“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]

35 responses to ““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!”

  1. I am bearish on China but I do think there is a chance there will be a rebound in its economy in 2013 and perhaps leaking into 2014. That does not mean such an event is certain, but is one scenario I would consider and be prepared for (i.e. don’t make major life decisions requiring prices to fall quickly in the next two years with no contingency plan; by contingency I mean mostly the better half being absolved to housing markets taking many years to correct and the consequences of this).

    In the longer term (2015 and beyond) I am putting much less a chance of the previous decade’s level of capital accumulation in China continuing.

    And taking a step back, it may be true that certain areas of the city can accept large capital investments generated offshore and that can bifurcate them from the rest of the region — and this has happened to some degree — but the rest of the region is playing along not entirely through “knock on” capital spending (i.e. Mainland Chinese millionaire buys someone’s house and that someone uses the money to buy another house elsewhere, etc. etc.) but by debt accumulation, at least according to data from the Bank of Canada. That means that any foreign/immigrant investment in RE, in an environment of tighter credit availability, will not have as high a multiplier effect as in the past. IMO

    • UBCghettodweller

      >any foreign/immigrant investment in RE, in an environment of tighter credit availability, will not have as high a multiplier effect as in the past.

      Good insight on that one. I think that’s correct.

  2. Seeking knowledge...

    First off, I also believe we are in a RE speculation bubble. Having said that, isn’t selling now, given a set of conditions, also a form of speculation? Let’s say, as a simple example, he bought his house in the 80’s or 90’s when prices were reasonable. The mortgage has been paid off and there are no huge debts. If in the unlikely event the price goes up the next couple of years, and he is pressured into buying back in, isn’t selling now speculation?

    • You could say that selling now and expecting lower prices is speculation, however, there is zero risk to taxpayers.
      OTOH, if someone overextends himself by buying now with a giant mortgage, the risk to taxpayers is there.

      • Naked Offical #9000

        pffft – who cares about Canadians?

      • ack! … apparently not the nhl … ps. anyone else notice debt dude’s hand size to head size ratio? … must be at or over freak threshold

      • on the contrary… if he is removing his own equity from the house.. and someone else is leveraged to buy the house… it increases risk to taxpayer

      • How is that the sellers responsibility? The seller is NOT creating any risk to the taxpayer, no matter how you spin it.

    • Seeking_knowledge – > If so, this ‘speculator’ is predicting that a very overbought asset will correct to the mean… and we like that speculation.
      Also, what, really, is his downside risk?- a person out of the market is never obliged to buy back in.
      So, yes, ‘speculation’, with excellent upside/downside risk weightings.

      • It should be said that there is absolutely nothing wong with speculation – one way or the other – as long as the cost and of the speculation and all responsibility for it is carried by the participants (the buyer, the seller, the lender).
        We know that in case of buyers, this is often not the case…

      • Also true. Also ‘moral hazard’ relevant.

      • UBCghettodweller

        As someone who has stayed out of the market, although I could have “bought” a condo when I moved to Vancouver a few years ago, the academic dis-attachment is rather nice. I can sit back and just let the numbers roll in.

  3. Is Rennie building/marketing more condos in Richmond.??..Globe online

    • Real Estate Tsunami

      Yeah, “The Gardens” at the former Fantasy Gardens land owned by Vander Zalm.
      Crazy location, close to the Massey Tunnel. Horrendous traffic now already.

  4. I’m in the same boat as you. Sold my house
    to some Asians in the Spring. I’m now renting a beautiful house from Asians in Vancouver haha. My family believes we did the right thing now as the news is all over “the correction” but at the time everyone thought we were nuts when we sold. Since then similar houses in the neighbourhood selling for less now. Hang in there, you did the right thing. Now be patient, market is a slow bleed stand off. Fed pledged to keep rates low until 2015. If rates start to creep up a little after that you will see the bigger correction. Until then inventory buildup and other factors will keep the market on a slow bleed.

  5. Sold my beautiful downtown town house earlier this year, now I am renting a large a 2Br + Den downtown for $2K. My wife though I was crazy to sell our townhouse, she hating all that hassel of daily showing and the open houses, but now she totally came around and think that it is a great decision. When I was assessing my finances last year, I came to conclusion that:
    1) a primary resident is NOT an investment, it is not like a rental property bringing in cash. whatever paper gain I got from my primary resident is just that, paper gain until I sell it.
    2) my townhouse is insanely over valued!! my 1300sq feet wooden town house I bought for $300K ten years ago is not worth $900K.
    3) if I bank the gain from the sale, it is much cheaper to rent (property tax, special levy, fixes,etc) for the rest of my life than owning a place.

    Now that my place is sold, I felt extremely liberated to not have a mortgage!! When I bought my town house, I took on a $200K mortgage, I don’t know how my buyers can affort mortgages for a $900K place. The ironic thing is, I am now renting at the building where my buyer was from. LoL.

  6. 2nd deal has now fallen through on friend’s Maple Ridge house sale. Apparently the woman offering couldn’t get a co-signer and as she had overdue bills, the bank didn’t feel comfortable giving her all that mortgage money. Friend is starting to feel a bit desperate, mortgage up for renewal at the end of November. If no offer by then, the plan is to take the house off the market until next spring.

  7. 4SlicesofCheese

    http://www.bcbusinessonline.ca/homes-and-real-estate/decline-of-chinese-real-estate-investors-vancouver

    Funny quotes,

    “It’s my opinion, however, that when mainland Chinese buyers return to Vancouver it will be a feeding frenzy due to pent-up demand.”

    “When China’s real-estate market returns to brisk buying and selling, many Chinese will once again look for a safe haven to park their newly regained wealth.”

    My fav.
    “It also means that parking money in Vancouver feels to them as safe as investing in treasury bills.”

    • Naked Official #9000

      Like MacArthur, my comrades shall return!

    • Real Estate Tsunami

      I believe that there’s a small possibility that the Chinese will come back into the Vancouver RE market in a big way.
      But I think that the current anti Chinese sentiment (mine workers, shark fin soup, etc) will make them feel less welcome.

      • Naked Official #9000

        imagine if we actually had some laws with teeth on illicit capital inflows

        there may come a day when we will have to hand these people over to china for their embezzlement. (not to say that all mainlanders are in this category, just that the naked officials seem to be fleeing the ship in greater numbers, as evidenced by the $3.2 Trillion (with a T) figures over the last 10 years coming from the center for fiscal integrity..

        in the mean time; enjoy this thread i found – first post is a blatant Party Member – seems to control the dialogue with the help of a few others / lots of verbal intimidation, outbursts, flame wars, you name it – everyone that disagrees is a traitor or an SB (stupid cunt) – he’s angry at the photo of the HK resident claiming he is not Chinese but a Hong Kong citizen i believe (or at least something anti-party/anti-mainland) – there are several Canadians firing at these 50 cent gang types, but it is just a relentless bitch fest – i need to stop reading this shit. page 13 i believe has a post where someone challenges one of the wu mao gang (50 cent gang)- ‘if you are in canada and there is a war vs china, you will help china fight in canada’?

        clearly we are failing at integrating some people – some people are clearly not happy to be here, or perhaps they are not even local and are just hopping over the wall to take part in the ‘great internet water army’ (50 cent gang) – i believ that here in canada we have our own version of this at work, and it has to do with subjects online related to climate change, the oil pipelines, herr harper, etc. call me crazy.

        i wish i could wade into the fray, but google translate just isn’t cutting the mustard with my elite level snark. my syntax is devolving, help me.. where is VMD?

        https://translate.googleusercontent.com/translate_c?act=url&depth=1&hl=en&ie=UTF8&prev=_t&rurl=translate.google.com&sl=zh-CN&tl=en&twu=1&u=http://forum.iask.cc/showthread.php%3Fs%3D75311eb9d518275049779c327f74e7e2%26t%3D608226&usg=ALkJrhiV9jcGac7qHUvJsdi50RDkbltokQ

      • how is nationalism different from racism … just same old us vs them

      • Naked Official #9000

        bears v bulls?

      • was hoping someone might get up to beating on my faux anarchism … full-blown substance-enhanced internal socratean discourse can gets one to some pretty weird places

      • Naked Official #9000

        amen to that

    • Funniest quote IMHO:
      “Vancouver is poised to become one of the biggest, if not the biggest, beneficiaries of that wealth looking for a new home”

      Beneficiary? Doesn’t that imply a benefit? Somehow pricing Vancouverites out of their own city doesn’t strike me as beneficial.

      • Naked Official #9000

        logic has no place within these walls!

      • Should say…
        Vancouver’s Public Officials, and Public Employees Wage Increases are going to become and are poised to be the Biggest Beneficiaries of this “New” Property Tax Wealth coming in… because we have tapped out the local’s ability to cover our Raises.”

  8. “there is one thing that worries me about my housing thesis. It seems that developers just aren’t building single-family detached homes”.

    You are correct to be worried about this.

    • Opinions will differ on this point.
      SFHs in Vancouver are at least as overvalued as condos, and will see price depreciation of similar percentages from peak to trough.
      The ‘SFHs are rare’ belief led to proportionately greater overpricing of that sector on the way up, and that will unwind as the spec mania deflates.

      • Also, there has been substantial development on the periphery, like Cloverdale, South Surrey, Fraser Valley, etc.

      • had it with the sfh bs … i read a great one somewhere (forget source) … paraphrase – ‘quite a feat how so many people in one of the most sparsely populated countries in the world managed to convince themselves land was running out … that’s a nation of stupormen’

    • Rusty's Revenge

      when SFH takes the plunge i am going to dredge all of your (rusty’s) posts off google and make a tribute page to you, rusty.

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