Vancouver Secretary’s Urgency To Buy Condo At 7.7x Annual Pre-Tax Income – “I’m worried about keeping pace. I’m worried that no matter how long I keep saving, the prices will keep climbing and I’m never going to be able to catch up.”

RG-08MAR13-5874
[photo Rafal Gerszak, The Globe and Mail]

“Alice Soo is developing a case of spring fever for real estate.
In 2011, five years after graduating from university, she made a final payment to erase $25,000 in student loans. At the same time, she has been a disciplined saver, with $30,000 now socked away. Ms. Soo, a clinical secretary at Vancouver General Hospital, is eager to use it for a down payment on a condominium in the suburb of Burnaby, and soon.
Why the urgency? Condo prices in Greater Vancouver have slipped 3 per cent over the past year, but Ms. Soo believes the softness in the market won’t last. “I’m worried about keeping pace. I’m worried that no matter how long I keep saving, the prices will keep climbing and I’m never going to be able to catch up. That is my main concern.”
Such is the psychology of the first-time buyer in Vancouver, the country’s most expensive property market. Prices here have soared 24 per cent since the summer of 2009, according to the Teranet-National Bank house price index, and the price of a typical detached home is still about $900,000. But prices have cooled and sales activity is way down – there were nearly 30 per cent fewer transactions this February than a year earlier – so Ms. Soo’s concern about missing out may be unwarranted….
“For every first-time buyer, there’s an owner who`s looking to sell and trade up, and for every upgrade, there`s a retiree looking to cash out. The “trickle-up” effect can make the difference between hot and cold in the market.
This year, the big question is: Will the first-timers come back?”
For Ms. Soo, who is now renting the basement of her sister’s home, the first choice is to buy a Burnaby condo priced at roughly $300,000, preferably close to a SkyTrain rapid transit station. Given her modest annual pretax salary of $39,000, Ms. Soo is excited by the prospect of moving into her own place by the time she turns 30 this summer. But price remains the sticking point for buying a condo this spring. She and her agent, Eddy Shan of Homeland Realty, are finding that sellers aren’t budging much from their asking prices.”

– this anecdote from ‘Will nervous first-time buyers make this spring housing market bloom?’, Tara Perkins and Brent Jang, Globe and Mail, 9 Mar 2013 [hat-tip OH YAH]

We agree that this FTB’s “concern about missing out may be unwarranted”. She is still living in the not too distant past, and continues to suffer from the “buy now or be priced out forever” fever. It’d be interesting to know more about her knowledge of current market conditions, and to understand her sources of information.
The current market action is precisely what one would expect through a topping process: sales declining, prices sticky but beginning to give, buyers waiting and watching. Sales volumes always lead prices.
And there will always be some buyers, at any point in the descent, thinking they have “bought the dip”.
The most vulnerable owners in the coming downturn will be the over-leveraged, the latecomers, and the retirees with far too much RE for their life-stage. If Ms. Soo buys, she’d be both over-leveraged and a latecomer.
– vreaa

————————-

Some further excerpts of interest from the same article:

“Will McKitka, a real estate agent with Macdonald Realty, said the spotlight has turned on the slump in property sales in February, but prices haven’t collapsed. “People use the B-word, in terms of a housing bubble. Vancouver isn’t in one,” Mr. McKitka said. Monthly sales volumes are being crimped by stalemates over pricing, he noted.
Two of his clients watched negotiations fall apart last month, even though the asking and offering prices were tantalizingly close. “Not close enough,” he said. But Mr. McKitka insists that buying into the Vancouver area’s cooled-off housing market makes sense. Gone are the days of huge jumps in home values, but for those able to save for a down payment in 2013, it will be a better financial decision to own than rent, he argues.”

“It still seems that the much greater risk is that sales weaken further, not that they surprise to the high side,” BMO Nesbitt Burns economist Douglas Porter said in a research note this week.
Prices remain stubbornly high in most urban markets. Fitch, a ratings agency, said this week that prices nationally are about 20 per cent too high. Such headlines add to the fear among first-time buyers that, even if they can afford to get into the market, now might not be the time.”

“Large marketing campaigns and incentives on the part of mortgage lenders are likely to play a significant role in driving the market this spring. “People buy payments, they don’t buy house prices,” says Toronto-based mortgage planner Calum Ross. “There is a huge psychological impact of five-year mortgage rates dropping below three per cent.” Mr. Ross adds that he’s now seeing “massive” amounts of marketing by mortgage lenders.”

“Phil Soper, CEO of real estate agency Royal LePage, said the slowdown is a good thing, because the market was too hot, but he thinks that the changes that Mr. Flaherty made in July went too far. “It pushed things for young people, for first-time buyers, to a place it didn’t need to be,” he said.
Now, he says, the impact of the change has largely been felt. “Young people have had eight months to either save up a larger down payment or look farther afield for a home,” he says. “As long as the cost of mortgage financing remains very low, we’re going to attract financially stable young people, first-time buyers, into the housing market. The desire to own one’s home hasn’t changed one bit.”

Will McKitka’s comment added to the ‘What Bubble?’ sidebar collection of bubble denier quotes.
We agree with Doug Porter’s observation that “surprises” are more likely to be to the downside.
– vreaa

107 responses to “Vancouver Secretary’s Urgency To Buy Condo At 7.7x Annual Pre-Tax Income – “I’m worried about keeping pace. I’m worried that no matter how long I keep saving, the prices will keep climbing and I’m never going to be able to catch up.”

  1. The anatomy of a housing crash. Heart attacks don’t always mean perfusion stops.

  2. Lets see, 39k a year is about 2100 a month after deductions. A 270k loan at 3% is, $1277 a month. Maintenance fee is $200, hydro is $30-45, property and utilities is $100. That’s leaves her with about $450-500 after the condo expenses. I think she needs to work another job or sell drugs to sustain the payments.

  3. Kill all baby boomers

    I’m appalled that the best job a university grad can find is as a secretary, making 40k per year, 5 years after graduation.

    • She will be getting raises, isn’t this a union job?

      Not that I think the math works here; monthly payments are, sadly, one of two important factors to consider when purchasing, the other being what it sells for when you move out.

    • Are you appalled at her efforts to find work, or appalled at the system that only provides employment opportunities such as this? It might be a little of both but her situation is not necessarily a reflection of the employment sector, in general.

    • Depends what she did in university…

    • That is, unfortunately, where general arts (poli sci., sociology, psych, anthropology, classics) gets you these days. You need to go to college after to get marketable skills beyond “ability to think critically, excellent time management and organizational skills.”

    • THE ONLY THING THAT CAN STOP THIS ASTEROID IS YOUR LIBERAL ARTS DEGREE.

      “I’ve seen your work and it’s damn impressive. Your midterm paper on the semiotics of Band of Outsiders turned a lot of heads at mission control. Your performance in Biology For Non-Science Majors was impressive, matched only by your mastery of second-year Portuguese. And a lot of the research we do here couldn’t have happened without your groundbreaking work on suburban malaise and its representation and repression in John Hughes’ films.”

      http://www.mcsweeneys.net/articles/the-only-thing-that-can-stop-this-asteroid-is-your-liberal-arts-degree

    • Realtor behavior

      Look around the RE businesses, the banks, the government; as far as I know, all those driving the RE ponzi-trucks are the 30-40s degree-holding liars! You want to kill all the baby boomers and get this young woman on the driver seat instead? Good luck with that, I believe you definitely end up being way over-killed!

  4. Wow and I thought I was stretched. Appalled that someone would think of spending more than 60% of her post tax income on a condo. She needs to live within her means, which means renting in the burbs for under a thousand and putting her down payment somewhere else that will easily beat real estate. There ARE other investments where her money can grow I hope she knows.

    • Cyril Tourneur

      Where in the “burbs” are you going to find a decent 1br for under $1k? Maybe Chilliwack or Hope, certainly not Richmond or Surrey.

      • There are plenty of nice one-bedrooms in Surrey. Whalley is really turning around of late.

      • Cyril Tourneur

        I agree with you that some of the burb locations are turning around nicely. But are rents really that much cheaper than Vancouver proper, especially for 1br?

      • Mt pleasant

        I lived in a great 1bed room in east van moved in there in 2011 was paying 850 top floor with a view great landlord 8 unit apt building.

      • Hope is the suburbs these days?

        I’m moing to Spuzzum.

      • Hmm Whalley or Yaletown, always such a dilemma… ; )

      • Cyril, a quick craiglist search of 1-bedroom apartments under $1,000/month turns up 2500 hits in Vancouver proper. She does not have to move to the suburbs to live within her means.

        There are PLENTY of places to rent in her budget, many within walking distance of VGH, which would cut her transit expenses as well (a two- or three-zone pass is not cheap). Here is a decent place at Main and 15th. It has a patio and even includes heat and hot water: http://vancouver.en.craigslist.ca/van/apa/3618442520.html.

      • I live in decent 2br in Surrey near King-George station
        rent is $990

    • The high cost of transportation will eat the difference.

      • Exactly. A $1500 1br in Yaletown/Fairview is probably cost neutral to a $1000 1br in Surrey if it means you can avoid car ownership.

      • Real Estate Tsunami

        While do we always automatically assume that everyone is working downtown?

  5. pricedoutfornow

    Fast forward three years:

    Alice Soo, who bought a 1 bedroom condo in 2013 says: “I wish I’d never bought this condo. I was so worried back then about being priced out of the market, I really should have been worried about prices going down so much that I’d have no equity.”
    Soo, who is recently married and has a baby on the way says “My husband also owns a condo that has plummeted in value, we can’t sell without writing a cheque to the bank, and the rent we get from his condo doesn’t even cover the mortgage, let alone strata and property taxes. We don’t know what we are going to do. We own two condos between us, both have only depreciated in value since we bought them. We are now looking at raising a child in a one bedroom apartment. I wish someone had told us in 2013 that prices going down significantly was a real possibility. I thought real estate prices only ever went up!”

    From Vancouver Sun story “Plummeting house prices trap young owners” March 10th, 2016

    • +1

    • Bingo!!! You should post your comment on the G&M site.

    • Carioca Canuck

      +3

      HGTV, hormones, and cultural family pressure can be a silent killer.

      • Real Estate Tsunami

        Cultural family and peer pressure is one of the main drivers of RE in the lower mainland.

    • 4SlicesofCheese

      +4
      I posted awhile ago about a friend who bought at Viceroy in New West, to recap she bought presale right before peak, with the reasoning her aunt bought in New West a few years earlier and has built 100k equity. Since then they have already offered discounts so theres money out the door already.
      Last week she said she feels stuck by her condo now because she hates her job, wants to move but she cant and her bfs job is not as stable as they both thought. Most worrying part is they make 130k combined pretax and she says she hopes she can afford the lifestyle after mortgage, and she bought a 325k place.

    • Awesome (soon to be?) anecdote!

    • +5! Nice!

    • pricedoutfornow

      I wish I could say this is pure fiction, sadly it’s not. I am acquainted with someone who recently gave her condo keys back to the bank (not in Vancouver, but yes, in BC) because she was about $100k underwater, tried to rent the place out but the rent didn’t even cover the mortgage payments. She said when she gave the keys back (jingle mail?) the bank was very nice. And then a few weeks later got served some papers by the bank’s lawyers. Not exactly sure what they said but we can speculate they say they are going to go after her for the difference between the mortgage and the price they get when they sell the condo (ouch, $100k!). This person reminds me of our Alice: same income range, similar downpayment and condo price. I’m sure this individual could give Alice some great advice (ie: don’t do it!). Real estate doesn’t always go up, as people in other parts of BC started realizing a few years ago. I imagine we’re next here in the lower mainland.

      • If you’re even thinking of “strategic default”, for gawd’s sake consult a lawyer first. That’s what they’re for…

    • Funny stuff, Pricedoutfornow.

    • Powerful!

    • Spot on! I even got a bit of Schadenfreude.

  6. If the cost of a crappy cement shoebox in a nonevent neighborhood is so wild that you make the newspaper for wanting to buy it, you are either doing it wrong or not telling us everything.

    If your salary as an educated (unionized?) Professional with 5 years’ experience is so close to that of a waitress or bellhop that you have to live in your sister’s basement, you are either doing it wrong or not telling us everything.

    In short, this woman is lying. Nobody would swap a $700/month basement rental for a $1600/month condo obligation unless they predicted rapid price appreciation. Nobody would deliberately live on $500/month if they thought that the other 75% of their paycheque was just carrying a stagnant asset.

    This is her planned “path to riches”, just like the other 75% of vancouverites who are paid slave wages for professional work and have no other financial game plan aside from their tight relationships with their realtor and mortgage broker.

    • Ralph Cramdown

      Cut her some slack — she was doing it right. Over 7 years, she paid down $25k and saved another $30k, which works out to 20% of her pay. That’s impressive, and far beyond what most people manage while living on $40k in Vancouver, I’d hazard. Maybe the rent was below market, maybe some of her ‘savings’ were gifts from family. But if we take it at face value, her savings rate was commendable. Alas, her plans going forward will work out not necessarily in her favour.

      • Real Estate Tsunami

        Yeah, working and saving so hard, and then throwing it all away.

      • Ford Prefect

        We all know the old saw: you make (and lose) money when you buy, not when you sell. Ms. Soo unfortunately for her will fall right into this trap if she buys now.

  7. 4SlicesofCheese

    Went to two house warmings this week. Both in S. Surrey.
    While we were there we were bombarded with how great Surrey is and we should consider moving there. With close to an hour commute each way to DT, no thanks.

    Even though the townhouses were cheap (in todays market anyways), you can get a brand new 3/4 br for the price of 1 br in the city, I was not at all enticed at all.

    Previously, after a house warming I would feel like wow maybe I should just bite the bullet and go buy, not anymore. After the new house smell goes away, I realized how house poor all these people have become, and really their lifestyles are not any better than mine, perhaps even worse with all that extra commuting.

    One thing I noticed is that noone talks about home prices going up anymore, that was different from a year ago. They now talk about how expensive Vancouver is and prices will drop there, but not where they live because it is so cheap already how can it drop. I guess it will always be other peoples problems.

    • South Surrey runs the risk of having more supply than demand. No decent transit options so the one hour commute is by car on a good day.

      It is a nice community, however, it is not easy to get to other parts of the lower mainland.

      As a friend once told me, move there and you will have a backyard that none of your friends will drive out to see.

      • Real Estate Tsunami

        South Surrey/White Rock appear to be in a freefall already.
        Many retired boomers are trying to cash out.

  8. She just needs to do some simple research to see that condo prices, in general have been stagnant in Vancouver for the past five years.

    http://www.chpc.biz/vancouver_chart.html

    With the amount of new construction happening I would think time is on her side.

    • Isn’t it remarkable how long it takes for actual facts to overcome emotionally loaded beliefs?

      • 4SlicesofCheese

        I wonder how she will feel after she sees this article go live. At the time of her interview she might not of known the tone of the article. Would be nice if she was followed up on, or even better post here herself.

  9. UBCghettodweller

    Would someone please play back claims about “what bubble? There’s no buble” and “house prices won’t ever drop” to the realtors and other questionable characters in about 2015 and ask them for their opinions in light of the data?

    • We only have to go back 1 year to play back the claims of “vancouver prices won’t drop” from the experts

    • Ralph Cramdown

      “Don’t think of it primarily an investment… it’s your home, where you’ll create great memories and start a family. Would you be happier if your life was still on hold?”
      “Of course real estate market are cyclical. Over the long term, the trend is up.”
      “You can twist numbers to support any point of view. I should tell you in confidence that we’ve been seeing more traffic at open houses recently.”
      “Oh, thanks so much for calling. Were you thinking of moving up?”

  10. She suffers from a disease, the one of believing everything she hears from her parents, her culture, the mainstream media, and the industry.

    This article seems like more industry propaganda, parading a naive FTB to the audiences. It seems timed for spring and the recent bank mortgage rate drops.

    • and that’s one bad disease. Not being able to have your own critical thinking, and living by reacting to what others do. Very sad, but that’s how most of the people go through life. Thus, asset bubbles…… and stupid decisions.

  11. Not much of a name...

    She won’t even qualify for a mortgage on a $300,000 with 10% down.

  12. EinsatzgruppenVancouver

    Anybody else notice that there appear to be 100% bears writing the comments on the G&M article? Jesus. Even on (saunt?) Garth Turner’s website you get a few contrarian real estate bulls…

    • Yes, mostly bears except for “whazzup”…he’s my hero! “Emirates Pilot” is just a big bully….

    • Ralph Cramdown

      The tenor of the G&M comments section has really changed since the paywall went up. ‘whazzup’ is still a Defender of the Faith, but gets voted down mercilessly.

  13. maclean&maclean

    Alice So is a secretary attached to a hospital http://www.carms.ca/program_PSM_2014/program_en.jsp?path=85NEPHROL_en.jsp&p=2 that specializes in Nephrology, the study of Kidney disease.

    I don’t know if this is ‘Our’ Alice, but if it is.. I gotta say, the accordion is just blasting out the adrenals. The Globe and Mail sure knows how to pluck those keys.

  14. Real Estate Tsunami

    Any property virgin, contemplating to take the plunge should be forced to take a mandatory tour of the massive condo projects taking shape in North and Central Richmond.
    There are at least 20 presentation centers, massive billboards everywhere.
    Cranes are obscuring the sky around the Oval, well almost.
    Oversupply on such a massive scale will drive condo prices down in the metro area.
    Buyers remorse galore in the years ahead.

    • Just realized a couple more projects on garden city near Oak bridge. One by yuan heng. And then another one on No 3 across from the Canadian Tire. Not to mention Mandarin and all the other ones going up. Richmond is doomed. I can’t see the argument about no land holding any water.

      • Real Estate Tsunami

        The entire area south of Costco is slated for development.
        The developers are supposed to build a SkyTrain station (Capstan).
        At least that’s what they are telling the potential buyers.
        I’m no geologist, but the soil looks like peat to me.

      • “I can’t see the argument about no land holding any water.”

        I love the pun here. Knowing that the delta of Richmond can’t hold any water.

  15. Realistically, I think its impossible not live a life of slavery if you spend much more than 4 times annual income on housing.

    We own and neither ones of us can imagine how these buyers must reason to voluntary put them selves in position to pay these ridiculous multiples.

    Even if we became a single earner household we would be at 3.5X my annual income and that already feels like a stretch.

    The belief in rising prices must be so intense that voluntary signing up for a life of debt slavery seems like a reasonable sacrifice.

    But then again, as I type this this thought comes to mind; is there perhaps some truth to “priced out forever?”

    What I mean by that, how many Vancouver incomes will ever be able to purchase a SFH in desirable Vancouver areas? A prime example is the house posted here not to long ago listed at $888,000. Even at 50% off that asking price the house was a tear down in a less than desirable area of town. At best if you decided to move into it and reno, even at 50% reduced land costs you are facing a mortgage of $400,000 with a $100,000 DP after basic renovations.

    How affordable is that for Vancouverities? Not very, I would argue.

    I suppose what I am asking; with a 50% reduction in land costs how many Vancouver SFH becomes affordable assuming incomes stay more or less stagnant (as they have for years.)

  16. A little update on the older couple over-leveraged in Real Estate profile here: https://vreaa.wordpress.com/2013/03/07/lower-mainland-couple-in-their-70s-re-makes-up-216-of-net-worth-desire-to-buy-more-my-friend-is-getting-worried-about-his-parents-financial-situation/

    I just got an email from my friend:
    “By the way, we decided to sell all real estate properties of mine and my parents in [somewhere in the Lower Mainland]. except for one townhouse for my parents to live in.
    please wish us that we get out the limbo before the shit hit the fan
    thanks for your real estate advice (…)”

    I guess that will add to the supply. And I hope they’ll be able to get out in time…

  17. Ok Alice, cards on the table – You’re 30 and unmarried. Find a husband (or wife) now, because without one you are never going to be able to climb up Vancouver’s skewed property ladder. That biological and economic clock is ticking very loudly. Act now, or you’ll find yourself alone with barren ovaries and a barren bank account.

    • Or if she wants to floatplane up for some VIP live at squamish action in August there’s always room for one more. The only catch is we can’t let on that I’m a happy renter, we’d be run out with pitchforks.

    • Stop the bullying

      Alice, you have built up an impressive down payment which will grow over the next years as prices fall. I know that your friends are telling you that you are “throwing your money away” on rent, but if you look at the current costs of renting to owning, you are better off renting at the moment. Congratulations on the job…if you are a Program Secretary you are likely responsible for a large budget, grant writing and being the administrative lead for the Division, and are setting yourself up for a management job in the future. The term Secretary does not mean the same thing today as it did in my mother’s era, and the people here do not realize that this is a typical entry level salary for a full time entry level job.

  18. Are rising residental Hong Kong home prices an omen for Vancouver? Some might suggest they are as both cities have experienced the worlds largest property bubbles somewhat simultaneously on the back of low interest rates and easy credit.

    From an article of February 15th 2013 we learn that Hong Kong home prices have skyrocketed 24% to the end of their accounting year. Not sure what coorelation exists between the two markets since the Credit Crisis but I am betting they track pretty closely. Maybe Watchdog who does such a good job overlaying charts can see if there is a relationship.

    Anyway, here is the article and graphs for those interested. For an eye opener, check out the numbers for the average cost per square meter over there and take some comfort……see….. Vancouver is not expensive after all.

    Heck, it has a long way to go to catch up to the real movers and shakers in the world of real estate. (Buy now or be priced out forever!). Perhaps the poor gal highlighted in todays article is reading the Hong Kong papers and that is what is colouring her judgement.

    “Residential prices surging in Hong Kong!”
    http://www.globalpropertyguide.com/Asia/hong-kong/Price-History

    • Friends of mine in HK are predicting prices to moderate as foreign ownership and residency curbs come into effect. Not that they know any better than anyone else, but it’s being discussed and could change sentiment.

      HK is heavily exposed to China slowing down. Not that I know better than anyone else whether a slowdown is likely.

  19. Here’s my prediction:
    Take 100 “Alices” and track them over the next decade. 95 Alices will be fine, being able to save through mortgage amortization and seniority raises. These Alices will be able to sell, perhaps at a bit of a loss, when they need to.

    Five Alices, however, will not be so lucky. They will get hit by income impairment, special assessments, divorce, or other “unforeseen” expenses. They will have to sell at a big loss, either right away or through a slow maniacal drip-drip-drip of taking monthly negative carries out of her savings or salary.

    The difference between now and 10 years ago — 2003 — is that there will be five Alices in trouble instead of two.

    Parable: Serendipity will carry the majority of masses through a housing bust; it’s the few percent at the margin that dictate the vacillations of the market, and as much as we all, deep down, crave the Hammer of Thor to be wielded, in a brilliant swing of societal transcendence, the strike proves beyond a doubt the bearish case was correct. The reality, in my view, is more messy. At some point it will be time to move on.

    • Ralph Cramdown

      95% will be ‘fine’ in what sense? That they won’t need to sell an underwater unit? Or that their savings will overcome the early deficit and they’ll retire fine? It seems like the plan is for a lot of these first time buyers to have their DP and a bit more equity besides disappear, then they save up another one for their second home. Here’s a funny quote from a Toronto realtor discussing impacts on the condo market from our building spree:

      “The good news is… for condo buyers in 2014 and 2015, prices should be down significantly for brand new product. Current resale condo owners who’ve owned for a few years should be OK provided they’re taking advantage of mortgage pre-payment privileges to pay down their principal balances.”

      It seems ‘OK’ is starting to mean not homeless in one’s mid-thirties, rather than on track to a not penurious retirement. Maybe a bubble in some market or other will bail them all out over the next three decades…

    • “The difference between now and 10 years ago — 2003 — is that there will be five Alices in trouble instead of two”.

      It may well be worse than that, YVR. I have been speculating for awhile now that we are on the path heading towards an inevitable recession. There is the possibility it could end up being one as grievous as what was experienced in the early Eighties.

      The end of this period of credit excess combined with flat incomes, falling consumption, a shortage of real savings and high indebtedness makes for an ugly brew when combined with some of the macro data that is coming in.

      Have a look at a few charts (article from Financial Sense) that are sure to be keeping the Mandarins in Ottawa awake at night. There are a few that are notable but the one that stands out for me is the comparison of unit labour costs in Canada versus the US.

      Does anyone else think the trend is sustainable?

      Not too likely. We have been losing ur competitive edge at a rapid clip since the year 2000 when a strong divergence began to take hold. Is it any wonder our current account is going deep into the red at this time? It is clear to me that we are paying a dear price for the bouyant economy we have enjoyed these past few years that was fueled by cheap credit and an infatuation with homes.

      We will be paying for this for a long time to come.

      Have a look at the divergence in the level of imported goods to the US: Canada versus Mexico. That too is a barometer of our economic health and shows clearly how US buying has shifted South as our costs have increased. So we are losing market share as labour costs have increased and productivity has declined.

      The misallocation of resources to property in our country has certainly played a role. Investments in real estate of all kinds have superceded real investment in productive enterprises and depressed potential gains in efficiency and productivity. We have lost our way and the inevitability of unemployment ramping up in the manufacturing and resource sectors in the future is not avoidable even as the FIRE economy gets squashed by a deflating housing market.

      Just saying…..the young lady interviewed for this article had best consider the security of her own job before jumping into high priced housing. We do not even need interest rates to rise to see real trouble. Negative changes in employment numbers will be very damaging in the coming years.

      “Why Canada’s Economy Is in Trouble”
      http://www.financialsense.com/contributors/sober-look/why-canada-economy-in-trouble

      • Ralph Cramdown

        I’ve come to a similar conclusion, Farmer. I think we were already out of whack when the GFC hit, and low interest rates plus specific housing market stimulus delayed the correction at the expense of a housing bubble — it was all the extra construction of those houses which propped up the economy. Whether you think this was a bad idea or not depends on whether you think we’d be better off going into a (bigger?) recession when our trading partners are recovering, or at the same time they were going through the biggest slump since the great depression. Personally, I think we’ll be better off overall, but that “overall” hides big differences in individual outcomes. First time home buyers in bubbly markets are gonna get creamed. Sucks to be them.

      • Yes Ralph. The kids, first time buyers, Boomers with star in thier eyes and other assorted fools are all going to get creamed. Creamed like soft corn. We were already in trouble in this country well before the GFC struck as you pointed out. The building blocks of a deep recession were already in place 12 years ago and now the momentum of this current corrective process will carry us right into the pit forcing an acknowledgment of the mistakes many have made since that time. It seems incredible to me that anyone (bank economist) can suggest with a straight face that we are going to have a soft landing even though I truly wish that could be the truth.

      • Re that article.
        Wow.
        Look at the differences in unit labour cost US vs Canada.

      • It is really a disaster, Vreaa. Some points on the economy don’t get much discussion here or elsewhere but there are data now verging on unbelievable for our country. Unlike the American’s who do an awesome job navel-gazing and analyzing every data point to estimate how the future might unfold, we here in Canada seem to suffer from a huge deficit in how we view our own nations future. Like a big fat blind spot we just stumble from moment to moment and hope that the government has it all under control. We have become a country that is almost one-dimensional in its thinking as we foolishly rely upon energy to save the bacon and focus all our efforts on wasteful enterprises like housing investment instead of productive enterprises and capital building. Ontario at the heartland meanwhile sinks into the muck of debts and deficits so deep they actually make Americans look like prudent bankers and all the while our indusrial base withers against an onslaught of low wage competitors. Even the staid Fraser Institute now likens that Province to Greece as it struggles to control the expectations of the electorate and fill promises that cannot be kept as its tax base shrinks and business’s are shuttered due to competitive forces from abroad. So austerity is coming home to Canada as the fiscal balancing act surfaces again but most of the public is ill prepared for what that really means. Let me assure you that job losses are on the horizon and we are heading for some very difficult times.

      • It may well be “worse” but I don’t think it’s going to be a Dagoesque ballz to the wallz crash, and even then, when actually living through it, my point is even a severe correction won’t be fire and brimstone but rather a forage through a swamp.

      • To firmly grasp the Macro… you have to wade through a lot of micro.

        Quantitative analysts have their tricks…

        We qualitative types have ours… [hint: AggregatedAnecdotals]

        Narratives like this are particularly revealing…

        [#Bonus’Zen’]

        “It’s really mean. It seems mean-spirited to me. The amount that I was getting paid was pretty brutal … with no benefits, with nothing.”… “You would expect something like this maybe from a smaller business or something, but this is a company that is highly profitable. They can afford to pay people properly.” – Rob Browridge and Tasha Lowe, formerly SHAW ‘independent contractors’

        [CBC] – Shaw broke employment law with contract workers: Former employees believe violations continue despite their complaints

        …“We really thought this would prompt, you know, a big investigation of some sort so that they don’t do this again — and it didn’t. They [government] clearly said that they weren’t going to investigate the company,” Lowe said.

        Human Resources and Skills Development Canada is the department that enforces labour laws in federally regulated sectors such as telecommunications. Both Lowe and Brownridge said HRSDC indicated their complaints would be treated as individual cases only.

        Graeme Moore with the Employment Standards Renewal Coalition believes the practice of wrongfully paying employees as contractors to save money is growing in several sectors.

        “I said in my documents to the government, ‘This is a more widespread problem than just me, one person. Would you investigate it?’ And they said ‘Well, no. We don’t do that. If other people have an issue they have to submit a complaint’,” Browbridge recalled”…..

        http://tinyurl.com/aoffjxk

      • [NoteToEd: I almost forgot… Generally speaking, the ‘fire and brimstone’ are usually encountered after the ‘swamp’… Absent a ‘Deus ex Gandalf’, protagonists typically fare poorly.]

    • Real Estate Tsunami

      My prediction:
      Alice does not live here anymore 🙂

  20. 4SlicesofCheese

    http://www.theglobeandmail.com/report-on-business/economy/housing/brokers-pursue-mortgage-break-for-first-time-home-buyers/article9579327/

    Rob Carrick posted this on his facebook page asking ‘Should the government do something to help first-time home buyers get into the market?’

    I think every reply was no. Times have changed.

    • Agree with the consensus. It is NO, NO, NO.

      Why the hell should taxpayers (many are renters) assist those making mistakes?

      • Ralph Cramdown

        It wouldn’t be assisting those making mistakes, it’s just phrased that way as a motherhood statement; who doesn’t like first time buyers? But they buy from move up buyers who buy from those cashing out — and THOSE are the people who actually benefit, along with the industry players who get paid by the transaction, of course.

      • Ralph Cramdown

        “My concern, Maria, is for… the Country, and for first time homebuyers who are the beginning of the housing chain. And the only way that lower income minorities can get into middle income.. the primary way is through housing.” — Angelo Mozillo, CEO of Countrywide Financial, CNBC interview, March 13, 2007

      • Seriously though…..why should taxpayers at large be party to funding the credit excess and borrowing of those who speculate on ever rising prices? Why should people who never see any real benefit be exposed to the errors of those who gamble both from the public purse and with their own credit rating? How can it be in the public interest that an ongoing housing bubble be floated on the labour of people who have nothing to gain but larger taxes when the chickens come home to roost? Renters in places like Vancouver really have the worst of all worlds. They pay ridiculous lease costs, parking and a share of municipal taxes (if only indirectly) but they have nothing to gain by programs that enrich others who are buying homes with the advantages of public largesse. No to assisting first time home buyers regardless of age or economic circumstances. No, No, No.

      • Real Estate Tsunami

        The cuddly first home buyers, the baby seals of RE.
        Must be protected from the harsh realities of life!
        I say no.

      • Seriously though…..why should taxpayers at large be party to funding the credit excess and borrowing of those who speculate on ever rising prices? Why should people who never see any real benefit be exposed to the errors of those who gamble both from the public purse and with their own credit rating?

        Even on this site, the majority of people seem to think that if the taxpayers are not involved, the world will end.

      • Ralph Cramdown

        OK, let me take the other side. We tried a system where bank deposits weren’t backed by the government (see the century preceding the 1920’s) and it sucked. Now once you agree that the government should backstop deposits, obviously it needs to regulate lending standards; if it doesn’t, you get moral hazard writ large (see the Savings and Loan crisis). Once you agree that the government needs to regulate lending standards for institutions backed by government depositor insurance, then it’s only a matter of discussing what standards are reasonable.

        And if you think we should go back to the glory days of unregulated banks and uninsured depositors, I don’t want to hear about it, because I’ll just chalk it to an ignorance of history. My nose is currently buried in that comsymp JKG’s “A Journey Through Economic Time.”

    • @Ralph Cramdown

      The reason governments insure deposits is bank runs. Once the bank takes your deposit, they use the proceeds as capital guarantees for the loans they give out to borrowers. If there is a financial crisis, the government will back the bank, making sure it’s never the case that too many depositors want their money out at the same time. There is an enormous public benefit for a country with no bank runs.

      With housing on the other side, once you take out a mortgage, you don’t use the money to lend to others, you just pay the seller and the story ends there. I don’t see any public benefit in this situation. The government subsidizes the cost of risk (i.e. banks will underwrite some mortgages they would otherwise not touch with a 10ft poll), prompting homebuyers to take 20x leverage with 5% downpaymens for the wonderful oh-prices-never-go-down homes. And don’t forget, even if the house is CMHC insured, if you stop paying your mortgage, you’ll lose the house. How is this doing the public a service?

      • Ralph Cramdown

        The reason you don’t see any public benefit is that you haven’t studied history. Generally speaking, lenders won’t lend an average borrower money for 25 or 30 years absent a government guarantee. The combination of interest rate risk, inflation risk and credit risk makes this loan impractical. Typically what is offered is a balloon mortgage, where the principal is due before the amortization is up. Many people think that borrowers who give balloon mortgages subject themselves to interest rate risk; comes a renewal at higher rates, the lender won’t be comfortable at the new GDSR, won’t renew the loan, and the borrower is forced to sell under duress. True, but interest rates aren’t the only factor. Lower asset values or tighter credit at renewal can also play a part.

        Many farmers in the great depression, and many subprime borrowers in the Canadian ABCP crisis of 2007 found themselves unable to renew mortgages at the end of their terms even though they had made all the payments and their income and credit situations had not deteriorated. Credit gets tighter, and lenders can’t or won’t renew. The consequent forced sales and/or defaults result in a further tightening of credit, lower asset values, and the spiral continues.

      • EinsatzgruppenVancouver

        @ Ralph Cramdown – god bless you!

        Here fucking here.

        If I had a nickel for every time somebody these days tried to tell me that government intervention in banking is just a bad idea, while having basically zero knowledge of the 100 years that came before the great depression.

        It’s past time to hit people with the history stick.

      • Hey, leave farmers out of this, will ya.

        You are right though, Ralph. You and I will both recall the difficulty of borrowing even for renewals that was the experience in the Eighties. Solvency and credit worthiness suddenly become very important once credit tightens and home owners go for the obligatory renewal. That is when savings, job security and collateral really start to matter again.

        Canadians have had a really long run without being exposed to tight credit conditions. Most just assume they can pop into the bank and get that renewal done like usual. Chop, chop, signature and out the door like the good old days. Thing is that the banks will be taking a closer loook at their personal circumstances especially if the economy weakens.

        They have a bottom line too and will be focussed on reducing portfolio risk. You can bank on that. Their agenda is going to be all about quality loans again which is an idea at odds with a loose lending environment.

        Some people are just going to get cut loose if they don’t have their family balance sheet in order. That will come as a big surprise to many who incorrectly assume that the big banks are simply there to serve them on their own terms.

        The crazy assumption that the banks are like your big brother or a government agency is at odds with the fact the banks are in business to serve the interests of their shareholders……not to babysit those who cannot control their own family budget and save for a rainy day.

        On that note….it is probably not a good idea to piss off the loans officer between now and then.

      • Ralph Cramdown

        The other thing borrowers will be discovering come renewal time is that the posted rate isn’t just for suckers… or they’ve become the suckers. The banks will be offering a good fraction of their customers renewal at posted and not a basis point less, knowing that other institutions won’t be countering, especially with those new-fangled collateral charge mortgages.

      • You got that right, Ralph. The half point discount is going to be reserved for the best customers only and netting in the best fish from the competition.

    • @ Ralph Cramdown

      “The reason you don’t see any public benefit is that you haven’t studied history.”

      Good one, you must be a psychic. I see a great business venture for you – the Psychic realtor, who tells the people when exactly is the best time to buy (we all know the answer though, it’s yesterday!).

      All jokes aside, you have to check your facts:

      “Generally speaking, lenders won’t lend an average borrower money for 25 or 30 years absent a government guarantee.”

      In fact, the majority of Canadian mortgages fall under your description. Other than looking at high-ratio mortgages, mortgage lending in Canada (unlike the U.S.) happens without government guarantees. The 25-30 years you mention refer to amortization, not mortgage terms, so the average duration of a banks’s mortgage portfolio is 3-5 years.

      “…interest rate risk, inflation risk and credit risk makes this loan impractical…”

      No comment here, I don’t have the drive to educate the public by debating with the lowest common denominator.. Plenty of books on FRM on the internet to educate yourself.

      “…many subprime borrowers in the Canadian ABCP crisis of 2007 found themselves unable to renew mortgages at the end of their terms even though they had made all the payments and their income and credit situations had not deteriorated…”

      Surprise, surprise, why do you think they were called subprime? If you want to come back with a “welfare state”-type argument, a much more-effective way to sponsor low-income households is through rent subsidies and community housing, not loads of debt and home-equity lines of credit.

      “Credit gets tighter, and lenders can’t or won’t renew. The consequent forced sales and/or defaults result in a further tightening of credit, lower asset values, and the spiral continues…”

      Until you reach a healthy base of homeowners that are credible enough to handle a mortgage, price revert back to a historical mean (adjusted for income/population growth and inflation), and life comes to normal. No one could have foreseen that, right?

      • Ralph Cramdown

        I think there’s a few subtleties you’ve missed. In the US, there’s a difference between jumbo and conforming loans, and those criteria changed a few years ago. Why? In Canada, CMHC insurance is in force for the amortization period, not the term. Why?

        Your last paragraph is a laffer. In response to a specific post in which I mentioned the great depression, you’re talking equilibrium economics. One of the lessons almost universally learned from the great depression is that economies can operate in very depressed states with high unemployment and low consumption/output for long periods of time, even though those same economies are also capable of operating at high employment, output and consumption.

    • @Ralph Cramdown

      Again, I wish you good luck, it seems that your knoweldge of the mortgage market in Canada is pretty anecdotal, and I have no desire to repeat myself..

  21. What a disgrace

    Wow, so many comments.

    While its nice to see some people who are adding to a constructive discussion, its also pretty sad to see others so quick to jump to (their own) conclusions. Bet you assholes feel pretty good about yourselves huh?

    Don’t believe everything you read.

    • Alice? Is that you. I would like to hear the other side of the story if there is one. There is always more to know from a different perspective and sometimes the Media does a bit of a hatchet job for simplification and easy digestion of a story.

  22. Pingback: Two House-Warmings In South Surrey – “One thing I noticed is that no one talks about home prices going up anymore. They talk about how expensive Vancouver is and how prices will drop there, but not where they live.” | Vancouver Real Esta

  23. Real Estate Tsunami

    So many comments and no secretary jokes.
    Congratulations.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s