“In my late 20’s; university grad; secure job; happy about how I’m doing professionally. The only depressing part is that owning a place of mine own in Vancouver is fast becoming a dream rather than an option.”

“Being in my late 20’s and happy about how I’m doing professionally relative to my goals (university grad and a well paying secure job), the only depressing part is that owning a place of mine own in Vancouver is fast becoming a dream rather than an option. The alternative is buying east of Burnaby/Coquitlam and then driving daily out to Vancouver … by the time I save up enough for a down payment and mortgage (giving it 5 years realistically). It has nothing to do with a desire to live in upper class neighborhoods, rather somewhere in the city I’ve grown up in rather than be pushed outwards just because of bad luck and timing.”
– sam_i_is at reddit, discussion of ‘Going Going Gone’, 13 Oct 2011

Lawyer Couple in 30’s – “Neither of us feel entitled to owning a freestanding home in Kits. You’re missing the point if you think that’s the problem. Fact is, we don’t want to be renting a small apartment in our 40’s.”

“I’m in my 30’s as is my wife. We’re both working lawyers and have a baby on the way. We rent a two bedroom apartment in East Van. We’re essentially the couple in the article except we live in a more affordable neighbourhood.
Recently we gave notice at our place and are packing our bags to leave Vancouver as we feel like we’ve been priced out of the housing market. Neither of us feel entitled to owning a freestanding home in Kits, and you’re missing the point if you think that’s the problem, but we also don’t want to be renting a small to mid-sized apartment in our 40’s which is the reality of housing in metro Vancouver. The fact is all of our friends who are in their 30’s, have kids, and can find work elsewhere have already left for more affordable pastures, either to the Island or to Langley. Those who are tied here due to their work end up commuting two hours a day and dream of finding jobs elsewhere.
I don’t know what the solution is, but there’s definitely a problem here even if you don’t want to admit it.”
– mizike at reddit.com discussion of Going Going Gone article, 13 Oct 2011

Carney ‘Not Complacent’ About Level Of Household Debt or Housing

“Bank of Canada Governor Mark Carney said, in testimony to the Senate Banking Committee, that he isn’t complacent about the level of household debt in Canada or the state of the country’s housing market.
The Bank of Canada has highlighted in its financial stability report the risks posed by record levels of household debt, and Carney said in a speech in Vancouver earlier this year that there are signs some local housing markets are moving away from fundamental values.”
– Bloomberg, 2 Nov 2011

Another oblique and lukewarm show of concern.
When the housing bubble implodes, BOC will say they ‘warned’ Canadians of the risks.
Well, Canadians are not listening. They continue to borrow as much as they can; two out of three new mortgages are at variable rate.
We know that the BOC can’t raise interest rates in the current environment, for fear of dangerously slowing the economy. But Mr Carney could use his considerable influence to lean on Mr Flaherty. If the government sincerely wants to do something about the over-borrowing, they should tighten mortgage lending. But they won’t do that, because there are too many interests vested in the continuing speculative mania in housing.
– vreaa

Spot The Speculators #64 – “I was thinking before we bought that it might be difficult, it might be a big challenge, but when we got the home we found things were okay.”

Kamal and Raman Khangura have a new home in Abbotsford — and the mortgage to go with it.

“Young homeowners Raman and Kamal­preet Khangura say disciplined saving is the best way to banish financial fear.
The Abbotsford couple have so far kept their heads above the debt that threatens to drown many young British Columbians. The Khanguras keep an iron grip on their spending and salt away every dollar they can.
In February, the couple — without help from family — bought a $527,000-home in Abbotsford, paying $27,000 down. They have a $2,000-a-month mortgage payment.
That’s a lot of debt. And Raman, 26, admits to having had some passing worries before buying the house.
He reassured himself by going over the details of the financial plan he and Kamalpreet, 27, had prepared.
“I was thinking before we bought that it might be difficult, it might be a big challenge but when we got the home we found things were okay,” he says.
“We’re careful with our money.”
The Khanguras have no other debts and are determined to keep it that way. Credit cards are paid off each month. Their line of credit will only be tapped in the direst of emergencies.
The $1,000 a month they get in rent from a basement tenant is tucked into RRSPs. Mortgage payments come strictly out of their salaries.
Kamalpreet works as a certified dental assistant. To boost their income, Raman works two jobs — a full-time position managing a trucking repair company and a part-time bookkeeping job.”
– article and image from ‘Young British Columbians struggle the hardest with debt’, Paul Luke, The Province, 29 Oct 2011

20-somethings. 2011. $27K down, $500K mortgage. “Careful with money”. (eyeroll)
Repeat: 20-somethings; modest income; $527K purchase.
This is not “care”, this is not prudence, this is gambling.
For people who “salt away every dollar”, it’s going to be torture for them to watch a torrent of downward prices leech away all of their savings and then some; perhaps up to five times their savings. – vreaa

(BTW, what are the likely mortgage variables that get you $500K for $2K per month? Are they on variable rate?)

High Up On The Roof

“My brother, who has zero experience in construction, answered a craigslist ad for a roofer position at a large roofing company. They offered it to him after a brief interview, 15 bucks an hour. He started work and was ‘trained’ by a crack addicted employee. The crack head, actually asked to borrow money from him for supplies, which turned out to be a lie for drugs – he obliged and offered up $200 – which he never saw again. My brother confronted his boss after the crack head went awol for a week. The boss had the keys to his apartment (the crack head was staying at an apartment of his) and offered him to go in and take whatever he wanted ! My brother quit shortly after.
If this is the quality of the people who are in the industry now, I can only wonder the quality of the output… crazy.”
– Loon at VREAA 30 Oct 2011 8:46pm

“When I was younger I did roofing for an outfit in Alberta and they had strict standards:
– sneak off to a local pub at lunch for a quick beer if you’re going to drink on the job. Or a one beer limit on the roof, but pound it so the customer doesn’t see
– smoke weed in the company truck but never ever on the roof. That would be unprofessional
– if it goes up nose I don’t want to know about it, but you’d better share
– if you’re working on the road don’t bring hookers back to the motel room you’re sharing with your fellow roofer. That’s what parking lots are for.
– be nice to the new guy. He just got out of prison, and oh by the way – can he stay with you for a while until he gets on his feet?
– all fights are to be done on the ground away from the kettle. And don’t throw hot tar at your enemy/co-worker no matter how much you want to kill him
Good times!”
– nobody you know at VREAA 30 Oct 2011 9:29pm

Concerned citizens hear these stories all the time, but they’ve gotta be exaggerations, right?
– vreaa

Spot The Speculator #63 – “I run the numbers in my head: This guy is paying $8K mortgage for this?! He paid $1.6 million for a house I would not buy for $400K !?”

“I decided last week to look for a rental home.. and it turns out to feel like a study of Vancouver real estate behaviours. This is actually great fun.
So today I go visit a 4 bdrm home in Point Grey. Smells like a sponge, feels like a sponge. Asking: $3300. I run the numbers in my head: this guy is paying $8000 mortgage for this?!?!? He paid $1.6 million for a house I would not buy for 400K !?!??! Maybe he paid cash… Well, what a poor return on investment, even less than inflation. Not to mention the $5000 taxes.
Obviously this was an amateur landlord. The paint was peeling off the window in large chunks, and he expected me to bring in my kids? The appliances were from the 80s. For God’s sake, if you rent for $3200, you could buy a brush and some paint. The basement showed signs of freshly scrubbed mold. The door between the master bdrm and the attic looked like an outhouse door. All skylight windows had missing handles. The attic was filled with moldy dusty insulation from the 70s. I even felt sorry for the owner.
So the HAM-guy says: Do you like it?
Me: Too humid, sorry
Him: You know, I own 3 other empty homes and I am looking for tenants, including a 5 brdm in Dunbar.
Well, the vacancy rate is 2%. So either he has 20 rental homes, or he only has 3 houses and recently realized he is loosing money on them, so he should better rent them. Who knows?
I left, feeling I was leaving a completely surreal place… “Insanity” is a euphemism.”
– ‘jumping in’ at vancouvercondo.info October 28th, 2011 at 6:54 pm

China’s Property Crash – Effects on Vancouver?

“Recent buyers are outraged as the value of their investments fall, sometimes by more than 25%.”
“They worked hard to earn money to buy property, but not long after they bought it, it crashed this much.”
“UBS are predicting the property market will suffer a hard landing in the next few years.”
– from ‘Shanghai Property Crash’, 27 Oct 2011 .

Greenhorn writes, by e-mail:
“This means Vancouver real estate prices will rise, right?
Condo prices in Shanghai are crashing. If you watch this video, you will see that condo prices in Shanghai are falling from $260/sq.ft. to $190/sq.ft. A lot cheaper than Vancouver!
Why are condo prices so low in Shanghai? Because China is a poor country with a per capita GDP of less than $8,000. But Canada’s GDP is only $40,000 and condos in Vancouver sell for over $1,000/sq.ft. so may be this ratio of per capita GDP/condo prices per sq.ft. is about right.
People tell me that if real estate prices crash in China, there will be a flood of money to Vancouver as our real estate market is an excellent store of value. I find this hard to fathom. If your real estate in Shanghai at $190/sq.ft. is crashing, do you then go buy in a market such as Vancouver that is 5 times as expensive? If Vancouver real estate at $1,000/sq.ft. crashes, do you then go buy in Monaco at $5,000/sq.ft.
Sure my examples are extreme, but you get the point I am trying to make.
When China real estate prices are up, Vancouver prices rise because the wealthy Chinese want to diversify their holdings.
When China real estate prices are down, Vancouver prices rise because the wealthy Chinese want to diversify their holdings.
Do prices ever fall in Vancouver?”

Despite our apparently bullet-proof market, we have a hunch that this will have a negative effect on Vancouver RE:
(1. deleveraging in China)
+
(2. psychological effects of plunging Chinese RE on Vancouver local buyers)
will be greater than
(3. tiny amount of safe-haven money running wishfully to only RE on globe still ‘retaining value’)
Add to this Euro-bloc rolling-crisis, and we think that the next leg down in everything is going to be a doozie. Look out, here comes 2012.
– vreaa

Cambie Corridor Speculation – “People are overpaying for land”

Six months after Vancouver City Council approved a plan to transform the Cambie Street corridor, homes in the area have nearly tripled in value and some residents fear development will ruin the neighbourhood. Ten homes on Cambie Street near 41st Avenue recently sold for $3.4 million each, nearly three times their assessed value.
City planner Brent Toderian says the city is trying to cool down land speculation in the neighbourhood. Toderian says the city has been meeting with developers and realtors to discuss land transactions after getting wind of some very high deals negotiated in the months after the Cambie corridor plan was approved.
He says the final prices didn’t appear to have factored in community amenity contributions the city negotiates with developers in order to pay for infrastructure and services associated with increased density
“People were overpaying for land — thus we sent messages out into the marketplace to say you’re going to have to adhere to the expectation of the plan if you wish to succeed in development.”
– from CBC 27 Oct 2011 [hat-tip ‘subterranian’]

“We’ll move to Bellingham in the spring, where house markets are far lower. We’ll live without health care, in a country at war, with the biggest debt in history, BUT, we will be able to afford having a family.”

“My wife who’s from the states and I got married a year ago, our dream was keep living in Squamish or Vancouver where she could keep working as a nurse. We realized that we won’t ever be able to buy a house and even rent it outrageously expensive. Starting a family would be impossible if we still want to have time to play outside. So we’ve decided to move to Bellingham in the spring, where house market are way, way lower but we’ll still live in a beautiful place, without health care, in a country at war, with the biggest debt in history. BUT, we will be able to afford having a family. Thanks for squeezing the middle class out of Canada, Canada.”
– ‘Phil from Squamish’, comment, Vancouver Sun, 18 Oct 2011 10:21am

When Price Cuts Aren’t Price Cuts – Yaletown Condos at $650/sqft

928 RICHARDS ST. NO. 1906, YALETOWN, VANCOUVER
11 yr old highrise; 750 sqft; maintenance $321/month
ASKING PRICE $499,900
SELLING PRICE $491,000
PREVIOUS SELLING PRICES $445,000 (2008); $242,000 (2002); $185,681 (2000)
TAXES $1,954 (2010)
DAYS ON THE MARKET 14
The Action: When this two-bedroom-plus-den corner suite at the Savoy was listed earlier this year, there was a surplus of properties that lingered on the market as buyers took their time to make a selection and negotiate on price. About a dozen buyers promptly viewed this condominium and one eventually made a proposal just shy of the asking price to seal the deal.
The Agent’s Take: “The average price per square foot for units in that building over the last year was $652, so we were a bit concerned that given the … market conditions for condos, we might have to go below this average. However … [this] sold higher than the average price per square footage, [so] clearly location and quality of building is still key, and of course, pricing sharply ensures the condos don’t sit on the market too long and become stale.”
– above ran as ‘Oversupply cuts price for Yaletown condo’, by Syndia Yu, G&M, 3 Oct 2011

Archived here for the longer term record.
This sold for over average price per sqft, so there was no ‘cut price’ involved.
The $9K off ask (2%) is a rounding error, not a price cut.
Keep the long view perspective: condos like these will sell for $200K-$250K in the trough. That’s a price cut.
– vreaa

“The grandparents/parents/aunts warn that renting they will get ripped off, and home prices will keep appreciating; if they don’t buy back in immediately, they will be poor forever.”

“A Chinese family I know just sold their east van plot to a developer who is buying up the whole block. The extended family have lived under the same roof for 20 years, so the whole house was mostly paid up. They bus everywhere, haven’t owned a car… About a month ago they netted 1.2 Million clear from the sale. They have until January to move out.
Their 13 year old son has been BEGGING them to rent for a while, to buy a car, take a holiday, and enjoy not feeling poor for a change. The grandparents/parents/aunts say that 1) renting, you will get ripped off and 2) the home prices will keep appreciating; if they don’t buy back in immediately, they will be poor forever.
They are currently in negotiations for a $1.4 Million East Van house; they will mortgage the 200,000 difference. Poor kid. He is a smart young man. He says that it is impossible that prices will not go down significantly at some point in the near future, because they have gone up to such ridiculous levels.
Just thought this gives an idea about how people can afford the current prices, and how so many homes continue to sell.”
– TPFKAA at VREAA 24 Oct 2011 9:55pm

So, the $1.4M market is dependent on the $1.2M market.
“..and so on infinitum.”
House of cards.
– vreaa

Comments already made on the thread:

“Game theory says it’s almost impossible for this family to end up renting.
Door #1: By continuing to own, if prices go down, the worst that can happen is their peers lose the same as they, if prices go up everyone’s a winner.
Door #2: By renting they either lose if prices go up, or win while everyone else loses. Further it’s unlikely they will find somewhere desirable to rent given the family size.
This family will choose Door #1 every time to align with their peer group, and will likely ride the bubble all the way down for the same reasons.”
– jesse 24 Oct 2011 10:58pm
[Well put. And, BTW, mutual fund managers underperform the markets by choosing Door #1 every time. -vreaa]

“who is this kid? Manny from modern family?”
– matt 24 Oct 2011 10:19pm

“If these rates of appreciation continue your school age children will not earn enough money in their lifetimes in any job to ever buy real estate and you’ll want them to move out at some point. Buy condos for all your unborn descendants!”
– rp1 25 Oct 2011 12:04pm

City Of Vancouver – Enough New Homes; Business-Unfriendly; ‘Green’?

City of Vancouver, 1998 to 2010:
Net increase of new residents: 83,267
Net increase of homes: 50,973
Net increase of new businesses: 46 (0.09%)
Business:Residential tax rate ratio: 4.5:1 (cf 3:1, or less, rest of Canada)
Net increase in cars: 64,329
– from article ‘Business growth in Vancouver stalls while suburbs flourish’, by Don Cayo, Vancouver Sun, 24 Oct 2011

Are these figures correct?
If so:
1. 1.7 new people to each new home (cf 2.1 average household).
2. Unattractive to business endeavours.
3. ‘Green’? [eyeroll]
– vreaa

Tyee and his Wife – “One thing that has changed in the past year is our perspective: we no longer believe a crash is inevitable, or that it would make any real difference to us.”

“My wife and I rent a basement suite in Vancouver, and occasionally we shake our heads that we’re pushing 40 and living in a space that barely notches above student housing. For a long while we’d been looking down our noses at people shelling out what seemed to be exorbitant prices for tiny, well-marketed properties. We waited, a bit haughtily, for the oft-predicted crash to bring prices back down to our level. While waiting in this particular basement for the past three years, we’ve paid $40,000 to our landlord.
As basements go, ours is fine, no mould-spore filter required. But it’s hard not to feel churlish when the subject of real estate comes up. At parties, we sip from the house cocktail shared by many young (and not-so-young) middle-class renters in Vancouver: two parts seething resentment, one part liberal guilt. To protest too much about our situation seems bourgeois, given we eat organic vegetables, drink good wine, and go on vacation every few months. We blunt our bitterness by counting our blessings, which are many—and it’s hard to stir a revolt on a full stomach and a glass of Merlot.
One thing that has changed in the past year is our perspective: we no longer believe a crash is inevitable, or that it would make any real difference to us. Like one of those Re/Max balloons, prices have risen so far out of our reach that even if they deflated significantly we still couldn’t get on board. Yet on our incomes, as a childless couple, we have a choice. Unlike James and Tina, we just might be able to purchase a property that suits our needs. Or we could leave.”
– anecdote from ‘Going, Going, Gone’, by Tyee Bridge, Vancouver Magazine, 1 Nov 2011

When the last prospective buyer with a bearish perspective capitulates, the speculative mania is over.
At least that’s pretty much how the market dictum goes. And we acknowledge we’ve been saying that for years now.
We empathize entirely with Tyee’s position.
But, this really is a speculative mania.
They never, ever end with permanently high plateaus.
Prices will revert to means determined by fundamentals, and that’s a long way below today’s prices.
– vreaa

“He said every house he tried to put an offer on was bought by developers with no conditions.”

“A month or two ago, a guy at work described his experience looking for an old starter house in Coquitlam. I think he was looking around the Coquitlam/Burnaby boundary. He said every house he tried to put an offer on was bought by developers with no conditions. He was not considered by the sellers because it was easier to sell to the developers, so he gave up looking.”
– Summer at vancouvercondo.info October 22nd, 2011 at 9:09 am

“In ‘Burquitlam’, whole blocks of old houses are being leveled for townhouses.”
– Patiently Waiting at vancouvercondo.info October 22nd, 2011 at 9:26am

Leif and Heidi – “The longer I’m here, the more I’m convinced this market is unstoppable. If this was any other regional city, prices would adjust. It’s not really Canada anymore.”

“Leif, 31, is an intern architect, and Heidi, 32, a full-time student at Emily Carr. Former Winnipeggers, they had already owned homes in Saskatoon and Winnipeg when they arrived in Vancouver in 2009, bringing with them $75,000 in equity. Despite their modest income, they were optimistic that their good fortune in the real-estate market on the Prairies would set them up for a decent fixer-upper in Vancouver. They quickly realized their income and savings would only buy them a one-bedroom condo—if that.
“Coming here was a slap in the face,” says Leif. “We thought we were lucky getting that down payment together, but it’s pennies here.” Recently he spotted a new one-bedroom in Kitsilano for $300,000; to prove a point, he went on MLS and found a home in Winnipeg for the same price: an old-stock character house with four bedrooms and two baths on three floors. It was 2,400 square feet; the Kits condo was 400. “The longer I’m out here, the more I’m convinced this market is unstoppable. If this was any other regional city, prices would adjust. But that’s not how it is here,” he says. “I don’t want to sound like we’re feeling sorry for ourselves, because we could happily move back. But we realized that Vancouver is not a regional market. Real-estate-wise, it’s not really Canada anymore.”
– anecdote from ‘Going, Going, Gone’, by Tyee Bridge, Vancouver Magazine, 1 Nov 2011

A bubble, by definition, appears ‘unstoppable’ to almost everybody in its sphere of influence. – vreaa

Alex and Erin – “What frustrates us is that there’s no way to grow wealth or security while living in this city, making what we make—which anywhere else would be considered a really good living.”

“Alex and Erin are doubtful about their future. Smart, practical, and into the city’s culture of dining, outdoors, and high-tech, they’re the Everycouple of Gen F’s 20-somethings. They rent a 500-square-foot apartment in Hastings-Sunrise and love living in Vancouver—even if it means having a living room not much larger than a snooker table. Alex, 28, is a young chef who moved here from Medicine Hat in 2005. After completing culinary school in January, he was hired at the new Hawksworth restaurant in the Rosewood Hotel Georgia. Erin, who grew up in North Vancouver, is 26 and until recently was a pr manager at 1-800-GOT-JUNK. A Twitter lover, she broadcasts their gourmet experiments to the world in 140-character bites. They’ve chosen careers that tie them to Vancouver, or a city of this size, and necessity aside they enjoy the city’s vibe.
They’re not optimistic about putting down roots. As a cook in an upscale restaurant, Alex can count on earning around $29,000 a year. Erin makes more with freelance copywriting and PR, but not much. “Together we make about $70,000, which sounds like a healthy combined income at our age,” Erin says, “and we’re not destitute. What frustrates us is that there’s no way to look at growing wealth or security while living in this city, making what we make—which anywhere else would be considered a really good living.” They’d like to buy a condo in five years or so, but that’s a stretch. “It would have to be in Port Moody or something, which means you’re commuting. Even if we lived on macaroni and cheese for three years, we couldn’t make it work here.”
Erin has over $40,000 in student debt from her UBC years and her Kwantlen diploma, and while pr was a consciously practical choice, getting ahead is tough. “The pr departments are small to begin with, unlike in Toronto,” she says. “So there are piles of people coming in at junior levels who can’t move up because people aren’t moving out of senior positions—the director has been there for five or 10 years and will be for at least another 10.”
– anecdote from ‘Going, Going, Gone’, by Tyee Bridge, Vancouver Magazine, 1 Nov 2011

James and Tina – “Today, any starter home in the Lower Mainland is far out of our financial reach. We didn’t ever think that we’d be 35 years old having never lived above ground level.”

“James and Tina live in Point Grey, in a two-bedroom basement suite in a Vancouver Special. Tina, 34, a former music teacher, is now a stay-at-home mom. James, 35, teaches music and directs the 260-student Dr. Annie B. Jamieson Elementary School string orchestra. He also gives private cello lessons to bring in extra cash. Their twin boys were born last May, and their challenge as a new family of five is how to afford not groceries but space. The search for a larger home has not gone well. Real estate, they say, has been “a continual source of depression” for seven years. “We feel fortunate to be healthy, have three wonderful children, and have jobs that are mostly satisfying and interesting,” James says. But they’re tired of living below ground. “Our dehumidifier and industrial mould-spore-removing air filter are playing too large a role in our lives.”
On their combined income—at around $80,000, it’s well above the regional family median of $68,000—they’re still knocking their heads against the subfloor of the real-estate boom. While in their 20s, they saved for a down payment and made offers on six houses in Vancouver and Burnaby. Despite bidding over the asking price almost every time, says James, they always lost out. “Today, any starter home in the Lower Mainland is far out of our financial reach. We didn’t ever think that we’d be 35 years old having never lived above ground level.” They love Vancouver, and want to stay close to their families and their roots. But, like many middle-income earners here—web designers and police officers, young architects and teachers—they find themselves rehashing halfhearted talks of packing everything into a moving van. “Maybe we’ll head to Victoria,” says James, “somewhere we can realize our dream of living above ground.”
Tina and James are part of what, real-estate-wise, might be called Vancouver’s Generation Fucked. As the city becomes a global “lifestyle destination,” tens of thousands of middle-class households are getting a hard lesson in diminished expectations. Unless the members of Gen F want to raise their children in a one-bedroom condo, their salaries will qualify them to be no more than permanent renters in Vancouver.”
– anecdote and image from ‘Going, Going, Gone’, by Tyee Bridge, Vancouver Magazine, 1 Nov 2011

“I said he made money because he was part of an irrational rising market not because of house-flipping super-powers. They looked at me with shock, they expected the story to pump me up with real estate lust.”

“I met with friends that were going on and on about an uncle that kept buying and flipping houses last year.
They said, “He made 50k on that one, then bought that and flipped it for 80k, then bought that and flipped it for 70k,…”.
I said, “He would have been better off buying one property and doing one sale and increasing his holding period, he made money because he was part of an irrational rising market not because of house flipping super powers. I said transaction costs would have killed him.
They looked at me with shock, because they were expecting the story to pump me up with real estate lust.
Needless to say, they bought a place last year and are renovating it with the intention of flipping it. In addition, Their neighbour is elderly and they want to now convince him to sell his place to them. They said they want the neighbour to sell to them and then just rent it back to the elderly neighbour…. I hope stupidity is rewarded accordingly.”
– Anonymous at vancouvercondo.info October 16th, 2011 at 7:52 am

“I’m not interested in working my butt off to pay a mortgage that we really can’t afford and then totally lose out on enjoying our children and giving them the benefits of having me at home.”

“Christina King and her husband Ian have a 22-month-old son and a two-month-old daughter. They recently decided to give up the idea of ever owning property because they are not willing to sacrifice time with their children to make the kind of money a B.C. mortgage demands.
“I’m not interested in working my butt off to pay a mortgage that we really can’t afford and then totally lose out on enjoying our children and giving them the benefits of having me at home,” she said.
King, 34, teaches yoga, but works around her husband’s schedule so one of them is always home with the children. The family rents a house in Metchosin, a bucolic community west of Victoria, from Ian’s parents. But Ian will soon be moving into a position as a farm manager in the same community, and a house on the farm will be part of his compensation.
“We’ve chosen a lifestyle over making a ton of money,” King said. “We’ve chosen that lifestyle because it’s something that we love to do, it goes with our values. It keeps us happy and not stressed, which I think makes us better parents.
“We’re still able to do what we love, but we’re not going to have to pay a mortgage for the rest of our lives.”
Sacrificing family time to pay for housing and child care is a decision young parents should not have to make, said Paul Kershaw of the University of B.C.’s Human Early Learning Partnership.”
– anecdote excerpted from ‘Incomes, house prices leave young B.C. families worse off than anywhere in Canada’, by Tara Carman, Vancouver Sun, 18 Oct 2011
[hat-tip 4SlicesofCheese]

CBC Radio – Tyee Bridge Interviewed By Stephen Quinn

On The Coast | Young Adults Leaving Vancouver.
– CBC, 19 Oct 2011 (8 min radio interview)

Must listen, all.
Thanks for the link, jesse.
– vreaa

Spot The Speculator #60 – “Our combined salary is at the average for the province, yet we were able to buy a condo in Vancouver. How?? It’s because we made SMART financial decisions.”

“As a married father of a 2.5 year old, my wife and I have worked hard to get to where we are. Our combined salary is at the average for the province, yet we were able to buy a condo in Vancouver. How?? It’s because we made SMART financial decisions. We don’t have fancy phones, clothes, cars, or even an extravagant lifestyle. In fact, my wife stays home most of the time with our daughter because it didn’t make sense for her to work just to send our daughter to daycare. Most people my age (31) live outside of their means. These articles never touch on the lifestyles of those who proclaim that they can’t afford housing. Was any research done to look into the expenses of those who can’t afford homes? How many of them have smart phones with their outrageous plans, designer clothes, or even decide to buy ultra-expensive organic foods? People need to step back and re-assess their own finances instead of complaining how things are unaffordable to them.”
– geeperscreepers, comment in the Vancouver Sun, 18 Oct 2011 11:07am

It is true that many display mindless consumerism.
Having said that, keep the big picture in mind. Is personal austerity that sensible if one is using it purely as a tool to service mortgage debt during a massive speculative mania?
Who exactly is being the more mindlessly consumer: the renter with the ‘smart phone’, or the very careful budgeter paying thousands each month to ‘own’ a condo?
Prudent citizens watch their spending at every level. But if you make wise decisions about the hundreds-of-thousands of dollars, the decisions about the tens of dollars become less important.
This family is speculating on increasing RE prices. If you don’t believe that, ask them what their plan is if prices were to fall and keep falling. Chances are it’s simply unimaginable to them. They think they are SMART, but they are gambling.
– vreaa

Spot The Speculator #59 – Fishy Anecdote or Common Plaice? – “Co-worker who makes $70k has just been approved for a $650k mortgage.”

“Co-worker who makes approx. $70k has just been approved for a $650k mortgage.
Just another example of how our banks are so much more prudent and conservative than their American counterparts.”
– ‘Manna from heaven’ at vancouvercondo.info 17 Oct 2011 9:25am

This useful discussion followed from posters at VCI:
jesse – “$650K at 2% is $2400/month or $29K/year. Add in other DSR costs and we’re up to about $35K. That’s 50% GDSR. Likely he’s either got supplemental income from relatives or other, and/or he’s committed to renting out a basement suite or rooms to flatmates/students. I don’t see how even a bank is going to qualify someone under the scenario you state.”
Troll – “Don’t forget he has to qualify under the 5-year rate, which would bring the number up to $36K/year. Something smells fishy about this anecdote.”
jesse – “Says who? For CMHC-qualified loans I agree. But how about low-ratio loans? You’re richer than you think.”
Anonymouse – “$650K mortgage, or $650K purchase price? There’s potentially a big difference.”
kansai92 – “Basement suite… or multiple basement suites. Maybe he’s going to live in the basement suite and rent out upstairs.”
Troll – “Fair enough…but then his income isn’t $70K anymore.”
patriotz – “Probably less. Hint: income = revenue – expenses.”
jesse – “…costs of ownership are often higher than budgeted, assuming this person even made a budget. It could be lender was using 80% offset instead of 50% add-to-income, so it’s a valid comment.”

Spot The Speculator #58 – “One sushi cook who makes 50K a year somehow got 850K mortgage for 2 properties and is renting out both. Cash flow negative. Been trying to flip both for past 6 months with no offers.”

“One sushi cook who makes 50K a year somehow got 850K mortgage for 2 properties and is renting out both. First is house 700K with 500K mortgage upstairs rent $1500, downstairs $900. Second property is 500sq/ft apartment downtown 450K with 350K mortgage rented for $1200. Been trying to flip both for past 6 months with no offers. He says rent is covering mortgages, strata but he covers property tax and insurace. I can’t begin to tell you how badly I want this thing to explode in the faces of these idiots!”
– Patrick at VREAA 16 Oct 2011 2:01pm

Spot The Speculator #57 – Medical professional chooses to rent – “On the contrary, MY SECRETARY, who I employ, has already bought two condos in the last year; is more than $800K in debt, and insists on giving me real estate advice.”

“I am a medical professional and do quite well financially and can afford a large mortgage in Vancouver.
I RENT a house because it makes no sense whatsoever to spend a million dollars to buy an old dilapidated house. I will give it another year or so, otherwise off I go to some place that actually makes sense.
It might make sense to take on so much debt if the value is sure to go up by 15-20 percent over the next two years, but not in this town and not with these fundamentals.
On the contrary, MY SECRETARY, who I employ, has already bought two condos in the last year and is more than $ 800K in debt, and insists on giving me real estate advice. …
I moved to BC 2 years ago (after having lived in NYC, Dallas and Toronto in the last 15 years ) for compelling family reasons, and the Vancouver RE reminds me of the Pied Piper’s story.
I rent a house and use portion of it for my office. People do not realize it but it is far more cheaper and far more comfortable than owning property in Vancouver.
People get this false sense of security and “affluence” but do not realize the property value would have to go up at least 10 percent each year for them to break even versus renting. (This includes the cost of renting money from the bank, property taxes, agents fee (if selling) and cost of maintaining the property).”
– Get real at VREAA 16 Oct 2011 12:36pm and 7:00pm

Spot The Speculators #56 – “The hairdresser I went to the other day was telling me he and his partner have been approved for up to a $1 million in new mortgage financing, assuming they can sell the existing suburban home they bought last year.”

“The hairdresser I went to the other day was telling me he and his partner have been approved for up to a $1 million in new mortgage financing, assuming they can sell the existing suburban home they bought last year, tarted up and are now attempting to flip for a big profit. I don’t mean to imply that theses jobs are marginal, just that incomes in those types of jobs are variable and extremely market sensitive. If the economy does take a hit, servers and others in personal care-type service industries will be hit hard. My daughter, the perennial student, is a part-time server in a trendy downtown watering hole and says tips have plummeted in the last two years. She maintains that people that can’t afford to go out are still going out but not tipping as much or at all. She and her fellow servers also complain about the prevalence of groups of people that go out and expect to sit and watch a sporting event without buying drinks or food – usually one person will buy something to try to maintain a table but everyone else orders little or no menu items. The manager of the bar now routinely politely evicts those “squatters” but it is a problem.
The banks seem ready to approve large mortgages for people that used to be considered marginally employed (back in the day when I worked for a bank).”
– Observer at VREAA 15 Oct 2011 11:45am

Spot The Speculator #55 – “At my workplace the lot-boy who washes customers cars for $10/hr. told me how how to invest in real estate. His 1st condo equity was extracted to buy his 2nd condo and that equity was extracted to buy the 3rd.

“At my workplace the lot-boy who washes customers cars for $10/hr. told me how how to invest in real estate. His 1st condo equity was extracted to buy his 2nd condo and that equity was extracted to buy the 3rd and final one. He says Royal Bank was willing to give him the money since all of them are rented out. We don’t have sub-prime like the USA but this looks like a dangerous house of cards that I think is not just isolated to this one individual. I read somewhere that a famous stock investor said once a shoe-shiner was giving him stock tips he knew that was the time to get out of the stock market. I was getting that feeling when the lot-boy was giving me tips on how to buy real estate since I’m just a lowly renter.”
– Pat at VREAA 15 Oct 2011 11:47am

“I’d like to share my story as someone who was born and raised in Vancouver, lived abroad for ten years, returned, and is now planning to leave permanently.”

“I’d like to share my story as someone who was born and raised in Vancouver, lived abroad for ten years, returned, and is now planning to leave permanently.
I grew up in what is today ground zero for Vancouver’s speculative mania, Point Grey. My dad was a professor at UBC, and my mom a part-time teacher. In real terms, my income is comparable to that of my parents when they bought our house in the 70s. And my expenses are lower: we have one child (so far) instead of four, one car instead of two, etc. And yet the modest house I grew up in would be utterly out of reach for me today.
The question is, what has changed between a mere two generations? Yes, the economy has grown, and there is more wealth in the world today. But presumably one’s income reflects this growth, so that real estate should be no less affordable than it ever was.
Locals shrug off this uncomfortable question with the standard wisdom: We have water! And mountains! To which I reply: Vancouver has always had water and mountains. The city’s attractive geography is widely known and has long been priced in to the market. It’s a valid reason for local prices to start out higher than in certain other places, but not for them to go up any faster over time. Some improvements have been made to the city itself, but the fact is Vancouver is pretty much the same place it was 30 years ago.
What does seem to have changed is our collective mindset. We are living in a dream where Vancouver is the new global hotspot, debt and real estate are the path to riches, and where history doesn’t matter, because “it’s different here”.
I believe Vancouver is in for a grim wake-up call. By any number of fundamental metrics, local real estate appears overvalued by 60-70%. If there were a way to short the market, I would wager a significant portion of my net worth on this bet.
The ridiculous cost of housing aside, after living in six cities in four countries, and traveling to countless other locales, I can say with some confidence that Vancouver is not as uniquely wonderful a place as its residents claim it to be.
None of my three siblings—all hard-working professionals—has chosen to settle in their hometown. My wife and I only moved back because my dad fell ill. We currently rent an eastside bungalow, and intend to relocate internationally next year. I plan to move my business with us. The place we’re going to has its own challenges, but in our experience the overall quality of life is superior.”
– El Ninja at VREAA 15 Oct 2011 3:28pm

Squamish – “A local family owns two houses next to each other here. They bought a third house directly next door and listed the first two. Two years later they are still on the market.”

“A local family owns two houses next to each other here in Squamish. They bought a third house directly next door and listed the first two houses. They demolished the newly purchased house and built a large house to accommodate the members of the family living in the first two houses. Then they wait…and wait. Almost two years later the two houses are still on the market. They drop the price on one by $100k. Nothing. Then a couple of days ago, they drop the price another $100k and drop the price on the second house $300k. $400,000 down in just one day. I don’t care how much money you have, that’s gotta hurt. The cheaper of the two houses is now listed at less than they bought the tear-down. They would have been better off just to tear down the cheaper house, even though there’s nothing wrong with it. The sad thing is, that the prices, in my humble opinion, are still not low enough. The cheaper house needs to go down another $100 and the more expensive one needs to go down $300k. That would bring the drop on the 2 houses to $900k. Ouch!”
– Bailing in BC at vancouvercondo.info October 14th, 2011 at 8:58 am

Speculative holders. – vreaa

“An IT recruiter told me there are almost no quality people. He sees the same applicants again and again. He said that he has never seen such a shortage.”

“A software developer that worked on one of my projects has moved to Ontario. Another one announced that his wife is pregnant and once the baby arrives, they are moving back to Europe.
In the past few years, I have been looking for several software developers for my business. The positions were mostly for senior or at least intermediate developers and were advertised on craigslist, BCTechnology and Monster. The funny thing was that for every single position from all sources, the pool of applicants was virtually the same – same people and most of them were not very skilled. Out of those few that were skilled, some left or are leaving soon.
Recently, I talked to an IT recruiter. He told me basically the same thing – there are almost no quality people and he sees the same applicants again and again. He said that he has never seen such a shortage.
So there is the silver lining – if you are a quality software developer, it should be easy for you to find a job, because many quality people have left.
However, salaries for these positions are still lower than in Toronto or Montreal. That may eventually change in bigger companies. I doubt that small companies can afford to pay more, because the owners need to make money too.”
– bubbly, at VREAA 12 Oct 2011 5:47pm

‘Going Going Gone’ – Vancouver’s ‘Generation F’

Jesse alerted us to an excellent article: ‘Going Going Gone’, by Tyee Bridge, Vancouver Magazine, 1 Nov 2011. We will headline some extracted personal anecdotes in coming days, but, until then, we suggest the whole article as a must read, and headline it here for discussion.
Excerpt:
The dilemma many employers face, says Michael Heeney, a principal of Bing Thom Architects, is that once their employees want to have a family in their 30s and early 40s, they leave the city. “When they have one child in a two-bedroom apartment they can get away with it, but as the child gets older, or they have a second child, it really doesn’t work very well here.” When they leave, he notes, they don’t go to Surrey and commute, but light out for distant centres like Chicago. “These are people who are at their absolute most valuable, because they’ve been working in the business for 10 or 15 years. They’re the backbone, the boiler room of your business. And we’re losing that investment. In many ways, our most significant export is talented people.”

North Vancouver Condos – “Our building is 40% occupied and next door, 20%. Like ghost towers, elevators are never busy and everybody has 27 parking spaces.”

“Living on the waterfront in a North Vancouver leased 1 bedroom 565 sq. ft. condo. We pay $1,600 per month rent, the owner’s are from mainland China and paid about $535,000 for the unit. Nice location but very cheaply built….granite and stainless but cheap windows, carpets and accessories, going to be lots of strata rate hikes now that the building is getting out of builder’s warranty. There are two identical towers each with 86 units each, our’s has been on the market for 2 years and next door for 1 year. Our building is 40% occupied and next door, 20%. Like ghost towers, elevators are never busy and everybody has 27 parking spaces. Vancouver is stagnant no matter what real estate boards, Global BC and developers say.”
– ‘kilby’ at The Economic Analyst, 7 Oct 2011 [hat-tip to Ben Rabidoux for the anecdote; and ongoing thanks to Ben for his blog. Take a look at it if you don’t know it; excellent broad analysis of Canada’s housing market.].

Spot The Speculators #54 – Couple Early 60’s; Home $750K; Recently Purchased 2nd SFH $1M; Total Net-Worth $950K; Percentage Net-Worth In RE 184%

…“This anecdote comes courtesy a family friend. A bit of background is perhaps appropriate here. Family immigrated from Asia over 20 years ago and has amassed equity of about $1MM or so. Couple is in their early 60s. Currently they live in a $750K house with basement suite and have about $400K invested in equities and cash. The house has a $200K VR mortgage.
…Last weekend they bought a $1MM 3 year old house which has 4 br up, 3 br down that can be converted to basement suite. They were pre-approved for $800K mortgage. This is based on them renting out part of the house and one of them working. The other is retired.
…They are thinking about selling their existing property (they also are thinking about renting it out if they can’t sell for the price they want). Their plan is, when they retire in a few years, to liquidate the other house and pay off their soon-to-be primary residence’s mortgage. They will be collecting a meagre CPP and OAS, and plan to supplement these with rental income from the basement. …They simply do not want anything to do with equity/security markets. There is little cash flow to be had for low risk these days, so they claim, and previous attempts to make money through stock/bond markets have produced poor results relative to what their peers have amassed in real estate.
…They are also aware of a few friends of theirs who have recently downsized into townhouses/condos from detached dwellings where they were renting out basement suites. It turns out these people were amassing an extra $15-20K per year in undeclared income on their suites that is no longer possible through downsizing and are now ruing the move. So the situation they now face is that they want a way of producing secure income, tax-efficiently — never mind they can get 5-6% tax-efficient divvies — as well as collecting CPP and OAS. They also want the ability to host visiting family in a larger home.
…So there’s an ongoing element of hedging going on in this market, where people are concerned another leg-up in prices will render their desired retirement home unattainable. They are doing the maths now where they can, with such a purchase, eke out a retirement in a comfortable and relatively expansive home with some rental income. After this purchase, in a few years, they will have a few hundred K of liquid savings and purchased a $1MM home.
…This family will not be living well — relatively little income — but they will be stable and comfortable. They do not *have* to sell, so long as their living/medical/repair expenses remain contained. What’s scary isn’t that this family is so heavily invested in real estate, it’s first that their incomes are low enough they will be relying on OAS despite considerable equity. Second they will be spending very little in the years to come, hardly a boon for the local economy by any stretch. One wonders if Vancouver is prepared for the drop in consumption that could befall an increasingly house-poor city in the coming years.”
– jesse, at VREAA, 10 Oct 2011 4:48pm

So:
Couple in early 60’s.
Current home: $750K market value, $200K VR mortgage (plan to sell “in a few years”, but, for foreseeable future, holding.)
Second home: $1 Million market value, $800K mortgage
Other investments: $200K equities/cash ($400k minus $200K downpayment on second home).
Net-worth: $950K
RE being carried: $1.75 Million
Percentage of net-worth in RE: 184%
Thoughts:
1. Thanks for the remarkable story, jesse.
2. The couple have 184% of their net-worth in RE at a time in their lives when they should probably have no more than 35%-40% therein. These guys are buying more when they should be scaling down. This act is a bizarre product of the psychological climate regarding RE in this town.
3. If RE prices drop 25%, they lose almost half of their total net-worth; a drop of 50%, and this couple are almost completely wiped out. They likely see the chance of any significant price drops as being non-existent. If they lose 50-100% of their net-worth, they will be emotionally devastated; it will colour the rest of their lives. They will never recover. They are playing with far bigger stakes than they imagine. [note to fred – that’s ‘stakes’, not ‘steaks’ -ed.]
4. They are speculators; they are speculating heavily that prices will remain strong. But they would likely be shocked and perhaps offended to hear anyone describe them as speculators. They don’t realize it but they are gambling, as sure as if they took their money and went to a casino, and put it all on Red. In fact, a successful professional gambler would likely calculate that the casino option is a better bet than holding this position in Vancouver RE. Professional gamblers understand risk; this couple do not.
– vreaa

50%-Off in West Kelowna

– an image from ‘Ben’, sent to greaterfool.ca, headlined by Garth Turner 9 Oct 2011; saved here for the chronological record

By the way, Nemesis previously headlined this development in ‘PostCardsFromTheBlastRadius #8 – The Okanagan Bust – ‘Tuscany Villas’, Shields Down!’ [VREAA 15 May 20111]
(excerpt: “We..Are..The..Borg!
Lower your shields and surrender your Deposits!”)
[Prescient. Perhaps that should have been “Lower your deposits!” -ed.]

This all means, of course, that peak to eventual trough in West Kelowna will end up being a lot more than 50% off.
Coming soon to a place near you. – vreaa

For an article on the Kelowna condo developer, see ‘Too Big Too Fast?, kamploopsnews.com 7 Dec 2010.

It’s Official: No Longer “Best Place On Earth” – “Best Place on Earth” was a “broader brand” used only in B.C. “to help motivate British Columbians.”

In April 2007, VANOC CEO John Furlong (left) and then Premier Gordon Campbell unveiled licence plate naming B.C. ‘The Best Place on Earth.’

“BC No Longer Calls Self ‘Best Place on Earth’.
The boast is vanishing from official branding. Where did it go, and why?
—
The “Best Place on Earth” and the sunshine-and-mountains logo (is it setting or rising?), was launched in 2005 and registered with Industry Canada’s Canadian Intellectual Property Office the following year. It appeared on ICBC’s Vancouver 2010 Winter Olympics licence plates in 2007, replacing the traditional “Beautiful” above a photograph of Mount Garibaldi and the VANOC inukshuk logo.
But something funny happened on the way to the biggest show on Earth. When Campbell put on his salesman-in-chief hat and attended the Beijing Olympics in 2008, he called British Columbia “Canada’s Pacific Gateway” instead of the “Best Place on Earth.” With a pinch of sarcasm, I asked him, why? If B.C. is really the best place anywhere, why not tell the world?
First the world has to find B.C. on the map, he said.
Jobs, Tourism and Innovation minister Pat Bell offered few hints about the slogan’s fate when he was grilled by NDP critic Spencer Chandra Herbert in a May 5 budget estimates debate.
“Yes, I am proud of the province and I think it’s the best place on earth, but it was probably not the best way to attract people from other parts of the world who think their little section of the world was the best place on earth,” Chandra Herbert said to Bell. “I’m just wondering: is ‘best place on earth’ shelved for now, and we’re now not going to see that anymore, and we’ll see ‘Super, natural B.C.’ in its place?
Bell answered that “Best Place on Earth” was a “broader brand” used only in B.C. “to help motivate British Columbians.”
—
Since Premier Christy Clark’s March swearing-in, the bold advertising slogan of the Gordon Campbell era has slowly and quietly disappeared from government websites and letterhead. You can still find it if you look, but blink and it could be gone.
How could a province with a misery-filled neighbourhood like the Downtown Eastside and a nation-leading child poverty rate ever call itself best-on-Earth in the first place? How did the politicians and bureaucrats decide to deep-six the slogan?
The decision, I am told, was not even of the “back-of-the-napkin” variety, because no scrap of paper was used to record it.
– Bob Mackin, TheTyee.ca, 4 Oct 2011
[hat-tip Nemesis]

So, now we understand. We have always been puzzled by the claim, this explains all.
The slogan was not an actual claim that BC was the “Best Place on Earth”, it was used “only in B.C., to help motivate British Columbians.”
So, citizens of BC, how does it feel to have been treated all these years like children; like the second to last team in the local Under-7 hockey league?
The real problem is that many folks lapped it up. And, relevant to us here, it helped push them to reach for that much more debt, so they could overextend even further to buy that much more unaffordable ‘BPOE’ real estate.
“C’mon, you can do it, you can do it… Bid another $75K beyond your means! You can do it! Stretch, stretch…!”
– vreaa

—
UPDATE: More on this story from Doug Ward, Vanc Sun, 7 Oct 2011
“My initial reaction is ‘hurray,'” said Peter Williams, director of Simon Fraser University’s Centre for Tourism Policy and Research, about the slogan’s demise.
“It was presumptuous. If it was meant to endear people to us, it probably wasn’t going to do that given that a lot of other people live in other parts of the world that are pretty nice. And probably quite competitive to B.C. in many senses.”
[Off with his head! -ed.]
Government communications director Greer said the slogan was aimed at British Columbians and not for a global market. “It was more of in-province pride thing.”
[See: appropriate for 6 year olds, above. -ed.]
“Canada Starts Here” is also the brand used in the marketing of Clark’s new jobs strategy.
[Actually, wouldn’t it be just as accurate to say “Canada Ends Here” ? -ed.]
B.C.’s tourism brand continues to be the venerable “Super Natural British Columbia.”
SFU’s Williams said the “Super Natural British Columbia” brand has gone through “many reincarnations but it’s held up pretty well and I thought this ‘Best Place On Earth’ was creating some confusion in the marketplace that we didn’t really need.”
[Whereas “Super Natural British Columbia” was a big hit with visiting goblins, gremlins, elves and apparitions. -ed.]

Calls For ‘Activism’ Regarding State Of Vancouver RE Markets – What Action, Exactly?

A number of thoughtful readers have made suggestions, increasingly so in recent months, that we all somehow attempt to “do something” regarding the state of Vancouver’s housing market.
‘mjw’s personal anecdote [7 Oct 2011] about two UBC professors leaving for Alberta as a consequence of housing prices, concludes with “I think that some sort of activism is needed to highlight and make people aware of the game that is being played out.”
Recent suggestions by ‘Vesta’, ‘jesse’, ‘Gord’, and others, were discussed in a thread headed ‘Consequences, Intended and Otherwise‘[14 Sep 2011].
Today at VREAA, Vesta again calls for some kind of action, and talks of “a small group starting to coalesce”, of “someone in this city very involved in politics and very concerned with what is happening”, and again asks people to “write/phone City Council, MLAs, etc”.

Initial thoughts:

Thanks, Vesta.
We think you know that we are pretty much on the same page as you in hoping that the housing distress can be resolved. We would very much like to see Vancouverites being able to get on with productive activities that are not hobbled by excessively draining RE costs. Housing costs are at the very least a distraction, sometimes a disaster.
We do believe that getting the word out, educating, is the very best form of activism.
But, other than describing what we see, what is the desired ‘message’? On this we are unclear.
Our concerns are that a great deal of coming distress is ‘baked into the cake’… There is no way we could hope to ‘educate and extricate’ the City of Vancouver from this mania without a great deal of pain.
We can educate those who will listen such that they try to get out early, but only a very small minority would ‘escape’. And, realize that every ‘escapee’ would have to sell to someone who then takes the subsequent fall… so there would be no resultant net gain for the group.
Understanding the nature of speculative manias, we see no way forward but for a flushing-out of all speculation from the system. This will result in a price crash of 50%-66%, and general (temporary) mayhem for the economy and the society. Many will be devastated by that outcome. As we wrote some time ago, a real estate bear market will be Vancouver’s defining social and economic event for this decade.
There simply is no way of landing this bubble ‘softly’… there never is. Never.

Having said that, what is the very best overall outcome we could hope for?
How do well meaning citizens who understand what is going on direct the ‘action’ of any proposed ‘activism’?

We are very, very strongly opposed to any actions that would further ‘socialize’ the risk of being in the housing market. We would see such action as bordering on criminal. Such mispricing of risk has been an important cause of our bubble in the first place. We are strongly opposed to ‘bail-outs’ of any kind. In fact, we believe that the government should back even further away from back-stopping speculation, by tightening CMHC-backed lending. Buyers and lenders have to take full risk for their actions. So, please, no suggestions that public money be used to attempt to bankroll a soft landing in any way: such action would further punish the prudent (and, by the way, would be doomed to fail before it even started).
But, this may not be very helpful: we’re telling you what we don’t want.
What do those calling for ‘action’ suggest we call for?
– vreaa

“Did it ever hit close to home. Add me to the list of young families looking at options East of the Rockies.”

“Did it ever hit close to home. I too am under 35 with two little kids and can relate 100% to the families interviewed. Add me to the list of young families looking at options East of the Rockies. They said it best when they said it doesn’t feel like you are making any financial progress. How can you with the outrageous cost of living here? For our generation the current path, with house prices the way they are, is financial failure…the type that you recently featured when profiling some 40 somethings. There literally is no money left at the end of the month after mortgage and bills. With both wifey and I working and earning over $120k combined, we are running on a financial treadmill. I don’t know how young families can manage here. A negative savings rate might offer an explanation. There is more to life than putting all one’s $ into a house in a region that is cold and wet basically 10 out of 12 months a year. Born and raised here but wanting out now. The nice cultural fabric we once had here has been shredded also in recent years, to add insult to injury.”
– ‘Metro Van Observer’ [greaterfool.ca 5 Oct 2011 12:54am] responding to stories on Global TV about young couples leaving Vancouver

“Our youth is getting screwed over at the expense of realtors, developers, and a government that’s all too eager to bend over backwards and let a rampant real estate market guide itself.”

“Our youth is getting screwed over at the expense of realtors, developers, and a government that’s all too eager to bend over backwards and let a rampant real estate market guide itself.”
– JCVdude, youtube, 24 Jan 2011 (quote at 3:15 on video)

Somehow we missed this video when it was posted earlier this year. It covers many of the commonly discussed issues relating to the speculative mania in Vancouver housing. Good production values for an informal video; nice general Vancouver footage; worth the watch/listen. We are impressed with JCVdude’s very reasonable and controlled expression of his frustration. – vreaa

UBC Faculty and Staff Housing Anecdotes – “As a recently recruited Assistant Professor, I feel I have no hope of supporting a family and purchasing a house in Vancouver. I lose a great deal of sleep over trying to make ends meet. This is holding me back from making research and education advances.”

Following up on our recent post, ‘UBC Staff And Faculty Housing Demand Study’ [VREAA 19 Sep 2011], here below is a series of first- and second-hand personal anecdotes excerpted from UBC faculty and staff comments posted at ubc.ca 27 Sep – 3 Oct 2011 as part of a discussion UBC is encouraging in order to develop a ‘Housing Action Plan’. [Many thanks to David for forwarding us the link].

It is perhaps remarkable that not one of the discussants appears to address the giant over-arching truth: that a speculative mania in housing is the cause of the problem. On the contrary, many of the posters explicitly state the belief that local housing prices can do no other than power forever upwards.
Once the housing bubble is recognized for what it is, it follows that only with an implosion of that bubble will any housing challenges be meaningfully addressable. Housing in Vancouver is currently two to three times overvalued, as determined by fundamental measures such as incomes, rents, and GDP. The mania will end, as all manias do, with substantial price drops. This will likely occur not as a result of policy changes, but as a result of market dynamics. Indeed, such an implosion may have already begun.

Under the shadow of this mania, the vast majority of ‘affordable housing’ plans in Vancouver are akin to rearranging the proverbial deck-chairs on the Titanic; to blowing into a hurricane. Any such plans will be incapable of addressing the powerful negative forces of the mania. Getting 10% or 15% assistance purchasing extremely overpriced RE still results in it being very, very overpriced.

The coming Vancouver RE price deflation will go a long way to solving Vancouver’s (and UBC’s) housing challenges. Imagine how different the UBC discussion will be when prices are 50% lower. Or even lower than that. Yes, there will still be a need for sensible policy about campus housing, and perhaps a need for housing assistance plans to attract desirable faculty, but housing would no longer sit centre-stage, where it is now, and where it certainly doesn’t belong.

Granted, a real estate price crash will at the same time result in other significant problems for Vancouverites, many of whom are over-invested in RE. Our local economy will suffer greatly, as it has become sorely over-dependent on activity related to real estate. This is, unfortunately, what happens when a massive speculative mania plays out. It’s baked into the cake. UBC has, of course, been an eager bubble participant, via large for-profit RE development projects. While showing concern about the cost of housing, the university, ironically, also has an economic stake in the bubble being sustained. This is why we haven’t seen (and don’t expect to see) strong statements truly critical of the status quo coming from within UBC itself.

Regardless, the personal stories below are noteworthy, and the detrimental effect that the housing mania is having on academic endeavours is apparent.
– vreaa

—

As an Assistant Professor that was recently recruited to the University, I feel like I have no hope of supporting a family and purchasing a house in Vancouver. I lose a great deal of sleep over trying to make ends meet in Vancouver and I feel this is holding me back from making research and education advances at UBC. I believe housing is only a symptom of a systemic problem at UBC: very poor support of young academic faculty.
– G.T.T., October 1, 2011 at 9:36 am

Very recently, I lost a dear and outstanding colleague to Oxford. He confided that one of the main reasons for him moving was that Oxford offered him the opportunity to own a home near his work (The university partners with faculty to ensure they can own a place near campus). In Vancouver, he could not see how he would ever afford a place for his family, including a newborn.
I too am about to start a family. I have been incredibly worried about moving from my small apartment to a bigger place. Paging through the real estate ads is depressing. It is clear that my salary and consulting fees are simply not enough. In this sense, it is heart warming to read about colleagues with the same concerns and about UBC leaders trying to alleviate the problem.
– Nando de Freitas, September 29, 2011 at 4:12 pm

If I had known about the future housing situation back in 2004 when I was hired, I would have probably reconsidered my decision to come to UBC.
– L. Van Waerbeke, Faculty of Science, [September 30, 2011 at 10:45 am], who also suggests “create a parallel UBC housing market where sells/buys can only happen between UBC employees”.

I am a graduate student at UBC and my stipend is $21,000. I have to live one hour from campus to pay for rent that is $800 per month. After my health insurance and phone bill, I barely have enough money for food. This summer, I calculated that I could spend only $10 per day for food. To top it off, the on-campus housing is more expensive. Shouldn’t campus provide CHEAP housing for students? This makes me want to leave UBC…
– Anonymous, September 30, 2011 at 3:46 pm

I live in East Vancouver and I could drive out to Tsawwassen in less time than it takes for me to creep west in my morning bumper-to-bumper convoy of the damned.
– SR, Library, September 30, 2011 at 3:45 pm

My salary is competitive compared to performing a similar job at a non-profit or charity but Vancouver is just too expensive.
As a staff member with two young children I have been despairing for a while. My paycheque after deductions covers rent and both kids at UBC daycare ($1300 for 3-days/week) I am left with a couple of hundred dollars each month to pay for rising costs of food, clothing, vehicle expenses etc. We’re just able to make it with my wife’s part-time, self-employed income but if she doesn’t work (as happened this summer) we’re running up the line of credit with the bank just to keep food on the table.
As rents have risen and our family has grown we have moved further and further east. We rent a small, run down 2-BR East Van bungalow for a bit less than what a 2-BR apartment would go for on campus. We have privacy, space and a nice vegetable garden in the yard but it means I spend at least two hours on bike or bus each day commuting instead of with my family.
As long as UBC’s definition of affordable housing is slightly below west side of Vancouver market rates, most staff will be shut out.
– I.P., Staff, Faculty of Arts, September 27, 2011 at 11:59 pm

When I moved to UBC, the faculty housing assistance was not sufficient for me to enter the housing market. The assistance options have improved slightly since then, but are only available within the first seven years, and I am no longer eligible. Meanwhile, the housing prices in Vancouver have become prohibitive, having doubled to tripled over this relatively short time. The UBC Village Gate Homes rentals on campus are very nice, and are extremely convenient, even though the rental rates are not really subsidized.
– A.F, Associate Professor, Science, October 3, 2011 at 3:32 pm

We know several faculty whose behaviour changed dramatically once they moved off-campus. Owing to traffic and the loss of efficiency in terms of writing, they started coming in only 2 days a week. Gradually, they started avoiding students and meetings, the opposite of what they were doing for years when they lived on campus. The incentives became too strong. The situation also creates perverse incentives towards devoting more and more time to consulting and non-scholarly activities, or accepting visiting positions elsewhere, as soon as April comes along. Gradually, faculty who stay at UBC will find themselves becoming helicopter professors, dropping in for classes and crucial duties, and rushing off to earn money or do their long commute home. In sum, there are many benefits that are externalities and not integrated into the pure monetary equation.
– Yves Tiberghien & Darrin Lehman, October 2, 2011 at 6:04 pm

In our own case, we would like to move to a larger 3 bedroom unit on campus. But there are none available, for almost three years now.
Rent, currently charged by UBC Properties is around 15-20% lower then market. Why not making it 40% lower, allowing families to live on campus and promote sustainability by reducing commutes for 4 people a day!
– Eugene Barsky, Library, October 1, 2011 at 12:24 am

Many of my colleagues who are since quite some time at UBC could buy into the market to relatively low prices and enjoy (nominal) windfall profits with which they leverage all kind of expenditures. People like me who only recently came to UBC are in a different situation and usually can’t afford buying a house, and yes, looking for locational options is always in our mind.
– Kurt Huebner, September 30, 2011 at 10:43 am

I was disappointed when I tried to obtain rental accommodation on campus, because of the no-pets policy. There was not a single building on campus that would allow me to have my cat in the dwelling. This policy probably prevents many people from being able to live on campus, and I strongly suggest that it be changed. Pets are important in many people’s lives.
– Selina Fast, administrative-support staff, September 30, 2011 at 10:30 am

I now finally have a house that I can afford…in Squamish.
– JKS, Faculty Dept of Medicine, September 30, 2011 at 10:09 am

Arriving to UBC 2 years ago from the US we found the dip in the US market while price increase in Vancouver to be much more difficult that we initially thought.
We were very frustrated from UBC policies that seem to encourage selling on-campus housing to retirees rather than to faculty. It seems that the current administration is thinking more about the short term profit than the longer term effect on UBC. I am hoping that this will change.
We finally bought a nice house in east van. With the size of our mortgage, I will not retire before I’m 85.
– Eldad Haber, September 29, 2011 at 11:50 pm

When I arrived at UBC from Stanford, the whole “University Town” plan was just starting. Given my experience with Stanford (similarly blessed with a large amount of extraordinarily valuable land in a very expensive real estate market), it was painfully obvious the plan was not in the long-term best interests of UBC. I do not fault the folks who pushed the “University Town” through, as UBC was desperately short of money, and they executed very well on a plan to convert UBC’s land wealth into endowment dollars. The failure, though, was a lack of long-term strategic vision, to see that buildable land at UBC was more vital to the University’s future, and faster appreciating, than financial assets in an endowment.
– Alan Hu, September 29, 2011 at 11:21 pm

As many previous contributors noted, the cost of housing in greater Vancouver will very likely continue to rise.
– Marcel Franz, Professor of Physics, September 29, 2011 at 2:32 pm

My frustration has grown since 2004, until I just decided to lose any hope that UBC Trust would care about people working on campus and any hope to ever own a place. There is only so far some one can go with the mounting frustration of seeing high end condos built on campus everywhere out of reach of a family of 4. Even the condos built for faculty/staff were unaffordable. Townhouses built for faculty/staff are now back on the market at more than a million dollars. I look at other options in other cities every year.
– B. Pfeiffer, Faculty of Education, September 29, 2011 at 1:47 pm

At my salary, I would not have moved here if I had young kids at home because I would not have been able to provide them the same “home” facilities as I had in Ontario. Since my kids are all old now, moving to a condo made sense and made it possible financially but if I had a younger family, the discussion would have dramatically changed.
There is a psychological factor that makes many professors bitter and angry with UBC. When a professor feels that after 20 years of service to UBC he/she is unable to buy a unit on campus but others who have nothing to do with UBC are; it is very demoralizing. I have been hearing that on a regular basis since joining UBC.
– Dr. T. Aboulnasr, Dean of Applied Science, September 27, 2011 at 3:53 pm

Six years ago I … told the Provost at the time (Lorne Whitehead) that I was worried about UBC retaining many of the outstanding colleagues that had been hired over the past several years, and that I was particularly worried about Vancouver’s expensive housing market and the minimal assistance offered by the University (i.e., little more than covering closing costs).
Owing to an even higher Vancouver real estate market, my worry is still there. Many colleagues that we’ve hired over the past decade are highly marketable and moveable.
– Darrin Lehman, September 27, 2011 at 3:52 pm

During the recruitment process housing or the lack of affordable housing is the number one issue. It is common to every single conversation that I had with all our candidates regardless of rank.
– Vanessa Auld, Assoc Dean of Science, September 27, 2011 at 3:51 pm

In my experience, the affordability of housing comes up at some point in almost every faculty negotiation (recruitment and retention). In a couple of instances, housing was arguably the major reason a faculty member chose not to join UBC, or chose to leave.
– Simon Peacock, Dean of Science, September 27, 2011 at 3:51 pm

We have lost candidates due to the difference in housing costs with many other locations.
– Rachel Kuske, Head, Dept of Mathematics, September 27, 2011 at 3:51 pm

In Vancouver, for a newcomer like me, it is very hard to accumulate enough funds for a reasonable mortgage within a reasonable amount of time not to be out-passed by the price increase. In the UBC area, I heard that two-bedroom units are currently worth about $0.7 million or more. … As a family of four, we found that it is very hard to find a townhouse unit or three-bedroom apartment, rented or owned, unless paying a very high price.
– Y.K., Assistant Professor, Faculty of Science, September 27, 2011 at 3:51 pm

Housing issues comprised the main reason that we lost an excellent prospective faculty member, Y. M., who we had made an offer to in computational applied math a couple of years ago. He liked the department a lot, but was not able to afford to get a place to live where he and his wife would be happy raising a family. They were priced out of the market. He went to U Minnesota instead. We lost out.
As I had written to the BoG a few years ago, we almost lost another collegue to housing issues (D.C.). Somehow that catastrophe was averted at the last moment by the head’s work. I think you will find many such stories among recent hires (last 10 yrs) who left us due to the real estate woes, or candidates we wanted to attract who took a look at the housing prices and voted with their feet.
– Leah Keshet, Professor, Faculty of Science, September 27, 2011 at 3:50 pm

First a theorem: Due to a large influx of immigrants who desire to live in Vancouver, the housing price in Vancouver will grow beyond the reach of a new faculty with regular salary. This will soon become an obstacle for UBC to hire new faculty.
– T.T., Professor, Faculty of Science, September 27, 2011 at 3:50 pm

After 16 years at UBC, I’m still living in 540 square feet.
– K.B., Professor, Faculty of Science, September 27, 2011 at 3:32 pm

2003 arrive UBC. 2004 look for a house. Kid #1 arrives; decide to rent for a bit longer and save $ for better place than we could afford at that time.
2004-2008 cost of acceptable house to purchase increases faster than our ability to pay. Period of frustration at that time.
2008 investigate positions elsewhere. Obtain great offers. Nearly leave. Stay at UBC after competitive retention raise is offered.
2009 combination of slight dip in prices, low interest rates, improved housing assistance program and increased salary mean we start looking again
2010 buy house (nice place near Fraser street). Notably just barely within the “seven years at UBC” time limit on the housing assistance program.
– Daniel Coombs, Associate Professor, Mathematics, September 27, 2011 at 3:44 pm

Zero-Down Mortgages In Canada – “Better yet, there are programs available from some financial institutions where they will offer a “free down payment” “

“If you’re a first-time homebuyer, you may feel you can’t afford to purchase a home because you haven’t managed to save your down payment. But there are many solutions available today that can help first-time buyers with their down payments.
Many lenders will allow for a gifted or borrowed down payment. And of those lenders that will not provide this alternative, many offer cash-back options that can be used as a down payment.
Better yet, there are programs available from some financial institutions where they will offer a “free down payment” or a “flex down”. Of course, you will end up paying about 1% more in your interest rate, but the program will help you get in the homeownership door and start accumulating equity earlier. You must, however, stay with the original lender for the full initial five-year term or else you’ll have to pay the down payment back.”
“Now is an Ideal Time to Buy”.
– from an e-mail sent to prospective clients, 5 Oct 2011, by David Lund, Realtor, Prudential Realty, North Vancouver [hat-tip ‘D’]

Remarkably, these are still being peddled. – vreaa

Such Stupidity Should Not Be Rewarded – “I have a relative that said that she and her husband would ‘buy their dream house’ when their east Vancouver shack, for which they paid $750K, “doubles or triples in value over the next few years”.”

“I have a relative that said that she and her husband would ‘buy their dream house’ when their east Vancouver shack, for which they paid $750K, “doubles or triples in value over the next few years”. She’s a high school teacher; he works in sales.
Such stupidity should not be rewarded.”
– VancouverContrarian at greaterfool.ca 4 Oct 2011 at 10:03 pm

Opinion – “Many young people have sacrificed making families in favour of mortgage debt. Quite simply, kids are not affordable to them anymore.”

“What I have always seen as the saddest outcome of the housing bubble in Vancouver, Toronto and elsewhere is how so many young people have sacrificed making families in favour of mortgage debt.
They are not having children. Quite simply, kids are not affordable to them anymore. So it seems a little tragic to be nesting when an empty brood is all the dividend you get for your life efforts.
I have not yet seen young couples feeling resentful, but it is clear to me they have been cheated by a system gone wrong. Perhaps the media will explore this story in the future. We are seeing an inverse baby boom at the same time Boomers are heading for retirement. Whose kids will pick up the slack in twenty years time?
This credit bubble has become a demographic disaster.”
– Farmer at VREAA 4 Oct 2011 5:04pm

Misallocation of resources, of the most profound kind. – vreaa

Guerrilla Advertising On reddit? – “Just moved here, and have been renting a place for 4 months. My wife and kids (3 boys) are now coming to live here with me. I need to buy a home.”

“Just moved here, and have been renting a place for 4 months. My wife and kids (3 boys) are now coming to live here with me. I need to buy a home. I have a $800,000-$900,000 budget. I work in downtown. What are some good, safe, and clean neighborhoods I could live in? A place where my dollar will go far and my kids could grow up.
Any good neighborhood in the GVRD would be good.
Please tell me what neighborhoods you would recommend,
Thanks”
– thread at reddit.com ‘Need to Buy a Home in Vancouver’ started by ‘MiamiToIbiza’, 3 Oct 2011. [hat-tip matt at VREAA]

A discussion ensues, with bubble/no-bubble exchanges.
Through the discussion ‘MiamiToIbiza’ elaborates as follows:
“Coming up with a $1,000,000, is really difficult. I’m Only 32 years old, and banks consider me a risk at for a million, but I have approval for $750,000 loan. I plan on putting $150,000 in my self, I can’t afford to put in $250,000.”
“Looking for 2-3 bedroom +2-3 bath, at least 3000sqf home.”
“I may have my parents come and live with me.”
“I don’t think I’ll be buying in the proper City of Vancouver area.”
“I don’t think were in a bubble, we are very stable. Vancouver is Port City, a gateway city for people and goods.”
“I’ve been looking at Fraser heights, It seems really nice, I’m putting an offer on this home: http://www.cotala.com/1648 . THANKS FOR THE HELP VANCOUVER”
—
Gee, this guy went from asking an initial very open exploratory question about which area of the city to consider living in, to putting in an offer on a specific home, all in the space of 24 hours??
If we were in any way cynical, it’d occur to us that this reddit post just may have been a bit of guerilla advertising by a realtor or seller. But, no, Vancouver RE gets people to do crazy things, right?
The only three other posts on reddit from ‘MiamiToIbiza’, all in the last 24 hours, criticize teachers, Alberta and Winnipeg.
And another post thread started by ‘MiamiToIbiza’, also on 3 Oct 2011,   just hours after the first, reads:

“I bought a home
Got a home in Fraser Heights, everything is now getting finalized.
HOUSE: http://www.cotala.com/1648
It was slightly hire [sic] then [sic] my budget but I’m happy. (Parents put in some money, THANK YOU MOM AND DAD)
Let me know what you think of the home”.

Yep, we’d say it’s fair to conclude that this is guerilla advertising.
(Anyone who knows otherwise, please let us know).
The market is deteriorating.
Are Vancouver sellers and realtors becoming desperate?
Oh, and what does the BCREA have to say about this kind of advertising?
– vreaa

Vancouver and Phoenix Compared – Our Speculative Mania Is Twice The Size; ‘LAS VANCAS’ Revisited

“I think Phoenix and Vancouver can’t really be compared.” – comment by ‘Homeslice’, VREAA, 2 Oct 2011

PHOENIX
2001 – 110 [Case Shiller Index; from SFH data]
2006 – 228 [peak, May 2006]; run up 108%
2011 – 100 [July 2011: 99.8]

VANCOUVER
2001 – $385K [ave detached home price, REBGV data]
2011 – $1,223K [peak, May 2011]; run up 218%
2016 – ?

‘Homeslice’ is correct, it is unfair to compare Vancouver with markets like Phoenix or Las Vegas – Our speculative mania is far WORSE than anything that happened in Phoenix or Vegas, the price run up has been TWICE as great here as it was there. – vreaa
—
‘LAS VANCAS’: Click Chart to see large version:

REBGV average nominal price chart 1977-2011, for detached, attached and apartments, overlaid with a semi-opaque insert of this Las Vegas house price chart, for the purpose of absolute price comparisons 1987-2009 (scales are the same; but there is no correction for currency exchange fluctuation).
The Vegas chart was overlaid such that the y axes were identical in absolute dollars (such that the curves could be compared/contrasted: there was no attempt to fit the curves).
The whole exercise (imperfect, because of the lack of currency fluctuation effect) was to show how small the Vegas bubble was, in absolute terms, compared to ours.
– from ‘Vegas Versus Vancouver, 1987-Present’, VREAA, 11 Mar 2011

US Speculative Mania Aftermath – “His former house fetched less than a quarter of what Mr. Reilly owed on it. His bank sued him for the rest.”

“Joseph Reilly lost his vacation home here last year when he was out of work and stopped paying his mortgage. The bank took the house and sold it. Mr. Reilly thought that was the end of it.
In June, he learned otherwise. A phone call informed him of a court judgment against him for $192,576.71.
It turned out that at a foreclosure sale, his former house fetched less than a quarter of what Mr. Reilly owed on it. His bank sued him for the rest.
The result was a foreclosure hangover that homeowners rarely anticipate but increasingly face: a “deficiency judgment.”
Forty-one states and the District of Columbia permit lenders to sue borrowers for mortgage debt still left after a foreclosure sale. The economics of today’s battered housing market mean that lenders are doing so more and more.”
– from ‘House Is Gone but Debt Lives On’, Wall Street Journal, 1 Oct 2011
[hat-tip ams at VREAA]

Subprime Canada – “Had a client call today about possibly buying a rental property with 0% down and a 3% variable rate mortgage.”

“Had a client call today about possibly buying a rental property with 0% down and a 3% variable rate mortgage. Trouble is, client already has a bunch of debt (hundreds of thousands), “owns” a house in a location that has seen prices dropping for awhile now and has zero cash. If client gets a mortgage for the rental property it wouldn’t surprise me in the least, sadly. This is what it’s come to. Hello, subprime Canada!”
– pricedoutfornow at vancouvercondo.info September 30th, 2011 9:57 pm

Request To Readers From ‘Global TV’ – “I’m doing a story next week comparing renting vs. buying in today’s market, and would like to talk to anyone who may have sold their property in the past year or so in order to rent instead.”

Tanya Beja, of Global TV, would like to hear from readers who have sold their Vancouver homes and now rent:
“I work with Global TV, and I am a regular follower of your blog. I’m doing a story next week comparing renting vs. buying in today’s market, and am wondering if you know of anyone, or have contact info for anyone, who may have sold their property in the past year or so in order to rent instead? This is part of a week-long series examining the high-cost of living in BC.
Thanks so much,
Tanya Beja
Global TV”
tanya.beja@globalnews.ca
—
The irony of this request was not lost on us, given our past criticism of Global’s poor and industry-serving coverage of our housing bubble. For a moment we considered waggishly suggesting that Tanya talk to Gord Goble, who meets the description of recent-owner-come-renter but is also someone who has actively taken Global to task for their faux-news-reporting on local RE issues.
We responded saying we could post a request to readers, adding “You guys may follow VREAA but, boy, your reports sure don’t reflect that. How about a Global piece on how the relative “high-cost of living in BC” is almost entirely attributable to a speculative mania in housing? That really is the case, and history will prove that viewpoint correct.”
Tanya responded: “My goal with this series is to get a snapshot of what’s happening to first-time buyers. I’m not intending to forecast the future, but at least with the renting story I do hope to challenge the idea that buying real estate in yvr is always a ‘smart investment’.”
So, in that spirit, let’s try to help her out, and see if Global can in any way redeem themselves before judgment day. (Melodrama intentional.)
– vreaa

“Intuition and Instinct” Reassures North Vancouver ‘Residential Designer’ – “We’ll be able to weather whatever market storms come our way.”

“I’ve intuitively felt that our housing values in Vancouver, specifically here on the North Shore, are not artificially inflated but rather reflect desirability of the locale and the limited supply of buildable land that our topography permits. Our communities on the North Shore are delineated by a perimeter of mountains and ocean that creates one of the most beautiful locales on earth while preventing outward growth. The fact that we’re only minutes from a thriving, world-class metropolis suggests to me more than ever the adage “location, location, location.”
There are those who argue that the trap door will eventually drop but I suspect it won’t be anything so dramatic. My instinct tells me that we’ll be able to weather whatever market storms come our way.”
– Kevin Vallely, a ‘residential designer in North Vancouver’, North Shore News, 28 Sep 2011
[hat-tip vancouvercondo.info]

When it comes to markets, “intuition and instinct” send the very opposite messages to which one needs to pay heed, more often than not. – vreaa

Macleans on the Futility of Prudence – “My fear is that most people in Canada are now debtors and not savers, and so governments will enact policies to help them because they make up most of the population. Savers may get screwed on the way down, too.”

“Steven Patterson and his family moved to Vancouver from Cambridge, Ont., in mid-2008, just as the financial crisis hit. After years of scrimping and saving to pay off their first mortgage, they had earned a tidy profit when they sold the Cambridge house and put the proceeds into GICs, where the money would be safe and easily accessible should they decide to buy another home in B.C. Three years later, Patterson, a 42-year-old IT manager, is still sitting on the sidelines, renting, while real estate prices march ever upward in a city where a three-bedroom bungalow covered in warped siding can fetch $1 million.
That might seem like a prudent move in an uncertain economy, but Patterson says his cautious approach has come at a steep price: all his money is steadily being eaten away by inflation, which the meagre interest income from his GICs can’t cover — particularly after the taxman takes a cut. Meanwhile, several of Patterson’s friends have taken advantage of those same low interest rates, loaded up on debt, and bought into Vancouver’s frothy housing market in recent years. And they have enjoyed a windfall—at least on paper—as the value of their homes continues to climb. As for Patterson, “I’m only a few thousand dollars ahead—minus inflation,” he says, clearly frustrated. “So actually, I’m way behind, and I don’t have a house.”
Welcome to the world of ultra-low interest rates, where profligacy is richly rewarded and saving is, well, for suckers. Those who’ve opted to be austere with their personal finances have found themselves on the losing end as governments and central bankers have worked to get people to borrow and spend in the wake of the global recession. While emergency interest rate cuts were to be expected after the financial crisis seized up lending markets, it’s been nearly four years since central banks started slashing rates to the lowest levels in history.
—
As a result, those saving money have seen almost nothing in the way of returns for a painfully long time. In fact, after accounting for inflation, anyone who dares to be prudent risks seeing the value of their money decline. If one were to put $10,000 into a five-year GIC at two per cent this year, and assume headline inflation goes no higher than the current rate of 2.7 per cent, the future value of that investment in 2016 will have shrunk to around $9,670.
For seniors and others living on fixed incomes in particular, low rates threaten to wipe out their savings. Yet it’s also depressing for those in the second half of their careers who don’t have an appetite for risk but feel they now have no other choice. “People in their 50s are worried about what they’re going to retire on,” says Susan Eng, vice-president of advocacy at CARP, which works on behalf of aging Canadians. Between the carnage in stock markets and the collapse of interest rates, “there’s a huge amount of anxiety. You’re asking for a lot of trouble with this situation.”
—
Some will argue people like Patterson are simply bitter because they didn’t buy into Vancouver’s soaring housing market. And yes, those who take risks should enjoy the potential for greater rewards. That principle is at the heart of capitalism. Only, in the current environment where central banks have pushed down interest rates to abnormally low levels, and government policies encourage consumption over thrift, the dynamics of risk and reward have been severely distorted.
This isn’t how it’s supposed to work. From the moment children are given their first penny, it’s driven into us that saving is a virtue and the path to financial security starts with that ceramic piggy bank on the dresser. Only now, with policy-makers in a desperate race to reignite economic growth, all that has been turned on its head. Yes, Bank of Canada governor Mark Carney and Finance Minister Jim Flaherty have repeatedly warned Canadians not to take on too much debt, but their policies, and those of their colleagues in countries like the United States and Great Britain, have had the opposite effect, encouraging people to buy homes, cars, flat-screen TVs or take a plunge into volatile stock markets—anything, that is, but save.
—
“We’ve got ourselves into a position where debt and spending seem to be highly valued, but saving, which is prudent and helps people plan for their futures, seems to be almost looked down upon,” says Simon Rose, who works with Save Our Savers, a British organization that’s taken up the fight for downtrodden penny counters. “It’s unfair that the problems of the economy should be disproportionately shouldered by savers rather than those with a tendency to borrow too much and get into trouble.” No one is saying Canadians should abandon thrift and go on a wild spree of gluttonous consumption. Indeed, Ottawa has set up tax-free savings accounts to encourage people to save. But the competing priority of spurring economic activity means the interests of savers have taken a back seat and made it that much harder to act responsibly. What’s more, while central bankers have undone basic thinking about saving in the name of juicing the economy, a growing chorus of critics claim that strategy has not only failed to turn things around, but the dogged pursuit of low rates might be weakening the recovery
—
Sometimes Lee Tunstall wonders why she bothers saving at all. A child of parents who grew up during the Second World War and instilled in her the importance of living within her means, Tunstall, a consultant in Calgary, has rented the same apartment for 17 years and dutifully contributes to her conservatively managed RSP account. Yet all around her, friends have piled on huge mortgages and run up towering lines of credit debts in the past few years to buy homes and new Bimmers for the driveway. “If you are a saver you’re absolutely losing money to inflation, and if you go into the markets you’re losing money there too, so why bother?” she says. “Sometimes I think, ‘Why don’t I just join the herd and do what everybody else is doing, buy the toys and live it up like everybody else?’ ”
Tunstall would have plenty of company were she to give up her frugal ways. Gone are the days when Canada was a nation of savers. In 1980, the personal saving rate peaked at above 20 per cent and was still around 13 per cent in 1995. Today it stands at just 4.1 per cent. At the same time, over the last decade Canadians have increasingly relied on debt to maintain their lifestyles. The average household now owes $151 for every $100 of disposable income, a higher level than even American households reached in 2007 as the air rushed out of the U.S. housing bubble. This week, Moody’s, the credit-rating agency, said it is increasingly uneasy with the consumer debt mountain rising in Canada. “We are concerned that Canadians are relying on low interest rates to support high debt levels,” the agency said in a statement.
Much of that growth in debt has taken place since 2007, when the Bank of Canada cut its overnight rate from 4.5 per cent to a low of 0.25 per cent in 2009. The dramatic cuts, along with stimulus programs targeted at the real estate sector, revived house prices, which had begun to tumble. As of June, the Teranet-National Bank House Price index has nearly doubled over the last decade, while in markets like Vancouver, prices have soared a whopping 140 per cent. That shouldn’t have been a surprise; reckless behaviour gets a boost when government and central bank policies punish individuals for not taking part. But while the cuts were a boon to mortgage borrowers, they’ve sideswiped the saving crowd.
One way to measure the impact is to look at how much interest income is being lost as a result of low rates. Stephen Johnston, a Calgary money manager, estimates that with roughly $1.2 trillion on deposit at the banks and rates roughly three percentage points below their historical average, savers are losing out on $30 billion to $40 billion every year in interest income. He argues this amounts to a massive subsidy for the country’s banks, since the rate depositors are paid to part with their money is far less than what the banks can earn lending that money out to other people as mortgages. “Deposit rates now cost the banks nothing, but that’s not free,” he says. “Someone else is paying the price, and it’s little old ladies and people on fixed incomes who can least afford it.”
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With Canada’s overnight rate at an almost-princely one per cent compared to the U.S., savers have at least had that going for them. Unfortunately, Canada’s economy shrank by 0.4 per cent in the second quarter, reviving calls for more rate cuts. At the very least, Carney now says the need for a rate hike has been “diminished.”
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For its part, the Bank of Canada is in a difficult spot. If it leaves rates low indefinitely, there’s the very real risk more Canadians will decide saving is a suckers’ game and start to pile on debt. Yet when the bank eventually does raise rates, which it must, someday, over-indebted households could spark a fresh crisis. “Previous generations used to buy a house that was twice their household income, but now families are spending 10 to 12 times what they earn,” says David Trahair, a financial author whose new book, Crushing Debt: Why Canadians Should Drop Everything and Pay Off Debt, is due out in November. “The central banks are in a bind because they can’t increase interest rates or it will be extremely punitive to these people with mountains of variable rate debt.”
Whatever happens, Ritchie Hok, an actuary living in Ottawa, is convinced savers will ultimately wind up paying the price for others’ imprudence. At the peak of the U.S. housing bubble, Hok lived in Minneapolis and saw the excesses first-hand. While there he resisted those who urged him to get into the market; a wise move given prices are down 40 per cent there. Now that he’s in Ottawa, though, he’s hearing all the same arguments for why he should take advantage of low rates and buy a house before prices rise even further. He’s convinced Canada’s housing market is a bubble that will eventually burst, and when it does, policy-makers will rush to people’s rescue. “My fear is that most people in Canada are now debtors and not savers, and so governments will enact policies to help them because they make up most of the population,” he says. “Savers may get screwed on the way down, too.”
If Hok is right, the frugal few could be in for even more pain ahead. Why is it again that it pays to save?
– liberally excerpted from ‘What’s the use of saving money?’, Jason Kirby and Chris Sorensen, Macleans, September 27, 2011

As street-smart youngsters may say: “Word!”. -ed.

“Just moved back to Vancouver, bought and sold some property in south-western Ontario over the last 15 months, sold my Vancouver real estate in 2009.”

“Just moved back to vancouver bought and sold some property in south-western ontario over the last 15 months,sold my vancouver real estate in 2009. I hate to tell everyone, vancouver is not a favoured destinations for many people. I didn’t meet one person who would move their family to vancouver and pay outrages prices to live here. Oh and there were asians and indians in ontario that are happy where they are living and would never pay vancouver prices. Most world investors have taken their money out of vancouver and are investing in places like west palm beach and miami beach. Not sure about most of you but 100 grand for a nice condo in miami beach with a great night life, culture and alot of sun is much mor appealing than the rain in no fun vancouver. Only here in vancouver for work and yes i am renting”
– sebastian at vancouvercondo.info 20 Sep 2011 9:04am

We disagree with the statement “Most world investors have taken their money out of vancouver and are investing in places like west palm beach and miami beach”; that hasn’t yet happened.
We suspect that the bulk of foreign investors in Vancouver RE have been very happy with price increases (compounded by loonie strength) thus far. They will liquidate when prices weaken.
That’s how momentum speculators behave in markets; buy strength, sell weakness.
-vreaa

Broad and Deep Negative Effects – “When housing prices do fall the effect on the economy is often much greater than many people expect. Homes are not riskless investments.”

“As I talk with economists from countries whose housing values have risen markedly but not experienced sharp declines, I have been struck by two things. First, they are often confident that national (versus regional) house-price reductions are unlikely. And secondly, most assume that a decline in house prices would have a measured impact on the economy should that in fact occur. But the experience of Japan in recent decades and the U.S. more recently should provide some caution – given that the economic retrenchment that followed these significant declines in home values exceeded most people’s expectations.”  /
“… sharp declines in housing prices can have additional negative effects, with broad implications for macroeconomic outcomes and monetary policy – broader, perhaps, than may be assumed and incorporated into most statistical models of the economy. …
(When) housing prices do fall the effect on the economy is often much greater than many people expect.
A key lesson from the past several years is that homes are not riskless investments.”
– excerpts from a speech given in Stockholm 28 Sep 2011, by Eric Rosengren, President of the Federal Reserve Bank of Boston.
[Taken from a recommended article by Ben Rabidoux, The Economic Analyst, 28 Sep 2011]

Housing is in a speculative mania in Vancouver and the unwinding of that bubble will have broad and deep negative effects on our economy and our society. – vreaa