The Myth Of The Cool-Headed Discretionary Seller – “I think that’s one of the reasons why the Canadian housing market is likely not going to have a hard landing because you’re not going to have a lot of motivated sellers – people aren’t going to be forced into it by rising interest rates or declining employment so they can take their time and wait for the market to stabilize.”

Seller’s aren’t competing with buyers, they’re competing with other sellers.

Vancouver sales dropped 27.6 per cent in November compared with November 2011, after tighter lending rules came into force this summer. The average price is down 6.3 per cent for the same period to $682,215, while the MLS home price index is down 1.7 per cent from a year ago. The average price reflects the mix of sales, while the HPI reflects price changes for typical homes.
BMO deputy chief economist Doug Porter called Vancouver a “rather obvious exception” to the soft landing that most Canadian cities would see for their real estate markets. “I don’t know that I’d call it a hard landing in Vancouver, but it’s definitely a bumpier landing than most cities in Canada are going through right now,” Porter said. Meanwhile, it appears people thinking of selling their homes are holding off, especially in Metro Vancouver, which saw the largest drop in the country for new listings. New supply reached its lowest level in more than two years, CREA said.
“That may help avert a harder landing for prices because sellers do have the leeway to back off,” Porter said. “Fundamentally, I think that’s one of the reasons why the Canadian housing market is likely not going to have a hard landing because you’re not going to have a lot of motivated sellers – people aren’t going to be forced into it by rising interest rates or declining employment so they can take their time and wait for the market to stabilize.”
– from ‘Bumpier’ landing seen for Vancouver real estate’, Vancouver Sun, 18 Dec 2012 [hat-tip Edmund Garland]

There have been many stories that served to stimulate Vancouver’s RE mania. The most prevalent latter day myth appears to be that of the discretionary seller. We are all invited by many commentators (bankers, realtors, commenters on the blogs), to imagine the cool-headed seller deciding that, no, this is not the right time to sell, and backing off, biding their time, waiting serenely for the next leg-up in the market; in calm and comfort, perhaps next to a fire with a good book; no hurry, no urgency whatsoever.
I believe that this construct is complete hogwash.
I’d submit that, in the vast majority of cases, once an owner has made the decision to sell, they start the mental preparation for unloading that property. They move into a position where they disinvest themselves of the idea of ownership, and a clock starts ticking.. they have a building desire to convert that asset into cash, to ‘get out’ of the market. In a market where prices have barely budged, but sales are weak, they may be able to convince themselves that a more robust time for sales is just around the corner, so they may take their property off the market. But make no mistake, they remain very much in the ‘sell’ mode, they have their finger on the trigger, and they are waiting to unload. There is no intense urgency at that point; more a mode of expectation, of anticipation of coming action. Imagine now how that group of wannabe sellers responds when prices take their first substantial step down. Suddenly comparables are selling for 10% or 15% lower, and for lower prices than offers they themselves rejected 6 months before. Do these sellers remain cool? Well, a few may, but, here’s the point, a majority will not. They will experience new-found urgency, and many will rush to market. And only a few of them have to do anxious deals for prices to suddenly find themselves 20% to 25%-off the peak. And then more owners holding shadow inventory will respond, and so on. This is how speculative manias unwind.
The other side of all of this is, naturally, the buyers. There will always be some buyers, of course, at each step of the descent, but not enough to rescue the market; not enough to plateau it or take it to new highs. We won’t see a rerun of 2009 (although some of the early buyers will be “buying the dip”, in anticipation of a 2009-type rebound). Buyers will dry up because prices are falling. Yes, but won’t falling prices increase demand? asks the economist. Yes, falling prices increase demand, when those prices are falling from reasonable levels to cheaper levels such that the asset for sale looks like a good deal based on its fundamental value. But, when assets are at stratospheric prices, when people have been overextending themselves to buy at prices that are 2 to 3 times those supported by fundamentals, when people have been buying only because they anticipate future price strength, the dynamics are very different. People stop buying because their premise for buying (“prices will rise”) goes away.
Thus a powerful self-reinforcing system of price increase turns into reverse, and prices collapse. Falling prices beget falling prices. If that seems circular, that’s because it is. A ‘virtuous’ cycle turns ‘vicious’, and by this mechanism price drops that few have anticipated come to pass. Perhaps 2013 will be the first sharp leg down.
– vreaa

126 responses to “The Myth Of The Cool-Headed Discretionary Seller – “I think that’s one of the reasons why the Canadian housing market is likely not going to have a hard landing because you’re not going to have a lot of motivated sellers – people aren’t going to be forced into it by rising interest rates or declining employment so they can take their time and wait for the market to stabilize.”

  1. Agree, vreaa. If the “discretionary seller” argument were valid, one might ask: why have prices fallen at all? Why would they ever fall? Any reduction in price–however small–is presumably undesirable to sellers, so why not prevent them entirely?

    Answer: sellers are not a coordinated group. They are made up of many individuals, some of whom, at any given moment, HAVE to sell. These are the folks who set prices and, in the big picture, those who choose to defer won’t make a difference in the world.

    • Good point. individual actors, not a heard.

      I would add that if the discretionary seller argument was valid we would also have discretionary buyers. Buyers who would never bid over the asking price because they just aren’t worried about being priced out.

    • Agree with you there El Ninja. We will concentrate on those who must sell. It is they who are moving the market down now; not the folks who withdraw and wait it out for better days. The very suggestion that sellers who do not participate is holding up the market is such nonsense. Especially so when the logic used suggests they are supporting strong prices by pulling out and waiting. That is what is implied by a soft landing as sellers get reluctant. I could laugh out loud. Does anyone really believe that trollop?

    • Glad to have found some common ground on this one, Farmer. Kind of scary that these arguments are put forth by a trained economist. Perhaps not surprising, though, given his employer.

  2. The US did have some problems with rate resets towards the end of their boom. I don’t think Canada has that dynamic, nor does it have significant overbuilding (with a few exceptions). Those are differences that matter.

    I do think the demand curve sloping downwards argument is one that can be turned on its head. I’ve been surprised before by Joe Howmuchamonths so I cannot refute it, but… there is a real danger of debt growth continuing in the advent of rising rates. Credit growth needs to slow in the coming years and that necessarily imposes a quota on the price and volume of loans.

    • I believe the bulk of US rate resets were in 2011, a full 5 years after the crash started. Calculated Risk had a lot of good info on this at the time.

      • The first wave of subprime resets came in 2007. Alt-A and option-ARMs reset around 2011.

        There was a large shock of payment resets in 2007, though this was a whole year after the market had peaked. It didn’t help matters any. Canada doesn’t have much of this type of rate reset problem but faces another problem of rising conventional rates if the US economy takes off in the coming years. A different, but similar, problem.

      • Cyril Tourneur

        Thanks for finding the link! Agree that Canada doesn’t have the same reset problem and you are right, we do have a different but big problem with nearly 100% of our mortgages being renewable for terms less than 30 years. In that way our real estate market is perhaps even more sensitive to interest rates than the US ever was, if/when rates do start to go up.

      • Low introductory rates may be rare, but they do exist in Canada too. Usually with 1 to 3 year duration. There are some flippers who bought with an introductory rate with the expectation to sell before the rate resets. (Some time ago I saw $500k townhomes with mortgages around $800/mo).
        Not sure how much of this exists today, though…

      • Don’t a lot of Canadian buyers take out 5-year loans? Those are ALL potential reset problems. Rates seem stuck at the bottom now, but they can change quickly and unpredictably.

      • Many Canadians have variable rate mortgages. They reset all the time…
        However, some of the problems in the US were mortgages with introductory rates (temporary lower than market interest rates or negative amortization), interest-only mortgages and option ARM mortgages (which also often resulted in negative amortization)

      • ” Those are ALL potential reset problems”

        Yes that’s what I mentioned in my comment. There is a looming positive “rate reset” in the form of rising mortgage rates at some indeterminate point in the future.

        Rates can reset up and they can reset down. For the past five years rates have, for the most part, reset lower for a given loan amount due to lower real rates. That interest rate differential (IRD) is now mostly spent, however we can expect further negative IRDs on people renewing their 5 year mortgages through the brunt of 2013 (this was the 2008 vintage that would be at a much higher rate). The big negative resets 3 year terms have mostly occurred and there isn’t much tailwind left. 2014 will see a much smaller IRD for 5 years but it will still be negative unless rates rise. In other words we can expect a slight tailwind for rate resets beyond 2014 assuming rates remain at current levels. If 5y rates increase a tad the IRD will be zero and not positive. That gives you an idea at how low rates have dropped even since the aftermath of the GFC.

        To get a positive IRD in the next couple of years will require 5 year rates to increase significantly. I don’t know how likely that is, I’m no expert on bonds.

        There are some positives for households wanting to refinance in the coming years. The Bank of Canada is very worried that refinancing into a large loan is long-term bad. They have advised the government to staunch credit growth to ensure debt levels are limited. That means households will, in net, be unable to borrow to what they think are their full capacities. Higher quality households, those in regions with better fundamentals (price-income), and those with higher downpayments, may start to crowd out others. Regardless, that should put downwards pressure on many borrowers, especially in Vancouver, among those whose incomes are variable and dependent upon real estate, and those who have multiple properties. We are already starting to hear frustration from mortgage brokers and borrowers that think they should qualify with a certain DTI ratio but are being either turned away or offered a much higher rate than prime. Welcome to the post B-20 macro-prudential world!

    • “nor does it have significant overbuilding (with a few exceptions)”

      This is where it gets tricky. Was the overbuilding at all evident leading up to the US peak? I know their capacity/willingness to build on spec is higher, but what specifically was the indication that there was significant overbuilding in the US *before* the market began to decline.

      For the most part, it wasn’t vacancy rates. They blew out after the crash. Classic example is Miami which saw a +10% absolute jump in vacancy rates in 2 years following the crash. Overbuilding was evident after the fact, but a sub 3% aggregate vacancy rate during the boom didn’t set off many alarm bells.

      My sticking point is that when we normalize for population and population growth, Canada has certainly rivaled the US in terms of total new units added to the housing stock in the decade leading up to peak (if this is, in fact, a peak in Canada). And our total housing stock relative to population is comparable.

      I’m pretty neutral on this point. I think it seems likely that the US significantly out-built us, but I’m having a hard time quantifying that. For the most part, I just don’t see it in the data. What specifically are you seeing?

      • Overbuilding was not evident in Nevada. Housing starts were massive, builders had long waiting lists. Then as the mustard starting coming off the hot dog the lists disappeared and overnight there was a surplus. When even amateurs are buying 3-5 houses its easy to hide the surplus. What I’m seeing w/ condos here in Vancouver is eerily similar.

      • South Surrey seems overbuilt to me…

      • Count the cranes around Vancouver and what does your gut tell you?

      • Cyril Tourneur

        I was in Toronto recently. It looks WAY over built to me.

      • Agree Ben that nailing down overbuilding is difficult. There are some factors that go to mitigate overbuilding, the first being smaller unit size (higher apartment/condo mix) allows for higher per capita absorption than would be the case with single detached, the second is delays on the zoning and planning side that tend to prevent large bouts of overbuilding.

        There are further complications from what I call “underutilized housing”, which has a demographic component to it, in which empty-nesters live in dwellings with empty rooms. This is a form of oversupply that allows existing dwellings, once sold, to be better used as they are filled with larger families. Also the types of units being built may not align well with future demographic needs. For example building a 400sqft condo has limited desirability; if too many are built they will be akin to having undesirable product sitting on shelves.

        There is some infill in Vancouver but from the digging I’ve done into demolitions it’s actually not that significant a degradation of stock, though it does have some effect in reducing supply.

        I think metro releases occupied and unoccupied dwelling counts for Vancouver from census and property roll data but I don’t have time right now to find the link. This may show how many dwellings are unoccupied and potentially “shadow” inventory.

        This useful to understand how far construction could fall — and remain depressed — before demand necessarily requires more units to be built.

        Another way I would look at it is, barring any significant changes to rents as a percentage of income, MOI must remain elevated for prices to revert closer to levels commensurate with decent investment yields, regardless the amount of “shadow inventory” out there. There is likely significant room to better use existing dwellings and keep construction depressed for some time, and that would not show up in trying to integrate starts/completions.

      • Real Estate Tsunami

        I visited Ireland in 1998 and Spain in 2002.
        All I could see was construction cranes. And we know how this ended.
        Same here now in Ditchmond, but I guess it’s different here.
        Ivory Tower people, I know it’s cold and snowy out there right now, but get your butts off your computer desks and observe what’s going on in your neighborhood.
        Visit the Oweall in Ditchmond and witness the massive destruction of commercial businesses in it’s vicinity to make way for huge residential developments.
        Construction cranes everywhere, cold concrete towers reaching for the sky, no new infrastructure to deal with traffic congestion.
        Developers are forging ahead, building ghost towns. And the civil servants and the major and council continue to rubber stamp new developments, addicted to the adrenaline rush of easy short term cash to pay for day to day operations, with no regard how to deal with aging and failing infrastructure in the future.

    • There are some positives for households wanting to refinance in the coming years

      True, but with all the negativity at play, I bet just as many will try to list their properties to cash in on gains. Once headline prices hit -5-10% everyone is going to head for the exit door. That’s when it gets ugly.

  3. Pretty good. I agree with your theory. As you have noted the idea of lower sales prices generating fresh boosts in sales to bouy the market is pretty much bunk as is the assertion that low listing volumes give the market strength where it appears supply has dried up. On that note it seems clear to me that thin trading in a falling market can actually be far more damaging than one that is balanced on the whoile. The too-early vultures have already arrived. If the few remaining buyers meanwhile are already driving down prices by underbidding then hopes of another up-cycle are finished. Now throw thousands of fresh listings into the mix come spring and the outcome will be pretty obvious for all. Vancouver is going down hard.

  4. Like the stock market, one buys a stock because they think the price is going to appreciate but they sell for a multitude of reasons. Same goes with the housing market. If the above argument held any merit there would be no listings as they would all be pulled for a better day.

    The average punter does not comprehend investor psychology in regards to fear and greed in any market.

  5. Lifetime renter

    As I see it, the deleveraging so aptly described above should go a step or two further. Given the unnaturally high level of economic activity associated with housing in the Vancouver area, there will be a further undermining of the housing market due to job loss as the bubble collapses. There will be job loss to workers directly involved in the production of shelter. There will be job loss in related industries. And, down the road, shrinking tax revenue will result in job loss in the public sector. Many of those losing jobs will be among those “forced to sell”. Those losing jobs will be unable to purchase shelter at any price. Lenders will be far more cautious even to those with decent credit. Undermined will be the manufactured false optimism that fooled so many into going into vast levels of debt for the purchase of shelter. There is nothing to celebrate in the creation of a housing bubble. It puts the price of shelter beyond the reach of vast numbers of people and creates destructive levels of debt. But there is nothing to celebrate in the collapse of the bubble as the severe economic crisis associated with the collapse hits hard at the livelihood of so many. Most of us lose either way.

    • Exactly. I find the assumption that “people aren’t going to be forced into it by rising interest rates or declining employment” to be a stretch.

      A cooling real estate market, in an area where much employment is increasingly related to the real estate market will generate job losses. Those will lead to a reduction in spending across all sorts of industries. The newly unemployed construction workers and realtors will stop spending, as will the homeowners who have been spending on lines of credit. Suddenly things are slow at the old car dealership and some salesmen have to be laid off, and so on….

      And your call about job losses in the public sector is spot on as well. Tough times for many.

    • Naked Official #9000

      ..But the lawyers can afford Shearling costs for their monkeys!

  6. Nice rebuttal to Porter’s comments, vreaa. As we recently heard from Ben Rabidoux, analysts working for banks feel themselves to be muzzled, and are required to stay ‘on message’ if they want their paycheck to continue. I’m sure the same is true for their bosses. When Porter uses a word like “bumpier”, I assume that’s typical of the carefully chosen language the real estate and finance industries will use in the months ahead as they try to let a little air out of the bubble without precipitating panic. They are going to attempt to manage this thing. A little furrowing of the brows, a touch of indigestion, quickly followed by a soothing dose of Pepto-Bismol.

    Yes, a number of sellers may temporarily have withdrawn from the market and are probably nervously awaiting what Spring 2013 will bring. Many are probably assuming what Porter is implying: that we’re in the midst of a temporary downtown. A bit of turbulence as we reduce altitude somewhat. The idea that we could grind lower for a decade, with periods of terrifying drops, perhaps with short-lived wild rebounds, and lots of casualties along the way, just isn’t in most people’s DNA. Yet.

    It’s early days. Many prospective sellers probably still have a bit of ‘psychological latitude’. They’re troubled by recent events, but nothing too horrendous has yet happened, so they can bolster their denial with the type of bromide Porter is serving up. Once the direction of the market is firmly established, no one will be listening to bank or real estate association economists.

  7. This explanation exactly nails it vreaa. Another way to say it is on the way up cash-poor buyers can get in by leveraging equity to compete with cash rich pro flippers. On the way down the pro flippers leave, leveraged buyers get stuck holding the bag, and the demand left are the average joes that have some resources but will only buy on their terms. I am in that camp – I have 20%down in secure investments, renting a great long term place at a price way below buying would cost. Why would I be any less patient than a seller who has to get out of an over leveraged situation? The real mistake of the “patient seller” premise is there a whole lot of intelligent, educated well informed potential buyers that won’t fall for the RE propaganda. my bet is we will be buying foreclosures in 2015 for 40 to 50 cents on the April 2012 prices.

  8. “…you’re not going to have a lot of motivated sellers ….”

    But you don’t need “a lot.” During the US housing collapse probably less more than 20% of home owners were selling their homes. The majority of homeowners weren’t selling. Bu you don’t need a majority to trigger a collapse. This is one of many points that the bubble-deniers don’t seem to understand.

    • Can’t agree more with this – prices aren’t set by the masses – they’re set by the 2-5% of households transacting at any given time. Doesn’t matter if grandma has 100% equity and is staying put for ever. Look for the 2-5% to start getting pretty desperate as prices continue to drop and buyers vanish.

      • It matters to grandma too if the bulk of her net worth is tied up in her home and has been counting on that little nest egg to fund her retirement for 25 or 30 yrs.

      • Yup, agree with that, Joe. On the way up it was greedy sellers jumping on an obvious price bonanza but on the way down it is speckers and flippers panicked to get out to save their sorry asses before it is too late. Price drops beget greater price drops exactly as the inflation of homes drove ever higher prices to the breaking point. This sword cuts both ways.

  9. The “Cool-Headed Discretionary Sellers” are still acting like clueless deer frozen in the headlights of an oncoming vehicle. Many of them will not act unless they are forced to while some will almost certainly panic at the last second. You all know how that movie ends. Those in the more “motivated” camp have already decided that it may be prudent to run for cover and have adjusted asking prices downwards by some 30-50% over the last year. Not surprisingly, there is very little mention of such activity by the MSM. This being said, it is unclear if such reductions are sufficient as very few buyers currently seem willing to step up to the plate at any price. Perhaps there will be some more activity in the spring as the industry (not to mention the MSM they’ve got in their back pocket) kick off their spring BTFD campaigns? Perhaps this may (?) even translate into a small blip upwards in prices as the last of the greater fools finally close their eyes and jump in head first? IMHO, if such activity were to occur, it would be very short lived as the number of buyers will be very limited. I have no doubt whatsoever that many sellers are lurking in the background with one foot out the door, one eye on their neighbors, their fingers on the sell button waiting (ie. hoping) for a slightly better price. If, after a few weeks/months it becomes more obvious that such a bounce isn’t in the cards, many sellers will pack up, head for the exits and not turn back (like they did in 2009). Those that quietly tip toe out the back door in the dead of night while everyone else is asleep will have the best chance of getting a seat on one of the life rafts.

    Meanwhile, just to update you all on my favorite “associate”, who I firmly believe is the greatest fool of all. He has finally finished the man cave (formerly the “unfinished basement”) in the Mcmansion style home he purchased as a new build in 2010 (loc in “suburb” of Maple Ridge) and is now contemplating ripping the kitchen apart and changing the layout. I advised him that such a reno would be very costly and imho, totally unnecessary. He replied that “Relax, it’s all good. I can do another refi to pay for this, so it won’t cost me anything anyway. Besides, you get the best bang for your buck from doing a kitchen or bathroom reno, so it’s totally worth it. In a couple of years, we’ll sell this, make some money and move on to something better.”

    • Deer in the headlights sounds pretty accurate to me. There are quite a number of sellers who seem to be in a state of confusion right now. They have been reading the press and watching the TV shows pumping houses for so long that they were simply not mentally prepared when the bad news started coming over the fall months.

      They are a year or more behind the curve and not sure what to believe.

      This partly accounts for some pulled listings. Human nature errs towards being hopefull and I think many believe (falsely) that this little sales-decline bump will soon turn around.

      They are in for a rude awakening. The denial is palpable if you speak to some homeowners thinking of selling. They seem honestly perplexed that a raft of negative reports on Canadian housing can emerge so suddenly following years of robust activity and growth.

      I suppose I can’t blame them. Not everyone follows this market as closely as we do on this site and too few understand the principles behind bubble formation, excessive credit and the inevitable collapse.

      Is ignorance an excuse though? I am not so sure.

      • Naked Official #9000

        It is when you want your monkey back!

        Monkey monkey monkey

        Libet piercing!

        Shearling coat!

  10. I love this anecdote. The “cool-headed discretionary seller” decides if it is better to sell and cuts the price to meet the market. I believe we are seeing that now on vancouverpricedrop so these people are not a myth.

    What the anecdote actually describes is people willing to make balls to the wall high stakes bets. There is without a doubt a lot of those people around because the price is now 11x average annual income. So almost everyone with a position is forced to assume high risk! Bwahahaha!

    Please tell me more about how nobody in Vancouver will bat an eye at losing 500k to few million. Because those eyes sure fluttered on the way up.

  11. When real dollars are on the line, people are less cool headed then they think they are.
    Think of all the people that sold their stocks at trough prices in the GFC, when the perception turns negative ( we are not there yet ) people will rush to the exits.

  12. I second El Ninja’s point. When most buyers aren’t pressured to sell there are still the most motivated – death, divorce, job change, kids, illness,job loss. Those guys have not formed the majority of the sellers over the past decade. When they do form the majority it will happen either because everyone starts dying, getting divorced, losing jobs, etc., or because the total number of sellers decreases, increasing the relative size of the must sells. Right now we see huge inventory and low sales. It’s not like 2008 where there was a bit of fear motivating sellers and we saw a middling drop. Instead we see sellers who hang on or just exit the market. I’d say most sellers today are clearly discretionary.

    As yvrhousing points out – we don’t have the sub-prime reset problem.

    Haven’t we seen tons of ” Buyers who would never bid over the asking price because they just aren’t worried about being priced out”? Aren’t there a few on this blog? Again, buyers aren’t a herd. While some may buy others do the math, weigh their options and don’t, right? Discretion plays a part for sure.

    How do you force a buyer to buy? Situations exist where sellers are put under pressure to sell (higher interest rates, drop in income). I’d think there is way more discretion for a buyer.

    “It is they who are moving the market down now;” You’re right, of course, which is why we see a huge drop in volume of sales but only a small drop in price. I’ve been wondering for a long time – how bad is the crash if volumes are really low and people can wait it out? Certainly it won’t be like a US crash where selling to get out wasn’t an option, leading to the huge foreclosure numbers and wealth destruction we saw.

    Ben Rabidoux:
    “…Was the overbuilding at all evident leading up to the US peak?…”
    I recall plenty of people in the blogosphere accurately predicting the US crash, and well before it happened (at least the Vancouver blogoshpere). Maybe my memory is playing tricks with me, but I’m pretty sure there were people predicting it as early as 2006, if not 2005 on my old blogspot blog. Overbuilding and loose finance seemed to be id’d then, but I might be remembering it incorrectly.


    “Overbuilding was not evident in Nevada.” Again, I’m not sure. Yes, there was lots of demand, but there was also clear evidence of mortgage fraud/gaming, no? Wasn’t there some kid blogging about doing it, pre-crash? He might have been on the waiting list before he went on the lam.

    Lifetime renter:

    I agree with you that if we see widespread job loss there will be more pressure put on sellers, pressure that we don’t currently see. If we have more real downward pressure on prices they will fall. Higher rates or less income equals the same thing if you’re paying the bill. So far, however, the job loss is speculation (and let’s face it, we’ve been very lucky in Vancouver in comparison to other parts of the world. We’ve really dodged a bullet here).


    I still don’t understand how falling prices, on their own, motivate people to sell if they don’t have some other motivation. Your description of seller behaviour isn’t one I’ve seen. People who want to sell real estate have to 1) clear the title 2) go somewhere else. If they can’t do #1 then let’s face it, the market is already dead. They still need #2. If everyone freaks out, takes a big paper loss, and then rents, um, ok. But that requires buyers stepping in, and if they don;t buy then prices keep falling until people can’t clear title or lose too much paper equity. At some point we start talking about real money – you either lose it or don’t have it. Why would I, for example, sell property that costs me little to hold, just because prices are falling? I’d need some sort of motivation (fear or otherwise). I think you’re treating your opinion as if it’s from a textbook. Why would someone motivated to sell not be concerned about price (which is what it seems you’re trying to say)?

    (On another topic, are you still sticking with the idea that a pair of 7s is a pair of 7s is a pair of 7s, and never a good bet to go all in on? 😉

    • “Haven’t we seen tons of “Buyers who would never bid over the asking price because they just aren’t worried about being priced out”?”

      That was exactly my point. Panic to get in happened, why wouldn’t panic happen trying to get out? Buyers didn’t convene a commission and agree to not overbid against their best interest on the way up, why would sellers act collectively to protect their best interest on the way down?

    • @ Rob Chipman

      No, it’s not like 2008. What we witnessed then was a sharp panic correction at the tail end of a bull market. IMHO, the last 3-4 years has only been an elaborate smoke and mirrors routine executed to near perfection by the powers that be. Instead of leveraging up further over this time frame, consumers should have been actively reducing the size of their balance sheets and getting their financial house in order. As we speak, the hangover (not to mention reality) is finally kicking in and time is running out. I expect by next spring/summer Van RE will be in serious bear market territory. Sales volumes are down because there are no buyers left (despite the free fall in asking prices). Sellers, whether they are “discretionary” or “motivated” have no bids to hit. While we don’t have the subprime reset problem they had in the US, Cdns for the most part do not have the luxury of hitting the “EASY” button and walking away (which is what many Americans with no skin in the game did). With no easy out, Cdns will have no choice but to buckle up and ride the roller coaster all the way back down. Given that many Cdns have virtually all of their net worth tied up in RE, one could argue that a RE crash here would be far more devastating over the long term than anything we witnessed in the US during the last few years. So, in and out of the hospital and lose a limb in the process. Or die a slow and painful death from cancer? Pick your poison…

    • Rob – nope, no clear evidence to the general public, at least what I saw, nobody was really asking questions on how money was being given away for free, why would the average Joe look a gift horse like that in the mouth? Everybody was on the bandwagon. There were hints of mortgage fraud, especially towards the end, but nobody in the main stream had a real clue about just how widespread the problem was. In 2004 and 2005 demand way outpaced supply, houses couldn’t be built fast enough. Two years later there were dozens of “ghost developments” with lots cleared and nothing but weeds, with the cities holding the bag for the bankrupt developers unable to pay for reclaiming the land to a natural condition. So if some kid was blogging (I doubt it) it seems nobody listened to him.

    • …”how falling prices, on their own, motivate people to sell if they don’t have some other motivation”….

      Well, Senor Cabellero… it all depends. If we’re talking occupied principal residences [absent the stressors normatively associated with ‘have to sell’]… then, ceteris paribus, inertia could well dominate. Conversely…

      Unoccupied dwellings or parcels acquired by highly leveraged investors [excluding properties acquired as ‘flight capital/safe houses/boltholes’ where the beneficial owner is under no particular stress] are an altogether different matter – in so far as they are purely speculative/commoditized assets/holdings devoid of emotional attachment or practical utility to the investor.

      All the more so when we allow that, absent capital appreciation, and particularly in the case of the overleveraged investor worried about Guido and the ‘Vig’… the urge to divest could well manifest…



      [NoteToEd: “TeeHee”, for select trained seals is argot for – “Wow, but this is going to be a great experiment!”]

    • I almost forgot, Senor…

      All in with a Pair ‘o 7’s!?…

      “A gambit taught to me by an ancient Vegetarian in the mountain fastnesses of Tibet.”….

    • Of course some “bubble bloggers” predicted the US crash as well as the overbuilding that became obvious the moment the market rolled over. My point with regards to overbuilding is that they predicted it, as far as I’ve seen, by analyzing housing completions relative to estimated demographic demand. The problem there, as it relates to Canada, is that when I apply a similar methodology to look at how our level of construction compares to theirs, I see little meaningful differences.

      Jesse adds some good points above. And I’ll reiterate that on the surface I suspect that the US *has* out-built us from looking at how vacancies exploded post-bust, but you’d be surprised how difficult it is to show a meaningful difference using the data available.

      • Lifetime renter

        There is always overproduction (overbuilding) when the market begins to stagnate. When a sector of the market is in its expansionary phase, increasing amounts of capital are drawn to that sector. At some point the market becomes saturated, products stay on the shelves or, in this case, units of shelter no longer sell. However, there is still product in the process of production. This adds to the glut. This is particularly true for shelter where the time between the beginning and end of the production process is substantial. These normal workings of the market are greatly exaggerated when speculative mania is added to the mix. Recently there were line ups around the block for the purchase of condo units and bidding wars for detached housing. A seeming shortage. Now we are seeing the beginnings of a collapse in the market – the development of a glut. Of course none of this reflects real, human needs as regards the provision of shelter. As in the Spain today, a glut in housing supply can co-exist with a rise in homelessness.

      • “when I apply a similar methodology to look at how our level of construction compares to theirs, I see little meaningful differences”

        Haven’t looked at the US data but one potential difference is the mix of single-detached to multi. SFDs will add to the “bedroom supply” more than a shoebox. That may explain some of the difference.

        To take a run at the oversupply nut is a weekend project. I would probably look at the following
        – dwelling counts from censuses
        – demolitions
        – starts and completions of multi/single, also look at unabsorbed
        – population estimates and calculation of people/dwelling
        – population growth estimates

        We can from this take a run at the baseline number of dwellings at a census (say 2001), then measure the inferred growth based on demo and completions and see how this matches with the 2006 census. We would adjust the demo and completions to align the census endpoints.

        We can then use the 2006-2011 timeframe and re-run the numbers using the adjustments to demo/completions to get a comparison. We are hypothesizing that the 2006-2011 period saw more oversupply than did the previous period, so if there were some oversupply we should see it in the comparison. Measuring in half-decade increments can at least look for periods of overbuilding. If the data were available we could get other adjustment factors for previous decades and improve our certainty.

        Then there’s the question of underutilized housing. I think that’s something that can be estimated too based on the data above.

  13. The one thing that I don’t understand is why everyone feels there will be no economic shock to the jobs market. The world economy can be described as fragile as best, and the risks for a economic shock are certainly elevated. Everyone knows that oil drives a huge portion of Canada’s economy, legions of misplaced forestry workers that I know now work in the oil sands and commute from small towns in BC. They fly in for a week and then fly home the next, all of them are making huge money and living in smaller towns where the cost of living is lower. The problem is those good times may be coming to an end. The US is producing ever more of its own oil from shale deposits at a fraction of the cost of production in the oil sands. A slowdown in Fort Mac is on the horizon as the US becomes more oil self sufficient.. Many of you know what shale gas did to natural gas prices, shale oil will be no different. If this comes to pass it will kill Alberta, and hurt the rest of Canada. Food for thought.

  14. by Richard Worzel, C.F.A.
    Cheap oil. Since its 1998 lows, the price of oil has been driven upwards by the emergence of the Rapidly Developing Countries (“RDCs”), notably China and India. Their demand, added to the natural growth in the developed world, lead to an all-time peak price of $146/bbl in June of 2008 that threatened to put the global economy into a dead stall. The Great Recession of 2009 solved that problem and brought oil prices crashing down along with economic activity, but the recovery caused them to recover to the $100/bbl mark before stagnating. Yet, the most commonly held view is still that steadily rising global demand will push oil prices inexorably higher, with some commentators calling for $200/bbl. I suspect that won’t happen.
    To see where cheap oil may come from, consider what happened to the price of natural gas as fracking became widespread. Prices peaked in March of 2008, before the economy cracked, because of oversupply, and fell precipitously. This significantly changed the global energy equation, and dramatically lowered the cost of electricity generation from gas turbines, and the price to consumers for natural gas providers. And now the same thing may be in the process of happening to the price of oil.
    Globally, there are probably more reserves of oil locked up in shale today than in conventional sources, and processes similar to fracking are now being used to unlock it. What’s more, oil companies already know the locations of enormous fields of oil shale. The United States, for instance, has the largest known reserves of oil shale in the world, exceeding the reserves of Saudi Arabia, which has the greatest reserves of conventional oil. For instance, it’s been know for decades that there’s a lot of oil locked up in the Bakken shale formation, which was already producing 458,000 barrels a day by the end of 2010. But an even more important field may be farther south and west.
    Royal Dutch Shell is reported to be testing a technique called the In-situ Conversion Process (“ICP”) to extract oil in western Colorado. They estimate that they can extract one billion barrels of oil per square mile in the northwest corner of Colorado, and that there are an estimated 1,000 square miles of largely barren, under-populated land that have such potential. But the real kicker is the price, as Shell is estimating they can produce oil at a cost of $40 a barrel. In other words, they are saying they may be sitting on top of one trillion barrels of oil at a cost that’s distinctly lower than today’s market rate.
    The ripples of a huge, new, inexpensive supply of the world’s pivotal energy source would be dramatic. The emergence of a widespread, affordable means of unlocking the huge deposits of shale oil would re-make the global political map, rob the Middle East of much (but not all) of its geopolitical importance, transform America from being an oil importer to being an oil exporter, and bring (or increase) oil revenues to a wide range of other countries, including Canada, Australia, Brazil, Estonia, Sweden, Israel, Jordan, Morocco, China, Russia, Thailand, and Turkey, that also have significant shale oil deposits.
    Meanwhile, the price of oil, and therefore of most forms of energy, would plummet. This would cause real problems for those who have invested heavily in renewable energies, but would act like the repeal of a universal tax on most economic activity. The price of gasoline would fall, penalizing the car companies’ investments in alternative fuels, hybrids, and electric cars, but boosting demand for other, larger vehicles. Economic activity would see a permanent up-shift, increasing wealth and prosperity, but also increasing greenhouse gases, and accelerating the effects of climate change.
    For electric utilities, it would significantly change the economics of renewable energy sources, making them much less attractive. It would virtually eliminate the need to plan for the changing demand patterns which might have occurred through a proliferation of electric vehicles. And it would push power companies towards switching combustion generators towards (or back towards) using oil.
    It would shift, again, the price/demand equation for home heating fuel, making oil relatively more attractive compared to gas or electricity. It would also lower the cost of operating, which might improve financial results as regulated rates tend to lag rapid market moves.
    And it would create public relations headaches as increased demand for fossil fuels, brought on by lower prices, pushed up GHG emissions, leading to a conflict between consumers who want lower prices, and environmentalists, who want lower emissions, with utilities caught in the middle.
    Will this happen? We’ve known about shale oil for over a century, but it’s never been economic to produce it. As one ironic saying goes, “Shale oil is the energy source of the future – and always will be.” And yet, with fracking producing dramatic changes in the natural gas markets, cheap shale oil must now be considered a real possibility. Indeed, a November, 2012 study by OPEC indicates that it is already starting to affect global oil supply – and prices.[1]
    Shale oil may be about to become a massive economic reality. It’s an issue that will have significant consequences, and hence one you should watch carefully and be prepared to act on.

    • Just a short comment: oil shale is not the same thing as shale oil. That the writer appears unaware of the basic difference (and, for instance, that not a barrel of the former has been produced profitably, while the latter is marginaly commercial with today’s high prices) doesn’t give me a lot of confidence in the analysis.

  15. Rob, whenever we encounter a situation of “thin trading” the price swings become amplified, sometimes dramatically so. That is to say that large volumes of activity tend to flatten out the averages. This is seen often on stock markets but not so commonly where homes are concerned.

    What is at stake here is that the group of sellers who are still in the market as the decline proceeds have the potential to collectively drive prices much lower in a short period of time as the need (or desire) to sell outweighs the vendors ability to withdraw until a better day.

    I think the market is heavy with such sellers now and that those who have already pulled out do nothing to moderate pricing. The decline in the number of listings meanwhile is no consolation as buyers are retreating at a faster rate than sellers (we know this is a fact as sales numbers have plummeted).

    We need to keep in mind that “comparables” are what sets the tone for pricing in neighborhoods. What happens when the majority of sales in a group declines is that the impact of the decline is felt by everyone in their potential listing price whether they like it or not.

    By the same token this is what drove prices up in the first place….but the process (sadly) also works in reverse. As I noted earlier, it is real participants who dictate prices and not those who refuse to play.

    The sellers we see now are motivated and with sales figures thinning rapidly the results by spring should prove that the Vancouver market is in full retreat with little hope of reinflation.

    A mountain of new listings by March will only add fuel to the fire as the realization finally begins setting in on the dim lights that the good times are over for R/E speculation and flipping.

    I will be honest with you here,; I think spring will be a rout bringing with it the first set of serious price declines across the Lower Mainland and it is going to come as a real shock to those who did not heed the warnings to get out earlier.

    By then it will be far too late to take evasive action.

  16. But this isn’t a problem specific to real estate and vreaa is always careful to recognize that this is a pattern that exists in all speculative manias, regardless of the asset. I see it all the time in small businesses, they don’t really get into the heads of their customers or their competitors. They choose a narrative that works and don’t spend any more time validity testing it. “Detached houses are different then condos” full stop, no need to analyze why that is relevant, irrelevant or if it has any impact on the relative value of your detached house compared to 10 years ago. Housing speculators are twice as likely to make this fundamental mistake, because they don’t even realize they are in business. Asset speculation is a business like any other, but those who don’t realize they are speculators, certainly don’t realize they are running a business. There are active flippers who don’t recognize they are running a business, it doesn’t compute for them. So they are sure to ignore business fundamentals. That’s probably why it seems so surreal to use, we see it for what it is, a risky business where there are winners and losers. They think it’s a God given certainty, you buy a house, the house appreciates, you sell the house, you buy another house, repeat. That gap is going to be painful for many.

  17. Does anyone follow interior markets? This cool-headed discretionary seller seems a big figure in the imaginations of people I know in Vernon, Kamloops, & Kelowna. Some of whom have houses they’ve pulled from the market. I know these places didn’t “rebound” after 2008, and some of them may actually be near or at fundamentals and may not have ever been in bubble territory? I don’t know the markets well enough, or the incomes, or the vacancy rates, or anything.
    Anyway, I hear a lot of “soft landing” and “discretionary seller” from those quarters.

    • I check up on Kamloops duplexes occassionally as we used to own one as an investment. We bought for 257k in 2004 and sold for 500K in the summer of 08. When we purchased it was renting for $2400 per month, when we sold, $2900. I just decided that we had made (I won’t say earned) all the easy money and it was time to get out. It turned out to be pretty good timing. I don’t think they are back to fundamentals and I would’nt buy back in as an investor any time soon. There seems to have been a lot of building going on and a lot of investors have given way to a lot of speculators. Even thought they didn’t rebound after 2008 I still think there is another leg down, when it becomes obvious that it’s not just the interior that has a problem but that all of BC including Vancouver is over priced.

      • Thanks, Bailing. I wonder if Vancouver having problems will also shake the confidence of other BC markets – it really is all relative, sometimes.

      • Absinthe, for some reason I can’t reply to your comment below and so am replying above. I spoke to Ben R after his talk in Vancouver and asked him about communities that didn’t rebound after 2008, for example Squamish, were we live. He said, and I agree, that corrections happen from the outside in and recoveries happen from the inside out. Once Vancouver started making no sense as an investment Ozzie Jurock began recommending locations further and further out, including Kamloops (thanks Ozzie!). Many of the investors in other BC markets are home owners in Vancouver. If they start getting fearful of RE the first thing that will go will be the investment in Prince George. Even if this is the only effect that dropping prices in Vancouver have in other BC locations it could have quite an impact.

  18. There was a good statement on BNN today from Frank Mersch in regards to the fact that due to the US not having recourse laws that they could walk away from their largest liability and de-leverage instantly.

    He went on to say that although they walked from their houses they kept their car and credit card payments current.

    He was much more bearish on the fact that Canadians can not simply walk from a mortgage and will have a much harder time de-leveraging.

  19. I wonder how many builders are cool headed discretionary sellers? I remember when my parents bought in 1988, a new house for 250k in Killarney. They told me the seller was desperate and basically gave them a free house as the price was land value at the time only. Around my parents neighborhood, I see so many new builds, somewhat have been completed for months selling for 2 million plus. One joke of a house is a few years old on 49th ave right beside the Shell station on Kerr. Selling for 1.7 mill. It had been going for 1.4 mill a few years ago and was recently relisted. Not sure how many more of these discretionary sellers there are.

  20. Real Estate Tsunami

    Once the discretionary sellers run out of discretionary income, they will become disgruntled sellers pretty quickly.

  21. Cyril:
    “That was exactly my point. Panic to get in happened, why wouldn’t panic happen trying to get out? ”

    Why would it happen? Panic needs fear, right? In 2008 we had a smattering of that (at least in my humble opinion). A lot of people thought that perhaps we’d topped and were ready for a fall. Inventory was high, and sales were also not bad, which led to falling prices (-15%-18%?). 2008 was a scary time for a lot of people. Are we equally scared now? I don’t think so, but that fear might return.

    What would that fear look like? Collapse of the Eurozone and the fallout thereof? People losing faith in what the Fed is doing? The US turning from being the cleanest dirty shirt to being one of the dirtier shirts? Canada, and specifically the Lower Mainland, starting to feel our fair share of the global pain? Any of those things could do it. But…those things are all separate and distinct from falling prices causing a panic (which seems to be VREAA’s scenario).

    So, panic can happen, for sure, It’s not happening now. It might happen in the future. It’s not a given.

    “What we witnessed then was a sharp panic correction at the tail end of a bull market. ” Hard to argue against that, but here’s the question: what caused the sharp panic correction? Was it simply that prices here were too high? Or was it events in the big wide world? I’d go with the latter. What say you?

    ” Instead of leveraging up further over this time frame, consumers should have been actively reducing the size of their balance sheets and getting their financial house in order. ” Always good advice. However, were consumers of Vancouver area real estate leveraging themselves up? If so, to what extent? If I take $10,000 in equity and a $90,000 mortgage I’m highly leveraged. If the property doubles in value and I take $110,000 in equity and $90,000 in mortgage financing and make a trade, have I increased my exposure? If the market tanks by 50% I’m back where I was. If it drops by less I’m ahead of the game. If it drops by more I’ve lost real money. But, my exposure was always my initial equity and the mtge debt, no?

    If the real estate market here is more leveraged then we are in worse shape, potentially, no question. That, of course, is more reason to choose Mr. Flaherty over Mr. Klump.

    ” I expect by next spring/summer Van RE will be [fill in any prediction you want from the past several years]” I think we can agree that this market has defied our logical analyses for years now. What, in our history together, makes you so confident that it will conform to logic on your time frame? 😉 Not saying you’re wrong in theory, just saying theory takes its own sweet time, it seems.

    “Sales volumes are down because there are no buyers left (despite the free fall in asking prices)” Can’t say I’ve seen anything close to a free fall in asking prices. I’ll get back to you on that, but if you’ve got data, please share.

    “With no easy out, Cdns will have no choice but to buckle up and ride the roller coaster all the way back down.” What would that look like? Paying the mortgage payment on a negative equity home at government suppressed mortgage rates? I think that’s what happened with most 1981 purchases, but that was a short, sharp bubble that included much fewer people (absolutely and relatively). Nowadays, after 10 years, there is much more market participation, and so potentially much more pain, as you point out. The same sort of wealth destruction as in the US? Maybe not. Pain is pain, but are losses and profits realized if there is no sale? (If we have high interest rates or lots of job loss then there will be wealth destruction through foreclosure).

    “Or die a slow and painful death from cancer?” Or endure chemo and emerge cancer free after a long painful battle? Or smoke without getting lung cancer and die in a car accident at 90.

    Too Much Debt:

    “The one thing that I don’t understand is why everyone feels there will be no economic shock to the jobs market.” The threat that dare not speak its name. The knock against the low interest rate life jacket is that it doesn’t matter how cheap the money is if you don’t have enough income to pay it. In past years people predicted an unwinding of asset prices. Job loss would very likely create that sort of unwinding. As I’ve said earlier, we’ve dodged a bullet around here.

    ” They fly in for a week and then fly home the next, all of them are making huge money and living in smaller towns where the cost of living is lower.” Makes places like the Slocan Valley look pretty nice.

    “Many of you know what shale gas did to natural gas prices, shale oil will be no different. If this comes to pass it will kill Alberta, and hurt the rest of Canada. Food for thought.”

    I’m sure you remember the bumper sticker – “Please God, give me another boom and I promise not to screw this one up”


    ‘I wonder how many builders are cool headed discretionary sellers?”

    If they’re the traditional small builders of SFHs then the answer is next to none. Big local developers? I can’t say. I believe big builders in the US (and they’re bigger by a huge order of magnitude than local developers) can be more discretionary, but they also maintain land banks with long time horizons.

    • @ Rob Chipman:

      Exactly, it was the latter in 08/09. This time around things are different, which is the point I was trying to make. Many will wind up in the poor house as the BTFD strategy they’ve employed in years past fails to work this time.

      Using your example in which property doubles in value etc, etc, what if the person in question then went on to do a massive refi to buy 2,3 4 more properties at higher and higher prices with little or no dp (thereby increasing his exposure significantly) as 1000’s of others have done in this part of the world? As of just a few weeks ago, the were numerous reports circulating that Cdns are lugging around record amts of debt. IMHO, this is inexcusable. We got our wake up call in 2008 and have had several years to address the situation. Now prices are headed the other direction.

      Well, as you said, this market has defied our logical analyses for years (perhaps decades). I believe too many have become so accustomed to never ending price increases that it has clouded their judgement. When the herd gets too comfy, unexpected things tend to happen (and I believe that has already begun). Initially, most fail to recognize these signs as they are not looking for them (and why would they be, right?), but eventually they become so obvious that even the MSM can no longer ignore them.

      Asking prices have been in free fall for some time now. Buyers jumped at the chance to pickup something on sale in 2009, but are not doing the same thing this time around. Something has changed. Anyhow, this guy does a ridiculous amt of work trying to track such activity:

      Remember, that short, sharp bubble we witnessed in 80/81 was followed by a “multi year” downturn. In fact, prices did not get back to the ’81 peak until the end of the decade. The very same thing occurred from ’94 to ’03. Common sense would suggest that the considerable excesses of the last decade or so will take far longer to unwind. I’ll go out on a limb and say that many folks will not be particularly thrilled about having to make mortgage pmts on a negative equity home(s) for 10, 15, 20 or more years as it is like throwing good money after bad. In the US, many simply stopped making the payments, removed the ball and chain, dusted themselves off and moved on.

      In the US, both the BLUE and RED pills were available to those with so called “cancer”. The BLUE pill is not approved for use in Cda.

  22. theboywhocriedbubble

    Ralph,I don’t mean to be chippy but prices fell 2% in the time it took to type that reply.

  23. Leverage, fear and herd behavior is all the market needs to start unwinding in a disorderly manner. It has nothing to do with rates.

  24. Real Estate Tsunami

    Ralph, a.k.a Rob,
    I agree that Panic needs Fear.
    But there is rational and irrational fear.
    Rational fear is me worrying about my roof leaking because of all the rain and snow right now.
    Irrational fear is waking up during the night with a fast heartbeat and being convinced that you are about to have a heart attack.
    Rational fear is normal and vital to our survival, but irrational fear leads us to make “irrational” emotional decisions.
    Rational fear will never lead to a panic, but irrational fear almost always will.
    What I’m saying is that in the current RE market in the LM, you believe that the
    fear of a meltdown in RE is normal and is not plausible given the”Fundamentals”.
    IMHO however, I believe that RE in Vancouver has gone far past the “Fundamentals” to be sustainable.
    Remember “irrational exuberance”,
    Which will lead to irrational fear and panic.
    Damn the “Fundamentals”


  25. Chipman not getting action on his site so has started trolling here? FML.

  26. Sellers who hold off selling will not prevent price drops any more than buyers who held off buying prevented increases.

    • So true. I have a friend who has to sell (mother-in-law wants her deposit back) and has had the North Van house listed for about six months now. Not one single offer even though listing price is pretty close to what was paid three years ago. The resulting family rift has forced the inevitable – house is now in default, noone is happy but, according to the bank, it will take about 18 months for eviction to happen. No action is taken for the first three months, court papers are filed, an opportunity to “catch up” is offered and, after all that, you get the official heave-ho. Since the house is about 50% paid off (at current asking price) the bank apparently is confident they will recover the mortgage owed leaving the “homeowner” on the hook for missed payments, taxes, insurance and legal fees only – approximately $25,000. My friend waited until his mortgage was up for renewal and refused to sign so will not be liable for interest payments. What I see it meaning is a house being put on the market for a lot less than comps only because at some point the bank is going to just want it off their books . It will just be a drag on the balance sheet.

      • I’ve been thinking about this a lot lately, but I have no familiarity with the CMHC insurance fine print when it comes to reimbursing the banks for their loses. What happens when properties with $1mil outstanding on their mortgage are foreclosed on, in a neighbourhood where comps are selling with difficulty at $750k and the bank dumps it at $1? Does the bank just get their free $999,999 to cover the loss?

  27. Sorry, but the cool-headed seller, while perhaps not being emblematic of the market, is not entirely mythical. In fact, that would have been us had we not sold in Spring, 2011. We were happy in our house, although it was getting as bit small for our family. Our mortgage payments (including property tax and maintenance) were WAY less than what we’re currently paying in rent. We saw an opportunity to solidify gains and we took it, but if we didn’t get the price we wanted, we told our realtor — and this was not BS — that we’d simply take it off the market.

    I think that there are many others in a similar boat. They’re trying it on, attempting to get a good price, but if they don;t there is no pressing need to sell.

    Wish it weren’t true, but it is.

    • Real Estate Tsunami

      Spring 2011 was still a strong sellers market.
      I think, you’ve been very lucky.
      Enjoy renting, wait out the crash, and then go back into it.

    • You may not be the typical vendor, Rob. We know statistically anyway what personal debt levels are in both BC and the Lower Mainland. We also know what typical down payments have been and how many homes have been sold from more than one source including CMHC. We also have data on savings rates, consumption, incomes, rents and civic tax rates. I think it is fair to say that people in Vancouver are on average up to their asses in debt with a bleak future if anything at all goes wrong with the economy. Count yourself amongst the lucky ones.

  28. Rob Nelson said: “We saw an opportunity to solidify gains and we took it, but if we didn’t get the price we wanted, we told our realtor — and this was not BS — that we’d simply take it off the market.”

    Rob N., how would you have felt, what would you have done, if you hadn’t sold your house and you’d then gone through month after month of prices steadily marching down.. 10%, 15%, 20%, 25% over a year or two?
    Also, a personal but pertinent question (leave it as rhetorical if you like): what percentage of your total household net-worth did the sales price of your home represent?

    • I would have felt that I had missed an opportunity, but that we could make do with our small space for another few years or so.

      The percentage of our total net worth represented by the value of our house was around 80%.

  29. Some of these sellers think that all sales have to be voluntary. No. While a purchase is voluntary, a sale can be motivated by a lot of external circumstances like divorce, death, job loss, relocation, deteriorating health, family size. Are you willing to still hold out if any, or a combination, of these events happen?

  30. Real Estate Tsunami

    Just curious. Where are you going?

    • This moniker was adopted last year when I was planning to move to Calgary. I ended up moving to Calgary. However, while job searching in Alberta I ended up getting an offer in Vancouver for 20k less than the Calgary offer. However, the responsibility and exposure offered by the BC job was difficult to resist. As if it were divine intervention, I find myself in a position where I should be able to buy a house in a nice Vancouver neighbourhood at the rate these prices are tanking (will only buy at 40% or more discount).

      If by the summer of 2012 prices are not headed where I want them to be then its time to pack my bags again. This time I am twice as marketable as I was due to my current position.

      • UBCghettodweller

        Good on ya!

        It’s good to hear non-doom stories every once in a while here. I hope you’re happy on whichever side of the mountains you end up.

  31. Real Estate Tsunami

    Again, if people would condense their posts instead of rambling on,
    We could be hitting 100 posts again.

  32. Real Estate Tsunami

    Think before you post.
    Formulate an Executive Summary page.
    Then post in point form, from most important to least.
    Refrain from making the same points over and over again.
    Always end with a recommendation on how to proceed.
    Don’t sit on the fence. Trust your gut and instincts.
    Keep it simple stupid.

    • You know, you could start your own blog!

      • Great idea Mr Nem. I am sending telepathic messages now to the ISP to open the damn portals of communication before I lose my temper. They have blocked Mish Shedlock’s site of all things, all access to Proxy sites and even the legendary Greaterfool is offline here. What next…..Sunday morning cartoons?

    • My brain does not work that way.

      • Have you considered the CerebrumCommunicator™, Farmer?… Upgrades are a b***h and opting out on your network provider can be tricky… but you’ll never need a charger!…

        [NoteToEd: There was actually a time when “ThePhoneCompany” was considered the greatest threat to civilization. Bordering on quaint, wouldn’t you agree?]

  33. There are some sellers out there who believe the market will come back- either due to locals “getting their finances together” (I heard this from a mortgage broker) or from the return of mainland Chinese money. The government there is currently in transition to a new president, and once the transition is complete, a round of economic stimulus is expected which could jump-start the Chinese real estate market. Could this lead to a return of investment buyers to Vancouver? The asking prices for the numerous new luxury homes in my west Richmond neighbourhood suggests that many sellers believe wealthy buyers will return to the market. (Note that I am not blaming HAM here, just suggeting that current homeowners are targeting this group as customers.)

    • They might not be so crazy at all it seems as Japan is prepared to pull the trigger and flood the globe with cheap money. Just what we all needed….more cheap money! To suggest this is going to be inflationary is just a little humorous and maybe the understatement of the year.

  34. Farmer:

    Just wanted to check in. I think it’s spring now. In December you wrote:

    “… I think spring will be a rout bringing with it the first set of serious price declines across the Lower Mainland and it is going to come as a real shock to those who did not heed the warnings to get out earlier.”

    We’re continuing to see what we’ve seen: low sales levels, high inventory levels, very little in the way of price changes.

    Myth of the discretionary seller? I’ve said it before, I’ll say it again: as long as interest rates make it possible to hold property sellers will exercise discretion, meaning some will cash out, some will be forced to sell (death, divorce, kids, etc), and many will simply continue to wait.

    • Yes, things are staggering along much the same. Weak market by sales volume, without massive price changes yet – but things are hardly peachy.
      We’ll all keep watching with interest. Personally, we’re not abandoning our predictions of very significant future price weakness on the basis of the action of the last 6 months… this is one of the ways in which years of price weakness can begin. First volume, then prices.

    • “…meaning some will cash out, some will be forced to sell…”

      Prices are set on the margin. ‘Nuff said.

    • Well Rob, the trajectory back in December did not look good and I based my projection on how that trend was developing. What is that old expression we have all heard? ……”The market can stay irrational longer than most can remain solvent”. This is one of those times. If you are taking solace in the current pitiful bounce you will probably be dissapointed over the long haul. Nobody knows the time and the date of a real correction. All that awaits is a trigger and there is no telling what it might be. At the end of the day I am unrepentant regarding predictions for a correction back to the mean as that is a virtual guarantee based on anlaysis of past bubbles. If you are interested incidentally I do track the Hong Kong market for insights as there is a coorelation between there and Vancouver that should be obvious. A second and more ominous trigger may arrive if the stock markets go into a bear on the heels of a correction that many believe is coming this year. Keep in mind too that Canadian employment reports came in very poorly last month and this does not bode well for any price appreciation. I still contend we are inevitably headed for recession and the jobs reports may be leading us in that direction. As you will know if you read my commentary, I have been consistent in stating that housing will be able to hold up provided employment numbers do not suffer too much. That is one of the keys to current strength. Take that support out though and we are in a different world. So this is a waiting game as lower mainland home prices sit perched over the abyss.

      There are no soft landings for bubbles this big though.

  35. Farmer:

    “If you are taking solace in the current pitiful bounce you will probably be dissapointed over the long haul”

    I’m not taking solace in any bounce because I’m neither a bear nor a bull; I do watch the market. What I take solace in is that my view of the discretionary seller has been pretty accurate so far. (My perfect market would be one with good fundamentals – that provides a great business model for me and I’ve been missing it since it disappeared around what, 2006/7? Maybe earlier?).

    ” Nobody knows the time and the date of a real correction. ” As we’ve agreed for years, especially when the predicted date passes without the correction. What we also don’t know is how it will look when it comes. I suspect most self-labelled bears won’t admit that until after the fact, mind you.

    “There are no soft landings for bubbles this big though.”
    Every day that passes without a crash makes the landing softer, given that we have inflation. How long do we need a stagnant market before we return to fundamentals? We both know that it’s a reallllllllllly long time. That said, I’m just poking a little fun at 3 things:

    1) the predictions that this market will crash because bubbles only end one way has remained unproven now for what, the better part of a decade?
    2) the idea that a discretionary seller that can hold will be motivated to sell because prices are falling (I’ve dealt with many discretionary sellers and I haven’t seen that characteristic, and I’ve been through a lot of different markets);
    3) I’ve been right about this market, which seems to make some people think I must not understand what’s going on….:-)

    FWIW, I think we’ve dodged a huge bullet around this place, but then, I was around in ’81/82 and saw what a 40%+ drop in prices looks like.

  36. “1) the predictions that this market will crash because bubbles only end one way has remained unproven now for what, the better part of a decade?”

    Well, Rob Chipman, I am no sure what you really know about the fundamentals of bubbles but I will hazard to say I very much doubt this one will end differently than all others.

    Do you really think Vancouver is that special?

  37. Real Estate Tsunami

    Rob Chipman,
    Here in Richmond, the market for > 1 mill is practically dead.
    The few sales that are completed are in the mid price range.
    In Steveston Village and Westwind there a some properties listed in the 600k to 700k rang, prices not seen since 2008.
    Don’t trust me. Just check with your colleague Arnold Shuhart.

  38. Farmer:
    Perhaps bubbles are all exactly the same and can only end one way, with of course, the agreed upon easy out of saying “It hasn’t happened yet, but trust me, it will happen, exactly as I’ve predicted, someday, someway, somewhere”.

    Mark me down as doubtful. Nothing that I’ve seen happen I the world tells me that we can tell how things will shake out before they actually shake out.

    I tend to believe that we don’t live in an either/or world, but I suspect you do think exactly that, at least in regard to this issue. Your implication seems to be that if I point out two things (the fact that you’ve made an incorrect prediction, and the fact that I doubt that you can predict the size and shape (if not the timing) of the future), then I must therefore believe a specific alternative (that Vancouver is “special”, with special meaning something ridiculous).

    Fact is, I don’t know what will happen, and don’t pretend to. But I don’t think you do either.

    Vancouver has defied logic for a decade or more. I can’t explain why that’s happened, but low interest rates, land supply, Asian interest, global economic disruption and location have all helped. Will they keep prices rising? I can’t see how. Will they keep prices flat? Absent some new and improved NEE I suspect that they will, but in this day and age new and improved NEEs turn up all the time, so translate that to “I couldn’t tell you”.

    I’m not expecting a rosy future by any means (and I think I’ve been pretty clear about that) but I’m not convinced that you or the generous host of this blog are correct in your opinion that it can only end one way (unless you have a very inclusive definition of “one way”).

    I will make a prediction (that’s a wild ass guess, not an established fact) over the next six months we’re going to see flat prices and low volumes. I’ll bet money on that.

    Would I buy investment property in the LM now? No. That answer hasn’t changed in years.

    Would I work with buyers or sellers making trades? Sure. Easier now than in the past, that’s for sure. Buy a beater, reno it, re-sell, you should be ok if you know what you’re doing, sharpen your pencil and add value. Sell the existing house, trade up for more room, increase mortgage a reasonable amount? Again, you should be ok.

    Am I wrong somewhere? Let me know. At the same time, if you’re willing to disagree with my 6 month projection let me know. I accept Bitcoin 🙂

    • Real Estate Tsunami

      About Bitcoin, bubbles and crashes.
      It can happen anytime, anywhere!

    • Ralph Cramdown

      My thesis for it only ending one way is as follows: A larger than normal percentage of Vancouver’s population and GDP is in building, renovating, selling and financing real estate. As well, the well known wealth effect that causes people to spend more money as their home prices rise would have been significant in Vancouver over the last decade. When housing sales drop, housing starts drop, which is going to lead to higher unemployment and lower incomes in the related industries. When house prices stop going up, the wealth effect disappears, which will also be a drag on the local economy. Those two things are all that is needed to create a positive feedback loop of higher unemployment, forced sales and a moribund local economy. It’s that simple.

      The only wildcards are China and Ottawa. But as we’ve seen in the US, even the national government has limited power to do anything about a deflating housing bubble, should it wish to. The two areas which could have an impact are immigration and money laundering. We shall see.

      Bet? Sorry, my risk capital is tied up elsewhere. But if you’re confident that things aren’t going to get worse in the near term, Brookfield Real Estate Services (the master franchise for Royal LePage) trades on the TSX and pays a tax advantaged dividend of 8.5%, and Coast Wholesale Appliances pays 8.9%

      • Real Estate Tsunami

        I’m no expert on dividends.
        But my question is: are dividends leading or trailing indicators?

    • Interesting comment, Rob.

      So if you don’t know how the future will turn out and you claim I also don’t know how the future will turn out then why bother answering my post other than to say my timing is wrong?

      Problem is, that is just smoke blowin and not really the point of your commentary. I can therefore disregard the first 75% of your response to me and we can just look at the little golden nugget that forms your essential thesis where you wrote:

      “Buy a beater, reno it, re-sell, you should be ok if you know what you’re doing, sharpen your pencil and add value. Sell the existing house, trade up for more room, increase mortgage a reasonable amount? Again, you should be ok”.

      This is really an incredible statement. It is just filled with assumptions about the current and future conditions of the market and shows how little weight you have given to the existing risks in the market for resale homes.

      So thanks for clearly stating you are in the camp that sees continued speculation and flipping of homes as a viable enterprise in spite of the fact housing prices are in decline and sales have literally taken a swan dive. You do look at resale numbers don’t you?

      You might tell me how you imagine buying a “beater” and throwing 50k to 100k into making it saleable will have decent odds of offering a return when average prices saw net declines this year. It is a beater right? That means it needs money and plenty of elbow grease. You have got to be thinking 6 months out here to make it all work as well. Are you that confident that prices will make a big turnaround by September or that a sale will be easy in the cold months that follow?

      Lets get to the point. You are in the camp that says “buy high” and expect to sell higher. It’s clear you have an agenda slanted to your industry but the errors in your thinking just defy logic given the poor optics that lie ahead. You cannot make a business case with the current set of resale and price statistics which therefore makes your proposal more of a gamble than a legitimate investment.

      But be my guest Rob Chipman. Do it. Let me know if it works out.

  39. RET:

    Low volumes, flat prices. Get out of Richmond and you’ll find….many places with 2008 values. What’s about the worst land commute from Richmond? Maple Ridge? Look at what’s happening there. That isn’t news. Average prices are flat because while some drop, some rise. We’ve been in this new market at least 18 months if not 24.

  40. Real Estate Tsunami

    Where in the Lower Mainland are the prices rising?
    Please give in examples, so the we can fact check.

  41. Great stuff Rob, appreciate your thoughts.

    The bears are at turns thoughtful and funny but mostly dogmatic. Many of them have been wrong for 5, 6, 8+ years but they will tell you they are not wrong, they are just not right, yet.

    As an investor, I would also rather we have a fundamentally balanced market but you deal with the hand you have been dealt. And in the market there is only one arbiter, price.

    • Blammo, I would not say the bears have been “wrong”. That is not exactly correct although we can agree timing the correction was not as easy as had been guessed. The fundamental analysis of the bear camp is spot on target but we do live in a market that has had a remarkable appreciation in prices. Given historical facts about housing such as long run price growth as just one example tells us unequivocally that Vancouver was forming a bubble as prices leapt over 7% in some years which is far away from posted inflation rates. The inevitability of a corrrection is easy to predict. When it might happen is another case altogether.

  42. Real Estate Tsunami

    You are right, there is only one arbiter, price.
    And the price is falling.

  43. RET:
    March 2012 median price was below March 2013 median price for:
    BBY SFD and apartments, MR townhouses, NW SFD, PoCo houses and apartments, Richmond apartments, Vancouver West apartments.

    Look at other months and you’ll see it flipping up and down. You can’t get flatline on average if everything is dropping. Daily prices are averaged out here for REBGV and FVREB

    • Real Estate Tsunami

      Please give me specific properties that have risen in price.
      The REBGV and FVREB numbers are manufactured.

  44. robchipmandotcom

    Yup, I’ll get right on that, because it’s my job to educate you on what’s going on, while it’s your job to spout BS.

    The statement you made about manufactured stats is foolish. Each of the numbers that make up the monthly sales stats relates to an actual address that actually sells. This can be easily verified by anyone who wants to make the effort.

    If the stats are manufactured I suggest you prove your point and gain enduring fame by doing so. If there is anything I can do to help you achieve this, say for example, letting you crunch the raw data yourself, let me know. We can certainly work that out.

    Up for the challenge? We can discover truth together and share it with the world 🙂

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