Tag Archives: Government

Policies On Housing #3 – Sandy Garossino, Independent Candidate for City Council

[Sandy Garossino had been invited by e-mail to be heard as part of this series. Her office indicated she would respond to our questions. While we await that response, here are excerpts from an interview she did with Andrew Wit and Sean Antrim in The Mainlander, 5 Nov 2011. The whole interview is a ‘must-read’ for those interested in the issues. Thanks to readers who alerted us to this interview. -ed.]

Andrew Witt: … I think that everyone recognizes that there is an affordability crisis in the city. In 2008, Vision Vancouver was elected on a platform that would address housing, homelessness and the affordability crisis, but we all know they have done little to tackle the problem. How will you address this issue, and what distinguishes your platform from that of Vision Vancouver?

Sandy Garossino: Almost everyone that I have heard discuss this sees the affordability issue. I’m talking here about broadening this beyond homelessness and subsidized housing, but also market housing for the average working person. Almost everyone who talks about this, talks about it in the simple supply and demand equation, and their point is to increase supply. Because I deal with Asia, I understand capital markets in Asia, and I have dealings there, this seems to me to completely miss the true nature of the issue and the challenge that we confront. Just to give you a little bit of a background, our median income levels in Metro Vancouver place 20 out of 28 urban regions in Canada. Our median income levels for 2010 were below Sudbury, Windsor and St. John’s Newfoundland. We have the highest real estate prices in Canada, relative to median income. We have almost the highest real estate in the world. Relative to median income, we are 56% higher than New York City and 31% higher than London, so there’s clearly a serious distortion in the market. One of the first challenges we have is we don’t have the data. We don’t have information that can pin-point exactly what is going on and the extent to which capital is entering, and the extent to which that capital is non-resident, and how much that is affecting the market. We need to know a lot more than we do. But based on anecdotal information, which is turning out to be corroborated in news reports, it looks like global capital is having a massive impact.
I don’t know if you saw the CBC report, where on Cambie Street bungalows were sold for an average of $3.4 million to a mainland Chinese buyer. So, this is a non-residential purchase, we know there is a flight of global capital. What most people, even many people in land development and even many people in government are not perhaps cognizant of, is the extent to which rules in other parts of the world are creating a funnel effect that is driving global capital here. The challenge is not that there’s inflow of global capital because in some ways it could be quite beneficial and benign, the problem is that it is pooling in a single asset class, residential real-estate, where there is a compelling public interest. We’ve got median income levels at Sudbury levels, and we’ve got average real estate prices that are twice the average of Canadian real-estate prices. When people are feeling that they are choking, it is because they are. It is not only choking individuals, it is choking small businesses, because there is no disposable income. Businesses can’t recruit people, they can’t recruit talent, and universities can’t recruit talent. It is corroding the entire local economy, which is primarily a small medium enterprise economy. So what to do?

Sean Antrim: Bob Rennie, when he was recently speaking to the UDI, argued that it is not money coming from around the world. He looked at all of the property taxes were going out, and found that only single digit percentages of them were going to mainland China, or even just out of the country.

Sandy Garossino: I was quite struck by that analysis, because if you or I own property in a foreign country, you would have a property manager in that local environment, and that property manager would take care of all of those things. It is completely irrelevant where property taxes were mailed to. We need better evidence. Anybody who lives on the West Side, as I do, knows how false that is. There are people in my community who describe that they are the only occupied house on their block. There are houses sitting empty. We have a situation where in the marketplace, we have excess housing. We’ve got residences, thousands of them, both single-family homes and condominiums sitting empty. Well, we’ve got a rental crisis. We need to start looking at the levers. And what can be done? I don’t have the answers because this is a really complex question, but obviously we don’t want to shock the market, because that would take a bad situation and make it infinitely worse. So my approach is to ask what are the surgical tools you could start to use. So on rezonings, if we are going to be doing spot-rezonings which at least in the short-term foreseeable future we will continue to do, those rezonings should perhaps be made conditional on all the units being occupied, regardless of who the owner is. Because off-shore owners frequently do rent out their property, and often when they do they rent it below market value, that can be useful. There’s no reason in the world that we should be rezoning properties to build towers that are not going to be fully occupied. Everything should be fully occupied.
Secondly we should be looking at some of the solutions that other countries and cities have looked at like Singapore, which creates zones. Some zones are totally open for the international market, and some zones you can’t buy in unless you are a resident.

Sandy Garossino: ” … let’s look at the low-hanging fruit. Empty condominiums, and empty residents are investment properties, they should be taxed. If it is the case that business subsidizes residential housing, it should be subsidizing residential housing, not investment units. Investments should be taxed at the business rate. I would be looking for those kinds of mechanisms. We should be looking much more closely at the nature of capital that is coming in. It can be perceived as a threat because it is operating in a negative way, that has pooled so much. It is also an opportunity – one of the real interesting features of this capital is that, generally speaking, I think it is individuals, and they also have a tolerance for lower rate of return on income, lower return on investment, than the local developers. One of the challenges of STIR is that local developers actually want a decent return, or a lot of return, on their investment. That is really difficult when you have really high bank costs, but actually the non-resident investors are prepared to live with empty-units. Return on investment is not their primary objective, they are looking for something else. We should be looking to channel that investment into rental housing, channel it into financing some of these more innovative situations.”

Sean Antrim: “Bob Rennie has talked about “social housing condos” as people buy them as investments, I’m not sure if that is what you are talking about?”

Sandy Garossino: “I am thinking in concept. I think we actually need all of the players at the table, we need developers, they do understand planning costs, and we need everybody at the table, rolling-up their sleeves and really saying “OK, we are going to crack the code on this,” and we’re going to find solutions that are not going to destroy the equity that recent young buyers, the last thing they want is anybody who is actually able to shoehorn themselves into a property and for them to lose their house because we have a crash. We can’t have that.”

Andrew Witt: “You have served on a number of different art-institutions Boards. In Vancouver there are a lot of art spaces that are under erasure, especially under the threat of real estate speculation.What is your strategy to fund these projects as well as maintain Vancouver’s dynamic artist-run culture so that it is not displaced entirely.”

Sandy Garossino: “I see this in the broader context, in cultural context. The real cause of the problem, is that real-estate prices are off the charts. Being able to fund small boxes and little spots here and there is not how you instill energy and dynamism in a cultural community. My daughter is an artist living and working in Montreal. She is in the music scene, she is rising. Things are happening there. Why? It is not because of her space, it is because she is around other exciting artists and musicians. They have a a whole scene there. It is not a typical postal-stamp place that is affordable. It is about having an environment which is artist-friendly, where it is possible to be an artist where other artists want to be.”

Sean Antrim: “Why should people vote for Sandy Garossino on November 19th?”

Sandy Garossino: “Because we do need to get new voices in and, in particular, if you look at the development issue, there’s just a huge amount of money being poured into the parties and we need to have much more wide-open ability for interesting people to come forward. The other reason is that I will attack this affordability issue, and I’m going to get right to the heart of it, and not tinker around the edges and say there, we’re done. We’re not done until people can afford to live in this city.”

[This post is not to be seen as a VREAA endorsement of any of the above positions. See ‘Policies On Housing’ – The Positions Of Local Entities On The Challenges Facing Vancouver Housing‘ for an introduction/rationale for this series.]

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

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

– Bloomberg, 2 Nov 2011

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

Policies On Housing #2 – Joe Carangi, NPA Candidate for Vancouver City Council

Here are my answers to your survey.
Sincerely, Joe Carangi, NPA Candidate for Vancouver City Council

1. What do you see as the main housing challenges facing Vancouver?
The lack of affordable housing is definitely the number one issue facing residents in Vancouver or for those who are wanting to move to our beautiful city.

2. What measures do you propose to address those challenges?
I do believe that we need to look at ways to encourage home builders to build affordable housing as part of any project City Hall approves for said developer. Also the LEED standard requirements on the building of new homes needs to be eliminated or reduced as it adds around 25% to the cost of new housing for environmental technology that is unproven (ie. Olympic Village). The City also needs to work with the Province to see if tax incentives can be granted (aside from First Time Homebuyer’s grants) to again allow for residents to purchase a new home or to make more stringent requirements for oversea buyers who buy homes for speculative investments yet chose not to live in Vancouver.

3. What is your policy on housing densification?
Housing densification has its place depending on the area in the city that this is to occur. It makes sense to build more housing units near skytrains to take advantage of this important transportation ameniity. Other areas of the City would may be ideal for such densification because it could take away from the character of the area.

4. Would you support policies that would lead to a drop in real estate
values?

This is a tough one. As a home owner I do not want my home to drop too much in value but that said a correction is definitley needed in our city regarding real estate prices.

5. What is your own family’s housing situation?
I was lucky enough to purchase my condo in 2005 so it was somewhat affordable back then. Today, this same home would be nearly double the cost.


[This post is not to be seen as a VREAA endorsement of any of the above positions. See ‘Policies On Housing’ – The Positions Of Local Entities On The Challenges Facing Vancouver Housing‘ for an introduction/rationale for this series.]

Open Invitation To Candidates and Parties In The Upcoming Vancouver Civic Elections – Publicize Your Position On Vancouver Housing

“On November 19, 2011 Vancouver residents will vote for 1 Mayor, 10 Councillors, 7 Park Commissioners and 9 School Trustees in the municipal election.”
– City of Vancouver, 2011 Election Information

We see approaches to the challenges of housing as a central issue in the upcoming elections. The following is an excerpt from a letter that has been sent to specific candidates and parties and is posted here to solicit positions from any entities involved in the elections who may not have received an e-mail but would like to make their position known. Positions will be headlined, and linked in the ‘Policies On Housing’ – The Positions Of Local Entities On The Challenges Facing Vancouver Housing’ post and sidebar.
Formal replies via e-mail, please, to vreaa@hotmail.com

Dear Candidate:
_Invitation to publicize your position on housing policy._
The ‘Vancouver Real Estate Anecdote Archive’ (VREAA) is a local blog that focuses on the personal stories of Vancouver citizens meeting the challenges of housing during a real estate price boom.
We are currently running a series of posts called ‘Policies On Housing’ in which we feature the positions of local political groups/entities who may end up shaping future policy.
We would like to invite you to lay out your policy in that regard, around the following questions:
1. What do you see as the main housing challenges facing Vancouver?
2. What measures do you propose to address those challenges?
3. What is your policy on housing densification?
4. Would you support policies that would lead to a drop in real estate
values?
5. What is your own family’s housing situation?
Your answers to these questions will be headlined as a separate post, and discussion will ensue.
This is an opportunity for you to have your position on this central issue publicized and debated.
Please send your reply to: vreaa@hotmail.com
Sincerely
‘jesse’ (frequent contributor at VREAA) &
‘vreaa’ (vancouver real estate anecdote archivist)

—//end

“Man, I really hope some candidates engage on this. Definitely prepared to listen and consider making choices based on what candidates say here on this issue.” – Royce McCutcheon, Vancouver citizen, reader and poster, VREAA 2 Nov 2011

“Canada’s recent economic performance has benefited greatly from a booming housing market, which has driven house prices, residential investment and construction employment to elevated levels. We see little hope of it rising much further.”

Excerpts from ‘Canada’s house of cards?’, BNN.ca, 28 Oct 2011
“Homeowner’s continue to hear a chorus of admonishments from the Department of Finance, the Bank of Canada and OSFI that these low interest rates will not be around forever,” Bank of America Merrill Lynch economist Sheryl King said in a recent note to clients. “However, we think the stronger signal households are receiving is from policy rates, which have held steady at 1.0 percent for 13-months now.”
King says roughly two out of three mortgages underwritten this year have been for a variable rate term, compared to a typical 25 to 30 percent share. …
“Over the past decade or more, rolling a variable rate mortgage from month-to-month has consistently been less expensive than a fixed mortgage rate. In essence, a generation of homeowners has experienced nothing but declining rates and lower monthly interest payments,” she says.
“This expectation will be hard to change. … The U.S. homeowner was lured down a very similar path by the Federal Reserve at the turn of the century.” …
“Canada’s recent economic performance has benefited greatly from a booming housing market, which has driven house prices, residential investment and construction employment to elevated levels, from which we see little hope of it rising much further. There is the strong likelihood of a housing market correction at some point in the not-too-distant future, which we believe would involve an outright decline in housing investment.”

Agree on all counts. -ed.

Policies On Housing #1 – NSV (‘Neighbourhoods for a Sustainable Vancouver’)

[see ‘Policies On Housing’ – The Positions Of Local Entities On The Challenges Facing Vancouver Housing‘ for an introduction/rationale for this series]

NSV (‘Neighbourhoods for a Sustainable Vancouver’)
From their website, nsvancouver.ca:
“Neighbourhoods for a Sustainable Vancouver (NSV) is an organization made up of individual electors from neighbourhoods across Vancouver, of which many individuals are also part of neighbourhood groups whose views help to inform NSV Principles and Policies. NSV is endorsing candidates on the ballot in the upcoming 2011 civic election.
NSV is offering an alternative to Vision Vancouver and the NPA who are both effectively the same on city planning and development issues since they are heavily funded by the development industry. Regulators of land use policy, such as Vancouver’s City Council, should not be funded by those they regulate. Excessive amounts of money should not be raised or required for local elections.
NSV supports sustainable development in a scale, pace and form that protects heritage buildings, affordable rental housing and neighbourhood character, implemented through genuine grassroots neighbourhood-based planning processes. Affordable and social housing should also be a priority and designed to perform well within the scale and character of each neighbourhood. We want our city to be ecologically, socially, and financially sustainable.”

Here is ‘jesse’ on NSV’s policy on housing [Many thanks, jesse. -ed.]:
“The platform is rather detailed. It can be found here, [and archived here].
I’ll highlight a few policies that stood out to me, of which I have concerns:

“Ensure that planning and development are rooted in neighbourhood-based processes that have established community support and enhance public trust. Such processes should be genuine cooperative efforts between the City and the local community and should demonstrate substantial local support for any outcome”
This statement recurs in other policies throughout their document. Here NSV is talking about existing neighbourhood groups being more actively involved in the planning process, to the point they are given a near veto over land use planning. The issue here is that many city-wide initiatives and burdens could be nixed if such a policy is enacted. Imagine trying to get approval for treatment centres, halfway houses, or other subsidized housing in certain neighbourhoods, or even provide “medium income” housing throughout the city, from east to west. Further, density increases have been slow to materialize in certain west side neighbourhoods despite, based on price signals, a large number of people desiring to live there.

“Strive to end homelessness and poverty, and to address housing affordability more generally.”
A more general approach to housing affordability is good but it’s unclear what this means. Is “affordability” regarding ownership or just renting?

“Estimate future capacity needs based on existing population and realistic transparent projections, with raw data available to the public for ready independent review.”
Sounds good. Projections, though, can become self-fulfilling.

“Minimize rezonings that would divert development from rapid transit serving centres and high growth areas such as the Downtown District”
Uh yeah. Why rezone areas that don’t have transit? I disagree; the concept is to increase transit corridors to react to density increases, not the other way round. JMHO.

“Do not increase zoning capacity beyond what is required to realistically meet anticipated growth, so that development is directed where it should be implemented in the greatest public interest. (If the whole city is upzoned, then profitability rather than transit access may determine development, with increased orientation to automobile transportation.)”
This is a bit confusing; the “greatest public interest” is a weasel phrase. More on that below.

“Reduce/avoid regulatory disincentives to renovation of existing older character buildings to encourage adaptive reuse, which retains the affordability and embodied energy of existing buildings”
Noble, but it’s hard to see how this will align with planned density increases. Density looks to increase in specific areas, and produce larger disparity over time with this policy. Not that this is good or bad, but the conclusions seem obvious to me.

“Engage the public and other levels of government to explore and enact policies to constrain inflation of residential property values due to flipping, money laundering, and excessive foreign investment.”
This will be seen as noble, and populist, but I think vreaa and I agree this is missing the point, that there is a chronic land price bubble that extends beyond flipping, illegal activities, and foreign investors. While policies like these, if ham-fisted enough, may divert some “hot money” away, it misses the broader point, that land prices are woefully disconnected from underlying fundamentals and it’s mostly locals who are supporting valuations. [Agreed. – vreaa]


jesse adds:
“I was going to do a technical breakdown of NSV platforms but its policy is detailed enough, people can peruse it for themselves. Instead I thought I’d get on the virtual soapbox and highlight some concerns I have with their platform. I do think it’s good that it is a detailed policy. I’ve concentrated on the specific policies with which I have biggest issue. Other policies of NSV may or may not be good ideas but I support them being debated openly and on that front they seem to be adding to debate, and steering towards discussing broad housing policy as an election issue. I hope other parties and candidates can issue rebuttals to NSV’s policies or state that they agree with them.

Vancouver has a choice to make regarding increasing its density. One way is to concentrate density into areas whose existing residents are more willing to accept these increases — or cannot manage a careful, politically astute, time-heavy, media-savvy, and vocal campaign — but I also know that some neighbourhoods are much less organized than others and planning land use for the overall city “public good” produces entrenched interests that make living close to work more and more difficult as time goes on. Indeed if we look at Vancouver’s history, in certain neighbourhoods like the West End, Kits, Fairview, and more recently Mt. Pleasant, Cambie, and Main St. south of False Creek, we can see density slowly encroaching via a formal rezoning basis. This will start “creeping” outwards with more and more pressure over time.

Other neighbourhoods, mostly on the east side, have increased density through zoning for basement suites, and more recently the allowance of lane way housing city-wide. These efforts have increased dwelling capacity formally, and informally houses are adding suites more than the City wants to admit in terms of enforcement. (It has acknowledged illegal suites’ existence in working reports.) You know that I think that the City practice of “turning a blind eye” to illegal basement suites is a disingenuous way of increasing density in neighbourhoods. These suites have started to pop up on the west side too, though their instigation is more noticeable and prone to neighbours issuing complaints. It is my view this is not a good way of increasing density, producing a bifurcation of neighbourhood incomes and rendering ownership near impossible. By disallowing full-ownership density increases, it may actually increase, not decrease, speculative activity in low-density areas.

So density is coming, adding neighbourhood associations into the mix will make this process more difficult and, based on previous experience, forces density into areas where the populace doesn’t really want to be. Again, look at price signals: a great many people want to live, but are unwilling to buy, on the west side.

The City, as a whole, has the ability to decide whether protecting existing neighbourhood character by keeping density low is in the “public interest” of the city overall. I think keeping low density is going to cause more strains going forward, and increasing into medium-density similar to European or other cosmopolitan locales, as Kits/Fairview/etc. have already embarked on, is only a matter of time. At this point, given stratospheric land values, might as well hit the relief valve sooner rather than later. This is within the bounds of what the city is allowed to do and likely exactly at odds with NSV’s proposals. Increasing density in a sustainable way across the city won’t be popular, sure, but people working in, say, UBC who need to commute for close to an hour or more every working day, would likely welcome such density increases closer to their places of work. Density increases can be had by thoughtful rezonings either into multiplex or row housing (I dismiss this is not possible) of larger lots. Creative architecture can allow proper blending into neighbourhoods.

While I support more comprehensive concentration on housing policy beyond the serious problems in affordability for low-income families, which what NSV’s platform is attempting to do, I do not support the concept that Vancouver can maintain its “character”; rather it can only delay it and this will cause longer-term stresses for affordability, livability, and environmental sustainability of an extremely desirable chunk of rock. Perhaps other contributors can argue the other side, as to why certain NSV policy proposals are a good thing to pursue.”

‘Policies On Housing’ – The Positions Of Local Entities On The Challenges Facing Vancouver Housing

Posts in the series, thus far:

#1 – NSV (‘Neighbourhoods for a Sustainable Vancouver’)
[Not a response, but jesse’s discussion/critique of the publicized NSV position]

#2 – Joe Carangi, NPA Candidate for Vancouver City Council

#3a – Sandy Garossino, Independent Candidate for Vancouver City Council
[Excerpts from interview with ‘The Mainlander’]
#3b – Sandy Garossino, Independent Candidate for City Council
[Response to our questions]

#4 – Tim Louis, COPE City Council Candidate

#5 – Ellen Woodsworth, Cope City Council Candidate

[#6 – “Mayoral candidates Gregor Robertson and Suzanne Anton each said they would not put limits on foreign investment.”]

#7 – Non-Responders; Delinquents; Hall Of Shame

Dear Candidate:
_Invitation to publicize your position on housing policy._
The ‘Vancouver Real Estate Anecdote Archive’ (VREAA) is a local blog that focuses on the personal stories of Vancouver citizens meeting the challenges of housing during a real estate price boom.
We are currently running a series of posts called ‘Policies On Housing’ in which we feature the positions of local political groups/entities who may end up shaping future policy.
We would like to invite you to lay out your policy in that regard, around the following questions:
1. What do you see as the main housing challenges facing Vancouver?
2. What measures do you propose to address those challenges?
3. What is your policy on housing densification?
4. Would you support policies that would lead to a drop in real estate
values?
5. What is your own family’s housing situation?
Your answers to these questions will be headlined as a separate post, and discussion will ensue.
This is an opportunity for you to have your position on this central issue publicized and debated.
Please send your reply to: vreaa@hotmail.com
Sincerely
‘jesse’ (frequent contributor at VREAA) &
‘vreaa’ (vancouver real estate anecdote archivist)

Regular readers know that we at VREAA have been pretty much agnostic when it comes to the finer points of political policy: Our focus here has rather been on the massive market forces that the speculative mania has applied. We have argued that differences in the approaches of different groups to ‘affordable’ housing in Vancouver pale into relative insignificance when it comes to the effect of the bubble, and that, when the bubble implodes, an approach to a sustainable and sensible housing policy will face challenges different from those now apparent. Debating details of policy, we’ve argued, is like debating precisely where to position the proverbial deck-chairs on the Titanic. So, we’ve argued, let the bubble play out, then respond to the terrain that remains.
We respect the fact, however, that many (most?) disagree with that position, and we acknowledge that some regular posters on these pages may have a valid point when they argue that policy is important, now. So, out of respect to that position, we will headline the housing policies of major local political groups/’players’, and discussion thereof, over an ongoing series of posts, ‘Policies On Housing’. We have invited candidates to voice their opinions by open invitation and via the e-mail above.
All of these posts will be linked in the 24. Policies On Housing sidebar category, and via the sidebar graphic, too, linking to this post.
Please, do not misinterpret any of these posts as endorsements of positions. Our aim here is to record positions, and to encourage discussion.
– vreaa

RBC – “The longer the BOC delays raising interest rates, the more marginal borrowers will enter the market and be walloped when rates rise, and the further home prices will go above their equilibrium levels, only to tumble later.”

“The very source of Canada’s relative success during the worst of the credit crunch — a banking sector that kept on lending and households that kept on buying — could yet spell its undoing if newly enlarged household debt loads prove too onerous to bear.”
“There is a popular misconception that the Bank of Canada cannot afford to raise interest rates because this would prove too damaging for mortgage holders. The opposite is in fact true. The reality is that the Bank of Canada cannot afford to delay raising interest rates, for precisely the same reason. The longer the bank delays, the more marginal borrowers will enter the market and be walloped when rates rise, and the further home prices will go above their equilibrium levels, only to tumble later.”
Once the Bank of Canada raises its key lending rate from the current “astonishingly cheap” one per cent, rising costs of servicing mortgage and other debts will sap consumer spending. Housing prices will fall as lower-tier buyers are forced out of the market by diminished affordability.

– from the Financial Post 26 Jul 2011, quoting Eric Lascelles, chief economist for RBC Global Asset Management.

Completely correct, but also very old news. Many who are bearish Vancouver RE have for years been alarmed by exactly these concerns. – vreaa

City Councillor – “The main source of profitability in the real estate market is capital appreciation rather than income.”

“The main source of profitability in the real estate market is the line not shown in your pro forma, which is capital appreciation rather than income. This kind of performance is not untypical of real estate companies who embarked on a buy-and-hold strategy.” – North Vancouver City Councillor Guy Heywood, commenting on a rental apartment developers request to waive city fees to save the project [‘Rental developer asks city for $500K in fee help’, North Shore News, 15 July 2011] (hat tip VCI)

Local governments are endorsing a new norm where developers are expected to build rental properties that are not cash-flow profitable, but rather on the premise that strong price appreciation will continue unabated?
Yet another example of ‘new paradigm’ thinking common during speculative manias. – vreaa

‘The Canadian National Museum of the Perils of Excess, Hubris, and Fantasy’

This 65,000 sqft, $25M ask, incomplete home in rural Ontario, featured in ‘Few Offers For Canada’s Biggest Fixer Upper’, G&M 19 Apr 2011.

Here’s an idea: When most opportune, secure this behemoth for the nation of Canada (we should get it for pennies; perhaps even for owed back-taxes), and turn it into ‘The Canadian National Museum of the Perils of Excess, Hubris, and Fantasy’. Exhibits to include images and testimonials from great Canadian bubbles and frauds. Educate young people about infatuation, debt, and ponzi schemes. A pilgrimage destination  for realists. Also incorporating a residential reform program for recovering debtors.
A monument to a golden age with feet of clay. – vreaa

“The city has gradually ended all leases with local businesses and sold the land to developers.”

vanpire at vancouvercondo.info 22 Jun 2011 8:00am
“I’ve lived in South Burnaby for a long time now. My neighborhood was not so special – mostly transitional residential bordering with light industrial/warehousing. As an upside there were many, many places across the street that employed people and manufactured things – a neon sign shop, a chocolate factory (for real!) a flower wholesaler, an architectural design firm, an electronic distributor. In the walking distance to my home we had a childcare, a church, a bank, a doctor’s office…
That was then. But now? The entire area was apparently owned by the city and city has gradually ended all leases with local businesses and sold the land to developers.This created a domino-effect as block by block what was once an actual city neighborhood turned into a huge condo desert, with hundreds upon hundreds of units sold mostly to chinese “investors”. City planning at its finest.
No wonder government wants the housing boom to last forever.
It’s making very easy money very fast.
Like a big party, but without hangover.”

Game Day – Carney On The Road In Vancouver – “The risk is that expectations become extrapolative, prompting the classic market emotions of greed and fear.”

15 Jun 2011, 8am: Big Day! No, not this evening’s Stanley Cup Game 7 on home ice, but BOC Governor Mark Carney, on the road, speaking here in Vancouver. We don’t know what he’s going to say, yet, but we expect it to be pertinent to our speculative mania in housing and the nosebleed debt levels BC-ites are carrying. He’ll be subtle, but he’ll warn us nonetheless. Nail-biting stuff.

UPDATE; excerpts from the speech:

“Some markets are already severely unaffordable even at current rates.”

“Given such developments, one cannot totally discount the possibility that some pockets of the Canadian housing market are taking on characteristics of financial asset markets, where expectations can dominate underlying forces of supply and demand. The risk is that expectations become extrapolative, prompting the classic market emotions of greed and fear – greed among speculators and investors – and fear among households that getting a foot on the property ladder is a now-or-never proposition.”

Entire speech here: (pdf)

Government Policy During RE Bubbles – “Economic policies which encourage people to borrow and speculate into a rising asset markets, causing general economic largesse. They want to have affordable expensive housing, that’s their policy.”

Interview with Steve Keen, Australian economist, on the Australian housing bubble that is now beginning it’s deflation. Keen predicts 40% price drops, over years. Video and transcript of interview at  finnewsnetwork, 25 May 2011.
Excerpt, that could just as well be applied to Canada – “Both parties here… claim that they want to have affordable housing, but really they’ve both had economic policies which, whether they’re conscious of it or not, have been dominated by encouraging people to borrow and speculate into a rising asset markets and that causing general economic largesse. So they want to have affordable expensive housing, that’s their policy.”

Further comments of note in the interview:
“I think what you have to do is get to the stage where you actually buy a house to live in, not to speculate on. And, with landlords, if they buy them to make an income from, buy them to make a profit from the rental income, not that of capital gain. Now that implies you’ve got to wait until housing prices have fallen something of the order of that 40 per cent that I’ve mentioned before hand, maybe even more, before it becomes possible for a landlord to borrow money, buy a house, and earn enough money from the rental income to more than service the mortgage and then you have a European situation for rents, which is what we need in this country. That’s why I think Germany hasn’t had a crisis, by the way.”

Carney – “Judgments on how well Canada came through the financial crisis should probably not be made until we can look back five years from now.”

Mark Carney, Governor of the Bank of Canada, made supposedly ‘off-record’ comments at a fund-raising event 18 Mar 2011. They were, nonetheless, released and then described in the G&M 19 May 2011“[His] tone was generally pessimistic on developed economy prospects, saying that we are still in the financial crisis (likely alluding to the hangover from fiscal stimulus in terms of sovereign debt, and the U.S. housing mess), and that judgments on how well Canada came through it should probably not be made until we can look back five years from now.”

Exactly. Stay tuned. Carney knows how precarious our position is, otherwise he wouldn’t say this, even in semi-private. We’d give an eye-tooth to know what he really thinks about the Vancouver housing market. – vreaa

BC Realtors Who Are Federal MP Candidates

CelicaMan at vancouvercondo.info April 21st, 2011 at 12:44 pm“I just found out that the Green Party candidate here in the Quadra federal riding is a realtor by day. Yikes! They’re everywhere, they’re everywhere!”

Some examples of BC Federal MP candidates who are also realtors:

Laura-Leah Shaw – Green Party – Vancouver Quadra
“Laura-Leah is a realtor with RE/MAX, is a Hall of Fame Award Winner, Medallion Club Member, and has been licensed since 1988.”

Alice Hooper – Green party – Kelowna – Lake Country
“Alice Hooper is currently a Real Estate Representative for Royal LePage Kelowna.”

Louise Boutin – Green Party – Vancouver Kingsway
“She works as a REALTOR for RE/MAX Crest Realty Westside and sells in the Vancouver, Burnaby & Richmond areas. She recently bought a home in the Kensington area and is already very active in the community.”

Pam Dhanoa – Liberal – Fleetwood Port Kells
“Pam has been a realtor in Surrey for the last 16 years.”

“It is impossible to get honest information on the RE market. Even the analyses coming from a reputable university are manipulated by people who have vested interests in that industry.”

El Magnifico at VREAA 15 April 2011 3:21am. Excerpts – “I had a very interested conversation yesterday with the “boss” of Tsur Summerville (the RE guru at UBC). I asked a few questions about the RE market in Vancouver and his views are interesting:
– He [the “boss”] genuinely doesn’t believe that a RE crash will happen in Vancouver. He definitely thinks that the RE won’t go up anymore but he said we can expect a slight correction (maybe 5-10%) and then a flat market for years (basically until salaries/economy catch up)
– He acknowledges that there has been a massive inflow of mainland Chinese buyers in Vancouver but also told me there are no serious studies conducted regarding their impact on the market (like say % of transactions made by mainland Chinese). He said such a study won’t be conducted because it is too politically sensitive…
– The most interesting thing he said is that Tsur is definitely aware that the RE market in Vancouver is in bubble territory. He issued a few statements about that and got some heat back from the RE industry (who by the way finance most of his research). So anything that comes out of his office is being made not to offend the RE industry at large, and his sponsors… It is sad that it is impossible to get honest and genuine information on the RE market. Even the analyses coming from a reputable university are manipulated by people who have vested interests in that industry…

Vancouver city staff consulted foreign government over bylaw

From Vancouver Sun, 8 April 2011“City engineer Peter Judd admitted that Vancouver city staff consulted with the Chinese government over a proposed bylaw that would prevent Falun Gong protesters from erecting billboards and huts in front of its Granville Street consulate, [Vancouver City] council was told Thursday.” … “City manager Penny Ballem said the city entered into a “confidential agreement” with the Chinese consulate in order to get feedback on the proposed bylaw.”
“Clive Ansley, a lawyer representing the Falun Gong, said it was “disgraceful and indefensible” that Vancouver consulted with the Chinese government over “the extent to which Canadians’ freedom of expression should be curtailed. “They are representatives of a foreign government and the issue we are discussing here is the Charter of Rights and Freedoms and how it applies in Canada and the right to free political expression on the part of Canadians,” Ansley said. “No foreign government has any legitimate input with respect to these issues.”

This issue is relevant to RE in Vancouver because it highlights the lack of clarity that many in positions of power have regarding appropriate boundaries, inappropriate influence, and conflicts of interest. Who do our civil servants serve? Recall that the provincial premier received >50% of her campaign contributions from the real estate industry. – vreaa

Liberals Offer Homeowners $13.5K Bribe For Their Votes – Cost To Taxpayers: $400M

From thestar.com 3 Apr 2011 ‘Liberals unveil $8 billion campaign platform’
“The platform promises a “green” home renovation tax break … a permanent $400 million tax credit to help Canadians pay for energy-saving home renovations. Individuals will be allowed to deduct up to $13,500 from their payable federal tax, and the credit is refundable, meaning those who do not have enough income to pay taxes will receive a cheque equal to their tax credit.”

This stinks. Buying votes, and planning another false injection of liquidity into the economy; care of the taxpayer. Contractors, Home Depot, and maxxed out owners will love this. Labeling the bribe ‘green’ is puke-worthy.
For the record, we at VREAA are socially progressive and fiscally prudent. Given that, there isn’t a party we can vote for. – vreaa

Former Surrey Town Planner Charged With Taking ‘Secret Commissions’ Regarding Development Application, And Use of City Funds To Buy Own House

From cbc.ca 15 Mar 2011 [hat-tip Nemesis] – “Criminal charges have been laid following a year-long investigation of a former Surrey city planner. Akonyu Akolo is facing charges of breach of trust, secret commissions and fraudulent concealment, Surrey RCMP said Tuesday. The allegations involve several thousand dollars.
The charges relate to a development application, but there was no allegation or finding of wrongdoing on the part of the applicant, police said.
The City of Surrey has also filed a civil suit against Akolo, alleging he used misappropriated city funds to buy a home in Delta. [From 8 Mar 2011 article: “The city alleges Akolo used the city’s money in the purchase of a house on Chateau Wynd in Delta with an assessed value of $624,000.”]
None of the charges against Akolo have been proved in court.”


From the video: “His house is in a quiet upscale neighbourhood, and the city alleges he may have defrauded the city of enough money to pay for it”.

52% Backed By Real Estate – Analysis Of Contributions To Campaign Of Christy Clark, New Leader of the BC Liberals


Who influences our political leaders?

Here follows the results of an analysis of the sources of campaign donations to Christy Clark, new leader of the BC Liberal Party.
(Thanks to ‘Nemesis’ [at VREAA 27 Feb 2011] for the list [pdf here].)

Methodology:
Each source was researched online, and classified by industry type, as best as possible based on available information.
Results were analyzed by number of contributors, and by dollar amounts.
Businesses classified as real estate related were developers, contractors, construction, property managers, realtors, and RE marketers.
A minority of sources (21 of 147) could not be reliably classified (for instance numbered or named corporations with no online presence, or individuals whose industry affiliations could not be ascertained) and they are classified accordingly.

Results:
Total contributions: $513,200*
Total number of contributors: 147*
[*For the sake of this analysis, we have removed the single line item ’55 donations under $250′ and the $5,840 that they contributed.]

Contributors & contributions by group:

A. Contributor known to be affiliated primarily with RE related industry:
(i) Number: 46/147
(ii) Dollar amount: $267,250

B. Contributor known to be affiliated primarily with industry that is not RE related:
(i) Number: 80/147
(ii) Dollar amount: $212,300

C. Contributors where industry affiliation cannot be ascertained:
(i) Number: 21/147
(ii) Dollar amount: $33,650

Percentage of known industry affiliated contributions coming from contributors with known RE affiliation:  55.7% ($267,250 of $479,550)

Percentage of all contributions coming from contributors with known RE industry affiliation:  52.1% ($267,250 of $513,200)

Comment:
We anticipated that the RE-affiliated portion would be large, but 52% is substantially larger than we expected, very much more than the percentage of our GDP made up by directly RE-related industry (20-22%, we believe).
Powerful vested interests means ongoing misallocation of resources.
The provincial and municipal governments will likely continue to do everything possible to perpetuate the speculative mania in Vancouver’s housing markets.
-vreaa

Vested Interests – “Are the developers and the condo industry and others really pushing the government hard saying you’ve gotta have a big CMHC to get more people into this market or we can’t sell that product?”

From BNN interview 17 Jan 2011 5:40pm with Neil Mohindra, Director Centre For Financial Policy Studies, Fraser Institute [hat-tip vancouvercondo.info] –

Interviewer: “What might surprise a lot of viewers is that fully 70% of existing Canadian mortgages are 100% guaranteed by the CMHC. I mean, why do you think Flaherty and others weren’t taking a harder look at that today and pulling the balance sheet of CMHC back towards more of its historical average which is almost a fifth of its current size. Are the developers and the condo industry and others really pushing the government hard saying you’ve gotta have a big CMHC to get more people into this market or we can’t sell that product and construction and housing is part of our national economy is going to suffer?”

Mohindra: “To the extent [that] those industries lobby, I don’t know. I’ve certainly seen testimony on the House of Commons Finance Committee, and the Senate Committee on Banking, Trade and Commerce, where those industries have made those types of points, and so they are very much in favour of the current system. Certainly it works very well for the banks as well, because, they take the returns and for the premiums their customers pay, all the risk is handed over to the taxpayers. So they get the returns, and the risk is on the taxpayers.”

Globe And Mail Headlines Bearish Warning – “Rate hikes could spark house price collapse”

We agree that the RE market is vulnerable to a collapse; we don’t think that rate hikes are absolutely necessary to bring that about. The market will begin to collapse under its own weight, and price drops will beget further price drops as sellers stampede. Rate hikes would speed the process but aren’t necessary.
It may be a landmark to have the G&M headline even the possibility of a ‘house price collapse’. -vreaa

Excerpted from G&M 3 Feb 2011
“Any move by the Bank of Canada could “easily” cause house prices to collapse, Capital Economics warns in a bleak report that suggests the Canadian housing market is likely to suffer the same sort of crash that has plagued countries such as the United States.”
“Even small rises in official interest rates have been shown to have a big effect on homeowner confidence in other countries under similar circumstances as they can change perceptions towards the housing market very quickly,” said economist David Madani. “If the Bank of Canada does resume its monetary tightening this year, this could easily prove to be a tipping point for a house price collapse.”
“Capital Economics also warns that a crash in prices could cost Canada Mortgage and Housing Corp., which insures high loan-to-value mortgages, to lose as much as $10-billion.”

Flaherty Tightens Another Smidgen; How Will Vancouver RE Respond? – Faucet or Tipping-Point?

Minister of Finance Jim Flaherty announced 17 Jan 2011 that mortgage lending terms will tighten. Maximum amortization periods will drop from 35 to 30 years, HELOCs will not be insured by CMHC, and individuals will only be able to refinance up to 85% of their property’s market value, down from the prior 90%.

These small incremental measures are designed to slightly cool off the market, and are an attempt at engineering a soft landing. Flaherty is hoping that a ‘faucet’ model applies regarding lending and the RE market: The hope is that as you tighten a little, the market slows a little. If this model applies, and you do that incrementally, you can potentially get it ‘just right’.
However, is that how the market actually works?

What if a ‘tipping point’ model better applies? In that case, there is going to be a non-linear response: as some point in the tightening process, a threshold is crossed, and large changes will rapidly occur. Like worn brakes going from smooth braking to suddenly seizing, like an egg being nudged over the edge of a table.

In Vancouver, the RE bubble has been fueled by very loose lending. Prices have pressed upwards, always at the very edge of what ‘affordability’ based on monthly payments has allowed. There will come a point where one more tightening nudge will halt that upward advance in prices. Today’s changes may very well be that nudge. And when that upward price advance ends, other factors will suddenly come into play. We believe that the very most critical change will be the psychological one that occurs when a majority of owners go from believing ‘this market is only going up’ to ‘this market could go flat or even fall’.

Many, many Vancouver owners are holding onto properties based on the premise that prices only go up. The moment that belief is seriously challenged, we believe that these holders will begin to liquidate their RE holdings. We are not just referring to the obvious speculator/flippers here, although they do make up an important minority. We are talking about the large number of regular citizens who have their financial futures dependent on the real estate market. They may be holding second and third properties, or their financial well-being may be largely dependent on the equity in their principal residences. There is far more ‘speculative holding’ in this market than is widely understood or acknowledged.

Sure, we had price drops before. At the end of 2008/beginning of 2009, prices dropped 15% in 3 to 4 months. But most owners had no chance to respond to the drop. It takes a few months to decide to sell real estate, and to act on it. Before the vast majority of owners could respond, interest rates were dropped to zero and the market was juiced. So slowly do things move in the RE markets that some owners may only have heard of the drop and bounce after the fact. When the market next turns, there will be a more relentless grind down. There will be no fiscal loosening to rescue a previously overextended market, both the MoF and the BOC appear to have made that clear. Price drops will beget price drops. The ‘virtuous’ cycle of price rises begetting more price rises will turn ‘vicious’.

-vreaa


The Economist – “Momentum effects help to explain why bubbles develop. Put that together with borrowed money and you have a disaster in the making.”

“You talking about me?”

‘The big mo’ [The Economist, 6 Jan 2011], deals with the dangerous situations that arise when herds follow winners, and the implications such behaviour should have for policy makers. The brief article is primarily about stock markets, but any sensible Vancouverite will see that it applies strikingly well to our own real estate market. [excerpts below]

We have long argued that momentum effects are driving our market. Vancouver RE prices are far removed from prices determined by fundamental measures. We believe that almost every Vancouver RE purchase has a speculative component, meaning that the purchase would not take place if the buyer did not think that prices will continue to rise at something like the historically unprecedented speed of the last 7 years. And, consequently, that many purchases would simply not have occurred if buyers expected a flat or falling market. Many in the market, without even knowing it themselves, are momentum players.

When the market turns, as it must, not only will this momentum demand evaporate, but all of the owners who are holding property for speculative reasons will experience some motivation to sell. How they act on those urges will determine the shape of our RE bear market. -vreaa

A few excerpts:

“The momentum effect cannot last for ever or share prices would head for infinity. Over long periods (more than three years or so) an opposite anomaly known as the value effect occurs: shares that are depressed in price tend to rebound. Momentum-chasing investors may get caught out by the switch from one effect to the other, especially when they have used borrowed money to try to enhance returns.”

“Analysing an irrational market is extremely difficult [Tell us about it! -ed.], as those who tried to call the top of the dotcom boom discovered in the late 1990s.”

“An irrational market sends misleading signals, causing capital to be allocated in the wrong places. … The [entities] that find it easiest to raise cash thanks to these market signals may not be those with the best business prospects.”

“Momentum effects help to explain why bubbles develop. Put that together with borrowed money and you have a disaster in the making.”

“Too often, central banks have tended to give speculative buyers a one-way bet—cutting interest rates when markets falter, but leaving them unchanged when asset prices boom.” [= ‘moral hazard’. -ed.]

“Asset bubbles can be deflated through limits on some sorts of borrowing rather than just interest-rate hikes.” [Mr Carney can’t raise interest rates right now, but Mr. Flaherty can tighten mortgage lending. Let’s hope he’s listening. -ed.]

“Economies can get carried away by momentum.” [Yeah, ‘greatly excited’, but at the same time severely distracted and deeply injured. -ed.]

Realtors Lobby Finance Minister To Keep Mortgage Lending Loose

The Canadian Real Estate Association this week [4 Jan 2010] asked its 100,000 members to send a form letter to the Minister of Finance, Jim Flaherty, urging him to keep mortgage lending loose. The realtors are pretending to take the high ground on an issue where their motivation is clearly for the health of their own business. It would be far more honest and acceptable for them to simply come out and say that they are worried about themselves, but they hide behind a faux concern for ‘Canadian families’ and ‘homebuyers, homeowners and the economy’. They aren’t kidding anybody, including, one hopes, the Minister of Finance.

Loose lending has fueled the RE Bubble, and has made housing less, not more, affordable. The longer that cheap money is available, the larger the debt burden will become before the inevitable bust. Loose lending is profoundly detrimental to the health of our society.

The CREA appeal  has been thoroughly discussed on other RE blogs but, for the sake of the historical chronology of the bubble, we headline this noteworthy event here, and post images of the CREA ‘Call to Action’ to their realtors, and of the CREA recommended form letter to the Minister.

CBC – Repeat After Me: “An Investment For Real Estate Doesn’t Make Me Nervous”

What is it to be? One day after appropriately scaring the socks off the populus with warnings regarding precarious debt levels, the CBC marches out a mortgagee and two shills to reassure everybody that it’s perfectly fine to keep fighting the good fight and piling on the ‘Good Debt’ (by buying even more RE).
Watch the end of the clip for the mortgagee interrogation. Convinced? Neither were we. Note the eye roll, the verbal hesitation, the faux ‘strong’ stance. He’d earlier called his debt “daunting”.  Also note the quirky phrasing: “an investment for real estate doesn’t make me nervous”. More like some kind of sacrifice; like dying ‘for’ a cause.

And then, to confuse everybody further, the CBC ends the piece with a warning about the interest rate ‘Wild Card’. Perhaps they’ll retract that tomorrow.
Some nice drive-by shots of very overpriced Vancouver westside homes.
The wise are nervous at this point.
-vreaa

CBC’s ‘The National’, 14 Dec 2010, a follow up to a piece the previous day that had echoed the harsh words of warning from BOC Governor Mark Carney. Reproduced verbatim and in entirety. [hat-tip ‘Re-diculous’ at VCI] –


“Well we hope we didn’t scare some of you last night with that story of how Canadian’s now carry more debt than Americans, and how debt here is more weighted to mortgages than credit cards. Some actually call that “Good debt”, but is it putting Canadians in a bad position?”


“Like lots of small business owners, Kevin  Barrett has to watch his finances carefully, and even though his personal debt is more than $300,000, he’s not too concerned because almost all of that is his mortgage on his condo”

[Barrett]: “The number is a little daunting to think about, sometimes, but I think about it long term, I try not to think about it today. I think about what it’s going to mean to me five, ten years from now.”

“Barrett is an example, say some experts, why rising debt levels in Canada shouldn’t necessarily cause alarm. He’s building equity in his home as it rises in value.”


[Pastrick]: “From time to time we do see declines in housing values, but over longer sweep of time, residential value housing prices have increased, er, over time.”


“Now, you may be thinking about what happened south of the border, houses were built for frenzied speculators, and prices crashed.”


“But even in a city [Vancouver] where average looking homes like these are selling for a million dollars, this market is much different from the States for lots of different reasons, including:…”


[Somerville]: “Looking at Vancouver, we just don’t have the excess supply that you’d need to get the crash that’d make it look like the sort of things that you see in the United States.”


“Add to that, Canadian’s have built up more equity in their houses, than Americans, owning on average 50% of the value of their home. The bottomline: A less volatile, more secure housing market.”

[Hannomansing]: “Three hundred thousand plus is a lot of money, does it ever make you nervous?”


[Barrett]: “No, …er,.. an investment for real estate doesn’t make me nervous”


[Hannomansing]: “Of course the wild card is interest rates. At historically low levels now, the BOC Governor has pointed out there is no guarantee how long they’ll stay there.”

Watershed or Landmark? – Carney, Flaherty, Harper All Warn – Risk Of “Brutal” Reckoning

Perhaps a watershed; at least a landmark. Very strong warnings this week from Mark Carney, Jim Flaherty, and Stephen Harper have been widely quoted all over the RE blogosphere. We post them as a bookmark,  for the sake of being able to reference them as having occurred ‘here’ in our ongoing chronology of stories from the Vancouver Bubble ‘n Bust. -vreaa

From Remarks by Mark Carney, Governor of the Bank of Canada, Economic Club of Canada, Toronto, 13 Dec 2010
“Historically low policy rates, even if appropriate to achieve the inflation target, create their own risks. Aside from monetary policy, Canadian authorities will need to remain as vigilant as they have been in the past to the possibility of financial imbalances developing in an environment of still-low interest rates and relative price stability. …
The perception of low rates for long [can] potentially distort behaviour in public, financial, corporate and household sectors. …
Encouraged in part by low interest rates, Canadian household credit has expanded rapidly during the recession and throughout the recovery. As a consequence, the proportion of households with stretched financial positions has grown significantly.
In a series of analyses over the past year the Bank has found that Canadian households are increasingly vulnerable to an adverse shock and that this vulnerability is rising more quickly than had been previously anticipated. …
Without a significant change in behaviour, the proportion of households that would be susceptible to serious financial stress from an adverse shock will continue to grow. …
Owing to the declining affordability of housing and the increasingly stretched financial positions of households, the probability of a negative shock to property prices has risen as well. …
Even if the growth in debt continues to slow, the vulnerability of Canadian households is unlikely to decline quickly given the outlook for subdued growth in income. In addition, private consumption is unlikely to be bolstered by gains in house prices going forward. …
Prolonged periods of unusually low rates can cloud assessments of financial risks. …
The Bank’s advice to Canadians has been consistent. We have weathered a severe crisis–one that required extraordinary fiscal and monetary measures. Extraordinary measures are only a means to an end. Ordinary times will eventually return and, with them, more normal interest rates and costs of borrowing. It is the responsibility of households to ensure that in the future, they can service the debts they take on today. Similarly, financial institutions are responsible for ensuring that their clients can service their debts. …
Low rates today do not necessarily mean low rates tomorrow. Risk reversals when they happen can be fierce: the greater the complacency, the more brutal the reckoning.”

“In the housing market, the Canadian government has already taken important measures to address household leverage. These include a more stringent qualifying test that requires all borrowers to meet the standards for a 5-year fixed-rate mortgage as well as a reduction in the maximum loan-to-value ratio of refinanced mortgages and a higher minimum down payment on properties not occupied by the owner. In addition, the Bank of Canada’s interest rate increases reminded households of the interest rate risks they face. These measures are beginning to have an impact. Canadian authorities are co-operating closely and will continue to monitor the financial situation of the household sector. These defences should go a long way to mitigate the risk of financial excesses. But the question remains whether there will still be cases where, in order to best achieve long-run price stability, monetary policy should play a supporting role by taking pre-emptive actions against building financial imbalances. As part of our research for the renewal of the inflation-control agreement, the Bank is examining this issue. While the bar for further changes remains high, the Bank has the responsibility to draw the appropriate lessons from the experience of others who, in an environment of price stability, reaped financial disaster.”

“These are extraordinary times. A massive deleveraging has barely begun across the industrialised world. …
The challenges we face have only just begun.
Cheap money is not a long-term growth strategy. Monetary policy will continue to be set to achieve the inflation target. Our institutions should not be lulled into a false sense of security by current low rates.
Households need to be prudent in their borrowing, recognising that over the life of a mortgage, interest rates will often be much higher. …
Now is not the time for complacency.”

Mark Carney in interview on BNN 14 Dec 2010
“You always get yourself in trouble if you only lend on the basis of assets, ultimately the debt service is as important, the debt endures, the asset prices go up and down.. And, when countries have got themselves into trouble in these situations, … to only look into that aspect of it is to make the classic mistake… When you have, in fact, asset based lending, which then drives asset prices up for a time which then allows more asset based lending and consumption until it doesn’t. And then when the cycle reverses it’s pretty brutal, and the debt endures. People in Ireland, people in Iceland, people in the United States, who took out big mortgages on assets that were worth a lot more for a long period of time found out that the assets not worth very much but the debt is the same as when I took it out.”
“No country can grow debt faster than income persistently.”
“Debt levels are unprecedented in this country.”
“The level of vulnerable households is high.”

Finance Minister Jim Flaherty 13 Dec 2010 – “Our parents were more inclined to pay off that mortgage as soon as possible, and some Canadians are not as inclined to do that now. I encourage them to do it. The fear is that were we to see sharp rises in interest rates or were we to see sharp rises in unemployment, that a significant number of people might not be able to afford their debt obligations.”

Prime Minister Stephen Harper 13 Dec 2010 – “We are a free country and people are entitled to make their own financial decisions. This is a matter that is of concern to the government, we continue to warn Canadian households that interest rates are unlikely to go down.”

Mainstream Crash Concern Rising – “A Softer Demand Environment For Housing Will Be Unleashed”

You drive over this patch of road daily, oblivious of the risk, until bingo!… who could have known? [Sinkhole photo from Vancouver Sun 12 Dec 2010]
I’m sure you all get the metaphor.
Well, a growing number in the mainstream are coming around to ‘getting it’, too.
The following extracts from articles in the G&M 12 Dec 2010; G&M 13 Dec 2010a

The ratio of household credit market debt-to-personal disposable income hit a record 148.1 per cent in the third quarter.
Bank of Canada Governor Mark Carney said last week that the growth of household debt, which has outpaced incomes, has deepened the vulnerability of the household sector.
The ratio of debt to assets is the second-highest in the G7.
“The trend is still that debt accumulation is faster than disposable income – and that is a worrisome trend over the long haul,” said Pascal Gauthier, senior economist at TD Bank Group. “We should look at this before we reach extreme levels, but the question is, what are extreme levels?”
78 per cent of respondents said they think they have the capacity to borrow even more.

Home ownership rate in Canada is at a record high of about 70 per cent – that’s a bit more than at the peak in the United States.
Home prices are also at record levels and the market is overvalued.

Economists Derek Holt and Gorica Djeric want the central bank chief to update markets on the outlook for housing:
“We still subscribe to the view that house prices face downside risks although the exact timing is uncertain.”
“In our view, low rates for a long time translate into concerns about transferring even greater volumes of homebuyers out of the future into the present.”
“[In future] a softer demand environment for housing will be unleashed.”

Interesting mix of euphemism and metaphor.
You don’t ‘unleash’ ‘softer demand’, you unleash the ‘hounds of hell’.
We’re not heading for a soft landing, we’re heading for a crash.
More are doing the math and realizing this. -vreaa

And from a second G&M article today (G&M 13 Dec 2010b) –
The Bank of Canada has kept borrowing rates low for longer than many economists had expected, offering a steady stream of fuel to the housing market and consumer spending. But in the process, Canadian debt levels have risen to troubling heights.
Gordon Nixon, chief executive officer of the Royal Bank of Canada, the country’s largest bank, said “We are clearly at the limit”; “You do not want significant growth in consumer debt.”
The average debt per household, including mortgage and credit card debt, hit a high this year of $96,100.
Fairfax Financial CEO Prem Watsa is among the influential voices pointing to the impact of soaring debt on the broader economy. Not only are Canadians overleveraged, primarily with mortgage debt, low interest rates have prompted speculative buying that is artificially inflating housing prices, he said.

In February, 2010, Finance Minister Jim Flaherty announced measures designed to make it harder for mortgage borrowers to get in over their head.
But those measures fell short of what some bankers wanted, namely a significant reduction in the maximum allowable amortization period of new mortgages or a substantial broad increase in down payments.

[ Yeah, as we wished for and predicted HERE. -vreaa]

“I’m sorry, Sir, you must be mistaken… the CMHC NEVER allows GDS ratios above 32 per cent.”

Jsan at greaterfool.ca 4 Dec 2010 12:33am cites the response they got to an e-mail sent to the CMHC describing a single mom on a $64K pa salary who had taken out a $695K mortgage on a $725K home in New Westminister [as described in whispersfromtheedgeoftherainforest.blogspot.com 15 May 2010] –
“When assessing a mortgage applicant’s ability to pay, a calculation known as the Gross Debt Service (GDS) ratio is used. This is the percentage of gross income required to cover the mortgage payments (principal and interest, based on the qualifying interest rate explained above), heating expenses, property taxes and (where applicable) 50 per cent of condo fees. CMHC mortgage loan insurance is not normally available when a prospective borrower has a GDS ratio above 32 per cent.
The blog post that you referenced in your correspondence claims CMHC has insured a $695,000 loan for a single individual who has an income of $64,000. This would result in a GDS ratio far in excess of the maximum that CMHC can accept. Unless there are extenuating circumstances, such as a family member helping the borrower with the mortgage payments, this situation is highly unlikely.”

This reminds us of a kind of perverse and reverse version of the apocryphal story from about three or four decades ago, of the Rolls-Royce that broke an axel in the Spanish Pyrenees. The tale goes that Rolls-Royce flew in mechanics and repaired the car at great expense to themselves. A few weeks later, when the owner, back in London,  enquired about why he hadn’t yet been sent a bill, he was told: “I’m sorry, Sir, you must be mistaken… Rolls-Royce axels never break.”
So, now, Vancouver 2010, despite overwhelming evidence to the contrary, Jsan is told: “I’m sorry, Sir, you must be mistaken… the CMHC never allows GDS ratios above 32 per cent.”
-vreaa

[PS: Isn’t the internet a thing of remarkable beauty? After writing the above based on vague memories of a story heard years ago, I googled ‘Rolls-Royce axels never break’ and the very first hit was to this discussion of the urban legend: ‘Buttered Rolls’ at snopes.com. ]

Olympian Marketing Task – “I’ve set a target of selling 100 units by June. Everything is now on the table. It has become a do-right or die effort.”

‘Marketing specialist’ Bob Rennie’s quotes extracted from the Vancouver Sun 29 Nov 2010
“It has become a do-right or die effort. The village has only one last opportunity to be successfully marketed if it is to escape its vexing image as a troubled neighbourhood.”
“The word ‘Olympic’ is a really, really expensive word. It is wrought with controversy. It can be seen as a weakness. But it can also be seen as a strength.”
“When someone gets into a taxi at the airport and says “take me to the Olympic village” everyone knows where that is. It’s not the same when someone says the name of a residential building downtown.”
“That’s the strength in this project. It is the only Olympic village. But we have to get this one right.”
“We will begin to market about 150 units in two to three waterfront buildings. Half of the condos, which average 1,000 square feet, will be under$1 million, and the other 50 per cent will be over $1 million. I’ve set a target of selling 100 units by June. It will take upwards of three years to sell all of the 473 remaining units in the village.”
“Everything is now on the table. These will be price-competitive to what is out on the market.”


Addendum:
Regarding the structure in the image above, from Wikipedia:
“The Temple of Olympian Zeus (Greek: Ναὸς τοῦ Ὀλυμπίου Διός, Naos tou Olympiou Dios), also known as the Olympieion, is a colossal ruined temple in the centre of the Greek capital Athens that was dedicated to Zeus, king of the Olympian gods. Construction began in the 6th century BC during the rule of the Athenian tyrants, who envisaged building the greatest temple in the ancient world, but it was not completed until the reign of the Roman Emperor Hadrian in the 2nd century AD some 638 years after the project had begun. During the Roman periods it was renowned as the largest temple in Greece and housed one of the largest cult statues in the ancient world.
The temple’s glory was short-lived, as it fell into disuse after being pillaged in a barbarian invasion in the 3rd century AD. It was probably never repaired and was reduced to ruins thereafter. In the centuries after the fall of the Roman Empire, the temple was extensively quarried for building materials to supply building projects elsewhere in the city. Despite this, substantial remains remain visible today and it continues to be a major tourist attraction.”

Flaherty – “No Sign Of Housing Bubble”

Again, why is it that we have a parade of people coming out and denying what they say doesn’t exist? Wethinks they doth protest too much.

“The evidence is not there that Canada has a housing bubble. In fact, the evidence with respect to affordability of mortgages in Canada is solid and we have a stable market”Finance Minister Jim Flaherty, to the House of Commons finance committee, 23 Nov 2010
.
This statement will be archived in the ‘What Bubble?’ sidebar page. Be sure to regularly check that archive, which, along with the ‘Bull Hubris’ quote collection, should make interesting reading in years to come.

CBC CPP Discussion – Panelist: “By the time somebody retires, they should have no debt”; Moderator: “But how realistic is that?”

From today’s panel discussion on CBC Radio’s The Current, regarding Canadian Pension Plan reform [23 Nov 2010] –
Panelist: “By the time somebody retires, they should have no debt”.
Moderator: “But how realistic is that?”

The End Of The Implausible Happy-Ending Scenario – “Real estate prices would rise 40 per cent quickly, condo prices would increase, and cost overruns would be covered.”

From an article in The Province [19 Nov 2010] on the implications of the developer for the Olympic Village going into receivership.
After laying out the likely money losing outcomes, the article ends with these flippant statements:
“There is a fourth scenario, however implausible, with a happy ending.
Real estate prices would rise 40 per cent quickly, condo prices would increase and cost overruns would be covered.
“Everyone would go away happy,” said [UBC real estate professor] Tsur Somerville.

(sarcasm/) Why is this so implausible? (/sarcasm)
Hasn’t our entire economy, for the last 10 years, been completely dependent on just such an implausible ongoing RE-price-rise bailout?
Where would we be without the 100%, 200%, 200+% RE price rises?
What will happen to Vancouver if/when RE prices don’t “rise x% quickly”.
We guess we’ll find out.
– vreaa

Contrarian Bet – The US Dollar Is About To Rally

Everybody and their dog seems convinced the USD is going to run off a cliff right now. The weekend’s G20 meeting did little to avert that assertion. Recent ‘the dollar is dead’ claims seem so shrill that, for the fun of it, we’ll stick our contrarian neck out here and say that the USD is about to rally. We’ve annotated the chart above at the point of this assertion, and we promise to update it before the end of the year, whether we are right or wrong in our prediction.
Of course, this all has implications for the immediate direction of the loonie, the stockmarkets, commodities, gold… but we’ll focus this prediction on the USD itself. For the record, this is a short term bet, and we’re not inordinately attached to the USD as an investment vehicle longer term. And everybody should do their own due diligence, naturally.
Below we’ve collected a few sample quotes from today’s news that are bearish the dollar, to contrast with our prediction, and to illustrate how convinced many are that the buck is tanking.
-vreaa

Quotes and headlines from today:

Dollar at Risk of Becoming ‘Toxic Waste’CNBC, 25 Oct 2010

‘G20 agreement unlikely to stop U.S. dollar’s downward trend’Financial Post, 24 Oct 2010 Excerpt: “This outcome should reinforce downward pressure on the U.S. dollar” – Todd Elmer, head of G-10 currency strategy at Citigroup

“The driving theme for the markets remains a lower U.S. dollar via [quantitative easing] for floating-currency countries and higher current account imbalances for managed-currency countries.” – Andrew Busch, global currency and public policy strategist at BMO Capital Markets, Globe and Mail, 25 Oct 2010

Olympic Village Fiasco – News Video Archive

Greenhorn (aka SethM), a regular poster at RE Talks, has done a marvelous job of collecting an archive of video news clips regarding the Olympic Village, at youtube. As the story unfolds, we see it interpreted step-by-step by the local news channels. The village will quite likely prove to be representative of the entire Vancouver market. Common themes of arrogance and overconfidence running into the brick wall of reality. Some memorable moments:


“The athletes will move in; they’ll move out; and the consumer will move into their condos, so that there is no cost to the city or the province.”Bob Rennie, Marketer, September 2008


“There is more than sufficient security to back those loans up.”Shahram Malek, Millenium Properties, 7 Nov 2008


“I am confident that this is a very good deal for the taxpayers… there will be no risk to the taxpayers.”Peter Ladner, ex Mayoral Candidate for NPA, 10 Nov 2008


“Welcome to your new digs, John.”Gregor Robertson, Mayor, at key-to-the-village handover to John Furlong, VANOC, Nov 2009


“I feel good about it. I think that everybody will make money.”Bob Rennie, Marketer, 16 May 2010


“My clients thought they were buying a very high end unit and they don’t believe Millenium is delivering anything near what they promised. … Once a purchaser loses faith in a building, they just don’t want to be there.”Bryan Baynham, Lawyer, 26 Jun 2010


“It’s absolutely normal. We have no concerns.”Penny Ballem, Vancouver City Manager, 26 Jun 2010, regarding people trying to get out of presale contracts.


“A sterile environment, it feels like a science-fiction film.”Visitor, 2 Sep 2010


“Promises were made around having a social legacy to the Olympics… Now that the circus has left town, a different story is emerging.”Am Johal, Community Coalition, 2 Sep 2010


“If I have to include the HST portion that’s been added to.. on top of GST, or we’re looking at a couple of months, uh… we’re looking at a couple of years maintenance fees, we’re going to announce those incentives sort of mid-September that what will stimulate people to buy.”Bob Rennie, Marketer, 2 Sep 2010


“It’s like a ghost town. … They were telling me.. look at the benefit you’re going to get, you are going to make so much money.”Mario Loscerbo, Mario’s Gelati,  a nearby business that endured years of construction inconvenience, 30 Sep 2010


“It’s awfully quiet.”CTV News, 30 Sep 2010

Flaherty Removes The Housing Put? – “I, for one, am not particularly concerned about the softening we’ve seen in some markets in Canada in residential real estate.”

Jim Flaherty, Canada’s Federal Finance Minister, as quoted in the Calgary Herald 17 Sep 2010

“I, for one, am not particularly concerned about the softening we’ve seen in some markets in Canada in residential real estate,” Flaherty told reporters, noting that Ottawa has twice tightened mortgage rules.
The most recent changes, which took effect in April, made it more difficult for some Canadians to qualify for a mortgage.
“This is entirely intentional, to tighten the market, so that we avoid the excesses that we’ve seen in other countries,” Flaherty said. “If we have to do more, we’ll do more.”

[Do comments like these make market participants less likely to expect bailouts and thus more likely to be cautious? Will this help to subdue sentiment in the housing market? We welcome this kind of government inattention. Let the market now proceed to find its own equilibrium, as justified by fundamentals. -vreaa]

HST Fit – “I am so pissed, I cannot put my thoughts into words.”

“I am so pissed, I cannot put my thoughts into words.”Bob Rennie, Vancouver condo marketer, on the marketing uncertainty generated by Premier Gordon Campbell’s announcement this week that the HST would go to a referendum on Sept. 24, 2011 [Globe and Mail, 16 Sep 2010].

Remember when Bob Rennie was un-pissed enough to put his thoughts into these words: “EVERYTHING IS GOING TO BE ALRIGHT” ? That was back in Sept 2009 when markets were storming back and Vancouver RE looked bullet-proof:

Rennie is trying to sell lots of condos, including >400 in the Olympic Village, in the face of a stalling RE market.

When bubbles burst, people re-write history; they retrospectively come up with ’causes’ for an implosion. They do this because it’s far easier for them to tell themselves that something extraneous, something unpredictable, caused a crash, rather than to admit that they were foolish enough to not recognize a classic and irrational market bubble that had been staring them in the face for years. They’d rather see themselves as surprised than gullible. (And, even better, indignantly blame somebody else at the same time.) Witness locals who now preach that our housing price drop in 2008-2009 was caused by the Sept-Nov 2008 global economic meltdown. [It wasn’t – The Vancouver housing market topped in the summer of 2008, months BEFORE the financial meltdown. Perversely, the global free-money emergency financial bailout RESCUED our RE market… Temporarily, anyway.]

Bubbles don’t need ANYTHING to pop them, they eventually, always, inevitably, collapse under their own weight, as ours is now proceeding to do. Like forest fires, they roar deliriously, then run out of fuel.

The HST is serving as a very convenient scapegoat for current poor sales, and it’s a fair bet that it’ll be pointed to in future as something that brought down the market. But in the grand scheme of things it’s essentially irrelevant. The real problem for this debt-fueled speculative-bubble market is in its very fabric, and that flaw is way, way bigger than the HST.

‘Exceptionally stimulative’ financial conditions not enough to save the housing market.

BOC raised the overnight rate to 1% and essentially announced that it’s unlikely to raise again soon. The housing market is stalling despite ongoing ‘exceptional stimulus’. There is a greatly depleted pool of qualified buyers, a decreased appetite for taking on more debt, and, quiet possibly, a suddenly satiated lust for RE. In the sterile and barren Olympic village, buyers are completely absent, and some owners are trying to back out of contracts. The Vancouver market does not need a raising of rates to tank, but if the long-end does rise, it’ll speed the decline. -vreaa

Bank of Canada increases overnight rate target to 1 per cent [bankofcanada.ca 8 Sep 2010] – Excerpts: “Economic activity in Canada was slightly softer in the second quarter than the Bank had expected. … The Bank now expects the economic recovery in Canada to be slightly more gradual than it had projected in July. … Financial conditions in Canada have tightened modestly but remain exceptionally stimulative. … Any further reduction in monetary policy stimulus would need to be carefully considered in light of the unusual uncertainty surrounding the outlook.” [In other words, they’re not foreseeing any more increases at this point. -ed.]

A Housing Crash Rescue Cannot Be Legislated

There is talk of possible government interventions aimed at preventing the housing market bubble from imploding.

“…if another rebound occurs, it will likely be triggered by Ottawa. The Harper government has repeatedly intervened to micro-manage the $2.8-trillion housing market.”  …. “Ottawa may loosen mortgage restrictions once again if the housing market craters.” – ‘Avoiding the crash’, macleans.ca, 4 Sept 2010

The recently much publicized Canadian Centre for Policy Alternatives report ‘Canada’s Housing Bubble: An Accident Waiting To Happen’ [David Macdonald, Aug 2010], acknowledged the existence of the bubble, but then called for attempts to orchestrate an ‘orderly’ unwinding, concluding:

“Government policy makers, the Bank of Canada, as well as rate setters at the big banks need to work together to steer the Canadian market towards a soft landing. The alternative is not acceptable.” – CCPA report

At the very most any policy intervention would only forestall the inevitable crash. To cause an ‘orderly unwinding’ of a bubble you require an orderly and never-ending supply of buyers willing to take on large amounts of (albeit cheap) debt to buy assets that are falling in value and still grossly overpriced. That isn’t going to happen.

Where would those buyers come from? The vast majority of Canadians anywhere near qualified to buy have already been sucked into the vortex that is this market, and a large minority own far more RE than is good for them in the form of more than one property, or by being financially overextended by their principle residence. Mortgage rates are already very low, and when they recently dropped even lower, no new wave of buyers stepped up to take advantage of them. The ranks of the responsible buyers have been exhausted.

Whatever bizarre huckster-saleman plan a government comes up with (free money; first time buyer grants; 0/40 mortgages; free closing costs; 1 year of mortgage payments ?) would essentially entail dragging individuals into the market who shouldn’t be there in the first place.

“Home ownership rates in Canada are about as high as they can possibly go. In fact the only way to drive them higher would be to further increase the rate of sub-prime lending to allow completely unqualified buyers into the market.” – Daniel Gibbons, commenter at Macleans.ca 5 Sept.2010

Policy change to prop up the market via new buyers would simply delay and magnify the bust, not resolve it. The pool of people facing certain future financial hardships would grow even larger. If a government attempted to engineer this, clear-headed citizens would (1) object to it happening and (2) make sure that any politicians responsible for such foolishness were held accountable for their actions. The vast majority of literate and politically involved citizens are real-estate owners, and there is therefore an inherent conflict in them being able to step up and speak truth about the bubble. Almost everybody with any influence has been co-opted by the bubble.  Therefore, unfortunately, we don’t expect to hear any loud public voices objecting to attempts to rescue the unrescuable. -vreaa

“I’ve just sold my American Home of 19 years, and will rent for the next year or so until we move to BC.”

Contrarians would currently be selling Canada and buying the US. Here’s somebody who is almost doing the reverse (not exactly the reverse, because they’re waiting before they buy BC). – vreaa

Fiendish Thingy at greaterfool.ca 24 Jul 2010 1:18 am

“I’ve just sold my American Home of 19 years (in Santa Cruz, CA , the 2nd least affordable community in the U.S. – 7.5 times avg. income IIRC), and will rent for the next year or so until we move to BC. We are sick of the corruption of both major parties, and look forward to living in a country where most of our tax dollars aren’t gobbled up by illegal wars (including torture and wiretaps), bank bailouts, and corporate welfare. We know Canada isn’t a Utopia, but it will be Heaven compared to the insanity going on the past 10 years.

We are already landed immigrants, and are just waiting for our daughter to graduate college, and for us to find jobs (in the health professions) before moving and becoming renters in the lower mainland.

In the meantime, our over $300k USD from the sale of our home will remain liquid and available for the day when Canadian RE becomes more reasonably priced. In a few years, we hope to pay cash for a home, and have no mortgage. We are completely debt-free and loving it!

As for those who hope to buy American, there are definitely good deals out there, but more may be on the way. There is a huge backlog of foreclosures, and isn’t there a huge wave of Alt-A (you pick payment/interest only) mortgages about to reset in late 2010? I don’t think we’ve seen the bottom in the U.S. yet…”

BOC Raises Rates By 0.25% – “Housing activity is declining markedly from high levels, consistent with the Bank’s view that policy stimulus resulted in household expenditures being brought forward into late 2009 and early 2010.”

Okay, we agree, but now what? ‘Policy stimulus’ has sucked forward demand from the future. In the Vancouver RE market, this has been happening steadily for the better part of a decade. The super-cheap money of the last two years simply fueled the final frenzied blow-off in the process. We now have less demand, high inventory, rising rates, and prices still in the stratosphere, gasping for oxygen. This can only result in ongoing price drops. We seem to have peaked in May [2010]. – vreaa

From the bankofcanada.ca 20 Jul 2010

“The Bank of Canada today announced that it is raising its target for the overnight rate by one-quarter of one percentage point to 3/4 per cent.”

“Housing activity is declining markedly from high levels, consistent with the Bank’s view that policy stimulus resulted in household expenditures being brought forward into late 2009 and early 2010.”

“I was a very senior employee at CMHC. Vancouver is a bubble waiting to really pop, view and beach notwithstanding.”

If we take this source as credible, this is an important opinion. Up to each reader to decide for themselves. -vreaa

John at businessweek.com 26 Jun 2010 8:05 pm

“I was a very senior employee at CMHC (Canada”s Housing agency for those not Canadian), far more senior than Cameron Muir who was a local housing analyst. I constantly interacted with some of the top economists in the world. I worked in banking at a senior level and did a ton of mortgages. Have a masters in finance and international economics. As it stands we are a ponzi scheme locally. I also grewup in Vancouver. Cameron Muir is committing resume fraud in my opinion, a BA does not qualify one to be called an Economist by any stretch. As for all the real estate agents with a half baked grasp of investments and what is going on globally, frankly they are just salesmen who would sell to anyone. PS: Also worked investment banking and have seen some pretty nasty real estate deals go south. Vancouver is a bubble waiting to really pop, view and beach notwithstanding. Plus it rains most of the time, summer is one month!”

Security, Protests, Waste, Charades – G20 In Toronto

Cost of security for the G8 & G20 summits estimated at $1 Billion.
Misallocation of valuable resources.

Millenium Water Olympic Village – Reports Imply No Sales In Last 5 weeks?

An article today, 24 Jun 2010, at the CBC.ca tells of 11 presale buyers at Millenium Water who are suing to have their purchases cancelled. Excerpt – “The 473 remaining units went on the market in May and 36 have been sold so far, according to Bob Rennie, a Vancouver condominium marketer”

That’s fine, until you look at what Rennie said to the Vancouver Sun 17 May 2010“Bob Rennie, president of Rennie Marketing Systems, confirmed he made 36 sales in the two days, about double the number anticipated.”

This implies that no further sales have been made in the 5 weeks since 17 May. At this pace, the inventory at Millenium Water won’t get sold in the 2 years predicted by the marketers. In fact, if those presale ‘buyers’ successfully start giving back units (can anybody say ‘speculator’ and ‘moral hazard’?), who knows how long it’ll take? -vreaa

Bullish Business in Canada – ‘Our exceptional quality of life will take your breath away’ (as will our housing prices).

David Rosenberg, who is decidedly bearish the Canadian RE market,  today points out that never before has Canada been more business-friendly in comparison to the US  [21 Jan 2010, Breakfast with Dave]. Excerpts – “The downside risks and upside potential for Canada vis-à-vis the U.S.A. have rarely looked as compelling as is the case today.” … “Canada has been re-rated in eyes of the global investment community.” … “It is difficult to see, in this relative political setting, the Canadian dollar failing to remain in what looks to be a long-term bull market.”

Also released today, in the 28 June 2010 edition of The New Yorker, the Government of Canada business promotion ad shown below, featuring a picture of Vancouver.

Yes, this is potentially good for business in BC. And, if there was a closer relationship between fundamentals and RE prices in Vancouver, we’d see these stories as also being a reason to be bullish local RE. As it is, however, adding a modest amount of support to our foundations will not keep elevated RE prices that are resting on nothing but large volumes of fresh air. -vreaa

Say Goodbye To Debt Fueled Housing Bubble

The BoC meets tomorrow and will almost certainly increase interest rates. Even with all of this recent juice, Vancouver prices have flattened and likely already begun their descent. Some kind of extreme has been hit, and the rate hikes will add to downward pressures. Our estimation is that, over the next two years, prices will likely correct by >33%. Thereafter we will grind lower, and the eventual trough will represent >50% off current prices. -vreaa

This excerpted from ‘Mortgage debt surges as economy picks up steam’, G&M 31 May 2010

“Canada’s economy is on fire, surging 6.1 per cent in the first quarter at an annualized pace.”

“A Statistics Canada report also shows personal debts rising, as mortgage growth surged $76.4-billion annualized in the first quarter from $59.8-billion per cent in the fourth quarter of last year. People are using more credit for homes, but less for other items.”

“Household debt as a percentage of personal income probably rose to a record 148 per cent.”

A Realtor’s Review – “And there is the problem. This Olympic Village, Millennium Water, whatever you want to call it, is completely unaffordable.”

https://i2.wp.com/www.vancouversun.com/news/1636115.bin

This excerpted from an article by local realtor Will Wertheim at agentwill.com 17 May 2010 2:51 pm

“Today I attended a Realtor review of the Millennium Water development.” … “Mr. Bob Rennie, the King of All Condos, spoke to the crowd. Those who expected a rousing and uplifting speech would be shocked by what he said. It was far more somber, realistic, and tempered with hope rather than wishes.” …  “After the speech we went in groups of twenty to visit the showhomes. … You have a group of realtors, people who sell for a living, people who know their product, and the reactions you get from them will pretty much determine the results. We started in the lowest priced home which was $595k for just about 600 square feet. No view. Reaction? Astonishment at the price. We moved on to another and another. Prices being bandied about were up to 1.X million. Reaction? Astonishment at the gall. We moved into a 2.1m unit and at over $1400/sq.ft. the reaction became muted. It was an impressive suite. We get into the Erickson designed buildings and the prices were $2.Xm and just under $4m, I think. The reaction was much more appreciative. The suites were large and well designed. The views were fantastic and the prices were reflective of the quality and the location. And there is the problem. This Olympic Village, Millennium Water, whatever you want to call it, is completely unaffordable.”

[Note that Will Wertheim finds this development overpriced in terms of the current market, which many of us believe is itself already very, very overpriced. -vreaa]

“We foresee a marked weakening in housing” – Mark Carney, Governor of the Bank of Canada

This is as likely as close as any central banker will coming to actually saying that housing will crash. -vreaa

Bank of Canada Governor Mark Carney, as quoted in the G&M 27 Apr 2010

“We see a marked weakening in housing over the course of our projection (into 2012), starting from the second quarter of this year and over the balance.”

Realtors Report Being Busy – “My sister is a realtor in one of the burbs, she’s working 16/7. Everyone’s desperate to get into something before everything changes. What’s unusual for her is the percentage of deals lately which seem complete but then fail.”

Listings are soaring; Realtors on the street say that they are busy. The lending rules tighten next Monday, 19th April. -vreaa

MikeStewartRealtor at RE Talks 7 Apr 2010 7:17 am“In the areas I work, I saw a big surge in supply right after the Olympics, but starting from about 10 days ago we’ve seen a normal Spring market kick off and demand is surging.” and 8 Apr 2010 7:09 am“Worked till 10 last night is was so busy.”

Greenhorn at RE Talks 13 Apr 2010 8:53 pm“Realtors and mortgage brokers I have talked to say the same thing you are saying. It is insane!!!! Buyers are in full panic mode. Good time to be a realtor. Actually, it is always a good time to be a realtor in Vancouver!”

webfeet at RE Talks 14 Apr 2010 1:26 am“Inventory is around 15,600 [for GVRD]. I’d call that pretty bearish. It seems like realtors are much busier listing than selling these days.”

betamax at RE Talks 14 Apr 2010 12:12 pm – “My sister is a realtor in one of the burbs, she’s working 16/7. Everyone’s desperate to get into something before everything changes. What’s unusual for her is the percentage of deals lately which seem complete but then fail. Might just be a statistical cluster, but some of these desperate buyers are simply stretching too far and can’t get the financing they thought they could. Which means that some of the people who just barely qualify could be in financial trouble in short order, no matter what else happens. Interesting times.” and 15 Apr 2010 9:10 am – “My sister mentioned being shocked by how many buyers she’s encountered who said they were getting in now to beat the HST….and many were looking at pre-owned RE. The idiots didn’t even understand that HST only applied to new sales; she had to explain it to them.”

“I’m a senior accountant for KPMG currently working for Re/Max, so here’s something from “inside the circle”: The government leg propping up the market is soon to be removed.”

Jeremys at vancouvercondo.info 12 Apr 2010 10:59 am

“I’m a senior accountant for KPMG working currently for Re/Max so here’s something from “inside the circle”. In the past year, I’ve been very, very tempted to purchase a property (a second purchase for primary residence, and turning my first home into a rental property). It’s hard not to [be tempted], with Re/Max offices busy like you wouldn’t believe and all the hype and hysteria surrounding the market. It’s anxiety at its best – and you just don’t want to be left behind. I’m sure many others were/are in the same position. Half a year ago, many of my close ties within management personnel of the company honestly didn’t know what advice to give me. Needless to say, it’s a unprecedented situation:

Housing market heads down, government intervenes with low rates to boost economy. In their intention for a slight boost, they shot it out of this world and it snowballed. Many of those who were saving for the market to correct itself further found themselves immediately back in the market. Those who had no business being in the market in the first place now found, due to the rates, they could get in. Then with all the frenzy, fear and panic starts to set in. On the business side, how could the government not expect anything more – every bank, broker, agent, etc. was pushing for sales mostly based on “get it before it’s too late”. Any why not?: much larger commissions, easy buyers who were trigger happy, a new crop of buyers who without interest rates had no business being there in the first place. Now even the government has realized the monster it created – besides the coincidental HST, they’re trying to put the brakes on (DAMAGE CONTROL) by tightening lending practices and increasing rates.

So back to half a year ago – no one could tell me an answer, they’d never seen a situation like this. Fast forward to the last couple of months. The mood is much different. Just as busy, yes, but those close to me can firmly tell me to stay on the sidelines for now – the feeling is it’s a mad rush to the exits. It’s often referenced to the Cash for Clunkers effect – immediate boosts and results were outstanding, but once it was over it was more over than anyone could have imagined. They simply took buyers from the near future and made them buyers today.

I was almost a bull in the market now turned bear. I could’ve caved in half a year ago since no one had sound advice. At this point in time, however, it’s hard to ignore the “read between the lines” advice from all my colleagues within the company. All agents have told me the majority of those coming in to buy these days are those who are firmly on the “get it before mortgage rates rises/HST” train. With this being on the start to the typically selling season, already the crop of worried buyers is on its last leg.

The government leg propping up the market is soon to be removed. If you were waiting for a correction, half of the “competition” during a downturn is already gone. Take what you will from all this, but when real estate agents on the floor level can sense something, you can figure out the rest.”