“We are in fact like a mini Manhattan/.. Yaletown, one of the boroughs within downtown Vancouver/.. Vancouver is the Swiss bank account of international real estate/.. Just too strong for any sort of bubble circumstance to happen/…In Vancouver you can today buy a condo, and have 40 people lining up to try to rent that condo.”

CAMERON McNEILL: “Whenever the market goes near the top part of the cycle we always do hear pessimistic economists talking about bubble, et cetera. But the reality is that the fundamentals that are driving the market below the surface are just too strong for any sort of bubble circumstance to happen.”
—

CAMERON McNEILL: “We are in a, in fact, like a mini Manhattan and people want to live in this dense population.”

CHRIS BROWN: “There’s been a culture shift in Vancouver, he says. Living in smaller spaces is seen as okay. For many people, including families, getting along with less space is expected, even desirable.”

CAMERON McNEILL: “In Yaletown, one of the boroughs within downtown Vancouver over my shoulder here, just 10 years ago you wouldn’t see a baby carriage. Today they have six or seven daycare with waiting list and they’re happy to have the coffee shop as their living room, they’re happy to have the park as their backyard and they’re happy to have the seawall as their playground.”
—

CAMERON McNEILL: “The fact of the matter is in Vancouver you can today buy a condominium, you can rent it out and you will have 40 people lining up to try to rent that condominium. They’ll be paying a very, very high and a fair rent. If you have that much desire for people to — to live in a condominium, you know, I think that the market’s got no problem sustaining itself.”

CAMERON McNEILL: “I always say Vancouver is the Swiss bank account of international real estate. It’s a — it’s a funny little quote that I say because sophisticated people, whether they live in Vancouver or they’re international, they — they recognize Vancouver as a safe, long-term place to park some money when it comes to real estate.”

CHRIS BROWN: “In the months to come that assertion will be tested. Are we looking at a bubble that’s bursting or a boom that’s just had a little hiccup?”

– excerpted from ‘Vancouver Housing: Bubble or Bust?’, The National, 20 Sep 2012. [Transcription generously provided by ‘AP’.]
—

Other excerpts from this CBC previously archived.
These quotes headlined here, for posterity.
– vreaa

Two Experienced Guys Talk Canadian RE – “How many people who own their home could afford to buy it if interest rates were at normal levels?.. We all know what happens when you’ve got more sellers than buyers.”

“I’m not sure that retirees need to worry about housing prices unless their plan is to sell their house in three or four years, make huge profits, and use that to support themselves in retirement. The concern, I think is more for people starting out, who borrow as much as they can, buy a house, within their memory all they remember is housing prices going up, and housing being a great investment, and so they reach…
If you look at the situation in Canada now, in some of the big cities, housing is very expensive, compared to the US and most other places, our borrowing costs are very low, which means the prices are in part held up by peoples ability to borrow large amounts at low rates.
But Canadian borrowers are not like American borrowers, American borrowers can lock in the rate for 30 years, Canadians can’t. The American borrowers are getting a tax deduction, Canadians can’t. Here we have a much less hospitable borrowing environment that will turn very hostile if interest rates turn up. I’m not predicting that it will happen, but, if it does, it’s very hard for me to see how people are going to afford the payments.” …
“I remember Toronto, in the 1990’s, and I use that as a sanity check. [House prices came off by 25%; it was “bubble like”.] You need to ask yourself the following question: How many people who own their home could afford to buy it if interest rates were at normal levels? Like, how many people are living in a house that they absolutely couldn’t afford to buy if interest rates were normal. I fear that in some of the larger Canadian cities almost nobody could afford to buy their house if they were entering the market with normal interest rates. That’s not a good situation to be in because it means that if interest rates do rise to normal levels, and people do try to sell their houses, there aren’t going to be that many buyers. We all know what happens when you’ve got more sellers than buyers.”
– Malcolm Hamilton, Mercer Human Resource Consulting Ltd., clientinsights.ca, 27 Sep 2012

‘Word’ (as folks younger than these guys would say).
Interesting for the characterization of our borrowing environment as “less hospitable” than that in the US, which contrasts with the widespread view that somehow our borrowing situation is more resilient.
Also spot on regarding retirees, buyers that “reach”, and people being unable to afford the houses they live in.
By the way, as we have repeatedly asserted, interest rate rises are not necessary for the Vancouver bubble to burst, but rate rises would certainly speed it along if they occurred.
– vreaa

September 2012 Numbers – “Clear reduction in buyer demand; Steep decline in sales activity to 41.6% below the 10-year average.”

So far, so good.

“Vancouver home sales fell 32.5 per cent in September compared with a year ago, says the Real Estate Board of Greater Vancouver.
Sales of residential properties totalled 1,516 for the month, down from 1,649 in August and 2,246 in September 2011, according to the board.
“There’s been a clear reduction in buyer demand in the three months since the federal government eliminated the availability of a 30-year amortization on government-insured mortgages,” board president Eugene Klein said. “This makes homes less affordable for the people of the region.”
– from Vancouver Sun, 2 Oct 2012

“The Real Estate Board of Greater Vancouver maintains that prices remain stable overall in its market. It says its benchmark price index is $606,100, a 0.8% drop from a year ago and a 2.3% decline over the last three months. But there is no mistaking the steep decline in sales activity which in September was 41.6% below the 10-year average.”
– from Financial Post, 2 Oct 2012

“SFH Stats Sept 2012: (ranked by worst sales decline)
Richmond:
Sales:-50% YoY, -10% MoM
Ratio: 22% vs 32%
HPI: -4.2% YoY, -1.3% MoM
Median: -9.8% YoY, -1.4% MoM
Burnaby:
Sales -49% YoY, -10% MoM
Ratio: 18% vs 35%
HPI: +4.2% YoY, -0% MoM
Median: -13% YoY, -6.3% MoM
Van East:
Sales:-48% YoY, -6% MoM
Ratio: 30% vs 51%
HPI: +3.2% YoY, -1.1% MoM
Median: -2.5% YoY, -0.6% MoM
Coquitlam:
Sales:-37% YoY, +16% MoM
Ratio: 30% vs 51%
HPI: +3.6% YoY, -0.2% MoM
Median: +0.4% YoY, -3.7% MoM
Van West:
Sales:-17% YoY, +15% MoM
Ratio: 27% vs 27%
HPI: -6.5% YoY, -1.3% MoM
Median: +1% YoY, +0% MoM”
– VMD at VCI 2 Oct 2012 1:17pm

“As an aside, looking at the Average Prices and number of Sales for REBGV, my spreadsheet shows the TOTAL DOLLAR VOLUME for the three housing types has PLUNGED from a high of $3.21 Billion in March 2011 to a low of $1.20 Billion in August 2012. Looks like September 2012 could be even lower.”
– lookoutbelow at yattermatters 1 Oct 2012 9:57pm

And in the “Keep Calm and Carry On” (also known as the “It’s Only A Flesh Wound”) category of opinions:
“Clearly my prediction of offshore buyers returning in the fall is coming true. The high average is a reflection of the fact that large amounts of high end housing is selling and selling well.
Like I’ve said all along, this is just a brief pause before the Mainlanders return again. Clearly the high end of the market has not been impacted.”
– CBM at yattermatters 1 Oct 2012 9:26pm
—

Inventory high enough, Sales very weak, Prices modestly down from peak.
Price will follow volume, as it always does.
Further drops ahead.
– vreaa

Rob Carrick – “…the financial blood-sucking that home ownership entails”; “…endless discretionary expenses.”

“Renting is the obvious alternative for someone who is unready for the financial blood-sucking that home ownership entails.
But low vacancy rates have made it a landlord’s market in some cities, notably in Toronto. Might as well buy as pay hefty rents, some will say.
Don’t listen, Gen Y. Tough it out in the rental market unless you can truly afford a home or, if extreme measures are required, move back in with your parents for a while to save a down payment.”…
“As tough as the rental market may be, it’s still a better option for Gen Y than buying prematurely. Renting, at least, is a finite expense each month. Housing is infinite – there are fixed costs, plus endless discretionary expenses. Buying is not the solution to difficulties in finding a place to rent, at least not without further price declines. Instead, find a roommate and pool your resources to cut rental costs.”
– from ‘Why Gen Y should tough it out in the rental market’, Rob Carrick, G&M, 1 Oct 2012

Rob Carrick is fairly well accepted across the nation as a sensible and measured voice regarding personal finance.
This piece is noteworthy for his vivid language describing some of the pitfalls of home ownership.
He also appears to now accept that “falling prices” are a given.
The wide dissemination of these thoughts contributes to the growing skeptical sentiment within the RE market.
– vreaa

“Would I buy in this market if I was in a “normal” situation? No. Does selling now and renting make sense for my family personally, given our current situation and lifestyle? No. Ergo, we’re staying put.”

“We love our house and location, will have paid it off entirely (and way early) in a couple of years, and will be able to put all the money we currently pay in mortgage into funding an early retirement. We’ll still have property taxes and maintenance, but it’s a helluva lot less than we’d pay to rent a similar home in our neighbourhood, and these costs can be covered completely by renting out a spare room for a few months in the summer to an international student if we want to do that (we have done it and enjoyed it in the past, so it’s familiar territory). Our family is in Van, so are both our jobs, so moving to another city makes no sense. Another reason that I am not interested in renting, besides the potential issues with crappy landlords, instability and the lousy quality of a lot of rentals I’ve seen is that we have lots of pets and fish tanks, and renting isn’t feasible for us. It’s hard enough to find rentals with just kids…try telling a landlord that you also have multiple cats, two large dogs and three 100 gallon plus tanks and watch them run screaming.
Would I buy in this market if I was in a “normal” situation? No. Does selling now and renting make sense for my family personally, given our current situation and lifestyle? No. Ergo, we’re staying put.”
– RESkeptic at VREAA 17 Sep 2012 7:49am

Sounds sensible, and we agree with the logic entirely.
Bearish opinions voiced here are not to be confused with a recommendation that each and every owner sell their home.
For people where a drop in the market value of their home of 50% is less inconvenient than the hassles of renting, owning continues to make sense.
– vreaa

“I visited a few open houses today. At every one, I was the only visitor, and the sales pitch was the same – buy now, do a few quick fixes and sell higher. Nobody assumed that I may actually want to live there.”

“I visited a few open houses today. At every single one of them, I was the only visitor. The used house salesmen seemed generally lethargic. When I talked to each of them, I always got the same sales pitch – buy now, do a few quick fixes (or not) and sell higher. It’s all about flipping. Nobody assumed that I may actually want to *live* there. They were not concerned about quality of life for me, or having a family there, or entertaining guests, or proximity of amenities. It was always about selling down the road, one or two years from now for a profit of a few hundreds of thousand dollars.”
– bubbly at VREAA 30 Sep 202 6:51pm

Homes in Vancouver have become priced largely as financial instruments, and far less so for their utility as dwellings.
Now inventory is high, sales are slow, and prices are showing the initial signs of weakening. Open houses are very quiet.
As the bubble deflates, prices will approximate those determined by true underlying value.
By my calculations, this means prices will fall by somewhere in the range of 50%-66% from the peak.
– vreaa

“A colleague bought a SFH home in the spring in the hopes of flipping it for a quick profit. She now finds herself amongst the ranks of the accidental landlords. She is not happy.”

“A colleague bought a SFH home in the spring in the hopes of flipping it for a quick profit.
She pulled it off the market after the financing from a prospective buyer fell through. With the market having weakened significantly since then, she now finds herself amongst the ranks of the accidental landlords. She is not happy.”
– Manna from heaven at VCI 27 Sep 2012

‘Wealth’ That Isn’t Really There – “We live in a world where people have increasingly lost the distinction between ‘making money’ and ‘producing wealth’. Most people out there would be perplexed by the notion that there is even a difference at all.”

Andreas Conrad: [background] “I can’t do anything … unless I’ve sold.”

Announcer: “Andreas Conrad knows the market pain all too well… he’s trying to downsize, but can’t sell his duplex, originally priced at just over $2M, now $300K cheaper…
It’s been on the market for five months and Conrad says, without a sale, he’ll be forced out of retirement.”

Conrad: “For me now it means I will definitely have to go back to work… at the, at the end of the summer.. ah.. if nothing moves.”

Announcer: “This homeowner is just hoping his duplex sells, and fast. If it does, he’ll be back in the market to buy a condo right away.”

– anecdote extracted from ‘Vancouver residential real estate plunges’, CTV.ca, 5 Sep 2012 12:47pm [hat-tip Jeff Murdock]

Many Vancouverites are overdependent on their RE holdings for their financial health, and for their retirement plans.
This gentleman appears to have retired early based on the paper ‘value’ of his RE holdings, and already his plans are awry.
It is noteworthy that this is occurring very early in the down-cycle. We anticipate that many more will find themselves in similar situations once price descents become significant.
– vreaa
—

Here follow comments posted regarding this CTV piece, from CTV and VCI:

“Am I suppose to feel sorry for a guy who has a home valued around $2 mill and can not sell it and have to return to work. I do not know the age of this man but he looked like he wanted to retire early off his home.”
– leo, at CTV.ca, 6 Sep 2012 2:42pm

“Yeah, Andreas…people elsewhere have to actually work to make money, cuz their dwelling-place doesn’t actually generate income so they can retire at 50…”
– kabloona at VCI 5 Sep 2012 6:57pm

“I saw that guy on CTV news too. Crying that he’s going to have to get a job soon if he can’t flip his crack shack for 2 million. He didn’t look old enough to be retired to me. I said out loud to the TV, “Good, you should get a job.” Why would anyone feel entitled not to work for a living? Why would anyone go on the news and expect sympathy that they might have to get a job to earn an income?”
– Joe_Blown_Away_By_High_Housing_Costs at VCI 5 Sep 2012 7:09pm

“I would like to be the first in line to order a latte from Andreas when he starts his new job.”
– Best place on meth at VCI 5 Sep 2012 8:53

“Andreas seems like a perfectly nice guy to me; just having a hard time adjusting his expectations.”
– Anonymous at VCI 5 Sep 2012 10:37pm

“We live in a world where people have increasingly lost the distinction between ‘making money’ and ‘producing wealth’. Most people out there would be perplexed by the notion that there is even a difference at all. There is no less admiration for someone who becomes a millionaire by picking the right stocks than someone who gets rich building a real business or producing a tangible service that creates real wealth.
In fact, given the choice, the overwhelming majority of people would rather get rich without working at all, which is a big part of why we currently have the most morbidly obese housing bubble in history.
Sadly, I don’t think people will wake up to the distinction even after the bubble bursts. Since so many people will be negatively affected (70% of home owning Canadians), expect to see a whole lot of resentment and bitterness at all the ‘lost wealth’ rather than a realization that it was never there in the first place.”
– Yalie at VCI 5 Sep 2012 7:59pm
—

The CTV piece was also noteworthy for these two quotes:

Andrey Pavlov, SFU: “The time on the market has tripled since 2 months ago, so that’s a crash by any measure.” [We’d agree with the sentiment but disagree with the semantics. A crash will only be said to have occurred when prices plunge. -ed.]

Cameron Muir, RE Association: “It wasn’t too long ago that we had the greatest financial crisis since the great depression, followed by a global recession. If that wasn’t the tipping point or a trigger for a deflation of an asset bubble, I don’t know what is.” [In 2008 Vancouver RE was rescued by emergency low interest rates, which it sorely did not need. This delayed our hour of reckoning, but it seems now upon us. -ed.]
—

UPDATE, 1 Oct 2012:
Headlined property price has since been reduced to $1,599,000
[hat-tip Van guy].
Click on image to enlarge:

BNN Guest – “I know a lot of people say it can’t happen here. I do not believe that. You’re seeing sales down, you’re seeing listings up. It looks like Phoenix and Florida, circa 2006.”

“I can’t stress enough, when I look at the data, start with Vancouver, or look at the Toronto condo market, and it’s now spreading into the single family market elsewhere, you’re seeing sales down, you’re seeing listings up, to a degree, I haven’t seen, really.. it looks like Phoenix and Florida circa 2006. … I know a lot of people say it can’t happen here… I do not believe that.”
– from interview with James Hodgins, of Curvature Hedge Strategies, on Market Call, BNN, 27 Sep 2012 [Hat-tip to LazyCanadian at VCI.]

When a critical mass of people have said this on air and in print, does a bell ring?
– vreaa

Ah, Look At All The Lonely People – “With Vancouver’s sky-high housing prices, problems around affordability are creating resentment. There are a lot of people that just don’t feel welcome here.”

Vancouver may seem like a paradise, but behind the polite smiles, there’s evidence of loneliness, deep resentment and racial tension among some citizens.
Armed with these findings from two years of research by the Vancouver Foundation, Vision Vancouver Coun. Andrea Reimer is proposing to create an Engaged City Mayor’s Task Force. The 16-member force would devise plans to foster better relationships between citizens, and encourage broader participation in local government.
After surveying 3,841 people from more than 80 ethnic groups this year, the Vancouver Foundation found that one-third find it difficult to make friends in the city, and a quarter are lonely.
Many of the lonely people tend to be those living in high-density housing, and young adults who aren’t yet embedded in careers, Reimer said.
“There are a lot of people that just don’t feel welcome here,” she said.
With Vancouver’s sky-high housing prices, problems around affordability are creating resentment.
Over 60 per cent of residents aged 25 to 34 see Vancouver as “a resort for the wealthy,” with “too much foreign ownership,” according to the survey.
Frustration around housing is leading many to incorrectly place the blame on foreign owners from Asia, according to Reimer.
“There is a strong tension around race,” Reimer said. “We have to get ahead of that.”
Reimer said the task force would be composed of 16 volunteers from diverse backgrounds — half renters and half owners would be one division — and a likely focus of planning would involve encouraging neighbourhoods to get more involved in tapping into existing infrastructure budgets. The idea is to create public spaces “more aligned with what the community wants.”
– from ‘Lonely city: Vancouverites isolated, resentful; city council seeks answers’, The Province, 25 Sep 2012 [hat-tip joe_blown_away_by_high_housing_costs and others]

Handcrafted Spam

Yuck!

The following 18 comments all appeared on VREAA over a 4 hour period last night [26-27 Sep 2012], each on a different thread, and all from a commenter using the handle ‘Joe Manhas’. They all attempt to promote ‘bchomez.com’, a site that sells BC RE. Impressive work. The comments are distracting, particularly once one takes note of their motivation, and they have all been removed from the respective threads. But they are preserved here en masse as an example of what folks are doing to promote Vancouver RE related activity at this stage in the cycle. ‘Joe’ now joins ‘Fred’, up to now the only poster specifically cited on our spam filter. – vreaa

Submitted on 2012/09/26 at 10:19 pm
Sounds crazy, but Vancouver is one of the most livable cities in the world they say… http://bchomez.com

Submitted on 2012/09/26 at 10:23 pm
I understand that there are 5005 units coming downtown.. these developers wouldn’t be investing so much money into these projects unless they were confident that they could sell them… http://bchomez.com

Submitted on 2012/09/26 at 10:29 pm
What happen to the days when people lived within their means? Vancouver isn’t cheap however if you want a nice house, maybe you can spend a little less on the cars.. Tough to live a steak and champagne lifestyle on a beer – Mac N’ Chess budget.. http://bchomez.com

Submitted on 2012/09/26 at 10:32 pm
Make sense.. we all love things that are free.. http://bchomez.com

Submitted on 2012/09/26 at 11:37 pm
They say money don’t grow on trees… Not for these anymore.. http://bchomez.com

Submitted on 2012/09/27 at 12:30 am
The bubble is only bursting because the Government wants it to burst.. It’s not hard to slow down the machine when you got this wrench that that keeps tightening and tightening… Also when the government turns off the immigration tap, if only a trickle is getting through wouldn’t expect things to slow down? Once that wrench is gone and the tap is turned on full blast we’ll be back to a blazing hot market… Buy Now!! http://bchomez.com

Submitted on 2012/09/27 at 12:34 am
Sounds like the property was bought to high and sold to low… Next time be a little more aggressive negotiating a better deal and work the deal harder on the selling side.. http://bchomez.com

Submitted on 2012/09/27 at 12:41 am
Your poorer than you think? People in Vancouver have made huge money in real estate.. Do you think all those millionaires around Vancouver made it by working 9-5.. We’ve had an incredible run.. still big money to be made.. http://bchomez.com

Submitted on 2012/09/27 at 12:46 am
Your House Is A Big Fridge, a place to store stuff?? Its a place to live and a place to retired after it builds equity for 20 years… Houses go up in value over time, fridges depreciate.. http://bchomez.com

Submitted on 2012/09/27 at 12:48 am
Sugar Coat sorta… As they say what goes up must come down… the flip side is also true what goes down must come up.. Buy Now .. http://bchomez.com

Submitted on 2012/09/27 at 12:55 am
The sale of you own person home is one of the few tax free opportunities we have as Canadians, downsizing, upsizing or other, just remember not to do it too often as the government might see this as a business of re-selling property apposed to selling for personal reasons.. http://bchomez.com

Submitted on 2012/09/27 at 12:58 am
know the rules, play by the rules.. if your going to break them don’t get caught http://bchomez.com

Submitted on 2012/09/27 at 1:04 am
If don’t like “Honda” can you take a Toyota instead? http://bchomez.com

Submitted on 2012/09/27 at 1:10 am
I agree.. the government is intentanally killing the market.. what ever happen to the Adam Smith theory of letting the market take care of it’s self… Too much government interference .. http://bchomez.com

Submitted on 2012/09/27 at 1:17 am
I bet in the 3 house sales the profit was enough to take ten trips. http://bchomez.com

Submitted on 2012/09/27 at 1:24 am
In for the long haul… Real Estate in most places is for the long haul.. Vancouver real estate market has given the average investor (with money) to make huge gains in short periods of time. Huge money can be made on the down slide as well. By now http://bchomez.com

Submitted on 2012/09/27 at 1:29 am
Vancouver as a safe, long-term place to park some money when it comes to real estate. We owe a lot to those around the world that have help Vancouver residents become millionaires by buying holding and selling.. http://bchomez.com

Submitted on 2012/09/27 at 1:40 am
As rough as the stats might show, Vancouver will rebound.. this is the time to buy while real estate is cheap… http://bchomez.com

Globe and Mail Columnist Uses ‘Home Of The Week’ To Advertise Sale Of Her Own House

“The Listing:
90 Massey St., Toronto
Asking price: $599,000
Taxes: $3030.95
…
Over the years I painstakingly improved the house – insulating the attic, building firewalls, rebuilding the front porch, updating appliances, painting and landscaping – but all my work was minor compared to the change in the neighbourhood. Since the mid-2000s, the Bellwoods Park area has gone from shabby chic to super chic, establishing itself as the beating heart of downtown Toronto’s rapid west-end gentrification.
…
After more than half a decade of being the proud owner of this magical city house it’s time for me to move on. Like the neighbourhood, my life has undergone massive change in the past few years, all of it for the best. My partner has a son from a previous marriage and we recently had a baby of our own. His work is based overseas and I’m spending more time abroad. As a freelance writer I need a home office cut off from the hubbub of family life. As much as I hate the idea of leaving 90 Massey, a more suitable home must be found. I’m saying goodbye to my urban worker’s cottage and hope to do safe in the knowledge that the next owners will love to the place as much as I did. Honestly, how could they not?”
– from ‘Home of the Week: A worker’s cottage built for family life’, Leah MacLaren, G&M, 20 Sep 2012

“In what seems to be a pretty significant conflict of interest, Globe and Mail columnist Leah McLaren has listed her own house for sale in The Globe and Mail’s Home of the Week section.
In the article, McLaren waxes poetically, in 700 or so words, about her “charming red brick Victorian row house.”
By doing so, it would seem as though she is abusing her position of authority in the press to further her own economic interests: selling her house. Unless, of course, her home happened to be the most interesting home for sale that week.
Though she admitted the shameless self promotion on Twitter, the journalistic faux-pas has not gone unnoticed by her audience.”
– from ‘Globe and Mail columnist Leah McLaren tries to sell own house in column’, Michael MacDonald, o.canada.com, 26 Sep 2012

We’ve seen some bald-faced conflict-of-interest behaviour here in Vancouver through our RE bubble, but we can’t recall anything quite like this yet happening here.
– vreaa

Betwixt Madness And Insanity – “I travel for work to BC every week and I’ve got to say the prices on houses I have seen in Vancouver are next to madness and insanity.”

“i’m from Winnipeg and my wife live in vancouver. I travel for work to bc every week and i got to say the prices on the house i have seen in vancouver r next to madness and insanity. I can’t even phantom how anyone in their right mind would willing to be slaves for the rest of their lives just so they could be in vancouver.”
– Joe nguyen, at VREAA 25 Sep 2012 6:55am

We’d agree. Prices are far removed from fundamental values.
There will be a reconciliation of this difference ahead.
– vreaa

False Creek – “My neighbour in the Olympic Village counted up all the condo towers under construction. He counted 14 projects in various stages. Developers are really going for it over here.”

“My neighbour in the Olympic Village counted up all the condo towers under construction. He counted 14 projects in various stages. Fourteen!! Plus I think there’s a new one at Cambie & 7th. Plus another new one on West Broadway just west of Cambie…
It’s amazing. Plus there are lots of lots with crap old buildings just waiting to be torn down in the same vicinity and then the real “last waterfront development” directly West of the OV, which will block everyone’s view of the city.
Double plus the slope between W. Broadway/Cambie/Main/W 2nd Ave is a natch to be developed just like the Armoury District was. Developers are really going for it over here.”
– mac at VCI 18 Sep 2012 9:15pm

There will never be a shortage of condos in Vancouver.
– vreaa

Unexpected Call From Long Time Friend – “They bought a $240k townhouse and are moving in next month, and he is afraid that they don’t make enough to pay for 2 cars and a mortgage.”

“I had an unexpected call from long time friend that i havent talked with for in a long time. He was asking if i could help him in selling his car, i wondered why he wanted to sell he replied that his wife’s parents pre approved them for a mortgage recently thru a realtor friend who only charges $5k for the pre approval and other helper services. And now they bought a $240k townhouse and moving in next month and he was afraid that him and his wife don’t make enough to pay for 2 cars and mortgage. So he was considering selling one car or find a second job. I was speechless. There are just so many things wrong with this story that it left me speechless, he is really nice guy and a good long time friend, and i could tell he was emotionally concerned at this point. All I offered was to help him move and a bit of encouragment that its nice to have your own place (i didn’t really know what else to say).”
– SunBlaster at VCI 21 Sep 2012 6:22pm

“Trying to sell a $3M house in suburbia by targeting cheapskates looking for free food! I get freshly baked cookies to appeal to walk-bys but actually advertising a free catered event?”

“2893 AURORA RD, Capilano Highlands, North Vancouver (V971457, 5414sqft SFH, Ask price $2,988,000) is the most expensive property currently listed in the Delbrook area of North Vancouver. I’ve been tracking this area for 4 years now and have seen the general trend of decent (but overpriced) places getting snapped up at around 800K, knocked down, and 4500sqft monsters built in their place and listed for $2M plus. Its almost like the spec builders have shifted from Van West to Delbrook. These houses are nice but builder designed boringness that will be albatrosses once a return to normal prices, but I digress.
The main reason for the post is the open house comment for next week:
“More than an open house this will be a FEAST. Profeesionally catered, by one the city’s finest, you are sure to appreciate the home and the food. Bring your appetite!”
So, you are trying to sell a $3M house in suburbia by targeting cheapskates looking for free food!!! I get freshly baked cookies to appeal to walk-bys but actually advertising a free catered event???”
– yltnboomerang at VREAA 15 Sep 2012 12:16pm

Another Greater Fool Averted – “She was trying to buy a house for $238k, with 5% down, on a 33k/year salary. There must be something working in the system these days, she didn’t get the financing required.”

“Update on the friend I spent the day trying to talk out of buying a house for $238k, with 5% down, on a 33k/year salary. Must be something working in the system these days, she didn’t get the financing required for the house (big surprise). They said she needs a cosigner to get that amount of mortgage. The relative she hit up said “No go”. And the CMHC owned house they bid on? Got an offer higher than asking, so they lost the bid. Another greater fool averted.”
– pricedoutfornow at VCI 21 Sep 2012 8:53pm

Some people will not be allowed onboard, even though they had the full intention to buy.
This will turn out to have been in their favour, fortune triumphing over judgement.
– vreaa

17,250 sqft North Van Lot – “Was $1.15M, then $1.025M, now $888K. Assessed at $969K.”

V949678 4785 Capilano Rd North Vancouver

“North Van listing V949678 [a 17,250 sqft lot]- 4785 Capilano Rd. Was $1.15M, then $1.025M, now $888K (lucky 8s!). Assessed at $969K.”
– Sidelines at VCI 21 Sep 2012 at 10:52am

“Every time the conversation has gone to real estate in the past, the verdict has always been that Vancouver will never go down. Now, all of a sudden, these same people are saying that the bubble is “finally” bursting.”

“I’ve been running with the same fairly large group for a year now. Every time the conversation has gone to real estate, the verdict has always been that Vancouver will never go down. Now, all of a sudden, these same people are saying that the bubble is “finally” bursting, and the group members are teaching each other new terms like, “under water.” It’s amazing how fast it goes.”
– N at VCI 18 Sep 2012 at 9:13pm

In years to come, these same people will also tell themselves that (1) they ‘knew’ all along that it was a bubble and (2) they didn’t act because, who could have known it was a bubble? (backed by the related falsehood “You can’t identify a bubble while it is happening”, care of Greenspan and others.)
Yes, we know that’s a complete contradiction, and makes no sense, but, humans are like that.
– vreaa

Your House Is A Big Fridge – “Do you plan to sell your fridge in 20 years and retire on it? No, it’s a fridge, you store things in there.”

“Over at York University’s Schulich School of Business, finance prof Moshe Milevsky also believes that too much is sometimes made of owning a home.
“The way I look at it is, I tell people your house is a big fridge,” Milevsky says. “Are you romantically attached to your fridge? Do you plan to sell your fridge in 20 years and retire on it? No, it’s a fridge, you store things in there.
“It’s a place to live. We need it. You enjoy the benefits of it, backyard and so on, but it has to be done in perspective.” Milevsky feels there has been a serious rethink now, especially in light of the U.S. housing crash six years ago, over whether home ownership makes sense for a mobile workforce that has to deal with fluctuating property values.
“If you’re in your 20s or 30s, not sure what you’re going to be doing for a living, and your job is relatively risky, the last thing you want to do is pile on risk,” Milevsky suggests.
“But if you’re a 42-year-old teacher, have two kids, and your husband has a secure job for some government agency and you know you’ll be here for next 25 years, OK, maybe home ownership makes sense because your personal balance sheet is a lot safer, it’s a lot more secure.
“It has to be viewed as a portfolio transaction.”
– from ‘Should we stop encouraging home ownership?’, Mark Gollum, CBC News, 24 Sep 2012

From the comment section of the same article:
“Well, there is no way I’m ever going to take or listen to the advice of someone who equates home ownership with fridge ownership. My fridge is like a car: it wears out and I replace it. I make enhancements to my home, I better it, and its value rises. We are in a very sad state if the “experts” are advising that home ownership is not a good investment. The issue isn’t owning a home, it’s making sure you purchase a home that is affordable to you. Why these ongoing attempts to destroy the middle class?”
– keeper100, ibid
—

We agree completely with Moshe Milevsky’s comparison.
In coming years, Canadians (and especially Vancouverites) will learn to treat their homes more like fridges, and less like financial instruments.
– vreaa
—

The entire CBC article is worth the read. Some very sensible comments, as always, from Ben Rabidoux (“We’re asking taxpayers to basically take on the risk to allow people to jump into ownership with the risk being held by somebody else. And I’m not sure that’s sound policy.”)
Also, the poll on the same page is of interest. It currently shows 40% saying “home ownership is an important part of Canadian life”, vs 39% saying “home ownership is not a right. Renting is a fine alternative.”

Vancouver Sun’s Ironic Advice – “It’s clear real estate investors should look beneath these pleasing green exteriors and sunny media reports and do their own due diligence before they invest.”

“In 2008 and 2009, Vancouver property developers Michael Knight and Jeff Wiegel were riding a wave of upbeat publicity over their condo project in the Delbrook area of North Vancouver.
“The Brook” was being built to LEED platinum standards, the highest certification for environmentally friendly residency, and was being financed by equity investors, rather than pre-sales, which allowed the developer and his partners to share in future price gains.
The project garnered favourable publicity in The Vancouver Sun, the Globe and Mail and the North Shore News. What these media outlets didn’t know was Knight had had a history of run-ins with the Financial Institutions Commission (FICOM) and the B.C. Securities Commission (BCSC), and had been slapped with cease-and-desist and suspension orders and financial penalties.”
…
“Acting on complaints, FICOM conducted an investigation and found Knight had committed multiple breaches:
He had provided real estate services without being registered under the Real Estate Services Act.
He had marketed the units without preparing and filing a disclosure statement with the B.C. Superintendent of Real Estate.
He had received money from at least two people to secure an interest in a unit, but did not deposit those funds in a trust account, contrary to the Real Estate Development Marketing Act.”
…
“Beneath the technical breaches are heavy financial losses and much investor grief. The Brook was delayed, ran into financial problems and ended up in receivership. The other two projects never got off the ground. Investors in all three projects have lost most if not all of their money. Many have filed lawsuits.
I think that it’s clear real estate investors should look beneath these pleasing green exteriors and sunny media reports and do their own due diligence before they invest.”
…
– from ‘Baines: Green property developers charged with multiple offences’, David Baines, Vancouver Sun, 21 Sep 2012

Hats-off to David Baines for the article, and for pointing out that the Vancouver Sun itself had promoted a shifty RE project.
Recent stories of unsavoury players in the Vancouver RE business can’t be helping sentiment.
– vreaa

“Free Car With House In Richmond.”

– image submitted with comment from ‘derp’, VREAA, 23 Sep 2012 11:12pm, who noted: “Free car with house in Richmond”.

16-Year-Old High School Kid Offers RE Advice – “There’s a lot of money to be made in Vancouver. Just buy a house, rent it out, and in a few years you can buy another one, or maybe a condo. It’s a great investment. You should definitely look into it.”

“I was in Vancouver last year and we went hiking near Deep Cove (lovely area). During our hike, we met two 16 yr old kids from Van who were hiking on the same trail. We hiked together for over an hour, just chatting. We ended up giving them a ride all the way back to Van because they didn’t have a car, or a drivers licence, they were going to take 2 or 3 buses to get back. Anyway, in the car the most talkative and assured of the two told us : “There’s a lot of money to be made in Vancouver. Just buy a house, rent it out, and in a few years you can buy another one, or maybe a condo. It’s a great investment. You should definitely look into it.” The kid was great but I couldn’t help seeing this as a perfect “shoeshine boy” moment. When a high school kid is giving you unprompted investing advice, just do the exact opposite and you’ll do just fine.”
– Nick at VREAA 20 Sep 2012 12:20pm

Agreed, a shoeshine-boy moment.
In fact, this is the most extreme such example we’ve heard from our bubble.
(Who is there left to recommend housing? Toddlers? Pets?)
– vreaa

This comment followed Nick’s:
“This is pretty much how most under-25 born and raised in Vancouverites seem to think. Conceptually, they can’t ever imagine leaving Vancouver (best place on earth syndrome) but they also recognize it’s far too expensive a city to live in, especially if you’re starting out in life (even with rich boomer parents to subsidize a real estate purchase.) They have to buy in to the real estate bull mindset otherwise prospects are very depressing.”
– Cranston Snord at VREAA 20 Sep 2012 3:39pm

“Operators of the grow-op used the proceeds to purchase four other properties, including three west-side homes.”

“The B.C. government is seeking to forfeit five Vancouver properties having a total assessed value of more than $6.7 million and allegedly linked to a major marijuana grow-op.
A notice of civil claim filed in B.C. Supreme Court says that on April 19, Vancouver police raided a two-storey commercial building at 1201 East Pender St.
Police seized nearly 5,700 marijuana plants having an estimated street value of $2 million. Also seized were 154 high-intensity lamps used for the grow-op.
The lawsuit, filed by the director of civil forfeiture, claims that the lamps were being powered by electricity stolen from B.C. Hydro using an electrical meter bypass.
It claims that the operators of a garment factory at the Pender Street address were aware of the grow-op on the premises and used the proceeds from the grow-op to purchase four other properties, including three west-side homes.
The operators of the garment business — Soo Kim Louie and Cheuk Mak — also used the proceeds to make mortgage payments, pay property taxes and pay for property improvements and maintenance, it says.
…
THE FIVE PROPERTIES:
— A two-storey commercial building at 1201 East Pender, site of a police raid on a major marijuana grow-op, is valued at $1.3 million. The building is owned by a numbered company, 0880084 BC Ltd. Directors of the company include Soo Kim Louie and Cheuk Mak.
— A two-storey home at 788 West 64th Ave. assessed at $1.8 million,
— A home at 621 East 56th Ave. valued at $814,000, owned by Louie.
— A home at 5790 Granville valued at $1.4 million, owned by Louie.
— A home at 1383 West 64th Ave., valued at $1.4 million and owned by Mak.”
– from ‘B.C. government seeks forfeiture of five pricey Vancouver properties linked to grow-op’, The Province, 23 Sep 2012

Sometimes, the clichés are true.
– vreaa

Realtor/Speculator On ‘The National’ “Trying To Sugar Coat The Ugly Reality That Prices Are Tanking”

CHRIS BROWN: “At first glance Philip Chan’s property in popular Kitsilano would seem to support those who believe the crash is upon us. It’s a very nicely finished 1,700 square foot newly built unit in a triplex. Back in March it came on the market for $1.79 million, including sales tax. It’s now 1.57 million. That’s an almost 12 percent price drop.”

PHILIP CHAN: “I think the market actually during the last six months has adjusted downwards. I think everybody know about that. And it went up too fast and it’s just taking a little bit of an adjustment.”

CHRIS BROWN: “Describing a $200,000 price drop as an adjustment is just the kind of thing those who believe the market is unsustainable seize on. They argue it tries to sugar coat the ugly reality that prices are tanking. Chan, who built this home is a realtor who’s also trying to sell it, doesn’t believe that.”

PHILIP CHAN: “Unit like this, I think you can find no more than 10 on the market at this moment. How much can it drop?”

CHRIS BROWN: “At his Kitsilano property owner and realtor Philip Chan is sounding confident the market won’t slip much further from the 10 or 12 percent it already has.”

PHILIP CHAN: “Nobody can predict the future, so if you see that the market is healthy enough and you can afford to do it, do it. You can either sit by the ballpark and you watch the game or you can go down and play the game. You might get hurt or you might win.”

– excerpted from ‘Vancouver Housing: Bubble or Bust?’, The National, 20 Sep 2012. [Transcription generously provided by ‘AP’.]
—

Noteworthy for the following:
1. Another realtor who is also a real estate speculator. (How many people in Vancouver have their livelihood and their investments all tied up in the RE sector?).
2. Strongly biased commentator being presented by the media as a potentially valid source of information about the market.
3. “It’s just taking a little bit of an adjustment.” = ‘It’s Only A Flesh Wound’. Price drops thus far are significant because, along with high inventory and dropping sales volumes, they herald far larger price drops to come.
4. “How much can it drop?”. Well, triplexes like this in Kits will perhaps sell for about 500K-600K in the trough, so the answer is “more than 66%”.
5. “Nobody can predict the future…” Faux market agnosticism, and weasly self-contradiction. He’s already predicted the future by saying “How much can it drop?”, now he says “Nobody can predict the future”. Thinly veiled CYA?
6. “…so if you see that the market is healthy enough and you can afford to do it, do it.” What does ‘afford’ mean? Afford the monthly payments? Or afford to watch your net worth drop by $1,000,000?
7. “You can either sit by the ballpark and you watch the game or you can go down and play the game.” Noteworthy for:
(i) the sporting metaphor (Vancouver RE is, after all, “a sport“), and
(ii) the kind of bravado that has been very common amongst the bulls all the way up. (Have you got what it takes to play the game?) It’s looked silly to those of us who saw what it was on the way up. It is now an appeal of last resort.
8. “You might get hurt or you might win.” Love the lottery innuendo (“Hey, You Never Know!”). Quite alright for a couple of bucks on a flight of fancy; less so for a $1.57M bet.
– vreaa

“A few months back, when I told my landlady, as I often have in the past, that I think prices will fall, she said, “Why would they?”

“[The National piece] resulted in “bubble” and “crash” being said on TV. And that will be enough to change the tone of the conversation and make people think about whether we might be at the top.
A few months back, when I told my landlady, as I often have in the past, that I think prices will fall, she said, “Why would they?” That’s the attitude that has propped up prices: the failure to even consider price drops. Once that bedrock belief is brought into question, nature will be free to take its course.”
– N at VCI 21 Sep 2012 8:55am

Speculation in reverse.
We agree that, once Vancouverites see that prices can fall substantially, the (superficially) ‘virtuous’ cycle that is a speculative mania, will turn vicious.
– vreaa

“My friend, a top-selling realtor on the North Shore, told me he’s able to spend a lot more time at home with the kids now, because the market is so slow. He feels that this is the reckoning for which the Vancouver market has been long overdue.”

“My friend is a top-10 best selling realtor on the North Shore. Told me on the weekend that he’s able to spend a lot more time at home with the kids now, because the market is so slow. He doesn’t see any change on the horizon, and feels that this is the reckoning the Vancouver market has been long overdue for.
Reminds me that we shouldn’t assume all realtors are market pumping dolts. The best of them understand that the market comes and goes in cycles, and that they need to have a different strategy to extract the most value out of each part of the cycle.”
– Rocker Guy at VCI 10 Sep 2012 10:14am

CBC’s The National – ‘Vancouver Housing: Bubble or Bust?’

CBC’s The National last evening [20 Sep 2012] featured a segment entitled ‘Vancouver Housing: Bubble or Bust?’. We’ll be transcribing and headlining one or two sub-stories from that piece. Until then, readers may want to view the whole thing at the CBC site:

—
UPDATE 22 Sep 2012: Care of ‘AP’, we now have a transcription of the whole piece and append it here [Thanks A.P.! -ed]:

PETER MANSBRIDGE: Welcome back. We’re heading to Vancouver now, home of the highest real estate prices in the country. And that’s our focus this evening, assessing the market there, what’s happening to it and what it means for the rest of Canada.

Would you be willing to pay more than $2 million for a home or say 1.4 million? Those are the average prices in one of this city’s trendier places, the West Side and Kitsilano. And believe it or not, that’s something of a bargain. The recent trend for prices across the Vancouver region is down. That doesn’t mean you’ll soon be able to pick up a gorgeous home for the price of a garden shed, but after years of buyers being at the mercy of forces beyond their control, the forces are with them. Not only are the houses going for less, they’re sitting for sale longer. Even bidding wars are becoming a memory.

Some say it’s the beginning of a correction, while some say it’s beginning of a crash. Our Chris Brown takes a look at what’s hitting home in Vancouver.

CHRIS BROWN: On a nice, sunny day the premium you pay to live in Vancouver seems to be worth every penny. It’s got the beach, the views, the trendy hangout spots and homebuyers have been prepared to plunk down a fortune to own a piece of it. Year after year after year prices in this city shattered once unthinkable ceilings. Until now.

GARTH TURNER: I see risk more than anything. I see a market that’s gotten beyond itself. The prices bear no real relation to the economics economics behind the market, so it’s only a matter of time and depth of how much destruction there’s going to be.

CAMERON McNEILL: Whenever the market goes near the top part of the cycle we always do hear pessimistic economists talking about bubble, et cetera. But the reality is that the fundamentals that are driving the market below the surface are just too strong for any sort of bubble circumstance to happen.

CHRIS BROWN: Whether Vancouver’s market has finally reached the tipping point after years of incredible gains has become the debate in living rooms and boardrooms across the city. The numbers provide ammunition for both sides.

At first glance Philip Chan’s property in in popular Kitsilano would seem to support those who believe the crash is upon us. It’s a very nicely finished 1,700 square foot newly built unit in a triplex. Back in March it came on the market for $1.79 million, including sales tax. It’s now 1.57 million. That’s an almost 12 percent price drop.

PHILIP CHAN: I think the market actually during the last six months has adjusted downwards. I think everybody know about that. And it went up too fast and it’s just taking a little bit of an adjustment.

CHRIS BROWN: Describing a $200,000 price drop as an adjustment is just the kind of thing those who believe the market is unsustainable seize on. They argue it tries to sugar coat the ugly reality that prices are tanking. Chan, who built this home is a realtor who’s also trying to sell it, doesn’t believe that.

PHILIP CHAN: Unit like this, I think you can find no more than 10 on the market at this moment. How much can it drop?

CHRIS BROWN: A lot more, argues Garth Turner. From his perch in Toronto the former MP writes a blog on real estate and has a big following in this city.

GARTH TURNER: People in Vancouver have to spend on average up to 70, 80, 90 percent in order to afford the average home. That is out of whack with every place else pretty much in the world. Beyond this façade of high prices is a great big steaming pile of debt and there’s a limit to how much debt people can get into. I think actually we’re at that limit.

CHRIS BROWN: Condo marketing specialist Cameron O’Neill argues Turner’s affordability statistics are misleading. He says they’re skewed by high prices for detached homes in a city where there’s no more room to build any. Many more people, he says, choose to buy condos or townhomes.

CAMERON McNEILL: We are in a, in fact, like a mini Manhattan and people want to live in this dense population.

CHRIS BROWN: There’s been a culture shift in Vancouver, he says. Living in smaller spaces is seen as okay. For many people, including families, getting along with less space is expected, even desirable.

CAMERON McNEILL: In Yaletown, one of the boroughs within downtown Vancouver over my shoulder here, just 10 years ago you wouldn’t see a baby carriage. Today they have six or seven daycare with waiting list and they’re happy to have the coffee shop as their living room, they’re happy to have the park as their backyard and they’re happy to have the seawall as their playground.

CHRIS BROWN: It’s true that Vancouver’s average detached home price are staggering. Even with this dip average house prices in the city proper average over a million dollars and in the more expensive western part of the city they’re twice that much. But townhomes are cheaper and condos even more so. In other words, it’s only in certain parts of the city for certain types of housing the prices really went berserk. Those who believe the fundamentals here are sound argue are there are lots of housing options. But Garth Turner believes the gap between wages and prices remains too great.

GARTH TURNER: No market is sustainable when the average consumer can’t afford the product. In downtown Toronto, where you’ve got very expensive real estate, it’s at a multiple of about eight times what the average income is to buy the average home, which most people can’t afford. The U.S. collapsed at 4.6. Well, you know what? In Vancouver right now we’re 11.5.

CAMERON McNEILL: The fact of the matter is in Vancouver you can today buy a condominium, you can rent it out and you will have 40 people lining up to try to rent that condominium. They’ll be paying a very, very high and a fair rent. If you have that much desire for people to — to live in a condominium, you know, I think that the market’s got no problem sustaining itself.

CHRIS BROWN: At his Kitsilano property owner and realtor Philip Chan is sounding confident the market won’t slip much further from the 10 or 12 percent it already has.

PHILIP CHAN: Nobody can predict the future, so if you see that the market is healthy enough and you can afford to do it, do it. You can either sit by the ballpark and you watch the game or you can go down and play the game. You might get hurt or you might win.

GARTH TURNER: We see people, particularly in Vancouver, with 80, 90, 95, a hundred percent of their net worth in one asset at one address on one street in one neighbourhood. To me that defines risk.

CAMERON McNEILL: I always say Vancouver is the Swiss bank account of international real estate. It’s a — it’s a funny little quote that I say because sophisticated people, whether they live in Vancouver or they’re international, they — they recognize Vancouver as a safe, long-term place to park some money when it comes to real estate.

CHRIS BROWN: In the months to come that assertion will be tested. Are we looking at a bubble that’s bursting or a boom that’s just had a little hiccup?

(BROADCAST CONCLUDED)

‘Giant Bubble Bursts Into The Record Books – “Screams of excitement followed gasps of astonishment as a giant bubble rose up and surrounded the participants before bursting in spectacular fashion.”

“When Fan Yang gets his hands of soap water and a wand, the result isn’t child’s play.
This man’s bubbles are ones for the record books.
The internationally renowned artist racked up his 18th Guinness World Record Wednesday by encapsulating 181 people in a giant 50-metre long, four-metre high soap bubble at Vancouver’s Science World.
Screams of excitement followed gasps of astonishments from the volunteers as a giant bubble wall rose up and surrounded the volunteers before bursting in spectacular fashion.”
– from ‘Giant bubble bursts into the record books’, Matt Kieltyka, Metro Vancouver, 19 Sep 2012

Participants in this stunt likely don’t consciously realize it, but Vancouver RE aficionados know why this stunt was performed in this city at this point in history.
Coincidence? We think not!
Hat-tip to Froogle Scott, for sending along the article and for whom the significance of this event was obvious.
– vreaa

Erroneous Theories For Falling Prices #5 – Tightening Of Mortgage Rules Caused The Crash

“The value of home sales in B.C. declined more than 25 per cent last month compared to a year ago, according to a report from the B.C. Real Estate Association. That drop is steeper than in any other province, but reflects a broader housing slowdown stemming in part from stricter mortgage rules across the country.” …
“Consumer demand continued to trend lower in August,” said Cameron Muir, chief economist at the BCREA. He said tighter mortgage credit conditions introduced in July are taking a toll on an already tentative market.
“The real key thing for the ownership markets was the reduction in the maximum amortization from 30 years to 25 years,” he said.
That reduction is equivalent to having a full percentage-point increase in the mortgage rate, he added.
“Likely some first-time buyers have been squeezed out of the marketplace as their purchasing power has been eroded.”
– from ‘Mortgage rules exacerbating B.C. housing sales slump’, Vancouver Sun, 17 Sep 2012 [hat-tip allen]

What causes a hangover? Drinking, or finally having to stop drinking?
– vreaa

—

Regarding this series:
There is only one BIG reason for falling prices in Vancouver RE: the speculative mania is over.
That is all you need to know to explain the price action that will play out over the next few years.
On the way up we had people attributing price strength to all sorts of bizarre and invalid causes: the Olympics, running out of land, etc. On the way down we expect similarly bizarre arguments for price drops; commentators will offer many erroneous theories as to why prices are falling. We’re already beginning to see them, and the crash has barely commenced.
We’ll collect them; please submit new examples you come across. – vreaa

“Built into this situation is the eventual and inevitable fall. … Something, it matters little what – although it will always be much debated – triggers the ultimate reversal.”
– John Kenneth Galbraith, in ‘A Short History of Financial Euphoria’

#1 – Climate Change Caused The Crash
“Prices will continue to fall, as outside buyers from other Provinces such as Ontario, Alberta and Manitoba finally realize that climate change has now become an important issue in British Columbia. What was once an enviable temperature and small secret now has become a drag, as the winter, spring and summer months are now cooler and wetter than before.”
– thinkandact, commenting at the Globe and Mail, 2 Aug 2012

#2 – The Conservatives Attacked The Vancouver Housing Market And Caused The Crash
“The reality is that because banks also own investment dealers, their CEOs would prefer to see more Canadian money flowing into the equity markets rather than into real estate. … I wouldn’t be surprised if Prime Minister Stephen Harper, a trained economist, has been influenced by a Zambian-born economist in crafting mortgage-amortization policies that may kill the Vancouver housing market and create significant hardship.”
– Charlie Smith, Georgia Straight, 3 Aug 2012

#3 – Vancouver RE Bears Caused The Crash
“The common theme I see in your “anecdotes” is YOU! There is no shift in the “general mood”. YOU are the catalyst bringing down the mood among your friends. I can only hope you don’t have too many friends, or you will singlehandedly bring down the market.”
– ‘Anonymous’, at VCI 21 Aug 2012, in response to ‘Makaya’ posting two stories of people becoming bearish on the Vancouver market

#4 – An Invisible Force Caused The Crash
“An invisible force has guided Buyers and Sellers of Vancouver homes. An unprecedented number of Sellers have listed their homes for sale while at the same time many Vancouver home buyers have decided that they are ‘not buying now’. This collective behavior is often called a ‘murmuration’. It is fair to say that human behavior is at times shaped by invisible forces which lead us to behave in ways that may not be in our best interest.”
– ‘Invisible Force Guides Buyers and Sellers of Vancouver Real Estate?’, Larry Yatkowsky, 13 Sep 2012

#5 – Tightening Of Mortgage Rules Caused The Crash
“The real key thing for the [weakening of the] ownership markets was the reduction in the maximum amortization from 30 years to 25 years.”
– Cameron Muir, chief economist at the BCREA, ‘Mortgage rules exacerbating B.C. housing sales slump’, Vancouver Sun, 17 Sep 2012

“My deflation bet: I rent a lovely condo on Vancouver’s waterfront. I have no interest whatsoever in buying real estate here. My long term savings are mostly in cash.”

“It seems that consumer spending is the biggest force in the economy…and I wonder if consumers aren’t getting tapped out…financially and demographically. I wonder if they have used too much credit to buy “stuff” and are now at risk of setting off a vicious circle of deflationary trends if either the economy slows or interest rates rise…or both of those things happen. I wonder if manufactures made a boo-boo and figured that consumers would keep buying “stuff” and now those same manufacturers are sitting on warehouses full of inventory…financed by banks…and if that inventory doesn’t move the manufactures will have to lay off workers…making their contribution to the vicious circle of deflationary trends.” …
“My deflation bet: I rent a lovely condo on Vancouver’s waterfront…I have no interest whatsoever in buying real estate here. My long term savings are mostly in cash.”
– Victor Adair, Senior Vice President and Derivatives Portfolio Manager, Union Securities, at moneytalks.net 10 Sep 2012

“At the in-laws this weekend in Richmond, they had a friend of theirs over who is a well-connected realtor in the Chinese community. She said nothing priced above assessment value was selling. Prices off 15% from peak.”

“Was at the in-laws this weekend in Richmond. They had a friend of theirs over who is a well-connected realtor in the Chinese community.
She said nothing priced above assessment value was selling. Prices off 15% from peak.
This is someone who was invited to one of Harper’s trade missions to China, so in a position to know if an influx of HAM was just waiting to be unleashed. Aggressive sellers are driving prices lower to attract the few buyers in the market.”
– Just looking… at VCI 9 Sep 2012 8:17pm

Bank CEO/s – “There is a bubble. What we see now is probably, at worst, a soft landing.”

Speaking in Toronto, Bank of Nova Scotia chief executive officer Rick Waugh said even though there is a housing bubble in Canada, he doesn’t expect the residential real estate market to crash.
“What we see now is probably, at worst, a soft landing,” Mr. Waugh told reporters after a speech to the Toronto financial community.
“The economy is strong enough and diversified enough that the impact will be handled accordingly without the risks of a bubble – of an extreme bubble. There is a bubble.” …
“The numbers we are seeing now are really not a huge surprise,” Mr. Waugh said. “They are well within our expectations, let’s say 10 per cent in sales volume, and 10 per cent in prices.”
Of the slowdown in the market, he added: “This is happening. It is happening.”
– from ‘At worst, housing market headed for soft landing: Scotiabank CEO’, G&M, 18 Sep 2012

We haven’t been headlining each and every banker’s comment on the RE markets, but this one will suffice as fairly representative of what’s being said currently.
Thoughts:
1. Note the pattern; played out in all RE collapses around the world. First, “There is no bubble”. Then “Sure, there’s a bubble, but the ‘landing’ will be soft”. (Later: “We warned this was a bubble and that price drops were likely.”)
2. One has to wonder whether these guys actually understand what a bubble is. If you admit one is present, the coming collapse is a given.
3. “Probably, at worst, a soft landing.” Really? Does he really believe those are the odds?
– vreaa

Vancouver RE Becomes A Canadian Metaphor For ‘Over-Priced’? – “The iPhone is way overpriced. Think real estate in the Lower Mainland of BC.”

“The iPhone is way overpriced. Think real estate in the Lower Mainland of BC … forget it!!”
– Timster in the comments below ‘The iPhone’s sexy, but ‘I save’ is far smarter’, Globe and Mail, 17 Sep 2012 8:36pm [hat-tip Makaya, who adds “Talk about obsession…”]

Is Vancouver RE establishing itself in the Canadian psyche as representative of something (anything!) that is over-priced?
Will the metaphor enter the vernacular?
– vreaa

Mission SFH At 16%-Off The 2007 Sale Price

“34463 ROCKRIDGE PL, Mission
2165sqft SFH on 7212sqft lot.
Now on the market:
04-Jul-12 $469,900.00
28-Jul-12 $464,900.00 -2%
01-Aug-12 $459,900.00 -3%
03-Aug-12 $458,900.00 -3%
09-Aug-12 $457,900.00 -3%
10-Aug-12 $456,900.00 -3%
15-Aug-12 $455,900.00 -3%
17-Aug-12 $454,900.00 -4%
23-Aug-12 $453,900.00 -4%
25-Aug-12 $452,900.00 -4%
31-Aug-12 $451,900.00 -4%
02-Sep-12 $450,900.00 -5%
07-Sep-12 $449,900.00 -5%

This home was purchased in 2007 for $540,000!
Thats 16% below the 2007 price!”
– Groundhog at VCI 15 Sep 2012 11:24am

“Forget All This Silly Talk; Cuddle Up; Do The Sensible Frugal Thing; Buy A House; Become A Millionaire”

“The basic necessity of life is having a roof over your head, you own it to live in it for the long term and keep it, forget about all this investment cr_ap and appreciation business. My mom has a grade 4 education and bought a house back in 1980 in the middle of downtown Toronto for 50,000 dollars. It’s worth close to 700,000 dollars now. She had no clue houses could appreciate, in fact, she has no idea what appreciation was. Heck, she has no idea what a stock is and how to buy it. We rented out all 7 rooms to pay off the mortgage in 5 years time. What do you know, we still live here and my mom, who made only minimum wage all her life is a millionaire!!! She stopped working at age 49! All she does is watch tv and go out to restaurants. Simple frugal life.
Ignorance is bliss!!
Don’t buy and sell, buy and sell, you’ll only be losing money from all the cost. If you like your house and the location is great, you keep it for the long term. At an average rate of 2 percent compounded annually, you’ll eventually be a multi-millionaire.”
– Motown Philly at National Post 14 Sep 2012

The making-a-million-bucks part of the equation is completely dependent on where in the cycle you buy.
– vreaa

“‘Love It or List It Vancouver’ will feature families in the city struggling with homes that no longer suit their needs.”

“Former “Bachelorette” star Jillian Harris is taking the helm of a new spinoff of “Love It Or List.”
The Canadian interior designer and TV personality will co-host “Love It or List It Vancouver.” …
“Love It or List It Vancouver” will feature families in the city struggling with homes that no longer suit their needs. Harris will show homeowners a design in hopes of persuading them to stay put. Meanwhile, a real estate agent will work towards getting them to relocate to a new property. Her new co-host will be announced at a later date.
The series is slated to launch next winter.”
– Vancouver Sun, 13 Jun 2012
—

“Jillian Harris will be hosting Vancouver’s love it or list it and they announced her sidekick. Never heard of this guy before but I think he’s not a real realtor but an actor that the network brought on board…hmmm… I was hoping they would get Mike Stewart or Ian Watt some well known realtors who would most likely be great on the show but instead they went with someone else so who is this guy is he really a licensed realtor?” – red_lantern at RE Talks, 6 Sep 2012

“She, not he. It just happens she rents a condo from a friend of mine”. – unicas, ibid.

“Rents? HAHAHA.” – timber2012, ibid.
—

“Always had money, always had no savings. He told me he just got a place, and a new car. A few days later he asked if I could spot him 5 grand.”

“Had a birthday dinner with some old friends with kinda shady past. Always had money, always had no savings.
Most have moved on to legitimate jobs, even the birthday boy. He told me he just got a place, and a new car. I didn’t ask about the place, but I assume its a presale since he I picked him up at his old place.
The day after the dinner, birthday boy went down to Vegas. I got a text from him, from Vegas, a few days later. He asked if I could spot him 5 grand, I guess he went a little wild on gambling, good luck with that mortgage.”
– 4SlicesofCheese at VREAA 30 Aug 2012 10:31am

Erroneous Theories For Falling Prices #4 – “Aye, It Was Da Strange Murmurations Wot Caused Ye Crash” – “Invisible forces which lead us to behave in ways that may not be in our best interest”

“An invisible force has guided Buyers and Sellers of Vancouver homes. An unprecedented number of Sellers have listed their homes for sale while at the same time many Vancouver home buyers have decided that they are ‘not buying now’. This collective behavior is often called a ‘murmuration’.” … “Perhaps recent examples of a similar activity might be the ‘Occupy’ movement or globally we might consider how it came to be that so many countries in Europe arrived at the brink of financial disaster at the same time.” …
“At the right time of year if you were to visit Otmoor, a bird sanctuary near Oxford England, you will find Starlings performing a spectacular event known as murmurations. Some might describe these events as spectacular pulsating avian aerobatic operas. Scientists more pragmatic, note it as the Starling’s way of ensuring survival against predators and the maintaining of Starling social hierarchy.
Using murmuration as a model one asks why so many Vancouver home sellers decided to sell at the same time? Was it about survival? Are they acting selfishly in the hope of protecting themselves from the predator of financial disaster by selling their homes and escaping. What was the trigger? Was it the neighbour selling at a price much higher than they anticipated that lead them to believe they could only maintain their social status by selling their home at a higher price?” …
“It is fair to say that human behavior is at times shaped by invisible forces which lead us to behave in ways that may not be in our best interest. While it is fascinating to observe this kind of behavior in animals, for humans it has in many cases proven destructive. You can see this in the number of sales of Vancouver homes and the frustration of Buyers not able to pay the price asked.”
– from ‘Invisible Force Guides Buyers and Sellers of Vancouver Real Estate?’, Larry Yatkowsky, 13 Sep 2012

The theory above appears to blame market collapse on something akin to a senseless stampede. The implication is that people in a perfectly normal and healthy environment may all suddenly start behaving together in an almost insane way, all getting swept up in behaviour that “may not be in their best interest”. Actually, this better explains the START of a bubble than it does the unwinding.
Sentiment and herd behaviour is important, but it alone does not cause a perfectly healthy market to collapse. The point is that the market is deeply unhealthy; it is the proverbial accident waiting to happen. Once a speculative mania has driven prices two or three standard deviations from the norm as judged by fundamental values, a price collapse is a healthy and natural phenomenon. It’s the expanding of the bubble that is perverse and ‘destructive’.
– vreaa
—

Regarding this series:
There is only one BIG reason for falling prices in Vancouver RE: the speculative mania is over.
That is all you need to know to explain the price action that will play out over the next few years.
On the way up we had people attributing price strength to all sorts of bizarre and invalid causes: the Olympics, running out of land, etc. On the way down we expect similarly bizarre arguments for price drops; commentators will offer many erroneous theories as to why prices are falling. We’re already beginning to see them, and the crash has barely commenced.
We’ll collect them; please submit new examples you come across. – vreaa

#1 – Climate Change Caused The Crash
“Prices will continue to fall, as outside buyers from other Provinces such as Ontario, Alberta and Manitoba finally realize that climate change has now become an important issue in British Columbia. What was once an enviable temperature and small secret now has become a drag, as the winter, spring and summer months are now cooler and wetter than before.”
– thinkandact, commenting at the Globe and Mail, 2 Aug 2012

#2 – The Conservatives Attacked The Vancouver Housing Market And Caused The Crash
“The reality is that because banks also own investment dealers, their CEOs would prefer to see more Canadian money flowing into the equity markets rather than into real estate. … I wouldn’t be surprised if Prime Minister Stephen Harper, a trained economist, has been influenced by a Zambian-born economist in crafting mortgage-amortization policies that may kill the Vancouver housing market and create significant hardship.”
– Charlie Smith, Georgia Straight, 3 Aug 2012

#3 – Vancouver RE Bears Caused The Crash
“The common theme I see in your “anecdotes” is YOU! There is no shift in the “general mood”. YOU are the catalyst bringing down the mood among your friends. I can only hope you don’t have too many friends, or you will singlehandedly bring down the market.”
– ‘Anonymous’, at VCI 21 Aug 2012, in response to ‘Makaya’ posting two stories of people becoming bearish on the Vancouver market

#4 – An Invisible Force Caused The Crash
“An invisible force has guided Buyers and Sellers of Vancouver homes. An unprecedented number of Sellers have listed their homes for sale while at the same time many Vancouver home buyers have decided that they are ‘not buying now’. This collective behavior is often called a ‘murmuration’. It is fair to say that human behavior is at times shaped by invisible forces which lead us to behave in ways that may not be in our best interest.”
– ‘Invisible Force Guides Buyers and Sellers of Vancouver Real Estate?’, Larry Yatkowsky, 13 Sep 2012

Armstrong Cheese II – “Looks like they’re a wee bit late to the party.”

Above photo from Gord Goble [via e-mail, 15 Sep 2012], who writes: “Not the best photo (totally against the sun, taken from a long distance while in my car), but I found the subject pretty interesting nonetheless. Armstrong Cheese = Vancouver real estate. Looks like they’re a wee bit late to the party.
I like the other elements too – the guy walking away disgusted and another billboard that’s also all about fantasy.
Anywho, thought you’d like it. Taken at the Highway 99 – 8th Ave interchange near the border.”

[Thanks Gord, nice shot. We particularly like the fantasy and disgust components. A companion piece to subterranian’s photo near Lion’s Gate Bridge, 14 Sep 2012. Looks like these guys have the North and the South covered. – vreaa]

Canadian Business Declares Beginning Of Canadian “Housing Crash” – “What’s surprising about the weakness in Vancouver is the absence of any change in economic fundamentals to explain it. The market was cooling even before the latest round of mortgage tightening by Ottawa.”

A sombre picture

“In just one year, Vancouver house prices have dropped by 12%, and unit sales are plummeting…”
…
“The Real Estate Board of Greater Vancouver chalked it up to a “summer lull,” but the numbers suggest a trend that can’t be dismissed as simply seasonal. Last month, unit sales were the lowest for any August in the past dozen years, and nearly 40% below the 10-year August norm. Even more worrying, the average home price in Vancouver is now down more than 12% from a year ago—a worrying sign for the country’s priciest city.”
…
“David Madani, an economist with Capital Economics, concludes: “The Vancouver market has cracked.”
…
“It’s clear that trouble is ahead. The weakness… marks the start of a reversal in the long boom for Canadian real estate. The doubling in home prices that happened over the past 10 years is not likely to repeat itself. Royal LePage even conceded in a July report that the Canadian housing market has reached a “tipping point.” Forecasts from private economists vary widely. Some are calling for relatively flat prices, while Madani at Capital Economics predicts a 25% decline in Canada’s major cities over the next few years. No markets will feel the slowdown more than Vancouver and Toronto.”
…
“What’s surprising about the weakness on the West Coast is the absence of any change in economic fundamentals, such as a spike in unemployment, to explain it. The Vancouver market was cooling even before the latest round of mortgage tightening by Ottawa, which took effect in July.”
…
“A change in buyer psychology may also be occurring, says Madani. “I don’t think there are enough people now who believe we can continue these outsized price gains we’ve seen over the past decade,” he says. “As those expectations change, potential buyers step back.” With Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney constantly warning about Vancouver real estate, it’s not surprising their pleas for restraint are being heeded.”
“If this change in mindset truly takes hold, the entire Vancouver market will be affected, not just the multimillion-dollar homes. The city’s real estate has always been mind-boggling to outsiders, but reached a particularly confounding peak this year in terms of affordability. The median house price in Vancouver is 10.6 times greater than the median income, according to urban policy consulting firm Demographia. That makes it the second-most-unaffordable major city on the planet after Hong Kong. The only way to account for the market becoming so detached from fundamentals, in Madani’s view, is a pervasive belief among buyers that prices will keep rising. “Vancouver is far, far beyond what anyone would expect, based on trends in immigration, income or interest rates,” he says. “That’s just not sustainable.”
…
“If home prices rise substantially above income growth, the only way you’re bridging that gap usually is through mortgage debt,” says Ben Rabidoux, an analyst with boutique research firm M Hanson Advisors.
…
“It seems like Vancouver is past the tipping point,” says Sonya Gulati, a senior economist with Toronto-Dominion Bank. Gulati estimates the market is overvalued by 15% to 20%, and says prices could fall by an equivalent amount over the next two to three years. Rabidoux foresees an even greater decline, perhaps a 30% to 40% fall in average price.
…
“Typically, investors are concerned about “cash flow,” the money earned through rental income. But prices for new units in Toronto are so high that it’s tough for investors to use rental income to cover the mortgage and maintenance fees and still have something left over for themselves. They’re essentially banking on one thing: price appreciation, which is more akin to speculation. “They’d be better off going to a craps table at Casino Rama,” says Charles Hanes, a Toronto real estate agent for more than three decades.” …
Don Campbell, founder of the Real Estate Investment Network, a membership-based education and research outfit for individual investors, says those in his network who have purchased new condos tell him they’re financially sound enough to deal with monthly losses until prices rise and they can make an exit. Campbell himself is dubious. “They’re going to be disappointed because the market is not going to perform as well as it has over the last four years,” he says. “The incredible number of units that are going to be coming on the market over the next little while will really start to put a damper on the average sale price of the new condos.”
…
What’s happening in Toronto and Vancouver today marks the start of a much broader slowdown in housing. Affordability is becoming an issue in other cities, especially Montreal, Kelowna and Abbotsford, B.C., according to Demographia. Nationwide, the average home price is 5.6 times the average income, says Madani, whereas the norm stretching back to 1975 is 3.5. He admits the price-to-income ratio is not a perfect measure, but says it’s one clear warning sign the market is overheated. Prices ultimately have to fall in line with income.
…
After past housing booms in Canada, the subsequent hangovers lasted many years. The average price in Vancouver fell by more than 20% in real terms between 1995 and 2001 after a steady run-up.
…
– from ‘Canada’s housing crash begins’, Joe Castaldo, Canadian Business, 14 Sep 2012 [hat-tip Renters Revenge]
—

As we’ve been saying…
Bubbles don’t need anything to precipitate their demise, at some point they turn and collapse under their own weight.
– vreaa

South Surrey Speculators – “It sold for $1.85M. Six weeks later and I assume it is time for possession and lo and behold it’s on craigslist, for rent at $5K/month. At 5% down and a 4% mortgage they would need to pay $10K/month and they think renting it for $5K/month is a good financial move?”

“I looked at a home in South Surrey last June (I own a place in Burnaby but plan on moving there for a variety of reasons – I’m looking at next spring / summer to make the switch but go to see a few places to get better feel for the neighbourhoods). The address is 3312 144A St and it is a lottery home from 7 years ago and listed at 1.95 million. I didn’t think much of it, really weird layout and other issues. Somehow it sold a month later for $1.85 million which was very surprising. Anyways….
6 weeks later and I assume it is time for possession and lo and behold I see it on craigslist [see above].
Trying to rent it out for $5K/month… At 5% down and a 4% mortgage they would need to come up with roughly $100K and pay $10K/month and they immediately think renting it for $5K/month is a good financial move. This is going to be fun to watch.”
– an observer at VCI 7 Sep 2012 10:29pm
—

“Investors are prepared to buy houses they will rent out at a loss, just because they think prices will keep rising—the very definition of a financial bubble.”
– ‘The global housing boom. In come the waves’, The Economist, 16 Jun 2005

Victoria – “The ‘next wave’ of first time buyers is when housing drops to where the 30k-40k salary can purchase. A 10% correction has gone unnoticed”

“My social group is mostly 100k/yr co-workers and 30k/yr friends. Of my 15 co-workers all but me have bought, many in the 2007 mania in Victoria. None will have to sell but all took mortgages for as much as they could get and will be paying out 40% of take home for the next 25-35 years.
The 30k/yr friends would love to own, but accept that it’s impossible in this market without moving west out of Victoria and a couple trips through the Colwood crawl usually puts that to rest (for the smart ones anyway).
I won’t be buying, I like winter travel and early retirement too much. So the ‘next wave’ of first time buyers in my world at least is when housing drops to where the 30k-40k salary can purchase, a 10% correction would (and has) gone unnoticed to anyone who doesn’t have an assessment to look at each year.”
– Lee at VCI 7 Sep 2012 1:23pm

A 10% correction from a bubble top is just noise, and doesn’t do very much to reconcile prices with fundamental values. It may, however, be enough to cause most buyers to take pause, and thus ensure future price descent.
– vreaa

Cheese Houses Billboard Ad – “More Desirable Than Vancouver Real Estate”

– image from ‘subterranian’ via e-mail 14 Sep 2012, who writes: “Thought I’d send this along… It’s been running for days on the electronic billboard at the north end of the Lions Gate Bridge. HAM and cheese?” [Many, many thanks, subterranian; an image from our bubble that we are very pleased to archive.]

No mold comments, please.
Seriously, folks… any doubt we’re living in the distorted universe of an RE mania?
– vreaa

Okanagan Airline Pilot Near Retirement – Assets: RE ‘Worth’ $2 Million; RRSP $100K

“Housing grows more turgid each passing week. I tried explaining that yesterday to the airline pilot living deep in the folds and creases of the Okanagan Valley, where he has a $2 million waterfront property and just $100,000 in RRSPs as he nears retirement. “This is not a happy asset allocation,” I said, as he told me how much he was worth. “Try selling the house for six months and see.”
An illiquid house is worth nothing. Just bills.”
– from Garth Turner at greaterfool.ca 11 Sep 2012

Bears Invade Burnaby – “Drop your prices and we’ll play nice.”

Bear admiring a gorgeous, south-facing 42 x 122 foot lot in Burnaby

Thinks: “This formwork stinks.. the hell if I’d fork over $120K to this ‘landscaper’.”

“The Burnaby RCMP is warning the public and morning commuters about a bear sighting.
Officers say shortly before 8 a.m., a big black bear was spotted lumbering down Rosser Avenue at Willingdon Avenue.
Police have not had any reports of aggression or interaction between the bear and people.”
– from Vancouver Sun 13 Sep 2012 [hat-tip epte]

Bears aren’t violent so long as you don’t get in their way, and let them take what they want.
– vreaa

Ben Rabidoux’s Vancouver Summary At Macleans – “While sale volumes are nearing recession levels, building in the Vancouver region has been booming.”

“When the August resale data for Vancouver came out last week, the headline news was that sales had fallen to their second lowest level for the month since 1998. Sales were 30 per cent below what they were in August of last year and 40 per cent lower than the August average of the past 10 years.
But the numbers are even worse than the headline reveals. On paper, August 2008 holds the record as the weakest month of the past 15 years. However, it had two fewer week days than August 2012. If calendar differences are taken into account, last month represents the lowest sales volume of any August in 15 years.”

“At the same time, total months of inventory in Vancouver hit double digits for the first time since 2009. (Months of inventory represents the length of time it would take to sell all the homes listed for sale given the number of sales in the previous month. In other words, it is a quick snapshot of supply and demand: The higher the number, the worse the reading.)”

“Admittedly, the pace at which homes are being put up for sale has slowed considerably in August from the mid-summer peak, but builders don’t seem to have gotten the memo that demand has been cooling rapidly for months now: the number of housing starts and dwellings under construction, particularly condos, has risen rapidly from the 2009 lows and continues to grow.”

“In other words, while sale volumes are nearing recession levels, building in the Vancouver region has been booming. Barring a strong reversal of current trends, this supply of new homes will only increase inventory and further pressure prices, which showed the first year over year dip since 2009 according to the MLS Home Price Index.”

The last time the numbers were this bad in places like Vancouver and the downtown Toronto condo market, it was August 2008, but things looked quite different then.
The Bank of Canada overnight interest rate was three per cent and would drop to 0.25 per cent over the next eight months, bringing variable-rate mortgages and HELOC rates down with it. The discounted mortgage rate (the rate borrowers actually get from the bank, as opposed to the overnight rate) was about to plummet nearly 200 basis points in five months, providing a massive boost in affordability.
In addition, the government and CMHC were about to launch an aggressive campaign to insure low-ratio mortgages and purchase them and other insured mortgages off bank balance sheets in an effort to keep mortgage credit flowing.

Today, however, we have the exact opposite dynamic. Rates are near record lows, particularly for fixed mortgage rates and widely expected to rise sometime next year. It is much more difficult for lenders to obtain bulk insurance from the Canada Mortgage and Housing Corporation and I’m now hearing of big banks asking for a greater down payment on conventional mortgages in certain markets where they see a higher risk of a housing correction. Also, the Office of the Superintendent of Financial Institutions Canada has axed cash-back and stated-income mortgages by the big banks while the CMHC has tightened mortgage rules again.

The take-away:
The sudden slowdown in sales in key markets as a result of new lending rules is perhaps the clearest sign yet that the Canadian housing market is being driven and sustained by mortgage debt rather than true fundamentals. In August, Canada’s three-largest metropolitan areas saw significant declines in home sales and growing inventories of unsold dwellings relative to last year at this time. While this may not constitute a trend yet, it should at the very least cause us to ponder the implications of the long-anticipated slowing in the resale market. Indeed, should soft sales persist, and I see little on the horizon to reinvigorate them, they will weigh on prices in these key markets and likely in short order.

– charts and wholesale reposting of text from ‘Canadian housing: There’s an obvious oversupply problem in Vancouver, Toronto and Montreal’, Ben Rabidoux, Macleans, 11 Sep 2012
—

Great summary of ‘where we are now’, Ben.
Reproduced here for the chronological record.
For those interested, sales, inventory, and prices are regularly and vigorously monitored and discussed at vancouvercondo.info (VCI).
Topping is a process, and it appears clear to us that Vancouver RE is a bubble in the process of preparing for some serious deflation.
– vreaa
—

Here’s another angle on ‘where we are now’, via Garth Turner:
“Let’s use poor Vancouver as an example of what happens when hot turns not. For an on-the-spot report we turn to one of our insiders:
“September’s first week has gone by. We’re well on track to have the worst September in 12 years. A couple of disasters now are North Vancouver (the last bastion of 2-salary professional home buying). Can Richmond really go lower? Well – last month was a disaster – this month we are now on track for only 45 sales (down again from 60). We’ll see how this goes.
“Just saw an interesting sale in Quilchena in Vancouver [West-side]. Sold for 1.5M which was 600,000 below assessed. The owner was likely 80 years old, bought 55 years ago. This was big lot in a great area. An area I would really like to live in. This was a 6,000 sq foot lot. Took a while to sell and I’m sure the owner said she just wanted her money. They did list close to $2 million but on the 3rd price drop a low ball came in and she took it. Must be shocking.
“Anyhow, we are on track for 1360 sales compared 1585 in 2008. That’s a pretty decent drop – and may even get the MOI above the 2008 level. People here are so completely delusional.”
– from Garth Turner at greaterfool.ca 11 Sep 2012

“When the price of a certain commodity or asset has already risen multiple times, it will decline even when inflation comes.”

“I often receive questions on why property prices shouldn’t continue to rise with inflation. The difference is in the past. When the price of a certain commodity or asset has risen multiple times, it will decline even when inflation comes.
Let’s say that inflation in the future would double the general price level in a decade. Any commodity or asset that has seen its price more than doubled already may not be a good inflation hedge. The bubble phenomenon has made many commodities and assets bad inflation hedges.”
– Andy Xie, in his article ‘The Rise of Inflation Nations’, caixin.com, 6 Sep 2012

For those who claim that, if we see an inflationary period, Vancouver RE would be a good hedge. – vreaa

Mike Shedlock – “I get taunts from Canadian readers all the time. 100% without a doubt, Canada is in the midst of an immense housing bubble.”

“All major Canadian exports including energy, autos, agriculture, forest products and machinery-and-equipment collapsed in the latest report. Canadian analysts are shocked by the news. I sure am not. For my reason, look at happenings in China, a huge recession in Europe, and even a recession in the US that surprisingly few have even figured out yet.” …
“100% without a doubt, Canada is in the midst of an immense housing bubble. The Canadian bubble outlasted bubbles in China and Australia. Because it did, I get taunts from Canadian readers all the time.
I received one just yesterday. It went something like this “So Mish, where’s your Canada Housing Collapse?”
The answer, as always is “I don’t know”. That said, bubbles pop by definition. Moreover, the longer the bubble lasts, the bigger the implosion.
Australia is in the midst of a big property bubble collapse, a big retail collapse, and a big export mining collapse all at the same time.
Canada will follow suit at some point and given taunts out of the blue, now is as good a time as any.”
– from ‘Canadian Exports Collapse, Expect Plunge in GDP; China Factor; US Recession Factor’, Mike Shedlock, Global Economic Analysis, 11 Sep 2012

There is no doubt that the Vancouver RE market represents a bubble.
– vreaa

The Financially Resilient Owner – “Don’t mean to sound like a dick but a couple hundred grand won’t change my lifestyle much at this point.”

metalhead:
“We just completed a 110K reno on our home in Abbotsford.
Kitchen, Family room and 1/2 bath.
It was major. The knocking out walls kind.
I didn’t do it to increase the value of the home.
I did it because we bought the house in 1991 and it needed it.
We like the location and don’t have any plans to sell it. Ever.
Our kids will probably end up with it.
The house has been paid for for 9 years and we paid cash for the reno.
Not every homeowner is a debt slave living beyond their means.
Some people here know me. I’m no bull.
I fully expect a hard crash around these parts.”

Eddie:
“I mean no disrespect, but if you fully expect a hard crash (which I do as well) why not sell now, rent, and buy a similar house in 7 or 8 years when they are 50% off?
Since your home is paid off it seems like an easy way to make several hundred thousand dollars.”

metalhead:
“My kids are living in the house and going to UFV.
I’m working outside of the country now and am almost never there.
Did the reno. mostly so it will be ready when I finish this contract and come home.
I have a house in Panama and Tulsa for work. I’ll be buying another one in Denver soon.
It’s not worth the hassle for me right now to sell in Abby and have to find a place for the kids plus move all my junk. I also don’t want to lose the location. It’s irreplacable. Last house on a dead end street with a park behind me.
Don’t mean to sound like a dick but a couple hundred grand won’t change my lifestyle much at this point.”

[Above exchange at VCI 11 Sep 2012 at 2:14pm to 4:39pm]
—-

One way to decide on the wisdom of ownership is purely via fundamental analysis, calculating the true value of a property based on factors such as rental yield, and purchasing when the property is in a range of fair value. This is the analysis and argument we most often discuss on this site, largely because it pertains to the vast majority of market participants.
The above exchange, however, well illustrates another concept that we have discussed here regularly through the bubble, one that is central to the whole idea of whether some individuals should buy/own or rent: If an individual can afford to see the price of their home drop by 50%, or even more, and tolerate the effect that such a drop would have on their future financial health, then they might as well own. Put another way: If the inconvenience to you of your home dropping to less than half of it’s market price is less than the inconvenience to you of renting, you might as well own, even in a very overinflated market!
‘metalhead’ is an example of such an individual. His net-worth and overall financial circumstances allows him to tolerate the idea of his Abbotsford property dropping by “a couple hundred grand”.
But how many Vancouver homeowners can say the equivalent? The majority have most of their net-worth in their homes, and many leveraged ‘players’ have much more than their net-worth in their homes. For most a drop in market value in the region of 50% would severely alter their circumstances and prospects.
– vreaa