Spot The Speculator – “I can’t imagine a bubble bursting where over six months you see a decrease of 30 or 40 percent”

“Living in cramped spaces is everyday life for many families. Because of the high cost of housing, many have to make do with whatever they can afford.
In Vancouver, city staff estimated that more than 8,000 families with at least one parent and a child were living in a studio or a one-bedroom apartment in 2011.

Ryan Chahl, a 29-year-old entrepreneur, is thinking about settling down. He wants to provide adequate housing for his future family.
“I’m kind of looking for a home that could potentially support a family,” Chahl told the Georgia Straight in a phone interview.
That means a three-bedroom house “with some room to grow”.
“I’m trying to plan for the future and think ahead,” Chahl said.

For now, his plan doesn’t include selling the Port Moody condo he bought four years ago. “It’s an asset that I can grow equity in,” he said about the two-bedroom property where he lives on his own, and which he intends to rent out eventually.
He used to live with his parents before he purchased his apartment with a five-percent down payment.

Chahl’s challenge is how to secure a new mortgage.
Aimal Pamir, who was his mortgage broker for his condo purchase, has advised him that because he is self-employed, it’s not going to be easy.
According to the Real Estate Board of Greater Vancouver, the federal Office of the Superintendent of Financial Institutions requires from individuals working for themselves a minimum down payment of 35 percent of the purchase price to qualify for a loan.

In 2016, Chahl set up his own consulting and project-management firm. Chahl related that his business is doing well, giving him the confidence to approach a major bank for a mortgage.
“It’s kind of been the vehicle for me to start making those heavy savings that are required to be able to buy a home in Vancouver or near Vancouver, at least,” he said.
Getting the bank to approve a mortgage will likely take a bit of time.
Like the more than 400,000 self-employed people in B.C., Chahl has to prove that his business is viable. According to him, banks typically require three years’ proof of income. If he wants to make a purchase in six months to a year, he said that he may have to produce a 50-percent down payment.

Chahl holds a business-administration degree from SFU. For him, the housing market isn’t just a game in which he wants to make a quick buck.
“It’s something that I’m investing in, going in long-term with the kind of goal of seeing those assets appreciate long-term, not kind of flip them in a year or two,” he said.
Chahl expects home prices to gradually decline, which is generally in line with the latest projections by the Canadian Real Estate Association (CREA). According to the CREA forecast issued on March 15, home prices in B.C. will shrink by more than five percent in 2017.

Chahl is not worried that the property market has risen so fast that it can only head for a crash. In September last year, Swiss bank UBS reported that Vancouver is number one on its global list of cities with the highest bubble risk.
“Over the next year, maybe two, you’re going to see a decrease in prices, but I can’t imagine…a bubble bursting where over six months you see a decrease of 30 or 40 percent,” he said.

As in his first purchase, his realtor and older brother, Adam Chahl, is around to help him acquire a second property. “Adam, being who he is, I have absolutely no issues trusting him,” he said.
Chahl said he’s happy with the way things are going for him.
His long-time girlfriend lives in a neighbouring city 10 minutes away from his condo. There are lots of trails nearby where they can hike and walk her three dogs.
Chahl can see the two of them growing a family together in the future: “That’s the plan.”

– image and entire article from ‘Home search: Millennial in the market to buy second property’, Carlito Pablo, Georgia Straight, April 5th, 2017

—-

For 10 years or more, the vast majority of Vancouver RE sales have been at least partly based on the belief that there would be ongoing outsized price gains.
The buyer above is convincing himself that he’s an investor, and that he’s purchasing for his own future sensible use, but actually he’s speculating.
He’s assuming there may be modest price decreases in the short term and then.. off to the races again. Why else buy two properties?
It’s interesting to hear him state the possible risks but then dismiss them.
The family RE professional is another bubble feature.
Buying even vaguely near the top of a bubble can take thirty years or more from which to recover, in real terms.
Perhaps this guy will be lucky and fortuitously-timed price drops will cause him to reconsider.
Timing can be… tricky. Luck helps.

PS: Yeah, we know the standard response: “But, he just needs a place for him and his family to live!” — That’s the argument that has fueled this bubble all this while: Locals overextending themselves into mortgages which in rational times would be seen as preposterously & laughably oversized, pushing prices higher and higher in doing so, completely unsupported by any real economic fundamentals, all the while convincing themselves they are prudent citizens motivated by wholesome values. If and when you take the expected unrealistic price gains out of this equation, there will be fresh air under this market.

– vreaa

The Gentrification of the Mind

“My book is a kind of love letter to the city as it was and before it got overtaken by money. Money, for me, may not immediately kill people in the way terrorism does, but it does certainly change the fabric of daily life in much deeper and more insidious ways. The terrorist may be defeated in 50 or 20 or 10 years, but money is going to be much harder to defeat.”
– Luc Sante, cultural historian, as quoted by Sukhdev Sandhu in The Guardian, 2 Jan 2016

“It doesn’t just effect the price of real estate. It effects the way people think; it causes a kind of ‘Gentrification of the Mind’.”
– Christian Viveros-Fauné, art critic for The Village Voice, paraphrased from a ‘The Conversation’ podcast

Syrian Refugees – Overpriced Housing Challenges Our Capacity For Compassion

Wanted: Accommodation for 6 people for $785 per month

Metro Vancouver leaders are getting ready to welcome the largest influx of refugees in the province’s history, but their optimism at helping those fleeing war-torn Syria is being met with concern about the availability of resources in areas such as housing and mental health.
– Globe and Mail, 11 Nov 2015

If you’ve got a spare room or an empty basement suite, the Immigrant Services Society of B.C. wants to hear from you.
With as many as 3,000 Syrian refugees poised to arrive in B.C. before the end of the year, the organization is “bracing” for the “largest refugee influx in the history of the province,” said Chris Friesen, director of settlement services for ISSBC. Although settling the refugees will be challenging, Friesen called it a “bold, humanitarian measure” by the new federal government.
“Securing permanent housing (for the refugees) will be impossible without your help,” Friesen said in his call to the public for action. “We need to turn over every rock in this province to find the housing that will be necessary.”
A sign-up website is now live and has already collected 61 housing offers, 90 volunteer offers and three employment leads, but many, many more are needed, Friesen said.
“It’s an indication of the overwhelming support British Columbians want to provide,” Friesen said.
Volunteers are needed to help the refugees settle in, including things such as taking families to the library or speaking English with them for as little as a few hours a week. They’re particularly looking for trauma counsellors to volunteer their time, because about one-third of the refugees are expected to have post-traumatic stress disorder.
The Syrian refugees are expected to settle mostly in Surrey, Coquitlam, Burnaby, New Westminster and Vancouver, although some Syrian refugees who have already arrived are living in Delta and Richmond, Friesen said.
– Vancouver Sun, 11 Nov 2015

The Cost of Cost – “It’s all about space.. having the space to work, and create.”

Here’s part of an exchange between broadcast journalist Chris Hayes and comedian-podcaster Mark Maron –

Maron: Why Chicago?

Hayes: It was so much cheaper than New York, that was the big reason..

M: I know the cities that are kind of authentic in their own thing… … an organic nature to it… and [Chicago] is one of them…

H: It’s its own thing and it’s because the cost of living relative to other cultural Meccas that people will go to is so low, what you get in Chicago is all these people in their twenties.. paying $250 in rent, $350 in rent, and maybe waiting a table or two but then like writing their show, or doing comedy, or painting… there was a lot of space for people to pursue this kind of work… or to do really amazing social justice work, and all of that was facilitated by much cheaper living…

M: Like New York in the Seventies…

H: Exactly…

M: There was a time when a lot of cities had that but it’s almost like it doesn’t exist anymore… and I think that’s diminished the arts communities in general…

H: Absolutely…

M: If you can’t have bunch of poor creative people…

H: That is what facilitates.. /.. when we think of places that were like that, like the lower east side in the 80’s, they were that because it was cheap..

M: It’s all about space.. having the space to work, and create.

The New Yorker – Vancouver RE As A ‘Hedge’; “Zombie Neighbourhoods”; “The rest of us better get used to being tenants”

“The most expensive housing market in North America is not where you’d think. It’s not New York City or Orange County, California, but Vancouver, British Columbia. Now, Vancouver is a beautiful city—a thriving deep-water port, a popular site for TV and movie shoots. By all accounts, it is a wonderful place to live. But nothing about its economy explains why—in a city where the median income is only around seventy grand—single-family houses now sell for close to a million dollars apiece and ordinary condos go for five or six hundred thousand dollars. “If you look at per-capita incomes, we look like Reno or Nashville,” Andy Yan, an urban planner at the Vancouver-based firm Bing Thom Architects, told me. “But our housing prices easily compete with San Francisco’s.”

When price-to-income or price-to-rent ratios get out of whack, it’s often a sign of a housing bubble. But the story in Vancouver is more interesting. Almost by chance, the city has found itself at the heart of one of the biggest trends of the past two decades—the rise of a truly global market in real estate.
—

A recent report by Sotheby’s International Realty Canada examined more than twelve hundred luxury-home sales in Vancouver in the first half of 2013 and found that foreign buyers accounted for nearly half of sales.
—

Vancouver isn’t an obvious superstar. It’s not home to a major industry—as New York and London are to finance, or San Francisco to tech—and it doesn’t have the cultural cachet of Paris or Milan. Instead, Vancouver’s appeal consists of comfort and security, making it what Andy Yan calls a “hedge city.” “What hedge cities offer is social and political stability, and, in the case of Vancouver, it also offers long-term protection against climate change,” he said. “There are now rich people around the world who are looking for places where they can park some of their cash and feel safe about it.”
—

The globalization of real estate upends some of our basic assumptions about housing prices. We expect them to reflect local fundamentals—above all, how much people earn. In a truly global market, that may not be the case. If there are enough rich people in China who want property in Vancouver, prices can float out of reach of the people who actually live and work there. So just because prices look out of whack doesn’t necessarily mean there’s a bubble. Instead, wealthy foreigners are rationally overpaying, in order to protect themselves against risk at home. And the possibility of losing a little money if prices subside won’t deter them. Yan says, “If the choice is between losing ten to twenty per cent in Vancouver versus potentially losing a hundred per cent in Beijing or Tehran, then people are still going to be buying in Vancouver.”

The challenge for Vancouver and cities like it is that foreign investment isn’t an unalloyed good. It’s great for existing homeowners, who see the value of their homes rise, and for the city’s tax revenues. But it also makes owning a home impossible for much of the city’s population. And the tendency of foreign buyers not to inhabit investment properties raises the spectre of what Yan has called “zombie neighborhoods.” A recent study he did found that a quarter of the condos in a luxury neighborhood called Coal Harbour were vacant on census day.

One option would be to severely restrict foreign ownership, but that’s politically difficult, and not great for a city’s economy. It might make more sense if the Vancouvers of the world simply charged foreign buyers a premium for the privilege of owning there. “We’re one of the places where people seem to want to park their cash, and there aren’t that many of those places,” Yan says. “So let’s raise the parking fees.” As for the rest of us, we’d better get used to being tenants.

– heavily excerpted from ‘Real Estate Goes Global’, James Surowiecki, The New Yorker, 26 May 2014

—

When the New Yorker mentions Vancouver RE, that deserves a post.
– ed.

“No problemo. 69 per cent of the condo tower is pretty stable.”

“Only 31 per cent of sales have been to first-time buyers, or new immigrants from offshore, so 69 per cent of the market is pretty stable.”
– Bob Rennie, local condo salesman, as quoted in ‘Vancouver real estate moguls unfazed by axed immigration program for millionaires’, Kate Webb, Metro, 12 Feb 2014

[A post from beyond the grave. This is a one-off post-death ‘rattle’. Keep well all. – ed.]

Making Sense Of It All

– Leandro Erlich’s Dalston House is at 1-7 Ashwin Street, London E8 3DL until 4 August as part of Beyond Barbican.
See here for video from The Guardian 26 Jun 2013: “A Victorian terrace has popped up in east London that lets you swing from its ledges, run up its walls and generally defy gravity. Architecture critic Oliver Wainwright hangs loose at Dalston House, the novelty installation by Argentinian artist Leandro Erlich.”

Trump on Vancouver – “Your people, they go to New York, they go all over the world, and they speak so highly.”

“I love Vancouver. I have had so much experience with Vancouver and with people who live here. You don’t even realize how important it is in terms of a destination and also your people they go to New York, they go all over the world and they speak so highly.”
– Donald Trump, as quoted in ‘Trumps announce exclusive tower deal in Vancouver’, CBC.ca, 19 Jun 2013 [hat-tip jesse/YVR]

Did he try to say that people in New York speak highly of Vancouver, but just couldn’t?
– vreaa

‘Canadians obsessed with real estate, poll suggests’ – “Just as many people reported talking about real estate on a regular basis as they did about hockey.”

Besotted.

“Most Canadians think about real estate on a regular basis, and a good number of them are obsessed with it, an online survey suggests.

That’s the takeaway of a recent poll by online home selling firm Zoocasa, where the real estate company commissioned Abacus Data to poll 1,000 Canadians online between June 3 and 6, 2013.

The poll found that 84 per cent of respondents across the country think about real estate on a regular basis, and 85 per cent have gone as far as shopping online for a new home in the past year.

“In ever increasing ways, Canadians seem almost obsessed with real estate. And it’s understandable,” Zoocasa president Carolyn Beatty said in a release. “For the vast majority of Canadians, their home is the largest purchase they will make in their lifetime.”

Nationally, more than a third — 34 per cent — described either themselves or a loved one as obsessed with real estate. In the Greater Toronto Area, which has the second-highest average home price in the country after Vancouver, the percentage of people who identify themselves as being obsessed jumps to 47 per cent, the highest in the country.

Zoocasa notes that the survey took place during the Stanley Cup Playoffs, and just as many people reported talking about real estate on a regular basis as they did about hockey.

Some 28 per cent of respondents say they have gone to an open house at some point in the past 12 months.”

– from ‘Canadians obsessed with real estate, poll suggests’, CBC, 20 Jun 2013 [hat-tip elchavo]
—

Not me!
I can quit whenever I want!
– vreaa

A Bed in the Bathroom, Why Not? [Let Us Count The Reasons…]

“Here is another great Vancouver rental listed on Craigslist [link no longer active]. A bed in the bathroom..”

“Rental information:
Newly finished 1 bedroom with own ensuite. Furnished.
Access to dining room, living room and kitchen on main floor.
$500/month includes utilities, washer and dryer, and wireless internet.
Close to transit and shops.
No smoking. No pets.
Perfect for international students and short term renters.”

– from ‘Vancouver rentals: A Bed in the Bathroom, Why Not?’, vancitybuzz.com, 28 May 2013 [hat-tip space889]

Outrageous!
The underlying message, of course, is that we are Tokyo.
Again, consider this idea in relation to Canada’s vast expanse of land.
The bubble continues to grossly distort our thinking.
– vreaa

“My neighbours, in their late 60s, just put their house on the market. They had said they would die in that house, but now they are worried that with the housing market going south they may be losing a lot of equity and they better sell now before it gets worse.”

“I can’t believe it!
My neighbor and his wife, who are in their late 60s, just put their house on the market.
I talked to them often before, and they said they would die in that house and leave it to their only son.
But now they say they are worried that with the housing market going south they may be losing a lot of equity and they better sell now before it gets worse.
To make matters worse, 1 year ago they took out a HELOC for $30k to help their son buy a condo.
Two week’s ago their son received a note from his strata that a special levy of $40k to cover inefficiences in the building envelope has to be paid.
Another leaky condo!
Needless to say, the old couple has no other assets than their rapidly depreciating house, so they are panicking.”
– Real Estate Tsunami at VREAA 23 May 2013 10:53pm

Hello again to all readers.
Posts recommence with this powerful anecdote from RETsunami.
We will aim to pop up anecdotes here on an occasional and irregular basis; we trust they will be appreciated nonetheless.
Keep well.
– vreaa

‘Vancouver City Hall: Housing Report Card 2012’; Plus Revised Version

The following ‘Vancouver City Hall: Housing Report Card 2012’ appears at VanCityBuzz 8 April 2013.
The cheekily truthpacked revised version below that is from a source that is as yet unknown to us (but was passed on via e-mail by ‘B’, 9 Apr 2013).

“My folks find themselves at 65 still owing half the value of their home and recreation property to the bank. After almost 30 years of ownership in the BPOE and a number of boom markets, they have very little to show for it.”

“My folks have owned in South Surrey since the mid-70′s, mostly in just two locations, but in their empty nest years yo-yoed between downsizing and re-upsizing to various condos, townhouses, duplexes, etc. trying to ‘find the right fit’, and all of a sudden they find themselves at 65 still owing half the value of their home + recreation property to the bank. After almost 30 years of ownership in the BPOE and a number of boom markets, they have very little to show for it and dad will keep working until the debt is paid before considering retirement. Now they are talking of selling and renting, which I have encouraged them to do, but they would feel ashamed in their peer group to ‘stoop’ to that.”
– Dazza at VREAA 6 April 2013 11:05 am

“They were talking about two couples they knew who had recently bought a lot and planned to each build a house on it and live as neighbours.”

“I was in a Starbucks in Kits today listening to two very Vancouver ladies talking RE. They were talking about two couples they knew who had recently bought a lot and planned to each build a house on it and live as neighbours. These ladies were concerned because one of the couples were heavy pot smokers. They wondered how the other couple would feel having clouds of dope smoke wafting in through the open windows on warm summer evenings. I just looked at my wife, who had been listening intently as well and whispered TWEB (This Will End Badly).”
– lexlimo at VREAA 4 April 2013 7:17 pm

“He’s sold all his properties except his current one, which is now for sale. He explained that the market’s currently in crash mode, worst that he’s ever seen.”

“Just spoke to someone in the neighbourhood, real estate came up and it came out he’s invested in real estate over the last 15 years, buying dumps and fixing them up and flipping them. Has done this multiple times I was thinking oh no, this is going to end badly, then he told me he’s now retired and I thought even worse… Then continued to say he’s sold all his properties except his current which is currently for sale and explained that the market’s currently in crash mode, worst that he’s ever seen. He talked about 2008 and thought we were in for something far worst this time. Talked about previous declines he’s seen and thought this is going to be worst. Doesn’t follow any of these blogs. He’s getting close to selling now for about a 40K loss, and thinks he’s close to sealing the deal, but I got the impression he’d be happy taking even more of a loss just to get out.
He’s moving away from the lower mainland and buying farmland to retire on. Mentioned there are a couple others a few streets away that bought/reno’d/now trying to sell, thinks they’re already listed at breakeven and that they need to come down quite a bit more before selling. …
This was in South Surrey, I should add. Was a guy that seemed to have had some very good days in his life and has seen some very tough times…. Sounded like he was in the midst of a tough time job wise in his life in the late 90′s and is a pretty good handyman and kind of fell into the real estate thing, rode it up, and jumped off when he realized he had gained enough money to live out his life without worrying any further about money.
I was taken aback by this guy… Good for him.”
– groundhog at VREAA 1 April 2013 at 4:10pm and 4:39pm

“Interprovincial migration is not saying good things about BC’s economy.”

– the above table via e-mail from ‘JJ’, 27 Mar 2013. Thank you, JJ.
JJ adds: “Did you need another reason to be bearish on Vancouver real estate? I’m guessing not but here you go anyway. Interprovincial migration is not saying good things about BC’s economy – looks like net international immigration ticked up slightly in 2012 (+1000 or so vs. 2011) but this was more than offset by departures to other provinces.
Q4 was worse than the year as a whole and suggested an annualized rate of negative ~13,500 or something along those lines.”

These figures reflect (1) paucity of good employment opportunities and (2) high cost of living (especially, of housing). Ask any migrant.
– vreaa

Downside Weights On The Vancouver RE Market – “One of the older guys (over 60) mention to the guy beside him that he and his wife were thinking about selling their family home, and renting, in order to get some of the money that was locked up in the house.”

“Every Friday I play hockey with a bunch of guys who are over 55. I’m a goalie, so even though I’m not 55, they let me play – I guess it’s hard to find 55 year old guys whose knees are willing to bounce up and down off the ice for an hour and half.”
“Anyways, I overheard a conversation in the dressing room last Friday. One of the older guys (over 60) mention to the guy beside him (over 70) that he and his wife were thinking about selling their family home, and renting, in order to get some of the money that was locked up in the house. The over-70 guy nodded in approval. The over-60 guy asked if he had heard of anyone doing this before, as they couldn’t see any other way to continue to fund their retirement.”
“The over-70 guy nodded, and said “Yup, we did it a couple of years ago. We’ve been renting now for two years – we had to do it, because we couldn’t afford the property taxes each year anymore”.
– anecdote from ‘Ross’, relayed by Garth Turner at greaterfool.ca 27 Mar 2013

“Boomer retirement supply” will be just one of the factors weighing on the Canadian RE market in these coming years.
In Vancouver, there will be many other downside weights. We anticipate that the largest will be the loss of speculative buying (all buying based on the idea that prices go up will stop). Another downside weight will be the knock on effects of a shrinking RE sector (loss of jobs; loss of related economic activity; people leaving). Yet another will be the disappearance of the ‘move-upper’ market (as condo prices contract, almost all wannabe move-uppers will be stuck.. they will not provide support for townhome or SFH prices). Another downside weight will be cash flow negative properties coming to market that have only been held because prices have remained strong enough (we’d expect this to include some of the empty condos we recently heard about). Collapsing RE markets in China will have a modest direct downside effect, but also a larger indirect downside effect through the psychological impact on local speculators.
This list is not comprehensive, I’m sure readers can think of other mutually-perpetuating downside mechanisms. When a speculative mania cycle turns from ‘virtuous’ to ‘vicious’, the multiplier effects reverse.
Boomer supply will be just one of the many downside weights. Many who are reliant on paper RE wealth for their retirement fiscal health will come to market; as prices drop, some will do so with urgency.
– vreaa

The Vacant Lot of Versailles, Richmond.

– from ‘E’ via e-mail to VREAA 22 Mar 2013. Thanks to ‘E’, who also wrote:
“My husband snapped this pic at 16500 Westminster Hwy, Richmond, on his ride home from work yesterday. He dubbed it The Vacant Lot of Versailles. If you squint and tilt your head just the right way, you can almost see it.“

“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

For A City To Have That Kind Of Vacancy, It’s Like Cancer – “Downtown, the vacant unit rate is so high that it’s as though there were 35 towers at 20 storeys apiece – all empty.”

UBC planner Andrew Yan’s research raises questions about whether the city is turning into a high-end resort or a haven for offshore investment. [image from Globe and Mail]

“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.
And the city overall has a much higher rate of empty apartments and houses than other Canadian cities, with a rate closer to places like New York and San Francisco at the height of their mortgage crisis in 2010.

Downtown, the rate is so high that it’s as though there were 35 towers at 20 storeys apiece – empty.

That’s the latest discovery that adjunct UBC planning professor Andrew Yan made when he analyzed 2011 census numbers to try to add more information to the contentious debate over whether Vancouver is turning into a high-end resort or offshore investors’ holding tank.

He revealed those numbers Wednesday night, as a capacity crowd turned out to listen to speakers on a panel at SFU Woodward’s talk about “foreign investment in Vancouver real estate.”

In all, the city of Vancouver appears to have about 7,500 more vacant housing units than what would be expected in most other Canadian cities. For Metro Vancouver, there are around 15,000 to 20,000 more.

That sign of high vacancies and non-resident-owned units, which contradict some other studies and assurances that Vancouver is not being flooded with investors, should give the city pause, analysts say.

“What kind of community are you living in if there are that many empty? For a city to have that kind of vacancy, it’s like cancer,” said Richard Wozny, a real estate consultant, during an interview Wednesday. “It distorts density and it’s delaying the impact. It raises the question ‘Are we over-building?’”

Mr. Yan, who specified that it’s not possible to know exactly why so many apartments were empty, said data indicate Vancouver is creating neighbourhoods that appear to be very dense, but actually don’t have an active full-time population.

That gives a skewed picture of, for example, the amount of commercial activity they can support.

In Coal Harbour, where up to one in four condos is empty in the tower-dominated waterfront neighbourhood between Stanley Park and the downtown convention centre, the scattered shops in the area often struggle to stay in business. By contrast, the West End, which has a low rate of empty residential units, is bounded by three streets – Davie, Denman, and Robson – that are packed with busy small shops and restaurants.

Mr. Yan said that the high numbers of empty apartments don’t prove there’s a problem with foreign investors, but they do indicate that Vancouver has a large proportion of general investor buyers, be they offshore or Canadian.

Housing analyst Tsur Somerville, director of UBC’s Centre for Urban Economics and Real Estate, said the data he has seen also indicate that Vancouver built more housing in the 2006-2011 period than the number of new households that were added to the city’s ranks.

That means investors. There’s nothing wrong with that, as long as those units are occupied, said Mr. Somerville, also on the panel.

“The problem is vacant units since that’s demand for real estate without housing people.”

Mr. Yan’s analysis entailed isolating the census data on dwellings that showed up as either “unoccupied” or occupied “by a foreign resident and/or by temporarily present persons” on Census Day 2011, which was May 10.

“These units could be non-resident occupied because their occupants were just away for the Census Day, between rental tenants, or moving in a just-opened building, but there is also a chance that they are someone’s pied-à-terre, vacation home or empty investment holding,” observed Mr. Yan.

In the city of Vancouver, the rate of those kinds of dwellings stood at 7.7 per cent overall, with some parts of the downtown as high as 23 per cent. In the city of Toronto, the rate was 5.4 per cent; in Calgary, 5 per cent.

If Vancouver’s “non-resident” category had the same rate as Calgary’s, it would have had only about 16,500 empty units on Census Day – the level to be expected in a regular city, where some part of the housing stock is always going to be empty for one reason or another. Instead, more than 22,000 units showed up in that category. An analysis for the whole Lower Mainland shows that it has between 15,000 and 20,000 more empty units, proportionally, than the Calgary or Toronto metropolitan regions.”

– from ‘Vancouver’s vacancies point to investors, not residents’, Frances Bula, Globe and Mail, 20 Mar 2013 [hat-tip Nemesis]
—

Thanks to Andrew Yan for the research and to Frances Bula for the article. Usually we quote brief snippets from articles, here it is all succinct and interesting enough that we’ve quoted it in its entirety.
The phenomenon described represents an important sub-type of RE speculation in Vancouver.
The most crucial form of speculation driving our spec mania has been regular folks over-stretching to buy their primary residences. That represented the vast majority of transactions in the RE markets, and served as the most important engine to drive prices skywards.
A more obvious sub-group is the flipper, who buys to resell within a year or two, with or without renos.
This article deals with yet another sub-group, the speculators who buy and hold properties (in this case condos but also applies to SFHs) as, essentially, gambling chips. They are betting they can sell at almost any time later, and win. Up until recently, preternatural price gains have made this a profitable method. Not so anymore. We believe that a weak market and falling prices will cause much of this ‘shadow inventory’ to come to market in coming years, with dire implications for prices. This is part of the reason that price drops will beget price drops.
By the way, note how Yan says that he can’t be sure who is holding these units. My own bet is that far and away the biggest holders will prove to be local gamblers. That distinction is not, however, of any particular importance when it comes to predicting outcome. All of this is more evidence of the Vancouver RE market representing a speculative mania, and the outcome is inevitably going to be a collapse in prices.. that’s how manias everywhere always end.
This work is also pertinent to discussions regarding population growth and densification: “Vancouver built more housing in the 2006-2011 period than new households.” Perhaps Vancouver is significantly less constrained than many fear.
– vreaa

Sold One In Vancouver; Bought Three In Prince George – “It seems that Vancouverites just can’t get out of the real estate mindset even when they have the best chance to get off the ladder.”

Announcer: “In 2011 Prince George’s population grew by 1.4% over a five year period. [sic. ROTFL. -ed.]. Developers have had to keep up with demand, not just from new families, but from investors, like this couple, who moved here from Vancouver 5 years ago.”

Shauna Harper: “For the cost of our house in Vancouver, we could buy three rental properties here..”
Mick Harper: “..three houses.”
Shauna Harper: “.. and that’s what we did. We sold our house in Vancouver and we own three properties up here.. and.. they can cash flow.”

Announcer: “Prince George’s population is supposed to get even higher over the next few years.” [Yeah, watch out for that 0.2% per annum parabolic growth. -ed.]
—

Announcer: “A more affordable lifestyle is making living here more attractive, especially to those from the lower mainland. Take this house for example: 2200 sqft, 5 bedrooms, 3 baths.”
Realtor: “And we’re looking at $299,900.”
Announcer: “And how much do you think a home like this would cost in the Vancouver area?”
Realtor: “In the Vancouver area it would be over a million dollars, for sure.”
—
– from ‘Prince George Revival’, Global TV, 14 Mar 2013

Hat-tip to E.G., who comments:
“The report gets into the fact that house prices are quite reasonable in Prince George. Fair enough…
Then the reporter interviews some Vancouver transplants who sold off and moved to Prince George with money in their pockets. Do they buy one house and invest the rest wisely? Nope… they buy several houses and rent out the spares. Seems that Vancouverites can’t get out of the real estate mindset even when they have the best chance to get off the “ladder.”

Border Services raid on migrant workers on Vancouver Eastside construction site; Reality TV camera crew in tow.

“An ordinary day on a condo construction site in east Vancouver took a turn for the dramatic Wednesday when Canada Border Services agents burst in searching for illegal migrant workers — all while being shadowed by a camera crew apparently recording footage for a reality TV show.
The raid, which took place at the Porter development on Victoria Drive near 20th Avenue, was one of about 10 that reportedly occurred throughout the city Wednesday.
A site foreman for the condo developer Cressey said two CBSA officers arrived around noon hunting for two Honduran nationals who were quickly located. A short time later, as many as 17 officers surrounded the building and began sweeping the construction site floor by floor, checking identification.
The site foreman, who did not wish to be named, said he was shocked and had not seen anything like it before. He said the raid began with two people who seemed to know who they were looking for, then there were 15 more, as well as camera crews.
He said about eight people, all of whom worked for a subcontractor, were taken away from the site.
Other witnesses reported seeing between five and eight workers handcuffed and removed by CBSA agents while a film crew circled. Many also heard workers speaking of 10 to 15 other raids occurring the same day.”
– from ‘CBSA raid on migrant workers, complete with TV camera crew, raises concerns in Vancouver’, Jessica Barrett, Vancouver Sun, 14 Mar 2013 [hat-tip Nemesis and proteus]

Allegedly ‘illegal’ migrants working a Vancouver construction site; all wrapped up with reality TV. Archived for the chronological record.
We don’t even want to begin to think of the ethical issues involved with the TV show. Who is directing who?
– vreaa

Comment below the article above:
“I know where there is an entire building that was constructed with American workers. I called CBSA and they didn’t even care. I told them that if you went there, there is an entire crew of Americans working on site right now. The agent basically said it didn’t matter. To top it off, the construction didn’t even have a construction permit. No fire inspection. Nothing. They open for business and didn’t even have a business license. Yeah trust me. This is just one case. There has got to be dozens or maybe even hundreds happening all the time.” – Henry Wang, comment at Vancouver Sun

Their Children Have Left Vancouver – “One of the rarely discussed consequences of the huge RE price inflation in Vancouver has been the separation of the extended family.”

“Cheaper housing, follow me.”

“One of the rarely discussed consequences of the huge RE price inflation in Vancouver has been the separation of the extended family.
My own adult children have left their home city (Vancouver) partly because of better opportunities elsewhere, but mainly because of the ridiculous cost of housing. The dream of raising a family in a single family home in Vancouver is an illusion. Their options are to commute hours a day or live in a box.
Well over half my friends are in the same boat. Their children have left Vancouver. They are raising their own families in other cities and other countries. My neighborhood looks nothing like it did even ten years ago. The neighbors don’t say hi to each other and the traditional cultural events in the community are gone.
I loved my city. It’s still beautiful (when the sun shines). But now, I find it kind of lonely and hollow.”
– Uwinsome at greaterfool.ca 11 Mar 2013 11:23pm [hat-tip Bob G]

Excellent comment.
A city does best when RE is reasonably priced; when the cost of shelter is not an excessive hurdle to young industrious individuals either remaining here or moving here.
The speculative mania has pushed RE to prices that are two to three times reasonable values, and has consequently forced people away from Vancouver; it has been a deeply destructive force.
– vreaa

A related anecdote, previously headlined here:
“I think about my own home that I bought in 2000, it’s worth about four times what I paid for it now. … I have four kids, three in their twenties and one in their thirties, and they’re never going to be able to afford to live in Vancouver because they’re not already in the market.”
– Peter Ladner (former candidate for mayor), Shaw cable TV interview, 25 May 2011

Attaining Escape Velocity For The Constructive Evolution Of Imbalances In Order To Leverage The Opportunity And Break Through In Thought Leadership [“You know what I’m saying?”]

“..and that’s one of the things that I enjoy most, ah, about this convention… It’s not so much, as so little, as to do with what everything is… but it is within our self interest to understand the topography of our lives unto ourselves. The future states that there is no time other than the collapsation of that sensation of the mirror of the memories in which we are living. Common knowledge, but important nonetheless. As we face fear in these times, and fear is all around us, we also have anti-fear… it’s hard to imagine or measure… the background radiation is simply too static to be able to be seen under the normal spectral analysis. [Accent alters from British to that of deep-voiced American soul singer] But we fuse though there are times when.. a lot of us.. you know what I’m saying? cos, like, as a hip-hop thing, you know what I’m saying, like TED be rocking, like, you know what I’m saying?.. so I wrote a song, and I hope that you guys dig it… it’s a song about people, and sasquatches, and other French science stuff… Okay, here we go.”
– Reggie Watts, TED, March 2012, Long Beach, California. This piece was preceded by a passage in Spanish and then one in French.
—-

“Escape Velocity” – measure of the amount of newly concocted liquidity required to allow Canadian RE to cast off the bounds of gravity and remain afloat; coined by BOC Gov. Mark Carney

“Constructive Evolution Of Imbalances” – [household debt increasing at a slower rate; the tap on the brakes that presages a housing price crash]
“With a more constructive evolution of imbalances in the household sector, residential investment is expected to decline further from historically high levels.” – Bank of Canada statement, March 2013

“Breaking Through In Thought Leadership” – [over-reaching optimism, with a twist of Orwell]
“This is a game-changer for Vancouver. We’re known as a world-class tourism destination but this shows we’re breaking through in thought leadership. I’d like to explore how we can best leverage the opportunity to vault Vancouver into the spotlight and endear us to the leading thinkers who come here.” – Mayor Gregor Robertson, commenting on Vancouver buying the TED conference, March 2013
—

Who writes this stuff?
The above three samples added to our growing bubblexicon.
PS: We Love the subversive Reggie Watts. He was in Vancouver recently.
– vreaa

Lower Mainland Couple In Their 70’s; RE Makes Up 216% Of Net-Worth; Desire To Buy More – “My friend is getting worried about his parents’ financial situation.”

“I was talking to a friend earlier today, He’s getting worried about his parents’ financial situation…
Get this:
$2.6 million invested in real estate… all in the Lower Mainland.
$1.4 million of mortgage debt (54%). Dad is over 70, mom not much younger.
Imagine a collapse of 50% of the market in the LM. The entire family’s net worth would be wiped out. Really scary. The irony? They want to invest even more in real estate (because they lost so much money in mutual funds…).”
– Makaya at VREAA 6 March 2013 8:22am

We still believe that the (90 minus age)% guideline for maximum percentage of net-worth that should be in RE makes sense.
These guys should have less than 20% in RE, their actual number is 216%… and they want to increase it!
We’ve heard enough of these stories now to extrapolate that there are a significant number of people in this position. They are very vulnerable to price declines, and they make the market that much more vulnerable, too.
– vreaa

“Forty percent of homeowners over age 65 had mortgage debt in 2010, compared with just 18% as recently as 1992, Reuters reports.
The Investor Education Fund recently found that 24% of Canadian homeowners surveyed expect to have debt on their principal residence after they retire. Of those who expect to owe money on their homes when they retire, more than one-quarter said they don’t know how they will pay it off.”
– advoc8 at VREAA 6 Mar 2013 at 2:12pm, quoting from ‘How Baby Boomers are rewriting the rules of retirement’, Financial Post, 6 Mar 2013

Realtor On Marketing Deceit – “They could have just found a waitress or whatever, somebody who didn’t obviously work for them.”

“Amazing quote here [in this article in ‘The Vancouver Observer’], regarding the MAC Marketing scandal, from a Vancouver realtor:
“It’s not just what they did, but that they did it so badly. They could have just found a waitress or whatever, somebody who didn’t obviously work for them.”
– Nick at VREAA 5 March 2013 at 10:00 am [Thanks Nick. -ed.]

[For those readers unfamiliar with the “Mac Marketing scandal”, see VREAA 13 Feb 2013.]

Interesting that a realtor would make this kind of comment after such a scandal.
It strongly suggests that he sees deceit in marketing as simply being part of the game.
– vreaa

Overreach For The Stars – “We didn’t just buy a conference, we didn’t just lure a conference to Vancouver”; “This shows we’re breaking through in thought leadership.”

[image G&M]

“When the TED Talks people came knocking at Vancouver’s door last December looking for a new home for their signature event, the city’s tourism officials didn’t just see another small conference on the horizon.
Instead, they viewed the visit as their chance to promote a kind of intellectual Olympic Games for the next two years, where they could sell Vancouver to the world via an international elite of thought leaders.
In return, the organizers of TED – which stands for technology, entertainment and design and brings together innovators of assorted stripes – saw Vancouver as a city whose ethos matched that of the TED Talks: future-focused, green, creative.
“I think the spirit of the city is wonderful for TED. We’ve met so many people who are dreaming big here,” TED “curator” and owner Chris Anderson said Monday from New York, where he announced the signature event would move from Long Beach, Calif., to Vancouver for 2014 and 2015 – and possibly beyond.
…
“None of us see this as a simple convention coming to town. It’s an opportunity to tell our own story through TED,” said Greg Klassen, a senior vice-president with the Canadian Tourism Commission. “We’ve negotiated the rights to leverage their brand, using the kinds of things we learned from the Olympics.”
So Vancouver will be able to market itself as the TED host city and Canada as the TED host country. And tourism planners are looking at ways to spin off other city events and draw top companies to Vancouver for meetings, using attractions such asextra speeches from some TED presenters.
They hope the strategy will make Vancouver synonymous with creative thinking, the way Austin is now the city of independent music as a result of South by Southwest, and Davos means serious talk about international finance because of its association with the World Economic Forum.
The Monday announcement caused a visible bubble of euphoria among city officials. “This is a game-changer for Vancouver. We’re known as a world-class tourism destination but this shows we’re breaking through in thought leadership,” Mayor Gregor Robertson said. “I’d like to explore how we can best leverage the opportunity to vault Vancouver into the spotlight and endear us to the leading thinkers who come here.”
– from ‘TED Talks choose Vancouver as host’, Frances Bula, The Globe and Mail, 4 Feb 2013

“Watching over and participating in these proceedings at the Long Beach Convention and Entertainment Center is a small vanguard of Canadians preparing to help TED’S once-improbable exodus from a state considered both the bedrock of American technological innovation and the birthplace of TED’S innovative brand for putting ideas in front of the people with the power to make them happen.
There are folks here from the Canadian Tourism Commission, Tourism Vancouver, the Vancouver Convention Centre, Mayor Gregor Robertson’s office, even hoteliers whose ringside five-star hotels will host attendees whose names are synonymous with power, influence and change. Over the next five days these visitors will try to figure out how to capture the magic of an intimate theatre setting TED concocted to make that idea transfer happen.
“Our relationship with TED is a partnership. We didn’t just buy a conference, we didn’t just lure a conference to Vancouver, we developed an alignment of our brand of Vancouver and Canada with the brand called TED,” said Greg Klassen, senior vice-president of marketing for the Canadian Tourism Commission.”
– from ‘Canada gets ready to host global tourism leaders. TED head to Long Beach to find ways of replicating success in Vancouver’, Jeff Lee, Vancouver Sun, 24 Feb 2013
—

Years ago, we liked much of TED a lot.
Since its size and offerings have ballooned, its content has altered, such that we now like bits of it a lot, and lots of it a bit or not at all.
Regardless, it is not a bad thing for Vancouver to host a conference/convention such as this one (provided the price hasn’t been outrageous.. more about that below).
The attempt to link the announcement with claims that Vancouver is “breaking through in thought leadership” are laughably funny, but at the same time, familiar to those who have noted the hopeful (embarrassing?, desperate?) over-reaching that is characteristic of recent Vancouver rhetoric. (Example: Eco-friendly city? Green Leader? – Despite our bike lane preoccupation, just 1.8% of trips taken in Vancouver last year were by bicycle. Also see: Garbage per capita; Airline flights per capita; etc.)
And, bringing the discussion home, this over-reaching is, of course, manifest in our home prices, and we see a relationship there. “Dreaming big”; Talk vs Walk.
Regarding the TED conference funding: Do any readers have access to details of the exact deal struck between TED and Vancouver/BC/Canadian representatives? How much is this going to cost us?
When the CTC representative says: “We’ve negotiated the rights to leverage their brand”, what were the details of the negotiation?
When they say “We didn’t just buy a conference, we didn’t just lure a conference to Vancouver”.. Okay, fine, but we’re curious as to how much it’ll cost us, anyway.
– vreaa

—
Thoughts from TED critics:

“According to a Financial Times story last fall, Mr. Wurman [architect and urban designer Richard Saul Wurman started TED in 1984] thinks the TED concept has become too orchestrated and too slick. Other critics have complained that the talks have become intellectually pretentious and almost industrialized in their production. A recent New Yorker article described them as appealing to “college-educated adults who want to close the gap between academic thought and the lives they live now.” But that hasn’t made a dint in their phenomenal popularity, with over 1,200 cities having hosted spinoff TEDx talks.”
– from the same G&M article above.

“Strip away the hype and you’re left with a reasonably good video podcast with delusions of grandeur. For most of the millions of people who watch TED videos at the office, it’s a middlebrow diversion and a source of factoids to use on your friends.” – from ‘Don’t mention income inequality please, we’re entrepreneurs, Why TED Is a Massive, Money-Soaked Orgy of Self-Congratulatory Futurism’, Alex Pareene, Salon, 21 May 2012
—

[image Salon]

“It was a chance conversation with a seasoned realtor that tipped me off to the whole bubble back in 2004.”

“It was a chance conversation with a seasoned realtor that tipped me off to the whole bubble back in 2004. When I met my wife she had just purchased a condo in Surrey for $135k. We moved into it and met a tough-as-nails older woman who had been a realtor for 30 years and lived in the building. She shared the history of the building with us. Units had originally sold for $170k but a leaky condo adventure had dropped the value down to $70k, many lost their homes but those that were left were holding out for the prices to return to $170k. I asked her how long that would take. She pondered it, referred back to her 30 years of experience and said. “Probably 10 years.”

Almost exactly one year later in mid 2005 she came to us to tell us she could get $160k for our unit if we wanted to sell and move to a larger unit. We took her up on it and bought a larger unit in the same building. We got an over ask offer of $164k and bought a bigger unit for $170k. A year later and I was now working in Burnaby, a crappy commute. The condo needed a new roof and we had an assessment of $5000 that we had to take HELOC to pay for. We got a call to check out a place in a co-op in Burnaby near my work. It was perfect for the family we wanted to start. When we returned from checking out the co-op there was a flyer under our door. Our friendly realtor had just sold a comparable unit to ours for $240k.

Our families told us we were nuts to sell and rent. I smelled a rat, this experienced realtor had predicted 10 years to appreciate from $135k to $170k. And two years later the value had skyrocketed to $240k. My sister explained that I didn’t understand because I didn’t have kids yet how important it was for us to have real estate holdings to leave them. I decided that when I did have kids, they would be better served having me home for the two hours I would have been commuting then having a condo in Surrey 50 years from now. We pulled the trigger, the realtor actually sold the place to the same people who had bought our previous unit and we are now renters in Burnaby.

I knew nothing about real estate when I met my wife, she had bought into the market with an inheritence and had a bit of trouble walking away from ownership. But strata drama had shown her that she didn’t really own much of anything, she couldn’t rent her place out, she couldn’t decorate the way she wanted, she could have the pets she wanted, it was really a lot like living in a co-op. Except your crazy neighbours are toying with a massive chunk of your equity when they make silly rules. (They tried to make the building a 55+ while we lived there).

But ultimately it was that chance conversation with the realtor when she genuinely predicted a slow, steady increase in value that paced with inflation that tipped me off to the anomaly that was this price increase. I watched it shoot up and I was not prepared to sit back and watch it drop back down, taking my windfall with it. My wife is glad we made the move too, now she tries in vain to explain to her friends and family that they are headed for financial ruin if they continue their real estate delusions. But we all know how that goes.”

– lexlimo at VREAA 27 Feb 2013 9:42am

Thanks for your story, and for all your other comments on the blog, lexlimo.
– vreaa

“For almost 20 years, I have had close friends who are realtors. In the past month, I have seen serious changes in behaviour indicative of desperation. Commissions are down 50%, and for those on the fringes, this is pretty much poverty.”

“I’ve been following this market for a long time. Also, for almost 20 years, I have had some close friends who are realtors (and did it in the years when real estate was just something that people needed to live in – – without all the BS hype).
In the past month, I have seen serious changes in behaviour indicative of desperation. There was also a quote that “Everyone in my office has had to take a second job to ensure steady cash flow.”
I don’t think we are here to gloat in the misery of others but with sales numbers like we have now, commissions are down 50% in the past 2 years and for those on the fringes, this is pretty much poverty. . .
Quick tidbit – – Attached is showing listings declines with some areas even failing to have rising inventory. SFH however is very slow with the high end of the market completely stopped . . . .”
– yvr2zrh at VCI 25 Feb 2013 10:36pm

High Paid Vancouver Workers Choosing To Live In The U.S. – “The cost of housing is four to five times what they are accustomed to; He did not want to move because he can have his $400,000 mansion in the U.S., versus getting a little home for $1-million in Vancouver; There are other really pretty places out there.”

Eric Murray is chief executive officer of growing clean-tech company Tantalus Systems, based in Burnaby, B.C. Mr. Murray, however, lives in Raleigh, N.C., where he owns a 3,500-square-foot house and puts his three kids through private school.

He is a Canadian, with several family members in Vancouver. But when his career trajectory sent him to Raleigh, he decided to stay put. Mr. Murray is one of a growing number of workers in the Lower Mainland who live in the U.S. You could call them cross-border jobbers.

“My father’s entire family is in Vancouver, so for our relationship, it would be great if I lived there,” he says in a phone interview. “But for me to pick up and move from Raleigh, where I have a fully wooded lot, and a very nice home, and I can send my kids to private school, this sort of stuff – to do that in Vancouver, I just can’t swing it economically. When we looked at this whole thing, we knew we would have to compromise on housing.

“Absolutely, I would live in Vancouver if I could afford it.”

Technology is the third-largest contributor to B.C.’s gross domestic product, says Bill Tam, president of the B.C. Technology Industry Association. He says there is demand for about 4,000 more employees in the industry, and the majority of qualified people come from the U.S.

“Especially in the Vancouver area, technology has been one of the faster growing industries,” he says. “So when companies have had to expand and recruit managers to come here from the U.S., some have relocated to places like Blaine, Wash., close enough to commute on a daily basis. That’s the level of creativity they’ve had to resort to.”

Others, he says, fly in from more distant U.S. locations, like Mr. Murray. Mr. Murray used to fly into Vancouver every other week. These days, he’s flying in every third week.

“When they come across and recognize the cost of housing is four to five times what they are accustomed to, they end up being commuters,” says Mr. Tam.

Sierra Wireless CEO Jason Cohenour, who was travelling and couldn’t be reached for comment, works in Burnaby and lives in the U.S. Tom Ligocki, CEO of Richmond-based Clevest, says he has several employees who live in a golf course community at Semiahmoo Resort, near Blaine. One of his engineers, Jeremy Westbrook, commutes from his home near Blaine to work in Richmond. It takes them about 30 to 40 minutes to make the drive.

“None of the folks in the U.S. want to move to Vancouver,” he says. “The simple example that I heard from one gentleman is that he did not want to move because he can have his $400,000 mansion in the U.S., versus getting a little home for $1-million in Vancouver.” …

“There’s no point in even talking about the Vancouver market. We are just talking to them about directly moving to the Semiahmoo resort,” he says, on the phone from a conference in New Orleans. “If you can’t bring them to Vancouver, that’s the only option we have.

“And they do certainly make very good wages,” he adds. “These are high-end experts that we are hiring.

“But all these folks are used to living in a house. They are used to American comforts, and they are well paid, and they can afford to have a nice luxury home wherever in the U.S.”
…

“I get into this discussion all the time with guys. Vancouver is great. The mountains and ocean are super. I get that. I would love to live there. I have a lot of family there. But I don’t see how the economics would work for a young person trying to do both of those things, unless they had a similar opportunity in another really pretty place.

“And I have been in a bunch of different countries and there are other really pretty places out there.”

– from ‘Some Vancouver workers have been priced right out of the country’, Kerry Gold, Globe and Mail, 22 Feb 2013 [hat-tip Aldus Huxtable]
—

Smart business people know: Vancouver RE is woefully overpriced.
– vreaa

Realtor Stories – “A close friend of our family has been a Westside realtor for nearly 20 years. A few weeks ago, he suddenly asked if we knew anyone who might be interested in his $2 million listing. Never before has he done this.”

“A close friend of our family has been a Westside realtor for nearly 20 years. A few weeks ago, while talking about a completely unrelated matter, he suddenly asked if we knew anyone who might be interested in his $2 million listing. Never before in 20 years has he tried to drum up business from us. We know a total of zero people with a spare $2 million, so this was completely ridiculous and seemed rather telling.”
– Sheesh at VREAA 19 Feb 2013 11:16am

“A friend of mine 3 years ago quit a well paying full-time job to dabble in RE. When the slowdown started about a year ago, she was lucky to get her old job back.”
– Real Estate Tsunami at VREAA 19 Feb 2013 9:25am

“My land-lady who is a very good friend of [a Vancouver realtor] tells me that there are no buyers coming – she says market is very bad… very obvious to anyone who actually uses their brain… but quite an admission from someone who has been a part of this giant scam.”
– vancouverbubbleman at VREAA 14 Feb 2013 3:30pm

“Sitting at YVR waiting for my flight to Calgary tonight. Had a pleasant ride with a taxi to the Nanaimo airport with a driver who has sold real estate in the Nanaimo/Parksville area for 29 years. This is the 3rd downturn in his career and the first time he has had to find another income stream. “

“Sitting at YVR waiting for my flight to Calgary tonight. Had a pleasant ride with a taxi to the Nanaimo airport with a driver who tells me that he has sold real estate in the Nanaimo/Parksville area for 29 years.
He is driving cab to supplement his income. Says he had plans to retire and bought a house 5 years ago on one of the islands. Ready to retire and move in and he ends up with his granddaughter on his doorstep 4 years ago. She is now 14 with no sign of leaving until she graduates. Gotta take care of family, he says, but I miss my island property which he gets to once a month without his wife who hasn’t quite accepted their present personal financial state.
He says this is the 3rd downturn in his career and the first time he has had to find another income stream. Says he’s not sure when this slide will end….. here’s my card he says, just in case you decide to buy anytime in the future.”
– Anonymous at whispersfromtheedgeoftherainforest.blogspot.ca at 2:34am [hat-tip Whisperer]

Update – Westside Old Favourite Sells For Same Price As In Feb 2011

Here’s an update on a Westside SFH we’ve featured here before:

4411 W 11th; 4,696 sqft SFH; 63×121 lot (7,623 sqft; 0.175 acres)
(Old Timer; Backs onto alleyway behind 10th Avenue stores.)
Listed 9 Oct 2010 $2,980,000
Price change 6 Dec 2010 $2,890,000
Sold 15 Feb 2011 $2,830,000

Listed August 2012 with $3,180,000 ask price
Remained on market for rest of 2012, unsold

Relisted 24 Jan 2013 with $2,998,00 ask price
Sold 24 Jan 2013 $2,850,000

Anybody care to calculate carrying and transaction costs over the last 2 years?
We can’t verify this, but we are told that nobody has lived there over this period.
Will this property now be utilized as a residence, knocked down for a new build, or is it being purchased to sell again later at a hoped-for higher price?
– vreaa

—
This house was first featured at VREAA 6 Dec 2010 when we noted that, at an “Ask Price of $2,890,000”, “10% downpayment ($289K); 4% rate; 25yr amortization” would result in “Monthly mortgage payments: $13,681.79”
In a later post, 5 Jan 2010, we cited it as the kind of house that would sell for less than $1M in the coming trough.
This house was also featured representing our fair city in ‘Unashamed House Porn: Seattle Vs Vancouver’, VREAA, 11 Aug 2011.

No Bad Hair Jokes, Please – “A high-rise hotel and condo project on Vancouver’s West Georgia Street is being rebranded as the city’s first Trump tower.”

Sorry; impossible to resist…

“A high-rise hotel and condo project on Vancouver’s West Georgia Street is being rebranded as the city’s first Trump tower, CBC News has learned.
Developer Holborn Group is relaunching its Arthur Erickson inspired twisting tower under the Trump brand with condos priced around $1,600 a square foot.
When the project was originally launched before the global economic meltdown, the 60-storey tower, which will twist 45 degrees as it rises, was to feature a high-end Ritz-Carlton hotel on the lower floors.
Another 123 luxury condos were planned for the upper floors, priced between $2.5 million and $10 million, with the penthouse priced at $28 million.
But when the recession hit in 2008 the luxury market collapsed. The project was halted and early buyers were refunded their money.
The project was restarted in April 2012, with 290 condo units aimed at a lower price point, at the location on the 1100-block of West Georgia.”
– from ‘Trump Tower brand coming to Vancouver project’, CBC News, 15 Feb 2013 [hat-tip Nemesis]

Top rated comments on the CBC site:

“When overdevelopment has hit the point where the likes of Trump are drawn to town to bless us with their “brand”, you know we’re heading into the trash bin. It used to be such a classy city.” – JimBev [547 thumbs up; 27 thumbs down]

“How embarrassing.” – Michael.Wolf [492 thumbs up; 18 thumbs down]

“So according to this article, we are told that the Toronto development was a smashing success (sub-heading “Toronto success moving west”, article says “Trump International Hotel and Tower has put its stamp on that city”) and there is no reason why it won’t be just as successful here in Vancouver.
Yet, in the December 26, 2012 issue of the Financial Post, an article appeared titled “Trump Tower woes signal Toronto’s condo market ‘on thin ice’.”
One investor feels he’s been ripped off and sold something that was misrepresented. “We bought into the Trump name and what we were being told was a hot real estate market in Toronto for this kind of project,” [the man] said in an interview. “It turns out that the hotel had nothing to do with him and that it isn’t a good investment after all.”
Things are clearly not what they seem and the CBC should correct THIS article immediately. A little Googling would have gone a long way, instead you chose to be lazy and, clearly, parrot what the developer is telling you. Shame.” – Fox in a Hole [368 thumbs up; 8 thumbs down]
—

We’ll add the Trump Branding as another candidate for the Vancouver RE market’s ‘Jump The Shark’ moment. – vreaa

CTV TV News Featured ‘Condo Buyers’ Actually Marketers Of Very Same Condos!

Village Whisperer, over at ‘Whispers from the Village on the Edge of the Rainforest’ has unearthed a remarkable story of RE-marketing shenanigans.

Sisters Amanda (left) and Chris Lee (right) are scouting for condos before their parents visit from China to help them buy one. (CTV photo)

“The CTV-TV story [CTV 9 Feb 2013] featured two sisters who were looking to buy a condo at the Maddox condo development in downtown Vancouver: Chris and Amanda Lee.
Curiously MAC Marketing Solutions has an Administrative Assistant named Amanda Lee who not only works for MAC Marketing Solutions – but her current background says she’s attached to the Maddox Downtown condo development profiled in the CTV-TV story. ..
It wasn’t just CTV-BC that ran coverage of the MAC photo op. So did CBC-TV.”
– Whisperer, 13 Feb 2013

MAC Marketing Solutions, once caught out in this subterfuge, on Wednesday [13 Feb 2013] published an apology for the ‘misunderstanding’, in the form of a facebook page comment:

– facebook screencapture, posted by Whisperer, 13 Feb 2013

Whisperer has followed up with a review of the entire incident:
‘MAC Marketing admits they mislead CBC-TV, BC-CTV and all their viewers/customers’
Whispers from the Village on the Edge of the Rainforest, 14 Feb 2013
—

Clearly this represents far more than a ‘misunderstanding’, but the exposure of this deceit will barely cause a ripple. We have, sadly, come to expect ridiculously poor standards from local media regarding the coverage of the local RE market.
Well done, ‘Whisperer’, many thanks for the uncovering.
The episode is very reminiscent of similar deceit that we ourselves spotted in April 2012, where a ‘sales representative’ selling condos for Cam Good’s ‘The Key’ was presented by Global TV news as a ‘White Rock Investor’ and apparently interested buyer.
– vreaa
—

UPDATE 14 Feb 2013:

“MAC president Cam McNeill later confirmed that both women filmed in the segment are in fact MAC employees – and aren’t even sisters.
“I don’t have a full explanation of how things went down, I deeply regret for the fact that it didn’t make it more clear to you that the two women in the story were MAC employees,” McNeill told CTV News.”
– CTV News, 14 Feb 2013

Of course, as the two women in the story are MAC employees, and aren’t even sisters, the story itself doesn’t even exist!
– vreaa
—

UPDATE 15 Feb 2013:

The story of the deceit has now been covered by various ‘media outlets’:

‘Vancouver real-estate firm admits faking investor for TV news’
Sam Cooper, The Province, 14 Feb 2013

‘Real estate marketing firm apologizes after employees posed as apartment shoppers from China’
Tracy Sherlock, The Vancouver Sun, 15 Feb 2013

‘MAC Marketing Solutions Exposed For Fake Vancouver Real Estate Investors’
The Huffington Post B.C., 14 Feb 2013

‘Real estate firm apologizes after employees pose as buyers in news stories’
Andrea Woo, The Globe and Mail, 14 Feb 2013
excerpt:
“This is the latest in a number of questionable marketing tactics to be exposed within Metro Vancouver’s real estate community. During a media blitz announcing the Groupon-style sale of units at a Surrey condo development last year, one woman identified to a television news crew as an eager local investor was in fact a sales manager for Key Marketing, the company behind the scheme.
That same company has also taken groups of Chinese buyers on helicopter tours of Metro Vancouver properties, and at least one of those trips was believed to be misleading. Garth Turner, a business journalist and former politician, reported the Chinese buyers on a Feburary, 2011, trip – on which several media outlets were invited – were in fact local real-estate agents and brokers and the trip was meant to promote a new condo development. Cam Good, president of The Key, which includes Key Marketing, was a partner at MAC Marketing Solutions from 2004 to 2009, according to his LinkedIn page.
According to 2011 data by the Landcor Data Corporation, 75 per cent of those who purchased Metro Vancouver condos as investment properties are from Metro Vancouver. About 3 per cent are from the U.S. and 2 per cent are from other countries.
The Real Estate Council of B.C will be investigating the matter.”

‘Condo marketing company admits it duped media’
CTV British Columbia, 14 Feb 2013
excerpt:
“We’re trying to understand how this happened right now, and so I’m just trying my best to be open with you and just say that I’m very sorry that it happened,” said MAC president Cam McNeill.
McNeill maintained that the theme of the story – that Lower Mainland condo sites saw a spike in Chinese buyers around Lunar New Year – was completely true.
“I think that the ladies probably fit the profile of the story,” he said. “At the moment I don’t know whose idea that was; I don’t even know if they took it upon themselves to make that up.”

– image from CTV News

‘Real estate marketer admits to deceiving Vancouver reporters’
CBC News, 14 Feb 2013
excerpt from News clip:
“The owner of a Vancouver real estate marketing company admits his employees misled media over the weekend, including the CBC. … MACs owner admitted the story was entirely false. Two MAC Marketing workers presented themselves as sisters from China in Vancouver looking to buy a condo over the Lunar New Year.” …
“Some say that irreparable damage has been done to the real estate marketing industry, that future claims of sold out success stories will be viewed with scepticism.”
—

– Annotated image linked by Canadian Watchdog at greaterfool.ca 14 Feb 2013 10:32pm

Living In Van-Couver – “There’s no way they can afford a mortgage in Vancouver. I know one emergency first-responder who lived in his van to save enough money to afford a downpayment.”

Mathew Arthur, a Vancouver-based designer, checks email in his converted 1987 Dodge Ram Prospector.

“Mathew Arthur ditched a renovated laneway house he shared with his two brothers to live in a cheap 45-sq. foot 1987 Dodge Ram Prospector for the next year. He’s part of the growing “van dweller” community in Vancouver, where sky-high housing costs have forced many to get creative.
The contemporary nomadic community describes itself as an “island of misfits, a family, a tribe” on a popular Yahoo! forum. Some have embraced mobile living out of necessity, while others like Arthur are doing it to challenge themselves.
“I had a good design job, but in no way found engagement in my life,” Arthur told The Huffington Post B.C.
The 30-year-old wanted to challenge his notion of comfort by engineering a personalized living space that would test his creativity.
“I iterated through ideas about living in a tent, a shipping container or a commercial space with no household amenities until I arrived at the idea of living in a van,” said Arthur in a blog he’s keeping to document his year-long nomadic venture.
In early December, Arthur bought a $500 used van off Craigslist from a farmer in the B.C. Interior. With the help of his family, the vehicle was gutted, cleaned of mice feces and rebuilt with $400 worth of furniture, wiring and insulation.
In the small space, the van has four main areas: the kitchen and sink, work space, storage and bed. Without a personal toilet or shower, he has a daily excuse to go to yoga for exercise and to use the studio’s facilities.
The difference has shown in his savings: his monthly rent has reduced from $850 to a $200 parking fee plus $50 for hydro.
The tiny living space has forced Arthur to be mindful of his use of resources; he’s producing less garbage by preparing simple, fresh foods, and is using less water and electricity overall.
“The one thing that I took for granted was the freedom to move room to room,” said Arthur of living in a house. However, the shift from a 700-sq. foot house to a van parked in an East Vancouver alley has its quirks.
More people go through the alleyway than he anticipated. He’s befriended a middle-aged woman named Edie who periodically strolls through collecting bottles from the neighbourhood’s recycle bins. The occasional drunk lovers’ midnight fight is also easily audible through the van’s walls.”
– from ‘Mobile Living: Vancouver Van Dwellers’ Nomadic Lives’, Zi-Ann Lum, Huffington Post BC, 27 Jan 2013. All photos Mathew Arthur.

“They’re a merry band of vagabonds, living in their vehicles not so much because they can’t afford rent or a mortgage — though that’s part of it — but to cast off the chains of mainstream consumer living.
They’re van-dwellers and RV gypsies, free as birds and believing that your possessions in the end wind up possessing you.
“I had all of this stuff,” said 30-year-old Shawn Linley, sitting in his Econoline RV in North Vancouver. “Stuff, stuff, stuff, so much stuff.
“I don’t want a gas-powered weed-eater any more. I don’t want a huge flatscreen TV. I don’t need ’em.
“I’m never going to live in an apartment again or buy another house.”
Linley, like many vehicle-dwellers in B.C., is a journeyman tradesman. There are no official numbers of how many people live in their vehicles in Metro Vancouver, but it’s probably more than people think.
There are little mobile squatters’ camps all over the Lower Mainland — beside treed North Shore creeks, in industrial zones, beside East Van and Burnaby parks and SkyTrain stations, and along the beaches of Kitsilano and Point Grey
It is a sub-culture that is by definition discreet and shadowy, moving every so often to avoid drawing attention.
“Basically, they’re untraceable, people who are good at flying under the radar,” said Judy Graves, advocate for the homeless with the City of Vancouver.
For the most part they have jobs, she said, at least seasonally.
“And some people just do not believe in paying rent, and there’s no way they can afford a mortgage in Vancouver,” Graves said. “In fact, I know one emergency first-responder in Vancouver who lived in his van to save enough money to afford a downpayment.”
– from Living in a vehicle confers freedom from ‘stuff’, Gordon McIntyre, The Province, 11 Feb 2013 [hat-tip Aldus Huxtable]

Reader Opinion On Construction Trades – “It takes a 2-year trade diploma, a 1 year co-op, and a 4 year apprenticeship to become a fully licensed plumber. This skews the supply and demand curve and allows older workers to bid up their wages.”

DonDWest, a 31 year old Canadian, left this opinion post regarding construction standards as a comment at VREAA 9 Feb 2013. Headlined here as food for thought and fodder for debate:

“Shoddy and overpriced construction/engineering is a big problem in Canada, but I have a different take on what’s the cause. Not to sound like a Republican, but I believe corrupt unions have played a large part. I’ve experienced this first hand from a “young” person trying to enter the trades and then realizing the traditional route to getting in the trades is now economically infeasible at my age (31 years old).

Speaking of leaks, for example, it takes a 2-year trade diploma, a 1 year co-op, and a 4 year apprenticeship in my province just to become a fully licensed plumber. That’s the equivalent of a PhD equivalent level education in terms of time spent. No offense to the plumber, but you’re just a plumber, it shouldn’t take over 7 years to get licensed.
I don’t know about you, but starting a plumbing career at age 40, considering these are physical jobs where the retirement age is much sooner, doesn’t seem economically feasible. I laugh at people who tell guys now entering their late 20′s to early 30′s to “just get a trade” if you’re having difficulty breaking out of the low wage service sector mould.

What the unions have done is significantly convince the government to raise the barriers of entry into the trades for our young. This skews the supply and demand curve and allows older workers (who are mostly baby boomers) to bid up their wages. Ironically, this doesn’t result in better quality work, as there’s less competition coming from the young pressurizing the older workers to back up their wages. The older workers know their jobs are secure and this reflects in their work that’s poorly completed at a snail’s pace.

Oddly enough, due to the incidents of shoddy construction that result from this corruption, this is used by the unions as further leverage that the government needs to increase the levels of qualification in order to enter the trades. The unions created the problem, and their solution is to further reinforce the problem by upgrading credentials on the young, because perpetuating the problem is profitable for the unions and their workers. If the government just took a look at the average age of a construction worker and engineer today – they could easily see that the problem isn’t newbies coming on the scene messing things up.

I’ve come to the conclusion that if a young person wants to enter the trades, he is better off taking the small business route right away. He could start small by restoring old houses in rural Canada for example. I doubt it will take him 7 years just to figure it out, and he won’t be in so much debt due to education requirements, nor will he have to spend years upon years listening to condescending baby boomers that will only serve to hurt his confidence.”
—

Whatever measures are being taken to ensure sound construction standards in the lower mainland, they don’t appear to be working very well. Witness the tarps, even on buildings constructed after the leaky-condo scandals.
Obviously there have to be some basic standards to which the trades adhere. Over and above that, it is ironically likely that fewer restrictions to entry, and more competition (along with greater consumer expectations, and greater accountability for work quality), may well result in a better quality of construction than we are currently having to tolerate.
– vreaa

“I’m a Canadian living in L.A. and to me the bubble as been clearly visible for many years. I’m fascinated by the ‘cultural’ aspects of the Canadian bubble.”

“I’m a Canadian living in L.A. and to me the bubble as been clearly visible for many years. Now, my interest has evolved, and I’m more fascinated by the ‘cultural’ aspects of the Canadian bubble. Like real estate people being invited as ‘guests’ on the evening news. To my eye, that alone screams overvaluation and speculative mania. Believe me, in a couple of years, that’s the kind of details that will go in the “what were we thinking” category.
I flew to Montreal recently and *everyone* there has something to say about real estate. I wasn’t the one who it brought up. They talk about how this condo sold for X amount, how holding on to a (bubbly) property is the best investment known to man. Greed permeates every one of theses judgments, but greed is never acknowledged. It’s just ‘common sense’.”
– Nick at VREAA 9 Feb 2013 11:37am

‘Martin From Richmond’ Update – “Prices are down more than 15%. Another thing worth considering is that 2013 is the Year of the Snake for those of Chinese ancestry.”

“Prices have dropped more than 15 per cent in one popular neighbourhood in Richmond.
Almost a year ago, a 2800 square foot, five bedroom three bath house sold in the Garden City area for $952,000, a bit above asking price in what was described as a cash sale that followed a bidding war between two interest parties.
Within the last week, another house, a 2400 square foot, three bath house on a similar-sized lot sold in the same neighbourhood for $805,000, below the asking price of $838,900 and even below assessed value.
In both cases, the homes didn’t need any work, and were move-in ready, updated, and well-designed.
The $147,000 drop in price works out to be a 15.4 per cent price drop in the area.
And I think it’s an indication that at least one home owner seriously considered “cashing out”, and ultimately did, and that others might do the same, if the real estate industry continues to grind to a halt.
Another thing worth considering is that 2013 is the Year of the Snake for those of Chinese ancestry.
A renowned Richmond fortune teller and feng shui expert predicts that the Year of the Snake will see profit margins slip, and said business will slow down
Whether you believe in Chinese astrology is not the point; considering the influence of foreign and mostly Chinese buyers on the price spikes since late in 2010, it’s whether this significant subset of deep-pocketed people believe it.
The fortune teller said 2013 will see a significant slow down, and said people will be more careful in spending their money.
As with my earlier “self fulfilling prophecy” comment, if Chinese investors really do believe that 2013 will be a slow year, that could influence their decisions, and in fact, result in a slow down. It all depends on if enough people are drinking the Kool-Aid.
But the fortune teller also noted that the “wealthy Chinese” are unlikely to liquidate their assets by taking low-ball offers, and will decide to rather sit on their properties, awaiting better times.
So, recent sales activity (according to the Greater Vancouver Real Estate Board, January 2013 sales were the second lowest for that month since 2002) combined with the Chinese New Year, could further trigger prices to slide.
Something worth considering for those who are mullling over the possibility of re-entering the world of home ownership.”
– Martin from Richmond, via e-mail to VREAA, 6 Feb 2013

We don’t believe in astrology any more than we believe in leprechauns, but we do ‘believe’ in the fact that others believe in such things, and that those beliefs can influence herd behaviour.
A speculative mania is itself based on false beliefs.
– vreaa

“Over 6k of the announced 16K job losses in BC were due to real estate development slowdown in the Lower Mainland.”

“Labour Minister Pat Bell was on CBC radio earlier today. He said that over 6k of the announced 16K job losses in BC were due to real estate development slowdown in the Lower Mainland.”
– Patiently Waiting at VCI 8 Feb 2013 3:37pm

It does seem that things are slowing down on various fronts.
These are the kinds of self-perpetuating downward-spiral/vicious-cycle factors that will cause lower prices to beget lower prices still.
Our recollection is that we have roughly 7%-8% of the work-force directly involved in RE construction, whereas more normal levels are 3%-4%.
– vreaa

Globe & Mail BC Promotion Labels Vancouver Condos ‘Unaffordable’

“This offer card from Globe & Mail for BC subscribers, was in our mailbox last week. Love that the generic Vancouver condo photo has the word ‘unaffordable’ on it. Obviously not so much advertising revenue from that sector for G&M lately 😉 Fun times!”
– JM, by e-mail to vreaa, 5 Feb 2013 [Thanks JM. -vreaa]

Usual Suspects – “Nothing To See Here” – “When they realize they’re not going to see significant declines in pricing, they’ll get on with their lives and move on with purchasing decisions.”

“January’s numbers are not a surprise. Some buyers may be sitting on the sideline waiting for a deflationary spiral to develop. When that doesn’t develop, when they realize they’re not going to see significant declines in pricing, they’ll get on with their lives and move on with purchasing decisions.”
– Cameron Muir, chief economist for the B.C. Real Estate Association.

“January’s numbers suggest that there is a possibility the decline in sales should well flatten out.”
– Tsur Somerville, director of the centre for urban economics and real estate in the Sauder School of Business at the University of B.C.

“When a home seller isn’t receiving the kind of offers they want, there comes a point when they decide to either lower the price or remove the home from the market. Right now, it seems many home sellers are opting for the latter.”
– Eugen Klein, president of the Real Estate Board of Greater Vancouver

Above quotes from ‘Lower Mainland home sales continue downward trend’, Derrick Penner, Vancouver Sun, 5 Feb 2013

The tune doesn’t change, despite the substantial change in the backbeat.
Perhaps this is the first time that Muir has used the term ‘deflationary spiral’.
And, we’ll say it again: it’d be nice to see Sommerville at least sketch out a few alternative scenarios for the benefit of Vancouver citizens. The lack of critical analysis of this market from local academics remains one of our bubble’s most remarkable features.
– vreaa

G&M Likens Housing To Income Trusts – “The blowback if housing falls hard will be worse because homes are widely believed to be a special kind of asset that benefits the entire population.”

“If the slowdown in the housing market worsens, Mr. Flaherty will be blamed as he was after effectively killing income trusts in a surprise announcement made on Halloween night in 2006. The Minister, and his government, will be accused of being bad economic managers if the housing sector falters. But what people will really be saying is: “How dare you, Mr. Flaherty?”
People are funny about financial assets that soar in value, be they income trusts or houses. They see them as being special in some way, a phenomenon of nature that should be left untouched so as to allow folks to make some serious money.
But assets that soar in value are the ones we need to worry about most. Everything in finance is cyclical, which means there are ups and downs. The more an asset rises in price, the more vulnerable it is to a nasty pullback that causes damage both to individuals and the economy.
Mr. Flaherty moved to cool the overheated housing market last summer by capping the maximum amortization period at 25 years for people with down payments of less than 20 per cent. The impact of this move so far has been negative, but not alarmingly so. House sales were off 17.4 per cent in December on a year-over-year basis, but prices were up 1.6 per cent, on average.
…
Mr. Flaherty snuffed out trusts by announcing the government would start taxing them in 2011. In response, most trusts converted into dividend-paying corporations that pay far less cash than they used to. The complaining from investors about the demise of trusts was long and loud, although it never seemed to hurt the Conservatives in an election.
The blowback if housing falls hard will be worse because homes are widely believed to be a special kind of asset that benefits the entire population. It’s an easy impression to come away with after watching the rules shift over the years for home-buying down payments.
Decades ago, buyers had to put down a minimum 10 per cent and amortize over 25 years at most. The minimum down payment briefly fell to zero a few years ago and now it’s 5 per cent. Amortization periods expanded to as much as 40 years for a time, before being reeled back.
…
Housing’s stature has been further inflated by its cultural and economic importance. Multiple TV channels celebrate housing, and a fair chunk of the retail industry is directly home related (think of HomeSense, Home Depot, Home Outfitters, Home Hardware, Sears Home and the like). Also, housing-related spending accounts for close to 20 per cent of economic output. What’s good for housing is thought to be good for all of us.
Mostly, though, housing is thought to be special because of its value as an investment over the past couple of decades. As mentioned in a recent column (online at tgam.ca/Dlfb), housing prices nationally have risen about 5.6 per cent annually since 1980.
After five years of up and down stock markets, Canadians have become very possessive about their gains in housing. If housing prices plunge, they’ll be looking for someone to blame. That would be Mr. Flaherty, even if he was just doing his job.”
…
– from ‘First income trusts, now housing? Careful, Mr. Flaherty’, Rob Carrick, The Globe and Mail, 16 Jan 2013.
—

We like the way that this article emphasizes the ‘special’ place that housing has achieved through the 10 year national housing bubble. Nowhere more special than in our own Vancouver, of course.
A few thoughts:
1. Flaherty’s mortgage rule changes in 2012 were simply a slight tightening of restrictions that he himself had allowed to become far too loose in prior years.
2. When Flaherty announced the income trust rule changes in 2006, he exempted one class of income trust – those in real estate!
3. In trying to quantify the difference between the effects of changing the tax laws of income trusts, and tightening mortgage rules, it would be good to know how many Canadian’s had how much of their net-worth in income trusts in 2006. (Can any readers direct us to such data?) My hunch is that, even though that move was significant (and caused a massive brouhaha), it doesn’t come anywhere close to the magnitude of significance of mortgage tightening. Over 70% of Canadians own their homes; a large percentage have the majority of their net-worth in their homes; a significant percentage have their net-worth highly leveraged to the market value of their homes. In addition there are innumerable knock-on economic effects of a falling housing market.
The unwinding of the RE spec mania will completely eclipse memories of the 2006 income trust tax changes.
– vreaa

BC Architectural Firm Job Interviewer Likens Helicopter Parenting To Housing Bubble

“Walking into a job interview with a Canadian architectural firm, a young candidate brings something unexpected: mom.
An employee with the British Columbia company says it was the first time she had seen a parent shadow the hiring process, describing what ensued as “a bit of an awkward situation.” But she adds that there have been at least five or six recent occasions in which a mother or father sat with their grown child in the waiting room before an interview.
According to experts, this could soon become commonplace.
…
At the B.C. architectural firm where a parent sat in on a candidate’s interview, a staff member – and a mother herself – says she would have been “mortified” had she been in the young person’s shoes.
“I wonder what would happen if we all stopped pushing our kids to succeed and just let natural selection run its course? Sort of like the housing bubble: let the whole thing burst instead of running around to tutors, afterschool programs, language lessons, and lining up to register for sports programs,” said Helen, who asked that her last name not be used.
“Of course, that’s never going to happen.”
– from ‘Helicopter parents increasingly follow kids to college, the workplace and beyond’, Misty Harris, Postmedia News, 16 Jan 2013 [hat-tip harden]

Filed under ‘RE References In Popular Culture‘.
We seem to be seeing an increase in such mentions.
– vreaa

‘Old Curmudgeon’ Has Audacity To “Force People To Confront The Consequences Of Their Own Debt”

“I own my house. I have no debt. Why? Not because I was lucky or rich. But because I never borrowed for consumables. My house is not an investment. Whether it is worth $100,000 or $1,000,000 is irrelevant. It’s where I live. It’s a roof over my head. I had to get a mortgage for the house, but worked on paying it off with spare cash. I didn’t have to have a car. Nor yearly vacations in exotic locales. I didn’t eat out a lot. I didn’t need a lot of clothes. And I don’t give a sh*t about impressing the neighbours.
For the most part, all the debt problems people have stem from their own greed, consumerism and lack of self-control. Don’t blame the market. Don’t blame the banks. Blame yourselves. But in our society, it is impolite to force people to confront the consequences of their own actions.”
– Old Curmudgeon, commenting at ‘Why lower home prices are a national priority’, Globe and Mail, 11 Jan 2013 9:26PM

‘Old Curmudgeon’ is in this situation in part because of his sensible ways with money, but also because he was very likely fortunate enough to buy at a time when house prices were more reflective of underlying fundamental value. And that is how it should be, after all. Homes as places to live, rather than as financial instruments.
His indignation with debt-spending is well placed.
– vreaa
—

From the article on which ‘Old Curmudgeon’ is commenting:

If Canada wants to slay its household-debt dragon, it will have to cut down house prices at the knees. But there’s an economic price to pay for that – and it goes well beyond a cooling of the residential real estate sector. …
“…house prices appear to drive non-mortgage debt, too – the more valuable your house, the more debt you’re likely to take on outside of your mortgage. And, since close to half of all non-mortgage debt is used to finance consumer purchases, higher house prices ultimately boost our national consumption, too.” …
“… the 52-per-cent rise in national house prices from 1999 to 2007 was responsible for a 19-per-cent increase in homeowners’ non-mortgage debt.”… “Multiply that by approximately 13 million households, and that’s nearly $10-billion more in annual consumption – or roughly a 2-per-cent juicing of non-housing consumer spending.” …
“A substantial downturn in prices – say, 10 to 20 per cent – would, in theory, not only reduce mortgage debts for new home buyers, but, significantly, push down non-mortgage debt to the tune of 4 to 8 per cent.” …
“A downturn in consumer borrowing is going to put a serious lid on consumer spending growth – which up until now has been a critical driver in Canada’s economic outperformance since the 2008-2009 global recession.
In the long term, this is the price to pay to get Canadians back living within their means, and the economy on more solid footing. But in the nearer term, the medicine could well feel worse than the disease.
– from ‘Why lower home prices are a national priority’, David Parkinson, The Globe and Mail, 11 Jan 2013

Buy The Dip! – “Our families have been pressuring us to buy a place as the prices are coming down.”

“We got married 1.5 years ago. My husband doesn’t believe in buying a place, so currently, we are renting in downtown Vancouver. We have combined saving of $150,000 plus some assets in gold. We have a combined household income of $115,000. Initially, our goal was to save one of our salaries but realistically it hasn’t happened yet. We plan to start a family soon and will need a bigger place. Our families have been pressuring us to buy a place as the prices are coming down. Since both of us work in downtown Vancouver, we don’t want to move to suburbs like Surrey where houses are cheaper but has longer commute. Do you think prices in North Vancouver will come down in the near future?”
– Jasmine, as relayed by Garth Turner, greaterfool.ca, 8 Jan 2013

There will be a subgroup of buyers who jump in at 10%-15% off, thinking we’ll have a re-run of the 2009 ‘dip and bounce’. They will be as severely punished for their purchase as any other buyers in the last 5 years.
Notice, too, that these advisors/buyers are very early ‘premature-bottom callers’.
– vreaa

Everything Is (Still) Going To Be Alright ?

– image posted on reddit, 2013 [hat-tip proteus]

This art work, by Martin Creed, on the outside of Bob Rennie’s gastown gallery was first featured at VREAA way back in November 2009. Take a look at that post for background discussion.
We like this piece, particularly the way its meaning will change through all phases of the massive economic cycle that RE has brought this city.
An interesting issue to consider will be whether, at some point in the descent, Bob Rennie decides to take it down. While the market is ripping and everybody’s ‘rich’, it’s a battle-cry, a cheerleader slogan; it’s very easy to ‘own’ it then. But through the coming years when prices are dropping, and people are hurting (and complaining), at the very point where many will need reassurance, will Mr Rennie be able to bear the complexities of keeping this work on display?
– vreaa

RE In The Minds Of Vancouver Authors – “People everywhere are taking out second mortgages on their homes in the hopes of accomplishing what Mother Nature has not, and here, biology at work! How extraordinary!”

In the CBC ‘Canada Writes’ 2011-2012 Creative Non-Fiction competition, the winning entry came from Toronto; two the three runners up from were from Vancouver. The entries are only 1200 – 1500 words in length. Both Vancouver authors referenced RE in their stories: One deals in part with a construction site injury; the other mentions people taking HELOCs to pay for fertility therapies.
Co-incidence? We think not! In RE speculative manias, the subject of RE is mentioned in popular culture more often than in typical times. – vreaa

“The call comes on a Monday morning. Your son’s boss. An accident, he says. He fell.” …
“The job site is closed down. Notices taped to a rented fence. You peer through the wire, your husband silent beside you. The roof soars above you, shiny, corrugated, supported by massive dark red beams. You squint, hoping to make out the corrugation that caught his boot, but it’s late in the day, the light dim.
You stare up and up. The roof so high.
Neither of you speak.
The skylight opening, cut that day, covered with flimsy sheets of plywood, the kind that flex and bow when pressed hard by something solid like a young man’s body. You stare up at it, the square of light too bright for you.
Forty feet. A concrete floor.
The wind shifts and hits your face. Your husband takes your hand and together you walk back to the car.”
– excerpts from ‘After, and Before’, Judy McFarlane, Vancouver.

“People everywhere are taking out second mortgages on their homes in the hopes of accomplishing what Mother Nature has not, and here, biology at work! How extraordinary!”
– excerpt from

Canadian Cities Inflation Adjusted House Prices, 1980-2011, Annotated Chart

– chart from Kevin at saskatoonhousingbubble, referred to at VREAA 28 Dec 2012, headlined by popular request. Thanks Kevin and UBCghettodweller. Kevin adds: “The housing bubble that popped in the early 80′s was in Western Canada while Central and Eastern Canada were not affected. The housing bubble that popped in the early 90′s was centered in Toronto and area while the west was still recovering from the 80′s. Today, in 2012, it looks like the housing bubble is spread throughout Canada but to differing degrees.”

Bears Care, Too

“…the schadenfreuden stories on Vancouver Real Estate Anecdote Archive. Always good for a bitter laugh.” – Bill Lee at francesbula.com 26 Nov 2012

“I never did give anybody hell. I just told the truth and they thought it was hell.” – Harry S. Truman

All the very best for the festive season to all readers, and wishing you all a fine, peaceful 2013.
Regular readers know that we foresee challenging times ahead for the Vancouver RE market. This opinion is not a wish, it is simply the result of an analysis of all the available evidence. And it is most definitely not to be confused with a desire for bad things to befall anyone in our community.
The speculative mania in housing (2003-2012) has been detrimental to Vancouver. It has misallocated human and financial capital, and distorted the economy of the city. It has inconvenienced many, and, unfortunately, in the end, it will have financially and psychologically hobbled a good number of citizens. This outcome is inevitable. Again, please don’t confuse this observation with a wish, it is simply part and parcel of a spec mania: a messy resolution has been ‘baked in’ since prices hit the afterburners in the mid 2000’s. When asset prices are artificially inflated by a chain of ever increasing debt-financed transactions, there will always be a large group left ‘holding the bag’ when it all runs out of oxygen.
There is, unfortunately, no other way things can resolve, and nothing that can be done to significantly ameliorate the bubble’s consequences. It is too late for that. The problem was letting it develop in the first place; and not allowing it to unwind earlier.
Anybody who is wishing for soft-landings, or hoping that some form of kindness will somehow allow for a resolution that involves no damage, needs to answer this question: Who do I expect to do the buying that will let everybody down gently? Who do I expect to step in now, borrow (or ‘donate’) large sums of money, and agree to purchase properties that are still woefully above their fundamental values? (and thus exposing themselves to very large losses ahead). Who do you suggest should be the sacrificial lambs?
Those wishing for fantasy bullish, Pollyanna-ish outcomes may be well-meaning, but they are simply ignorant of bubble market dynamics. You can’t simply call the game off and hope that everybody wins; it doesn’t work like that after years of ever-increasing over-extension.
All that said and done, we hope that readers fare as well as possible. All citizens, owners or not, will feel some of the economic effects of a RE downturn. Non-owners will suffer less direct personal impact, and there are a good number of owners who will survive the RE bear market with just a scratch or two. We are most concerned about modest net-worth households who have almost all of their savings in their homes; often with leverage. We know it is a painful fact that they can’t all get out ‘whole’, but we fear for them nonetheless. Particularly vulnerable are those close to retirement who are relying on the value of their homes for a comfortable future.
We hope that Vancouver can find a way to make the transition from overvalued market to a fairly, and sustainably, valued market with as little damage, and as peaceably, as possible. In fact, for us, the ‘peace’ bit is paramount. Economic stress puts groups at risk of highly-charged fractures, and we sincerely hope that as a large and diverse group we’ll be able to avoid scapegoating, in-fighting, and division.
So, to emphasize: Bears care, too. They may come across as grumpy and (per force) contrarian, but they care as much for family, friends, neighbours, and fellow citizens as anybody else. Sure, the occasional bearish commenter will express the opinion that they will gain pleasure from the losses of speculators, but this is far from the commonest position. The very few Vancouverites who have seen this speculative mania for what it is most commonly express genuine concerns about the potential consequences for themselves, their families, and their fellow citizens.
– vreaa

“I conceive that the great part of the miseries of mankind are brought upon them by false estimates they have made of the value of things.” – Benjamin Franklin

“I think you’ll need another sidebar category to capture the mounting “why do you hate families/wish misery on others?” accusations that are going to come in increasing numbers. Long time bulls – and new visitors to this site – may trot that one out more and more, accusing you and posters here of schadenfreude, hating home “owners”, etc. Even if it doesn’t happen here, mind-bending statements in this vein will increasingly pop up elsewhere and be worth collecting. May I humbly suggest a sidebar icon with a picture of Helen Lovejoy and the words “won’t someone PLEASE think of the children?!?” to link to the post you ultimately create addressing this topic?
Past even-handedness will matter little to desperate people who will misinterpret many sentiments expressed here. The archive will be useful to a subset of these people who are willing to be taught the historical mechanics driving this bubble.”
– paraphrasing of Royce McCutcheon at VREAA 17 Sep 2012 8:50am [We’ll call such a sidebar ‘Bears Care, Too’ -ed.]