“The ‘investor’ who purchased our house put it up for sale two months later, in January 1981, but the bubble had burst.”

“Ah, Vancouver. How quickly we forget. We moved to Vancouver from overseas in July 1979, bought our house within ten days the market was heating up – a fixer upper on the westside, Pt. Grey for $105,000. Totally renovated new heating, plumbing, electrical, some cosmetics for $25,000. By July of 1980 the market was on fire, prices were increasing weekly. There were no bidding wars I think it was illegal at the time, but mortgage rates were in the area of 20-21%. We decided to get out, and tried to sell the house by ourselves: first week of August listed for $235,000, no bites. Second week advertised for $245,000, some phone calls, one showing. Realized sheeple would only believe agents’ pricing. Got an agent who evaluated/listed it at $265,000. The house sold in 6 weeks for $254,000. Here comes the good part: we gave a first VTB [Vendor Take Back] non-transferable mortgage for $180,000 at 18% for one year, moved to Windsor and bought a bigger, newer, renovated house in the best neighbourhood for $125,000. It gets better: The “investor” who purchased our house put it up for sale two months later January, 1981, but the bubble had burst. He sold it just before his mortgage was due for $180,000. In one year, he lost $74,000 of his down payment plus the $26,000+ he paid us in mortgage payments, plus taxes, closing costs, agent fees for selling the property. Not counting, I’m sure, what it cost him in nerves. He who does not know history is doomed to repeat its mistakes.”
diva at greaterfool.ca 15 Mar 2013 9:58 pm

And, to round the story out, that same property probably hit recovery in real terms over about 20 years (by about 2001 it probably would have been selling for about $500K, which is $254K in 1981 dollars, inflation adjusted).
And by 2011 the same property was ‘worth’ $1.7M, given the action of our 2001-2011 spec mania. It is now, Mar 2013, likely worth 10% or more below that (sans rebuilds etc.)
After the current bubble bursts, it’ll be interesting to see if real prices recover within 20 to 25 years (that’s what it took on average last time round).
It’ll be particularly intriguing if, in the coming trough, houses like the one described return to their inflation-adjusted 1980 peaks (in other words, about 66%-off). That’d be really cute, and something that’d get the TA guys into a tizzy (it’d look cool on the charts).
66%-off is the very high end of our guesstimate for the trough; we suspect 50%-off is more likely.
– vreaa

71 responses to ““The ‘investor’ who purchased our house put it up for sale two months later, in January 1981, but the bubble had burst.”

  1. That time was different because it wasn’t the same.

  2. Had the new owner not sell and held it from 1981 to 2001, would the interest on the mortgage paid during that period be more or less than rent? (I don’t know)

    Things are different now* with assets being priced with much better efficiency thanks in part to international capital flows and globalization.

    There is more M2 money supply (meaning cash in circulation and in short term deposits) in Canada’s economy than ever before in its history. M2 is a key indicator for inflation.

    http://www.tradingeconomics.com/canada/money-supply-m2

    Surely that provides a floor to pricing in the foreseeable future, somewhat. Where else would the money go? After all, a currency is called a currency as it needs to move like electric currents for the system to work.

    *I know, I know

    • “Things are different now* with assets being priced with much better efficiency thanks in part to international capital flows and globalization.”

      Are you sure of this?
      ..or are those ‘international capital flows” simply facilitating much bigger asset bubbles ‘n busts?
      [You’re implying (in this and other comments) that you believe that Vancouver RE is ‘efficiently’ priced, in other words that the prices reflect fair value; we disagree strongly with you on that point. Vancouver RE is in a bubble.]

    • Wow! The evidence of recent years certainly does not support the conclusion capital flows and globalization are leading to more efficient pricing. Globally we have had bubbles in housing (USA, Ireland, Spain, Australia, Denmark, Netherlands, Canada etc), in equities, in risk, in commodities etc etc. There might be more efficient pricing in many products in competitive markets, but the outliers are regular, numerous and destructive.
      Where else would the money go? Experience shows us it will find somewhere to go but it will not be into Vancouver RE.

    • Real Estate Tsunami

      Sons of HAM prefer M3. More horses.

    • Things are different now* with assets being priced with much better efficiency thanks in part to international capital flows and globalization.

      Didn’t your realtor tell you that all real estate is local? Or does that apply only when *other* markets are crashing?

      • I thought the efficient market hypothesis was dead and done (aside from textbooks) in 1987, wait… 1997….no, 2001… Hmmm maybe 2008? Apparently still believers left.

      • groundhogz -> Yeah, agreed, see my comment below; anybody who’s watched markets and still believes in efficient market theory must be capable of profound mental gymnastics and self-delusion.

  3. Real Estate Tsunami

    Fondly remember those days.
    Bought my first house for 54k just before the prices took off like crazy.
    Just pure luck. My neighbor sold his almost identical house 6 months later for 108k. The poor sucker who bought it was a Chartered Accountant. Thought he’d be priced out forever. Shortly afterwards the bubble burst.
    Good times. Where is Nelson Skalbania now?

  4. In an earlier life I was working for this horrible marketing company off Lonsdale. Their lead salesman tried all the time to get me to buy this piece of crap property his wife had speculated on at the height of the 1980 boom. This was 1986! I told him to get stuffed and stick to promoting Esso Expo 86 contests.

  5. Vreaa – I respect your views but….. between the macro and local stats, it’s just hard to see a crash. That’s not to say it can’t happen, because anything can, even a crash after a crash.

    When banks aren’t lending irresponsibly, and Canadian banks never did to the degree of the US pre-2008, and international capital flows are influencing the pricing of Canadian RE, then yes, that would reflect efficiency in pricing. Slap an ad valorem tax or anti speculative measures of some sort and that would impede on efficiency.

    The fact is, new immigrants and overseas investors ARE playing a role. To disregard them when they exist to find fair value in Vancouver RE is denying reality.

    As it is, bubble or not, pricing is efficient even if greater fools or safe haven investors are involved.

    As for more frequent and bigger booms and busts due to ever increasingly connected financial systems, no one can say. Economic historians will no doubt be studying our era to learn great lessons!

    Further note: Let’s say markets for whatever reason go back to inflation-adjusted prices, wouldn’t there be an inherent increase to Vancouver’s RE value with what is now a better infrastructured city and a reputation for being a desirable destination for immigrants?

    • 🙂 … http://tinyurl.com/bxzgdyc … ps. the high net worth are not some homogenous block … some are levered out on spec while others stay small and lowball distressed stuff

      • You’re right, they’re not but as a whole, they are strong and play an important role in influencing the market.

    • “efficiency in pricing” is not equal to “higher pricing”. And Vancouver is loosing its reputation for being a desirable destination for immigrants as the high RE prices limit it, we have discussed it here in details. The stats prove that the net population growth is on its lowest point for the year 2012, the link was posted here couples days ago.

    • Cyril Tourneur

      “When banks aren’t lending irresponsibly, and Canadian banks never did to the degree of the US pre-2008, and international capital flows are influencing the pricing of Canadian RE, then yes, that would reflect efficiency in pricing.”

      That’s where you are wrong, Canadian banks are exceedingly irresponsible and have have virtually no skin in the game due to CMHC. US mortgage market was bailed out after the fact, CMHC is a pre-bailout. The presence of explicit taxpayer backing in the Canadian mortgage market has created enormous moral hazard and Canadian RE prices are anything but efficient. Way too much interference.
      http://murraydobbin.ca/2013/03/11/1209/

      • CMHC certainly played a part but they aren’t the sole reason. A equal or bigger factor can be attributed to the popular reception of Canadian covered bonds which have helped increase Canadian bank liquidity enormously and therefore allowing them to issue more loans. CMHC did play a part here too by guaranteeing a portion of these covered bonds.

        It all comes back to markets being flooded with money and Canadian assets (in this case Canadian bonds) being highly coveted by foreign investors. The paradox here is if Bank of Canada raise their rates it will only make our bonds (and assets) more popular.

        This is off topic you can read about covered bonds and make your judgement. Happy to further articulate in detail if you’re not familiar with this but it is off topic and I might get a slap on the wrist by vreaa.

        The point is Canadian banks are solvent and will remain so even in the event of a crash.

      • Cyril Tourneur

        Yep, banks solvent. Taxpayers and households not so much. That’s my point.

    • BLM: barely know where to start here: a few of the things raised in this comment of yours:

      ..between the macro and local stats, it’s just hard to see a crash.

      Well, “the macro” has allowed for crashes in RE just about everywhere else in the world… how’s it going to protect Vancouver?

      And regarding “the local” — are you aware that Vancouver RE prices are somewhere between 2 to 3 times those supported by rents? Are you aware that The Economist judged Canadian RE (nationally, not Vancouver, which is far worse) to be 70% overvalued judging by rents?

      “When banks aren’t lending irresponsibly…”

      You’re simply repeating a myth. Canadian banks have may not have been quite as irresponsible as those in some parts of the world, but they have been irresponsible enough to fuel a giant mania. They have given out 10% down or 5% down or even 0%-down, 25 or 30 or even 40 year amortization mortgages, the vast majority of which have to be renegotiated within 5 years (no 30 year term mortgages like in the US)… All of this loose lending has fuelled the bubble. Local borrowers have been allowed to uber-overstretch, and in doing so, they have pushed prices way above those determined by underlying fundamentals.
      [I see Cyril has addressed this above]

      “The fact is, new immigrants and overseas investors ARE playing a role. To disregard them when they exist to find fair value in Vancouver RE is denying reality.”

      Yes, they do, exist.
      Overseas investors (true foreign money; not locals who are immigrants) have had a small direct and very large indirect effect on prices. The indirect effect is that the story of hordes of foreign investors have driven locals into speculating (using very similar arguments to the ones you make). Regardless, all of this has driven speculation… the buying that is premised on the idea of ever rising prices. It is momentum investing. When prices start dropping, all of this ‘demand’ will become supply. Just watch.

      ‘New immigrants’ – immigration figures to BC in recent years have been below average and very very modest. You likely saw recent figures cited on this site.

      “As it is, bubble or not, pricing is efficient even if greater fools or safe haven investors are involved.”

      That statement makes absolutely no sense.
      “Efficient pricing” implies that something finds a price close to its fundamental value, and stays near such a pricing, because the players in the market are good at assessing that fundamental value.
      Talk of “greater fools” and “bubbles” imply that prices are far from their fundamental values.
      After the gyrations of the last 15 years, anybody who still believes that there is any market in the world where pricing is efficient, really isn’t paying attention.

      “Economic historians will no doubt be studying our era to learn great lessons!”

      Yes, but all of us have to make decisions based on evidence currently available.
      You’re saying Vancouver RE is a buy; I’m saying far from it.
      Stay tuned and we’ll see how it plays out.

      • The Economist also rates the cost of living in Moscow and some African country as one of the highest. Indexes are no more valuable than an opinion based on select data.

        I definitely am not saying Vancouver RE is a buy. I can see it making sense for some (more than most here believe) and that is where we differ.

      • BLM -> “I definitely am not saying Vancouver RE is a buy.”

        In that case, I’m really not sure what you’re saying.

      • I’m saying prices are reflective of the demand that is out there (both end users and investors). And that while a correction is possible, a crash of 50% or 66%, as you commonly refer to, is highly unlikely due to macro considerations.

      • BLM -> It’s still not clear what you’re saying.
        You appear to be chatting around a variety of issues (and tying yourself in knots along the way).

        For instance: You don’t think Vancouver RE is a buy, but you think prices are “reflective of the demand”?

      • Vreaa – ie the market is only for the lowly leveraged or cash buyer/investor. We just don’t know how policies will change. But demand is there to support prices.

      • BLM says “the market is only for the lowly leveraged or cash buyer/investor. We just don’t know how policies will change. But demand is there to support prices.”

        The ” lowly leveraged or cash buyer/investor” makes up, what?.. 8% of the market? 3%? even less?

        “We just don’t know how policies will change.”
        Who, up until this point, said anything at all about “policies”.. We aren’t discussing “policies”, we’re discussing the market.

        “…demand is there to support prices.”
        So, Vancouver is a buy.


        It’s sometimes challenging to assume that you are discussing in good faith, and that you aren’t being purposefully elusive.

    • 4SlicesofCheese

      Cash buyers are the exception where you seem to imply they are the norm.
      Immigration is not new, maybe from china but that factor has already been factored into pricing.

      The crazy deviation from norm is not sustainable.

    • LOL everyones an amatuer enonomist.

  6. Real Estate Tsunami

    Better infrastructured city. You gotta be kidding me.

  7. Right, urban sprawl. Vancouver is somewhat efficient by North American standards.

  8. Skytrain is definitely not a joke. It’s a proven and load-tested ALRT system that operates on dedicated right-of-way and with very high reliability. It’s capacity per train is not quite as high as a traditional North American “subway” (e.g. New York or Toronto) but this is mostly compensated for by dramatically tighter headways between trains (made possible by the driverless system). During rush at many stations downtown you can have trains arriving every 60 seconds or less. You do NOT see that in New York or Toronto. And we still have room to expand by adding more cars onto trains (with the possible exception of the Canada Line and it’s shorter platforms).

    • Real Estate Tsunami

      You’re right about the Canada Line. already close to capacity.

    • Vancouver Hipster

      Andrew
      Have you ever been to a decent subway system outside of Vancouver, let alone NYC?
      That’s the problem with most people who have never traveled much. They argue about this faux Vancouver superiority which is sooo..annoying

      • Real Estate Tsunami

        Skytrain is not a subway. Only a small part is underground.

      • People in Vancouver should experience the MTR in Hong Kong – that is a very efficient system that manages the huge amount of commuters without the glitches that seem to plague our system. I have fond memories of my first visit to Hong Kong (only five years ago) when I attempted to tip the woman assisting me into a hotel transport (yes, cabs and hotel buses meet up at stations) – she declined the tip saying “oh no, Hong Kong is a full service city”. Imagine getting off our lousy sky train from the airport and trying to find a cab a Georgia & Granville.

  9. 4SlicesofCheese

    http://www.bloomberg.com/news/2013-03-21/hong-kong-homes-face-20-price-drop-as-banks-raise-rates.html

    Even one of the top international finance centers of the world and the gateway to Asia is not immune to price drops.

    • “But, but …[place hand waving arguments based on population growth and money supply growth here]”.

      • Hong Kong does not have a central bank that can control its own interest rates. The HKD is linked to the USD and therefore US interest rates. In what is one of the world’s freest economies, capital from around the world from Zimbabwe to China to Europe have flooded here. A crash here is even less likely than Vancouver but of course there is political risk in this part of the world.

    • Don’t get me started here, mate. You’ll keep me up all night in a debate.

      I moved to Hong Kong because of work and the effects of high property prices here are much more pronounced than Vancouver. It is painful to say the least but it is reality.

      Vancouver beckons so believe me, from a personal stand point, I too hope for more reasonable prices.

  10. @blm … everyone wants to know …
    – would you have issued the yoga pants recall? and why?
    – can you listen to all of this … http://tinyurl.com/afy25qc … without moving?
    ps. while looking into the bend-over test, i discovered chip was alledgedly susceptible to the rand thing and probably responsible for this … http://tinyurl.com/azamhz8 … pffft!

  11. I’m sorry, but no article can be taken seriously when it contains this statement:
    “Here comes the good part: we gave a first VTB [Vendor Take Back] non-transferable mortgage for $180,000 at 18% for one year, moved to Windsor…”

    • hahaha
      Also, one thing that was left out of the story is how much the market value of the house in Windsor proceeded to fall.

  12. BLM, I tip my hat to you. Your troll has been epic, and you’ve gotten VREAA uncharacteristically riled.

    In a few posts you casually implied almost every domonstrably false excuse, myth, and misconception that this site was designed to address:

    HAM did it, and the fact that it happened is proof that HAM did it

    Fundamentals don’t apply here (or some other fundamentals apply that we don’t understand, and the fact that it happened is proof of that)

    Demand did it, and the fact that it happened is proof of demand

    BPOE for HAM

    BPOE for international investors looking to park wealth in a secure investment

    etc.

    My favourite was your pseudo-academic circular logic about covered bonds being secure because Canadian RE is secure, and Canadian RE being secure because covered bonds are secure.

    VREAA should archive BLM’s posts under a “using financial and econ terms to obfuscate a fundamentally flawed argument” banner.

    • LOL. That was funny. +2

    • +3 =)

    • Unfortunately, BLM’s muddled thinking is typical of many professional economists. Recall they denied a housing bubble was possible in the US, some well into 2008, long after the housing market had crashed. Plus they denied a financial crisis was possible because large financial institutions risk management was so sophisticated it made a financial crisis impossible. Some denied right up to the days when Lehman and AIG fell.

    • Well said, Burnabonian.

    • Burnabonian – thank you. This forum is brimful of tantalizing views. Where yin and yang meet and salute each other.

      RE: HAM, they exist (not necessarily hot as they are sticky) so they ARE part of the fundamentals for Vancouver.

      RE: Covered bonds, I do know them well and am an observer of the market through my work. They are secure as secure can be. Perhaps one of the safer Canadian asset that foreign institutional investors can buy. Unlike toxic US CDOs that go off bank balance sheets when sold, covered bonds remain on bank balance sheets even after they’re sold – meaning the banks continue to be on the hook if someone defaults. A safe bank funding instrument that has been used for over 400 years in Europe but only recently gained traction in North America since 2008. Admittedly, CMHC had been in the business of further guaranteeing these bonds, which helped to lower even more the cost of funding for Canadian banks and thereby making mortgages cheaper. Anyway, the point is that we have capital flooding into Canada on a grand scale, through Van RE, through bond markets/financial system and it is unrelenting hence the higher CDN over the years. With all this liquidity, the money has to go somewhere, doesn’t it?

      • CanuckDownUnder

        I’m glad we’ve cleared that up. Sticky hot Asian money… SHAM!

      • Trees. Forest. Trees. Forest. Trees. Forest.

      • 4SlicesofCheese

        I am really curious, you seem knowledgeable about what happen in the states, do you think you would have been one of the whistle blowers during that crisis if you were in the position to?

        There were a lot of supposedly smart people commenting against a bubble throughout the process and they either actively chose to ignore it or genuinely missed it. Could that be the case here with you now?

      • 4SlicesofCheese – I was in the camp that was astutely aware of the problems but were unsure of the fallout, its scale and timing. The bubble that fueled the US market was reckless, NINJA loans, CDOs, etc.

        What we face today is very different. Cities with broader international links from London to Singapore to Vancouver are seeing real wealth from emerging markets recycled into their economies. That’s not to say there are marginal speculators out there who should have no business in Van RE.

        To answer your question, yes, things could go awry should monetary, tax, immigration, etc. policies change. Or some major event in the Eurozone. As it stands, I don’t see any changes to macro conditions and I don’t believe sentiment change alone, as some bears argue, is enough to sustainably drive down prices to levels last seen in the early 2000s.

        Unless the markets become holy monks, capital and credit will find a release one way or another.

      • Correction: That’s not to say there AREN’T marginal speculators out there who should have no business in Van RE.

  13. “using financial and econ terms to obfuscate a fundamentally flawed argument”

    haha I’ve tried to convince myself too.

    (Truth be known, the balance of evidence does not rely on macroeconomic arguments relating to abstract and qualitative thingies like capital flows and terms of trade, it relies on simply accounting.)

    • …pssst, Dr. J… Having been exhaustively pre-occupied by assorted silly abstractions and the near-onanistic pleasure of juggling/admiring my QualitativeThingies I lost all track of time…and then – following a QuickSkim of the foregoing – my fortitude abandoned me. I just couldn’t read any further… so, did I miss anything? On second thought, don’t answer that… DearReaders who aspire to GoatSkins and LifeOutsideTheCave may begin here:

      http://www.rep.routledge.com/article/P059

      [NoteToEd: Good’Ol Dr. W… “How do we know, what we ‘know’?”]

  14. Leaving 604 very soon!

    Whats the point of discussing something back in 1979?
    Can’t people’s mind just move on?
    Funny!

  15. Bike lanes in DT Vancouver destroyed my friends business. The guy had to shut down his business. Wake up Mr Mayor…

  16. Back during the halcyon days of the tech bubble my broker invited me to a presentation given by HSBC at the Waterfront Hotel. It was invite-only high-net worth individuals (oh, and the gifts bags they gave!) but the long and the short of it was how the stock market was the place to be. The speaker (someone relatively famous, lost in the fog of time) gave a slide presentation showing how real estate was a terrible investment because when it went up, it invariably went down. I remember how dramatic the graphs were and the funny thing was the curves, in retrospect, looked very predicable. The graphs, by the way, started in the 1870’s, apparently the first housing bubble that was chronicled. Well, we all know how the tech bubble played out (and I no longer am the recipient of lavish gift bags) but I think ignoring history is sticking your head in the sand.

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