Peter Ladner – “While sphincters are tightening in some parts of town over a softening in the real estate market, a lot of people are praying for prices to come down. Housing prices are around 10 times median income. Five times is “severely unaffordable”.”

“While sphincters are tightening in some parts of town over a softening in the real estate market, a lot of people are praying for prices to come down.
They are not impressed that we consistently place in the top three in the world’s unaffordable housing race. They include young wannabe homeowners, of course, but also private and public employers desperate to attract out-of-town skilled workers and senior executives or to retain valuable workers who insist on owning their own homes. Because our housing prices are around 10 times median income (with five times being “severely unaffordable”), the potential newcomers stay away and the valuable workers move away.
Businesses suffer. Families suffer. The city suffers. Homeowner debt piles up to ridiculous heights. The Bank of Canada has the jitters.”

– from ‘Fiscal reality continues to elude Vancouver real estate market’, Peter Ladner, Business In Vancouver, 12 Feb 2013

Everything Peter Ladner says here is true.
A large part of the answer to Vancouver’s dilemma is for housing prices to return to about 5 times local incomes, and that will not occur via a real increase in incomes. It’ll resolve with a 50%-plus drop in RE prices, precisely the kind of outcome to the speculative mania that we are anticipating.
– vreaa

51 responses to “Peter Ladner – “While sphincters are tightening in some parts of town over a softening in the real estate market, a lot of people are praying for prices to come down. Housing prices are around 10 times median income. Five times is “severely unaffordable”.”

  1. Ah but there’s more to Ladner’s diatribe:

    “In Vancouver’s case, as in the other contenders for the “most unaffordable city” crown (Hong Kong, Singapore, Sydney), much of that imported money is coming from China.

    The January 20, 2013, Bloom berg “chart of the day” showed an uncanny match between China’s GDP growth and Vancouver’s housing prices. “Vancouver’s housing market may depend on the strength of China’s economy as much as anything that happens in Canada,” said the report. This means we can expect housing prices to start going up again because China’s fourth-quarter GDP was up.

    Other “most unaffordable” cities have taken steps to dampen investor demand. Hong Kong just introduced a 15% stamp duty on homebuyers without a permanent resident’s card. Sydney doesn’t allow foreign purchases of existing housing stock.

    In Vancouver, we aren’t even sure we have a problem. The Mayor’s Academic Working Group on foreign investment in real estate found “the empirical conclusions of the impact of foreign investors on affordability is (sic) weak at best. …There is no reason to expect that foreign investment has a good or bad impact on affordability at the city level once one considers both potential positive and negative factors””

    // For someone asking for more data, those are some mighty hilarious assertions.

    • Speaking of a Dearth ‘O Data, HilariousAssertions & SphincteralConstriction… How about that provincial budget, eh!… TeeHee!

      “We have about 100 surplus properties and assets, and we are continuing a process to turn them into economic generators…” – B.C. Finance Minister Michael de Jong

      [G&M] – Budget Surplus Pinned to Asset Sales

      …”The B.C. Liberal government forecast a slim $197-million surplus with a big assist from property asset sales.

      Sixteen properties are earmarked for sale to provide proceeds of $260-million in the 2013-14 fiscal year. But that figure does not include the previously announced $300-million sale of the province’s Little Mountain property in Vancouver, nor $30-million from divesting a Liquor Distribution Branch warehouse.”…

      http://tinyurl.com/acp68ux

      [NoteToEd: I sure would like to see one ‘o dem dere NewFangled “EconomicGenerators”… Might even git me one if them CitySlickers on FantasyIsland ever open a ShowRoom in the HillBillyRiviera.]

      • Ralph Cramdown

        We didn’t call that an economic generator back in the day. We called it burning the furniture to heat the house.

      • Little Mountain… in some ways a microcosm of the issues facing landowners in Vancouver. The entity most willing and able to pay the asking price isn’t necessarily the entity you want to city-build.

        The biggest losers in Little Mountain are the trees having the garish temporary fences erected around them going on almost 2 years now, with little end in site. I’m surprised the handling of Little Mountain hasn’t been given more bad press. It’s a laughingstock at best.

      • Just between the two of us, RC – and while we’re on the topic of selling off the family silverware – it can now be revealed that last week’s Chelyabinsk ‘FireBall’ was not, contrary to early media reports, an astronomical event… but rather, the serious malfunctioning of a dangerous and hitherto clandestine Russian SuperWeapon whose program origins date to the unchecked SuperPower confrontations of the ColdWar… An ideological/technological rivalry personified by the infamous KitchenUltimatum – NixonKruschev confrontation…

        Yes… The dreaded, “Экономический генератор [Ekonomicheskiy Generator – Mark 19]”… they actually built it! And last week… they turned it on for the first time.

        [NoteToEd: that would actually be the, “Kitchen Debate” – but Ultimatum sounded so Ludlum I just had to go with it…]

  2. Interesting article. No doubt off-shore money and investors keeps the pre-sale market going. But, disappointing that there is no mention of cheap money, CMHC, or an investor/speculative bubble. Housing prices in Winnipeg doubled in the last decade and there aren’t off-shore investors buying there.

    • I was going to comment on how Winnipeg is a ‘dangerous’ city. Yet it turns out that our province with it’s expensive real estate features 10 of the top 20 most dangerous cities in Canada according to Macleans. Is there a way this ‘danger’ could be construed as added value to living in these areas to help justify prices?

  3. 5x income as “severely unaffordable” is highly debatable when interest rates are this low. The old addage of affordability being around 3.0-3.5X income was a different era of interest rates.

    • I agree, interests rates need to rise dramatically for this market to crash. With rates this low, we will likely see a slow melt. So waiting for a -66% is likely not going to happen. Save your angst doomers.

    • Real Estate Tsunami

      This is the old BS coming from the RE pushers.
      Prices dictate affordability, not interest rates.
      Get that in your thick skulls!

    • Woe betide the poor bastard who buys a house in the new era of interest rates but has to renew his mortgage when we’re back in the old era. In the US, rates are typically fixed for the whole 30 years.

    • Yes but when interest rates, that 10x income is severely severely unaffordable. Rates don’t need to rise to double digits, even a point or two increase will cripple many households.

      • Well, it hasn’t happened and may not happen for a while.

      • The life of the mortgage? Do you think interest rates are staying low for at least 25 years? Forever? Like Japan where the economy has stagnated for decades. Doesn’t sound like a very attractive scenario. Or a very likely one. Much more likely is that interest rates go up in a couple of years and the poor, over-extended home buyers are stuck paying more to the bank in interest for the privilege of ‘owning’ a depreciating asset.

        The only people pushing buying right now are recent purchasers or those dependent on RE sales for their livelihood. Which are you? Or are you both?

      • Interest rates are going no where. Moi inventory isn’t sky high and I believe by the end of Feb we will be at 7.5-8 moi. That’s not enough for a crash but not enough for gains either. Look for a decline of -10% which does not indicate a crash. It ain’t good either though, but its the best that could be done for Canada.

      • You realize that late February is generally where you see the lowest MOI’s of any given year and that an MOI of over 7 for February is the highest MOI recorded in February in Vancouver besides 2009 with the GFC. We’re going to be in double digits for almost the entire year – that is horrible.

        Also, 10% in a year is a crash. Combine that with about 6% from the second half of 2012 and we’re at 16% for 18 months which other than Miami and Las Vegas puts as at a faster drop than any other city in the USA. Also note that it was after the first 12 to 15 months of slow drops that the US started to free fall…

        We don’t need higher rates for this to happen here but when the rates do go up, it will get ugly…er…

    • Look around at other countries around the world, their interest rates, their housing prices, and then try to tell me with a straight face that we’re in a different era for home prices.

  4. Didn’t know about Ladner until now. He’s b.1947, 64ish, so he’s ridden the asset inflation wave up, and probably isn’t looking forward to riding it down. Probably has a pretty good life, although it sounds like he wears Depends. Y’know he can mitigate the effect by buying shares in Domtar…. (probably does own shares and wanted to work this meme into his latest commentary. Either that, or VREAA is gay.. nothing wrong with that either, …I mean, we are talking a lot about about demographics, and even with Asian immigrants, Canada’s reproduction rates are well below replacement levels).

    RE will give at some point, elimination is a body function we shouldn’t take for granted. Go commodity prices! NOT

  5. Developers selling trying to sell direct without marketers and realtors: http://www.hoperty.com/

    Looks like certain middle-men are going to be squeezed out of the business.

  6. Speaking of sphincters tightening….anyone out there watching the carnage in precious metals? If the fear trades are selling off then the Silver lining is that other investments like US real estate and equities will be shooting up.

    That suggests a recovery is in the offing and it could support the contention of those who say we will have a soft landing. Don’t laugh. If US real estate is really staging a recovery and the recession risk in America is off the table then confidence will be returning.

    That means consumption will rise, savings will fall.

    And that sentiment will feed into our export markets and give an unexpected boost to the economy which in turn will be supportive of existing home prices. The moment of terminal gloom might actually be avoided by a shifting mood in our collective outlook.

    The Doom and Gloom crowd is almost beaten.

    • It sure looks that way Farmer and I’m not one to argue with the Markets (cuz we know where that gets you) but I’m definitely skeptical of current conditions. All markets are manipulated and no matter how overpriced you all think Vancouver RE is stocks are also over valued here and my equity dividends are not much better than my rental income.

      Holding off for now but I can tell you I’m sure tempted to sell some stocks here to add to my beleaguered CEF holdings (PMs). I’m definitely holding onto my USD though, I can tell you that much.

      BTW, fear trade equals USD not precious metals. Precious metals are protection against currency debasement (IMO).

      • …”All markets are manipulated…” – Blammo

        There’s an old saying in ViceSqad… “If you can bet on it… it can be fixed.”

        [NoteToEd: Talk about GoatToastings/Remorse!… All those TooniesWasted speculating on the outcomes of Thai/ChineseFootBallMatches… http://tinyurl.com/awzmuoj … what a pity I spent so little time in Lyons… I’d always wanted to go to Bangkok and Kuala Lumpor.]

    • Oil and copper are off too, though not as much as the PMs, so it isn’t exactly optimism we’re seeing. Maybe those mumbles out of the Fed about reducing QE before unemployment comes down has the inflationistas running for the hills?

      Lumber is up 40% from October lows. They’re definitely starting to build again in the US. But “The relative importance of forestry & logging has declined significantly since 1990. The industry currently employs less than 1% of BC’s workers, down from just under 2% at the beginning of the 1990s. Its share of total GDP has fallen from 3% to less than 2% during this period.”

      • What I was seeing was that metals were all beaten down together as Gold sold off. Platinum is a perfect example. It has very strong fundamental reasons to be rising and so when it got squashed 3% I knew it was in sympathy with a sell off of the fear trades and not a statement on Platinum itself. Same goes for Copper in my opinion. I therefore discount the declines in strategic metals while staying short PM’s like Gold and Silver which could be pressured much lower in the coming months.

        Bye Bye Gold bugs.

    • to some extent, things are fundamentally less bad in the us than 2009 … but to say it’s recovering is like saying ltro solved the eu pbs … we have a yet-to-be-reckoned-with completely out of control public spending situation … and will continue to roll from crisis to crisis until the markets put a stop to it (like they may be starting to in jp) … after that showdown, there can be a real recovery … may take a while though as us is less bad than rest of 1st world for now … ps. us re improved some due to 30yr rates dropping but that has now likely reversed for good now … so, probably headed back down … ++ g20 just said there is no currency war – pretty sure i know what that means

    • I think todays market sell-off in oil-gold-equities as a result of Bernanke basically admitting that QE is not working to get US unemployment up could be the start of the “external shock” factor bandied about by certain RE pumpers recently that will serve to intensify the “panic aspect” of the RE sell-off already underway in many parts of Canada. I expect to see more days like this in the near future. Oops!

      • well, if bernanke actually backed off on qe, it would force the feds to cut spending … breathing witheld … NOT! 🙂

    • Real Estate Tsunami

      Bet your Farm on this prediction?

      • Real Estate Tsunami

        This was for Farmer.

      • Well Tsunami, the Gloom crowd is pretty religious and they will be hard to knock down. All I care about is that the Gold lovers (fanatics and anti-government lunatics for the most part) are destabilized enough that they cannot keep using Gold as evidence of policy failures. Why should they be rewarded for being faithless and negative?

      • Ralph Cramdown

        Oh, Farmer. Haven’t you heard the latest? Gold was manipulated down yesterday so the Fed could buy those gold reserves that Germany wants back and which the Fed doesn’t physically have! It’s always something. They KNOW that the market is rigged, but they keep playing.

    • Bye bye gold bugs? The paper shorts have created a great buying opportunity. The long-term trend in PM is unbroken.

      • fwiw, conspiracy angle, even if true, isn’t especially useful … wary of it serving the purpose of a posteriori buy justification … otoh, fundamentals – debasement, monetization, uncontrolled spending, absence of political will for difficult choices – that have been in place for a while are in fact ever firmer … would love to pay for being proven wrong but so far not happening … prices have been all over the place previously, periodically violating ‘trend’, no reason to expect different

      • The fundamentals are still favourable for gold – and will remain so as long as real interest rates are negative.

  7. Forgive me for posting this link on 2 threads today, but I just realized it’s relevant to this thread too.

    Are Vancouver realtors looking to lure buyers from the US market in case buyers from other countries don’t come through?

    http://www.nytimes.com/2013/02/21/greathomesanddestinations/real-estate-in-canada.html?hpw

    I’ve just written the NYTimes to warn them about the Vancouver bubble.

    • Real Estate Tsunami

      Thanks Epte,
      Must read for everyone who still believes that the Asian buyer is a myth.

      • I am not sure how a paid advertisement piece with the contact info of the RE agency might be a proof of the Asian buyer existence?

      • Real Estate Tsunami

        Olga,
        Did you not read the whole ad/article?

      • olga62,
        Thanks for your many contributions to VREAA.

        I have to point out here that the article in the New York Times for which I provided a link is not a paid advertisement piece. The Times runs a regular feature called “House Hunting in…. [fill in the blank]” that features properties from other countries.

        I’m dismayed the NYT editors/researchers for the Real Estate section apparently don’t know more about Vancouver’s housing bubble, so I wrote to tell them.

      • Aldus Huxtable

        I don’t see any reference for Mr. Fitzpatrick’s data set in regards to Asian buyers other than… his say so. His website doesn’t seem to link to any data and his resources are.. well, you can see over at: http://www.jefffitzpatrick.com

        He has an interesting piece on “The Vancouver Special” ..

        http://www.jefffitzpatrick.com/Blog.php/the-vancouver-special

        “Last year The Vancouver Heritage Foundation lead a Vancouver Special tour, showcasing 5 unique Specials that had all been completely renovated.”

        Can you provide me any insight on verification for his information in regards to a quarter of buyers being Asian? Asides from this statement:

        “As many as a quarter of the buyers in the Vancouver area are foreigners, Mr. Fitzpatrick said. The majority come from Asia, especially mainland China, but the United States is also well represented, and there are even a few buyers from Europe. ”

        Given this, a majority could be as little as 51% of that quarter, so, given even his statement 12.6% of buyers in the market – would validate as a majority of foreign buyers. Would this be enough to justify the sentiment in fear of offshore buyers? 12.6%? It’s out of my realm to compare to other markets- any others care to chip in?

    • I’m sure some Vancouver realtors would advertise on Mars if only somebody would build bus shelters and public benches there.

      • ‘GarySchlitz’ probably would…

        [NoteToEd: closest thing to a public service announcement the industry has ever sponsored… I’ll even give the commissioning brokerage bonus marks for self-deprecation and hiring a VeryTalented IndigenousStandUp… nevertheless – DearReaders, to skip the agency ‘pitch’ freezeframe and shut the tab at 03:46.]

      • Well you know they aren’t making any more land on Mars

  8. Peter Ladner has been a welcome voice in the wilderness over the last few years warning about the deleterious effect of foreign real estate purchases and how it destroys not just affordability, but neighbourhoods. I recall one BIV piece where he reported on just how many empty houses on one block there were in a particular West Side “neighbourhood” (sic).

    Shame he wasn’t elected mayor in 2008 instead of the juiceman.

  9. I understand that vreaa’s position is: after the crash, Vancouver’s RE will still be “severely unaffordable”.

    • Perhaps it will be. Look at vancouverpricedrop. Even after revising listing prices downwards they are still outrageous because sellers are basing their expectations on inflated ideas of worth. Take this listing for example:
      http://tinyurl.com/475-W21st
      10 years ago this would have been a $500k home. Nothing’s changed other than an influx of foreign money. Ten years ago some young couple starting out would have bought it as a starter home and spruced it up. Now its a speculator’s tool.

      • After you bought that tiny little piece of crap for more than a million smackeroos, you would need to be “…just steps away from Canada Line Station, shops, and restaurants”, because you wouldn’t be able to afford a car. Nice….

        🙂

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