“You’ve Got A Bubble, Canada” Article #47 – Bloomberg – “Canada Housing Poised for ‘Severe’ Drop”

The chart above from Bloomberg shows Canada’s housing investment as a percentage of gross domestic product, and the declines in inflation-adjusted house prices that follow when this ratio tops 7 percent.

“Canada may be on the cusp of a “severe” housing correction as real estate investment surges above a tipping point relative to economic output, according to George Athanassakos, professor of finance at the Richard Ivey School of Business. “Eventually, everything boils down to demand and supply,” Athanassakos said in a telephone interview from Western University in London, Ontario. “Whenever this ratio goes over 7 percent, it signifies overinvestment in housing and two or three years later, we have a severe correction.”
Canada’s housing market is booming as historically-low interest rates fuel purchases, driving up home prices and adding to record household debt. Canada’s ratio of housing investment to GDP has averaged 5.8 percent over the last 50 years and is currently at about 7 percent, based on Statistics Canada figures as of the third quarter of 2011, Athanassakos said. Housing investment includes spending on new homes, renovations and real estate transaction fees.
U.S. housing prices plunged by a third between the peak in July 2006 and November 2011, according to the S&P/Case-Shiller Composite-20 Home Price Index. By comparison, Canadian housing prices rose 30 percent in the same period, according to the Canadian Real Estate Association.
“We have experienced bubbles and busts before in Canada, it’s nothing new,” Athanassakos said. “I don’t know why this time would be different.”
– from Canada Housing Poised for ‘Severe’ Drop, Doug Alexander and Ilan Kolet, Bloomberg, 17 Feb 2012 [hat-tip ‘Told-you-so-in-2007’]

We’re joking a bit about the “#47” thing — but there do seem to be an awful lot of articles in the US and international press about a Canadian housing bubble.
We haven’t been headlining all of these articles, but this one is noteworthy because of its focus on the ‘third’ fundamental, namely ‘price’ to GDP. (The other two fundamentals, of course, are price:rent and price:income). By all of these measures Vancouver RE is overvalued, likely by a factor of 2 to 3.
– vreaa

What happens to vocal housing bulls after a RE bubble pops?

“You know the exploding rate of Foreclosures? It’s actually quite funny. With it being about the Okanagan, that is.
From about 2005 onward, I posted quite a bit on the Castanet forums (the local news site) about how Kelowna home values were wayyy too high, and that we were in for a catastrophic collapse, and that the rate of foreclosures would be one of the first signs of an impending collapse.
From the moment I started to post on their forums, I was overwhelmed by bubble deniers who openly mocked me. There was at least a 20-to-1 ratio of bubble deniers that openly refused to believe that home prices could ever crash, compared to those who said I might be right.
In fact, one of my threads (started in December of 2007) became one of the biggest ever on Castanet (5,665 posts) before someone politely asked to have all threads dealing with Real Estate deep-sixed into the smallest, deepest and least-visited part of the forum. Even though most of said threads were clearly about Kelowna, and had nothing to do with the “Economic Crisis” category they were thrown into.
In the end, the subject ended up getting as many visitors in a month as it used to get in a single day when it was in the Kelowna category of the forum, so it was painfully obvious to me how loudly money talks, especially money of the advertising variety.
What I find so amusing now is how so many of the hard-core bubble deniers have been quietly changing their tune, even up to the point of denying that they were ever bubble deniers. Yes, Dirtrider, I’m looking squarely at you. Nice for you to finally realize that things are NOT different here.
Oh, and that news article that is all over CBC.ca and other news organizations, about how the number of foreclosures in the Central Okanagan have pretty well exploded? Not a sign of it on Castanet’s front page yet as of 2012-02-15 1841hrs UTC-8. In fact, a Google search shows that the news isn’t even on the site, just on the forums.
And yet, they’ve got OMREB-authored “news articles” about increased housing starts in the North Okanagan.
Oh, yeah. Money talks, all right.”
– René Kabis on at greaterfool.ca 15 Feb 2012 at 10:47 pm

“What happens to vocal housing bulls after a RE bubble pops?”
They disappear.
Worse, they tell themselves that they saw the crash coming.
No, seriously. That is what happens.
The wonders of the human psyche at work.
– vreaa

Kelowna Foreclosures – “Realtor is worried the number of foreclosures will bring the overall market down, hurting anyone who wants to sell their home; now up against something they didn’t see coming.”

Home foreclosures are on the rise in B.C.’s Central Okanagan in recent months. … There are more than 170 court-ordered sale properties on the market in the Central Okanagan, more than 10 times more than three years ago.
…
Real estate agent Jason Neumann says according to his estimates, in the last 30 days alone 60 new foreclosures were put on the market, and he calls it a disturbing trend.
Neumann is worried the number of foreclosures will bring the overall market down, hurting anyone who wants to sell their home.
“What do you tell your sellers that are not in foreclosure that are now up against something they didn’t see coming? It’s one of those things where the bank is going to have to do what it’s got to do to get it sold.”
…
– ‘Home foreclosures skyrocket in Kelowna’, CBC, 15 Feb 2012

Almost everybody has heard that “prices are set at margin”, but the majority of market participants don’t really get what that means; they don’t have an understanding of the full implications.
It doesn’t matter that 70%, or 80%, of owners may be very happy with their homes, and sitting tight: it only takes about 5%-7% of owners with an eager desire to sell to crash a market.
This is very relevant to Vancouver: we often see bulls arguing that most owners are very happy in their homes, they’re in it for the long run, they don’t care about price fluctuation, etc … even if all that were true, the market doesn’t really know or ‘care’ about these happy holders…. It’ll crash based purely on the behaviour of a small minority.
And, of course, the resultant price action may change the way the happy 70% or 80% feel; and so on.
– vreaa

“At coffee break today a guy was reading an ad for one of the housing lotteries. We all looked at the choices (a few houses, condo in North Van, or $1.8M cash). Not a single person would take the cash. Most agreed housing would go up.”

“The denial can be pretty funny. At coffee break today a guy was reading the paper and saw an ad for one of the housing lotteries. We all looked at the choices (a few houses, condo in North Van or $1.8 mill cash) and said what we would take. I generally stayed out of it, but not a single person would take the cash. Most agreed housing would go up and it’s better to just take a home and sell later. One guy had been keeping up with the news a bit more and said some places are actually down a little bit. Condos are starting to fall, but he didn’t think the houses would fall in value much, and didn’t go as far as to say he would take the cash.”
– davers at VREAA 14 Feb 2012 11:23am

From the lottery website:
“Now with 5 Super Grand Prize Choices! Choose from the majestic Cape Cod Style Beach Home package in White Rock – worth over $2.2 Million; or enjoy the beautiful Vancouver Skyline from our $2.1 Million+ grand prize package at Atrium at the Pier in North Vancouver. For those who enjoy the Island Life, you might choose the Circle at Swallows Landing grand prize package – worth over $2 Million. Our Craftsman-style grand prize home in South Surrey is a gorgeous family home, and that package is also worth over $2 Million! Or you can choose to just be rich – with a $1.8 Million Cash option. 5 Super reasons to buy a BC Children’s Hospital Choices Lottery ticket! Winner will choose one prize option; the other prize options will not be awarded.”

“Own RE in Vancouver, or Just Be Rich!” (Interesting. Lotteries aside, that reflects the choice for many owners, and prospective owners, alike!)
When the price descent is firmly established (10%-15% off and beyond), everybody fantasizing about wins in these lotteries will ‘take the money’, even when that is clearly the worse deal.
At the bottom, there won’t be housing lotteries. The idea of RE will so repulse people that you won’t be able to use it as a lure to raise money.
– vreaa

Open House Investigative Reporting – “He said he considered buying this for the lot value, because lot prices are still going up. However, he also said that he noticed many new/newer houses are not selling at all. This confuses him.”

“Just went to the Open House at the recently discussed 6225 Balsam property. While I know what I’m providing is only anecdotal information about one house, it may be helpful.

First, the listing realtor said she’d had “only” 10 people through in the first 90 minutes. She said that last year she would preside over Open Houses where there wasn’t room to exit by the front door, the crowds were so large.
Nine more people came through in the last half hour, so a total of about 19 people saw the house, she said, including other realtors. The realtor still seemed to feel discouraged about the low numbers, but she did say she expected multiple bids.

I went back and forth to the house twice and spent almost an hour there total. I couldn’t talk to other people viewing it because with the exception of one multilingual Asian couple and two South Asian viewers, one of whom was I think a builder and one who was an investor (see below), the 13 other people/groups I saw throughout this process were all Mandarin-speaking.

Afterwards I did speak at length to that one other person who had attended the Open House with whom I could converse. The VREAA host has often reminded us that the speculative mania here depends a great deal on local speculators, and, as it turned out, this man was one. He had just sold his house a month ago and immediately bought another lot with an older house, where he said he and his extended family would live for some months until he saw what the market was doing. He had bought and sold at least two other properties in the past few years.
I asked him if he would bid on this house. He said he had done a lot of research in the past year as he had scouted various properties to buy and flip. He said he had considered buying this lot for the lot value, because according to his research, lot prices are still going up. (“Lots”, for anyone who likes older, smaller Vancouver houses, as I do, refers to “teardowns.”) A block away from 6225 Balsam, a very small bungalow had just sold, he said, after a 12-party bidding war, for $1.6 million (standard-size lot). This man also described two lots at 38th and Dunbar, which had recently sold for $1.6 million and — a week later, the second lot, the exact same size — $1.9 million, respectively.
However, he also said that he noticed many new/newer houses are not selling at all, just sitting. This is what confuses him, he said. Though he was very bullish on Vancouver RE, like the listing realtor here, insisting that “Chinese people” (his words) will keep buying and don’t care if the market goes down (the listing realtor said to me simply, “Vancouver RE always goes up”), he said that he wondered if he did build a new house here if it would just sit like other new houses he’s observed doing so now; that since December 1, only six new houses on the entire West Side of Vancouver have sold. (Of course, as more people like him start wondering the same thing, the market for lots may fall.)
When I suggested that some wealthy global investors might seek to buy in the U.S. instead of here, he said “Oh, no.” Then he gave as an example that “Chinese buyers have already bought up all the expensive places in San Francisco. They want to come HERE [i.e., to Vancouver].” This struck me as perhaps overconfident.

This local investor, it should be noted, told me he’s a “licensed realtor.” I think he has a license not to work as a realtor on others’ behalf, but to avoid transactional costs as he speculates with local properties.
He also complained that the listing realtor was acting “weird” because she was refusing to show anyone the title to the house, just saying that bids were due Wednesday. (Does anyone know what this might mean, I wonder?)

Finally, I had a chance to learn more from the current tenant at 6225 Balsam. He revealed that the current owners of the house had bought it last spring (at $1.4 million) with the thought of building on the lot themselves. Apparently they’ve changed their minds. Wonder if they also are worried about not being able to recover their initial investment by building?
One of the saddest aspects of all this for me is that, while it would need a lot of work, it’s in many ways a nice house, with historic features (some older, charming cabinetry, doors, doorknobs, etc., and hardwood floors, nearly all of which will of course go to the dump), and a nice yard. In a “normal” market, it would have been a good place for a young family.”

– Vesta at VREAA 12 Feb 2012 4:54pm onwards
—

Many thanks to Vesta for this account.

+ [certain belief that Vancouver RE always goes up]
+ [“new houses aren’t selling at all”]
= [local speculator “confusion”]

Interesting that this speculator can’t take the next step and ‘speculate’ as to the meaning and implications of a possible softening of the market in end-product.
There are a good number of people like this gentleman who have profited from buying and selling Vancouver RE over the last 10 years. Only a minority have banked all their profits, most have been rolling their gains into more RE projects. Many will be injured in the bust, some will be caught red-handed holding far too much RE and will be destroyed. Their bottomlines will only really be assessable once the dust settles.

Further: we are going to be interested to see the “Chinese-people-will-keep-buying-and-don’t-care-if-the-market-goes-down” hypothesis tested.
We believe that many, many buyers are naive momentum investors who have chased prices up and will add to supply by selling on the way down. Momentum investors hate markets that are plummeting, they bail.

– vreaa

Mayor’s ‘Housing Affordability Task Force’ – “Vancouver must be a city where our children can afford to live and raise their families.”

“Vancouver Mayor Gregor Robertson has drawn deeply on all sectors of the housing industry to represent his new “housing affordability task force” in the hope of finding realistic solutions to the city’s housing problems.
From developers and builders to academics, housing finance groups and operators of not-for-profit housing, the 14 members will assist the mayor and co-chair Olga Ilich to try to find new ways to soften the effects of the city’s systemic housing affordability crisis.
They will prepare an interim report by March 12, which will then be opened for public consultation. A final report is due June 30.
Robertson said Vancouver faced extraordinary challenges in creating affordable housing and he wanted the task force to look at ways to both protect existing housing and to create more. The city has a 10-year housing and homeless strategy of creating 38,000 new affordable homes, including 5,000 new purpose-built rentals and 20,000 new housing units.
Over the years, successive councils have grappled with the seemingly intractable problem of stimulating affordable housing without destabilizing the existing stock.”
…
“The 14 members will help mayor and co-chair find new ways to soften the effects of the city’s affordability crisis.”
In addition to Ilich and Robertson, the task force includes:
Alan Boniface — Principal, DIALOG & Urban Land Institute B.C. Chairman
Nathan Edelson — Senior Partner, 42 Street Consulting
Leonard George — Director, Economic Development, Tsleil-Waututh Nation
Marg Gordon — CEO, B.C. Apartment Owners & Managers Association
Mark Guslits — architect, principal, Mark Guslits & Associates Inc.
Colleen Hardwick — founder and CEO, New City Ventures
Howard Johnson — CEO, Baptist Housing
Kenneth Kwan — Chairman, Building Committee, SUCCESS
Michael Lewis — Executive Director, Canadian Centre for Community Renewal
Eric Martin — VP, Bosa Development Corp.
Karen O’Shannacery — Executive Director, Lookout Society
Al Poettcker — President & CEO, UBC Properties Trust
Peter Simpson — President & CEO, Greater Vancouver Home Builders Association
Bradford Tone — President, Tone Management
“The members of the Housing Affordability Task Force bring a broad and diverse array of experience, leadership, and vision to our work on the pressing challenge of affordability,” Robertson said in an emailed statement.
“Vancouver must be a city where our children can afford to live and raise their families. This is not a simple challenge but it is one that we have to address — and I believe this task force has the ideas and expertise to provide new affordability solutions for Vancouver.”
– from ‘Vancouver appoints ‘housing affordability task force’, Vancouver Sun, 6 Feb 2012
—

“Foxes To Design New Henhouse?” – Actually, such criticism would be too easy, too glib, and, we would hope, incorrect. Not everybody on the task force is a developer. Still, interesting that people trying to solve the problem should come from “all sectors of the housing industry“. Isn’t there a possibility that some important solutions may involve steps that are not in the best interests of “the housing industry”, and that those would be avoided by this task force?

Having said that, we’re sure that there are members of this task force who are well-meaning, and have a genuine desire to attempt to ‘solve’ the housing ‘problem’ that faces Vancouver. We’ll be genuinely interested to see what they come up with.
Forgive us our jadedness, but we’d expect their ‘final report’ to include:
1. Opening and final statements regarding the importance of ‘affordable housing’ to Vancouver, our futures, our communities, our children, etc.
2. Suggestions for projects that involve small and/or low quality units at lower prices, but essentially still at ‘market prices’ for what they are. As per the ‘two parking spot’ bachelor suites released last year.
3. Projects that benefit “the housing industry” at the expense of tax-payers.
4. Absolutely no mention of the real cause of the housing crisis in Vancouver, namely the massive speculative mania driven by overextended locals high on cheap debt.
5. No plans that would risk ‘destabilizing’ current housing prices.

Regular readers know that we believe that Vancouver is in the grips of a very large bubble in housing, and that prices are at levels 2 to 3 times those supported by fundamental values. The speculative mania so distorts the market that any current talk of trying to make changes to improve ‘housing affordability’ is rendered trivial and cosmetic. Once the bubble bursts and prices drop 50%-66%, the whole ‘affordability’ picture will look very different. Thereafter there will still be a need for sensible housing policy for the city and the region, and perhaps a task force will be helpful at that point. Until then attempts to address ‘affordability’ are rearranging the proverbial deck chairs on the proverbial Titanic.
– vreaa

“The house and lane house were empty and converted into 7 or 8 suites between the two. The owner couldn’t meet me on time as he was showing one of his other six properties.”

“I’ve been helping a friend who is relocating from elsewhere back to Vancouver find a rental property. I went to view a house around 14th & Cypress which had a lane house. Both the house and lane house were empty and converted into most likely 7 or 8 suites between the two. The owner couldn’t meet me on time as he was showing one of his other six properties “like this”.
May I note, the renos looked shoddy, window surrounds without a straight line, plus, really, would you like to pay $1600/mo for a 1+loft on a property where 8-18 people will be living, coming and going on a boxed in lot? I viewed this place within the last three weeks.”
– Aldus Huxtable at VREAA 9 Feb 2012 3:07pm

Densification, unplanned.
– vreaa

Tsur Sommerville, Time Machine – “Let’s not let the housing market be driven by a wave of cheap and easy-to-access money.”

While Canada’s banks are tightening lending standards in a move to avoid a U.S.-style housing correction, experts say Vancouver’s robust housing market isn’t expected to face a severe price correction.
Canada’s banks are in talks with the federal government about ways to curb mortgage lending in response to a “genuine concern” about the country’s housing boom and rising consumer debt levels, said TD Bank chief executive officer Edmund Clark.
“Household debt numbers are coming up to U.S. levels, so that is causing us a concern,” said Clark.
…
Although the Vancouver housing market may be out of equilibrium, a significant correction is not expected, said Tsur Somerville, director at the University of B.C. Centre for Urban Economics and Real Estate at the Sauder School of Business.
“I think there’s some concern that prices don’t get so far out of whack that there’s a substantial correction,” Somerville said. “All you have to do is look around and you’ll see that if [a substantial correction] does happen, that would be a real big problem. So let’s not let the housing market be driven by a wave of cheap and easy-to-access money.”
The Bank of Canada is trying to reduce the exposure to mortgage debt and put the brakes on the housing market without using “really, really big hammers,” like raising interest rates, Somerville said.
“The government has already taken steps to control mortgage lending through its regulations and I think there’s a wariness about tightening those too much, so they’re encouraging the banks to look at their mortgage book more closely.”
…
With immigrants still streaming in from China and elsewhere, and the city frequently rated one of the most livable on the planet, most experts see prices fizzling rather than imploding with a bang.
Vancouver price rises peaked at a stunning 19.8 per cent in 2006, dipped in 2009, and came roaring back with double-digit growth in both 2010 and 2011.
A house bought for $500,000 in 2001 would have fetched about $1.2 million a decade later, based on average price changes.
But the latest month-to-month figures show Vancouver prices fell in five of seven months from last June to December, including drops of more than 5 per cent in November and December.
…
– from ‘Vancouver’s housing market unlikely to face significant price correction: expert’, ‘Bloomberg, Reuters and Vancouver Sun’, 10 Feb 2011 [hat-tip MM]

“Let’s not let the housing market be driven by a wave of cheap and easy-to-access money.”
Well said sir! — if you’d made that statement 7 years ago, that is.
To hear this said now, suggesting we shut the door after the very last of the frail and decrepit horses have been dragged and shovelled out of the proverbial stable, is just simply beyond belief. “Cheap and easy-to-access money” is precisely what has driven the Vancouver housing market, since as far back as 2003 and very definitely since 2006. Thirty, 35, 40 year mortgages; ‘Emergency’ low interest rates; Very low down-payments; Cash back offers; No-income-verification loans; HELOCs as down-payments; Mispriced insurance care of CMHC; etc. Cheap money and easy lending is the stuff of which our bubble is blown.
The Vancouver RE market is, first and last, a speculative mania driven by locals overextending themselves with cheap borrowing. When it turns, there will be nothing but fresh air between these price levels and those supported by fundamentals, far, far below.
And, yes, that will result in “a big problem”.
– vreaa

Out of interest, here is a page from the UBC Centre for Urban Economics and Real Estate at the Sauder Business School website:

“I’m a Realtor and it’s not a buyers market at all. Based on Vancouver’s historic benchmark price chart I would be hitting the sell button asap.”

“I’m a Realtor and it’s not a buyers market at all. Most of my income is derived from trading stock’s thank god they are liquid unlike houses and condo’s. I love having a diversified income stream otherwise I fear I might be inclined to shovel the whole “good time to buy and good time to sell” routine. That whole sentence is pure B.S. When I buy a stock it’s usually because it’s become temporarily unpopular with the investment community. Vancouver’s real-estate is the polar opposite everyone want’s a piece of it. If I were put Vancouver’s historic benchmark price chart over anyone of the stock’s I hold or have held I would be hitting the sell button asap. I have instructed several client’s to hold off and buy at a discount down the road. This has cost me financially but cost me nothing morally and ethically. P.S. my condo in florida was purchased at a 50% discount and i did not time it perfectly. The herd is falling off a cliff right now and there’s no safety net waiting for the lambs.”
– Big D at VREAA 6 Feb 2012 11:35pm

Avoiding Vancouver, Recent Stories

“As a home owner in Vancouver, I never could save for retirement. We sold and moved to the best big city for a family – Ottawa. Wow, we’ve not regretted that move.
Bottomline, we listen to our gut… we felt the times are changing, RE is not where we should be.
In Ottawa we rent.
At no cost, we evicted the squirrels, have a new stove, water system, and a few more “details” and my kids love the acres to play !!!
I max out my TSFA, RRSP, RESP (for 3 kids) + more because I don’t believe in home ownership (for now).”
– Carp at greaterfool.ca 27 Jan 2012 12:54am

“Finally, after years of waiting for some sanity and affordability to no avail, I am moving next month to California.
Got the E2 visa today.
I never thought it will come to this, but I see no opportunity here other than selling real estate to rich Chinese.
I am confident fundamentals will eventually prevail, but I cannot live on the expectative for ever.
I mostly agree with the bear argument, yet the reality is that for the last 10 years it has been so wrong. Ant that is a very long time.
I only hope bears will eventually be right for the sake of the new generations. I am out of here. Good luck.”
– paradox at vancouvercondo.info 26 Jan 2012 11:35am

“Just had another ex-Vancouverite who got hired here in Calgary. She was living with her husband in his parents house in East Vancouver because of the unaffordability and they wanted to save money. She also was blunt and said her husband will make about 50K more working in Alberta compared to Vancouver!”
– calguy at VREAA 2 Feb 2012 6:57pm

“My wife and I have decided to take our $750,000 deposit money and seek fairer value — and potentially better jobs — elsewhere in Canada when we begin our search to return from Europe come the spring. So chalk three more (including our son) up to the number of people who are deterred from coming to Vancouver. A shame, cos I grew up on the North Shore, partly. But needs must!”
– Craig Sterling [not his real name] at VREAA 23 Jan 2012 6:33am

“Nice house… if you’re a serial killer.”

“I have repeatedly sent MLS listings of $1m+ houses to people in the UK who reply with comments like “looks like a nice house, if you’re a serial killer.” (Example, MLS#V898254 1723 Napier Street, $1.21M.)”
– Aldus Huxtable at VREAA 3 Feb 2012 4:00pm

And, an obliquely related comment regarding contemporary build quality:

“I don’t get it. How can a house made from woodchips and glue cost [so much] to build? In Europe, a house like this would only be used as a movie prop to blow up.
Could someone explain this to me: Why do Canadians insist on using the shittiest building materials even on high end properties? Can’t a multimillion house be built using a real building material, like reinforced concrete?”
– bubbly at VREAA 3 Feb 2012 at 11:26am

“Just witnessed another young Victoria couple get sucked into buying a pressboard box with no yard within a stones throw of the highway.”

“Just witnessed another young Victoria couple get sucked into buying a pressboard box with no yard within a stones throw of the highway. It was a bank sale on a project that looks barely a couple of years old and they weren’t even bright enough to lowball what was an obvious desperation sale. Of course it was the one set of parents pushing them into it so their smart little boy can be on the “property ladder”.
While one gets sucked in, another I know who has owned for 3 years needs daddy to pay for the groceries to keep the kids fed even with a two income family. This is not going to end well in the City of Gardens and the brainless.”
– coastal at greaterfool.ca 23 Jan 2012 at 10:53pm

High End Softening? – “If they sell for 8 million they’ll be lucky to break even.”

“Prices on Point Grey Road are slowly dropping. A brand new house just went on the market at 8.9 million, the owners paid 5 million for a teardown 5 years ago. It’s a really nice house built by keystone with a glass elevator inside, constructions costs would be at least 2.5M. If this was 2009 it would have sold in days for 10million+. Now if they sell for 8 million they’d be lucky to break even.”
– jj at VREAA 1 Feb 2012 at 10:15pm

“What is Vancouver’s economy really based upon? For the answer, check out my newly devised ‘pickup truck index’.”

“I just left Vancouver, where every second vehicle on the road is a tradesman’s pickup truck, with the shiny metal tool box built into the box. All of these guys, I think, are driving off to their jobs building condo towers. I know it has often been wondered what Vancouver’s economy is really based upon? For the answer to that check out my newly devised ‘pickup truck index’.”
– Heart of the World at greaterfool.ca 1 Feb 2012 11:37am

Posted because we’ve also noticed the number of these trucks, and considered their meaning and their fate.
– vreaa

The Costs Of Ownership – “Here are the economics of my renting since arriving and how this would have compared to buying.” – Renter Ahead $200K Over 5 Years

ZRH2YVR is a regular poster who recently revealed that they will be leaving Vancouver for a job to Switzerland. Their story was headlined 28 Jan 2012.

On that thread, ZRH2YVR added this useful analysis [VREAA 29 Jan 2012]:
“Here are the economics of my renting since arriving and how this would have compared to buying. You know real estate always go up so this renting thing must have been a real bust.
Property info – 1400 sq ft unobstructed 270% view of English Bay south down granville street and up and around to the mountains east approx to My. Seymour. New building 2007.
Rent paid from move in to June 2012: $196,000
This is a true consumption cost and was well within our means.
Value of property in 2007 on move-in – approx 1.4M.
Value today – estimated – 1.4-1.5M . Let’s say 1.5M just to be conservative.
Cost of ownership – Assume 100% leverage and ignore investment opportunity cost.
Interest rate – Let’s sat 5% even though in 2007, it may have been more.
Strata and property taxes amount to approx $1050-1100 per month.
So – Cost of ownership over this period is $395,000. But wait – the property went up in value right? !!! Well
Purchase cost would have been approx $1,430,000 with all up front costs.
Selling at 1.5M and subtracting costs would net say- $1,450,000 – so there is a gain of $20,000. Fantastic . . . Offset this against the cost of ownership of $395,000 – that gives you net $375,000 (ignore taxes). Compare this to cost of renting of $196,000 – we are up approx $200,000 – Believe me we notice this!!!
So – – For all you property virgins out there – the numbers above may be outside your normal range but divide this by 3 for a $500K property and you will be in about the same place – – up by $60,000 over 5 years. I would never buy in the current market.
Now the funny thing is that in order for us to have broken even, the purchase price would have been close to $600K initially -and that is over 50% fall from where we are. Good luck to all of you. A house is a place to live first – invest second and anyone who is investing right now is completely out of their mind. You would have much more fun going to Vegas for a month – and would probably be better off.”
—

Notice how often different methods of calculating the fundamental values of different properties come up with a “over 50%-off” conclusion.
Add bad sentiment on the downside and you can see one source of our 50%-66%-off estimate.
– vreaa

TD Training Session Teaches Mortgage Agents How To “Overcome Objections” To ‘HELOC Product’

Sent: January 24, 2012
To: Undisclosed recipients
Subject: Overcoming HELOC Objections and the HELOC process, Wednesday Feb 8, 2012

From: Main Reception [mailto:Admin@XXXXXXXX.com]

 Hello Agents, 

On Wednesday, Feb 8 from 10 – 11AM, my assistant Sarah and I will be putting on a presentation regarding the HELOC product.

 

Our goal is to discuss the following:

 

• The full application process for the HELOC on our end and how we can streamline it
• Provide you tools(Excel sheets, HELOC calculators) that will ease the process in dealing with clients for you in the future
• Explain to you exactly what we discuss with the client (and how we discuss it)
• Overcoming objections that we face and role play overcoming objections that you face

 

We will also have a detailed Q&A period following the presentation so we can assist in helping you overcome common concerns that we face when working with new clients.

 

PLEASE RSVP WITH RECEPTION

I hope to see you all there!   

Trevor Yerema

Manager, Residential Mortgages

TD Canada Trust

Prairie Region

Phone: 403-466-6654

Fax: 403-770-8382             

http://www.tdcanadatrust.com/msf/trevoryerema/index.html

—–

– this e-mail passed on to VREAA, 26 Jan 2012 by regular reader ‘Peter Pan’, who also writes:

“A friend forwarded this e-mail to me – a TD Manager, Retail Mortgages is organizing a training session with independent financial planners on techniques to OVERCOME objections from retail clients to HELOCs.  Hey, what better way to shove more debt down clients’ throats, right?

This e-mail really struck in my craw because Ed Clark and the other Bank CEOs rail against Canadians increasing their levels of personal debt while actively encouraging their employees to do exactly the same thing.”
—–

Hypocrisy deserves to be called out. This is what Peter Pan is talking about:
“Less than a year after Ottawa forced the banking sector to cut back on risky mortgage lending, the head of one of Canada’s biggest banks says the federal government should go even further.
Ed Clark, the chief executive officer of Toronto-Dominion Bank, said in an interview that he believes Ottawa could tighten the rules on housing loans more than it already has, without hurting the economy or putting the housing market at risk.”
– ‘Mortgage rules should be stricter: TD chief’, G&M, 14 Dec 2011

“The two top tech companies could not find anyone to fill the position. The number one reason given by the numerous Canadian & US-based candidates for withdrawing was the cost of living in Vancouver.”

“Heard two interesting Vancouver anecdotes recently. Two top tech companies (one bio, one IT) were recruiting for certain specialist legal skill sets. Given that very few people meet the criteria the jobs were advertised across North America. Both companies were offering very attractive salaries and both were prepared to pay for relocation etc.
In both cases, despite interviewing numerous Canadian & US-based candidates, the companies could not find anyone to fill the position. The number one reason given by candidates for withdrawing…the cost of living in Vancouver was just too high.”
– Bally at VREAA 26 Jan 2012 6:16pm

Anybody not troubled by stories such as this really doesn’t care about the future of this city. – vreaa

Maple Ridge – Renter Comes Out Ahead Of Buyer/Seller Over 5 Years

“We are all renters. That’s what I said to the nice bank lady when she gawked at my account balance. I explained, five years ago my buddy teamed with an investor to make the down payment and bought a house in Maple Ridge @ $335,000. The payment was $2000/m and he had a mortgage helper for $500/m. Since, he has reno’d the deck for $10000 and payed five years of tax totaling $10000. He also bought a water heater and paint for $1000. At the time, he bugged me to buy, but I rented and banked the difference between our two payments. I paid $700/m. and banked $800/m
Five years later, he wants out and intends to rent again. He can get $400,000 for the property. Principal owed is 310,000. The gross profit is $90,000
Deduct, 3% agent fee going in and out.
Deduct the interest portion of mortgage payments he covered
Deduct operating expense and property tax
Deduct 50% of the mortgage helper as taxable income
Pay back the downie investor principal plus 5%.
Gross profit on the house experiment $90,000
less expenses
balance =
$29,000 for five years rent isn’t too shabby, I told him, however expenses ate up any additional savings. And if he does not buy another place in a year, deduct tax on the capital gains for this year. An accountant might dispute my calculations but I think it’s pretty close. I did not include credit card interest, though my friend has been cash poor throughout the experiment.
In the same five year time period, I banked $48,000 rather than pay mortgage interest, with no fear of capital gains tax and no operating expenses, which I also banked. I may not be a millionaire, but I am happy with my lifestyle and enjoy west coast amenities without worry.
I wanted to share this experience, because I have been reading the VREAA blog and comments rent-free for some time and felt the need to pony up. Thanks.”
– sage at VREAA 24 Jan 2012 5:01pm

Excessively Indulgent Expensive Fast Food And Its Relationship To Asset Bubbles

“A small storefront on Vancouver’s Granville Street is the home of a rare gourmet treat — the $100 hot dog.
And it could soon be in a small storefront near you.
Dougie Dog is owned and operated by Dougie Luv, who is as ambitious as some of his menu items are exotic.
“We want to expand across the country, we want to share the love,” said Luv. “Why should Vancouver be the only place with the greatest hot dog in the world?”
So, what’s with the $100 doggie, Dougie?
Luv explains that this is no ballpark tube steak. It contains Bratwurst, Kobe beef, truffle oil, a dribble of $2,000 cognac and some Atlantic lobster.”
– from ‘$100 hot dog on Vancouver menu’. CBC, 24 Jan 2012

Reminiscent of:
“In what might now be forever known as the “War of the Burger Prices”, the Wall Street Burger Shoppe has just raised the price of their burger to $175, to ensure their place as New York’s most expensive burger. And no, you’re not seeing things. The (burger) is sparkly and gold because their burger is topped with gold leaves. According to Reuters:
The burger, created by chef and co-owner Kevin O’Connell, seeks to justify its price with a Kobe beef patty, lots of black truffles, seared foie gras, aged Gruyere cheese, wild mushrooms and flecks of gold leaf on a brioche bun.”
– ‘America’s most expensive burgers’, Huffington Post, 28 May 2008, shortly before Wall Street imploded.

File under: Socionomics.
We’re sure that industrious readers could find us examples of similar flavour excesses from 1999 and 1929. – vreaa

“Vancouver, this sounds pretty stressful to us. We have decided to leave you and move to Texas where my salary would be double and our living expenses would be less than half.”

“Dear Vancouver,
Happy new year!
I’ve lived here most of my life, I’m 32, married now and about the right age to buy a home and start a family.
My wife and I have been saving up for a nice 2 bedroom apartment for several years. We’ve looked at the prices and it seems too risky in terms of ending up “house poor”. We’ve been waiting and waiting for anything to change in Vancouver, but nothing has happened!
At the current state of things, after doing some calculations we envisioned a situation where we would be both forced to work (dual income) and drop our future children into daycare in order to make ends meet. Most likely we will make the payments just fine but without any retirement savings no extras for vacation, etc. Vancouver, this sounds pretty stressful to us.
So after much deliberation, we decided to leave you and move to Texas where my salary would be double and our living expenses would be less than half.
In Texas we would be able to afford a large home and still save plenty for vacation/retirement/etc and this is on only one income!!
My commute is only a 5 minute drive, the people are so friendly, it feels like the same level of friendliness as being at church everywhere I go.
The weather is great, I don’t see any junkies, at worst there is a homeless person with a sign by the highway asking for change.
I thank you Vancouver for your past accomplishments, your scenery, your skytrain lines and abundance of sushi restaurants.
Unfortunately at this time I will not be needing your services and wish you farewell.
Sincerely,
A former Vancouver resident (for more than 28 years!)”
– from formervancouverresident at vancouvercondo.info 1 Jan 2012 10:22am

“Sold a 1940′s small house in Victoria in 2011 and took a year off to travel. Now in sunny Florida, where I could buy 4 similar houses for what we got for the Victoria place.”

“Sold a 1940′s small house in Victoria in March last year and took a year off to travel. Currently I’m in sunny Florida on the gulf coast, I could buy 4 similar houses here for what we got for the Victoria place. Also cost of living here is so much less, and I spent the day on a beautiful white sand beach watching dolphins play. A lot of people in BC are delusional.”
– Beagle at greaterfool.ca 9 Jan 2012 8:17pm

‘The Province’ Runs Three “Avoiding Vancouver” Anecdotes

Victoria Schmidt of Vancouver walks to class Thursday on the campus of McGill University in Montreal. She says the high cost of living in Vancouver may prevent her from ever returning.

The $200 monthly rent that Victoria Schmidt pays to share a big, rambling old house not far from university in Montreal has given the Vancouverite a taste of low housing costs and may keep her from ever returning to her hometown.
“My friends who live on The Drive [in East Vancouver] pay $500 to $600 each to share a basement suite – for three people and a mouse problem,” said the 21-year-old McGill education student. “Here, you could pay $300 to $350 for a perfectly reasonable apartment about six kilometres from downtown.”
After she graduates this term, she plans to take a couple of years off to save some money to continue working toward a postgraduate degree.
And she’s already decided to live in Toronto, where the average two-storey house last year was worth $630,000, rather than return to Vancouver, where it would cost more than $1 million to own a single detached house in her parents’ Kitsilano neighbourhood, where she grew up.
“I pay significantly less here. My quality of living would drop [if she lived in Vancouver],” she said. “I’m able to live here and save money.”
And she also worries that she will never be able to own a house in Vancouver when she is ready to settle down and raise a family.
“I don’t know what it’s going to look like in 10 years,” she said.
“I wonder if she’s ever going to come home,” said her mother, Diana Schmidt.
She said she looks to all three levels of government to find a solution to the problem of high prices.
“I don’t think we have to accept it. We need to come up with a way to deal with it,” she said.
—–

Christina Hughes, with son Charlie and partner Brendan MacIver, says they have no choice but to move to another province if they don’t want to rent for the rest of their lives.

Christina Hughes, 23, and her common-law husband, a 25-year-old construction tradesman, live with their newborn in a Port Moody rental and the thought of having to come up with $50,000 for a 10-per-cent down payment just for a condo in the Metro Vancouver area, let alone Vancouver, is a daunting prospect.
The couple is considering moving, maybe to Alberta.
“I grew up here and my friends are all here, and my school, but we realize we may have to move unless we want to rent for the rest of our lives,” Hughes said.
“It’s cheaper in Alberta and there’s no [provincial sales] tax,” she said, noting some of their friends have moved.
“If we could get a $300,000 house there, the down payment would only be $15,000.
“It’s good that the province is doing so well. But it’s driving young people away. It’s no one’s fault. It just ended up happening.
“But to keep this group of young people from leaving and having no one left except wealthy people, that won’t be good for the province.”
—–

Kris Taylor is moving to Powell River because ‘it doesn’t make sense’ to stay in Vancouver.

Kris Taylor said he’s already made the decision to move to Powell River because he doesn’t think he’ll ever be able to afford to own a home in Metro Vancouver.
“It just doesn’t make sense to stay here,” said Taylor, who has a school-age son and rents in New Westminster.
He says he would need $50,000 for a down payment here but could get a house in Powell River for $70,000.
“Right on the beach or near the beach,” he said.
Taylor – who’s fortunate that he can work from home as an investment consultant and says he earns more than the average – said he can’t see how someone working at Starbucks could ever own a place.
He said he understands the need for higher density neighbourhoods, but he doesn’t “like the idea of a condo to raise a family.”
“It’s not really the Canadian dream at all.”
He said governments have to devise a policy to create affordable housing for people like him.
“They’ve got to keep some housing for people who live here,” he said.
“You’re driving out the people who were born and raised here and replacing them with affluent people, but who’s going to serve those products and services to them?”
—–

– These three anecdotes from ‘You’re driving out the people who were born and raised here’, by Susan Lazaruk, The Province, 22 Jan 2012. The article ends: “Have you fled Vancouver because of its high real-estate prices? Are you sharing housing because of it? Are you taking other steps to cope? Tell us how you are managing in the country’s most expensive real-estate market.”

[If anybody from ‘The Province’ is reading this, we suggest you check out the ‘Avoiding Vancouver’ sidebar category, for over 200 stories pertaining to people leaving Vancouver. Any VREAA reader posting a comment to the Province article, feel free to add that link. – vreaa]

—–
Better late than never, perhaps.
Ask now what effect this is all going to have on our town?
The speculative mania in Vancouver RE has been present since at least as early as 2006, arguably identifiable as far back as 2002-2003. It has had severely detrimental effects on Vancouver, not least of which is to force people away, or to get them to avoid moving here in the first place.
Many prominent economic commentators and analysts from other centres have described our market as a clearly visible bubble.
Local media, ‘The Province’ very much included, have been stunningly silent in warning of the presence of the bubble, and, indeed, have largely been complicit in promoting its growth.
– vreaa

Vancouver RE Thought Experiment: “Would You Buy This House For Half Price?”

This house was featured in a recent post.
Kerrisdale SFH, 2,200sqft, built 1955, 56 foot lot.
Purchased after the price pullback in early 2009 for $920K, now assessed at $1.859M, reflecting estimated Jun 2011 market value.
Here’s the question: “If you knew you’d be holding this house for at least 5 years, would you buy it, today, for $920K?”

[The question is framed with the 5 year ‘clause’ to take out the obvious “Sure, I’d buy it and sell it” answer. -ed.]

Whitehorse Housing Crisis – “Apparently, the higher the number of people who own a home, the more others will want one of their own. No one wants to be the only person in town renting.”

“For several years, the territory has seen the effects of the latest commodity-fueled mining rush and stimulus spending. It’s also seen a remarkable shortage of housing lots.
So, alongside the money, Whitehorse has near-zero vacancy rates sparking high rents and crazy housing prices.
The effects have rippled throughout society, with the poor and professionals alike trying to cope, in their own way, with the inflation and homelessness.
For eight weeks, Yukon News reporters and photographers fanned out to chronicle the crisis – the problems people are having, why it happened and some possible solutions.
Here is what we found…”
– ‘Gimme Shelter’, as series of special reports on the Whitehorse housing crisis, 16 Jan 2012
Excerpts:
“Apparently, the higher the number of people who own a home, the more others will want one of their own.
No one wants to be the only person in town renting.
In Whitehorse, between 1991 and 1996, these rates increased to 67 per cent from 60.
Two of every three households in the city own their own home. This exceeds the national rate.” …
“The average sale price for a single detached house in Whitehorse has increased at a relatively steady rate between 1999 and 2005.
Prices increased by 34 per cent to $199,000 from $149,600.
After that, prices skyrocketed. Between 2005 and 2008 housing prices shot up 62 per cent.
That same house that was once worth $149,600 is now worth $322,800.
Housing prices have only continued to climb in the past three years.” …
“In order to buy a $325,000 home, an annual household income of about $81,500 is required, according to the Canada Mortgage and Housing Corporation’s online mortgage calculator.
Given that the average household income was $92,308 in 2006, this would appear to be affordable for the average Yukoner.”
—-
The above link via e-mail from ‘Zerodown’, who comments:
“Having spoken to people there I echo the panicked tone of the articles. I tend to be a demand-sider on Canadian housing (sentiment, ease of credit, buyer and holder mania), but the Whitehorse market has genuine supply problems (city planning incompetence: trust me there’s plenty of land) and actual economics driving the demand (ramp in government hiring; gold rush).
That the crisis is also felt in rents (and availability) reveals a contrast to the rest of the country. People who know better are buying because they need somewhere to live, others are choosing not to move there.
Sadly, knowing the quality of local governments there, I am inclined to conspiracy theory that city council (baby boomers of course) are more than happy to watch their homes skyrocket in value while they destroy economic potential. How much of a factor is it that (nationwide) policy makers are all about 60 years old right now (Carney the obvious exception, but I mean down the totem pole a bit)?”

[Thanks, Zerodown. -ed.]

“They asked “How do I know it could go down 3%? In the long term real estate always goes up.” I was angry, and stammered “Fine, you are 72 right now so in the long run you will probably be in a geriatric home. The condo will be liquidated to pay medical bills. Get your cash out now and enjoy it rather than hanging on.”

“The old timers aren’t that keen to cash in, my folks have two places, one in Van and one on the island that they like to visit about once a month. I created a model for them that showed even with a modest 3% decline they are better to sell and take a loss now than hold on and still stay at the empress every weekend amg be ahead. They refused and said they like to open the closet and have their stuff and if things got bad they could rent it out. I next showed them that if they sold now, at a loss, and rented a place over there, they would still be better off and de-risked. Their response was “How do I know it could go down 3%?”. My response was I don’t but Van has dropped more than 10% since the peak and how do they know it is not going to fall”. In the long term real estate always goes up was what I was told. I was angry at this point and stammered fine, you are 72 right now so in the long run you will probably be in a geriatric home and the condo will be liquidated to pay medical bills; I just want you to get your cash out now and enjoy it rather than hanging on.”
– YLTN@Work at vancouvercondo.info 10 Jan 2012 at 8:35am

Imagine 10,000 couples in this position.
They find it hard to conceive of substantial price drops.
The market drops 5%, 10%, then 15%. Then 20%.
How do the 10,000 respond? Not all in the same way, of course, but what percentage would, at 20% off, come to market?
– vreaa

‘Sell Your Property In China’ – “This postcard was in my mailbox yesterday. Lots of lucky red colouring.”

– scan of a card flier distributed to residential addresses in Vancouver, e-mailed by ‘J’ to VREAA, 20 Jan 2012. J writes “This postcard was in my mailbox yesterday.  Lots of lucky red colouring.”

Homeowner “Shocked But Pleased” At $1.86M Value Of His “Modest, Un-renovated, Ugly” Kerrisdale House – $940K (100%) Appreciation In 3 Years

This Kerrisdale home belonging to Elvis Cepus has been reassessed for $1.859-million

“Elvis Cepus says he’s all for seeing his home in Vancouver’s Kerrisdale neighbourhood increase in value, but the one-third jump in his assessed value this year means his “ugly” bungalow has now hit nearly $1.9-million.
Mr. Cepus’s original 1955, 2,200-square-foot bungalow is just one of the West Side homes hit by assessment increases around 40 per cent higher than last year. While the average detached single-family residence, condo or townhouse in the city has gone up by about 16 per cent, the west side of Vancouver as well as the municipality of West Vancouver were hardest hit. Increases in those areas are typically around 25 per cent higher this year – and in certain pockets, such as Kerrisdale, the jump is more than 40 per cent.
Like everyone who’s sitting with a much higher assessment this year, Mr. Cepus is worried about tax increases come July. He realizes he got a deal when he purchased his house for $920,000 when the market had crashed in early 2009. Last year, when it was assessed at $1.385-million, he was shocked but pleased at the value of his modest, un-renovated house. This year’s $1.859-million assessment is a different deal.
“It’s the ugliest house on the street,” said Mr. Cepus, an engineer who lives there with his family. “We’re talking powder-blue bathroom and plywood cabinets in the kitchen.”
The home is valued at $17,000, so the value is in the 56-foot lot. He guesses the increase is due to large, 4,500-square-foot houses being built in his neighbourhood, driving up property values.
“There are massive houses being put up everywhere. I don’t have a leg to stand on, not if that’s what houses are going for, and that’s what comparables are doing,” he said. “But almost $1.9-million? Oh my God, when is it going to stop? The reality is people born and raised in Vancouver won’t be able to live in Vancouver anymore.”
– from ‘Assessments hit Vancouver homeowners hard’, Globe and Mail, 18 Jan 2012

This story is noteworthy for the apparently genuine sense of disbelief in the homeowner regarding market price.
Obviously this guy should be noting his own emotions, and taking them to the bank by selling.
Wise contrarians sell assets when they find themselves singing on in the car in celebration of their value.
Elvis may, however, be caught like a deer in the headlights, and watch frozen as the price reverts.
These lots will sell for a lot less than $900K in the trough.
– vreaa

“My brother went to renew his mortgage. The guy asked him, “Do you want to open a HELOC to borrow against your equity?” He said, “No.” Dude was seriously surprised. I’m guessing few turn down that offer.”

“My brother went to renew his mortgage. The guy asked him, “Do you want open a HELOC to borrow against your equity?” He said, “No.” Dude was seriously surprised. I’m guessing few turn down that offer.
My girlfriend works in a bank. When a customer comes in and she opens his account, a flag often comes up in the system stating he is entitled to a new HELOC, or entitled to expand his existing HELOC. And she is obligated to tell them this and ask them if they’d like to do it. More often than not, they bite. Imagine, you don’t even need to apply for credit anymore. It just falls into your lap.”
– theragingranter at VREAA 15 January 2012 at 5:02 pm

“I’m running out of patience with the bubble in the city. If it does not pop soon I’ll move on to another city or country.”

“I’m running out of patience with the bubble in the city. If it does not pop soon I’ll move on to another city or country. So plans do revolve around the housing market for most – either counting on real estate for retirement, or deciding to stay/leave. And that dependence grows as one gets older, has kids and thinks about school districts.”
– 604x at vancouvercondo.info 15 Jan 2012 at 6:22pm

Succinct.
Can’t the bubbleheads see how bad this is for our town?
– vreaa

House ‘A’ and House ‘B’

House ‘A’
2,000 sqft SFH, on 3,920 sqft lot
Built 1910
“..elegant living room with hardwood floors and two all-brick fireplaces with mantles. The kitchen is gorgeous with the cabinets and built-in breakfast bar. Other features include a wood fence and covered front porch. The bedrooms are outstanding with their sleek hardwood floors and baseboard trim. The bathrooms have shower-tub combinations, while one has a pedestal sink and another has a sink in the lovely wooden vanity. .. Great location to community parks, schools, restaurants…”
—

House ‘B’
2,136 sqft SFH, on 3,716 sqft lot
Built circa 1910
“..lovely home has been renovated. New paint, newer kitchen, bathrooms, wiring, plumbing, new roof, windows, water tank. Beautiful front and backyard. Steps to top schools.”
—

The reveal:
The first property is 1112 North 34th Street, Richmond VA, on the market for $130,000 ($65 per sqft)
The second property is 3043 Crown Street, Vancouver BC, on the market for $1,878,000 ($879 per sqft)
[hat-tip Ralph Cramdown for the idea for this particular comparison]

Yes, we know that Richmond VA isn’t Vancouver BC, but then $130,000 is a lot, lot, lot less than $1,878,000.
Ninety-three percent less, to be precise.
Buy 14 houses in Richmond for the price of the one in Vancouver, and still have change.
– vreaa

UBC Housing Action Plan Forum – Proceedings Summary – “We have lost out on many hiring cases”

UBC hosted a ‘Housing Action Plan Forum’‏ today, 18 Jan 2012. The purpose was to “focus on faculty/staff housing, provide an “early look” at the options being explored and give an opportunity for participants to ask questions and provide feedback about key issues related to the options.”

‘Anonymous UBC Professor’, who attended this event, was very kind to send along this point-form summary of the proceedings:

————————————
Statements by Prof. Nassif Ghoussoub
– Board has approved densification of the campus “to remedy the housing problem”
– The housing situation keeps getting worse, not for real estate tycoons, but for colleagues
– Property assessment have increased 40% on west side. Increased perception of wealth, but doesn’t bode well for UBC.
– Problems in recruiting and retention. Cannot recruit heads, Canada Research Chairs, Canada Excellence Research Chairs, due to housing problems.
– Staff have problems too.

– What have we done?
– Ask for input – Discussion Forums – Talk to deans
– Blog – Visited universities with similar challenges (NYC, Columbia, Harvard, Irvine, …). Inquired at Stanford, Cambridge, Oxford. They are WAY ahead. Their bread and butter is competitive hiring.
– Next steps – Discussion paper, ready by the end of March.

——————————
Presentation by Lisa Colby
– Work done  – Reviewed data from housing demand studies

Current
– Faculty & Staff rentals
– 550 units (obviously more needed)
– Claim 20% below market rent
– Leasehold
– Claim 10-20% below cost
– Prepaid to avoid developers marketing cost.
– Do not have to sell to faculty/staff (benefits to 1st gen buyers)
– This is on hold
– Financial assistance package
– $45k lump sum or interest free loan, or mortgage interest assistance
– Student housing: 8500 beds, increasing roughly 500 per year

Current land use plan:
– 50% of new units must be university affiliated
– 20% rental (10% of which are non-market)
– Plan amendments allow for SMALLER units on campus

Claim: much of demographic is looking for studio 1 bedroom
[Remark: I doubt the accuracy of this statement.]
Claim: 60% of demographic don’t have kids or dependents

Here are various options for campus development going forward.

—————-
“Equity” Options

Options 1:
– 99 year leasehold, unrestricted growth

Option 2:
– Only for faculty and staff
– Intended 20% below market rate

Option 3:
– Only for faculty and staff
– Joint ownership & leasehold: own building, rent land

Option 4: Cohousing
– Large shared facilities (kitchen, dining room, etc.)

Option 5: Coop
– Only for faculty and staff
– Members purchase shares, no equity gains
– Perhaps of interest to renters who want a larger say in their building

————–
Rental Options

Option 1: Non-market rental
– Only for faculty and staff.
– 20% below market rents
– (More appealing if students are not allowed to rent)

Option 2: Non-profit rental
– Household income must be below $64k
– Below market rents, geared to incomes

Option 3: Market rates
– Quality & space are key factors

————-
Other options
– Priority access to housing options
– Potential financial assistance plan modifications:
– Extend to more employees
– Increased value
– On-campus purchase only?
– Claim: other universities that do this also give $30-$50k, so UBC is in the right ballpark.

Key considerations:
– Options should have enduring value that help future generations

—————————————-
Open-Mic Discussion

Someone from Faculty of Medicine:
– Much of the on-campus housing is obviously empty. It is immoral to allow the general public to buy on-campus housing.
– We need a community to make the campus interesting. The general public is an important part of that.

Lisa:
– Revenues from the general public are important to the academic mission. This goes to support student housing, scholarships, academic bursaries, research chairs, etc.

Carl Hansen, Asst Prof in Physics & Astronomy
– Came 2005. Could not afford anything. Now have 3 kids. Live in rental housing. Biggest apartment they’ve seen is 1000sqft.
– Have not been able to save money
– Housing prices have gone up 120% since then.
– Does 20% below market value make a difference? 1.5m and 1.8m are the same.

Lisa:
– Due to taxable benefit, 20% is the best we can do.
– Yes, it’s important to look at the range of sizes. There is less range than there should be.

Nassif:
– This is still under discussion. Your feedback is important.

Lior Silberman, Asst Prof in Math
– We don’t want “windfall programs” (i.e., co-development programs, advanced access programs)
– Waitlist for 3 bedrooms are several years (someone says 4 years)
– Don’t confuse demand with with “what is happening because what is available”
– The units are in the wrong market. There should be a “UBC-only market”.
– If the market was limited to us, the price would naturally be what we can pay.

Kera:
– Lisa asserted that people want amenities on campus. Housing survey from last year says 83% value amenities.

Anonymous:
– 2 kids
– Rental unit, 720 sqft
– “Faculty & Staff Housing” is really “Faculty housing”. Staff honestly cannot afford it.
– 50% of his paycheck goes to housing. What percentage should people pay off their paycheque to rent?
– 3% increase in rent. What is the justification?
– Loses sleep over this
– Renters are treated as second-class citizens.

Lisa:
– Definition of “affordability”: 30% of household income, assuming 10% downpayment, 5% interest over 25-year amortization. For renters, again 30% of household income.
– Reminds about below-market rental housing.

Don (CFO of some UBC housing group?):
– Market rent: 1000sqft, $2500/mo is typical for west side.
– We don’t want to go beyond the magical 20% discount that would trigger taxable benefits, that’s why we have to increase.

Lisa:
– Further explanation on taxable benefits: if the discount from market rent were greater than 20%, you’d have to pay tax.

Nassif:
– NYU, Irvine, Stanford, etc., all found ways around it. You see 40-50% subsidies there.

Eugene Barksy, Library:
– 20% discount is not enough.

Asst Prof in Faculty of Forestry:
– Came last year, father of 3
– $2200 for 1000sqft
– 46% of net income goes to rent
– Whether it’s 20 or 50% below market price, he cannot afford to buy, so he is stuck renting.

Andrew Patterson, PhD student in sociology:
– Has UBC lobbied city or province to control housing prices?

Lisa:
– We’re starting to engage with the city. No specifics at this point.

Bill Holmes, alumnus, lives in Hampton place. Income tax lawyer.
– Regarding taxable benefits, the 20% cutoff doesn’t make sense. Even if one received a 50% discount and paid tax on the 30%, you’d still come out way ahead.
– We haven’t heard how much money the board of governors is prepared to put into this.

Lisa:
– Financial assessment is not done. See the upcoming discussion paper. Their decision is partially
based on your feedback.
– There is not a firm line on 20%.

Nassif:
– We’re still computing the costs of the options.
– Our priorities are in competition with other priorities of the board.
– Market housing goes to our endowment.

Senior Faculty Member:
– We have lost out on many hiring cases.
– When bubble was not so bad, we lost CRC 1 chair to Alberta. [This was the first use of the word “bubble”.]
– We missed a candidate from Irvine.
– A hire from 2003 started applying for jobs, and we very nearly lost him due to the 7-year limit
for Financial Assistance Package.

Lisa:
– There are important tradeoffs between money from market housing to support academic mission.
– Tradeoff between faculty/staff and endowment.

Satish, Asst Prof in Computer Engineering:
– There are many universities which do not have land to support their endowment.
– Using land to support endowment is a very short-term plan.
– If we fail to attract faculty, the endowment is irrelevant as the land will go to the dogs.
– Harvard has $40B, which has nothing to do with their land.
– Faculty don’t even apply here. Why live in Vancouver when you can live in Austin and visit Vancouver every 2 months?

Kera:
– Claim that UBC was given this land specifically to support the endowment.
——————–

[Thanks ‘Anonymous UBC Professor’ – ed.]

Bank Of Canada – Warn Of Extreme Debt Levels, Yet Set Monetary Policy Such That “the ratio of household debt to income is projected to rise further.”

“The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1.25 per cent and the deposit rate is 0.75 per cent.” …
“…very favourable financing conditions are expected to buttress consumer spending and housing activity. Household expenditures are expected to remain high relative to GDP and the ratio of household debt to income is projected to rise further.”
– from ‘Bank of Canada maintains overnight rate target at 1 per cent’, Bank of Canada press release, 17 Jan 2012

Get that?
The Bank of Canada is expecting the Canadian consumer to support the economy and the housing market by going even further into debt, while at the same time they have been warning Canadians of the dangers of excessive debt.
– vreaa

—-

Further in a similar vein of hypocrisy:
“Both the Finance Minister and Bank of Canada Governor Mark Carney have been urging consumers to get a handle on their debts, the bulk of them in mortgages, and not allow low interest rates to entice them into taking on more credit than they can handle.” …
“We have been cautioning Canadians for some time that they need to be prepared to have higher interest rates in the future and be aware of the affordability issue that that may create for some Canadians, not to assume that mortgage interest rates will remain low for a long period of time,” Mr. Flaherty said Tuesday. “So we all have to be cautious in our financial planning.”
– from ‘Flaherty keeping wary eye on housing market’, G&M, 17 Jan 2012

From the comments section at the G&M:
“Is Flaherty not the man who gave Canadians the 40 year house Mortgage?” – ososo
“Flaherty keeping wary eye on housing market? That’s like having Dr. Kevorkian keeping an eye on my 85 year old mother.” – Peter Pan

On What Central Bankers Should Do To Pop Housing Bubbles

Dean Baker, of the Center For Economic And Policy Research, correctly identified the US housing bubble in August 2002, four years before it peaked.
In a current article he points out ‘What Greenspan should have done‘ [aljazeera.com 11 Jan 2012].
Excerpts:
“In Washington policy circles, money and influence can be used to make even the most simple and obvious things complicated and confused. This is certainly the case with the housing bubble and its aftermath. Four years into the housing bubble downturn, much of the country remains hopelessly confused about what happened, why it happened and who is to blame.
First, what happened is very straightforward: we had a huge run-up in house prices that had no basis in the fundamentals of the housing market. After 100 years in which nationwide house prices just kept even with the overall rate of inflation, house prices began to sharply outpace inflation, beginning in the late 1990s.
By 2002, when some of us first noticed the bubble, house prices had already risen by more than 30 per cent in excess of inflation. By the peak of the bubble in 2006, the increase in house prices was more than 70 per cent above the rate of inflation.”
…
“..some quick points on what could have been done. First, the Fed has responsibility for maintaining the stability of the US economy. Alan Greenspan should have recognised the bubble and done everything in his power to burst it before it grew to such dangerous levels.
Step one in this process should have been to document its existence and show the harm that its collapse would bring. This means using the Fed’s huge staff of economists to gather the overwhelming evidence of a bubble and to shoot down anyone who tried to argue otherwise. Greenspan should have used his Congressional testimony and other public appearances to call attention to the bubble.
This would have put the bubble clearly on everyone’s radar screen. And, the reality was that there were no serious counter-arguments. It is difficult to believe that this action by itself would not have slowed the home buying frenzy and curbed the issuance of junk loans, or at least their repurchase for securitisation.
Second, the Fed has enormous regulatory power beginning with setting guidelines for issuing mortgages. They first issued draft guidelines in December of 2007. It was not hard to find abusive and outright fraudulent practices in the mortgage industry, if anyone in a position of authority was looking for it.
Finally, the Fed could have used interest rate increases as a mechanism to rein in the bubble. This should have been a last resort, since higher rates would have slowed the economy at a time when it was still recovering from the collapse of the stock market bubble.
To maximise the impact of any rate increases, Greenspan could have announced that he was targeting the housing market. He could have said that he would continue to raise rates until house prices were brought back to a more normal level.”

In the case of Canada’s RE bubble, it’s too late for Mr Carney to do the right thing. The implosion quite likely has already begun of its own accord.
Of interest, here is what Dean Baker has said of the Canadian RE market: “It looks to me like you have some real problems. Canada could see house prices collapse by 25 to 30 per cent if interest rates rise by about two percentage points.” [Nov 2010]
On a related note, for those who can stomach it, take a look at this G&M article [12 Jan 2012] ‘Bernanke saw ‘relatively soft landing’ in housing in 2006’, featuring excerpts from Federal Reserve meeting transcripts from 2006. These guys seem almost completely unaware of the dangers that had been foreseen and written about by many others, so, I suppose, you could argue you couldn’t really expect them to move to clampdown on something that they didn’t think existed. – vreaa

“My friend in his early 40’s has basically considered himself retired for the last couple of years due to all this property appreciation.”

“Friend tells me the assessment of his Cambie corridor house has almost quadrupled in value over the last few years – now up to $2 million. The entertaining thing: he’s terrified because he doesn’t know how to pay the property taxes. He may have to get a real job. Basically he’s considered himself retired for the last couple of years due to all this property appreciation (he’s in his early 40s).”
– 604x at vancouvercondo.info 12 Jan 2012 at 8:55pm

Guy stops working in his 40s because of assumed market value of his house. Everybody see why this is so bad? Just one example of the misallocation of resources caused by a speculative mania in housing. – vreaa

Doctor And Amateur Landlord Text To Ex-Tenants: “Do you think I should sell?”

“As a Canadian expat returning to Vancouver with a hefty chunk of money saved we were stunned by the prices…..really $1.2M for a tear down in West Van? Consequently we packed up and left Canada after 3 years for better job opportunities and better standard of living. Renting was a pain for all the reasons other VREAA posters have listed, such as the landlord not doing repairs or giving us notice to move primarily because he felt he could get more rent for it…..he complained that he was losing money on it. Shows the amateur level of investor/landlords in Vancouver…..not knowing what is legal and/or what is a prudent investment. Last laugh was after the landlord moved into our rental, he texted something to the effect of his shock at the cost of the heating bill…..and “Do you think I should sell?” Unequivocally YES we texted back, cut your losses and get out now, we texted back. The house with pool was great for us renters (and at a fraction of what it would cost to own and maintain) but a complete money-pit for an owner. Landlord was a doctor so one would assume a well educated, intelligent fellow. Goes to show that even those high earning, highly educated folks have got caught up in the Vancouver speculation bug.”
– DM at VREAA 6 Jan 2012 5:56pm

Traditional smart-money investment wisdom is to vacate asset sectors once the doctors and dentists arrive. But then, these amateurs have been ‘into’ Vancouver ‘investment properties’ for years now.
Just goes to show how overdue we are for our crash.
– vreaa

Globe And Mail ‘Housing Market Bubble’ Cartoon

(Brian Gable/The Globe and Mail)

Each MSM mention of a housing bubble causes more complete saturation of the concept into the psyche of owners and prospective buyers. Then, one day, ‘Wham’, they see something that crystallizes the idea and the concept becomes ‘real’ for that individual. Falling prices will cause many to suddenly find that they’ve ‘known’ that we’ve been in a bubble all along. This is one mechanism by which markets can go from ‘balanced’, to otherwise, in an instant.
– vreaa

Toronto High Rise Buildings Under Construction – “We’re The Top!”

– from ‘Economic Dashboard’, Economic Development Committee, Toronto, November 15th 2011
[hat-tip Makaya]

Wow. – vreaa

“Four years ago we sold our Vancouver Westside house for $1.5M. Thought we did pretty good. Yesterday we see the identical house situated right next door to ours listed for $2.76M. Now that’s insane.”

“An example of the lunacy in Vancouver West: Four years ago we sold our house for $1.5M. Thought we did pretty good. Yesterday we see the house situated right next door to ours listed for $2.76M. Same vintage and everything. Now that’s insane.”
– Dr. WAYNE at greaterfool.ca 8 Jan 2012 6:33pm

Insane? If you still owned your house, you’d think it made perfect sense. 😉
Whatever you do, don’t buy an equivalent house back now. [See: Isaac Newton; South Sea Bubble].
– vreaa

“Metro Vancouver’s inflated housing prices are hard on the health of everyone, immigrant and non-immigrant.”

“Men who immigrate to Vancouver are twice as likely to report poor health compared to males who choose Toronto.
Female immigrants are 1.5 times more inclined to struggle with their health in Vancouver compared to women who end up in Ontario’s largest city.
The figures are not much better for immigrant males who choose Vancouver instead of Montreal.
The StatsCan longitudinal study suggested the findings about Vancouver needed further research. Yet, after consulting with noted Vancouver immigration specialist Richard Kurland, we have come up with four possible reasons why Vancouver is unusually rough on immigrants’ physical and mental health.
The first reason is actually hinted at in the report, written by StatsCan official Edward Ng, as well as Kevin Pottie and Denise Spitzer, both of the University of Ottawa.
It relates to housing. The report inadvertently linked the two by cryptically reporting “declining health” among new immigrants “who were not satisfied with their housing, and who lived in Vancouver.”
Although the statisticians didn’t draw a direct connection, Kurland is among those who recognize that Metro Vancouver’s inflated housing prices are hard on the health of everyone, immigrant and non-immigrant.
“Housing is always a Vancouver problem,” he said.
It’s not hard to imagine how expensive housing can lead to cramped living, extended families being forced to tensely live together and long commutes to work.”
– from ‘Why is Vancouver so bad for immigrants’ health?’, by Douglas Todd, Vancouver Sun, 7 Jan 2011[hat-tip Loon]

The described relationship is an association, rather than a proven causative link.
Regardless, it is of note to see a mainstream local article even suggesting that “inflated housing prices” may be linked to “poor health”. The article suggests possible mechanisms of (1) cramped living (with physical and mental health risks) and (2) long commutes. Other factors possibly making the link causative would be the long term psychological stress of financial overcommitment to housing.
– vreaa

Hail-Mary Pass – 4308 W 8th Ave; Ask Price $6.7M

Inventory is rising on the Westside of Vancouver, reaching 500 by 5 Jan this year. Some sellers are looking for deep pocketed uninformed buyers with ‘hail-Mary’ ask prices. Here is as an example:

4306 W 8th Ave; V920530
SFH, 3876 sqft, built 2009, 56 x 115 lot
Asking price: $6,688,000

Some sales history:
Prior home/lot sold on 20 Apr 2006 for $1,708,000
Current SFH built 2009
On market 2009, ask price $4,680,000
Sold 28 Jul 2009 $4,050,000
—

A ‘million dollar’ home, perhaps, but $6.7M?
We’ll hang onto this example for future reference.
Homes like this will sell for less than $2M in the trough.
That would represent more than 70%-off. We’ll see.
– vreaa

Denying The Obvious Bubble – Close Your Eyes; Think Happy Thoughts; Don’t Use Nasty Words; Bad Things Will Go Away

“A new year means new resolutions, and we should start fresh when talking about Vancouver real estate.”
“Happy 2012! In keeping with the spirit of the brand new year, I say we resolve to look at our dynamic real estate market in a fresh way. Let’s proverbially “sweep out the old” and make room in our news for market stories from a fresh perspective.
First, we should agree not to discuss things that don’t exist. There are three things I don’t want to hear about anymore in the real estate world for 2012, so let’s clear the air and get off on the right foot here.”
The Bubble
“What bubble? If I never have to hear one word again this year, it would be “bubble.” One of the most compelling aspects of the bubble is there is no way to predict it.
In each historic case of bubble markets (characterized by rapid price increases and a sudden pricing collapse), it is the unpredictability in forecasting that is the common thread. While economists and pundits have claimed affordability indices are the true measurement of anticipating a housing bubble, there is no historical data to support it.
All of the market bubbles in Japan, the U.S. and Australia, had their own underlying economic and political drivers. Our country’s lending policies are conservative and are coupled with record-low interest rates.  B.C. is known for exceptional regional livability, low unemployment and excellence in education.
Let’s face it – if there is a bubble correction, most single-family homeowners won’t be affected. In any market, few “win” on both ends of the deal. Buy low/sell low and buy high/sell high would be the norm for most. Let’s agree to disagree until we can discuss it in hindsight.”
– excerpted from ‘Let’s Change our Vancouver Real Estate Vocabulary’, by realtor Leah Bach, BC Business magazine, 6 Jan 2012 [The other two things to agree to not mention are ‘Real Estate Fees’ and ‘Foreign Investment’.]
—

Adults know that this is complete hogwash. Of course you can identify bubbles when they exist; they exist when asset prices run up far beyond fundamental value as determined by future income stream, fueled by speculative buyers using cheap financing to chase rising prices in a momentum fashion. As happened with tech stocks in the 90’s, US & many other RE markets housing through the ‘naughts’, and as has so very obviously happened with Vancouver RE 2003-present. These are all classic asset bubbles.
Another reliable identifying factor seems to be that there will always be self-interested commentators, in the middle of the bubble, claiming that bubbles can’t be identified: Greenspan,  Bernanke, Leareah; Vancouver/Canadian RE bubble ignorer/apologists (Bach, Wiebe, Podmore, Sommerville, Flaherty, Muir, Yu, Guateri, Geller, Bryan, Pastrick, Dupuis, Campbell (Don), Goldberg, Marchildon, Lovett-Reid, Klump, Regan-Pollock, Dunning, Dugan, Jenkins, Ash, Kinch, Good, etc, etc).
So, the routine seems to be to stick your fingers in your ears, ignore the data, dismiss the “naysayers”, and then, after the implosion, to pontificate as to how impossible it was to see all this coming. If your eight year old kid behaved like this, you’d call him on it.
Bubbles can be identified before they implode. Shiller, Baker, Prechter, Shiff, innumerable online bloggers, all saw the US RE bubble for what it was. Keene has written extensively about the Australian RE bubble. Rosenberg, Baker, Shiller, Krugman, Shedlock, Coxe, Jarislowsky, ‘The Economist’, Rabidoux, Turner, innumerable bloggers have all clearly stated that they see our national Canadian RE bubble, and many have pointed out that Vancouver is an extreme example of such a speculative mania.
If it walks, talks, smells, looks, behaves, and, heck, has the complete genetic structure of a duck, call it what it is – it’s a duck.
Those who argue that this is not a speculative mania, particularly if they do so from a self-serving position of influence, should be taken to task on their opinion.
– vreaa

“I don’t know anyone who actually pays down a mortgage. As soon as the assessment indicates an increase in “equity” it is pulled out to buy toys.”

“I don’t know anyone who actually pays down a mortgage…as soon as the assessment indicates an increase in “equity” it is pulled out to buy toys.”
– T at VREAA 21 Dec 2011 1:34pm

“A friend who works at one of the big Canadian banks noted that clients with $600k+ mortgages appear to be paying the principal over the years but after a while they ask that some line of credit with $30k-60k on it be rolled in the mortgage which bumps the principal back to previous years’ values.”

“Recently I had an informal talk with a friend who works at one of the big Canadian banks. I asked him if he noticed any changes in the mortgage business. He said it’s still going strong.
Interestingly though he also mentioned that he noticed an interesting phenomenon. Based on his day to day readings of a range of clients mortgages it seems individuals with mortgages about as high as $300k were actually making progress towards paying the principal. However if the mortgage was $600k or higher (most of the time this resulted from clients rolling in other kind of debt into their mortgage payments) the principal appears to have remained at the same level for the last 2-3 years. He noted that these $600k+ clients appear to be paying the principal over the years but after a while they ask that some line of credit with $30k-60k on it be rolled in the mortgage which bumps the principal back to previous years’ values.
I also asked what would happen if the clients can’t pay… does the bank take the property into foreclosure? The way he answered caught me a little off guard. It felt like he never quiet thought the process through. He said that the bank will work quiet hard to “help” the client continue paying (I’m not sure if this meant they’ll lower the monthly payment). He seemed to think that the foreclosure procedure was the solution of last resort.”
– 0x13 at vancouvercondo.info 30 Dec 2011 12:43am

Greater Vancouver Average SFH Price Dropping; 13% Down Since April 2011 Peak; Now Essentially Flat YOY

“Greater Vancouver SFH average price
2011-12:$1,064,249 (+1.70% vs2010) <- dropped 13% since peak
2011-11:$1,134,936 (+8.80% vs2010)
2011-10:$1,162,349 (+9.80% vs2010)
2011-09:$1,104,896 (+8.70% vs2010)
2011-08:$1,162,242 (+16.3% vs2010)
2011-07:$1,133,357 (+20.4% vs2010)
2011-06:$1,215,265 (+24.9% vs2010)
2011-05:$1,223,421 (+28.1% vs2010) *Historical peak
2011-04:$1,204,587 (+20.0% vs2010) <-CMHC rule change”
– from a post by VMD at vancouvercondo info [1 Jan 2012 2:21pm], figures sourced from Larry Yatkowsky.

So, the triad is complete: rising inventory, decreasing sales… now, falling prices.
To paraphrase the numbers: The average purchaser of the average SFH in Greater Vancouver, over the last 12 months, has, on paper, already lost up to 13% of their purchase price, with a further loss of the closing and transfer fees.
Of course, all the usual caveats regarding using ‘average’ prices apply. Regardless, it is what it is, and, if the trend continues, we’ll start seeing YOY price drops. This will make a sub-group of market participants sit up and listen.
From a technical analysis perspective, the recent sharp up trend channel has thus been violated to the downside, moderately important TA support comes in at $1.0M, and $935K, with more crucial support at the 2008-2009 lows, about $740K (39% below the April 2011 peak). We expect that level to give way, likely after an anemic bounce, and expect the ultimate bear market bottom trough to be in the 50%-66%-off area. Sounds crazy to most, but, just watch.
– vreaa

Spot The Speculator #70 – “A close relative of mine just bought a house near Commercial Drive. She can’t imagine prices dropping in the slightest– a flattening is the worst that she considers to be possible.”

“A close relative of mine just bought a house near Commercial Drive. She can’t imagine prices dropping in the slightest– a flattening is the worst that she considers to be possible.”
– M—, at VREAA 31 Dec 2011 at 10:27am

Most don’t count buyers such as this lady as speculators.
That’s the main point of this series.
– vreaa

Shiller – “The idea that buying a home is such a great idea is just wrong. Home prices may well decline for the next 30 years, in real terms.”

Interviewer (Morgan Housel, Motley Fool): “Is that what homeowners should expect, that their house will give them a place to live, that it will keep up with inflation, and nothing else?… Is that the basic model that homeowners should think about?”
Robert Shiller: “I think it’s a reasonable first approximation to assume that home prices would just keep up with inflation… [But they can go down too, they went down for the first 50 years of the 20th century] … The idea that buying a home is such a great idea is just wrong.. They may well decline for the next 30 years .. in real terms.”
– from ‘Robert Shiller on Why Home Prices Could Fall for Several Decades’, Morgan Housel interview, Motley Fool, 23 Dec 2011
—

Shiller is describing the US market, where prices in many regions have dropped to the point that they are coming close to values as determined by fundamentals. In a market such as Vancouver’s, where we are starting with prices at 2 to 3 times fair value as determined by fundamentals such as rent, income and GDP, the chances are far and away that housing will underperform inflation over the next 30 years. Most local market participants would see that prospect as preposterous. – vreaa

Spot The Speculator #69 – Three properties, all with maxed out HELOCs – “A 12% or 15% correction does not sound like much, but given the dynamics of the Vancouver market it could be devastating.”

“A close acquaintance of mine lives in the Vancouver suburb of Surrey (an area that respected blogger Garth Turner recently predicted would see a 30% correction if the national market tanks 15%).
A staunch housing bear himself, my close acquaintance rents the house he is currently living in. The home was recently assessed at a value of $450,000 and the landlord is the quintessential poster child of the over-extended, amateur Vancouver landlord.
Owning her own home in Coquitlam (another Vancouver suburb) plus two rental homes in Surrey, she constantly struggles to make ends meet.
Recently a spat of repairs were required on the house my acquaintance lives in.
First, the garage door sustained damage. When arrangements were made for an assessment from a repairman, the landlord asked my friend to pay the $80 charge (which would be deducted from the next month’s rent) because she no longer had a credit card.
Next, the dishwasher failed.  A plumber was called and he replaced the garburator (a repair that had been put off since summer) as well as the dishwasher.  And while the landlord arranged a cash payment for these (delivering the money to my friend to give to the plumber on the day the work was to be done), the plumber later confided the landlord had been in tears on the phone as they discussed the best place to secure the ‘lowest’ price on a new dishwasher.
I’m sure you won’t be surprised to learn that all repairs seemed to be “under the table” with no apparent HST tax paid.
There are other repairs that are required at the house but are “on hold” because the landlord admits to cash flow problems.
The landlord has told my friend that the house was a gift she received from her parents over 13 years ago.
So does that mean the property is mortgage free?
In the 3 years my friend has been at this house, he has accommodated 3 requests to have the property assessed for HELOC applications. In the most recent visit (always by the same assessor), the assessor let slip that he had also been doing the same on her two other properties. She has maxed out the available equity on this house (about six years ago this money was used to purchase the second rental home), the second rental home and her own house.
Now, with TD Bank expecting a market correction of 12%, where will this landlord wind up?
This landlord (not unlike many others in the Lower Mainland) have been using their homes as personal ATM machines.  And the money they have taken out against their properties is spent.
This particular landlord struggles to maintain basic repairs on the homes and is in a personal financial situation where she no longer has access to credit cards.
What will a 12% drop in property values mean to this landlord?
On the one Surrey home (assessed value $450,000), a 12% correction is a loss in $54,000 in mortgaged asset value. A 15% drop translates to a loss of $67,500. If we were to realize Garth Turner’s prediction of a 30% drop – the loss on this house would be $135,000.
Without continued price appreciation, not only is the HELOC ATM most assuredly closed to her for future withdrawals but any major repair or incident will be devastating to family finances.
If the other two homes are of equal value, she is facing a total drop of $162,000/$202,500/$405,000 in asset value (based on drops of 12%/15%/30%), none of which is equity. Are the banks going to blindly renew mortgages on these three properties when she could be underwater by almost half a million dollars on all three combined?
At what point does the straw break the proverbial camel’s back?
How many more are in similar circumstances?
Without a dramatic turnaround in the economy, how can these people avoid any other fate besides default, bankruptcy and foreclosure?
Anecdotal evidence suggests there is a strong likelihood that a higher percentage of Greater Vancouver homeowners are in this situation vis-a-vis the greater mortgage market than there were subprime mortgage holders in the US mortgage market.
A 12% or 15% correction does not sound like much, but given the dynamics of the Vancouver market it could be devastating.”
– anecdote and analysis from villagewhisperer at ‘Whispers from the Village at the Edge of the Rainforest’, 29 Dec 2011. [Thanks, whisperer. Hat-tip to ‘Bailing in BC’]

Point Grey SFH Inventory Up 100% YOY

Point Grey, MLS SFH Listings
26 Dec 2010:  27
26 Dec 2011:  54

Some folks are trying to cash in their high-end lottery tickets.
How many will join them in the spring?
The coming crash will effect all sectors of the market.
– vreaa

Visual Anecdote – Season’s Wishes

“A guy I know bought a place and was bragging that his mortgage is only a little bit higher than his rent would be. He gave me the whole lecture about how I am throwing money on rent. It took only a month until he started complaining about other expenses.”

“A guy I know bought a place and was bragging that his mortgage is only a little bit higher than his rent would be in a similar place. He gave me the whole lecture about how I am throwing money on rent etc. It took only a month until he started complaining about the high condo fees (which he did not account for), taxes (which he did not account for), higher insurance cost (which he did not account for) and a possible “assessment” (not even in his dreams when he was doing his “calculations”).
He has a variable rate mortgage and is paying just over 2% interest, that’s how his mortgage payments came relatively close to rental cost. Every 0.5% increase would add another $200+ to his cost.
Most home “owners” I talk to ignore any variables beyond mortgage when they are doing their calculations.
Another cost that is almost never accounted for – closing costs.”
– a splice of two posts by ‘bubbly’ at VREAA 20 Dec 2011 11:55am and 11:58am