“I don’t think that most people think things are going to crash, just that there is going to be a slight correction, but it was amazing to me how sentiment has changed, and the fact Vancouver RE is too high was just understood.”

“Investors Group (I know, I know,) came to my office for a lunchtime seminar a few days ago. (Talking TFSAs, how to reduce your taxes, etc,). Anyway, it was open to everyone, and there was over a hundred people there. Without giving away too much about where I work, there are a few administration types, and then mostly people with professional designations or MBAs / PhD’s.
The presenter mentioned Vancouver’s Real Estate Bubble a few times, and said that everyone was talking about ‘how we are in a bubble.’ I scanned the audience each time, looking for shock or surprise, but everyone had a look of acceptance, like yes, of course we are overpriced. I don’t think that most people think things are going to crash, just that there is going to be a slight correction, but it was amazing to me how sentiment has changed, and the fact Vancouver RE is too high was just understood.”

Yellow Helicopter at VCI, 15 Mar 2013 9:48am

50 responses to ““I don’t think that most people think things are going to crash, just that there is going to be a slight correction, but it was amazing to me how sentiment has changed, and the fact Vancouver RE is too high was just understood.”

  1. Dare I say that maybe there were even a few property owners (self users/investors/specs) in the audience that have done well holding back a smile in shame? And a number, at the other end if the spectrum, who may be concerned too.

    • How many of those of have “done well” have actually cashed out? Because if the market crashes, many of them will be stuck holding an illiquid asset all the way down.

      • Well, that depends on when they bought and whether the market actually ‘crashes’.

        Why would one sell their primary residence now if they bought before 2009 and can service the debt?

      • You’ve dodged the question.

        And you included “investors” and “specs” as people who may have “done well”, not just those who own property as their principal residence. So my question stands.

      • I can’t answer that question, as you know. Don’t mind me, if I cause you aggravation, I just like to throw in ideas and less melodramatic views out there for discussion sake.

        Like I say, this blog is brimful of contradicting views. Where yin and yang meet and salute each other.

      • @BLM hrm I did it to crystallize an after tax profit that would have taken me almost 13 years to earn at my job (I make well over $150k/year). Seemed like a pretty easy decision. I can also say no debt trumps any amount of cheap debt all day every day. In the interim I have seen the “investor” who kept telling us he was tearing down and building the second we left end up renting the house to two students for a year, our neighbors listed a few months after us a similar property and have only seen low ball offers in almost a year of having the house listed on and off. People are trying to bail out a boat after the water is coming over the sides and the drastic drop in activity is like cement shoes on those who bought any time after about 2000. What is coming may not be a crash but when my kids come to by RE, if they are still in Canada, I fully believe the market will be lower and more importantly the industry will be run and regulated in a very very different way.

      • DoubleDown – You are indeed fortunate. Others have done the same and now have a stockpile of cash waiting to re-enter the market with record low rates. Hence, one of my arguements for why a crash is unlikely.

        Now, where are you going to invest your money? Or have you already bought a cheap place and paid in full?

        If you’re now renting and your cash is not earning any meaningful interest, then it becomes a race to see if your profit or real estate prices deplete faster.

        In any case, you have made a ‘short’ trade on the market which makes you a speculator.

      • Funny I sold too and I am waiting to re-enter the market. Meanwhile I am making lots of money with the cash in US equities, at the same time as Vancouver RE prices are falling. I will wait for the crash as capital flows out of Canada, and especially out of Vancouver RE, continue to accelerate.

      • BLM: Canadian household debt is at record highs, as are home ownership rates. There’s not much money on the sidelines, as you imply.

      • Pdub – Congrats to you too and you’ll likely do well re-entering the Vancouver RE market. US equities have a lot of support right now but it could swing downwards very quickly if we enter a risk off phase again. Anything can happen with the Eurozone in mind.

        I do hope you realizing you’re speculating though, and unless you are highly leveraged, equities are riskier and more volatile than RE.

        El Ninja – household debt, as I pointed out in previous comment, don’t tell the whole story. It could point to more auto loans which were taken because they are often 0% which makes sense to take even for buyers who can pay in full. Student loans are growing these days too but fresh graduates are hardly RE buyers. Thirdly there is a ever growing class divide due to loose money. We need to see the the aggregate assets from those who hold the record debt to see if we really need to be worried.

      • Good to be out

        Fortune does not always smile upon you twice but that is exactly what happened to me. I was not an investor when I bought my west side home in 1998, but in 2009, like homeowners all over I watched my home value plummet and my paper wealth evaporate before my eyes. Because of my job situation, and other investments turned sour, I was in a pretty bad spot and considered selling my house, for fear of being completely wiped out. Fortunately, I did not sell and when prices in my neighborhood rebounded to their former highs and then rocketed another 30% higher to what I considered to be totally unsustainable levels, I decided that only a fool would pass up a second opportunity to harvest such a massive non-taxable capital gain, and in 2011 I listed and sold my place at what in hindsight was pretty much the top of the market for my area. I suffered a little during the following year, anxious that maybe I had made a huge mistake, but now two years later I can comfortably say it was the smartest decision I could have possibly made, and I can’t even begin to describe the feeling of calmness I have these days, as I watch from the sidelines as Vancouver’s RE market crumbles.
        I may or may not buy back into my old hood in the future, but if I do it won’t be before prices have dropped at least 40% or more. I’ve even come to think of my action as my own personal way to “short” the Vancouver RE market. And if prices don’t revert to the mean no big deal as there are plenty of other BPOE’s to be discovered elsewhere in this big world. In the meantime I’m renting (wife and kids transitioned just fine), and sitting on a pile of cash until the time is right.
        In short, my life is changed forever. Thanks to the unfortunate souls that bought my place; I’ve got big time cash in the bank and zero debt. I have extra money to invest (mostly just cash for now), money to help my kids through university (started), money to travel (done), money to take time off (done), and even money to buy a summer cabin on a lake to take the “edge” off renting (done). If all goes according to plan I should have enough to buy back something comparable to my old house in my old neighborhood, in about 24-30 months according to my best guess. If anybody can identify the downside in this scenario I’d love to hear it.
        For the record I’m a regular guy that earns a slightly above average salary. While other homeowners were taking out LOC’s or spending all their monthly earnings in order to enjoy life to the max, I would apply my surplus savings at the end of each month to aggressively pay down my house mortgage and invest in equities. Life was still quite bearable and I didn’t really need all that extra stuff anyhow.
        I’m only 50 and I could just about retire if I wanted to now, all because of a single simple decision. I used to think I was a bit of an oddball because I lived below my means. Now it turns out I’m a fucking genius compared to my neighbors. I’m pretty sure only a few will end up as lucky as I have.

      • We have a winner. Nice job, man. Congratualtions. You will be amongst the few.

      • Yellow Helicopter

        Congrats Good To Be Out!

      • Good to be out -> Thanks for sharing your story. I will headline it Monday a.m.

    • Equities are riskier than real estate? In what way? Equities are more liquid. They can easily be valued upon earnings, cash flow, assets, liabilities etc.. Equity markets might at times be more volatile but if you have done your work you need not be distracted by that. You are the model of muddled financial thinking. I do not think you understand what speculation and risk are.

      • @Pdub – Equities (public stocks, private ownership of companies) are inherently and legally much more riskier than fixed income assets (which I will group RE into for the sake of this discussion).

        Banks agree.

        If we regular folks walk into a bank and ask to borrow money with 25% down to buy shares of a Fortune 500 company we would be turned down.

        It is absolutely fine to say equities offer better value now than fixed income assets (bonds, RE, etc..) but make no mistake, equities are riskier and offer little recourse should a company go under. Bondholders and RE at least offer some recourse.

        Leverage can twist the equation, of course, and you would be referring to buying equities with no leverage Vs buying RE with high leverage.

        RE can be uncorrelated to speculation. Equities is speculation anyway you cut it. To sell your primary home and to put the money into equities in itself is speculation.

        Pdub, I mean well. I may come across as a bull (and to some even a bullsh*tter) but I’m not (the former, at least). RE prices may well go down further or it may stabilize at levels not far from where we are now. I argue for the latter based on my views of the global economy and anecdotal evidence from many sources (partly why I ‘troll’ this site, you might say).

        Don’t take what I say personally. Above all, I’m just here to play a bit of devil’s advocate. To test whether my views are sound.

        Stuff like the new whistle-blower tax incentives are much more interesting to me than sentiment and pure fundamentals from a local level.

        Cheers!

      • @Vreaa – my reply is in moderation. Grateful if you do the needful!

        [done -ed.]

      • There is much more to risk than just legal recourse. And it is a very broad generalization to say all buying of equities is speculation. There is risk in any investment. What is important is the investor/speculator’s ability to understand and manage any risk.
        I did not sell my home, put the money into equities and take off to Europe on a whim. I did my calculations, understood the risks and managed my affairs so my risks and returns were in appropriate balance.
        The greatest risk is ignorance. We have had many examples of late of people piling into markets seriously divorced from any fundamentals. I know people who will lever to buy another Vancouver investment condo but think I am a madman because I hold equities and sometimes sell options. My advantage is I understand what I am doing and if i dont i wont do it. They still believe RE never goes down, despite the example from south of the border.
        I notice you use much of the reasoning taught in finance courses. Remember, while finance profs might be bright guys they also brought us the global financial crisis through their ignorance of the risks in modern finance.

  2. Ralph Cramdown

    That presenter was working for me. How did he do?

  3. …”Memes can be transmitted between any two individuals (“horizontal transmission” or “multiple parenting”). In that sense they are more similar to parasites or infections (cf. Cullen, 1998). “…

    http://pespmc1.vub.ac.be/MEMES.html

  4. WikiNeme, you are most prolific.

  5. I blame spineless bloggers and a complicit media catering to fear

  6. see how inappropriate yoga wear is problematic … http://tinyurl.com/d5xgjg2 … ps. c depositors still holding downward dog … surely one helluva run for bathroom after class … how instructional … pffft!

    • pffft!…. There’s an ‘EasterEgg’ lurking somewhere in that NewGravatarGallery, RJ…

      • rod_jonsson

        il plumpster! … 🙂

      • GravatarGallery+3

        [NoteToEd: Dr. R always said… if you’re going to answer TheCalling… cont…]

      • [NoteToEd: Cont… you’ve got to become {if you aren’t already}… a “MMM”. Needless to say, he quite knew what he was talking about.]

      • “Before the game is afoot, thou still let’st slip.” – Shakespeare’s King Henry IV Part I, 1597

  7. Wish I could be sure a big correction is underway, but I’ve seen a lot more SOLD signs than I expected over the last two weeks. Granted, the sellers probably are not getting their frothy dream price, but they’re still getting way over what economic fundamentals justify.

    • Big corrections take time. I remember in an earlier life the rush to buy Nortel stocks after the first huge leg down. After all, it was now cheap compared to what it had been, even if the fundamentals were still awful. And there was no way it could have any more to drop after such a huge decline.

      • pricedoutfornow

        Yeah, I remember saying something to a coworker about Nortel being a dud company, on its way to bankruptcy. My coworker looked at my like I was saying something ridiculous. “Nortel is a big company, it’s not going anywhere, you should buy the shares” (the shares were about $6, this was about 2003). Now look where they are today (never mind, you can’t, because they don’t exist).
        This same coworker bought a house in Vancouver for over $700k, a few years ago, after renting for years. I bet she would have the same look of disgust for me these days if I suggested a housing bubble.

    • Real Estate Tsunami

      There have been some signs of activity lately, but from what I gather it’s current owners are either up or downgrading.
      Personally, I know two cases.
      So 2 sales are actually just 1

    • Spring season is more noise, less signal. The “heavy lifting” of price drops occurs from about October through March. Don’t believe your lying eyes

    • Yellow Helicopter

      It is busy, and I’ve seen a lot of sales in the sub $750k range. Nothing above that seems to be moving, however. Think that after Spring season is over that prices will drop down…

  8. Nortel, I hate that stock, bought at ~$150, sold at $1.

    • Real Estate Tsunami

      Not many people would admit that.

    • i.see.debt.people

      “Follow the herd mentality” at its finest.
      If you hate Nortel, what about the ex-Nortel employees on Nortel pensions? I think they fared worse.

      • UBCghettodweller

        I know someone exactly in that situation. It’s not without some irony then that she recently sold her Toronto home in a rather sexy neighbourhood for huge gains over what she paid for it in the early 90s.

  9. this world-class city, hometown of 1-800 got junk….is not in a bubble

    • According to April 2013 Vancouver Mag, what makes Vancouver such a world magnet and defining city also includes such great companies as Lululemon, and Plenty of Fish!

  10. A Nightmare on Bay Street

    Did the recent buyers read the small prints before they signed ?

    It says “you got punked”.

  11. OMG OMG OMG!! You have to profile this VREAA!!! I just flip through April 2013 issue of Vancouver Magzine’s cover story about Vancouver RE and it is unbelievable! Unfortunately it’s not online yet at http://www.vanmag.com so I can’t link. But maybe you can read it at your local London Drugs or something. It is simply unbelievable the extend they try to convince people that Vancouver RE is still cheap by global standards. Two things struck out at me.
    The first is a map of Vancouver, Burnaby and North Shores redraw with new neighborhood names like – Hanoi for most of Burnaby, Macau & Kew Gardens for UBC, Downtown Abby for Cambie from Broadway to 41st, and then North & South Yorkshire from 41st to Marine Drive, Queenstown and Gaslamp Quarter for North Van, and Brighton, Monte Carlo, Chamonix Mount Blanc for West Vancouver. Unbelievable!!

    The second is they tried to dispel the myth that Demography Survey tries to peddle that Vancouver is expensive by world standards. They gave these reasons why you shouldn’t trust that survey. One the survey only included 7 countries and excluded most of the world including Asia, Africa and South America. Second the backers of the survey is an ultra conservative right wing think tank that opposes any idea to moderate car use. As a counter example, they used data from a Serbia based crowd source website http://www.numbeo.com that shows on a price to income ratio, Vancouver is cheap, cheap, cheap, especially compared against world class cities.

    The comparison they did claim to show that a desirable house in 7 cities with higher price to income ratios – Phnom Penh, Rome, St. Peterburgs, Tel Aviv, London, Mexico City, and Melbroune – all require you to spend the same for less square footage, less lawn but more history. However there are three problems that really got my blood pressure up.
    1 – Vancouver is the second expensive at $2.088M while the most expensive is London 2000 sq ft 30th floor condo with landscapped roof in Zone 1 @ $5.616M. The Rome 1500 sq ft condo come close to Vancouver @ $2.077M while the rest range from $360K to $1.38M. So they aren’t comparing apple to apple based on similar price or housing.
    2 – The desirable house in Vancouver they picked is a 4 bed 2 bath house near King Ed Canada Line station and they describe it as TEARDOWN! Let’s just let it sink in for a minute. An example of a desirable home in Vancouver is a teardown on a busy main artery road!! WTF?!?!
    3 – They didn’t give exact how the income in the example they took is calculated or what is based on. The Vancouver home @ $2.088M is given a price to income ratio of 10.74!! That means the lucky family living in this desirable teardown home is making $200K/yr in family income!! That’s not an average family income, that’s more like the top 5% if not top 1% of family income in Vancouver. I have trouble believing a family making $200K/year will be happy to live in a teardown. The lowest PI ratio for other cities range from 10.08 for a $610K 970 sq ft condo in Melbourne to 45.45 for a 1.38M 5 bed, 6 bath furnished villa in Phnom Penh.

    I can’t believe this!! This is really taking manipulation and RE is cheap in Vancouver argument to a whole new level!

    • No kidding… Bet you didn’t know that in TelAviv your RE NewShekel goes just that little bit further, Space889… All NewHousing includes a SafeRoom that meets or exceeds NATO NBCD standards.

      [NoteToEd: The WarOfTheMemes is on. There will be casualties. We shall prevail, nevertheless.]

    • You know, if shit like this is still being printed, it should tell everyone that Vancouver real estate isn’t expensive enough. It needs to be even more expensive before we’re going to see that bust.

    • Thanks, space — will pursue.
      Send a link if it pops up online.

  12. The Crate and Barrel was busy yesterday. So there’s that…

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