“Vancouver is an urban resort whose value mostly resides in its real estate and not much else.”

“Many of these people are filthy rich and treat Vancouver as the gorgeous playground that it primarily is. These are global cosmocrats who make their money in the real business centres of the world – Hong Kong, London, New York – and then drop in here as a respite from the hurly-burly of their hectic lives. Some bought condos for their kids to stay in while they attended school here. In some cases, those children have moved on but the apartment remains.
In most cases, these wealthy purchasers are buying high-end units with golden views of the city, posh pied-à-terres that are out of reach for most of us. And they pay the requisite taxes to the city to maintain them. To which I say: What is the problem?”

“Are we going to start telling people that if you’re buying a condo in Vancouver you have to make sure you, or someone else, lives in it year-round? Are we going to say you can’t buy a condo as an investment property and sit on it for as long as you want before selling it for a profit?”

“I also find it amusing that we get so up in arms about “foreigners” buying up our real estate but think nothing of the thousands of Canadians who have poured into the United States in recent years to take advantage of the housing mess down there. Does anyone doubt that many of those same Canadians are buying those condos as investments in the hopes they’ll cash in once the market returns to normal? “

“You can’t say: “Oh, it’s different because we aren’t driving up real estate values in Phoenix or Palm Springs the way investors are apparently doing in Vancouver.” You either believe in a free market system or you don’t.”

“Whether we like to admit it or not, Vancouver is an urban resort whose value mostly resides in its real estate and not much else. And when that’s the case, you’re going to encounter the types of situations that we see now, with some buying condos as expensive business-class lounges and others purchasing them as an investment decision.
And I’m not sure there’s much you can do about it or would want to.”

– from ‘The ‘great unoccupied condo scandal’? Get over it’, Gary Mason, ‘The Globe and Mail’, 22 Mar 2013

A few ‘random’ thoughts; any reader suggestions of a comprehensive critique of the article will be appreciated:
1. How is it that local judgments of Vancouver have gone from the embarrassingly over-reaching (“Best Place On Earth”), to the other, nihilistic, extreme (“Value mostly resides in its real estate and not much else”), without touching on the intervening reality (a provincial city with a fair amount going for it).

2. There is the implication that we should accept that RE is primarily a financial instrument, rather than shelter. People buying and selling RE, always, it seems, at a profit: Foreigners sitting on Vanc RE and selling for a profit; Canadians buying US RE with plans to “cash in”.

3. Contains a common “you can’t handle the truth”-type taunt about free markets. But who is this aimed at? Who in Canada is currently taking a strong position that there really should be a completely ‘free-market’ in shelter? When did Canada last have a free market in RE? The Vancouver RE market is already far from a free market. It is a market where lending risk has been mispriced, partly by ’emergency’ low interest rates (where no need for RE price support has ever existed), partly by tax-payer backstopping of lenders (through the CMHC), and partly by loose mortgage lending guidelines (political expediency). Yes, speculative manias occur in free markets, but they would be far more self-limiting if people and institutions were all forced to play with their own money rather than perversely cheap debt. If Vancouver RE was genuinely a free market, it probably wouldn’t have gotten to its 2008 heights in the first place (let alone its 2011 highs), and, if it had, it certainly wouldn’t have been ‘bailed out’ at the very moment when it least needed it.

4. The article displays the kind of hyperbole that we expect in the vicinity of bubble tops, when everything can be interpreted to be so frothy and paradigm-shifting that it’s overwhelming to some observers. It’ll be interesting to see how all these dilemmas and debates settle down after some healthy price-to-fundamental-value reconciliation.
Vancouver will still have housing and city planning challenges, but they’ll look very different once the massive speculative demand disappears.

– vreaa

106 responses to ““Vancouver is an urban resort whose value mostly resides in its real estate and not much else.”

  1. So if some rich dude overpays I’m forced to do the same? Once you’re on the wrong train every stop is wrong.

  2. Well! If we momentarily allow that Mr. Mason’s thesis is correct… if only for the purpose of conducting a brief thought experiment… it would appear that the ‘UrbanResort’ whose sole purpose is trading properties… is well and truly hooped, existentially speaking. To wit:

    “B.C.’s housing market is catching its breath after a period of historic activity and price increases.” – Inde Sumal, BC Regional VP, RBC

    [G&M] – Canadians pull back from housing market in droves

    …”Canadians are growing increasingly uneasy about buying a house in this cooling market.

    Indeed, just 15 per cent of those polled by Ipsos Reid say they’ll probably buy a house in the next two years. That’s down from 27 per cent last year, and marks the biggest drop in buying intentions ever in the annual poll, now in its 20 year, done for Royal Bank of Canada.”…

    http://tinyurl.com/bt4pq3l

    [NoteToEd: ‘Catching its breath’?… Cue: DeadParrot/Lumberjacks]

    • Just saw that article too, Nem. If that is not damning for home buying intentions I don’t know what is. The banks will be rightfully concerned. Did you catch the next piece from Michael though? Canada’s big banks are officially too big to fail according to OSFI.

      That means they will get a taxpayer bailout if they screw up.

  3. We mostly all agree here that RE is used as financial instruments to be traded as stocks – the market is assisted by government policies.

    Onthe flip side, in theory, if a old time Vancouverite cashes out from an old family home – for sake of discussion, say $2 million, where would they invest it?

    Termed deposits end up being a loss maker with current interest rates. Stocks are volatile and up to whims of the financial industry – financial shenanigans detect price swings and bubbles to greater degree. Bonds – same scenario.

    RE is seemingly to safe harbour investment to plough back funds gained. It is too big to fail and would be supported by government. Although I am an avid reader of the blog and am in dismay how this city has turned, financially speaking, RE is a safer harbour here and can explain why there is a unprecedented run – given choices, RE still seems like a safer bet.

    • Ralph Cramdown

      When the consensus becomes that stocks are the place to be, I’ll be selling mine and buying real estate. In the mean time, there’s plenty of companies which have been paying good, ever-increasing dividends for decades. Yes, their prices fluctuate, as the market sometimes puts a higher or lower value on those dividends, much as real estate price/rent ratios fluctuate.

      If you want safety of principal and good income besides (a combination which has rarely existed and never been recognized at the time), you’re just ripe for being fleeced by a con, legal or otherwise.

      And real estate is a great investment — when it yields 7%.

      • When RE is a great investment at 7% so will be other investments!

      • ” a great investment at 7% so will be other investments”

        I really don’t want to break out the S&P500 total return graph for the past four years. Or my stodgy old long bonds for that matter.

      • No, please don’t.

      • Exactly Ralph. And as we know, under normal circumstances residential housing does not give those kinds of returns unless you have been very creative slotting small rooms and suites throughout without attracting the attention of neighbors or the taxman.

    • As I just said on another thread, if you have that much cash, don’t know what to do with it and don’t have the desire and ability to work full time on it, then turn it over to a good financial manager. I am 100 percent in equities and have been for a few years, but I have worked full time on it for almost 20 years. There are many paths you can take but unless you are interested in learning some expensive lessons find a good investment manager.

    • The long run averages show that housing prices mirror inflation which is another way of saying almost none of it is investment grade as you can never fully recover what you have contributed over time from all the varied expenses houses consume in their lifetimes.

  4. We can say ‘engineered demand’ is still a fundamental. It’s not that Vancouver RE prices have gone way out of line because of CMHC and government policies. Vancouver RE prices are just a reflection of the unprecedented slush of the capital and credit that is out there and the city’s international links.

    I don’t think readers know how ugly things would get if central banks didn’t reflate the markets. But you can’t reflate everything else and not RE.

    What’s happening to Van RE prices is beyond Canada’s hands in a big way.

    • fun charts by city … http://tinyurl.com/rxrwdt

    • “…you can’t reflate everything else and not RE.”

      Yes, you can, by keeping interest rates low but tightening mortgage lending standards by however much is necessary.

      • Vreaa: and the government already have by removing CMHC support for banks and consumers.

        What they can’t do is to tell privately run banks with public shareholders to further tighten beyond 25 yrs and 25% down. They’ve moderated credit, fair enough, but any further and they are effectively running the banks as a government institution and dictating to its citizens whether they have the right to own their own home.

        Government could go further by implementing a higher property transfer tax but studies show that suppresses transactions more than prices.

        They sure can pressure banks to tighten further to mask the symptom of too much money in the banking system but it will start to hurt the banks and the real economy very soon.

        Banks need to lend or they will need to pay interest on their received deposits. In other words, they are losing money if they don’t lend it.

        Don’t get me wrong. Credit needs to be moderated, and we can’t let banks lend out of control because they have no other choice, but meddling with market prices long term will bring to surface a whole new set of problems.

      • The government did not remove CMHC support for banks and consumers, it merely restricted the size of the support limiting the cost of the insured property by 1mln, with most of condos for example falling under the limit. We have no free market here as the risks for the banks are covered by the government and by the tax payers money – otherwise the banks would not be to reckless in offering this low rate, having to consider the probability of the mortgage default and factoring the risk into the mortgage rate. The banks want to have a risk free “free” market? I would really wish the government would let them have it.

      • Olga62: CMHC supports, like you say, both the ‘bank’ and the ‘consumer’.

        From the ‘bank’ side, CMHC offered the banks default insurance for their covered bonds (which is a safe funding tool for banks). Packaged within the covered bonds were mortgages that were guaranteed by CMHC. These two guarantees (effectively by the Canadian government) made it VERY cheap for banks to get funding and made the bonds very attractive for investors across the world.

        Both of these guarantees are gone, thanks to prudent measures. Whether we are now vulnerable or not is debatable but I personally don’t think so – but then that’s just me.

        The fact that Canadian banks, without CMHC, are still offering 5-yr loans below 3% shows that these guarantees were not necessary but only taken advantage of by the banks to make as much profit as possible – which is fine for its public shareholders (like you and me) and as a private sector business.

        As it stands, CMHC is now only involved in the consumer side guaranteeing mortgages that are under $1m (as they mostly were before anyway). Tenor and principle requirements have also been upped. I note you noted this too.

        Regarding risk, no the government is not on the hook for all Canadian bank risks. Bond investors who are tripping over each other to buy Canadian bonds are bearing some of that risk. All shareholders (stock holders) in Canadian banks bear the blunt of the risk. The government has taken on some of the risk from their mortgage portfolios and yes it is significant which is why they’ve been taking action – no nowhere near Fannie Mae or Freddy Mac levels.

        Back to the point. Another reason why Canadian banks can lend at such low rates, in addition to covered bonds and despite CMHC, is because there is wayyyyy too much M2 money out there. Unprecedented levels. Like flooding a forest fire so much that it submerges the forest. All this money in the banking system is a liability to banks because they have to pay interest on them (however small, it is still a loss when it is not lent out). So what happens is the money that is in the system finds its way to property, commodity, gold, etc.. in one way or another (covered bonds or in RE). In effect, Canadian banks have more money than they know what to do with, so as a function of the bank, all they can do is lend it if they want to stay in business.

        Take away the ability for banks to lend money and the economy will cripple.

        Manage the banks with government directives creates an engineered economy, like China, where synthetic booms and busts are manufactured.

        Let the banks do their job and the economy will reflect the state of the banking system and available capital within it.

        With this in mind, it is worth reflecting, why RE prices are so high. Is it mostly overzealous speculation by investors or is it a reflection of the state of our, and our neighbor’s, banking and monetary system?

      • Vreaa: grateful if you could release from moderation.

  5. It’s different here, get used to it.

  6. “Free market” I do not think that word means what you think it means.

  7. UBCghettodweller

    >They would be far more self-limiting if people and institutions were all forced to play with their own money rather than perversely cheap debt.

    Quoted for the truth.

    It’s not just spending recklessly in the real estate market that would be limited.

  8. Anyone who calls Vancouver an “urban resort” cannot be taken seriously.

    • Cyril Tourneur

      Which is a good majority of the locals.

    • Vancouver is one cold resort, i thought Cannes and St Tropez were resorts

    • In total agreement. When I close my eyes and picture myself with a private helicopter, tonnes of money, powerful job I’m picturing sand, sun – Miami, Southern Cali., Fiji, Monaco, Spain! RE is cheap there, and that’s just for starters. And don’t give me any of that that stable political and economic climate crap, it’s Europe not Iraq.

  9. Froogle Scott

    I just took another look at Andrew Yan’s map and Frances Bula’s G&M article. A couple of points to make:

    • The unoccupied condo story is not really a Vancouver-wide story, and even less a Metro-wide story. It’s a downtown and core story. And yet it’s being treated like it’s a Vancouver-wide story. I think Bula is one of the more sensible commentators on the local RE scene, but I think the first sentence of her article encourages a misinterpretation of Yan’s research:

    Nearly a quarter of condos in Vancouver are empty or occupied by non-residents in some dense areas of downtown, a signal that investors play a significant role in the city’s housing market.

    Here’s the same sentence, with the first two parts flipped around to change the emphasis, and a little extra precision added. It’s perhaps less attention-grabbing, but potentially more accurate:

    In some dense areas of downtown Vancouver nearly a quarter of condos are empty or occupied by non-residents, a signal that investors play a significant role in the downtown housing market.

    Quite a difference, isn’t there?

    • Is it any surprise that the epicenter of downtown, and Coal Harbour, have the highest rates of non-occupancy? The residential condo towers erected in these areas have been specifically built as high-end, catering to that segment of the market. Why? Because this is absolutely the most desirable location from the standpoint of view, and proximity to amenities. So the developers are maximizing their profit. You wouldn’t build the Shangri-La, or The Private Residences at Hotel Georgia, in the middle of Surrey. Nor would you build entry-level condos in Coal Harbour. People who can afford in excess of $1000 a square foot for a box in the sky are typically people who have a great deal of money. You don’t scrimp and save for 20 years so you can finally buy into the Shangri-La. People with a lot of money are often quite mobile, and often have multiple residences in different cities and countries. By catering to these people, the core of Vancouver is reflecting their lifestyles and residential patterns. I’m not saying it’s a good thing, but with the makeover of Vancouver’s core, it’s not a mystery why the occupancy numbers are the way they are in this part of the city. But it’s a mistake to extrapolate from these relatively small areas geographically to the entire Metro area. In fact, you only have to look at the heart of the West End to find the rate of non-residents drops to 4.7% and 3.6% in two of the areas.

    • Cyril Tourneur

      This highlights the real story which is that Vancouverism has failed and the idyllic notion of a dense, vibrant, walkable urban core is clearly unaffordable for the average Vancouverite. That form of urban design only works for uber wealthy jet setters and leads to a resort-style community, not a real city with real people working at real jobs.

      • Froogle Scott

        I think those are fair criticisms of Vancouverism. Many others have said this, but Vancouverism isn’t exactly family-friendly, even if the prices were more within reach. And if the entire city were one big Coal Harbour, I think I’d be looking elsewhere to live out my days.

    • Yan clarifies in a recent blog post
      http://www.btaworks.com/2013/03/25/measuring-the-presence-of-absence-clarifications-and-corrections-in-the-reportage-of-the-btaworks-foreign-investment-in-vancouver-real-estate/

      I don’t know if Bula did that on purpose but it sounds like a good presentation focus for one of her upcoming sessionals.

      • Froogle Scott

        Thanks for the link, YVR/jesse. Yan is obviously a little alarmed/annoyed that the popular media and many in the RE blogosphere have latched on to the more sensational aspects of his report, and ignored the details. He also makes the point that extrapolating from the downtown core to the entire city, or the Metro area, is wrongheaded.

    • And a UBC campus story, if I read the maps correctly.

      • Froogle Scott

        There are obviously ‘hot spots’ for non-resident occupancy, as Yan’s map shows, and no doubt highly localized reasons for these concentrations. What would be interesting is to have a map of the entire Lower Mainland with these hot spots superimposed. They’d be a very small percentage of the land mass. One thing I always find interesting is how small the City of Vancouver is when viewed in the context of the entire Lower Mainland. And these hot spots are a relatively small portion of the COV. But they are the marquee areas in the minds of many, so the media tends to give them a disproportionate amount of attention.

    • Real Estate Tsunami

      How about Richmond?
      The realtor A. Shuchart says about 25% of properties for sale are empty.

  10. Folks, apologies for the interruption to your regular programming – http://www.businessinsider.com/chinese-family-buys-4m-apt-for-toddler-2013-3

  11. Trouble in Cyprus quietly spreading. Another Eurozone country’s bond yields approaching 7% (Slovenia). US Treasury 10 year bonds climbing.

    Central banks are likely planning for emergency liquidity measures.

    The EU patient is in the ER being monitored. If bank runs happen, and we’re at the 11th hour, things will get interesting very quickly.

    Might become a trigger for Van RE amongst other assets.

    • Trigger leading to what?

    • Seriously BLM….stop reading the news and turn off the TV. It is all noise intended to shift the sheep from one pen to another. There is no genuine crisis and nothing to fear (except fear itself).

      • [NoteToEd: Suddenly, it’s all clear to me now… The wealthy Armenian & Greek PlayBoys of CoalHarbour promenading their TrophyEwes along the SeaWall.]

      • BLM has his/her own little agenda here…

      • You just know we need to talk more about sheep. Nem. The analogy fits our generation too well. Success by following the herd right off the damn cliff. The kids don’t get it though.

      • rod_jonsson

        non-crisis, contained … same was said at time of bear stearns … tbd

      • @bubbly I assure you I have no agenda other than to contribute an alternative view to this forum.

        If I were a realtor or an investor heavily invested in Van RE, would I really spend my time here trying to convince chronic bears?

        We could all agree and pat our backs and move along as a herd of bears but what would be the point of that?

        Challenge my views as I will challenge yours and let’s have a sensible intelligent conversation.

    • Your views have been debunked here many times in the past.

  12. Mop and Pail is not a serious newspaper. Ignore them.

  13. That entire column, particularly the final vignette posted here, is such typical Boomer-ese. Translation:

    “Look here, kids, we did it all on our own and if you can’t handle it then it’s just because you’re a bunch of lazy layabouts.”

    Reality check: Decades of government policy kowtowing to Boomers to inflate various bubbles to their benefit, and at the expense of others. Greed-based policies driven by hyped up “fear” of a large anti-bubble of retirements that social services (as goes the mantra) won’t be able to support.

    Well, that train is about to leave the station. So my advice to Boomers… you’ve had the reins of power for a long time and have used them to drive wealth toward yourselves. Now is the time to cash out and take what you got… because there ain’t any more coming your way.

    Sell now, or be priced in forever.

    • The best part. EG, is that they pulled it off with about as much organization as a herd of cats. In other words….they were beneficiaries of a cycle driven by demographic trends and not the genius manipulators you might imagine.

      • I’m no conspiracy theorist, of course (except when there is a conspiracy… :).

        As you say, demographic trends. I’d add media hype, driven by those demographics.

        The crazy thing is that most of them are so used to having the rules set for their benefit that I don’t think many of them can imagine, let alone see, that the rules are in the process of changing.

        Oh well, c’est la vie.

      • True enough. Times are changing. The ‘demo” trends of the past must give way to the new patterns of the future. Poor buggers are up to the snot in debt already and really don’t know what is about to hit them. They had it their own way since forever. Now they have the new kids to contend with……their own children.

  14. Vancouver doesn’t have much of anything… its a city about nothing
    there’s no value in anything, it’s a completely useless city

    • That’s stretching it quite a ways. It’s no NYC or SF or Berlin… true. But it’s still a nice place with quite a few things going for it.

  15. To the person say “What’s the problem”, you’re missing half of the argument.

    I don’t have a problem with foreign owners, but I feel property taxes are too low on the residential side. This is made up on the business side and forcing many business to re-locate outside of Vancouver. Also we have foreigners trying to gain entry/residency into Canada by way of buying real estate. We, as locals, pay taxes into what I consider the welfare state. There are many examples of foreigners who make their income elsewhere, therefore pay no taxes. Meanwhile the wife and kids can live in a mansion, yet also declare no income. They can get healthcare, subsdized low income transit passes, and the kids can go to school which is being funding by our tax dollars. And on and on.

    So when you say “What’s the problem”. That, my friend, is the problem. And it’s a big one!

    • re: taxes, arguably more of a spending pb than a rev pb … public sector very ineffective to liquidate or curtail programs that do not work

    • Realtor behavior

      Sounds like double talk. How foreigners “make their income elsewhere, therefore pay no taxes can have their wife and kids live in a mansion, yet also declare no income…can get healthcare, subsdized low income transit passes, and the kids can go to school which is being funding by our tax dollars”. Shouldn’t foreigers are supposed to be just foreigners, and non-/residents be non-/residents? People have families got income from elsewhere not taxed can be a loophole to be dealt with somehow. Don’t draw the different pictures with the same brush!
      I kind of welcome foreign resources to invest in RE here, so that local folks can afford to rent with their measly income! Run into an ad on craigslist lately, an idiot try to rent out a den of his 2-bed-2-bath “hotel-apartment” for $650 in white rock!
      I believe rental apartments become out of options in Vancouver would be the time people virtually got priced-out!

      • Regarding your statement “I kind of welcome foreign resources to invest in RE here, so that local folks can afford to rent with their measly income”.
        I believe your analysis is wrong.

        The reason why there isn’t more rentals being built by developers is because there is more profits and higher margins to be made by an overheated housing market.

        So while you may think that foreigners are buying up condos and losing 100s of dollars a month renting it out to you, the fact is if the condos weren’t driven up in the first place, rental rates would continue to follow more closely to income growth. Remember, you cannot borrow money to pay rent, but you can borrow money to pay mortgage. Real rents are a much more accurate indicator of true housing demand.

  16. Yahoo! Here comes the fourth horseman of the Bubblepocalypse. Namely the reverse amortization mortgage.

    (Found this on Turner’s blog today).

    Of course it’s not technically a reverse amort., that wouldn’t fly in “regulated” Canada, right? But it’s basically a small version of the same thing. This type of stuff marked the last desperate moves of lenders in the US when I was there, and now we have it here. It’s uncanny how things are unfolding:

    http://www.tdcanadatrust.com/products-services/banking/mortgages/managing-your-mortgage/flexible-mortgage-features/flexible-mortgage-features_b.jsp?s_tnt=45520:1:0#what-are-they

    • [NoteToJR/ED: We are so going to win a Webby. NoteToDearReadersInAreaCodes – 310, 323, 818… AllRight, 212, too… ForYourConsideration. Nominations, please.]

  17. The big implication of the original study, and not covered in this article, is that it puts lie to the notion that the Vancouver housing market is somehow safe because people don’t just gamble with/walk away from/will always pay the mortgage for their homes — up to 25% of the condos are nobody’s home.

  18. Cyril Tourneur

    Vancouver Housing Study Shows Suburbs Preference Over Downtown
    “However, 23 per cent of respondents said they would keep the $1 million and rent.”
    http://tinyurl.com/dx4aazw

    • Cyril Tourneur: That is until they have $1m in the bank and start wondering if owning their own place is better than having $1m in the bank.

      Pastures always greener on the other side.

      The enlightened few will be content but the majority who make their wealth in RE will always have their heart in RE.

  19. Cyril Tourneur

    “….the majority who make their wealth in RE will always have their heart in RE.”
    Unless they get burned.

    • It does cut both ways but if they made any substantial wealth in RE, they will be emotionally attached to the asset class.

      Like poker players or stock market investors, (or entrepreneurs), if they live to see another day, they will remember the glory much more vividly than the downfall. It’s how many become delusional after a big loss, unfortunately.

      • “…they will remember the glory much more vividly than the downfall.”

        Wrong, BLM. Studies show that we perceive losses more acutely than gains.

        Separately, over time it is not realistic or sustainable for “substantial wealth” to be made by folks who simply buy a house to live in (which is the group referred to in Cyril’s link).

      • El Ninja: which study are you referring to?

        From gamblers to value investors, the gains always have a bigger impact on them than the loses. Otherwise, why would they keep going at it again and again?

        Of course the RE gains are not sustainable. No one should be buying RE now for speculation or for self use with high leverage. I only differ in that I advocate people should not write off buying RE (even in Van) as a diversification play or as their primary residence if little or no leverage is involved.

      • Pretty standard Behavioral Economics BLM. People perceive losses much more acutely. There are many studies supporting this, enough that it is considered an accepted fact.

      • Ralph Cramdown

        I don’t think you understand the point of diversification, BLM. You’re not supposed to buy several things which you think are going to go up, and some other things which you think are going to go down to balance it out. If you think real estate is an important part of a portfolio, you should look for real estate which you believe will either go up in value or will hold its value while giving an acceptable income. Is this so hard to understand? I can understand if someone doesn’t have an opinion on the direction of an investment, but you seem to think Vancouver RE will likely fall, and still think some people should be buying it. Rich people find enough ways to lose money accidentally; they certainly don’t need ways to do it on purpose!

      • Ralph: here’s the kicker. There’s nothing right now that generates a fixed income that doesn’t have the potential to fall sharply or be beaten by inflation. Vice versa, even bonds and RE could go up further as unlikely as it may seem.

        It’s more visible if you step out of van RE and look at the issue on the whole.

      • BLM: it’s called loss aversion. Look it up.

      • “There’s nothing right now that generates a fixed income that doesn’t have the potential to fall sharply or be beaten by inflation.”

        By that logic though there has never been anything that is safe. Every investment carries some risk even at the best of times. You need to run the probabilites for success. In retrospect some investments were outstanding despite worries they would be a disaster. Those who sold off during the credit crisis and shunned markets based on all the hype they were about to crash (again) have been the biggest losers these past few years. But equities are fast moving. Real estate and home investing by comparison is much easier to judge. Even for novices. The waves are longer and clearly discernable. The trends can go on for years in one direction or another. This is clearly a period to be avoiding most speculation in this investment class while reinvesting elsewhere (unless you live in America) so I am a little puzzled by your view which sounds self defeating. There is nothing wrong with holding cash meanwhile. Inflation is low so the risk of loss is also low. Obviously there are better options that offer quick liquidity if circumstances change but I will not get into what they are as this is a Vancouver real estate blog.

      • Farmer: I have to say I agree with what you say.

        But staying mostly in cash is still a dangerous proposition. I may lead to complacency as one will never feel safer than holding currency. Some may have a hard time getting out of cash in any meaningful way due to fear. Just is the case for those to cash out of the RE market now.

        So imagine this. If you have $1m cash now, it is a matter of whether you think prices will fall faster than 10% per year for the next 4 years.

        Example: $2500 monthly rent equals to $120,000 after 4 years.

        Do you buy a $1m home now or bet that it will be $880,000 after 4 years? The trend is saying it will go down but if it stays firm, or if prices tick back up (which is a real possibility that cannot be discounted in this age), then the cash position would have made a loss. Obviously, this all assumes the individual wants to go back into real estate but I bet most due unless they are somewhat enlightened.

      • Correction: “10% over the next 4 years.”

      • Fair enough, BLM. That argument makes sense from a straight dollar approach. If you did not buy you are out of pocket 120,000 dollars over those 4 years versus buying where you are also in a loss position of 120,000 dollars on the paper value of your home.

        Of course it does not take into account the many reason you ought not to buy in a falling market. Probably the most important of these after taking your theoretical loss into account is the lack of liquidity that exists for homes in a falling market.

        Hopefully you don’t plan on moving once you have made the big buy.

        You are fully committed at that stage unless you are prepared to accept the face loss and also that you are in a position to cover the shortfall in proceeds after commissions, fees, taxes and any contributions you made towards improvements. The list of selling costs is extensive and also includes relocating and perhaps staging to make the sale.

        The mobility issue is not given enough attention by first time buyers.

        They go into the purchase with stars in their eyes planning on staying forever with no consideration for family break-up, new children, divorce, family death, jobs loss or the million other reasons one might need to change residence.

        The length of tenure for the average person to remain in a single home in Canada is not actually that long (I tried finding the link but have run out of time). If I recall though it is in the range of 7 years or less. Maybe someone else more handy with search functions can tell us.

        My point is this……if you cannot conceive of staying in one place for a decade or longer during the period of time housing prices are declining and returning to recovery highs then purchasing a home is probably not a very good idea.

        A Better bet is to find economical digs to rent and to save while you wait it out. Freedom does indeed have a price. In the meantime the excess of savings over the costs that a home usually consumes when you own it can be handily applied to a future down payment.

        Is there a difference between renting and owning when you are just paying off a debt on a decilning asset? My view is that you are better off not being saddled with all the costs of having your own digs as these are probably all going to be lost if you ever need to sell at a price below where you bought.

        Waiting is a very strategic decision.

      • Appreciate the well thought out reply. Indeed potential personal circumstances are often not factored into even the most pragmatic investment decisions.

      • It’s not exclusively, or even mostly, a bet on what a property will be in 5 years, it’s about relative risk-adjusted returns. Even absent liquidity and capital impairment risks it looks to me like Vancouver RE returns below other choices, even today.

        The only saviour is if you are confident at perpetually attracting greater fools. Can’t rule it out but not something I would choose to argue to potential financiers. Whatevs though, markets are built in disagreement or something

      • YVR: agreed on relative risk adjusted returns but the individual must have a conviction call. If an owner cashes out now with no views as to where to invest the money then it may best to just leave it as is in Van RE if it is paid off or lowly leveraged.

        After all, there is too much money chasing after too few good investments and property lowly/zero leveraged even in Van is a relative safe bet.

        We must realize we are living in a world where Mexico can issue 100-yr bonds (what?!), banks are offering for profit 5-yr mortgages for under 3% in ‘overpriced’ properties and Canadian 30-yr bonds are trading at 2.5%. Bizarre stuff and shows that no one in the markets believe rates can go up in the foreseeable future, maybe even decades!

      • “Even absent liquidity and capital impairment risks it looks to me like Vancouver RE returns below other choices, even today.”

        Agreed.

        And regarding markets being built on disagreement: someone once observed that the most remarkable thing about markets was that for every transaction there was both a buyer and a seller (two people who, at that moment, were certain that the other was wrong).

      • Lack of imagination regarding investment choices does not make a bad business case good. There are lots of good investments out there, Vancouver real estate is not what I would characterize as “good”.

        Vreaa, I guess markets are built on agreement then. Perhaps when it’s best described as disagreement we know there’s an “alignment problem,” 🙂

      • Yvr: would you agree that someone with their home paid off in their 60s with little risk appetite and little motivation to explore investment opportunities be better off staying put and not sell their home?

        At least it guarantees a return which would have been their rent. No?

      • No, the premises are improperly conflating shelter utility, security of tenure, and raw investment. Treat the latter separately is my view, otherwise specific situations where someone can reasonably overpay usurp investment decisions and hide what is really a bad investment.

        People overpay for things all the time, often rationally. There is no shame in it. What there is shame in is not admitting it.

      • Psychological value is worth money too. Some folks will pay a premium for homeownership.

        To sell your paid off residence to try and gain maximum return for the sake of monetary gain is akin to taking a highly paid job that one hates.

        Pay is great but the feeling of something missing gnaws away at you. So what is more important to the individual in the end?

      • You mean there is such thing as a consumer surplus? Couldn’t agree more.

    • ForYourConsideration, DearReaders…

      “Nicholas Cage: One Man Real Estate Bubble” – NBC ComcastUniversal

      http://tinyurl.com/bqdhf8t

      • Does this guy remain “in character”, always?
        It’s so easy to imagine him careening through these mansions, addled with adrenaline and other substances, and with some sweeping gesture (and through Elvis-lips) announcing that he’ll Buy! Buy! Buy!

  20. remember a while back SanFrancisco had a “problem” that they were creating too many white collar and tech jobs and no blue collar jobs…

    Vancouver will never have that problem, Vancouver is such a dead-end city
    it cant create any jobs…period

  21. I am confused. I thought the whole world wanted to live in the BPOE so I had to buy because prices were going up. Now they only want to visit and maybe leave their condo empty but we don’t really know if that is what is happening and why are you getting so excited because most of the demand is local. I guess I am just a cynical old money guy who thinks if nobody really knows what is going on it is a lousy investment.

  22. Leaving 604 very soon!

    whole world wanted to live in the BPOE?

  23. Sorry can’t help it: BLM = Butt Licking Monkey?

    This is not complicated folks. Van is not NYC, London, Miami, St Moritz, or any other high flying place. It is one of the nicest cities in Canada to live in… depending on your definition of “nice”.
    Our housing bubble is in the early stages of an EPIC collapse, following an epic price runup. Fundamentals and demographis are going ot trash this market for the next 10-15 years. Deal with it!! 😉

  24. Pingback: BT | A | Works » Media and Metrics

  25. Pingback: BT | A | Works » Media and Metrics

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