that he had bought FIVE Vancouver condos recently.”

“I heard a proud father boasting to his son over dinner tonight that he had bought FIVE condos recently – including one in the MC2 for grandma (when she arrives) – not sure if it`s for her to OWN or actually live in.”
– Liu Yunshan VREAA 24 Nov 2012 12:47am

Almost requires no comment.
Unless these condos are, on completion, immediately inhabited by family or tenants, this represents a misallocation of resources in the city.
Note he is too obvious a speculator to be classified in the “Spot The Speculator” collection, which is reserved for citizens who are speculating on RE prices largely without even knowing themselves, poor souls.
– vreaa

Hoax/Joke – ‘The Office of the Superintendent of Financial Institutions Canada Follows The Twitter Accounts Of Bearish Bloggers And Not Those Of RE Industry-Insider Commentators’

[UPDATE 6am, 25 Nov 2012: I fell for this hoax completely. Somebody set up a fake OSFI Twitter account and only referenced the bears (with a few gvt organizations as diabolically good cover). I popped up a post pointing this out, triumphantly. What can I say? I’m not going to take down the original post, which appears below. Excellent joke, got me entirely. You wag, whoever you are. (I can now return to worrying that the OSFI is not listening to the canaries).- vreaa (Thanks to Whisperer and LJ for pointing out the hoax).]
————

Original Post:

“The Office of the Superintendent of Financial Institutions Canada (OSFI) is the primary regulator and supervisor of federally regulated deposit-taking institutions, insurance companies, and federally regulated private pension plans.” – from OSFI website. For a summary of the OSFI’s mandate, see ‘OSFI, Our Mandate’.

The OSFI has set up a Twitter account. Below find a screen capture showing the Twitter accounts that they themselves, the OSFI, follow (as of 25 Nov 2012). Of the 9 accounts they are following, 5 are Government of Canada organizations (BOC, CRA, StasCan, Immigration, CEAP). The other 4 accounts are all bloggers who are bearish the housing market! Two are from identified individuals (Ben Rabidoux and Garth Turner), the other two are anonymous sources (Canadian Watchdog, and Vancouver’s own YVR Housing Analyst). The Twitter accounts of industry analysts and vested interests are screamingly obvious in their absence. We find this remarkably clear vindication of the work done by these bloggers, which is often (and conveniently) dismissed out of hand by industry-related commentators. And we’re pleased that the OSFI is listening to ‘the canaries’.
[Thanks to ‘Canadian Watchdog’ for bringing this to our attention, 25 Nov 2012]

“My good friend’s girlfriend broke up with him recently, because he didn’t want to “settle down” (buy a house).”

“My good friend’s girlfriend broke up with him recently, because he didn’t want to “settle down” (=buy a house). My friend has been waiting for a crash since 2008. We like to talk about bulls having various problems including marital stress because of excessive debt, etc. But the bubble is clearly straining relationships on both sides.”
– bubbly at VREAA 23 Nov 2012 3:33pm

The misallocation of resources that occur as part of a massive speculative mania in housing include interpersonal conflicts and the associated misspent energies around buy/rent disagreements and debt spending. Sure, couples have ample disagreements around housing during more typical times, but in the grip of a speculative mania they are that much more powerful and that much more destructive.
– vreaa

Debt Driven Spending – She’s not sure what her family will do with that extra money. “I don’t know. It will probably all be going on our line of credit.”

“Meredith Stevenson, a North Vancouver resident, wanted a voice in the National Hockey League lockout and to get it the lifelong fan made what she described as a gut-wrenching decision.
She and her husband Dean cancelled the pair of Vancouver Canucks season-tickets they had held for 14 years. …
Stevenson said the tickets were costing her family nearly $11,000 a year, plus as much as $8,000 for playoff tickets. They had put down roughly $3,700 towards this season’s tickets, which will now be refunded.
“Our season-tickets are a big investment for us,” Stevenson said. “It always hurt a little bit when those payments came due. I think that’s also why it feels a little bit liberating to be honest.”
She’s not sure what her family will do with that extra money.
“I don’t know,” she said. “It will probably all be going on our line of credit.”
– from ‘A frustrated fan makes a tough decision and says so long to the Canucks’, Vancouver Sun, 23 Nov 2012

In other words, these guys were buying hockey tickets with debt.
The money isn’t “extra” at all!
We’d make a small bet that the LOC was a HELOC. Can’t be sure of that, of course, just a hunch, thus the ‘small’ bet.
– vreaa

Premature Bottom Call – “Vancouver’s housing sector may have hit its bottom with an improvement in home sales seen in October”

“Vancouver, British Columbia’s housing sector may have hit its bottom with an improvement in home sales seen in October”
– Marc Pinsonneault, National Bank, Wall Street Journal, 21 Nov 2012

Added to our ‘Premature Calls Of Bottom’ sidebar collection. A steady stream should follow, over the next few years. – vreaa

[Thanks to Ben Rabidoux for pointing out this gem.
Ben is a national RE analyst whose posts at his blog ‘The Economic Analyst’ have been invaluable reading for those interested in Canada’s RE market. He is more recently working with M Hanson Advisors, ‘a market research firm catering to professional, institutional investors’. Ben tells me he is putting on a seminar regarding the state of the Vancouver RE market, next Wednesday, 28 November 2012, here in Vancouver. Details at http://www.realestate2013.ca%5D

Overheard At A Cafe On South Granville Strip – “We didn’t get out like them. They got out at the top of the market. Oh well. We’re still happy.”

“Last weekend we stopped in at a cafe in S. Granville near all the hot high-end shops and I overhead these two women talking about their condo. Of the things overheard was…
: “We didn’t get out like the [Name]‘s. They got out at the top of the market. Oh well. We’re still happy.”
: “We did the roof, we did [something else] so there’s only a few more major jobs to do..”
: “I guess that’s the best thing you can do when your condo goes down in value is just make sure that it’s well maintained and all the building work is done. That way it will pick up value in the long run.”
And then tons of bitching about everyone else on the strata or who lives behind a door. Clearly not much love in this building wherever it is.”
– mac at VCI November 20th, 2012 at 7:00 pm

“I moved here a few years ago from the US; my wife is Canadian. I was astonished at the housing prices. The math never added up as to how people could afford to live here, especially with an extravagant lifestyle of toys and trips, based on known incomes and living costs.”

“I moved here a few years ago from the US; my wife is Canadian. I love living here, although the cost is a bit hard to stomach at times. I think people should feel lucky to live in such a beautiful place that offers so much opportunity; it seems a lot of people take this for granted and even feel entitled to it.
When I first came here I was astonished at the housing prices. The math never added up how people could afford to live here, especially with an extravagant lifestyle of toys and trips, based on known incomes and living costs. I realize there is a lot of wealth here, many have done very well being self-employed, but there also seems to be a lot of imaginary wealth based on debt.
The debt rate here is astonishing considering these facts, which at least in my experience differ significantly from the US:
– Here people rent out a basement suite, which is not very common in the US. The people I know who do this do not declare this income.
– Tax avoidance seems to be common here and socially acceptable, likely due to a more lax enforcement. I think this especially rings true for business, where more here are self employed.
– Income for non-technical jobs and manual labour, like retail and construction for instance, pay substantially more here. The middle and lower middle class here have higher wages which I think is awesome, whereas in the US there is really a war on the middle class.
One would think considering the above that people would have a lower debt level since their disposable income would be higher based on higher wage, less tax, and undeclared income. But that isn’t the case.
What are people’s exit strategy when they can no longer pay their debt? I find it kind of sad that people think this is sustainable, that housing can increase by 10%+ forever when wages don’t, and that real estate for most people is their retirement plan.”
– Anonymoose at VCI 15 Nov 2012 11:01am

We Want Zillow

Garth Turner, at greaterfool.ca, today published a good piece on the benefits of information.
Zillow is a transparent and comprehensive source of RE data for US RE buyers.
If you’re Canadian, you’ll find Zillow breathtakingly useful for exploring any US RE market.
Why can’t we have a BC equivalent?
Is the fact that BC RE consumers are kept in the dark an admission of local market frailty?
– vreaa

Spot The Speculator #91 – “I personally know of a young woman in her 20′s who just got her first job and refused to rent.”

“I personally know of a young woman in her 20′s who just got her first job and refused to rent. Her parents forked out the 25% down for a condo in South Surrey as she did not qualify for CMHC financing.
She purchased a one bedroom with a flex space, once she moved in she was astonished at the extra monthly fees she has to pay. She had her boyfriend move in to help with the payments and now has foolishly went out and got a dog.
6 months later from the original purchase she now finds herself in a space that is too small. Now she wants to rent (yes rent) a larger place (2 bedroom) closer to Vancouver.
To make all this happen she now has to find a tenant for her South Surrey condo.
It seems that Gen Y looks at condo buying as a fashion accessory and not a prudent financial decision. There is a serious lack of financial literacy amongst the marginal buyers of real estate.”
– DJB at VCI 20 Nov 2012 9:21am

Why isn’t she selling the condo?
She’s holding on the assumption that its market value will rise.
– vreaa

We Need More Evidence – “Pooling data sets from BC Hydro, the 2011 census, the Provincial Home Owner Grant and BC Assessment, along with whatever numbers the region’s real estate associations are willing to make public, would create one giant playground for local analysts.”

“When questions about foreign ownership came up at the City’s housing affordability meetings earlier this year, task force members realized the issue was large enough to warrant a separate report. A working group of business and architecture academics was assembled to learn more. Its volunteer members met several times over the course of three months to explore the issue and recently penned a five-page summary of their findings.
The result is underwhelming if you were hoping for closure on the matter, but here’s the takeaway: we still don’t know how foreign investment impacts local real estate, but we have researchers in the city who have developed methodologies to study and interpret the data needed to clarify the situation.
Their conclusion put another way: if the City really wants to understand foreign ownership, it needs to pay researchers and quit relying on the generosity of volunteers.
“At the end of the day, we still have no real idea what the impacts are and if they are good or bad and what that actually means to the city,” says Erick Villagomez, adjunct professor at UBC’s School of Architecture and Landscape Architecture and chair of the academic working group behind the report. “We need more evidence.”
The City is hesitant to pledge more money in order to clarify the issue of foreign ownership, at least until it’s sure further study would improve Vancouver’s affordable housing stock in a concrete way.” ..
“Villagomez wants researchers to crunch more numbers to strengthen understanding of the matter. He points to data available from BC Hydro, the 2011 census, the Provincial Home Owner Grant and BC Assessment. He says pooling those data sets along with whatever numbers the region’s real estate associations are willing to make public would create one giant playground for local analysts. The only trouble is finding a pot of money to buy whatever data sets aren’t free and another pot to pay researchers to analyze them.”
– ‘To Solve Housing Foreign Ownership Puzzle, Someone Must Pay’, Luke Brocki, The Tyee, 19 Nov 2012
[hat-tip ‘poster with infinite number of handles’]

Evidence is good. There is easily accessible information out there that could shed an immense amount of light on the RE market. ‘Play’ in the ‘playground’ of data could be very revealing. We’re all for that.
Foreign ownership is one thing; at least as important is utilization.
BC Hydro data likely already reveals how many units in the city are vacant or under-utilized. Interesting, eh?
Perhaps city council is hesitant to uncover information that threatens the strength of the market.
– vreaa

Wake Me Up At 50%-Off – “Buyer’s market, home prices fall? When homes go up a million % and then come down 3.8%…that’s not much of a bargain.”

“Vancouver home sales and prices were lower last month as Canada’s third-largest city continued its role as one the nation’s hardest-hit centres in an ongoing housing market slump.” …
“While Canada’s market continues to look balanced overall, there are clear pockets of strength and weakness,” BMO Capital economist Robert Kavcic observes in his analysis of the CREA results. The BMO report described Vancouver, Victoria, Regina and Saskatoon as buyers’ markets — where supply markedly outstrips demand and dampens asking prices.”
– ‘Vancouver a buyer’s market as home sales, prices fall’, The Province, 16 Nov 2012

“Buyers market, home prices fall? When homes go up a million % and then come down 3.8%…that’s not much of a bargain.”
– ‘Tom Anderson’, commenting below The Province article, 16 Nov 2012

We’re with Tom on this one.
These ‘Buyer’s market’ cries are recurrent, closely akin to premature bottom calling but not quite the same thing.
Similarly, charts showing a ‘Buyer’s market’ when inventory rises against sales are misdirected and mislabelled (see example below). ‘Months of Inventory’ (MOI) and the ‘Ratio of Sales to Active Listings’ are ways of expressing inventory in terms of sales. High inventory and relatively weak sales are indicators of likely future price direction, but such circumstances don’t say anything about how market prices compared to fundamental value. MOI can “go to the wall” for a long period before a market bottoms. Years, actually.
To clarify: A true ‘Buyer’s market’ emerges when a buyer gets good, or at the very least reasonable, value for his or her money.
– vreaa

– Inventory:Sales Ratio Abuse, as evidenced in this chart from Fraser Valley RE Board data, posted by local realtor ‘silverman’ at RE Talks, 3 Oct 2012

Expect to see the term ‘Buyer’s market’ a lot in coming years:

‘It’s a buyer’s market for greater Vancouver’, The Province, 2 Oct 2012

‘Vancouver sales hit 10-year low, real estate board declares a buyer’s market’, The Vancouver Sun, 4 July 2012

Next Stop, 2008 Prices

4549 W 12th Ave, Vancouver West-side
2,569 sqft SFH on a 33×122 lot; built 1933
[Previously featured here ‘Half The Width, Twice The Price’ 25 Apr 2012]

Price history:

1:
March 1997: Sold $457,500

2:
April 2008: For Sale at $1,679,000
May 2008: Price reduction $1,595,000
May 2008: Taken off market
June 2008: For Sale at $1,495,000
July 2008: Sold $1,430,000

3:
April 2012: For Sale at $1,975,000
Jun 2012: Price reduction $1,875,000
Taken off market
Aug 2012: For Sale at $1,775,000
Nov 2012: Price change $1,698,000

Spot The Speculators #90 – And So Ad Infinitum – “Three transactions were all stuck in limbo because no one was willing to budge on their price in order to sell their place and let the dominoes fall.”

“Here’s an interesting game of chicken that illustrates what’s happening in the market right now:
I was talking with a colleague who just sold their home. They had an offer made on it a couple months ago which was subject to the sale of the buyer’s townhouse. The owners of the townhouse received an offer, you guessed it, subject to the sale of the potential buyers condo. These 3 transactions were all stuck in limbo because no one was willing to budge on their price in order to sell their place and let the dominos fall.
In the end what ended up happening was the couple at the bottom (owners of the condo) decided to take on two mortgages. They used that as leverage on the person who owned the townhouse to lower their price (use the difference to carry the second mortgage for a few more months). The person with the townhouse agreed and used that as leverage on the homeowners. So everyone dropped their price to move their properties and the condo owners are now left with two mortgages… hope their strata allows for rentals.”
– Anonymous at VCI, November 16th, 2012 at 8:12 am.

And the speculators here are… 1. the guys who end up with two properties, and 2. the move-uppers from the townhome to the (I presume) SFH.
The buyers create apparent wealth from nowhere by borrowing and promising pay-back over 25 years, the only seller who is actually cashing out runs with the money.
If home prices go up, those who have increased their RE exposure do well to okay… if prices drop, they are BBQed.
Anybody who doesn’t see how this is all directly related to musical chairs and Ponzi schemes really isn’t paying attention.
– vreaa

“Usually I see 5 or 6 three bdrm rental units for rent in Vancouver or Burnaby at $1600 p.m. or less. But recently that figure has gone up to around 35 to 40.”

“I’ve been looking at 3 bdrm rental units the past year. Usually I see 5 or 6 units for rent in Vancouver or Burnaby area @ price 1600 or less. But recently that figure has gone up to around 35 to 40.
You can get decent place for 1350 to 1550 per month with around 1100 sqft.”
– house burden at greaterfool.ca 17 Nov 2012 3:49am

Counterintuitive to some, the rental market will also weaken as RE prices soften and drop.
– vreaa

Three Vancouvers? – “A recent report paints a picture of a city riven with inequality and the growing geographic segmentation of its classes.”

“The 21st century is shaping up to be the century of the city. But global cities are not only becoming increasingly-important economic forces of the world economy. They are also becoming increasingly divided and segmented. …
A new report, by David Ley and Nicholas Lynch of the Cities Centre, takes a detailed look at Vancouver’s growing class divides and geographic segmentation. Vancouver is a very different city than Toronto. It is a city of tremendous natural assets and physical beauty, noted for its mild climate, perched on the Pacific coast. It is widely thought of as an affluent city, with some of the highest housing prices in North America. It has attracted a huge influx of immigrants, especially from the Pacific Rim. It is a frequent winner of “livable cities” titles, as the study notes. This city is sometimes referred to as “Dream City” or “Lotus-Land.”
But their recent report, “Divisions and Disparities in Lotus-Land: Socio-Spatial Income Polarization in Greater Vancouver, 1970-2005,” paints a Vancouver riven with inequality and the growing geographic segmentation of its classes. …
City #1 is affluent Vancouver, made up of neighborhoods where average individual incomes grew by more than 15 percent of the metro average between 1970 and 2005, comprises roughly 30 percent of the region’s census tracts and covers three distinct areas: the central core, the North Shore suburbs, and scattered areas with high-priced condos and houses close in proximity to valued amenities, such as waterfronts, views, and green spaces.
City #2 is middle class Vancouver, with income changes of plus or minus 15 percent of the metro average. It includes nearly half (47 percent) of the region’s census tracts.
And City #3 is disadvantaged Vancouver, areas where incomes fell by more than 15 percent of the metro average between 1970 and 2005. These areas account for some 22 percent of the region’s census tracts; and as the authors note, they “are relatively concentrated in the southern and eastern neighborhoods of Vancouver and extending out to the southern and eastern suburbs.”
While City #1 consists overwhelmingly of native-born Canadians and is more than three-quarters white, City #3 has an immigrant majority and is 61 percent minority. It has the highest population densities too, as well as the lowest gross incomes, and despite its lower property values, a lower share of homeowners. More of its residents are employed in working class and service occupations than in either City #1 or #2. …
The study concludes:
As a result, the dominantly middle-income City of 1971 is now divided three ways: one-third lower income, one-third higher income, and one-third middle-income. The middle-income city of the 1970s has become the polarized city of the 2000s. …
Even the city widely recognized as the world’s “most livable” cannot escape the growing class polarization of our increasingly spiky and divided world.”
– excerpts and image from ‘The Growing Urban Class Divide, Vancouver Edition’, Richard Florida, The Atlantic Cities, 14 Nov 2012 [hat-tip Aldus Huxtable]

Tom Davidoff, CBC Video Interview – “I think we have every reason to expect there may be a problem with home prices. If you ask Mark Carney, we should be worried. I would put 20%-30% probability on a world in which people are over-leveraged, and prices fall, and a lot of people owe more than their house is worth.”

“The risk comes.. What if those home price increases aren’t permanent? And I think we have every reason to expect there may be a problem with home prices. We’ve seen transaction volumes slow, and, in some neighbourhoods, we’ve even seen price declines. So, should prices fall 20, 30%, and people increase their borrowing 20, 30%, those two forces can have a very negative outcome, both on an individual’s wealth, and also on the financial situation of banks. We saw a terrible consequence of that in the US, where there was more leverage amongst households, and more leverage on banks. So there are danger signs here. …
If I had to rank the risks: Number 1. Large decline in home prices, Number 2. A decline in the macro economy, rising unemployment… Number 3. Rising interest rates.
If you ask Mark Carney, we should be worried. They spend a lot of time at the BOC thinking about ways they can creatively cut back on consumer debt, without popping asset bubbles.
So, yes, the BOC is worried, I think they’re right to be worried. I don’t think we’ll see a US style catastrophe, but a world in which people are over-leveraged, and prices fall, and a lot of people owe more than their house is worth, that is something that I would put 20, 30% probability on.”
– Tom Davidoff, Economist, Sauder School of Business, UBC, excerpts from CBC website video interview, 14 Nov 2012

Agree completely with the substance of what Tom Davidoff says here, but I’d weight the risk of large house price drops at far higher than 20%-30% probability. Especially if by ‘large’ drops one means something in the region of 30%-off. We’d say the chances of that size price fall are over 90%, actually. We’re already about 10%-off and the unwinding has hardly begun. Can’t see any other ‘creative’ way in which the bubble can resolve itself. – vreaa

BC Consumer Debt Highest In The Country, Up 6.2% YOY – “In a city where this house is assessed for more than $1.3 Million, it’s understandable why some British Columbians feel rich. But what if prices fall?”

“In a city where this house is assessed for more than $1.3 Million, it’s understandable why some British Columbians feel rich. More than any other province, people here have been borrowing against their homes, running up lines of credit, and credit card debt. …
The average British Columbian has $38,837 in consumer debt, that’s an increase of 6.2% compared with a year ago. And it doesn’t even include what they may owe on their mortgage. And what have they been spending it on… renovations, and tearing down and starting from scratch. And vehicles.. lots of vehicles.. sales of luxury cars have seen double digit increases.
But what if prices fall? Neighbourhoods like Vancouver’s West Side have already seen that happen, and sales have slowed down considerably just about everywhere.”
– from ‘B.C. personal debts increase sharply’, CBC, 14 Nov 2012

Yup.
See what’s happening?
Concerns long held by the bears are rising in public consciousness.
– vreaa

“A friend of a friend bought with 0/40 at the last market top in an age restricted building. Then a baby came along. They’re underwater and cannot afford to sell. Strata started to ding them $200 a week.”

“A friend of a friend bought with 0/40 at the last market top in an age restricted building. You know how it is, “get in the game”, “build equity”, “throwing money away on rent”, “flip it in two years”, “a place to call your own”, “everybody’s buying”. Then a baby came along. Despite advances made in Van West and Richmond SFH, condo prices haven’t really recovered yet so they’re underwater and cannot afford to sell. Strata started to ding them $200 a week [penalty for breaking the age bylaw] and they are forced to move out and (gasp) rent elsewhere, while their condo sits there doing nothing except eating mortgage, strata fees and taxes. To add insult to injury, they can’t rent out the unit unless to their immediate family. They tried to sell this summer and the market was really soft and the price are weakening. Last I heard they are waiting for the market to bounce back next year.”
– RaggedyRenter at VCI 12 Nov 2012 10:16pm [This story, or one very similar to it, also featured on local radio, 14 Nov 2012. -ed.]

Vancouver Sun Calls Current SFH Prices “Rock Bottom”

$598,000: 3023 E 1ST AV Vancouver

$669,900: 5638 ABERDEEN ST Vancouver.

$638,000: 4848 KILLARNEY ST Vancouver.

– from the ’20 Vancouver homes at rock-bottom prices’, Vancouver Sun, 14 Nov 2012[hat-tip JoeQ, who adds “Given the house quality to price ratio in these photos, methinks we are quite far from “rock bottom”. (We’d agree. Prices have barely commenced their fall. -ed.)]

North Van – “Our house at peak was about $1.3M, and now I expect we’d be lucky to get $1.1M, a minimum 15% drop. We’re staying cause we need a place to live with kids, but also cause we paid $600k, which is where it could go back to.”

“I live in Capilano area, bought in 05′. Our house at peak was about $1.3M, and now I expect we’d be lucky to get $1.1M – that’s a minimum 15% drop. We’re staying cause we need a place to live with kids etc. but also cause we paid $600k, which is where it could go back to.
Other houses up the street have lowered from $1.2 to $1.0M and are still not selling.”
– NVD at VREAA 13 Nov 2012 5:07pm

This owner appears to fully comprehend the risks and benefits of ownership.
– vreaa

Developers Reluctant To Share Data; CMHC Abandons Study – “It’s very hard to assess risk in the market when you don’t have insight on the amount of properties being used for investment purposes.”

“An effort to get more information about the influence of some speculators in Toronto’s condo market has collapsed after developers refused to take part, leaving policy makers in the dark.
Urbanation Inc., a data-research firm, has pulled the plug on a survey that it had tried to conduct, with the support of Canada Mortgage and Housing Corp., to quantify how many “assignments” are taking place in the market. …
The study could have shed light on an aspect of the condo market that economists and policy makers have been worried about, as they have sought to get a handle on just how overheated the market might be and what risks it might pose to home buyers and the greater economy.” …
“There aren’t any good numbers on the amount of properties being used for investment purposes,” said Toronto-Dominion Bank chief economist Craig Alexander. “It’s very hard to assess risk in the market when you don’t have insight on that.” …
“Ben Myers, executive vice-president at Urbanation, said he sent the survey to more than 100 developers that had launched condo projects in the past five years, asking them for either the percentage of units or an exact number of units that had been assigned before the condo buildings were registered. “We wanted to know what’s happening with this shadow market; there’s no real way to track it,” he said. He said that one person he spoke to, outside of the developer community, speculated that “because some of the people assigning units are not paying capital gains taxes on that, developers may not want the government looking into that any further.”
– from ‘Data on condo speculators prove elusive’, Tara Perkins, G&M, 14 Nov 2012 [hat-tip bullwhip29]

Developers would not want to publicize data that brings into question the strength of real demand.
– vreaa

Agree To Buy A Condo; Earn Money!

– from the website promoting ‘The residences at West’ [Nov 2012], a development that we are told “will change the face of Vancouver’s Southeast False Creek forever”.
[hat-tip to Landbaron]

Recently we featured a post discussing some of the ways in which RE marketers are promoting their Vancouver product [‘Sellers Offer Incentives – Cars, Cash, ‘Price Drop Guarantees’, VREAA, 9 Nov 2012].
Hats-off to the marketers with the idea above. Such superb sleight of hand.
Prospective buyers are attracted but also distracted by the ‘earn 10%’ (“Such a good return!”), while the sting is that they agree to buy a condo at 2-3 times its fundamental value (about the same overvaluation as all other Vancouver RE).
Note the use of the ‘good’ word “earn” – wholesome; hard work; prudence.
Furthermore, we may be wrong, but judging by the ad our hunch is that the ‘10% interest’ you earn is 10% total until completion, and not 10% per annum until completion. In other words, 10% total rather than the 21% total that is implied by the overall impression of “10% interest” over two years. (If we’re incorrect on this, and anybody has precise info, let us know.)
– vreaa

Robyn Adamache, CMHC market analyst – “Vancouver is down 9% from the 2011 peak.”

“On the CBC Radio Early Edition this morning [13 Nov 2012], a few minutes before 7:00 am, Rick Cluff interviewed CMHC market analyst Robyn Adamache, who will be speaking this morning at the CMHC conference in Vancouver. No mention at all of a bubble, and the typical positive spin — “market may decline 1% in 2013” — but there were a couple of interesting things. She said Vancouver (I’m assuming broadly across the Lower Mainland) is down 9% from the 2011 peak. I’m assuming she has access to comprehensive and current data not generally available. And at the end of the interview, with Cluff pushing her pretty heavily on whether now was a good time to buy, given the price slump, she adamantly remained on the fence, and wouldn’t state an opinion. Rather interesting if you’re saying, at the same time, that the market will be stable in 2013.
There may be some followup stories in the local media about the half-day CMHC conference, although I doubt there will be any great revelations, or admissions of any impending serious problems with RE. Given CMHC’s role in all of this, they are probably controlling their message pretty carefully these days.”
– Froogle Scott, via e-mail to vreaa, 13 & 14 Nov 2012

“There is a place in Lynn Valley for sale, asking price 860k 2 months ago. My friends made an offer for 760k, less than assessment. It was rejected back then, but seller appeared last week and said that they are now ready to sell for 760k. My friends took a look again and decided that they don’t like it anymore.”

“My friends are looking for a house in North Van and they’re lowballing all the time. There is a place in Lynn Valley for sale and asking price was 860k 2 months ago. They made an offer for 760k less than assessment. It was rejected back then, but seller appeared last week and said that they are ready to sell for 760k now. My friends took a look again and decided that they don’t like it anymore. So, 100k discount in 2 months… There are motivated sellers out there!”
– Aleksey at VCI November 13th, 2012 at 5:44 pm.

Poster in Dunbar – “LOST… my faith in City Hall. The Mayor has handed over our communities to private developers.”

“LOST… my faith in City Hall.
The Mayor has handed over our communities to private developers.
Tell City Hall that you oppose 6+ storey high-rises on Dunbar.
3-4 storey apartments on every arterial street.”

– poster seen on Dunbar streets, Nov 2012

Spot The Speculators #89 – “Rent our charming turn of century East Vancouver home. The basement has shared laundry and a suite where we, your prospective landlords, reside.”

Visualize the basement

“$2400 / 3br – 1400ft² – Lovely quiet home in great neighborhood Available December 1st (Mount Pleasant / Cedar Cottage)
Date: 2012-11-11, 1:44PM PST
Our charming turn of century East Vancouver home is for rent.
Newly (as in will be finished in a week!) renovated kitchen with white shaker cabinets, dove grey quartz countertops, breakfast peninsula, mini office / computer area, dishwasher.
Hardwood floors throughout most of the house, living / dining rooms with big picture windows.
Three bedrooms upstairs: master bedroom with two large closets (one walk-in with a window for natural light), two smaller bedrooms with one closet each and big windows looking out to back yard.
One bathroom with soaker tub and skylight.
Back deck for bbqing and entertaining, big nicely kept back yard.
Front porch ready for your rocking chair.
Basement has shared laundry (and a suite where we, your prospective landlords, reside).
One year lease.”
– craigslist ad, 11 Nov 2012 [hat-tip Chem guy at VCI]

You can imagine the ‘math’.
Upside: “In 25 years, our tenants will have paid off our mortgage!”
Downside: “We live in a smallish, dampish, darkish box, with people stomping on our heads.”
…
Another example of Vancouver homeowners as speculators: decisions to buy/hold property based almost solely on expected future price strength.
When these homes were first designed and built, was there ever any intention for people to be living in the basements?
– vreaa

“Just overheard my co-worker turned into an accidental landlord. Tried to sell his old property in Coquitlam after purchasing a big one in Surrey. 4 months passed without even 1 offer.”

“Just overheard my co-worker turned into an accidental landlord.
Tried to sell his old property in Coquitlam after purchasing a big one in Surrey. 4 months passed without even 1 offer.
He has been day-dreaming about selling for more next year.”
– good-format at VCI October 17th, 2012 at 10:50 am.

“He accepted an offer recently, $12k less than he paid a few years ago but he isn’t calculating the RE fees, property transfer tax, and the work and cash he’s put into fixing the place up which is upwards of $50k.”

“Husband’s colleague recently listed his house, the wife is a bit of a shopping addict and they are debted-out. Accepted an offer recently, $12k less than he paid a few years ago but he isn’t calculating the RE fees, property transfer tax, and the work and cash he’s put into fixing the place up which is upwards of $50k. He’s hoping the house inspection won’t give the buyer further negotiating room.”
– terminalcitygirl at VREAA 23 October 2012 at 7:33 pm

“In the fall of 2007, he closed on the Costa Rica lots, for almost a million dollars. He knew that the land was overvalued, but he expected it to become even more so.”

“Connaughton ignored the warnings. In the fall of 2007, he closed on the Costa Rica lots, for almost a million dollars. He knew that the land was overvalued, but he expected it to become even more so. “It was Greed,” he later said.”
– from ‘Washington Man’, a profile of the “public servant” and “rich lobbyist” Jeff Connaughton, by George Packer, New Yorker, 29 Oct 2012

Nine Out Of Ten Analysts Agree: House Prices To Drop, But Not By Too Much

“Canadian housing prices will fall 10% over the next several years and homebuilding will slow sharply in 2013, but the country’s recent property boom is not expected to end in a U.S.-style collapse, according to a Reuters poll.
The survey of 20 forecasters published on Friday showed the majority believe the Canadian government has done enough to rein in runaway prices, preventing the type of crash that has devastated the U.S. market for years.
“This isn’t a sharp correction, this isn’t a U.S.-style correction, it’s just simply an unwinding of the excess valuation that was created by artificially low interest rates for a long period of time,” said Craig Alexander, chief economist at Toronto-Dominion Bank.
“I would emphasize that while a 10% correction sounds scary, in actual fact, this would be a healthy outcome.”
…
“Vancouver prices were forecast to fall 2.7% in 2012 and 3.8% in 2013, with an eventual decline of 12.5%.”
– from ‘Canada home prices seen falling, but not crashing’, Andrea Hopkins, Reuters via Financial Post, 9 Nov 2012

“Canada’s house prices are expected to drop and stay down for a decade, says a new report from Scotiabank that also warns of an “adverse shock” to the economy when the decline comes.
The bank’s latest housing outlook predicts a 10-per-cent price decline across Canada in the next two to three years, driven by larger declines in the Toronto and Vancouver markets, “where supply risks and affordability pressures have the potential to trigger larger price adjustments.”
The report notes that previous housing market downturns — in the 1970s and 1990s — took eight or nine years to bounce back to price levels seen before the decline.
“Historically, long cycles of rising home prices have been followed by extended periods of persistent softness, allowing affordability to be gradually restored and generating renewed pent-up demand,” the report stated.
The bank also warned that “balance sheets heavily skewed to real estate leave Canadians vulnerable to an adverse shock, including a sharp rise in unemployment and/or a sharp drop in home prices.”
– from ‘Canada House Prices To Drop, Stay Down For A Decade, Causing Unemployment, Scotia Says’, Daniel Tencer, The Huffington Post Canada, 8 Nov 2012.

Analysts in the industry are largely commentators, rather than instruments with any convincing positive predictive capacity. Their predictions are noteworthy to the extent that up until very recently there was a broadly held belief that housing prices would not fall at all. So, for the media to be announcing even the idea of coming drops is significant. But, from a quantitive perspective, their consensus about price drops being relatively benign reflects characteristic hope over substance.
Based on the size and all-consuming pervasiveness of the speculative mania, and on price levels determined by fundamentals such as rental incomes, we foresee larger than 10% drops for the nation and far, far larger drops for Vancouver (50%-66% real, peak to trough). Aren’t we already at about 10%-12%-off for most RE sub-types in Vancouver?
And another point: it took 25 years for real prices from the 1980-81 peak to be regained in Vancouver, not 10.
– vreaa

“Substantial declines in home sales are usually a precursor of home price corrections.”

“Our in-house investment managers in NYC have a global portfolio of around $300bn USD; this was their take on Canada sent to me yesterday:
“It is reported that home sales in Vancouver and Toronto metropolitan areas dropped by 20-33% in September from a year ago. Substantial declines in home sales are usually a precursor of home price corrections. While almost all high loan-to-value mortgages in Canada have guarantees from government backed entities, a housing correction will likely impact consumer finances and aggravate credit card ABS credit performance”
Word is getting out there pretty fast now. Housing market correction = recession in Canada.”
– Toronto_CA at greaterfool.ca 7 Nov 2012 10:04am

Price follows volume. The weakness we are seeing in sales will be followed by similarly impressive price drops.
And, yes, a housing market correction will have profound effects on our economy, particularly in areas like the lower mainland where we are sorely overdependent on economic activity either directly or indirectly linked to RE.
– vreaa

Sellers Offer Incentives – Cars, Cash, ‘Price Drop Guarantees’

“I drove by a new development in North Van over the weekend called the Kimpton. They’re offering crash insurance – a $100k price-drop guarantee.”
– crabman at VCI 5 Nov 2012 6:20am [This story also headlined at VCI 7 Nov 2012. Visiting the Kimpton website, one is rewarded with walls of muzak, but no ‘guarantee’ info. Fortunately, ‘Not much of a name’ at VCI has done some work on this: “Just called the Kimpton’s sales office to get clarification on how the price drop guarantee works. The $100,000 gets paid into trust and at the end of the two year period, an appraiser is brought in to value the property. If the value drops (ya, like it won’t) you get refunded that amount by up to $100,000. Oh, and apparently today is the last day for this promotion and guess what…there will be a “blowout sale” this weekend to move the final five units. I was told that five sold last week so I should hurry and buy. Funny how there were only four units left prior to putting up the price drop guarantee on the sign.” -ed.]

“Just received an e-mail from Bosa (this is the new building in false creek) and seems like all the developers started to promote cash credits or other price guaranties. This is what it says :
$5,000 credit on all One Bedroom Homes
$7,500 credit on all Two Bedroom Homes
$10,000 credit on all Larger Two Bedroom Homes
They started selling in May but apparently must be having a hard time with current pricing so giving some discounts maybe will push a bit faster.”
– piklishi at VCI 7 Nov 2012 7:07am

“There are other schemes too. Care to help me formulate a list? Here are some to start:
– “Fire sale” prices, a giant weekend sales push well below market price
– 2 for 1 deals (buy a condo, and get another condo in Ohio for free)
– Developer pays your mortgage and strata fees for the first year”
– jesse (YVRHousingAnalyst) at VCI 7 Nov 2012 9:56am

And, of course, let’s not forget:
“A brand new 2012 FIAT 500 Pop is a present to you if you purchase 2575 W7th Ave!”
– Philip Chan, realtor selling a Kits townhome he owns, Oct 2012

“The sale of my house closed last week. But it wasn’t easy. The hard part was convincing the wife that this is the right course of action. The hardest part may be yet to come. If house prices rise, it won’t be easy being me!”

“Frequent visitors to my site will recall a series of articles a few months back examining whether Vancouver, Canada is indeed in the midst of a real estate bubble. Those articles weren’t just for your benefit; they were primarily for mine! You see, as a Vancouver home owner, I wanted to know if I was sitting on an asset that might soon be worth a lot less than it is currently. My conclusion was that we are in a bubble, and so I took action!

The sale of my house closed last week! But it wasn’t easy. First, the hard part was convincing the wife (and other family) that this is the right course of action. The psychology of home ownership is so strong, in my opinion, that it’s very difficult to convince someone that they should sell their home, no matter how high real estate prices become. As prices have risen above normal for several years, the common expectation appears to be that they will continue to rise. Following this sale, if prices continue to soar, the in-laws (and other I-told-you-so’ers) will be all over me for the rest of time.

Once we agreed on the decision to sell though, our journey had just begun. Though average selling prices are still high, the number of sales has dropped substantially in the area. Several reasons are commonly cited for this:

1) China’s slowdown has hurt commodity prices, hurting BC’s economy
2) China’s slowdown has hurt Chinese buyers, who represent a significant portion of buyers of Vancouver real estate.
3) New government mortgage requirements have increased the annual cost of ownership (e.g. the mortgage amortization maximum has been brought down from 30 to 25 years)
4) Buyers are finally tapped out. Credit and home ownership in Canada are at all-time highs.

As a result, for a while we didn’t think we’d be able to sell. The house was listed for three months starting in February, and while we received a lot of visitors (over 95% of whom spoke a Chinese dialect as a first language, I would estimate) over that span, we received not a single offer. We took the house off the market, partly because I didn’t have the courage to push for a “price to sell” price.

But then our luck turned. Our next-door neighbour approached us, as his cousin was moving to Vancouver from Asia and was interested in our place. The prospective buyer spoke no English, and so would benefit from being able to locate his family right next to his cousin’s. His reasons for moving? He wanted a good education for his kids, and wanted to live in a society with free speech.

With no real estate agent fees to come between us (as the house was no longer listed by then), we quickly came to a deal that resulted in more money in our pocket than if we had managed to sell while our house was listed. The last few weeks have been hectic, as we’ve had to move out and find ourselves new digs to move into! Last week, we moved into our new place, so the hard part (physically) is now over. The hard part emotionally may be yet to come; if house prices rise, it won’t be easy being me!

Though almost every metric I encounter suggests housing supply is growing faster than demand and that price to income and price to rent ratios are way higher than their historical norms, there is one thing that worries me about my housing thesis. It seems that developers just aren’t building single-family detached homes. While condo-building more than makes up for the lack of new houses, I do worry that the lack of supply for actual houses could continue to force house prices upward.

On the other hand, however, condo and house prices are undoubtedly correlated, so if there’s a ridiculous oversupply of one, it probably affects the other pretty significantly.

Wish me luck!”

– Sal Karsan at barelkarsan.com, 5 Nov 2012
[Thanks to Sal for notifying us of his story. We think there is a high likelihood he’s going to look wise in future years. -vreaa]

Toronto Condo Seller – “I honestly never saw this coming. Never. It is very stressful. Sometimes, I am not sleeping well.”

“I honestly never saw this coming. Never. Because the boom has been now for a while, like 4 or 5 years?” [Announcer: “Maria has been trying to sell her (Toronto) loft near Square One for three months.”] “It is very stressful. Sometimes, I am not sleeping well.”
– Maria Alvarez, CityTV, 6 Nov 2012 [hat-tip to VMD at VCI]

The downside of speculation. – vreaa