Monthly Archives: January 2013

Nanaimo – “I have talked to about 20 people who say sale prices in their neighborhood are down approximately 20 percent in the past six months based on actual neighbors they know who have bought and sold.”

“Greetings from the mouldy city of Nanaimo. I have talked to about 20 people who say sale prices in their neighborhood are down approximately 20 percent in the past six months based on actual neighbors they know who have bought and sold. It’s funny how the real estate agents’ cartel shows no change. How can this be?”
– from Musty basement wannabe,, 30 Jan 2013 12:34pm

Clearly, your neighbours are all wrong.
Only kiddin’.. clearly prices are down.
But the real estate salespeople aren’t really a ‘cartel’.. they’re just a group of individuals doing their best to protect their interests by keeping the market turning over.
– vreaa

The Froogle Scott Chronicles: Mortgaging Our Souls In Paradise – Part 10: Reversion To The Mean


Reversion to the mean

The most likely outcome of any bubble is a reversion to the mean — that is, a return to prices that reflect the long-run mean or average growth rate that existed prior to the bubble. As the various forces that helped inflate a bubble cease to exist (low interest rates, easy access to credit), or reverse themselves (speculative mania turns to fear), prices collapse. One or more external events may also play a role; however, bubbles always contain the seeds of their own demise. Market sentiment in its extreme form is the true creator and destroyer of bubbles.

Falling prices typically stabilize around the point where they would have been had prices followed the average growth rate rather than rapidly inflating and then collapsing. In the aftermath of a house price bubble, prices probably won’t return to where they were before the bubble — although they may temporarily overshoot to this lower level. They’ll likely return to where they would have been if there had been no bubble and they had continued increasing at the average rate of growth, a rate which is typically supported by economic fundamentals such as average household income, house-price-to-rent ratio, and the rate of inflation. We can see two historical examples of this phenomenon in the chart above — the Vancouver house price bubbles that peaked in early 1981, and in late 1994. In both cases, a half-decade later, prices had reverted to the mean.

I’m able to present a clearer picture of this pattern because I recently discovered some Vancouver house price data stretching back to 1960 (details below). Most commentators in the Vancouver RE blogosphere have been using the Real Estate Board of Greater Vancouver (REBGV) average price chart, which goes back to only 1977, at least in the publicly available version, or the Teranet house price index, which goes back to only 1990.

The current Vancouver house price bubble certainly looks epic, in both size and duration. Many people now believe that  a) the past decade has been a bubble, and  b) the top has been reached and the bubble is now beginning to collapse. If the current bubble follows the pattern of the two previous bubbles, collapsing prices should eventually revert to the mean.

What is the mean?

So, what is the mean, or average annual growth rate of Vancouver house prices, in percentage terms? Based on the data underlying the chart above, here are the numbers I’ve arrived at, which assume annual compounding. For calculating the growth rate of the current bubble, I’m excluding 2012, because it has the appearance of being the transitional year between rising prices and what could be a long period of falling prices — although no one can yet be certain.

  • 1960 to 2001, House Price Nominal:  8.33%
  • 2001 to 2011, House Price Nominal:  10.21%
  • 1960 to 2001, House Price Real:  3.62%
  • 2001 to 2011, House Price Real:  7.83%

‘Nominal’ means actual price — what someone actually paid at the time they made the purchase — and ‘real’ means actual price adjusted for inflation — that is, with the inflation component of the price in relation to a control or base year  factored out. The base year is 2002, in this case, meaning real amounts are expressed in 2002 dollars.

The distinction between nominal and real rates of growth would appear to be quite important to the analysis of Vancouver house prices. If we look at only the nominal rates of price growth, we see less than 2% separating the rate for all the years prior to the current bubble, and the rate for the bubble itself. Judging by growth rates alone, we might question whether much of a bubble exists. However, if we look at the real rates for the same time periods, we see a much different picture. The bubble rate of growth is more than double that of the years 1960 to 2001, with over 4% separating the two growth rates. That’s a major difference, especially given the effect of compounding over a number of years.

The reason for the seeming discrepancy between the nominal and real comparisons is that the period 1960 to 2001 includes the years of rampant inflation that occurred during the 1970s and early 1980s, an era when the annual inflation rate hit 14% and almost 13% in two separate peaks. That rampant inflation hasn’t been factored out of the nominal house prices for the period. By comparison, the period 2001 to 2011 has had stable and low annual inflation, around the 2% mark. For the bit of prognosticating I’m about to embark upon, I think it makes better sense to use real rates of growth, which remove the distortions caused by significantly different inflation rates, and which highlight price changes more integral to the housing market itself. Based on the data I’m presenting here, I’m going to use 3.62%, the real growth rate between 1960 and 2001, as the baseline for house price appreciation in Vancouver.

It’s worth noting that a real growth rate of 3.62% in excess of the rate of inflation is significantly greater than the 0.5% above inflation that I think Robert Shiller has demonstrated for American houses, long-term. (Feel free to correct me if I’m wrong about the details of Shiller’s finding.) In other words, even using the most conservative baseline for Vancouver house price appreciation puts us well beyond most other places in North America. That’s how Vancouver became the city with the most expensive residential real estate in Canada even before this latest bubble began to inflate in 2002.


There’s no guarantee that the current bubble will follow a pattern similar to the pattern of the previous two bubbles, or price bubbles generally, but if it does, this second chart shows some possible outcomes. The chart also shows that real house prices are currently 40% overvalued when compared to the 1960-to-2001 mean, and were almost 50% overvalued at the end of 2011.


  • Crash — Reversion to the mean takes 4 years, and occurs in 2015. Over the entire period, real price decreases 22.53% from $762,304 to $590,547. Nominal price decreases 17.11% from $921,625 to $763,939.
  • Current Trajectory — Reversion to the mean takes 7 years, and occurs in 2018. Over the entire period, real price decreases 13.92% from $762,304 to $656,215. Nominal price decreases 2.25% from $921,625 to $900,847.
  • Slow Grind — Reversion to the mean takes 11 years, and occurs in 2022. Over the entire period, real price decreases 0.71% from $762,304 to $756,856. Nominal price increases 22.00% from $921,625 to $1,124,654 (not a typo — read on).

These projections assume inflation remains stable over the next decade at approximately 2% a year. So a house price that remains constant in nominal terms from one year to the next has decreased in real terms by approximately 2%. In other words, the house has lost value because it hasn’t kept pace with inflation. Which partially explains the seeming anomaly of some prices decreasing only modestly, or in one case even increasing, while the bubble deflates — the modest decreases are added to by the loss against inflation, and the increase only keeps pace with the 2% annual inflation rate, whereas the mean line is increasing at 3.62% above the inflation rate. The other key factor is that the modest decreases and the increase take place over longer time periods than the decreases in the crash scenario, which gives the mean line, increasing at 3.62% annually (compounded), the chance to catch up to a more slowly deflating bubble line.

Almost certainly, the actual unwinding of this current bubble will not be as regular as any of my three posited scenarios. It will likely be a much more jagged affair, in what has traditionally been Canada’s most volatile real estate market. I’m not sure if the head-and-shoulders pattern from the stock market is truly applicable to real estate, but the two previous bubbles certainly have something resembling that shape. A quick, partial crash in the next two or three years, followed by a rebound (the right shoulder) as unwary early vultures pick up houses at what they consider bargain prices, certainly seems plausible — followed by a second leg down, perhaps less steep but longer, as that initial, relatively shallow wave of buyers exhausts itself.

One other interesting observation made possible by the second chart: from 1972 onward, Vancouver has experienced a closely spaced succession of residential real estate bubbles. For almost the entire 40-year period, a bubble has been either inflating or deflating, with only a couple of years during which the market actually closely tracked the mean. Which suggests that most Vancouverites have never known a stable real estate market in this city. They don’t know what one feels like. I haven’t studied the real estate markets of other cities so I don’t know if this is the norm or not, but I suspect in many cases it’s not. It may help explain the somewhat neurotic, love-hate relation many locals have with real estate. Like junkies, we’re either floating upward, or coming down hard.

Still too damn high

There is a crucial consideration that this technical analysis, such as it is, ignores. Even with a reversion to the most conservative long-term mean that can be extracted from the first 41 years of data, houses in Metro Vancouver will still be too damn expensive for average families. I think there might come a point when absolute or nominal prices become so overwhelmingly high that they break the model, even with a mean reversion. I wonder if Vancouver has gotten there. A growth rate of 3.62% above the rate of inflation is probably not sustainable indefinitely. Because it’s a compounding rate, that mean growth line is exponential, becoming increasingly steep. Like an aircraft, it may eventually stall.

The growth rate of Vancouver house prices has meant that when this latest bubble began inflating, it was inflating a benchmark house price in 2001 of about $350K, which was already the highest in Canada by a large measure. A reversion to the historical mean may not do it this time around. The entire housing market in the city may need a 50-year reboot that creates a new historical mean that’s a lot lower than the current one. Who knows? When the 1981 bubble collapsed, real prices were chopped in half, and nominal prices weren’t far behind. It could happen again. The worst of that earlier bubble was a quick, four-year spike and plummet, so far fewer people would have been affected than are affected now. The dimensions are so much larger this time that the results of a similar implosion truly would be spectacular.

One long boom?

A suggestion I’ve read on several occasions is that Vancouver has been in one long boom of varying intensity for several decades — certainly post-Expo 86. For perspective, I’ve taken the real growth rate for Toronto houses from 1966 to 2001, and from 1966 to 2012 — in other words, excluding and including Toronto’s own bubble — and applied them to the Vancouver chart, using Vancouver’s 1960 price as a starting point. The difference is striking. By Toronto’s standards, we’ve been in a bubble since 1972. I have my doubts that Vancouver’s real growth rate can continue to outstrip Toronto’s by a percentage point or more indefinitely. You’d think that Vancouver mean line would eventually have to lose some altitude. For that to happen, real prices would have to traverse the mean line and stay below it for prolonged periods. In other words, a true crash, and a permanent reassignment downward of the growth rate of Vancouver house prices.


Plastic-folding-chair economist

In one of the early episodes of The Froogle Scott Chronicles I stated that I’m not even an armchair economist. Let me reinforce that now. I’m not even a plastic-folding-chair economist. I could well have made some blunders in my analysis. If so, I won’t resent having them pointed out by anyone with greater expertise in these matters.

Happy continued bubble watching to all…

About the data

Okay, so hold on to your shirts. The numbers for 1960 to 1973 come from an article that Ozzie Jurock published in the Calgary Herald: “Price rise history defies naysayers” (July 28, 2007). I consider the argument that Jurock puts forth in the article, regarding the financial return on houses, arithmetically far-fetched. However, I think the house price data is probably legitimate. Being the suspicious type, I compared the Jurock data to the other Vancouver house price data I could find, to make sure that it aligned reasonably, and for the years in common it does.

The numbers for 1974 to 2012 come from the Royal LePage House Price Survey, which is referenced by the Bank of Canada, and UBC’s Centre for Urban Economics and Real Estate, so I’m assuming the data is valid. I followed the BOC and CUER practice and averaged the prices for Royal LePage’s Detached Bungalow and Executive Detached Two-Storey categories, which probably approximates the REBGV’s Detached Benchmark category.  And I averaged prices for all municipalities in Royal LePage’s “British Columbia, Vancouver Area”.

The Jurock data continues to 2007, but beginning in 1974 it mixes houses and condos, so I switched to the Royal LePage data, which luckily begins in 1974 — although it is somewhat spotty in the earlier years.

This final chart shows how the various data sources align. For the REBGV Detached Average data, I harvested what I could from REBGV news releases. For years prior to 2001, I estimated prices using the REBGV Residential Average Sales Prices chart. All numbers are for December of each year.

As an additional check, I included the REBGV Detached Benchmark, and I also applied the Teranet HPI to the Detached Benchmark, using the 1996 benchmark price as a starting point. As you can see, all lines are strongly correlated, with the exception of the more recent years of the average line, skewed higher by the stratospheric prices at the top end of the market, and the more recent years of the Jurock line, which mixes houses and condos. Single family home and condo prices have increasingly diverged in recent years, so mixing in condos pulls the line lower.

In general, I find searching for Vancouver house price data on the web a frustrating experience. I’m not a conspiracy theorist, but I do get the sense the local real estate industry releases only the data they want to, and controls the vast amount of information at their disposal very carefully.

If anyone can point me to other sources of Vancouver house price data, I’d be most appreciative. For example, I haven’t been able to find the MLS HPI and average price data going back to 1980 that Ben Rabidoux, and Kevin at Saskatoon Housing Bubble, often use for their charts.


Things can go missing from the web, so I’ve replicated the data from the Jurock article below. I’m assuming other commentators may want to include it in their own analyses. The year 1991 was missing from the data, so I averaged the prices for 1990 and 1992.

Year & Avg. sales price Year & Avg. sales price Year & Avg. sales price
1960  $13,105 1961  $12,348 1962  $12,518
1963  $12,636 1964  $13,202 1965  $12,964
1966  $15,200 1967  $17,836 1968  $20,595
1969  $23,939 1970  $24,239 1971  $26,471
1972  $31,465 1973  $41,505 1974  $57,861
1975  $64,471 1976  $68,694 1977  $64,556
1978  $66,243 1979  $70,888 1980  $100,087
1981  $148,860 1982  $107,829 1983  $114,618
1984  $113,722 1985  $112,737 1986  $120,035
1987  $132,658 1988  $160,375 1989  $209,670
1990  $230,641 1991  $237,921 1992  $245,200
1993  $279,800 1994  $305,600 1995  $309,500
1996  $288,200 1997  $287,000 1998  $278,600
1999  $281,100 2000  $295,977 2001  $285,900
2002  $301,500 2003  $329,500 2004  $362,800
2005  $395,400 2006  $482,000 2007  $540,100

In further communication after writing the above article, Froogle added the following thoughts:

– The e10 data still only goes back to 1960. If we had Vancouver house price data for the entire 20th century, what sort of trend line would emerge? That the average price for a house was only $13K in 1960 would suggest that the trend line was probably considerably less steep in the first half of the century.

– Did something start to happen in 1972 that has been continuing ever since, causing at least a portion of the baseline elevation? The thing that comes most immediately to mind is that the first of the boomers began hitting the earliest of the prime house-buying years. Forty year later, the last of the boomers, people our age, are perhaps now exiting the last of the prime house-buying years.

– Even bears would have to agree that the fundamental nature of Vancouver has changed. Not an “it’s different here” argument, but rather that Vancouver has shifted from being a resource-economy-based provincial outpost to being an Asia-Pacific-facing metropolitan region of a certain magnitude. World-class or global city? No. But certainly no longer a provincial backwater, either. Which means the trend line for house price appreciation for modern-day Vancouver should probably be compared to other cities of equal stature, not to earlier-times Vancouver.

Thanks very much for all this, Froogle Scott. Here follows my discussion. – vreaa


Reversion to which mean?

Froogle Scott has sourced earlier price data, and given us a welcome analysis and discussion of the possible targets of a price reversion. The trend-line derived from data as far back as 1960, and the comparison with the long term Toronto price trend-line are healthy food for thought. If prices do ‘revert to the mean’, to which mean do we expect them to revert?

There could be arguments for the validity of any one of the following trendlines:

1. Trend-line determined by 2001-2011 rate of price increase (7.8% p.a. real)

2. Trend-line determined by longer-term 1960-2001 rate of price increase (3.63% p.a. real).

[2.5. Something in-between 2 and 3. More about this later.]

3. Trend-line determined by nominal prices rising at the same rate as long term wage inflation; little more than 0% real growth.

Trend-line #1 is the bullish case, where the very large annual gains of the last ten years continue indefinitely. By this logic, the current ‘correction’ in Vancouver RE prices would be argued to be over. We’d say at the outset that this represents particularly wishful thinking from those ‘long housing’, that 7.8%-real p.a. increases are preposterously large, and that we will soon find out that rate is far from sustainable.

The most pertinent debate that emerges from Froogle Scott’s analysis is whether we’d expect long-term support at the longer-term 1960-2001 trend-line, at a rate of 3.63% p.a. real. Even though 3.63% p.a. real growth rate may seem low to participants who are now accustomed to the 7.8% real p.a. increases of the last decade, I think we have to question whether a long term 3.63% rate is in any way typical, normal, or sustainable.

At what rate should we expect real prices in any given city to increase over the long-term?

Shiller’s very long term analysis suggests that housing prices should revert to long term means determined by long term wage inflation; by his findings, about 0.5% real growth.

Measures like income growth, population growth, and GDP growth are likely the best indicators of expected long term RE price growth.

“In Canada, as in other countries, movements in land and house prices over long time horizons are driven primarily by changes in population and per capita income. Over shorter horizons—a decade or less—house prices may outpace population and income in some periods and lag behind them in others.” – BOC Review, Winter 2011-2012

Here are some recent indicators of what rates of growth we can expect from these drivers:

Metro Vancouver’s population increased by 9.3% over the five years between the 2006 and 2011 census, an annual compound rate of 1.79%. (source: Statistics Canada)
From 1981 to 2011, the population grew from 1,300,000 to 2,313,000, for an annual compound rate of growth of 1.94%. (source: Metro Vancouver)

Median total family income in Vancouver increased from $62.9K in 2006 to $67.1K in 2010, an annual compound rate of 1.63%. (source: Statistics Canada)
Real income per person increased by slightly less than 1% per year in the 1980’s, actually decreased in the 1990s, and rose by 1.61% per year in the 2000s. (Source: Business Council of BC)

GDP in British Columbia increased from $197.0B in 2007 to $217.8B in 2011, an annual compound rate of 2.54%. (Source: BCStats)
GDP increased at annual rates of 2.12% in the 1980’s, 2.72% in the 1990’s, and 2.36% in the 2001-2010 decade. (Source: Business Council of BC)

Froogle surmises that 3.6% real p.a. growth is “probably not sustainable indefinitely”, and I would strongly agree. Why would we expect Vancouver RE prices to continue to increase at well above the current rate of inflation, at a rate greater than population growth, income growth, or GDP growth? Why should Vancouver RE prices continuously increase at greater than the rate of a city like Toronto, decade after decade? (Note that this is not a question about absolute price levels.. Yes, we can accept that Vancouver commands a ‘mild weather/beautiful vista’ premium.. but that premium is ‘priced in’; it explains why there may be a baseline difference in prices, not why prices should increase each year at about a 35% greater rate in Vancouver vs Toronto.)

The lack of convincing answers to these questions, as well as other factors concerning asset price bubbles that are mentioned below, lead me to believe that prices will go a lot lower than support determined by the 1960-2001 3.63%-real trend-line level.

It may be no coincidence that the nearby support as calculated using this 3.63%-real trend-line is also soon to be in the vicinity of the early 2009 price lows, those that resulted from the quick 15% pullback of 2008-2009. I have previously predicted there would be support at those levels for technical and psychological reasons (which technical analysis aficionados will know to be the same thing). I’d expect a temporary increase in buying interest at those prices, as it is likely that a group of prospective buyers will be expecting a floor at the 2009 lows. It wouldn’t be at all surprising to therefore get some support at those levels, and perhaps a bounce. This would result in the ‘right shoulder’ to which Froogle refers. I’d then expect that such support would fail in the months thereafter.

There are at least two other lines of argument that would suggest that price corrections are going to be more extreme than the worst-case 22.5%-drop scenario predicted by the 3.63%-growth trend line:

A. Fundamental analysis.
Prices in Vancouver have very clearly overextended from those determined by fundamental underpinnings. By price:rent and price:income ratios, Vancouver RE was two to three times overvalued at the peak. The average home price is more than 10 times the average income, where international standards judge 3.5 times average income to already represent an overpriced market. As Froogle puts it, even with a 22.5% drop, “houses in Metro Vancouver will still be too damn expensive for average families”. The thing is, no speculative mania ends with such a scenario. In fact, if anything, one would expect that the price correction will take values to levels where families can afford to buy. Long term sustainable prices should be at levels determined by rental yield, plus a modest ownership premium. Vancouver will never be cheap, but it will be a lot less expensive than two to three times fair value.

B. Sentiment.
Some people would be pretty miffed by a 22.5%-real price pullback. But ‘some’ and ‘miffed’ aren’t extreme enough words to herald the end of a decade long mania that has doubled or trebled prices. If such a modest pullback were to represent the end of the mania, that would mean that market participants would still have been rewarded with years of 3.63% per annum growth, over and above the rate of inflation. All this when fixed income rates have been very low. The point is, this would be a mere rap on the knuckles, and speculative manias always, always, end with holders being punished more than that. Manias resolve when speculation is completely ‘wrung out’, and a good proportion of participants are exhausted and disgusted. The bottom arrives with the proverbial ‘whimper’. After such a large and broad mania, sentiment will have to get particularly poor before we hit a final trough, and 22.5%-off simply won’t do the work necessary to achieve that goal.

Obviously, we can’t know with any certainty what trend-line we’ll revert to, or what the sustainable rate of price growth for Vancouver RE will end up being. Our best guesstimate is that Vancouver RE will find a long term trend-line below the 3.63%-real p.a. growth, but above the 0.5%-real predicted by Shiller. This still represents a very broad range, and consequently is not of much use in predicting price targets. Population-growth, income-growth and GDP-growth suggest that we’d quite likely reverting to a more modest 2%- to 2.5%-real long term growth in RE prices. That might not sound like much of a difference, the difference between 3.63% and 2%-2.5%, but it actually has profound effects on price targets: support determined by long-term 2%- to 2.5%-real growth would require prices to drop by about 55%- to 65%-real from current levels.

– vreaa



(a) Whatever trend-line ends up being valid, we’d expect there to be overshoot to the downside to produce the final bear-market trough.

(b) Froogle asks in correspondence: “Did something start to happen in 1972 that has been continuing ever since, causing at least a portion of the baseline elevation?” We know that gold-bugs are going to be hopping up and down on hearing this question, eager to point out that Nixon closed the gold window in 1971. CPI began to rise at that point (see US chart below). But why should real prices start to rise at an even greater rate? The argument would be that there may have been hidden inflation for some assets. In other words, has there been a change due to ‘non-headline’ inflation of hard assets? This argument would still have to explain why prices have run so far ahead of rents.
Take a look at the 1972 effect on CPI in this US chart:
us national price index

(c) Concerning the argument that something may have changed about the way the world sees Vancouver; that Expo and the Olympics and other such forces moved Vancouver from a sleepy provincial port to a 3rd tiered city in global terms, and that such change merits RE price increases. If this were the case, why wouldn’t rents have increased at the same rate as prices, to reflect the argued increased desirability of the city?

(d) In the discussion of the 2010 ‘Fives Charts’ post at VREAA, commenter ‘Best Place On Meth’ stated: “I’m wondering if the entire past quarter century [of RE price growth] has been an aberration.” Indeed, it is even possible that the last half century could represent an aberration. Shiller would suggest that this could be the case (and would likely also point out that such periods of price distortion come and go over the centuries).
Did our bubble actually start much earlier than 2003?
Does the 2001-2012 spec mania action just represent the last two or three stages of a larger bubble blow-off, as the curve became steeper (2001) and steeper (2003) and steeper (2006; 2009-2011)?

Other articles pertaining to the trendline/price-support discussion include:

‘Five Charts: Predicting Future Vancouver Housing Prices’, VREAA, 11 Sep 2010

‘Vancouver Teranet HPI Trendline Analysis’, Jesse [YVRHousing] at Housing Analysis, 30 Mar 2012
Chart from jesse/YVRHousing’s article:
Teranet trend

Moody’s Downgrades Canadian Banks – “High levels of consumer indebtedness and elevated housing prices leave banks more vulnerable”

“Moody’s Investors Service has downgraded the long-term credit ratings of six Canadian banks, including Toronto-Dominion, Bank of Nova Scotia, Bank of Montreal and CIBC. National Bank and Desjardins were also downgraded. The ratings agency lowered each of its ratings one notch, citing high levels of consumer debt and high home prices as threats to the Canadian economy.
“High levels of consumer indebtedness and elevated housing prices leave Canadian banks more vulnerable than in the past to downside risks the Canadian economy faces,” David Beattie, vice-president at Moody’s said in a note.
Canadian consumer debt has risen to a record-high 165 per cent of disposable income in the third quarter of 2012, up from 137 per cent in mid-2007. Bank of Canada governor Mark Carney has repeatedly warned about these levels, but they remain stubbornly high.”

– from ‘Moody’s downgrades 6 Canadian banks’, CBC, 28 Jan 2013 [hat-tip Bally]

You Bought It, Congratulations – “They spent Sunday going to open houses in and around their Kits hood in Van, then fell in love with a place listed just under a million.”

“Jason and Maria are young thirtysomethings who, like most, lust for a house. Four weeks ago they did something they instantly regretted, which this time had nothing to do with blue berries or udder cream.

Per usual, they spent Sunday going to open houses in and around their Kits hood in Van, then fell in love with a place listed just under a million. Of course they couldn’t really afford it, but that never stopped coursing hormones. By the next night they’d contacted the listing agent, drafted an offer and submitted it. The deposit was $15,000 – part of a downpayment they figured would be $50,000 – and they handed over a cheque when the realtor asked for one. Make it certified, he suggested, since it shows you’re serious. They did.

A day later they’d done some heavy budgeting, gone to the bank to visit their loans officer and, most seriously, emailed me [Garth Turner]. “Maria really, really wants this house,” Jason explained, “but after thinking about this and doing the numbers, we’re a little scared. Do you think we should just walk away and, like you say on the blog [], wait a year?”

Of course you should walk, silly hormonal, self-destructive, irrational people, I said, letting my feminine side show through. Just tell the agent to stop payment on the deposit cheque before it’s cashed and before the vendors have a chance to sign back.

Unknown to me, the sellers immediately accepted the deal, and the deposit cheque had been certified. So when Jason called the agent – less than 24 hours after signing the offer, thinking that he could back out during a “cooling off’ period – as is the case in BC and other provinces with condos (usually seven days to exit) – he was shocked. “You bought it,” he was told. “Congratulations.”

And they did. Closing’s in seven weeks. They’re freaking.”

– as told by Garth Turner, at, 27 Jan 2013

Matthew Klippenstein Looks Back On Being A Vancouver RE Bear Since 2006 – “Although he and his wife earn well above the average household income in Vancouver, they’ve decided to continue renting.”

“This might be of interest to readers; as a Burnaby-ite (and way-premature housing bear) I noted the Canadian housing and debt situations in the first article I wrote for Green Car Reports about electric cars in Canada. [excerpt below]
I don’t want to throw the blog off-topic, but figured the link might be of mild amusement. I guess the older 2006 MacLean’s article reference might qualify under your “delaying buying” category. And if you had one, “premature calls of the top”. 🙂
– Matthew Klippenstein, via e-mail to vreaa, 22 Jan 2013

Is that a housing bubble? A January 2013 cover story in Canada’s national newsmagazine MacLean’s argues that the housing market has become a popping bubble. While the U.S. housing bubble peaked in 2006, Canadian real estate peaked in spring 2012, with household debt reaching levels seen in America at the peak of the U.S. housing market. If Canadian consumers pay down their debt in coming years, the higher up-front costs of electric cars might stifle sales, even relative to 2012. (Full disclosure: the author was quoted in the above-linked magazine seven years ago arguing house prices were a bubble back then. He and his wife used the money saved by renting to purchase their plug-in Prius last fall.)”
‘Plug-In Electric Car Sales In Canada: A 2012 Review’, Matthew Klippenstein, Green Car Reports, 21 Jan 2012

“Every day Matthew Klippenstein, a 30-year-old fuel-cell engineer, goes online to wait for the sky to fall on the housing market. “House prices make me angry,” he says. Although he and his wife earn well above the average household income in Vancouver, they’ve decided to continue renting. “We’d rather be able to enjoy our lives and be able to afford to have kids.”
Klippenstein watches local housing prices on the site RealtyLink. He feels prices are inflated, and bases this view on information he’s gleaned from blogs forecasting a drop, and on the logic of Canadian financial gurus like Eric Sprott. … Klippenstein thinks the market will correct itself in the next 18 months. “When the bubble bursts,” he says, “there will be a lot of people who got swept up in a speculative fever, who’ll lose a lot of money.”

– from ‘Bubble, bubble, toil and trouble’, Kevin Chong, Macleans, 29 May 2006 [yes, two thousand and SIX – ed.]

“Life has worked out very well. I’ve learned to laugh at myself. 😉
We do still rent (the money saved did after all help us get a plug-in car!) and most importantly, are content to do so. Planning to move in the next year or two, since our place is getting a bit small with the three of us. Though admittedly, the problem is more than likely “too much baby stuff” than “not enough square feet”. Timing will somewhat depend on how fast and far the market falls.”

– Matthew Klippenstein, via follow-up e-mail to vreaa, 23 Jan 2013

Thanks for all this, Matthew.
Vancouver was indeed already locked in the jaws of a speculative mania in real estate by 2006.
Earlier, actually.
– vreaa

Matthew Klippenstein blogs at ‘Eclectic Lip‘.

‘Saskatoon Housing Bubble’ Reviews Vancouver RE Fundamentals – “Boom Bubble and Bust”

Kevin at saskatoonhousing bubble has posted the first of a two part review of the Vancouver RE market:
‘The Vancouver Real Estate Market: Booms Bubbles and Busts’ (saskatoonhousingbubble, 25 Jan 2013).
Take a look at the entire article at the site.
Here we repost two of the charts:

Average Vancouver House Price and Average BC Weekly Wage Index Base 1991 =100

Average Vancouver House Price and Average 2 Bed Apartment Rent Index Base 1992 =100

Thanks for the analysis and the post, Kevin.
Vancouver RE is at about twice the price it should be, based on fundamentals such as rental yield and incomes. – vreaa

The Atlantic – “How real is Canada’s housing bubble? More real than any other country’s.”


“Canada has a new worthwhile initiative. After years of booming prices, that bastion of politeness north of the border is looking to avoid a catastrophic housing bust for something more, well, boring. Initiatives don’t get more worthwhile, and perhaps not more difficult considering Canada just might have the biggest housing bubble in the world right now.
Not exactly boring, eh?
The distinction between higher prices and bubbly prices isn’t as subjective as it might sound. Like any other financial asset, there should be a fairly steady relationship between the price of housing and the stream of income — rent — it produces. Should be. The chart above, from The Economist, looks at the price-to-rent ratios across different countries, and measures how under-or-overvalued housing is, with negative numbers corresponding to the former and positive ones to the latter.”

“ keeping rates where they are and slowly tightening mortgage requirements, Canada hopes to engineer a more gradual price decline that won’t set off a vicious circle. In the best case, prices wouldn’t fall, except below the rate of inflation, so that real prices decline without hitting household net worths. This strategy is hardly unique — China has done the same the past few years — but it has the very Canadian name of “macroprudential regulation”.

– from ‘The Biggest Housing Bubble in the World Is in … Canada?’, The Atlantic, 25 Jan 2013

Yes, we have a big RE bubble.
Noteworthy, again, for the mention in the international press.
It is our considered opinion that a soft landing, particularly in markets such as Vancouver’s, is an impossibility.
Our market has been completely dependent on rising prices to draw in buyers.
Stagnant or falling prices will beget falling prices. Yes, that’s a circular, self-reinforcing effect, and that is why the downdraft, once established, will be so powerful.
– vreaa

“They transformed an old Greek couple’s house into a 3 suite main house and coach house. 8 months ago they came up for sale, at a little over $1M ask on each. Now, all 4 are for rent with the same RE company that was trying to sell them.”

“House near me where an old Greek couple lived sold over a year ago for a couple million to a developer. They transformed it into a 3 suite main house and coach house. About eight months ago they came up for sale, averaging a little over a million ask on each.
This weekend I was out for a walk and I saw that all four are now for rent with the same real-estate company that was trying to sell them before.
Yikes! I’m thinking that developer bet the farm on current market softness being only temporary.
Obviously even the professionals are delirious.”

Anonymous at VCI 20 Jan 2013 10:13pm

What would each unit have to rent for to merit the $1M (each!) price tag?
What price would be realistic for each unit, given the likely rental income?
– vreaa

Erroneous Theories For Falling Prices #7 – Talk Of Bubbles Caused The Crash

“Little was heard of housing bubbles in Canada up to about a year ago. Now, predictions of crashes are on the front cover of Maclean’s and other publications. One might wonder if we are talking ourselves into a housing miasma, even though the fundamentals don’t point to one.” …
“…some media sources are now painting a dire prognosis for Canadian housing. It brings to mind the 2012 paper, “What Have They Been Thinking? Home Buyer Behavior in Hot and Cold Markets,” written by Mr. Shiller and co-authors, Karl E. Case and Anne Thompson.
The paper looks at press coverage leading up to the U.S. housing collapse and documents the increasing frequency of articles depicting U.S. housing as a bubble. June of 2005 was particularly busy, with cover stories in the Economist, Barron’s, and Time Magazine.
Mr. Shiller and co-authors argue the prominence of the bubble theme produced “a turning point in public thinking” that led to prices turning down, beginning in 2006. A similar point was made by Mr. Shiller in a 2006 paper, in which he wrote: “there are reasons to suspect that the price changes … are related to public swings in opinions rather than fundamentals.”
Could Canada similarly be talking itself into a housing crash (possibly followed by a financial crisis and years of stagnation)?”
– from ‘Is Canada talking itself into a housing crisis?’, Larry MacDonald, Globe and Mail, 22 Jan 2013

Actually, the fundamentals point to a speculative mania and the increasing talk of bubbles is very appropriate. Sometimes a bubble is a bubble.
Besides, a large, broad, healthy RE market would never crash based on unfounded chatter.
For someone to suggest, in 2013, that the US housing collapse was the result of baseless sentiment change is ridiculous, and to use a US parallel to attempt to argue for Canadian housing strength is more ridiculous still.
No surprise, however, to see pleas to ‘Stay Calm and Carry On’.
When all is said and done, some will blame media hysteria for the RE market collapse.
– vreaa

Regarding this series:
There is only one BIG reason for falling prices in Vancouver RE: the speculative mania is over.
That is all you need to know to explain the price action that will play out over the next few years.
On the way up we had people attributing price strength to all sorts of bizarre and invalid causes: the Olympics, running out of land, etc. On the way down we expect similarly bizarre arguments for price drops; commentators will offer many erroneous theories as to why prices are falling. We’re already beginning to see them, and the crash has barely commenced.
We’ll collect them; please submit new examples you come across. – vreaa

“Built into this situation is the eventual and inevitable fall. … Something, it matters little what – although it will always be much debated – triggers the ultimate reversal.”
– John Kenneth Galbraith, in ‘A Short History of Financial Euphoria’

#1 – Climate Change Caused The Crash
“Prices will continue to fall, as outside buyers from other Provinces such as Ontario, Alberta and Manitoba finally realize that climate change has now become an important issue in British Columbia. What was once an enviable temperature and small secret now has become a drag, as the winter, spring and summer months are now cooler and wetter than before.”
thinkandact, commenting at the Globe and Mail, 2 Aug 2012

#2 – The Conservatives Attacked The Vancouver Housing Market And Caused The Crash
“The reality is that because banks also own investment dealers, their CEOs would prefer to see more Canadian money flowing into the equity markets rather than into real estate. … I wouldn’t be surprised if Prime Minister Stephen Harper, a trained economist, has been influenced by a Zambian-born economist in crafting mortgage-amortization policies that may kill the Vancouver housing market and create significant hardship.”
Charlie Smith, Georgia Straight, 3 Aug 2012

#3 – Vancouver RE Bears Caused The Crash
“The common theme I see in your “anecdotes” is YOU! There is no shift in the “general mood”. YOU are the catalyst bringing down the mood among your friends. I can only hope you don’t have too many friends, or you will singlehandedly bring down the market.”
‘Anonymous’, at VCI 21 Aug 2012, in response to ‘Makaya’ posting two stories of people becoming bearish on the Vancouver market

#4 – An Invisible Force Caused The Crash
“An invisible force has guided Buyers and Sellers of Vancouver homes. An unprecedented number of Sellers have listed their homes for sale while at the same time many Vancouver home buyers have decided that they are ‘not buying now’. This collective behavior is often called a ‘murmuration’. It is fair to say that human behavior is at times shaped by invisible forces which lead us to behave in ways that may not be in our best interest.”
‘Invisible Force Guides Buyers and Sellers of Vancouver Real Estate?’, Larry Yatkowsky, 13 Sep 2012

#5 – Tightening Of Mortgage Rules Caused The Crash
“The real key thing for the [weakening of the] ownership markets was the reduction in the maximum amortization from 30 years to 25 years.”
Cameron Muir, chief economist at the BCREA, ‘Mortgage rules exacerbating B.C. housing sales slump’, Vancouver Sun, 17 Sep 2012

#6 – Toronto Bankers Caused The Crash
“According to several people, it appears that Toronto bankers are far less keen to underwrite projects unless developers can pony up more money up front to justify the risk.
So no matter how much the city tries to encourage the construction of homes for sale to middle-income home buyers, it won’t happen if financiers aren’t prepared to open up their wallets to developers. “The banks are holding their feet to the fire,” Cameron McNeill, president of MAC Marketing Solutions, revealed.”
‘Toronto bankers put the squeeze on Vancouver real-estate developers’, Charlie Smith, Georgia Straight, 11 Oct 2012

#7 – Talk Of Bubbles Caused The Crash
“Little was heard of housing bubbles in Canada up to about a year ago. Now, predictions of crashes are on the front cover of Maclean’s and other publications. One might wonder if we are talking ourselves into a housing miasma, even though the fundamentals don’t point to one.”
‘Is Canada talking itself into a housing crisis?’, Larry MacDonald, Globe and Mail, 22 Jan 2013

“Now they are waiting for spring “when sales will pick up” and they’ve already bought air-line tickets for June, so they “must sell”.

“Yesterday I met a neighbour who is an immigrant from my hometown. I know that their family was going to move back because her husband couldn’t find a job in the financial field and currently works as a tennis instructor. They had tickets for September, but couldn’t sell their townhouse since last spring and so they returned the tickets. They also relisted their home several times during last year, but gave up in November.
Now they are waiting for spring “when sales will pick up” and already bought tickets for June, so they “must sell”. I haven’t said a word. What could I say?”

Aleksey at VCI 21 Jan 2013 11:03am

You could say: “Steadily drop your ask price until you hit a bid.”
That’d help.
– vreaa

Spot The Speculators #97 – “We are moving to Burnaby in March, so we decided to keep our house in North Vancouver and put it up for rent.”


“We are moving to Burnaby on March, so we decided to keep our place and give it [for] rent, it has never been rented before, very well cared and Very nice designed two levels, 3_Bed, 2_Bath, 1 seperate entry Den, located in one of the nice and quite neighborhood.
You have the option to choose(Furnished: $2700 or unfurnished: $2500).”
craigslist ad, 21 Jan 2013 [hat-tip Guy Smiley on VCI]

The ‘speculator’ classification is based largely on the assumption that they have purchased in Burnaby.
– vreaa

Globe And Mail Features Kerrisdale Condo Sold For Same Price As In 2007

“2105 WEST 42 ND AVE., NO. 212, VANCOUVER
PREVIOUS SELLING PRICES $420,000 (2007); $206,738 (1995)”

“This two-bedroom suite was on the market at $524,800 for over a year. But once the price was lowered to $458,800 last fall, agent Keith Roy saw an opportunity to negotiate an even better deal for his homebuying clients, who had already seen 20 other properties in Vancouver and Burnaby.”

– from ‘Kerrisdale condo knocked down $100,000’, Globe and Mail, 21 Jan 2013 [hat-tip VMD at VCI]

Condo Ad Booklet – “The Provincial Government will send you a tax free cheque for $10,000 if you buy a qualifying condo by March 31, 2013 and you are a first-time home buyer.”



– above from a set of images sent by ‘Ordinary Average’, via e-mail, 22 Jan 2013, and who adds:
“Today in my mailbox I found the following booklet. Pages 4-5
state “Borrow the down-payment from your favourite uncle and pay him back when you get the $10,000!”. Condo advertisements have become a weekly occurrence in my mailbox lately, this one blows me away.”

UPDATE [hat-tip bullwhip]:

Doug Bigg and his daughter Krista check out a condo developer’s brochure that makes unauthorized use of the provincial logo.

“A major condo developer has been reprimanded by the B.C. government for the unauthorized use of the provincial logo in a promotional brochure for a new development in Langley.
Quadra Homes agreed Thursday to delete all references of the government’s registered logo from its website and to destroy the remaining promotional brochures for the development, named Yorkson Creek, which carried the B.C. logo on its front and back page.
The issue came to head on Wednesday after The Province contacted the Ministry of Finance asking about the 28-page, glossy brochure, which began arriving on doorsteps in the Langley and Abbotsford areas within the last two weeks.
“British Columbia [the logo is used] is handing out $10,000 in cash … ” read the cover and back of the brochure.
“Borrow the down payment from your uncle and pay him back when you get the $10,000,” read another page.
Another read: “We have the qualifying condos and will fill out the paper work for you.”
The $10,000 refers to the government’s first-time homebuyer’s bonus, which was detailed in the first few pages of the brochure. The rest of the pages are dedicated to the benefits of buying at Yorkson Creek.
“It is not just misleading, it is wrong,” said Doug Bigg, who received the brochure last week. “I interpreted it as taxpayers’ dollars being used to advertise condos for a multi-million dollar corporation. If I thought that, then I’m sure most other people would think that.”
But the government had nothing to do with the brochure, the Ministry of Finance said. And on Thursday, the company was ordered to remove all unauthorized references of the logo.”

– from ‘Major developer reprimanded over unauthorized use of provincial logo to help sell condos’, The Province, 24 Jan 2013

“Our landlord subsidized our housing costs to the tune of $200,000 cumulative over 5 years.”

“I left Vancouver. Lived in the same amazing apartment for 5 years while dear Landlord subsidized our housing costs to the tune of $200,000 cumulative over 5 years. After 5 years of no rent increase, you would think that on leaving they would be ready to raise it !!!!
Wrong – – – –
Rent is down 8.5% on a nominal basis, 20% on inflation adjusted bases and if you are taking out strata/taxes, rent is down even more!!!
I would so love to go back to it – but now at that price point there is serious inventory and competition so the landlord is being aggressive to get the vacancy time as low as possible.
Did we throw money away on rent? No !! We lived it up, had a great place, and saved $200,000 compared to the cost of owning.”

yvr2zrh at VCI January 19th, 2013 at 1:03 am

“I know three ‘middle class’ families that can’t afford gas. They all live in million dollar houses.”

“I know three ‘middle class’ families that can’t afford gas. Two of them have put their cars away and another said quite frankly that they can’t afford gas.
They all live in million dollar houses. One is even trying to sell their 1.8 million dollar house. No job loss, no divorce, no changes – just too much debt.”

Anonymous at whispersfromtheedgeoftherainforest 21 Jan 2013 10:09am

“I was told that it costs the developer an average of $1,000 a month to keep each completed unsold unit in the development. Ouch!”

“A few anecdotes from today’s trip to Surrey:
-prices on brand new townhouses are (and I quote the sales personnel) “not set in stone. Not anymore” Also “there’s room to move there” as well as “the days of pre-sales are gone”. Offers are welcome – low ball offers are expected.
-I was told that it costs the developer an average of $1,000 a month to keep each completed unsold unit in the development. Ouch! So private sellers can supposedly just hold off and take their places off the market “for now” – developers… not so much.
-majority of units that I saw today are now priced ~5% below the original prices that were announced last fall. Plus, like I said “there’s room to move”

vanpire at VCI January 19th, 2013 at 7:22 pm

Universities Agree: No Bubble – “There never was a housing bubble. So it hasn’t burst, because it never existed.”

“There are articles saying we’re going to have the same kind of crash we had in the United States, but that’s not going to happen,” says Jane Londerville, a real estate and housing adviser at the University of Guelph.
James McKellar, academic director of the Real Property Program at York University’s Schulich School of Business, is even more blunt. “First of all, there never was a housing bubble. So it hasn’t burst, because it never existed.”

– from ‘No bubble, no trouble’, David Hodges, MoneySense, 16 Jan 2013

Reminiscent of:
“You can’t burst a bubble that wasn’t there.” – Tsur Somerville, Director of the UBC Centre for Urban Economics, Sauder School of Business, The Province, 14 Sep 2012

For a collection of related quotes from various market participants, see:
‘What Bubble?’

“I was talking to a retired teacher today in Vancouver who owns a leaky condo. She says “You wait till spring arrives prices are going up”.

“I was talking to a retired female teacher today in Vancouver who owns a leaky condo. She says “you wait till spring arrives prices are going up”. She thinks Van will not see any further declines. I asked her where she gets her info from, she said, “experience”. It would seem she doesn’t realize we are in a different world than the one we experienced during the last boom and bust at least as far as I understand.”
AprilNewwest at 20 Jan 2013 6:25pm

Flipping Into The Teeth Of The Storm

4464 W 7th

4464 West 7th Ave, Vancouver West-side (Point Grey)
2,094 sqft SFH; built 1978; 33×112 lot

Listed 22 Jun 2011, Ask Price $1,698,000
Sold 28 Jun 2011, Sale price $1,826,000

Listed 16 Jan 2013, Ask Price $2,190,000

Remember the heady days of 2011, where SFHs sold over-ask?
This flipper appears to have disregarded market signs and is fishing for a big catch.
They have listed at 20% above 2011 sales price, whereas most SFH sales are currently at 5% to 10% or more below 2011-2012 peak prices.
This’ll be one to watch.
– vreaa

Spot The Speculator #96 – “In 2008, when I was 28 years old, I had saved $70,000, enough for a 20% down payment on a triplex in Toronto. I moved into one unit and the rent from the other two units paid for the mortgage and utilities.”

“I’ve always been very focused in my life. I was born a triplet and knew from an early age my parents wouldn’t be able to pay for many extras, or for postsecondary education for all of us. But I was determined to go to university and to buy a home of my own. So in high school I started working as a waitress for 20 hours a week. During the summers I took as many shifts as possible, often working seven days straight. I was a workaholic and should have cut back because my grades were suffering, but I persevered.”

“I earned enough to pay for tuition by living at home with my parents and commuting to York University. It wasn’t easy. I didn’t have a car so I used buses to make the two-hour journey to York and back each day. At one point I considered buying a car but was shocked when my dad showed me how expensive it was. I kept commuting every day for four years. Believe me, it was really depressing. I would get home every night and it was cold and dark, and I was tired. But I knew I was saving for my big goal of owning an investment property, which kept me going.”

“After graduating with an English degree in 2006, I had no student debt and $20,000 in savings from my waitressing job. Then I got a lucky break-I landed a job as an administrative assistant, paying $32,000 a year in downtown Toronto. In 2008, when I was 28 years old, I had saved $70,000, enough for a 20% down payment on a triplex in Little Italy. I moved into one unit and the rent from the other two units paid for the mortgage and utilities. Last year, I got married and my husband moved into the apartment with me. I’ve never doubted the triplex was one of the best financial decisions I’ve ever made.”

“The key for me was tracking my spending in a journal to see exactly where every penny was going so I knew where I could cut back and add to my savings. Most years I saved 70% of my earned income, which I used to pay for university and for the down payment on the triplex. By living at home a little longer than most people I was able to really beef up my down payment. That’s made me truly independent a lot more quickly than many of my friends who are still mired in debt.”

“Now my goal is to pay off the mortgage on the property as quickly as possible. I’ve done some renos over the years and I’m putting $500 a month extra on my mortgage to pay it off faster. The triplex’s value has also gone up. I bought it for $350,000 and it’s worth $450,000 today.”

– Angie Oliveira, 32, Toronto, as featured in ‘How to become a landlord’, Julie Cazzin, MoneySense 16 Jan 2013 [hat-tip proteus, who sent this link by e-mail and added “Saving 20k waitressing is a heroic accomplishment.”]

Angie has an admirably proactive savings habit. Because of this ability, she will quite likely do fine in the long run, but we suspect this will end up occurring despite her RE investment, not because of it.
Yes, she is describing a ‘cash-flow positive’ property (something unavailable in our city in 2008), but we’d like to see more of the math before being sure about that. Also, there is downside risk of increased mortgage rates, downward pressure on rents (TO condo glut), and unexpected expenses.
She bought a few years prior to the peak of a multigenerational bubble in real estate. If property prices drop 33% from the peak, she’ll likely still be able to maintain her ownership, but she will, on paper, have lost her profits and her downpayment. This is something we’d imagine would be particularly painful for her, given the hard work it has taken for her to accumulate her savings gains.
In that regard, it is interesting to note that it took her many years of extreme saving to accumulate $70K, but her RE purchase then rose in value by $100K from 2008 to 2012. In fact, she ‘made’ more on paper in RE than she did in entire income those 4 years, when taxation is taken into account. This is a good example of how RE price rises through the speculative mania have perverted the way in which people consider the relative value of real estate, money, work and saving; and how homes have become financial instruments as much as places of shelter.
– vreaa

“Person two said that the apparent downturn in sales and values in Vancouver is largely illusionary because it is only real estate at the top end of the spectrum that has slowed, which is artificially skewing the statistics in the mid-range.”

“Last night I was listening to the following discussion about the Vancouver housing market. It went basically like this. Person one said that real estate is coming down in Vancouver. Person two said that the apparent downturn in sales and values in Vancouver is largely illusionary because it is only real estate at the top end of the spectrum that has slowed, which is artificially skewing the statistics in the mid-range, and that homes in the midrange and below are still selling well and have not slowed. Is this accurate? Personally, I was going to say that he was not correct but I did not have the exact statistics to back up my claim. Where are the statistics on each market price segment?”
Mark W at on 18 Jan 2013 at 10:25 pm

Not so long ago we heard the reverse argument: that the high end market was special, and resilient to price drops.
Each sector of the market, whether categorized by price range or by geographical area, may take different price trajectories peak to trough. Condos or SFH, Richmond or West Vancouver, Central or Peripheral – price paths will have different shapes.
Regardless, in the end, each sector will have lost very similar large percentages. No subgroup will be spared.
We continue to anticipate 50%-66% drops in real prices peak to trough, across all property types.
– vreaa

Property Price Fluctuation In A Highly Desirable City

nyc csmonitor

Example 1:
Refuses offer of $80M in 2008; Accepts offer of $37M in 2009

“After shlomo Ben-Haim, an Israeli scientist-entrepreneur, made millions selling a medical-device company he’d founded with his brother, a London-based lawyer, he agreed to invest $28.9 million of the proceeds in a nine-room, four-bedroom penthouse on the 40th floor of 15 Central Park West, the Robert A.M. Stern–designed luxury condominium in Manhattan—when it was still just a hole in the ground in 2005. But months after closing, in spring 2008, Ben-Haim put it back on the market—priced at a whopping $80 million.
With its private elevator landing, 14-foot ceilings, and sweeping Hudson River and Central Park views, the apartment quickly attracted a buyer, but the threat of a huge tax bite for selling less than a year after buying convinced Ben-Haim to spurn the offer. When Lehman Brothers filed for bankruptcy that fall, Ben-Haim took his penthouse off the market. Finally, in February 2009, it was offered again at the recession-reduced price of $47.5 million, and was soon sold for $37 million to a limited liability company named after the Russian city Novgorod.”

Example 2:
10% nominal loss over 40 years

“Steinberg’s presence at 740 was first noted in The New York Times in 1981, 12 years after he bought his 37-room duplex there for $225,000 —$25,000 less than it cost new in 1929— and then went unmentioned until 1994, the same year Kravis made noise, too, for moving to a new ballroom-equipped apartment at 625 Park, purchased for $15 million. His tenure at 740 had gone unreported until he moved out.”

– from ‘Where the Money Lives: New York Real Estate Today’, Michael Gross, Newsweek, 14 Jan 2013

Even in highly desirable cities, RE prices can fall.
And, coming off an historic bubble, prices can take decades to recover.
– vreaa

G&M Likens Housing To Income Trusts – “The blowback if housing falls hard will be worse because homes are widely believed to be a special kind of asset that benefits the entire population.”

“If the slowdown in the housing market worsens, Mr. Flaherty will be blamed as he was after effectively killing income trusts in a surprise announcement made on Halloween night in 2006. The Minister, and his government, will be accused of being bad economic managers if the housing sector falters. But what people will really be saying is: “How dare you, Mr. Flaherty?”
People are funny about financial assets that soar in value, be they income trusts or houses. They see them as being special in some way, a phenomenon of nature that should be left untouched so as to allow folks to make some serious money.
But assets that soar in value are the ones we need to worry about most. Everything in finance is cyclical, which means there are ups and downs. The more an asset rises in price, the more vulnerable it is to a nasty pullback that causes damage both to individuals and the economy.
Mr. Flaherty moved to cool the overheated housing market last summer by capping the maximum amortization period at 25 years for people with down payments of less than 20 per cent. The impact of this move so far has been negative, but not alarmingly so. House sales were off 17.4 per cent in December on a year-over-year basis, but prices were up 1.6 per cent, on average.

Mr. Flaherty snuffed out trusts by announcing the government would start taxing them in 2011. In response, most trusts converted into dividend-paying corporations that pay far less cash than they used to. The complaining from investors about the demise of trusts was long and loud, although it never seemed to hurt the Conservatives in an election.
The blowback if housing falls hard will be worse because homes are widely believed to be a special kind of asset that benefits the entire population. It’s an easy impression to come away with after watching the rules shift over the years for home-buying down payments.
Decades ago, buyers had to put down a minimum 10 per cent and amortize over 25 years at most. The minimum down payment briefly fell to zero a few years ago and now it’s 5 per cent. Amortization periods expanded to as much as 40 years for a time, before being reeled back.

Housing’s stature has been further inflated by its cultural and economic importance. Multiple TV channels celebrate housing, and a fair chunk of the retail industry is directly home related (think of HomeSense, Home Depot, Home Outfitters, Home Hardware, Sears Home and the like). Also, housing-related spending accounts for close to 20 per cent of economic output. What’s good for housing is thought to be good for all of us.
Mostly, though, housing is thought to be special because of its value as an investment over the past couple of decades. As mentioned in a recent column (online at, housing prices nationally have risen about 5.6 per cent annually since 1980.
After five years of up and down stock markets, Canadians have become very possessive about their gains in housing. If housing prices plunge, they’ll be looking for someone to blame. That would be Mr. Flaherty, even if he was just doing his job.”

– from ‘First income trusts, now housing? Careful, Mr. Flaherty’, Rob Carrick, The Globe and Mail, 16 Jan 2013.

We like the way that this article emphasizes the ‘special’ place that housing has achieved through the 10 year national housing bubble. Nowhere more special than in our own Vancouver, of course.
A few thoughts:
1. Flaherty’s mortgage rule changes in 2012 were simply a slight tightening of restrictions that he himself had allowed to become far too loose in prior years.
2. When Flaherty announced the income trust rule changes in 2006, he exempted one class of income trust – those in real estate!
3. In trying to quantify the difference between the effects of changing the tax laws of income trusts, and tightening mortgage rules, it would be good to know how many Canadian’s had how much of their net-worth in income trusts in 2006. (Can any readers direct us to such data?) My hunch is that, even though that move was significant (and caused a massive brouhaha), it doesn’t come anywhere close to the magnitude of significance of mortgage tightening. Over 70% of Canadians own their homes; a large percentage have the majority of their net-worth in their homes; a significant percentage have their net-worth highly leveraged to the market value of their homes. In addition there are innumerable knock-on economic effects of a falling housing market.
The unwinding of the RE spec mania will completely eclipse memories of the 2006 income trust tax changes.
– vreaa

Now THAT Is A Laneway House








– found at, by proteus (the poster with many names).

Somewhere in Europe, it seems.
Inexpensive, but sound workmanship. ($280K? We think not.)
Pleasant interior.
Non-leaking tiled roof.
– vreaa

“I have homes in Canada and the US. I have a paper loss in Florida but still have a home.”

“I have homes in Canada and the US. Here in Florida there was a massive “correction” which led to total bankruptcy of a lot of people, huge losses by banks and a huge mess. I am not too sympathetic with people who borrow over their heads but Canada is far better off as it is than here. Fortunately both my houses were bought with cash I actually worked for and saved so I have a paper loss in Florida but still have a home. Others are not so lucky.”
– Skitty commenting at G&M, January 12, 2013 10:45 AM

This individual is not leveraged, and it seems they will be able to sit tight through any price fluctuation, if they wish.
But we know there are Canadians who have used HELOCs against their Canadian properties to buy US RE, and we wonder how many will be pushed to the brink by the very large price drops we anticipate in Canadian RE.
– vreaa

Curmudgeonly Contrarians Win Again (In The End)

“The thing that intrigues me most about his career is how, like Stephen Roche and so many of the great names who have conquered the Tour before him, the American has never encountered doping in the sport. In an extensive interview with L’Equipe on Monday he was asked if cycling still had a drugs problem? “I have no idea,” he replied. “There is none in my team. And none in any of the teams I have raced with. The Festina affair was a huge surprise to me.”
And you never spoke about it in the peleton?
“Now that you mention it, no.”
Incensed by the innuendo, Armstrong insists that his life is an open book. He says he is clean and has no secrets and asks us to treat his achievements with the respect they deserve. Should we? Sorry, but for some time now I’ve had a problem with fairytales in sport. For the moment I’m reserving my right to applaud.”
– Paul Kimmage, in an article ‘Reserving the right to applaud’, Irish Independent, 26 July 1999  (yes, nineteen ninety nine).

This contrarian was ‘wrong’ for at least 13 years.
Now he’s right, and the underlying facts of the matter seem so self apparent to all observers.
Of course Armstrong doped, how else could he have won 7 Tours in a row?
RE bubbles are like ‘fairytales’, too.
Of course this was a speculative mania, how else could Vancouver RE prices have risen to the point that the average home was ‘worth’ 11.5 times average annual income?
Vancouver RE contrarians have thus far been ‘wrong’ for up to 10 years, but the jury is making noises that it is returning with a verdict.
– vreaa

“One agent is telling him to drop his price drastically to beat reduced prices in the Spring. The other agent is telling him that he has to keep his price above $1 mil to attract foreign buyers.”

“Just talked to a friend trying to decide which agent to use to sell his house in central Vancouver. One agent is telling him to drop his price drastically to beat reduced prices in the Spring. The other agent is telling him that he has to keep his price above $1 mil to attract foreign buyers. Still too many agents with the former pitch and too many people who want to believe it.”
pathcontrolmonk at 17 Jan 2013 at 10:11 pm

“By the time they listed, buyers were no longer competing for the privilege of overpaying. She accepted the fact that her condo just wasn’t worth what she had hoped.”

“Last summer, having surveyed their local real estate market, and finding themselves spooked by deteriorating prices, Rheanna Mushet and her husband, Justin, decided to sell their Burnaby condo. “We wanted to cash out,” Mushet says, adding that they may end up living in her parents’ basement for a while as they wait out the downturn in the Vancouver market. “We’re going to make sure we get the most for our money. There’s no hurry.” She only regrets not acting sooner. By the time they listed, buyers were no longer competing for the privilege of overpaying. For six months, the Mushets waited for an offer and showed their condo to prospective buyers who seemed to be almost looking for a reason to pass. “They were very choosy,” she says. “‘It’s not on the right floor. The ceiling’s not high enough. There’s a stain on your carpet.’ Just the silliest things that before wouldn’t even be a consideration.” They finally agreed to sell for $22,000 below their original asking price to the first person to make an offer. She accepted the fact that her condo just wasn’t worth what she had hoped. Many other sellers are soon going to have to come to the same realization.”
– from ‘How low will house prices go? Prices are headed down for the long term.’, Tim Shufelt, Canadian Business, 17 Jan 2013 [hat-tip Cyril Tourneur, Anon and CanAmerican]

BC Architectural Firm Job Interviewer Likens Helicopter Parenting To Housing Bubble

“Walking into a job interview with a Canadian architectural firm, a young candidate brings something unexpected: mom.
An employee with the British Columbia company says it was the first time she had seen a parent shadow the hiring process, describing what ensued as “a bit of an awkward situation.” But she adds that there have been at least five or six recent occasions in which a mother or father sat with their grown child in the waiting room before an interview.
According to experts, this could soon become commonplace.

At the B.C. architectural firm where a parent sat in on a candidate’s interview, a staff member – and a mother herself – says she would have been “mortified” had she been in the young person’s shoes.
“I wonder what would happen if we all stopped pushing our kids to succeed and just let natural selection run its course? Sort of like the housing bubble: let the whole thing burst instead of running around to tutors, afterschool programs, language lessons, and lining up to register for sports programs,” said Helen, who asked that her last name not be used.
“Of course, that’s never going to happen.”

– from ‘Helicopter parents increasingly follow kids to college, the workplace and beyond’, Misty Harris, Postmedia News, 16 Jan 2013 [hat-tip harden]

Filed under RE References In Popular Culture‘.
We seem to be seeing an increase in such mentions.
– vreaa

Bearish Quotes In ‘Canadian Business’; Economists Chase Falling Markets With Lower And Lower Price Predictions

“Buyers are sensing that prices are going to come down, so why buy now?” – Thomas Neal, a Royal LePage agent in Toronto

“A potentially severe housing correction is underway” – David Madani, an economist at Capital Economics

“We’ve got a number of sellers who say, ‘If we’re not going to sell for a particular value, we’re not going to sell at all. A lot of people are still pricing their properties based on yesterday’s market.” – Victoria real estate agent Tony Joe

“[Mortgage changes are] taking a lot of demand out of the market. You’re putting the housing market at risk, and the broader economy. The market is weak enough it could result in prices falling in many places across the country.” – Will Dunning, chief economist for the Canadian Association of Accredited Mortgage Professionals

“Developers are saying it’s a very small percentage of end users that are purchasing in the market.” – Ben Myers, executive vice-president at condo research firm Urbanation.

Even most bank economists believe Canadian housing is overpriced somewhere in the range of 10% to 20%, perhaps more so for the hottest condo markets.
“That’s manageable as long as interest rates and unemployment remain low. Absent an external economic shock that would ultimately put Canadians out of work, there is no reason to expect markets to correct hard and fast. What would force people to feel that they have to sell at much deeper prices, given that the interest rate environment is likely to remain quite benign at least through next year? Without a trigger, there should be no national housing crash.” – Doug Porter, BMO economist

– from ‘How low will house prices go? Prices are headed down for the long term.’, Tim Shufelt, Canadian Business, 17 Jan 2013 [hat-tip Cyril Tourneur, Anon and CanAmerican]

Note that now ‘economists’ are quoted as being in agreement that “Canadian housing is overpriced somewhere in the range of 10% to 20%”. Not that long ago they agreed that range was 5% to 10%. They are simply chasing the prices down. These estimates have no predictive capacity whatsoever, they are commentary of past events. [Madani is an exception. He has consistently called for 25%-off at the national level.]
– vreaa

House Price And Family Income Growth

House Price and Family Income Growth, 2000 -2010
– chart care of Kevin at saskatoonhousingbubble, 15 Jan 2013. [Thank you Kevin.]

A nation-wide bubble in home prices, driven by cheap financing and local speculators.
– vreaa

“I personally know of a friend who was offered the moon from the bank to buy a home in October. This month the same bank is reconsidering the mortgage. Nothing has changed for my friend’s finances.”

“Sadly, I’ve been hearing lots of stories of financing falling through. Banks have done a 360 degree turnaround. They are still lending, but on their terms. Not so attractive terms. I personally know of a friend who was offered the moon from the bank to buy a home in October. This month the same bank is reconsidering the mortgage. Nothing has changed for my friend’s finances.”
enlightened at VREAA 16 Dec 2013 3:36am

‘Old Curmudgeon’ Has Audacity To “Force People To Confront The Consequences Of Their Own Debt”

“I own my house. I have no debt. Why? Not because I was lucky or rich. But because I never borrowed for consumables. My house is not an investment. Whether it is worth $100,000 or $1,000,000 is irrelevant. It’s where I live. It’s a roof over my head. I had to get a mortgage for the house, but worked on paying it off with spare cash. I didn’t have to have a car. Nor yearly vacations in exotic locales. I didn’t eat out a lot. I didn’t need a lot of clothes. And I don’t give a sh*t about impressing the neighbours.
For the most part, all the debt problems people have stem from their own greed, consumerism and lack of self-control. Don’t blame the market. Don’t blame the banks. Blame yourselves. But in our society, it is impolite to force people to confront the consequences of their own actions.”

– Old Curmudgeon, commenting at ‘Why lower home prices are a national priority’, Globe and Mail, 11 Jan 2013 9:26PM

‘Old Curmudgeon’ is in this situation in part because of his sensible ways with money, but also because he was very likely fortunate enough to buy at a time when house prices were more reflective of underlying fundamental value. And that is how it should be, after all. Homes as places to live, rather than as financial instruments.
His indignation with debt-spending is well placed.
– vreaa

From the article on which ‘Old Curmudgeon’ is commenting:

If Canada wants to slay its household-debt dragon, it will have to cut down house prices at the knees. But there’s an economic price to pay for that – and it goes well beyond a cooling of the residential real estate sector. …
“…house prices appear to drive non-mortgage debt, too – the more valuable your house, the more debt you’re likely to take on outside of your mortgage. And, since close to half of all non-mortgage debt is used to finance consumer purchases, higher house prices ultimately boost our national consumption, too.” …
“… the 52-per-cent rise in national house prices from 1999 to 2007 was responsible for a 19-per-cent increase in homeowners’ non-mortgage debt.”… “Multiply that by approximately 13 million households, and that’s nearly $10-billion more in annual consumption – or roughly a 2-per-cent juicing of non-housing consumer spending.” …
“A substantial downturn in prices – say, 10 to 20 per cent – would, in theory, not only reduce mortgage debts for new home buyers, but, significantly, push down non-mortgage debt to the tune of 4 to 8 per cent.” …
“A downturn in consumer borrowing is going to put a serious lid on consumer spending growth – which up until now has been a critical driver in Canada’s economic outperformance since the 2008-2009 global recession.
In the long term, this is the price to pay to get Canadians back living within their means, and the economy on more solid footing. But in the nearer term, the medicine could well feel worse than the disease.

– from ‘Why lower home prices are a national priority’, David Parkinson, The Globe and Mail, 11 Jan 2013

Trading A Hockey Goalie Likened To Trading Vancouver RE [also, RE Market Commentary] – “You may think the Luongo market was something like the booming RE scene a few years ago. But everyone knows what happened in Vancouver RE. One day, the money turned off like a tap.”

Curb Appeal

“Vancouver GM Mike Gillis made trading Roberto Luongo sound like a breeze.
If you listen to Gillis, you may think the Luongo market was something like the booming real estate scene in Vancouver a few years ago. Don’t like an offer? Wait an hour, a day or a week. A better one always seems around the corner.
But, let’s be real, that’s exactly what the Canucks need everyone to think, whether it’s reality or not.
“There’s been a lot more interest than people wanted to recognize,” Gillis said.
But what if you wait too long? Everyone knows what happened in Vancouver real estate. One day, the money turned off like a tap. What if teams interested in Luongo make alternate plans, unwilling to meet those Canucks’ demands?
“I’m not concerned about that at all,” Gillis said in his opening press conference, kicking off training camp. “Not one bit. I think there’re going to be multiple opportunities to do something with Roberto, if we choose to do it.”

– from ‘Gillis insists there’s no hurry to trade Luongo; GM says club will wait for ‘specific kinds of players’, Jason Botchford, The Province, 13 Jan 2013 [hat-tip to JL, for the link via e-mail, and who writes: “I wasn’t sure whether I was reading the sports section or the business section. Oddly enough the sports section of the Province seems to know more about the state of the Real Estate market than the business section.”]

Not only an extended RE metaphor (anybody still want to argue that RE hasn’t completely saturated the city’s psyche?) but also a comment on the RE market: “Everyone knows what happened in Vancouver real estate. One day, the money turned off like a tap.”
If this really is what “everybody knows”, the sentiment shift may occur quicker than we’ve anticipated, in which case expect an even chiller spring than bears have been forecasting.
– vreaa

Related posts:

Canucks Hockey Player Expresses RE Market Hope – “We finally bought in the Vancouver market and hope it keeps going up”
VREAA 9 Sep 2011

VREAA 5 Jun 2011

And regarding using Luongo-trading techniques to sell Vancouver RE:

The Myth Of The Cool-Headed Discretionary Seller
VREAA 19 Dec 2012

Author Of ‘Real Estate Investing for Canadians for Dummies’ “jumped into the market 3 years ago with a 2 BR apartment in Mount Pleasant”; Reports Ownership Cheaper Than Renting; Leaves Out Math

“This columnist jumped into the property market three years ago with a two-bedroom apartment in Mount Pleasant. The mortgage payments at the time were on a par with where rent was heading, so the move made sense. Despite increases in strata fees and property taxes since, the move continues to make sense – perhaps more sense than ever.
Tallying mortgage interest, property taxes, strata fees and assessments, as well as home insurance paid in each of the past four years versus rent and home insurance paid in 2008 (the last full year in which rent was paid) shows that home ownership has steadily cut household expenses. Preliminary figures for 2012 indicate savings on housing costs of more than 20% versus 2008.
Poor affordability tends to give first-time buyers in Vancouver fewer options than those in other cities, but the pay-off – for those who can manage it – is significant.
So long as mortgage costs remain in check, the payoff seems set to continue, but low interest rates and increases in rental costs have so far put accounts in this buyer’s favour.
(The exit strategy and ultimate return on investment is a significant risk factor, of course, but we’ll leave that matter for another column.)”

– from ‘Rental market tight despite rise in Vancouver vacancies; apartment sales projected to hit record-breaking pace’, Peter Mitham, Business In Vancouver, 8 Jan 2013 (“Peter Mitham has written about British Columbia real estate since 1998 for Business in Vancouver and many regional, national and international publications. He is co-author of “Real Estate Investing for Canadians for Dummies”)
[hat-tip Sarbaz]

Priceless stuff. And that’s a major problem — no ‘price’ – no numbers, no math.
We’d love to see the details. The claim seems to be a stretch.
Just for a start, is this a comparable 2BR to the prior rental?

Also, interesting to note that an author of a RE investment text:
1. “jumped into” the property market, and
2. talks of the ‘return on investment’ – for his home!
– vreaa

Ikea’s Imaginary Home Office Belonging To An Imaginary Realtor




– The above images from Lex Limo, via e-mail, to VREAA, 13 Jan 2012.
Lex also writes: “I’m not sure if this counts as popular culture, but I got a kick out of the way this one particular workspace was decorated at IKEA. It seems this imaginary home office belongs to an imaginary realtor, a pretty successful one in 2011 it would seem. I’d be curious to know if this is a standard staging across all IKEAs or if this was a choice made at the local level. Also, do realtors really put up pictures of their sold signs in their RIBBA picture frames on their HEMNES desk shelves?”

Ask yourself: Would an Ikea in Spain be doing this now?
(We think not.)
Another sign of our speculative mania, in this case a ‘latter-day’ sign. Also evidence that general sentiment has yet to turn in a significant way; the guys at Ikea still see the idea of selling real estate as attractive enough to use as subliminal bait. This will change as prices descend.
Thanks to Lex for capturing and sharing the images.  Archived under the ‘References To RE In Popular Culture’ category.
– vreaa

‘The Economist’ “Home Truth” – “Overvaluation is especially marked in Canada.”

“Overvaluation is especially marked in Canada, particularly with respect to rents (78%) but also in relation to income (34%). Mark Carney, the country’s central-bank governor, who is soon to jump ship to join the Bank of England, where he takes over from Sir Mervyn King in July, may have shown good market timing with his move to London as well as a deft hand in negotiating his lavish remuneration. …
At some point, central banks will have to take away the balm of easy money. If housing markets remain so fragile when they are getting so much help, they may break when it is removed.”

– from ‘Home truths’, The Economist, 12 Jan 2013

And Vancouver rent and income ratios are far more extreme than the national averages.
– vreaa

‘The Economist’ has steadily been warning of a Canadian RE bubble for some time:
‘The Economist’ – Rental Income Shows Canadian Home Prices Are 71% Overvalued, 25 Nov 2011

Spot The Speculators #95 – “Each had a house with a mortgage. Then they bought a new residence and used a line of credit to add a rental apartment to the new house. Their $1.5-million of debt is 12 times their gross employment income.”

“A couple we’ll call Tiff (49) and Sandy (45) turned their long-time friendship into a union when they bought a house in British Columbia and combined their fortunes in 2008. The relationship came with a lot of baggage, however. Each had a house with a mortgage. Then they bought a new residence and used a line of credit to add a rental apartment to the new house. Their $1.5-million of debt is 12 times their gross employment income.
Revenue from the income properties barely covers their total costs — mortgage and line-of-credit interest, taxes, utilities, insurance and maintenance. Add in falling prices in the sliding B.C. housing market and the couple is subsidizing losing investments.
They save only $100 a month for RRSPs and $25 a month in an RESP for a Sandy’s nine-year old child from a former marriage. At mid-life, the couple, each of whom works for a large publishing company, has just $31,000 of RRSPs and almost no cash.”

They started with 25% conventional down payments, but now find themselves with about 10% equity in the rental units as a result of falling property prices and debt-financed buyouts of former partners. Their return after paying all interest costs, utilities, insurance and taxes is negligible. Unless they can raise rents drastically or realize future capital gains, the investments are flops.

A financial crisis triggered, perhaps, by unemployment, illness or accident would require them to add debt, for they have just $2,000 in cash. If interest rates rise by 1% or 2%, they would be forced to refinance, but they already have 30-year amortizations. To pay more interest, they would have to face deregistration of some or all of their $31,000 of RRSPs, heavy taxes on payouts or, in the worst case, bankruptcy.

Family Finance asked Adrian Mastracci, a portfolio manager and financial planner at KCM Wealth Management Inc. in Vancouver, to work with the couple. He is candid in describing the issues.
“The couple’s problems are far too much debt, especially for properties that are poor investments, and an excessive concentration in real estate, for each unit is within just blocks of the others,” he says.

Real estate has produced substantial gains for homeowners in parts of B.C., but the boom is waning. When interest rates rise, prices could fall further, for most people buy what they can afford and, with higher borrowing costs, they will afford less.

– from ‘Bad real estate investments leave couple with $1.5-million in debt’, Andrew Allentuck, Financial Post, 11 Jan 2013 [hat-tip JoeQ]

Summary of finances for this couple:
Assets $2M [$1.862M in RE at current market prices; $137K other]
Debt $1.542M [3 mortgages, 1 LOC, CCs, Car loan]
Net worth $456K [Assets minus Debt]
Ratio of RE holdings to Net worth: 4.1 to 1
Put another way, more than 400% of their net worth is in RE.
(I find this figure as shocking as the debt to income ratio of 12)
If/when the market price of their RE holdings drop 25% they would be wiped out.

What, me, a speculator?
Just innocent locals doing what innocent locals do, right? Building wealth with RE.
How many more out there are in similar situations?
– vreaa

Buy The Dip! – “Our families have been pressuring us to buy a place as the prices are coming down.”

“We got married 1.5 years ago. My husband doesn’t believe in buying a place, so currently, we are renting in downtown Vancouver. We have combined saving of $150,000 plus some assets in gold. We have a combined household income of $115,000. Initially, our goal was to save one of our salaries but realistically it hasn’t happened yet. We plan to start a family soon and will need a bigger place. Our families have been pressuring us to buy a place as the prices are coming down. Since both of us work in downtown Vancouver, we don’t want to move to suburbs like Surrey where houses are cheaper but has longer commute. Do you think prices in North Vancouver will come down in the near future?”
Jasmine, as relayed by Garth Turner,, 8 Jan 2013

There will be a subgroup of buyers who jump in at 10%-15% off, thinking we’ll have a re-run of the 2009 ‘dip and bounce’. They will be as severely punished for their purchase as any other buyers in the last 5 years.
Notice, too, that these advisors/buyers are very early ‘premature-bottom callers’.
– vreaa

“The Richmond home had been for sale for about six months, and rather than lower the price any further, the couple decided to take the home off the market. They are in their late 60s and want to downsize to a condo.”

“Realtor Larry Biggar said one of his clients did just that in November. The Richmond home had been for sale for about six months, and rather than lower the price any further, the couple decided to take the home off the market. They are in their late 60s and want to downsize to a condo, Biggar said. He said everyone who went through the home liked it, but that they all seemed to be waiting to see what would happen with prices.
“We watched the market slow down, and slow down, and slow down. … It just got quieter and quieter,” said Biggar, who works with ReMax Westcoast.
“Finally they said enough is enough. We really don’t have to sell. We can stall our plans if need be, although that’s not our first choice.”
Biggar said the couple will be putting their home back on the market soon, and although they have not discussed the asking price, it will probably be the same price it was when they took if off the market.”

– Richmond News 9 Jan 2013, as quoted by Real Estate Tsunami on VREAA

See The Myth Of The Discretionary Seller for discussion of the syndrome of ‘Sellerpause’©. – vreaa

Everything Is (Still) Going To Be Alright ?

2013 everything is going to be alright
– image posted on reddit, 2013 [hat-tip proteus]

This art work, by Martin Creed, on the outside of Bob Rennie’s gastown gallery was first featured at VREAA way back in November 2009. Take a look at that post for background discussion.
We like this piece, particularly the way its meaning will change through all phases of the massive economic cycle that RE has brought this city.
An interesting issue to consider will be whether, at some point in the descent, Bob Rennie decides to take it down. While the market is ripping and everybody’s ‘rich’, it’s a battle-cry, a cheerleader slogan; it’s very easy to ‘own’ it then. But through the coming years when prices are dropping, and people are hurting (and complaining), at the very point where many will need reassurance, will Mr Rennie be able to bear the complexities of keeping this work on display?

– vreaa

College Student Living With Parents In $7M “Piece Of Junk House” – “I have had to sit through countless dinners where my parents friends bragged about foreign investors leaving notes in their mailboxes making cash offers on their houses and how they could “cash out” at any time. But they didn’t.”

“I am a college student living at home in a house assessed at 7 million dollars. With that price tag you would expect a mansion right? Nope. The house is 90 years old, doesn’t have insulation or a proper heating system. My parents bought the house in 1985 for 450,000. Adjusting for inflation that is 860,000 in 2012 dollars. That is the most I would pay TODAY for this piece of junk house. However we do live in a quiet area in the UBC area and the property itself is quite large with a premium view, but even those factors do not begin to justify the difference between the assessed value and the inflation adjusted price my parents paid 28 years ago.
Luckily my parents were smart with their finances and a large correction in the market will not affect them. My parents have avoided using any paper gains in the property even when their coworkers and friends kept pestering them to take out loans against the house to buy condos and rental properties. These same coworkers and friends have been driving around in fancy leased cars and enjoying nice vacations every year while my parents worked hard to pay off the mortgage. I have had to sit through countless dinners where my parents friends bragged about foreign investors leaving notes in their mailboxes making cash offers on their houses and how they could “cash out” at any time. But they didn’t. Now that they do want to sell they are finding the market has cooled and no on wants to pay peak prices for their homes. Very few people are prepared to spend 15 million dollars on a home in a cooling market.”

Robert Borden at VREAA 8 Jan 2012 3:43pm

“People are listing properties for CRAZY prices hoping uninformed renters will pay their crazy mortgage.”


“$2000 / 3br – 2000ft² – Renters Don’t Pay These Prices (North Shore)
Renters don’t pay these crazy prices. There is more rental inventory coming on every day, and there will be even more at lower prices next month. People are listing properties for CRAZY prices hoping uninformed renters will pay their crazy mortgage.
All Craiglist prices are very negotiable and in the North Shore about $1 per square foot is fair. Unless the place is amazing (which every landlord thinks their property is) don’t pay much above this rate!!!”

– from craiglist, 5 Jan 2012 [hat-tip edinacloud]

Royal Bank, CIBC, BMO, CTV, REBGV, Michael Levy, Royal LePage, Global TV – “Housing Crash Fears Unwarranted”; “There is no property bubble. Period.”

vanc re keep calm

In contrast to the recent MacLean’s ‘2013 Crash’ article, we now have a surging surfeit of reassuring commentary from other sources:

“Canada’s real estate market remains “relatively solid” and should experience a “soft landing” despite the current slowdown and fears of overbuilding in the condominium segment, the country’s leading bankers said Tuesday. …
“Our expectation is that the overall real estate market in Canada is still relatively solid,” Royal Bank CEO Gord Nixon said. …
“Pure math says that a soft landing, if it means you go back historic levels of activity, that we’re going to have some softness in our economy,” Gerry McCaughey of CIBC said.
“… That softness doesn’t necessarily come out in mortgage defaults, it comes out in employment softness and consequential unsecured consumer lending softness.” …
“In fact, house prices may just stagnate. Condominium prices may just stagnate for a couple of years. And that’s the definition of a soft landing,” Bank of Montreal CEO Bill Downe said.”

– from ‘Bankers expect soft landing for Canadian housing market despite slowdown’, Canadian Press care of CTV News, 8 Jan 2013 [hat-tip Dr. Bubble]

“I just watched ctv vancouver news. they did a 5 minute piece on real estate here. they interviewed two realtors and one guy from real estate board. they all said prices of sfh in vancouver were down 1 % for 2012 and say prices won’t fall more than 3% in 2013 as sellers don’t need to sell so they will just pull properties and wait…so buyers who are expecting big drops will not ever see that. the real estate board guy said there is nothing in the cards that is showing sellers will have to sell so prices will stay high. then the host of the news said, well, there you have it… no bubble popping here and went onto next story.”
– vancouverbubbleman at VREAA 8 Jan 2013 5:49pm

Michael Levy, financial analyst: “There is no property bubble. Period. We’ve had prices come up because of demand, both domestic and from off-shore, and demand swelled, and particularly here in Vancouver, a most desirable place to own property, you want to live here or invest here.” …
Announcer: “Prices seem to be holding, as the tug-of-war between buyers and sellers continues.”

– from ‘Experts Say No Real Estate Bubble In Vancouver’, Global TV News, 8 Jan 2013 [video archived by Greenhorn; hat-tip YVRhousinganalyst]
[“There is no property bubble. Period.” – this latter-day pronouncement added to “What Bubble?” sidebar]

“Royal LePage forecasts that the price of an average Canadian home will rise by a modest 1% in 2013.
Canadian home prices will see a “very modest” appreciation over the next two years, as economies in both the U.S. and Canada gradually improve and family incomes climb slowly, the brokerage said.
“More home buyers moved to the sidelines as 2012 progressed, as economic uncertainty abroad and reduced affordability became a drag on the market, however house prices proved resilient,” said Phil Soper, president and chief executive of Royal LePage.

– from ‘Housing-Crash Fears for 2013 Unwarranted, Forecasters Say’, WSJ, 8 Jan 2013

Update – West-side Houses Selling At 2008 Prices

4549 W 12th Ave, Vancouver West-side
2,569 sqft SFH on a 33×122 lot; built 1933

This particular house previously featured on these pages:
‘Half The Width, Twice The Price’ 25 Apr 2012
‘Next Stop, 2008 Prices’ 19 Nov 2012

Price history:

March 1997: Sold $457,500

[renos in 1998]

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

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

21 Dec 2012: Sold $1,550,000

Increase of $120K (8.4%) over 4.5 years (since July 2008), for a compound annual rate of 1.8%, pretty much the rate of inflation, so this property did indeed end up selling for the same real price as in the summer of 2008. Of course, with transaction costs factored in, this represents a loss for the recent seller.
According to examples such as this one, west-side SFHs are back to 2008 prices, as much as 25% off 2011-2012 peak, and there does not appear to be any good reasons to suggest that they’re not going to continue to fall. At $1.55M, this property has still sold far above it’s fundamental value.
This is what speculative manias look like when they begin to unwind.
– vreaa

Vancouver Xmas Wishes In Song – “And all they want for Christmas, Is affordable housing.”

mangan xmas

“The mountains and the beaches,
How they make children sing,
And all they want for Christmas
Is affordable housing.”

– from ‘Very Vancouver Christmas’ finale by Dan Mangan and Jon Siddall, CBC, 18 Dec 2012 [above verse starts at 1:08 in the video]
[hat-tip Jeff Murdock; many thanks]

Added to the ‘RE References In Popular Culture‘ sidebar category.

Linguistic Contortions From The Vancouver RE Bubble – “Unsexy” Markets and Other Dissemblage


“Perhaps there’s an additional category you could consider for anecdotes — something like “Spokesperson Spin”, or “Bubble Euphemisms”. The linguistic contortions we’ve been subject to over the months and years have been quite something. And after all, language is the primary tool that the RE industry, the banks, etc, have been using to promote their version of things. “Unsexy” and Doug Porter’s “bumpier” are obvious euphemisms. Referring to Yaletown as a “borough” is obvious spin. Regarding your question of how a ‘Discretionary Seller’ might or should feel about these types of pronouncements in the MSM, I’d say the greater the linguistic dissembling, the greater the urgency to believe the exact opposite and act accordingly.”
Froogle Scott at VREAA 21 Dec 2012 9:02am

bubbly at VREAA 21 Dec 2012 9:25am

– [I seriously thought I’d thought of this, but it gets 6 hits on Google. 7 now. -ed., 3 Mar 2013]

Great idea, Froogle Scott.
Let’s collect examples here, we’ll reference this post by sidebar graphic, and by the new category ’29. Bubblespeak’.
Please submit examples by commenting below or via e-mail.
Anybody finding examples in prior anecdote posts, please bring to our attention.
Some words and phrases we may have to debate. Does ‘Vanhattan’ count?
Let’s begin:

“Anecdotal” – [dismissive label for any specific story that suggests market weakness]

“Balanced Market” – [euphemism for weak market; falling sales, falling prices]
related: “Balanced territory”, “balancing effect”

“Balloon” – [euphemism for speculative mania; idea that market can deflate in a controlled fashion; see also ‘soft landing’]
“In our view, the national housing market is more like a balloon than a bubble. While bubbles always burst, a balloon often deflates slowly in the absence of a pin.” – Sherry Cooper, BMO economist, 31 Jan 2012

“Basement Dweller” – [derogatory term for one too sensible to buy into a speculative bubble]

“Best Place On Earth” – [extreme version of “it’s different here”]
related: “World Class”; “Everybody wants to live here”

“Bidding Wars” – [buyers fighting to the death; winner loses]

“Breaking Through In Thought Leadership” – [over-reaching optimism, with a twist of Orwell]
“This is a game-changer for Vancouver. We’re known as a world-class tourism destination but this shows we’re breaking through in thought leadership. I’d like to explore how we can best leverage the opportunity to vault Vancouver into the spotlight and endear us to the leading thinkers who come here.” – Mayor Gregor Robertson, commenting on Vancouver buying the TED conference, March 2013

“Bridges” as in “It’s all about the bridges!” – [method of suggesting RE supply limitations]
see also: “Running out of land”

“Bubble Fatigue” – The process whereby a person who has concerns about the market being overheated gets tired of those concerns, and is thus freed up to buy. Coined by economist Benjamin Tal, March 2013

“Bubble Hyperbole” – [term used to refer to any bearish argument, and thus off-handishly disregard it, without addressing any of the fundamental bearish facts]

“Building Equity” – [euphemism for buying into a very overpriced market]

Bumpier” landing – [euphemism for ‘hard’]
“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.” – Doug Porter, BMO economist, 18 Dec 2012

“Buyers’ Market” – [term used to describe anything other than a red-hot, double-digit-gain-per-annum market; any market where buyers don’t have to physically fight with other buyers to submit a bid]
“The BMO report described Vancouver.. as a buyers’ market — where supply markedly outstrips demand and dampens asking prices.” – ‘Vancouver a buyer’s market as home sales, prices fall’, The Province, 16 Nov 2012
[To clarify: A true ‘Buyer’s market’ emerges when a buyer gets good, or at the very least reasonable, value for his or her money.]

“Buy Now Or Be Priced Out Forever” – [term used to instil urgency in prospective buyers; argument for two classes of citizens]
related: “Priced out forever”; “Wealth train”

“Catching Its Breath” – [euphemism for market weakness]
“The market is catching its breath” – Grant McDonald, deputy assessor for Sea to Sky region, G&M, 2 Jan 2013

“Cautiously Optimistic” – [CYA statement; usually used along with arguments that are all optimism and no caution]

“Collective Hesitation”
– Eugen Klein, REBGV president, describing buyer activity as sales volume plummets, Dec 2012

“Confusing” as in “too much inventory is confusing for buyers” – [in the guise of trying to be helpful to buyers, a suggestion that attempts should be made to manage the market]
“..their agent should discuss their motivation to sell and suggest.. cancelling the listing. That would reduce the inventory and be less confusing for the buyers.” – Maggie Chandler, real estate salesperson, 19 Apr 2010

“Constructive Evolution Of Imbalances” – [household debt increasing at a slower rate; the tap on the brakes that presages a housing price crash]
“With a more constructive evolution of imbalances in the household sector, residential investment is expected to decline further from historically high levels.” – Bank of Canada statement, March 2013

“Escape Velocity” – measure of the amount of newly concocted liquidity required to allow Canadian RE to cast off the bounds of gravity and remain afloat; coined by BOC Gov. Mark Carney

“Flat” market – [euphemism for a market that is falling]

“Frothy” – [euphemism for speculative mania]

“Garden Suite” – [euphemism for fecund basement suite]

“Good Debt” – [the idea that some indulgences are less sinful than others; see also venial, mortal and original.]

“Laneway House” – [shed + $250K worth of city permits; synonym for cost/benefit calculation error; method of dysdensification]

“Markets are set by supply and demand” – [tautology; used to rationalize any price level, no matter how high]

“Mild”; “Eased”; “Come off”; “Swoon”; “Soft”; “Tapping the brakes”; “Time to adjust” – [gentle, calming words; balms, salves, reassurances; euphemisms for price drops, weak sales, failing markets]

“Mortgage Helper” – [euphemism for buying a multi-unit dwelling, living in one of the units, taking on a second career as an untrained landlord, and all the time pretending you live in a ‘single family’ home]

“No Free Lunch” – [method of disarming any argument suggesting prices are too high by suggesting that the proponent is wanting preposterously cheap housing]
related: “They aren’t going to buy a home in Vancouver for 50 cents on the dollar” – Cameron Muir, BCREA economist, G&M, 2 Jan 2013 [in this case, subject used ‘free lunch’ technique, but ended up with surprisingly accurate price target]

“Overly exuberant” – [euphemism for anxious, perhaps near panic, selling behaviour]
“Sharp drops were perhaps reflective of overly exuberant and particularly aggressive listings.”
– Grant McDonald, deputy assessor for Sea to Sky region, G&M, 2 Jan 2013
[perversely, this phrase is reminiscent of ‘irrational exuberance’, the phrase famously used by Greenspan to describe speculative behaviour, now turned on its head here to describe selling, with the resultant implication that the selling is irrational]

“Paying your landlord’s mortgage” – [derogatory reference to renting one’s home]

“Premium” – [used to justify any size of price versus fundamental value discrepancy; as in “Vancouver premium”, “Warm weather premium”, “Ownership premium”, etc]

“Priced Below Market” – [paradox; logical impossibility; concept of which is by definition lost on those who use the term]

“Priced Out Forever” – [term used to instil urgency in prospective buyers; argument for two classes of citizens]
related: “Buy now or be priced out forever”; “Wealth train”

“Price Improved” – [means Price Reduced; trying to spin ‘reduced’ into a positive; probably partly aimed to ease seller discomfort]

“Property Ladder” – [mythical object; mathematical impossibility]

“Property Virgins” – [naive first time buyers seduced by lusty RE agents and wicked price growth]

“Prudent Lending” – [cornerstone myth; patriotic hubris]

“Real Estate Impotence” – [derogatory reference to hesitation on the part of a buyer to buy into a spec mania in RE]
“If you suffer from real estate impotence, don’t blame Chinese people. Besides, getting all worked up about it will only make it worse. Have a glass of wine. Relax. Stop feeling sorry for yourself and pick up the phone to call a realtor or a mortgage broker, either of whom will be more than happy to show you how easy it can be to get your real estate groove on.” – Cam Good, local real estate salesman, Vancouver Sun, 21 Apr 2011

“Receding Gains” – [euphemism for price drops; don’t worry, you’re only losing what you won]
“..national average price gains may recede” — Gregory Klump, CREA Chief Economist, G&M, 15 Mar 2011

“Rent is throwing money away” – [derogatory reference to renting one’s home]

Repatriation” of money – [the idea that selling RE and then using the money to buy more RE is ‘repatriation’ of funds. Wholesome, patriotic; even charitable. Giving back.]
“..they’re selling their West-side homes and they’re repatriating that money to other jurisdictions, such as the Olympic Village.” and (later in same piece) “..that money is being repatriated down to help the kids..” – Bob Rennie, local condo marketer, CKNW radio interview, 16 Mar 2012

“Running Out Of Land” – [cornerstone myth]

“Sitting on the fence” – [derogatory term describing non-owners who refuse to buy at overextended prices]

“Soft Landing” – [mythical speculative mania outcome whereby fundamental values of assets steadily catch up with prices; never before achieved human history, despite hundreds of attempts]

“Softened”; “Softening” – [euphemism for describing falling sales volumes and prices]

Sport“, as in “Real Estate is a Sport” – [.. and you’re a stick-in-the-mud, and a wuss, if you don’t play, or, if you take the consequences too seriously.]
“..look, at a certain level, in Vancouver, real estate is a sport.” – Bob Rennie, local condo marketer, CKNW radio interview, 16 Mar 2012
“Real estate is like a sport here.” – Tracie McTavish, president of Rennie Marketing Systems, Businessweek, 24 Jun 2010

“Starter Home” – [substandard property at preposterously high price; phrase used to lure ignorant buyers into future financial death trap]
see also: “Property Ladder”; “Buy Now Or Be Priced Out Forever”

“Strong Fundamentals” – [used to refer to factors that are not fundamentals at all]

“Swiss Bank Account” – [as in “Vancouver real estate is the Swiss bank account of international real estate”.]
“I always say Vancouver is the Swiss bank account of international real estate. It’s a — it’s a funny little quote that I say because sophisticated people, whether they live in Vancouver or they’re international, they — they recognize Vancouver as a safe, long-term place to park some money when it comes to real estate.” – Cameron McNeil, The National, 20 Sep 2012

“Testing the market” – [used to describe actions of seller who doesn’t accept realistic current market price of their home, in the certain hope that they’ll be able to sell for a higher price later]
related: “Why would anybody sell for lower prices?”

“Wait-and-see approach” – [euphemism for not buying]

“Wealth Train” – [as in, “Buy now, you have to get on the wealth train before it leaves the station”.]
“I have been living here for about 15 years now and just seeing prices triple or quadruple in some instances, in that time, and I just thought “Wow, I need to get on this wealth train”. – recent Vancouver homebuyer, on Rex Murphy’s cross-country checkup, CBC Radio, 28 Apr 2010
Related – “Buy now or be priced out forever”; “Priced out forever”.

Unsexy” markets – [an unconscious attempt at delivering a sobering idea in a playful fashion, in the hope that it makes it somehow more palatable]
“We expect the market in Vancouver is going to be unsexy over the next year or so…” – Cameron Muir, BC Real Estate Association economist, 19 Dec 2012

“Vanhattan” – [ludicrous comparisons made between Vancouver and very large metropolitan hubs, such as NYC]
“Vanhattan – Vancouver The Next New York?” – ‘BC Homes Magazine’, Aug/Sep 2011 cover
related examples:
“In Yaletown, one of the boroughs within downtown Vancouver…” – Cameron McNeil, The National, 20 Sep 2012
Renaming neighbourhoods to suggest that Vancouver is like Manhattan: ‘SoMa’ (South Main), ‘East Village’ (Hastings-Sunrise)

“You Are Richer Than You Think” – [Scotiabank slogan (for how long will it remains so?); co-opted verbatim or in spirit by all those sitting on paper profits from Vancouver RE run-up; rationale for HELOCs]

More to follow; please submit examples (or elaborations on above entries)…

“In the past year, out of about 15 empty units (out of 32 total) in my west side townhouse complex, only one sold.”

“In the past year, out of about 15 empty units (out of 32) in my west side townhouse complex, only one sold, in January 2012 for 1.28m. Thus, for my townhouse complex there is at least 15 years of inventory. This isn’t counting all the other buildings going up around me still. You don’t need much of a brain to see supply is far outstripping demand.”
Brian at VREAA 4 Jan 2013.

Local Realtor “Cautiously Optimistic”

mike stewart

“Now Andrew had a couple of questions about the Vancouver real estate market… In the media he’d been reading that the Vancouver real estate market had seen a significant drop in the last little while, and he wanted to know what the real situation was.” …
“We’ve seen a lot of changes in the economy in China, so there’s a lot less people coming over from China. We’ve also seen changes in mortgage rules which has also reduced a lot of demand for property here in Vancouver.” …
“What are my predictions for the next six months?.. Our major trading partners (US, China) have been having some issues but their economies seem to be turning the corner. So I’m cautiously optimistic. … In terms of changes to mortgage rules, they came in 3 to 4 months ago, we’re feeling the effect now, in the past after mortgage changes, you get about 3 to 6 months where things soften up, then things begin to pick up. So, you know, I’m cautiously optimistic.”

– excerpts from Mike Stewart, local realtor, self posted youtube video, 20 Nov 2012 [hat-tip Anon]

Whenever a speculative mania tops and begins its deflation, participants who don’t understand the fabric of bubbles, and who haven’t seen the mania for what it is, will search for extraneous factors to blame. Sure, some external factors may shape the path of the price descent, but the real cause for the resultant implosion is the fact of the mania.
– vreaa

Quotes from above added to the “It’s Only A Flesh Wound” sidebar post.

Macleans Cover – “Inside The Great Real Estate Crash Of 2013”

macleans 14 jan 2013
– cover of Macleans, 14 Jan 2013 [hat-tip Brian and posters at VCI].

Consider the effects of this boldly unambiguous image on sentiment, particularly that of local sellers. – vreaa

Excerpts from the article, ‘Crash and Burn’, Chris Sorensen, Macleans, 14 Jan 2013:

“A housing correction—or, possibly, a crash—is no longer coming. It’s here. And you don’t have to own a tiny $500,000 condo in downtown Toronto or a $1.3-million bungalow in Vancouver to get hurt. With few exceptions, the impact will be indiscriminate as the euphoria of rising house prices is replaced by fear. The only question now is how bad things will get. If the decline picks up speed, as many believe it will, there could be a nasty snowball effect. Construction jobs will be lost. Homeowners will end up underwater. Consumers may stop spending.”

“The sudden cooling in Canada’s housing sector seemingly struck without warning. As recently as last spring, bidding wars were common in many Canadian cities as were the “over asking!” stickers agents slapped on “for sale” signs.”

“Lederer recently sent secret shoppers to several condo sales presentation offices. They made some disturbing discoveries: sales staff who didn’t ask for mortgage pre-approvals and who grossly misrepresented the demographic trends—namely the number of expected new immigrants to Toronto—that are supposed to keep units in high demand. But Lederer says he is most disturbed by the sector’s “shoddy mathematics.” By his calculations, many condo owners who rent their properties are realizing returns of less than four per cent. If rental rates fall as more units come on the market—Lederer estimates there are at least 5,000 too many condo units being built in downtown Toronto—those same investors will soon be losing money, prompting them to sell. “Being a landlord is already a negative cash proposition at today’s prices,” he says, adding that a bust in the condo sector will likely have a “trickle up” effect by reducing demand for starter homes.”

“But a mere collapse in home sales—and prices—would be bad enough. Ben Rabidoux, an analyst at M Hanson Advisers, estimates that 1.3 million people, or seven per cent of Canadian workers, are employed in the construction industry, with housing being the main driver. He argued in a recent report that a U.S.-sized housing slowdown could result in the loss of 370,000 jobs and push the unemployment rate well over nine per cent, compared to 7.2 per cent now. And that doesn’t include job losses in related industries.”

“It all amounts to a dramatic reversal of fortune for Canadians, albeit one we brought on ourselves. Back in 2009, our hot housing market acted as a life preserver in a sea of economic uncertainty. Now it feels more like a cinder block tied around our necks.”