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

45 responses to “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.”

  1. Slight quibble, while the house may have been worth 1.3 it was impossible for all but a few to command that sales price. These price levels are, for the majority of owners, doomed to remain in the hypothetical.

    • Yes, but they will forever be quoted as the peak price for those houses, and they were indeed the ‘market value’ at the top.
      (BTW, you could apply the same quibble (given, to a lesser extent than at tops) to any ‘market price’ at any point in time, because, if all owners tried to realize that price, prices would change. Set ‘at margin’ and all that.)

      • Agree. I wanted to highlight here, as a reminder, that it’s impossible for everyone to sell at current market price if the earnings are not aligned well with prices.

        It is one thing to say one can sell, quite another to sell. We all understand the difference, but some of us haven’t understood it.

  2. I like this guy’s attitude. Not going to let a bubble and a massive pile of cash disrupt his family. I have the same attitude but my decision is much easier, because it’s a massive hole for cash. That’s why I rent.

    • As we’ve said before, for some the inconvenience of a drop in RE prices of 50%+ is less than the inconvenience of selling/moving/renting. This sounds bizarre, but, for individuals with relatively high net-worth compared with RE prices, it is the case. This doesn’t apply to the vast majority of Vancouver owners, who on average have a very large percentage of their net-worth in RE, and whose future financial integrity would be severely threatened by large RE price drops.

      • It doesn’t sound bizarre to choose to stay. Moving is a huge hassle and can have impacts children’s schooling, friends etc. Many will prefer to stay put. Your second point on who can afford to or not is more salient. I wonder how many people are stretched beyond belief to afford their home and what it will mean to the market as it drops. How many will find a way to exit after they realize the capital gains aren’t there in for-seeable time for them.

      • Sell. Rent and buy back in when price drops. Several months/years for many years of gain to be mortgage free when you buy back in. That is what I would do in this situation–a once in a lifetime opportunity.

      • Seeking knowledge...

        VREAA – very insightful as usual.

      • Seeking knowledge...

        …as I have many friends in the ‘westside’ who (at least from my own observations over many years) will not likely to suffer financially if RE drops 50%.

      • Seeking:
        Sure, they may be fine, unless they’ve:
        1. ..borrowed and spent the presumed increased value of the house
        or (more common)
        2. ..factored the high home value as a crucial part of their retirement plans.

  3. Real Estate Tsunami

    Here in Ditchmond (Richmond), 2 of the parents on our hockey team wanted to sell their houses during the peak 1 year ago, but then decided not to because of the kids etc.
    Now they are regretting not having sold as they see market going south fast.
    They also worry that they may be under water soon.

    • That’s just crazy. The decision to not sell is a decision to stay for 20+ years. I’d want 75% equity to make that call.

      BTW, what do you call a stock that dropped 90%? One that dropped 80%, then halved.

  4. Sell with a condition to lease back for a few years from a Mainland corrupt Communist official. Nothing brightens up your life than taking blood soaked money while at the same time able to take a moral high stand against communism and corruption.

    Seriously, the guy is letting $600K tax free slip away from him, all because it’s too much of a hassle to move? WTF? How long would it take for him to make $600K after tax? hell for that money, he can easily rent a nice place, hire a nanny, put their kids into a way better private school. Geez….

  5. Real Estate Tsunami

    “Under water”, financially and geographically.

  6. And yet in today’s FP Vancouver prices are listed as only having dropped 3% in the last six months despite the steep drop off in sales.
    http://business.financialpost.com/2012/11/15/canadas-home-sales-slide-in-latest-sign-housing-market-is-cooling/

    Why do prices remain so sticky? Don’t the sellers really need to sell? Are interest rates going to have to rise substantially to reset prices, or will that merely hurt locals in favour of HAM?

    • Be patient. The party lasted 10 years. A lot of people are either waking up hungover or are still drunk on home equity. By next June I would guess that everyone will be very sober and as the carrying costs on the “investment properties” start becoming more real and the estate and divorce sales pile up we will see prices off in a big way.
      Of course there will always be the smug jerk who says “Im not dropping my price because……” The reality is he may not “need” to sell because he bought 15 years ago, his parents gave him the house or hes got some finance/govt job and/or his arrogance and blind faith in the BPOE propaganda wont let him sell. The reality is the market will be driven down by those desperate to get out. Once the “desperation” sales start to pile up the herd will panic.
      Better to have a degree in psychology than in finance to navigate the real estate market in Canada these days?

  7. What a moron I mean.really,… a $500,000 tax free profit sitting right there and because of middle class angst of what the Jones’ might whisper at the Winter Club “We’re staying cause we need a place to live with kids” ..Idiot. Take thew 500k invest it conservatively in a diversified portfolio, make 7-8% a year. You can rent the same 50 year old pile of rotting rainforest for 1800-2800 a month. And buy your place back for 600 in 3-5 years. But he’d rather what?… Sit and watch money fly out the window. Paying tax on the 1.6mm assessment, insurance, repairs etc.
    Its stories like this that remove any compassion I have left for the “herd” The reality of the situation is now front and center for them to see and still chewing away on their cud in blissfull bovine ignorance.

    • Disagree. His business model is long-term. The difference to someone buying today for the “long term” is he bought at a substantially low price.

    • Yep, trading houses as a “financial asset” on the way up. Owning a “home” on the way way down. Asinine.

    • Moron is a strong word to use just because someone disagrees with your interpretation of the right thing to do Bob. And, while the term “blissful bovine ignorance” has a certain alliterative charm, it is not accurate in this case. The guy sees the way things are going and has decided for valid reasons to remain in his house rather than go through the hassle and headache of trying to realise the $500K financial gain. Fair play to him…he’s not saying ‘buy now or be priced out forever because this is the BPOE and one billion Chinese gazillionaires are moving here tomorrow’. He’s saying ‘this is my situation and I’m happy with it’. Good for him.

      • Cyril Tourneur

        “hassle and headache of trying to realise the $500K financial gain”
        Maybe I’m really dense and/or low net worth but I just can’t see how realizing a $500k gain is a hastle in any form whatsoever? I mean maybe if you’re worth north of $5-10M but is that the kind of wealth we are really talking about here?

      • Ralph Cramdown

        As every married economist knows, there’s two factors at work here. The first is the marginal utility of the gain this guy’s turning down (up to $500k), which is typically far less for someone worth $50M than for someone worth $1.1M. I don’t know how much I’d have to be worth to say “meh” to that kind of a loss, but I’d say at least several mil, and maybe 5.

        The second factor is his wife.

      • If there were no bubble the guy wouldn’t sell. Why does he all of a sudden need to sell because of an ongoing irrational speculative mania. Maybe the best thing he can do for himself is avoid the insanity and get on with his life instead of getting swept up in an event over which he has little control. Which is what he’s doing.

  8. First, it is not a guaranteed half-million gain, is a possibility of one. Big difference. Second, money matters much less than the utility of the money. Having an extra half million perhaps would make little or no difference in his lifestyle, while the hassle of selling/renting/ buying back would be a real “cost”.

    All-in-all seems like it could be a rational choice.

  9. Sorry, but I’m with Bob on this one…………

  10. Theboywhocriedbubble

    His purported percentage drop in ‘value’ , where would he be able to determine the peak value/todays value from ? I spoke to an instructor at my post secondary institution today about the bubble. His story was that the ‘value’ of his property ( 7 acres and change + small house in rural Maple Ridge ) was purchased pre olympics for 388K. He stated that in 2010 his land was valued at 2.5mil. He says now its more like 1.7mil. I have a real hard time believing the guys account. Anyone have an idea how the outlying areas like Maple Ridge , Pitt Meadows and the like will fare when the bust is in full bloom ?

    • Real Estate Tsunami

      Never trust a guy, when he talks about his stocks or RE exploits.

    • Real Estate Tsunami

      Never trust a guy when he talks about his stock, RE or sexual exploits.

    • He’s dreaming unless it has been rezoned. Here are some listings from Maple Ridge but asking price is far from selling price

      V977987 is 5 acres for $520K
      V961859 is 6.4 acres for $549K
      V962116 is 4.7 acres for $550K
      V956885 is a brand new waterfront home on 8.6 acres listed for $1.72M
      V940405 is 20 acres for $1.79M
      etc etc

  11. Real Estate Tsunami

    I thought this was a blog where we trash the homeowners and glorify the renters.

    • Surprisingly for the Genre, Tsunami – IllustriousEd hosts an equal opportunity blog… this dialectic’s invective targeting is normatively inspired/constrained solely on the basis of comedic potential [within an overarching rubric of logical positivism]…

      In that spirit… A USMC inspirational homily…

      “At 0600 tomorrow… your ass is mine.”

      [NoteToEd: Think of it as a VeteranStoic addressing a PolemicTongueLashing to IdleSpeculators – vs. Utilitarian Aestheticists like NVD.]

      …”Philosophy does not promise to secure anything external for man, otherwise it would be admitting something that lies beyond its proper subject-matter. For as the material of the carpenter is wood, and that of statuary bronze, so the subject-matter of the art of living is each person’s own life.” —Epictetus

  12. If you have a paid-off house or low amount owing, at a reasonable rate that is well within your reach, the house is a utilitarian possession.

    However, I have never viewed a house as an asset or investment that is counted on to appreciate over time, or pay for retirement. It is a heap of concrete and wood (etc…) that you live in and pay for.

    In my accounting, a house is a LIABILITY, like rent, that must be maintained and paid for (yearly, with taxes; in addition to monthly bills).

    If you speculated on the boom to make money or fund a lavish lifestyle/retirement, you are deluded.

  13. IMO people who claim to think that it’s too much hassle to sell and rent for a while in exchange for increasing their bank account balance by HALF A MILLION dollars are simply lying to themselves.

    Dare I say that there is probably an element of speculation in this bravado? i.e., “…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…” with “…(but we don’t believe that it will)…” unspoken on the end!

    As a parent of two young children myself, I would not hesitate to jump on such an opportunity – think of what a difference $500K would make in your family’s life, and for most people in the LML. Even in the days when my husband and I together earned $170K/year, $500K tax-free would have been life-changing money for us. For most people, it could be invested and bingo, your retirement is fully funded (assuming you’re under 50 or so), or you could buy back mortgage-free in a few years.

    More charitably, perhaps what is lacking here is merely imagination, about what could happen during a bubble collapse. As we were significantly impacted by our own (in retrospect, poor) decisions to “buy and hold” during the late 90s stock market run-up and subsequent bubble burst in 2000, we have an all-too vivid imagination of where this housing market is likely to go! (which is why we sold our place and rent now)

    I think that if the truth were told, no one would be so casual about $500K here or there – if people actually believed there was a good chance of their house price retreating to what they paid for it (or below), they’d all (try to) bail ASAP.

    As another poster commented, I think there will be so many families in the future looking back at what might have been, with vast regrets.

  14. Wow, had no idea I’d be headlined here. Like I said, we bought in 2005 for $600k. We are pretty conservative and at this time, without kids, we lived in the bsmt suite for 3 years. My wife and I both worked and combined with the rent, we paid down our mortgage. When 2008/09 came I thought this is it, but then it continued onward and upward. Anyways, now we have two small kids, a fully renovated house (we renovated 80% of it ourselves – sweat equity) and mortgage pmts of $1100 per mo. This may not be logical to others, but our situation allows me to work and my wife to stay at home with the kids while they’re small (I stayed at home with our first one for 1.5 yrs while she worked in case anyone thinks that’s sexist). We aren’t rich and I never considered us to be “high net worth”, since I’ve always felt things were so over-valued and could correct so that “equity” was never really considered. High net worth would be $5-10M in my mind. All we want to do is live in a decent house/neighbourhood and to be able to do so with one salary for now.

    You could say I’m a moron, but if this was 2008 and I did sell then I would really feel like one… up until now.

    I have always said this isn’t going to last, (and since about 08/09 always recommended to friends and family who hadn’t purchased to wait it out) but then I’d say in the last 1-2 years I just grew complacent and didn’t care as much (we had a baby lack of sleep) – it’s my house not an investment property. If I sell now then what, my gain is $300-$400k? It’s never a guarantee. And how long will it take for me to buy back in? 2-4-6 years? That’s a lot of rent for an equivalent place.

    So just for the record, I bought a house because I got married, but over the past few years I’ve been bearish, just like you, Bob. My way of protecting ourselves is to make use of the low rates and pay down the mortgage, live in the bsmt, sweat equity etc. But over all, I do think that real estate is a great way to make money like all the “vultures” reading this blog do. So in 5 -7 years I’ll take whatever value my house is and leverage (conservatively of course) to buy another one and we’ll see what happens. Maybe it’s not as exciting as cashing out and renting, but for those who disagree, maybe they’re not married with babies.

    Pack your lunches, drive gently used cars, make use of Craigslist when necessary, you don’t need to travel to Hawaii every year, carry no debt, save for retirement. Good luck to all.

    • Real Estate Tsunami

      I can see with all the “sweat equity” that you have invested, that you’re attached to the place. It surely is a home and not an investment.
      But again, it points out one of the problems with calculating appreciation of RE. Usually, we just take “purchase price – selling price = profit.”
      Whereas in this case it should be “purchase price + improvements – potential selling price.
      I know, this is simplified, but I’m a simple person.

    • Stay healthy, and thirsty, my friend. This blog is about real estate, not homes. It appears you have a home, best of luck. When the bubble bursts and there is nothing left to talk about, I imagine this blog will turn to how much we can pimp our wives out for and save on labour by having our kids do all the work. They are just consuming, money burning, liabilities after all.

      • Nice sleight of hand attempt.
        Anybody who does the simple math regarding the impact of their RE exposure on the future financial health of themselves (and their family!) is argued to be the equivalent of a pimp and a child-slave driver.
        And, of course, a ‘home’ can’t be given a price, can it? That would be so callous and materialistic. No price could be too high for a ‘home’, right?

    • NVD-> Thanks for the further info. All the best.

  15. Average price of sales in vancouver for october. 667K

    People who think their home is worth over one million would probably be surprised to find out exactly how far it’s come down. If your house was 1.3 before 2011, there’s no way it’s 1.1 now.

    Expensive houses have been hit hardest and aren’t selling, it’s that simple.

  16. 58 per cent of Metro Vancouver residents believe this is not a good time to sell a home (quoted from Winter Sleep for Real Estate Market in Vancouver?)

    To me it seems that Vancouver still tries to recover its housing bubble mentality. But it is too late. Even the prices are still not dropping, the impact will be greater than expected. More and more people think it is a good time to sell. Yeah this ship is going to sink.

  17. “58 per cent of Metro Vancouver residents believe this is not a good time to sell a home.” (quoted from A Slowdown in Canada’s Housing Market is Coming!)

    This is an obvious signal telling us that people are changing their minds. There will be no more increase in the price of the Vancouver RE. And the majority is starting to understand that. Now it is the time to destroy the illusion of the rich Canadians, because it was not a country who was rich, but just the babyboomers.

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