Tag Archives: Media

Vancouver RE Crash On Track

Expected weakness continues, sales remain low. Things are playing out as we’d anticipate. Very significant price drops to come (all in all, 50% to 66%, peak to trough). :

“The flicker of optimism that sparked in Canada’s housing market when January sales outpaced December’s has died out, erased by a notable drop in February.
Last month’s declines were significant enough to prompt the Canadian Real Estate Association (CREA) to cut its sales outlook for 2013 on Friday for the third time since last summer. …
“Vancouver remains the clear weak spot, with sales down a seasonally adjusted 9.8 per cent in February and 29.2 per cent in the past year,” Bank of Montreal economist Robert Kavcic wrote in a research note.But some feel that much of Vancouver’s weakness has played out.”
[hahaha -ed.]
– from ‘Clouds gather over Canadian housing market’, Globe and Mail, 15 Mar 2013

“The average MLS residential price in BC was $514,134 … down 8.1 per cent from a year ago.”BCREA news release 14 Mar 2013

“I’m seeing big increases in New West, North Van, Burnaby SFH listings. Historical highs for this time of year. VW has stalled out; VE puttering along. Condos downtown nothing special on the inventory side. I don’t know what all that means except that our little crashlet is *not* a “Van has too many condos; it’s just condos; houses are safe from all this” thing. It is in fact inventory growth and sales declines are mostly a SFH thing, from what I see.” [price declines will effect all sub-sectors of the market. -ed.]
VHB at VCI 15 Mar 2013 12:22pm

RE Inventory Chart130313
chart care of b5baxter at vancouverpeak.com

“The ratio of Canadian household debt to disposable income rose to another record last quarter, calling into question Bank of Canada Governor Mark Carney’s assertion that families are listening to his warnings about the risks of borrowing too much.
Credit-market debt such as mortgages rose to 165.0 percent of disposable income, compared with 164.7 percent in the prior three-month period, Statistics Canada said today in Ottawa.
In his previous two policy statements, Carney weakened language about the need to raise the central bank’s 1 percent policy interest rate, partly on evidence a housing boom was slowing and consumer debt burdens are stabilizing. Finance Minister Jim Flaherty tightened mortgage rules in July on concern some regional housing markets were overheating.
National net worth rose 1 percent to C$6.87 trillion ($6.73 trillion) in the fourth quarter, Statistics Canada said. On a per capita basis the increase was to C$195,900 from C$194,300.”
[Watch the per capita net-worth plunge with RE prices over coming years. -ed]
– from ‘Canadian Household Debt-to-Income Ratio Rises to Record 165%’, Bloomberg, 15 Mar 2013

“Global TV just ran two RE spots (within an hour of each other) on this morning’s news featuring Joannah Connolly, editor of the highly acclaimed BIV and holder of a BA in Eng Lit.
In segment one, she commented on the 0.1% rise in the Cdn new HPI (for Jan) and implied the housing market had “reversed a downtrend”. She also mentioned the Cdn$ and how “it rose five cents” yesterday. How sad. Colorful, animated bar graphs (a la CNBC) were used in the presentation to drive home the point that home prices are still way higher than they were in 2009. The year 2012 was conveniently omitted from graph #1 so as to mislead the public into believing the upward trajectory is still intact. graph #2 was equally laughable with price chg’s in Vanc, Vic, Wpg and Cda average all appearing to be gains with upward pointing bars.
In segment two, she talked about how hot the commercial RE was, that land was in limited supply and that investors were “snapping up anything and everything”.

– from bullwhip29 at VCI 15 Mar 2013 9:55am

BTW, they changed the headline of the Tara Perkins article in the Globe from this…
Real estate market outlook cools as home sales plunge
To this…
Clouds gather over Canadian housing market
There….that’s better.”

– from kabloona at VCI 15 Mar 2013 11:01pm

“BC home sales continued at a modest pace in February,” said Cameron Muir, BCREA Chief Economist. “Despite improved affordability, many potential buyers and sellers remain in a holding pattern. With pent up demand now becoming latent in the market, it’s not a matter of if, but when home sales rise above their current pace.”
BCREA news release 14 Mar 2013

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

reggie w

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

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

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

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

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

Fitch Ratings – Canadian RE 20% Overvalued; BC 26% Overvalued

“American-based agency Fitch says house prices are overvalued by approximately 20 per cent in real terms across Canada, with regional variations.
But in releasing its ratings on Monday, it said Alberta’s market is overvalued by 15 per cent.
“Because of the effects of inflation and price momentum, it is not expected that prices would drop by this amount,” said the Fitch report. “If growth halted and prices began to drop, it would be expected to take several years for home prices to revert to their sustainable values, depending on a number of factors such as government support and credit availability. With this time frame, the actual observed decline in prices could be as low as 10 per cent.”
It said rises in prices have continued with small corrections since 1996, and specifically since 2008 have risen when underlying fundamentals suggest that growth is unsupportable.
It said the Ontario market is overvalued by 21 per cent, Alberta by 15 per cent, British Columbia by 26 per cent and Quebec by 26 per cent.”

– from ‘Canadian housing prices overvalued by 20%: Fitch Ratings’, Calgary Herald, 4 Mar 2013 [hat-tip Nemesis]

Vancouver Reddit Boards – ‘Paid Shills In Our Midst?’ – “Does anybody else find there are too many real estate/property development posts on the /r/vancouver sub-reddit?”

“Does anybody else find there are too many real estate/property development posts on the /r/vancouver sub-reddit?
Moderators, and fellow /r/vancouver-ites: Can we consider banning/pruning the number of real estate submissions as a new rule? It’s rather frequent that I can come to /r/vancouver and see 4-5 posts on the page that certain individuals have posted.”
pfak at reddit.com 16

From the comment exchanges on that thread:

“I’d say the number of posts are in perfect proportion to the frequency Vancouver real estate comes up in conversation and the local media… “– [nutty buddy]

“The price of real estate in Vancouver is too high. This isn’t controversial, I don’t know why you are suggesting it is, everyone I know down here agrees about this, and some of my buddies overseas, the ones who are familiar with real estate/finance, agree completely.” – [MyFavouriteAxe]

“The fact that it’s subjectively “too high” might not be controversial, but this notion (that almost all of OP’s articles are pushing) that the housing market is about to crash any day now is a complete fabrication, and it’s one we’ve been hearing for at least a decade now.” – [Niyeaux]

“Obviously not everyone agrees the prices are too high, there are people buying houses for those prices, and there are others desperate to join them if the prices drop. Supply and demand my friend.” – [idspispopd]

“In a community as small, as easily accessible, and as geographically centralized as this one, it would be pretty surprising if there wasn’t at last a few paid shills in our midst. I’ve always assumed the aforementioned user /u/derpaderpe (formerly /u/proudbedwetter) is one of them.” – [Niyeaux]

“Paid by whom to sell what?” – [Smallpaul]

“Either the shitty “news” outlets who are peddling these crappy real estate articles, or someone with an interest in making people think the price of real estate in Vancouver is too high. I imagine the list of people who fit the latter description is quite lengthy.” – [Niyeaux]

“Oh, really? Like who exactly?
Agents want people to believe their property is valuable, worth it, and selling well. Developers want to charge as much as possible and make everyone think demand is high. Construction people want as much development as possible. Governments want high assessments so they can charge owners as much tax as possible. Banks want to collect as much interest as they can get on long-term mortgages. Owners want reassurance that their property isn’t losing value…
So, I guess you’re referring to mid to low-income renters and young people who don’t work in a field related to real estate. Yeah, they’ve got a lot of clout. Damn propagandists.”
– [FellSwoop]

“Or, y’know, any prospective investor who is waiting for the market to crash so they can pick properties up for cheap.” – [Niyeaux]

Real Estate infiltrates every discussion about Vancouver, so it certainly won’t surprise any of us here that the subject comes up frequently on the Vancouver reddit boards.
We don’t know whether there actually are any “paid shills” on Vancouver sites (other than the recently publicized OlympicVillage/VancouverIsAwesome ‘arrangement’, of course).
The idea that there are “prospective investor[s] who [are] waiting for the market to crash so they can pick properties up for cheap” is relatively new to the Vancouver RE discussion. It’s an interesting idea to ponder. These ‘vultures’ would have to be people who consider Vancouver RE to currently be appropriately priced, and who are hoping for ‘bargains’ at prices lower than this, such that when the properties recovered what they see as fair price levels, they would profit. We don’t ourselves know any prospective buyers of that stripe; we would certainly be interested to hear about any. All the prospective buyers we know (and there aren’t many of them) see prices as currently being far above fundamental values, and simply have a desire to buy themselves a stable shelter arrangement at a vaguely reasonable price.
– vreaa

‘Vancouver Is Awesome’ “Community-Based Social-Venture” Blog Actually A Stealth Paid Promoter Of Olympic Village

Above from a 12 Feb 2013 post on the ‘Vancouver Is Awesome’ site

“Marketers of the in-receivership Olympic Village are paying the editor of well-known local culture webzine VancouverIsAwesome.com to blog about the joys of life in the village – but it does not say on the website that he is being paid to do so.
Rennie Marketing Systems awarded the deal after receiving a single pitch from VancouverIsAwesome.com editor Bob Kronbauer, who says feels like he won a contest to be paid to flog the Village in False Creek – much like the public contests held by Vancouver International Airport and Tourism Richmond to find paid bloggers to promote them.
“I was visiting the Village a lot as a resident of Mount Pleasant before we moved in and fell in love with it and wanted to share the stories of all the positive things that make it great,” Kronbauer said.
“Beyond the budget and all this stuff I really have no idea about as an average citizen, (I wanted) to sort of expose stories about what it’s like to actually live there.”
Kronbauer lives in a market rental unit at the $1.1 billion complex, marketed by Rennie Marketing Systems, but declined to disclose his rental rate. He began a $2,475 per-month, six-month contract in May 2012 that was renewed in November. The year-long gig is worth a total $29,700.
“Beyond this, beyond my contract to promote the Village, we’ll be staying there in our suite because we love it so much, that was the intention to move there,” Kronbauer said.”

– from ‘Life in the Village pays off for local webzine editor’, Bob Mackin, Business in Vancouver, 14 Feb 2013

Elsewhere in the same BIV edition, Glen Korstrom suggests this is part of a broader trend of media manipulation by the real estate industry:
“Such tactics seem to be part of a trend of real-estate marketers manipulating media perception to sell condos.
Business in Vancouver has learned that VancouverIsAwesome.com editor Bob Kronbauer is being paid by the in-receivership Village on False Creek, formerly the Olympic Village, to promote life in the village – even though nowhere on his website does it make it clear that he is being paid to do so.”

“Vancouver Is Awesome, and we are dedicated to everything that makes it that way.
A community-based social venture sharing positive stories of arts, culture, lifestyle, and everything awesome about Vancouver. No bad news.
If you want to read ugly, bad news about this beautiful city of ours, you’re going to have to look to traditional media and other blogs; V.I.A. promotes everything that makes our city awesome, from old to new and everything inbetween. We’re like the human interest piece on the news… only different.”


We’ve previously tried reading the V.I.A. blog, but each time we break out in a terrible rash and can’t continue.
Advertising is irritating enough when it’s clearly advertising; when it’s in a stealth ‘product-placement’ form, far more so. And the ‘trend’ of media manipulation by the Vancouver RE industry is something that has been going on for years, it’s only coming to light now because the current state of the market makes people ‘ripe’ for the realization.
For the record, we ourselves aren’t paid anything, by anybody, for anything we archive, post, or say on this blog; it’s a labour of love and morbid fascination. We actually pay a small fee to wordpress each year to keep ads off the blog.
When news is “bad”, we call it “bad”; when something is “ugly”, we call it “ugly”; and that’s precisely how the RE market here looks to us right now – ugly.
A grand spectacle is playing out in our town, and we’re keeping notes.
– vreaa

If you are interested in developing your own ideas about the truth of the Vancouver RE market, and whether it is ugly or otherwise, read as broadly as you can about the market. If you don’t already do so, make sure you also consider the opinions expressed in posts and discussion on the following sites:
Vancouver Condo Info
Whispers From The Village On The Edge Of The Rain Forest
Vancouver Price Drop
Vancouver RE And Then Some
Housing Analysis
The Economic Analyst
and, of course,
Vancouver Real Estate Anecdote Archive

Globe & Mail BC Promotion Labels Vancouver Condos ‘Unaffordable’


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

Rick Mercer On Housing – ‘Flaherty’s Mixtures’ – “My hand sort of looks like a house” ; “When your property market isn’t erratic enough.”

Subtitle: ‘6 Months Ago’
He: I’m starting to think that buying this house was a very shrewd move.
She: I know.. look how much house prices are up
He: Well, believe me, I know the housing market and..(reads newspaper) whoooa!..(coughing fit)
She: I’ll go and get Flaherty’s Mixture!
Announcer: Flaherty’s Mixture is an acrid blend of Higher Down Payments and Shorter Mortgage Terms that cools off a feverish housing market
He: (drinks mixture) oh my gawd!
She: Tastes like a hockey bag.. but it works!

Subtitle: ‘6 Months Later’
She: Housing prices are down..
He: Down a little?
She: Seventeen percent!
He: (coughing fit; pounds chest)
She: I’ll get Flaherty’s Other Mixture!
Announcer: Flaherty’s Other Mixture is a blend of No Money Down and 40 Year Terms that caused the market to overheat in the first place.
He: (drinks other mixture) Hmmm.. tastes like crantinis.. let’s buy ten more houses!
She: They should put warning labels on these things..
He: My hand sort of looks like a house… (drinks again)
She: You shouldn’t mix Flaherty’s Mixtures!
He: Solarium is a funny word!
(both drink)
Announcer: Flaherty’s Mixture and Flaherty’s Other Mixture. When your property market isn’t erratic enough.

– from Rick Mercer Report, 29 Jan 2013

Transcribed here for the record.
Many a true word… Spot on regarding the effects of Flaherty’s changes.
Also, noteworthy for making light of the seriousness of the beginning of the downturn; implying just another wrinkle in the ‘erratic’ market.
– vreaa

For other ‘RE References In Popular Culture’, see here.

A Journalist’s Richmond Tales; And His Caution – “It could be argued that the operators of these bear sites are hoping to trigger a “bubble collapse” simply by writing about it all the time, and offering opinion biased in that direction, even supported by stats. To what end? Perhaps they are renters, and want to jump back in post-collapse, and then reap financial rewards when prices go up.”

“I’ve been watching carefully, and reading religiously, the postings on this website.
As a journalist for nearly two decades, I enjoy the perspectives shared, especially about the biased nature of certain opinions from within the media, real estate organizations, and members of the public, as well as those who run this site.
I’ll wade into that later, but first, some real facts from Richmond, B.C., where much of the real estate craziness has been centred.
First, a little background.
My family first bought a split level house in 2002. A modest, 1,500 square foot, three bedroom, 1.5 bath, on a lot that measured about 8,000 square feet.
We bought for $320,000, and within six months, the prices in the area “soared”—I use quotes, because at that time, we thought this was the definition of “soared—by more than $100,000.
At that point, we’d already maxed out what we could borrow from the banks, and we thanked our lucky stars we got in when we did.
But our house wasn’t worth renovating, so when a home in the neighbourhood with better bones was listed in 2007, we jumped in.
We sold our place in a bidding war for $30,000 above our asking price, and landed this other home, a dozen doors away, for about $550,000, slightly more than we sold our old place for.
By then, my wife was back at work, my kids were in elementary school, and we could afford the larger mortgage.
We then renovated it, planning to live there for the next 25 years.
But alas, then the real craziness began, which redefined “soar” for us.
We were approached by a developer offering seven figures. Our jaws hit the floor. But we’d just renovated, and were emotionally invested.
Then we slapped each other in the face, and agreed to sell it for roughly DOUBLE what we’d bought it for. This was in 2011.
Turns out, the buyer also bought at least one other home a few doors down, and was planning to raze the structures.
Having received the offer, we were worried about the market continuing the insanity, and didn’t want to be priced out, so we sought out another home not too far away. It was priced $300,000 less than what we were about to sell our home for.
The deal closing period was the normal three months, and it was the spring of 2011. This was when the first hint of the frailty of the market appeared.
The buyer backed out of the deal, citing that financing wasn’t approved. (We’re convinced it was an excuse; banks were handing our mortgages like flyers)
We were shocked, and the deal to buy the other home died too.
Although it didn’t appear that way at the time, we were actually lucky the deal died.
We decided to list the property, and in early 2012, we sold it for $100,000 less than the previous year’s deal, to another developer. But we were still well ahead despite the six figure drop.
Our notary public was shocked to see the price we got. Nobody was getting that kind of money anymore in 2012, she said, for a tear-down.
Instead of buying again, we decided to rent, and that’s where we are today, as prices continue to fall.
By how much? Well, don’t let the Greater Vancouver Real Estate Board’s averages mislead you.
The devil is in the details.
Those median selling prices truly can fool you into thinking prices are “staying about the same”.
That’s not true. We’ve seen asking prices commonly drop by more than $50,000 for one $950,000 house we looked at. That other house we’d bought—before the original deal died—wouldn’t fetch within $150,000 of what we’d bought it for, and the neighbourhood is relatively ugly and certainly less desirable.
We almost bought another house from that original deal, bout were eked out in a bidding war for the house that sold for $950,000. Today, similar houses in the neighbourhood are listed for $120,000 less.
There are people out there, still wishing for their $1,000,000 pay day. But that’s not going to happen anytime soon, based on my close observations.
I’m convinced, based on conversations with my realtor and others, that much of the hype was generated by offshore buyers seeking new homes, and local developers scooping up tear downs to meet this foreign demand.
Today, in my old stomping grounds, there are close to two dozen brand new megahomes listed for $1.8 million or more.
They’ve been lingering on the market for more than a year, and in one case, closer to two. Those prices aren’t budging, but those developers will surely start feeling the pinch, as money from offshore (mainly China/Hong Kong) has dried up.
One house directly beside ours was bought for $720,000, a crazy price, only for the prices to further soar to $950,000 for our neighbour, in the span of just three months in the fall of 2011. A new house was built in its place, sold for $1.78 million to the parents of my son’s classmate, and is now back on the market for $1.9 million. Wishful thinking, no doubt, for someone wishing to be on the outside again as prices fall.
In the McNair area, I’ve seen houses drop in asking price by more than $150,000. Now, sure, you could say the owners were simply listing too high. But we’re not talking talking about one or two homes. We’re seeing many homes drop in prices by six figures.
When those home prices drop enough to attract a buyer, that will bring down the median selling house price, but only if the market for multi-million dollar homes remains quiet as well. If demand for pricey homes rises, those other price-drops would be masked.
I believe that prices have been propped up for a long time by higher-priced homes selling, hiding the street-level changes I’m now seeing.
This month, I’ve seen some evidence of change.
One house in the South Arm area listed for $720,000, and sold within a month. It was a modest rancher, on a corner lot of above-average size.
Other slightly larger homes on smaller lots, including one directly across the street, still are asking for $910,000+.
The bottom line: whether it’s a matter of the “bubble bursting”, I’m no expert.
But when prices drop 20 per cent, that’s nothing to sneeze at.
Now, back to the issue of biased reporting, readers should keep this in mind.
Journalists aren’t paid to share their opinions unless they are writing a column. They simply report results of research, observations, and the opinions of others, essentially.
When I read that a real estate association thinks this will be a good year, I’m reminded of one of my university classes.
I believe the term/phenomenon is “self-fulfilling prophecy”.
Real estate assocations/boards are understandably directed by their membership, which is realtors.
To say the sky is falling might just trigger said sky to fall, at least in terms of prices.
This should be self evident to readers.
It’s like asking a used car salesman if he likes used cars, or if the price of a particular used car is fair. If he says the price is inflated, you’ll offer less, and he’ll get less commission, thereby shooting himself in the foot, and earning the scorn of his bosses.
The same could be said for financial analysts. Those with enough of a following/clout could trigger cold feet among deep-pocketed investors, resulting in a cascading-like crash if they indeed predict one.
And finally, the same could be said of the analysis done by the operators of this site.
I once interviewed the frequently-quoted-on-this-website real estate expert from UBC, who referred to the Vancouver-based blogsites that have been predicting a crash for many years. (He claims there is no bubble, and therefore it can’t burst.)
It could be argued that the operators of these sites are hoping to trigger a “bubble collapse” simply by writing about it all the time, and offering opinion biased in that direction (even supported by stats; I’m reminded of the saying, there are lies, damn lies, and statistics, the latter of which can be conjured up to demonstrate almost anything). To what end? Perhaps they are renters, and want to jump back in post-collapse, and then reap financial rewards when/if prices go up.
Is this likely? Who knows.
But don’t believe everything you read.
Do your own homework, keep your ears open, take everything with a grain of salt.
And remember; when you hear an opinion, take into consideration who gives it.
Do they have a vested interest?
Almost everyone does, including me, as I’m hoping prices plummet so I can reduce my future mortgage as much as possible.”
– Martin comment at VREAA 31 Jan 2013, held up in the automatic moderation filter (likely because of length); also sent via e-mail; headlined rather than posted as comment.

Many thanks to Martin for the stories, and for sharing his thoughts about bias.

Anybody who downsized their RE holdings, or sold entirely, in the vague vicinity of the top, will do fine.
This will, however, end up representing only a very small percentage of owners.
Anybody who bought or ‘moved-up’ during the run-up, especially in its latter stages, was speculating on future price gains, even if they didn’t know it.
Those who purchased with leverage, with more than their entire net worth in RE, will be particularly fortunate if they end up lightening up at higher prices. In the vast majority of cases, this occurs by good fortune.
Martin used some skill in selling in so much as he was able to recognized the prices offered as being ludicrously high, and made the decision to take advantage of that, and he should be congratulated for doing so.

As to the discussion of bias of opinion, including that on this site:
Of course each and every argument has a source and, consequently, a perspective.
And it is wise to suggest that we all take careful note of the source of any opinion.
At the same time, I would suggest that it is far more important to consider the content of the argument than its source. This is one reason, in our opinion, that there is a place for anonymous commentary on the web: their are benefits to making content the focus of the discussion.

A waggish response to Martin’s fair objections concerning bias would be to make a quip something along the lines of “Yes, but my bias is the right one!”
The true word in that jest is that we do, indeed, believe that the evidence (the “statistics”, if you like) strongly supports the bear case. We genuinely can’t see how one can’t conclude that this is a market that’s very overextended and at high risk of a large price collapse. We accept that people arguing many other positions may see the market very differently, and may be just as sincere in their arguments as we are. And of course we are aware that some can make arguments in an insincere fashion, when they have other motives for putting out a certain message.

As for the argument that bears are trying to purposefully bring on a crash, I’d say that the thought greatly overestimates our influence. Remember, bears have been warning of the mania for many years and it has made absolutely no difference to the behaviour of the herd. A healthy and balanced market cannot be influenced by an opinion that it is not a healthy market; especially if that voice is heard by only a very small percentage of participants.
When a speculative mania collapses, reasons for the collapse are always sought. But manias end simply because they are manias; bubbles pop because they are bubbles. We have started a collection of
Erroneous Theories For Falling Prices(linked in the sidebar categories section) which already has 7 candidates. Number 3 is “Vancouver RE Bears Caused The Crash” – excerpt:
“It is common, as speculative manias implode, for ‘naysayers’ to be blamed for the shift in sentiment.
But those same bears went unheard when the market powered ahead. Suddenly, inexplicably, people start listening to bearish predictions? No, the market turns of it’s own accord, and the sentiment change reflects the turn, not the bears suddenly gaining attention.”

– vreaa

The Atlantic – “How real is Canada’s housing bubble? More real than any other country’s.”


“Canada has a new worthwhile initiative. After years of booming prices, that bastion of politeness north of the border is looking to avoid a catastrophic housing bust for something more, well, boring. Initiatives don’t get more worthwhile, and perhaps not more difficult considering Canada just might have the biggest housing bubble in the world right now.
Not exactly boring, eh?
The distinction between higher prices and bubbly prices isn’t as subjective as it might sound. Like any other financial asset, there should be a fairly steady relationship between the price of housing and the stream of income — rent — it produces. Should be. The chart above, from The Economist, looks at the price-to-rent ratios across different countries, and measures how under-or-overvalued housing is, with negative numbers corresponding to the former and positive ones to the latter.”

“..by keeping rates where they are and slowly tightening mortgage requirements, Canada hopes to engineer a more gradual price decline that won’t set off a vicious circle. In the best case, prices wouldn’t fall, except below the rate of inflation, so that real prices decline without hitting household net worths. This strategy is hardly unique — China has done the same the past few years — but it has the very Canadian name of “macroprudential regulation”.

– from ‘The Biggest Housing Bubble in the World Is in … Canada?’, The Atlantic, 25 Jan 2013

Yes, we have a big RE bubble.
Noteworthy, again, for the mention in the international press.
It is our considered opinion that a soft landing, particularly in markets such as Vancouver’s, is an impossibility.
Our market has been completely dependent on rising prices to draw in buyers.
Stagnant or falling prices will beget falling prices. Yes, that’s a circular, self-reinforcing effect, and that is why the downdraft, once established, will be so powerful.
– vreaa

‘The Economist’ “Home Truth” – “Overvaluation is especially marked in Canada.”

“Overvaluation is especially marked in Canada, particularly with respect to rents (78%) but also in relation to income (34%). Mark Carney, the country’s central-bank governor, who is soon to jump ship to join the Bank of England, where he takes over from Sir Mervyn King in July, may have shown good market timing with his move to London as well as a deft hand in negotiating his lavish remuneration. …
At some point, central banks will have to take away the balm of easy money. If housing markets remain so fragile when they are getting so much help, they may break when it is removed.”

– from ‘Home truths’, The Economist, 12 Jan 2013

And Vancouver rent and income ratios are far more extreme than the national averages.
– vreaa

‘The Economist’ has steadily been warning of a Canadian RE bubble for some time:
‘The Economist’ – Rental Income Shows Canadian Home Prices Are 71% Overvalued, 25 Nov 2011

Macleans Cover – “Inside The Great Real Estate Crash Of 2013”

macleans 14 jan 2013
– cover of Macleans, 14 Jan 2013 [hat-tip Brian and posters at VCI].

Consider the effects of this boldly unambiguous image on sentiment, particularly that of local sellers. – vreaa

Excerpts from the article, ‘Crash and Burn’, Chris Sorensen, Macleans, 14 Jan 2013:

“A housing correction—or, possibly, a crash—is no longer coming. It’s here. And you don’t have to own a tiny $500,000 condo in downtown Toronto or a $1.3-million bungalow in Vancouver to get hurt. With few exceptions, the impact will be indiscriminate as the euphoria of rising house prices is replaced by fear. The only question now is how bad things will get. If the decline picks up speed, as many believe it will, there could be a nasty snowball effect. Construction jobs will be lost. Homeowners will end up underwater. Consumers may stop spending.”

“The sudden cooling in Canada’s housing sector seemingly struck without warning. As recently as last spring, bidding wars were common in many Canadian cities as were the “over asking!” stickers agents slapped on “for sale” signs.”

“Lederer recently sent secret shoppers to several condo sales presentation offices. They made some disturbing discoveries: sales staff who didn’t ask for mortgage pre-approvals and who grossly misrepresented the demographic trends—namely the number of expected new immigrants to Toronto—that are supposed to keep units in high demand. But Lederer says he is most disturbed by the sector’s “shoddy mathematics.” By his calculations, many condo owners who rent their properties are realizing returns of less than four per cent. If rental rates fall as more units come on the market—Lederer estimates there are at least 5,000 too many condo units being built in downtown Toronto—those same investors will soon be losing money, prompting them to sell. “Being a landlord is already a negative cash proposition at today’s prices,” he says, adding that a bust in the condo sector will likely have a “trickle up” effect by reducing demand for starter homes.”

“But a mere collapse in home sales—and prices—would be bad enough. Ben Rabidoux, an analyst at M Hanson Advisers, estimates that 1.3 million people, or seven per cent of Canadian workers, are employed in the construction industry, with housing being the main driver. He argued in a recent report that a U.S.-sized housing slowdown could result in the loss of 370,000 jobs and push the unemployment rate well over nine per cent, compared to 7.2 per cent now. And that doesn’t include job losses in related industries.”

“It all amounts to a dramatic reversal of fortune for Canadians, albeit one we brought on ourselves. Back in 2009, our hot housing market acted as a life preserver in a sea of economic uncertainty. Now it feels more like a cinder block tied around our necks.”

Vancouver Sun Continues To March Out Bullish Reassurance – ‘Vancouver real estate buyers waiting for a price collapse in 2013 could be in for a long wait’

van sun 29 dec 2012 D11

While national media, international media, and various internet commentators are all warning of increasing signs of a Vancouver RE mania in the early stages of implosion, the Vancouver Sun continues to march out overly-optimistic arguments from the usual suspects. Above image of an article in the 29 Dec 2012 Vancouver Sun print edition (page D11) shows how visual prominence is given to the ‘Sold’ property (hardly representative!) and to the headshots of their chosen experts. Celebrity over substance?
Somerville argues that external disruptions are necessary for a local housing crash. This is incorrect. Speculative manias all collapse for the same essential reason: they run out of fuel. External shocks may speed along collapse, and will likely be argued to have ’caused’ a crash, but the real core reason for a crash is the underlying unsustainable architecture of the spec mania itself.
Muir believes that sales, now below average, should return to the mean, to their “long term-averages”. This is intriguing argument, as we’ve never seen him apply similar logic to prices, which would have to plummet by 50% or more to return to mean historic trend lines.
– vreaa

The Sun article has been discussed and dissected at Whispers from the Village on the Edge of the Rainforest: ‘You can almost smell the desperation – buyer’s once again told prices will not be coming down’, 30 Dec 2012.

‘Time Magazine’ Asks Bearish Questions About Our RE Market; Canadian Readers Indignant

[Image from Time Magazine]

“For some time during and after the financial crisis, it was fashionable to point to Canada as a paragon of fiscal and regulatory prudence. …
For the past year or more, Canadian officials have nervously watched as household debt levels has risen to worrying heights, fueled by increased mortgage borrowing. …
Just like in the U.S., housing prices in Canada steadily rose in the decade immediately preceding the financial crisis, soaring 198% over ten years. They dipped slightly during the global recession, but bounced back quickly between 2009 and the beginning of this year, fueled in part by a low interest rate policy the Bank of Canada put in place to nurse the Canadian economy through the global economic slowdown. Real estate prices have risen so high, in fact, that many housing analysts believe the bubble is about to burst. Housing economist Robert Schiller told CBC news in September, “I worry that what is happening in Canada is kind of a slow-motion version of what happened in the U.S.” …
Indeed there are signs that the party is already over. Due in part to efforts by the Canadian government to strengthen lending standards, home prices in Canada nationwide dipped year over year in October, and declined in many of the key local markets as well, according to a recent report in Reuters. ”With cooling evident in several major cities, speculation has turned to whether the slowdown will be a soft landing or a crash,” the report said. …
A report from the CMHC released yesterday stresses its health and ability to stay solvent in the event of a downturn, and the conventional wisdom is that the Canadian real estate market will go through a rough patch and nothing more. But anybody who was paying attention during the American housing crisis can remember similar assurances, which turned out to be just plain wrong.”

– excerpts from ‘Oh No, Canada! Are We Watching Another North American Financial Crisis Unfold?’, Christopher Matthews, Time Magazine, 30 Nov 2012

The majority of comments below this article, as of 2 Dec 2012 p.m., are noteworthy for indignant hubris. When one sees terms like “laughable” and “little doubt” being used to describe positions, one should be particularly vigilant. Also interesting that the author and the publication are accused of sensationalism and “trying to generate a tempest”:

“I find this article to be almost laughable.” – SwiftrightRight

“There are no liar loans – no masses of new construction sold to people who used to live in apartments for no money down. Because everyone who holds a house holds equity of at least 20%, as opposed to the millions in the US who held equity of zero, there is not going to be a raft of abandoned mortgages even if the market does turn down significantly.” – Lord Byng
[Wrong. Everyone who owns a house does not have “equity of at least 20%”. -ed.]

“Time is trying to generate a tempest here. Some Canadian housing markets are overheated – Toronto, Vancouver – but this is generally concentrated in the absentee condo buyer class. Our tighter standards (actual proof of income, a credit history, you know, actual standards) pretty much guarantee that if house prices do fall, it means some people will [live] in their houses longer before selling.” – rpratt039

“Just last week we heard that Canada’s Central Bank Governor Mark Carney had been enticed to go over the pond and try to save the British economy. For the first time a foreigner is going to head the venerable Bank of England. That tells us about the current state of the Canadian economy and the man who had stewardship over it. Sure we are having a hiccup right now but the underlying economy is very sound.” – PonnTharmaratnam
[Tenuous logic. -ed.]

“There is little doubt that if left to its own devices, Canada would continue on the path of fairly stable economic growth. However, we must bear in mind that more than a little of today’s economic turmoil is rooted in subjective human psychology as well objective economic performance. … For this reason it is regretable that this writer, hoping for the career advancement that would come with writing a sensational piece, chose to strike out in this journalistic direction. I would recommend more substantial topics for future articles.” – sverry7
[Yes… Let’s discipline Chris when he comes up in front of the committee, shall we? The audacity! -ed.]

“The very notion of Canada having a real-estate collapse similar to the American one is highly laughable.” – K.Navaratnam
[What percentage of this individual’s net-worth is in Canadian RE? -ed.]

Vancouver Sun Calls Current SFH Prices “Rock Bottom”

$598,000: 3023 E 1ST AV Vancouver

$669,900: 5638 ABERDEEN ST Vancouver.

$638,000: 4848 KILLARNEY ST Vancouver.

– from the ’20 Vancouver homes at rock-bottom prices’, Vancouver Sun, 14 Nov 2012[hat-tip JoeQ, who adds “Given the house quality to price ratio in these photos, methinks we are quite far from “rock bottom”. (We’d agree. Prices have barely commenced their fall. -ed.)]

Nine Out Of Ten Analysts Agree: House Prices To Drop, But Not By Too Much

“Canadian housing prices will fall 10% over the next several years and homebuilding will slow sharply in 2013, but the country’s recent property boom is not expected to end in a U.S.-style collapse, according to a Reuters poll.
The survey of 20 forecasters published on Friday showed the majority believe the Canadian government has done enough to rein in runaway prices, preventing the type of crash that has devastated the U.S. market for years.
“This isn’t a sharp correction, this isn’t a U.S.-style correction, it’s just simply an unwinding of the excess valuation that was created by artificially low interest rates for a long period of time,” said Craig Alexander, chief economist at Toronto-Dominion Bank.
“I would emphasize that while a 10% correction sounds scary, in actual fact, this would be a healthy outcome.”

“Vancouver prices were forecast to fall 2.7% in 2012 and 3.8% in 2013, with an eventual decline of 12.5%.”
– from ‘Canada home prices seen falling, but not crashing’, Andrea Hopkins, Reuters via Financial Post, 9 Nov 2012

“Canada’s house prices are expected to drop and stay down for a decade, says a new report from Scotiabank that also warns of an “adverse shock” to the economy when the decline comes.
The bank’s latest housing outlook predicts a 10-per-cent price decline across Canada in the next two to three years, driven by larger declines in the Toronto and Vancouver markets, “where supply risks and affordability pressures have the potential to trigger larger price adjustments.”
The report notes that previous housing market downturns — in the 1970s and 1990s — took eight or nine years to bounce back to price levels seen before the decline.
“Historically, long cycles of rising home prices have been followed by extended periods of persistent softness, allowing affordability to be gradually restored and generating renewed pent-up demand,” the report stated.
The bank also warned that “balance sheets heavily skewed to real estate leave Canadians vulnerable to an adverse shock, including a sharp rise in unemployment and/or a sharp drop in home prices.”

– from ‘Canada House Prices To Drop, Stay Down For A Decade, Causing Unemployment, Scotia Says’, Daniel Tencer, The Huffington Post Canada, 8 Nov 2012.

Analysts in the industry are largely commentators, rather than instruments with any convincing positive predictive capacity. Their predictions are noteworthy to the extent that up until very recently there was a broadly held belief that housing prices would not fall at all. So, for the media to be announcing even the idea of coming drops is significant. But, from a quantitive perspective, their consensus about price drops being relatively benign reflects characteristic hope over substance.
Based on the size and all-consuming pervasiveness of the speculative mania, and on price levels determined by fundamentals such as rental incomes, we foresee larger than 10% drops for the nation and far, far larger drops for Vancouver (50%-66% real, peak to trough). Aren’t we already at about 10%-12%-off for most RE sub-types in Vancouver?
And another point: it took 25 years for real prices from the 1980-81 peak to be regained in Vancouver, not 10.
– vreaa

“The lax lending standards, combined with low interest rates, opened the way for easy money to flow. Average home prices in Canada have doubled over the past decade.”

“Then one day the government woke up and realized that what was once the Veterans’ Housing Shoppe was now backing the mortgages of anyone, for nearly anything. Five per cent down? No problem. Forty-year mortgages, investment properties and highly leveraged $2-million mansions by the water? Yes, yes and yes. Bring ‘em on. The lax standards, combined with low interest rates, opened the way for easy money to flow. Average home prices in Canada have doubled over the past decade. A federal institution whose mission was to make houses more affordable has managed to do the opposite–make them unaffordable.”
– from ‘CMHC outlived its mandate – now it’s just meddling’, Derek DeCloet, G&M, 25 Oct 2012

Opinions previously held only by lunatic bears-on-blogs are being expressed mainstream.
All part of the swell of sentiment change washing over the RE markets nationwide.
– vreaa

‘Vancouver Sun’ Paywall Will Decrease Readership

“The paywalls increasingly installed by news sources (eg. Times, G&M, Vancouver Sun, etc) are going to limit conversation to only those people who chose to look at a specific source. No-one is going to pay $20/month for each source – they will just choose one.So for example, G&M comments are going to be limited to people who prefer to read the G&M. That means less diverse opinions. I think that’s a loss for all of us.”
kcash, comment at The Globe and Mail, 3:20 PM on October 27, 2012

I’d agree. Paywalls are a step backwards.
We are almost exclusively going to be headlining articles and anecdotes that are freely available on the web.
We’ll tend to avoid articles where access is limited.
(Are RE ad revenues falling?)
– vreaa

Financial Post – ‘Everything you need to know about Canada’s housing ‘bubble’’

‘Everything you need to know about Canada’s housing ‘bubble’’, by Mamta Badkar at the Financial Post [4 Oct 2012] is a noteworthy article, starting with the title. Not ‘Does Canada have a RE bubble?’; by now, the fact of the bubble is a given. All of the arguments in the article are familiar to readers of these and other ‘bear-blog’ pages. It is noteworthy to see them summarized in a national newspaper. Read the entire article. Here follows a point-form Vancouver-relevant summary, for the record:

1. Canadian home prices have been rising for some time other than a brief blip during the the recession.

2. Canada’s homes were more unaffordable in the second quarter than their historical average.

3. This was the second straight quarter in which the cost of owning a home, as a percent of income, increased.

4. Vancouver is the least affordable market in Canada, and Toronto’s affordability also worsened for a second straight quarter.

5. The home price index for Vancouver topped out in May but its still the least affordable city for homes.

6. While lower interest rates could explain some of the rise in home prices, the divergence between Vancouver prices and rents has been very stark.

7. Rising interest rates could send affordability to “dangerous levels”.

8. The sudden decline in home sales is extremely worrisome for the housing market.
“In Greater Vancouver residential property sales are 41.6% lower than the 10-year average.”

9. And it doesn’t help that Canada’s sub-prime market is “booming”.
Canada’s sub-prime mortgage industry is growing and there are $500-billion in high-risk mortgages in the Canadian housing market. That is nearly 50% of the market.
Moreover, the Canada Mortgage and Housing Corporation (CMHC) which insures all mortgages approved by banks, has a legal limit of $600-billion for mortgage insurance, and this limit has already been raised twice since the end of 2007.
“If these high risk mortgages run into problems, the Canadian taxpayers are the ones on the hook for the loss of investment on what could prove to be toxic assets. In addition to the CMHC, the government also insures 90% of the portfolios of Genworth MI Capital and Canada Guarantee. When taking these corporations into account, the Canadian people have over 1T in exposure to insured mortgages.”

10. The debt to disposable income ratio for Canadian households is at nearly 155%. Household debt in the U.S. was at 160% before its economic crisis.

11. The use of Home Equity Lines of Credit (HELOCs) has also been worrisome.

12. David Rosenberg thinks Canadian houses are carving out a top as U.S. homes are carving out a bottom.

13. Robert Shiller is worried “that what is happening in Canada is kind of a slow-motion version of what happened in the U.S.”.

14. Regulators have been changing policies to cool the housing market…

15. Some expect the housing correction will be mild…

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

“Renting is the obvious alternative for someone who is unready for the financial blood-sucking that home ownership entails.
But low vacancy rates have made it a landlord’s market in some cities, notably in Toronto. Might as well buy as pay hefty rents, some will say.
Don’t listen, Gen Y. Tough it out in the rental market unless you can truly afford a home or, if extreme measures are required, move back in with your parents for a while to save a down payment.”

“As tough as the rental market may be, it’s still a better option for Gen Y than buying prematurely. Renting, at least, is a finite expense each month. Housing is infinite – there are fixed costs, plus endless discretionary expenses. Buying is not the solution to difficulties in finding a place to rent, at least not without further price declines. Instead, find a roommate and pool your resources to cut rental costs.”
– from ‘Why Gen Y should tough it out in the rental market’, Rob Carrick, G&M, 1 Oct 2012

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

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

“The Listing:
90 Massey St., Toronto
Asking price: $599,000
Taxes: $3030.95

Over the years I painstakingly improved the house – insulating the attic, building firewalls, rebuilding the front porch, updating appliances, painting and landscaping – but all my work was minor compared to the change in the neighbourhood. Since the mid-2000s, the Bellwoods Park area has gone from shabby chic to super chic, establishing itself as the beating heart of downtown Toronto’s rapid west-end gentrification.

After more than half a decade of being the proud owner of this magical city house it’s time for me to move on. Like the neighbourhood, my life has undergone massive change in the past few years, all of it for the best. My partner has a son from a previous marriage and we recently had a baby of our own. His work is based overseas and I’m spending more time abroad. As a freelance writer I need a home office cut off from the hubbub of family life. As much as I hate the idea of leaving 90 Massey, a more suitable home must be found. I’m saying goodbye to my urban worker’s cottage and hope to do safe in the knowledge that the next owners will love to the place as much as I did. Honestly, how could they not?”

– from ‘Home of the Week: A worker’s cottage built for family life’, Leah MacLaren, G&M, 20 Sep 2012

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

– from ‘Globe and Mail columnist Leah McLaren tries to sell own house in column’, Michael MacDonald, o.canada.com, 26 Sep 2012

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

A sombre picture

“In just one year, Vancouver house prices have dropped by 12%, and unit sales are plummeting…”

“The Real Estate Board of Greater Vancouver chalked it up to a “summer lull,” but the numbers suggest a trend that can’t be dismissed as simply seasonal. Last month, unit sales were the lowest for any August in the past dozen years, and nearly 40% below the 10-year August norm. Even more worrying, the average home price in Vancouver is now down more than 12% from a year ago—a worrying sign for the country’s priciest city.”

“David Madani, an economist with Capital Economics, concludes: “The Vancouver market has cracked.”

“It’s clear that trouble is ahead. The weakness… marks the start of a reversal in the long boom for Canadian real estate. The doubling in home prices that happened over the past 10 years is not likely to repeat itself. Royal LePage even conceded in a July report that the Canadian housing market has reached a “tipping point.” Forecasts from private economists vary widely. Some are calling for relatively flat prices, while Madani at Capital Economics predicts a 25% decline in Canada’s major cities over the next few years. No markets will feel the slowdown more than Vancouver and Toronto.”

“What’s surprising about the weakness on the West Coast is the absence of any change in economic fundamentals, such as a spike in unemployment, to explain it. The Vancouver market was cooling even before the latest round of mortgage tightening by Ottawa, which took effect in July.”

“A change in buyer psychology may also be occurring, says Madani. “I don’t think there are enough people now who believe we can continue these outsized price gains we’ve seen over the past decade,” he says. “As those expectations change, potential buyers step back.” With Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney constantly warning about Vancouver real estate, it’s not surprising their pleas for restraint are being heeded.”
“If this change in mindset truly takes hold, the entire Vancouver market will be affected, not just the multimillion-dollar homes. The city’s real estate has always been mind-boggling to outsiders, but reached a particularly confounding peak this year in terms of affordability. The median house price in Vancouver is 10.6 times greater than the median income, according to urban policy consulting firm Demographia. That makes it the second-most-unaffordable major city on the planet after Hong Kong. The only way to account for the market becoming so detached from fundamentals, in Madani’s view, is a pervasive belief among buyers that prices will keep rising. “Vancouver is far, far beyond what anyone would expect, based on trends in immigration, income or interest rates,” he says. “That’s just not sustainable.”

“If home prices rise substantially above income growth, the only way you’re bridging that gap usually is through mortgage debt,” says Ben Rabidoux, an analyst with boutique research firm M Hanson Advisors.

“It seems like Vancouver is past the tipping point,” says Sonya Gulati, a senior economist with Toronto-Dominion Bank. Gulati estimates the market is overvalued by 15% to 20%, and says prices could fall by an equivalent amount over the next two to three years. Rabidoux foresees an even greater decline, perhaps a 30% to 40% fall in average price.

“Typically, investors are concerned about “cash flow,” the money earned through rental income. But prices for new units in Toronto are so high that it’s tough for investors to use rental income to cover the mortgage and maintenance fees and still have something left over for themselves. They’re essentially banking on one thing: price appreciation, which is more akin to speculation. “They’d be better off going to a craps table at Casino Rama,” says Charles Hanes, a Toronto real estate agent for more than three decades.” …
Don Campbell, founder of the Real Estate Investment Network, a membership-based education and research outfit for individual investors, says those in his network who have purchased new condos tell him they’re financially sound enough to deal with monthly losses until prices rise and they can make an exit. Campbell himself is dubious. “They’re going to be disappointed because the market is not going to perform as well as it has over the last four years,” he says. “The incredible number of units that are going to be coming on the market over the next little while will really start to put a damper on the average sale price of the new condos.”

What’s happening in Toronto and Vancouver today marks the start of a much broader slowdown in housing. Affordability is becoming an issue in other cities, especially Montreal, Kelowna and Abbotsford, B.C., according to Demographia. Nationwide, the average home price is 5.6 times the average income, says Madani, whereas the norm stretching back to 1975 is 3.5. He admits the price-to-income ratio is not a perfect measure, but says it’s one clear warning sign the market is overheated. Prices ultimately have to fall in line with income.

After past housing booms in Canada, the subsequent hangovers lasted many years. The average price in Vancouver fell by more than 20% in real terms between 1995 and 2001 after a steady run-up.

– from ‘Canada’s housing crash begins’, Joe Castaldo, Canadian Business, 14 Sep 2012 [hat-tip Renters Revenge]

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

BC Business Magazine – “Was this a massive bubble? Slightly. But bubbles imply resulting crashes, and I don’t believe we’re going to have one.” [Why not?]

“History shows that Vancouver has always been a real estate boom-and-bust city. Now that the most recent mania appears to be over, with sales falling and prices threatening to follow, there’s no reason to think that’s going to change. Look for a long quiet period.

Fear and worry are rampant in Vancouver these days: the mighty real estate market is struggling. Whether it is in a tailspin or due for a monstrous crash is the subject of endless dinner conversations, office cooler chats and online messages.

I’m generally in the tailspin camp, because I’ve seen this kind of real estate mania in Vancouver before. Ever since I moved here, what seems like a hundred years ago, I’ve been hearing the “you have to get into the market” mantra and the “woe is me” reactions that follow.

Many years ago, when I was writing a financial planning column, I saw a chart that showed the increase in home prices generally mirrored the inflation rate – despite the bouts of mania – over time.

That means that, essentially, a house is like a big bank account, advancing about 3-5 per cent a year, if measured over decades. In some short-term periods it can rise much more than that, in others it falls or does nothing. Overall, it evens out.

So the people who “get rich” on housing usually own them for 30 years and essentially save their money in a house. They could have done better with some other kind of investment, but needed a place to live, so combined the two.

Here’s my own example: once, I bought a big, old, heritage house that required some rehab work. It cost me $270,000, which I thought was outrageous at the time, but as it turned out, wasn’t.

Some eight years later, I sold it for $425,000 – a gain of about 55 per cent. But for most of those years, it barely registered any increases, and in some cases, even dropped. All the gains – which averaged out to roughly 6-7 per cent a year – came in the last few years. That was at the beginning of the current mania that saw the price of that house hit almost a million.

That’s a long boom that has now apparently subsided – a 10-plus percent drop in sales usually signals the end of a giant buying spree.

Was this a massive bubble? Slightly. When prices rise that much, we’re nudging bubble territory. But bubbles imply resulting crashes, and I don’t believe we’re going to have one. Of course, prices will drop a bit, but an American-style catastrophe isn’t going to happen.

More likely, we’ll just have a long fallow period in which prices have to correlate with incomes, and markets have to better adjust to geographical and other factors. During this period, prices will drop somewhat, but mostly they’ll stagnate. What will likely happen is that this stagnation period will be longer than usual, because the market got ahead of itself so much.

But eventually it will happen again. The Vancouver region now has about twice the population it had 20 years ago, and will continue to increase over time. This increasing population means that more people have to live farther out in the region, where it’s cheaper and there’s more housing availability. In the more popular inner regional areas, prices will inevitably rise again.

Those who understand these rhythms and are patient will do very well. But that will be a minority. It always has been.”

– entire text of ‘Real Estate Mania Is Ending’, Tony Wainless, BC Business, 13 July 2012 [hat-tip Don]

1. To paraphrase the old quip: Our market is ‘slightly’ like a bubble in the way that someone gets ‘slightly’ pregnant.
2. The author seems to lay out at least some of the important dots, but then, in the end, fails to draw the logical conclusion. Note the form of his flawed logic: “Was it a bubble? Well, if it was a bubble it’d have to end in a crash. I don’t believe it’ll end in a crash so, it can’t have been a bubble.” Why doesn’t the author draw the logical conclusion? He doesn’t share with us why exactly he believes it won’t end in a crash, but it’s very likely he does that simply because he hopes it won’t.
3. Yes, the Vancouver RE market is “a massive bubble”. How do bubbles end? Do they peter out over a “long quiet period”? Or do they collapse? Do we have any examples of bubbles simply going away over a “long fallow period”? [Answer: No].
4. To Tony Wainless and others proposing a ‘soft landing’: Who do you expect to now be doing the buying? Prices are still at stratospheric levels compared with price levels supported by fundamentals. For a soft landing to occur, you need a steady supply of buyers over years and years of flat or reducing prices. People in Vancouver have only been overextending themselves to buy at these levels because they presumed future price strength would be relentless. With a lacklustre market, people will stop stretching (hasn’t this already started happening?), and prices will collapse. We cannot see how this market could resolve itself with a soft landing.
5. Talking of minorities: Those who understand that this is a speculative mania, and understand the full implications of that conclusion, remain a very, very small minority.
– vreaa

“There are many, many homeowners whose financial security and that of their children are inextricably linked to their homes, and who regard the erosion of their biggest asset with real fear.”

Three months ago:
“And [28 years ago], as now, Vancouver’s real estate was unaffordable. Nothing in that regard has changed.
What has changed are expectations. There are those who feel that the lack of cheap housing in Vancouver is an abomination. They feel that the convenience of a short commute or the proximity to a really good Ethiopian restaurant should be the natural order of things. …
Vancouver, of course, will always be the centre of things in the Metro area. It has history and critical mass on its side.
And by its very nature, it is going to attract people who want to come here and live in the city.
… the market will propel any kind of property here into the stratosphere.”

‘Affordable housing in Vancouver? Why bother?’, Peter McMartin, Vancouver Sun, 22 Mar 2012

Last week:
“Be careful what you wish for. Real estate is a two-way street, and while the issue of high housing prices has been dominated by Yellow Peril alarmists and affordable housing advocates, and by those who despair at the effect high prices have had on their neighbourhoods, there are many, many more homeowners, I’d suggest, whose financial security and that of their children are inextricably linked to their homes, and who regard the erosion of their biggest asset with real fear. They won’t care who buys their home, as long as it’s for a good price. And if the projections of the TD Bank’s economist come true [Predicted price drops of 15%. -ed.], those days when an offshore Asian buyer came calling will be remembered wistfully.”
‘The housing market is teetering. Happy now?’, Peter McMartin, Vancouver Sun, 22 Jun 2012

The speculative mania in Vancouver RE has been caused by locals overextending themselves by overbidding on homes using cheap financing; paying prices far above those supported by fundamental values; speculating that those prices could only go up further.
Any situation where the “financial security” of a large percentage of the population becomes “inextricably linked to their homes” is deeply unhealthy, and should always sound alarms. Such alarms have indeed been ringing loudly in Vancouver, for a good many years, but very few have cared to listen to them.
There are now, unfortunately, many individuals and families at risk of future financial distress as a result of the inevitable unwinding of the resultant market conditions.
– vreaa

MarketWatch – “No real estate bubble pop expected in Canada” – Source: Two Realtors

“What makes the big picture unclear is that a lot of new homeowners in Vancouver aren’t leveraged at all. Realtors tell me that a lot of their recent sales are to buyers fresh from China and flush with cash.”

“Housing in Vancouver still seems cheap to many of my Chinese clients,” a Realtor here told me. “That’s because in some cities in China, housing is two or three times more expensive than here.”

“I lived in the San Francisco Bay area for over 20 years, and I’ve seen skyrocketing real-estate prices firsthand. I’ve also watched the price of the wine-country home we sold there in 2006, near the top of the market, drop by 60 %. The current Vancouver run-up looks eerily familiar — like those new ‘For Sale’ signs here that reflect the “Buy low, sell high” truism.”

“The current real-estate market here is reminiscent of the one I experienced a few years ago in California, when a few were poised and ready to sell at the top of the market. We nearly succeeded, but we were able to become what Washington state Realtors call California “equity refugees.”
One old-pro Vancouver Realtor told me, “Look, interest rates are going to go up in Canada. Maybe later than sooner. We all know that. But you’re not going to see a real-estate bubble pop, like it did in the United States. What we’re starting to see here now is some of the air slowly coming out of the bubble. We don’t do things here the way you do in the States.” Thank heavens for that.
A soft landing for Canada’s real-estate market, in other words, is expected by many.

‘No real estate bubble pop expected in Canada’, Bill Mann, Marketwatch 24 May 2012

“In the USA, you have humans; here in Canada we have… wait a moment!”
No mention of fundamentals; pretty much a non-article.
Noted as yet another external mention of Canada’s RE bubble.
– vreaa

‘Safe As Houses’ Episode From Niall Ferguson’s ‘The Ascent of Money’

– ‘Safe As Houses’ episode from Niall Ferguson’s series, ‘The Ascent of Money’.

Watch this, if you haven’t yet done so.
Industrious readers may want to cite quotes from the episode pertinent to the current Vancouver RE market.
– vreaa

Preparing To Blame The Inevitable Canadian RE Crash On The Bears! – “I wish the perma-bears would just go back to their lairs for a really long nap.”

“For years we’ve listened to housing perma-bears Garth Turner and Ben Rabidoux warn of a collapse in housing prices. But those stubborn price indexes just aren’t co-operating. When is Armageddon ever going to descend?
Actually, I do have a fear of Armageddon. Namely based on the risk that the thicket of gloomy blog posts/tweets eventually whip up homeowner anxieties enough to precipitate waves of selling in a self-fulfilling prophecy. Moreover, the risk of such an outcome could be climbing with the mainstream media picking up on the theme (in a rather uncritical way considering the subtleties of economic cycles and statistics missed by the perma-bears).
As a homeowner, I admit not only to a vested interest, but also to wishing the perma-bears would just go back, frankly, to their lairs for a really long nap. Their proclamations substantially risk devaluating a major asset of mine. Furthermore, if Canadian housing were to crash similar to what occurred in the U.S., there will be a rather traumatic impact on the Canadian economy and all our living standards.”

– image and text from ‘When will housing Armageddon arrive?’, Larry MacDonald, Canadian Business, 30 May 2012

Once a speculative mania gets underway, the fact that it will crash is as inevitable as gravity and sunrise.
The villains of a mania, if there are any, are the many parties that contributed to its expansion, not those who point out the nature of that which has developed.
After years of denial, after ignoring mountains of evidence & years of measured arguments from bears, RE bulls are now suggesting that we all follow the path of even more denial. This is a psychologically primitive response and one that should invoke both laughter and sadness in those who hear it.
The woeful thing is that, despite the fact that this is so obviously a ridiculous argument, some will actually end up believing it, and will blame the coming crash on ‘naysayers’. As though if we all simply linked hands and pretended all was good, it would be so.
This is a truly remarkable, preposterous (and, given it’s publication by ‘Canadian Business’, arguably landmark) article. Mr MacDonald appears to be a homeowner who is likely over invested in his home, and whose future financial well-being is consequently under threat, and who is now allowing wishful thinking to blur his ability to weigh the evidence.
The bubble will implode because it’s a bubble, not because people point to it and say “Look, a bubble!”
– vreaa

Christian Science Monitor – ‘Canadians Still Think Real Estate Has Nowhere To Go But Up’ – “I would say prices are hyperinflated. But for the price of housing to go down in Toronto, that I can’t see.”

Actor and broadcaster Jeff Douglas says he knows there are “more responsible” things to do than take on a mortgage he will likely have to pay until he turns 70.
But that didn’t stop him and his wife, interior painting contractor Ana Maria Diez, from charging headlong into the battleground that has become the Canadian real estate market.
Mr. Douglas and Ms. Diez fell in love with and purchased a 1,300-square-foot duplex in a middle-class west Toronto neighborhood last month for $632,000. Like an increasing number of Canadian buyers, they sealed the deal after duking it out with several other couples who also wanted the house. They placed no conditions on their contract and finally paid 112 percent of the original list price of $555,000.
“It was one of the last houses I think we’d have a shot at because the price of houses in Toronto goes up every week so it was definitely a now or never situation,” says Douglas. “At $625,000 ($632,000 inUS dollars) we feel like we got a bargain.”

Douglas and Diez may feel lucky. But house purchases like theirs are increasingly fueling concerns that, like their American neighbors a few years ago, Canadians are spending themselves into financial disaster.
“What we are seeing is the irrational exuberance that was present in the US,” says David Madani, a former Bank of Canada analyst now with the consultancy Capital Economics. “It has all the symptoms of a disaster waiting to happen.” …
Although buyers seems convinced that real estate prices can only go up, Mr. Madani, along with the International Monetary Fund, the Economist magazine, and various independent and bank economists, warns they are already overvalued by as much as 25 percent.

“If credit tightens tomorrow, the game is over,” adds Ben Rabidoux, an analyst with the US real estate market research firm M Hanson Advisors and the author of the website The Economist Analyst. “I think we will see a decade of stagnant returns and a stagnant economy.”

Still, Toronto real estate agent Melanie Piche says she expects real estate prices to continue rising.
“People see their friends, how much money they have made in real estate,” she said. “And there aren’t a lot of safe places to put your money right now. Where else can you make 10 percent?”
Jeff Douglas agrees, and said he thinks of his purchase as an investment, similar to buying into the stock market.
“I would say prices are hyperinflated. But for the price of housing to go down in Toronto, that I can’t see,” he said. “Simple supply and demand dictate that as long as the city continues to grow, there will be a demand for housing and that will keep prices up.”

– from ‘Canadians Still Think Real Estate Has Nowhere To Go But Up’, The Christian Science Monitor, 29 May 2012

“One of the commenters for a G & M article today accused housing bears of being “unpatriotic”. Because a housing correction is bad for the economy, therefore to hope for a correction is anti-Canadian.”
crankycorvid at VREAA 30 May 2012 7:59pm

Hey!.. who do these guys think they are at the Christian Science Monitor (and the IMF, and The Economist, etc, etc) dissing us Canadians for patriotically supporting our RE bubble in the face of all common sense?
Almost makes one want to drop interest rates further, or go on a rant about health care & immigration & BPOE, or go out and buy a six-pack of condos, just to give the market a boost and show them they’re wrong.
– vreaa

[PS: “Hope” doesn’t come into whether we have a “correction” or not.
Once a speculative mania runs rampant, the collapse is already built in, regardless of what various participants desire.

Globe & Mail; Sommerville; Rennie – “No Bubble” – “Those in the know out here don’t seem to be too alarmed by what they’re seeing” … “Talk of housing bubbles makes for provocative sound bites but isn’t based in reality.”

“While there are certainly those outside the city – including economists at some of our more reputable financial institutions – who think Vancouver is heading for an abrupt decline in house prices, those in the know out here don’t seem to be too alarmed by what they’re seeing.”

“Tsur Somerville, the oft-quoted real-estate economist from the University of B.C., doesn’t see signs of a major real-estate story brewing. He actually holds a refreshing perspective on the local scene. He won’t even go so far as to say that buyers hold the advantage at the moment, even though supply far exceeds demand.
“When the average house price is still north of $800,000, then buyers’ market is a term I like to avoid using,” he says.”

“Some think that while the housing market might not be ready to go bust just yet, the condo arena is. But marketer Bob Rennie, someone who follows this area more closely than anyone in the city, says that’s nonsense. … Mr. Rennie said talk of housing bubbles makes for provocative sound bites but isn’t based in reality. He produced a dazzling array of charts and graphs to back his claim that the future of condo sales has never looked brighter.
Now, you might expect someone who sells condos for a living to say something like that. But Mr. Rennie makes a pretty compelling argument that something is afoot that backs his claim. A massive demographic in Greater Vancouver – those between 55 and 74 – is sitting on $88-billion in equity. They are beginning to downsize.”

“And he may well be right. But for now, the market is colder than it’s been in a while. That may not be a bad thing.”

– from ‘Cooler housing market no catastrophe’, Gary Mason, Globe and Mail, 19 May 2012

So, Global TV (16 May), The Vancouver Sun (17 May), and now The Globe and Mail, have all reported bullish outlooks on the Vancouver RE market this last three days, all citing as sources various combinations of: Bob Rennie, Tsur Sommerville, Helmut Pastrick, and the CMHC.
We would have liked to have seen something less homogenous and more analytical from our media, but perhaps our expectations aren’t low enough.
– vreaa

Vancouver Sun; Rennie; Sommerville – “No Bubble” – “You only need a household income of $53K to buy a condo. That’s not a bubble story.”; “We’re expensive. That’s the reality of what we are.”

“Bubble? What bubble?
That’s Vancouver condo marketing guru Bob Rennie’s take on concerns that the region’s real estate market is headed for a meltdown because of sky-high prices.
“It’s not a bubble,” said Rennie, director of Rennie Marketing Systems, in an interview following his keynote address to the Urban Development Institute Thursday.
“With the 80 per cent of the [condo] market that traded in [Metro] Vancouver last year, you only needed a household income of $52,800 to purchase. That’s not a bubble story.”
Rennie, who spoke to a full house about the state of the Vancouver property market, said aging baby boomers with billions of dollars in equity will become a much greater force in the condo market as they increasingly downsize from expensive single-detached homes, and put money aside for their children.
He also noted that the number of people between 55 and 64 will increase 38 per cent between 2009 and 2018, those between 65 and 74 will increase 56 per cent, while those between 35 and 54 will only increase by 4.6 per cent.
Because of that, he said, developers should shift their thinking into providing more larger one-bedroom condos to accommodate the downsizing boomers.
“I believe the leaner, meaner baby boomer is the game changer,” said Rennie. “Baby boomers are sitting on $88 billion in equity in Greater Vancouver and they’re looking at their retirement years. That equity will be freed up over the next 15 years [and] when they sell their home, they’ll buy down and help their kids.”
Rennie said there were about 19,000 condo sales in Metro Vancouver in 2011, and that while the average price for 80 per cent of those condos was $315,000, the overall average price was $427,000, which required an income of $66,000 to finance.”

“Meanwhile, Tsur Somerville, director, centre for urban economics and real estate, Sauder School of Business at the University of B.C., said he also doesn’t believe there’s a real estate bubble in Metro Vancouver, largely because there’s not an explosion in housing starts – typical for real estate bubbles.
Somerville said that while the affordability numbers have been skewed by the higher end parts of the market – “there were double-digit increases in Richmond, Vancouver, Burnaby and West Vancouver, with single-digit increases everywhere else” — the region is still very expensive compared to other cities in Canada.
“Compared to other cities, that income [$52,800] gets you a house. Here, it gets you a condo. That means we’re expensive, but that’s the reality of what we are.
“It’s still an expensive place to live, but it’s not unaffordable. You’ll end up smaller and further away from the core.”

– from ‘Condo king says talk of bubble just a lot of hot air’, Vancouver Sun, 17 May 2012
[hat-tip Makaya]

Rennie’s conclusion that “it’s not a bubble” does not logically follow from “you only need a $52.8K income to buy a condo”. To assess whether we are in a speculative mania, you need to analyze how the fundamental value of that property compares with the price you are paying. In Vancouver rental yields are at extreme historical lows.
Also, note that Rennie is focussed on the condo market, and he is expecting that large numbers of locals will downsize from SFHs and buy condos. But remember, downsizing means you’re partly getting out of the market, and that you are a net seller; who does he imagine is going to be doing all the net buying? Without ready buyers, that paper $88 Billion in RE equity can become $66 Billion then $55 Billion fairly rapidly, as prices plunge. Eventually we suspect it’ll represent less than $44 Billion in paper value.
Somerville, too, chooses not to talk of prices compared to measures of fundamental value, and instead makes the well known “expect to accept less for more” argument, one that can be used to argue for any price level imaginable.
– vreaa

Global TV; CMHC; Sommerville; Pastrick – “No Bubble” – “We don’t have a sort of financial environment where people are looking at major financial corrections”.

Announcer: “Is the Canadian housing market a bubble ready to burst, or is it steady as she goes? Finance Minister Jim Flaherty is warning Canadians against taking too much debt against the value of their homes, but the latest report from the Canadian Mortgage and Housing Corporation is dismissing those fears saying there is no clear evidence of a real estate bubble.”

Tsur Sommerville: “There is clearly a slowing down in the market you see an increase in the number of listings, drop in sales, all things that create less pressure on the market.”

Announcer: “According to the Real Estate Board of Greater Vancouver home sales were down 19% compared with this time last year.”

Helmut Pastrick: “The comparison to last year was heavily influenced by the change in the federal government’s mortgage insurance criteria which pulled forward a large number of sales into early 2011. So we’re comparing that high point to activity so far this year.”

Announcer: “But don’t get too excited, even though sales are down, home price indexes show a 4% increase in the price of a home in greater Vancouver. … The message to buyers, the economy is in reasonable shape, there’s a lot of supplier there, and interest rates are low. So just because sales are slumping don’t bank on prices doing the same.”

Tsur Sommerville: “We don’t have a sort of financial environment where people are looking at major financial corrections, you know, double digit increase in interest rates, or, you know, huge tightening of liquidity, that just doesn’t seem to be on the horizon, you know, to expect across-the-board 10%, 15%, 20% drop in house prices, I think that being rather, er, hopeful, for a buyer to expect that.”

– from ‘No Bubble In Vancouver Real Estate’, Global TV, 16 May 2012
[hat-tip, and thanks as usual for the video archive, to Greenhorn.]

OK, predictions noted, for the record, namely:
1. Price drops of 10% or more are not to be expected.
2. Tightening of liquidity doesn’t appear to be on the horizon.
3. Again, No bubble.
We believe that the price strength predictions are extremely overly bullish, given the internal market action, and the national and global economic climate.

BTW, when Sommerville says “double digit increases in interest rates”, what does he mean exactly by that phrase?
Does he mean interest rates increasing to double digits or by double digits? – there is a massive difference.
Nobody, but nobody, is predicting the former: In fact, if we thought there was a chance of interest rates increasing to “double digits” we’d change our price predictions from 50%-66% off to 80% off. So, if Sommerville was implying that bears are predicting interest rates of 10% or more, he was just trying to make critics look foolish.
If interest rates rise by double digits, for instance from 3% to 3.3% (an increase of 10%), well, even such a small increase may be enough to speed a price descent.
– vreaa

‘Vancouver Price Drops’ Monitors Falling Prices

Vancouver Price Drops, by ‘an observer’, is a new blog that monitors price changes both in broad area categories and in specific Vancouver properties. It is a welcome addition to the local RE blogosphere; thanks to ‘an observer’. Vancouver Price Drops is now linked in the ‘blogroll’ sidebar.

From latest post, showing a property where the asking price is steadily being reduced:
Price Changing Champions – May 10, 2012
5638 CROWN ST, Dunbar, Vancouver West

Getting To Know What We All ‘Knew’ – “I always thought that market was not sustainable. Every local person was juiced out of the market. The average household income on the west side doesn’t support those prices.”

“Realtors say the small boom of sky-high prices for Vancouver west-side houses – one that provoked media around the world to claim with scant proof that mainland Chinese investors were buying up the city – is fizzling out.
Both sales and prices are down at the top end even more markedly than in the rest of the region, which has also seen a general slowdown this spring.

A house on the 3000 block of West 24th Anenue, first listed at near $4.5-million six months ago, sold on April 15 for $3.35-million.
Fresh statistics from the Greater Vancouver Real Estate Board show the number of sales on the west side is down by nearly 40 per cent for the first four months of the year. Only a third of the nearly 400 homes listed in April have sold – one of the lowest rates in the region.

Realtors say the slowdown appears to have resulted from a combination of tighter lending practices by local banks, which now want proof of income to service large mortgages, more restrictions on how much capital can be taken out of China, and fewer immigrants.

“Banks are now requiring borrowers to disclose incomes and assets before mortgages are approved, as of the last six weeks,” said west-side realtor Marty Pospischil, who specializes in selling single-family homes owned by long-term residents. Last year, he says 90 per cent of his 100 house sales were to “offshore buyers” – people not living here yet, who flew in to buy. This year, it’s less than a tenth of that. “We’re now seeing a 50-per-cent collapse rate in deals, when it’s usually more like 5 per cent,” he said.
He and other realtors are saying the west-side slowdown is a good thing because the short-lived boom, which prompted local owners to start listing at increasingly inflated prices, was unrealistic and unhealthy.

“I always thought that market was not sustainable. Every local person was juiced out of the market. The average household income on the west side doesn’t support those prices,” said Andrew Hasman, who specializes in single-family homes on the west side.

Prominent condo marketer Bob Rennie said the high-end house prices in west-side Vancouver were so out of line with the rest of the region and country that it was skewing people’s perceptions of real-estate increases, not just in Metro Vancouver, but in all of Canada.

“In 2010, reports were saying real estate went up 8.9 per cent in Canada. But if you took out Vancouver, it only went up 4.3 per cent,” he said.

The spike in west-side house prices the last two years has provoked intense media coverage – with one Bloomberg News story in late May headlined, Chinese Spreading Wealth Make Vancouver Homes Pricier Than NYC – and debate among residents, politicians and commentators both here and abroad.

Much of it was attributed to “mainland Chinese” buyers, although no one had hard overall numbers to support that. Nor could anyone say whether that group might be 100 or 1,000 people, or whether they were truly offshore investors or immigrants.

But that didn’t stop arguments about the need to limit foreign ownership or to tax speculation to prevent the nebulous phenomenon.

A number of realtors said early signs started appearing six months ago that the market was slowing down, but the difference really appeared in early March. There is usually a surge of buying in Vancouver around Chinese New Year, as visitors from China come to see family or friends in the city and often make decisions to buy.

This year, the buying spree after Chinese New Year was much smaller, and house sales have slowed in March and April instead of the typical pattern of accelerating into spring.

Jean Zhang, with Sutton Group, said her clients, who tend to be immigrants looking to settle here permanently, are waiting longer to make offers.

“A few months ago, people were thinking, ‘I have to get in right away,’ ” she said. “Now, they see there are lots of choices. And they are giving lowball bids. They want to have good bargains in this market.”

– from ‘Sky-high housing prices in Vancouver’s west side short-lived’, Frances Bula, Globe and Mail, 6 May 2012 [entire article reproduced here; not our normal practice, but we really could find anything we’d want to leave out. – ed.]

And so it begins.
We don’t see the described $3.35M sale of a house with a $4.5M ask price as being that big a deal, the $4.5M could have been unrealistic to start, and it’s far from hearing of homes being sold for 25% less than prior sales. But the fact that this “price drop” is announced in the G&M is likely important.
Once ‘falling prices’ becomes an established idea, this will self perpetuate.
Owners dependent on the value of their homes for future financial security will come to market, attempting to realize years of paper profits, now evaporating.
Buyers will either not qualify under the new scrutiny, or will simply sit on their hands.
Lower prices will beget still lower prices.
This is how price collapse starts, but it is only the very beginning.
There are now about 1000 SFHs for sale on the West side.
‘Supply and Demand’ can turn on a penny.
– vreaa

You Go, Girl! – “She was ready to start climbing the property ladder and he wasn’t. She hopes women have the courage to leap confidently into homeownership. Work within the budget (she laughs).”

“I have a single friend sitting on the fence between buying and renting. She’s financially ready to make the leap into homeownership, but hesitant about doing it solo in case she meets someone soon.
Waiting for Mr. Right can derail a number of women’s homeownership plans, according to Sandra Rinomato, a realtor and owner of a full-service brokerage in Toronto.
“I can’t tell you how many times a client asks what she’ll do if Mr. Right comes along, and I always say if he does, then okay, you can keep the investment in your portfolio and rent it, he can move in, or you sell it and take the equity,” she says. She speaks from personal experience, having at one point purchased property on her own while in a serious relationship. She was ready to start climbing the property ladder and he wasn’t.

More and more single women are entering the market, making up roughly one in four new buyers, according to Ms. Rinomato, who is currently hosting the new HGTV series, Buy Herself, focused on helping singles navigate the world of real estate.

“If I could pull a rabbit out of a hat I would, but we work within the budget,” laughs Ms. Rinomato. Searching outside your financial scope can derail the process, or financially stretch you further than you should be if you fall in love with something a few rungs out of your reach on the property ladder.
Aside from down payment, monthly mortgage costs, and emergency funds for the unexpected, it’s your responsibility to have a grasp on the countless other costs associated with buying your first place, like inspection, legal, and appraisal fees.

Ms. Rinomato says it’s not unusual for solo buyers to have unrealistic requirements. … A strong team in your corner is also essential for a first-time buyer, and an understanding of the steps of buying, and how to will help you make the right investment decision. … She hopes her new TV series inspires women to at least ask if this is the right time to buy and not to hold back because they’re scared, or don’t think it’s an option, or think Mr. Right is around the corner. More importantly, she hopes women have the courage to leap confidently into homeownership if the time and the investment is right.

‘Finding the right home, with or without Mr. Right’, Angela Self, G&M, 20 Apr 2012 Angela Self is “one of the founders of the Smart Cookies money group and writes a weekly column on managing debt and saving money at the Globe and Mail”.
[hat-tip theragingranter]

Careful feminist analysis of the article would be appreciated; any takers?
“A strong team in your corner is essential for a first-time buyer”: let’s guess… a realtor and a mortgage broker, right?
– vreaa

From the comment section of the G&M article:

“Is anyone else amused by the fact that a show enticing single women to buy into the very peak of the condo bubble, and thus committing financial suicide, is being marketed as “female empowerment”? I’m thinking it’s time to short Lululemon stock. … In a few years HGTV can do a follow-up program called “Sell Herself”. That’s what many of these women will be doing in order to hang onto their negative equity condos.” – Alistair McLaughlin

Global TV Promotes RE, Yet Again – “Realtors like it because they want to get their realtors.. their clients, sorry… the best deal they can.”

Tara Fluet, ‘White Rock Investor’: “With Groupon, and the way it exploded, you do get great deals on there, so, why wouldn’t it work with condos, the developer here wants to sell the last few units, so if 20 people come in and buy them all at once, they’re obviously going to get a better deal than coming in one by one.”
– from ‘Groupon Style Condo Sales’, Global TV News Hour, Saturday 31 Mar 2012

In the Global clip, Ms Fluet is portrayed as a ‘White Rock Investor’, yet in an article in ‘The Province’ [‘Two homes are better than one’, 17 Oct 2010], it is revealed that she is a ‘sales representative’ selling condos for Cam Good’s ‘The Key’ marketing group, the same people behind this promotion.
Global TV continues to promote RE in the guise of ‘News’, and is disingenuous in the way it presents information to its viewers.
– vreaa

Two other things pertaining to this story:

1. The whole idea of ‘bulk’ sales of condos is noteworthy from the point of view of the RE mania. Would people consider this way of buying a home in ‘normal’ markets?

2. The Global piece also treats us to a really wonderful Freudian slip from Cam Good:

Cam Good, Condoday: “Buyers like it, they can get a better deal participating today in this group than they ever could on their own. Realtors like it because they want to get their realtors (sic).. their clients, sorry… the best deal they can; and developers, if they can do 10 or 30 deals on a Saturday, where they might do one or two.. why wouldn’t they want to do that?”

Global tends to take down their video clips from the web after about a month; intrepid video archivist Greenhorn has archived the clip for posterity, here:

Spot The Speculator #76 – “The 29-year-old started saving aggressively in her mid-teens and by 20, was able to purchase her first piece of property. From then through 26, she bought a new property each year while still living at home.”

“My parents would much rather me stay at home and save than to not have anything to show for the rent I was paying,” said Angela Calla, host of CKNW’s The Mortgage Show.
The 29-year-old started saving aggressively in her mid-teens and by 20, was able to purchase her first piece of property. From then through 26, she bought a new property each year while still living at home.
“It all starts with a plan and with educating yourself,” Calla said, adding her parents didn’t help her financially but allowed her to live rent-free.

‘Hopeful homeowners staying in the nest’, Stephanie Ip, 24hrs.ca, 22 Mar 2012

‘The Economist’ Poll – “Are Canadian house prices a bubble waiting to burst?”

– from ‘The Economist’, 2-13 Feb 2012 [hat-tip ‘anonymous guy’]
Results: 65% ‘Yes’. 35% ‘No’

From the readers’ comments below the poll:

“There will be a correction in the larger markets (Toronto, Vancouver) to be sure, but unless interest rates spike (not likely), it will be a softer landing (maybe 5%-10% drop). After that, prices will probably stay flat for a while. Canadian lenders have been relatively more responsible than their American counterparts over the years, and so quality of mortgage loans are better.”
– ‘SHDN’

“I live in Vancouver, and I make a top-5% salary, and buying my very-nice-but-not-fancy current house in the suburbs at current prices would give me cold sweats at night.
I look around, and I cannot understand how any normal human being entering the market can afford a house. I ask real-estate agents how this can keep on going, and they tell me it’s all Asian money.
It just can’t continue. All we can hope for is a soft landing.”

– ‘pun.gent’

Maclean’s Interviews Two Vancouver Realtors – “Remember: in real estate, people who don’t track the short-term ups and downs tend to do great over the long-run.”

Vancouver-relevant excerpts follow from ‘In a cooling housing market should you wait to buy and hurry up to sell?’, an article in Maclean’s 3 Feb 2012, by Erica Alini.

‘Larry Yatkowsky is a Vancouver realtor at Yatter Matters. Realtor Manny Riebeling focuses on Vancouver West and downtown areas and specializes in luxury properties and condos.’

Maclean’s: “Intuitively, a decline in house prices should benefit homeowners who want to move into a bigger house. A 10 per cent decline, for example, means a “discount” of $30,000 on a $300,000 home, but a bigger $60,000 discount on a $600,000 home. Upsizers could pocket the difference. But do these back-of-the-envelope calculations hold up to reality? Should people looking to move into a bigger home wait on the sidelines for prices to cool?”

Larry Yatkowsky in Vancouver: “Most buyer/sellers looking to upgrade to a larger home have usually completed their homework in respect of financing options and in all likelihood the move up is carefully considered prior to taking any action. Of course in a perfect world selling high and buying low is the optimum. That, however, requires perfect timing. With the view that Vancouver’s house market is dynamic the idea of waiting for what may be perceived as that perfect moment is extremely difficult and adds untold stress to life. As an example, wanting to sell high to maximize the benefit and then waiting until the low arrives doesn’t fit into the realm of a growing family where children need to be registered in a new school or daycare within the neighbourhood.”

Manny Riebeling, also in Vancouver: “Here in Vancouver, I don’t really see a big cool down because we still have a high number of new immigrants coming and a lack of land. That combination makes our real estate very desirable, so I think for 2012, prices will be stable. Based on the previous statement, if someone wants to trade up they can sell in the spring (which is usually a busier market) and buy once they have a firm purchase offer on their current home or rent for a few months and buy in winter time, when it’s usually a slow season.”

Maclean’s: “Does the opposite hold for people looking to downsize?”

Yatkowsky (Vancouver): “It’s probably safe to assume that downsizing is a function of being an “empty nester.” As such, the financial concerns differ. Most people compromise due to health or wealth; factors that are both unrelated to the market. However, as in the case of the move-up buyer, these concerns mean people may not be able to wait for that precise market moment.”

Maclean’s: “How about first-time homebuyers. Should they wait on the sidelines for prices to cool?”

Yatkowsky (Vancouver): “If history proves anything, then waiting for that perfect stainless steel granite topped home that has a high walkability factor is tantamount to watching trains pass your station. With Vancouver’s price income ratio sitting at 10, the effect of interest rates is a massive determinant in affordability. In this city, on this basis alone, any upward movement of interest rates will wipe out the buyer’s market. The sad part is that buyers are seemingly unprepared or ill-prepared to consider the alternative of an older, more basic home with laminate tops and white appliances in working order. A metaphor for the first time buyer dilemma might go something like this: You are standing in the cold and need warm boots. You only have $10 but the boots you really like are $20. The less stylish fleece-lined rubber pair are $9. You can choose to wait for the much-anticipated $10-boot sale but while you wait your feet are getting wet and cold. What should you do?”

Maclean’s: “Several analysts are particularly concerned about the condo market in Toronto and Vancouver. Should potential buyers stay away from condos and focus on single-family homes? And should sellers hurry up to offload their condo units?”

Riebeling (Vancouver): “It’s never wise to panic, it’s better to be informed, set a plan, make an informed decision. Real estate is not a gamble. Potential buyers need to buy where their life’s necessity takes them, which could be either a house or a condo. Buyers should not rush and buy just to follow a trend or a tip, buyers should buy because they need a place to live. People shouldn’t hurry and sell their condos, unless they have to, at this time in Vancouver, the condo market is quiet, but the sky is not falling. On the other hand, if people panic and put their condo on the market at the same time, they will be creating an oversupply and this will really hurt them. Remember: in real estate, people who don’t track the short-term ups and downs tend to do great over the long-run.”


Our summary of the realtors’ arguments:

1. Selling high and buying low requires “perfect timing”, so don’t bother trying.
Trying to time the market causes “untold stress”.
Issues like a “growing family”, “health or wealth”, makes attempts at timing impractical.
“Remember: in real estate, people who don’t track the short-term ups and downs tend to do great over the long-run.” [Fine, OK, if your financial plans and net-worth will allow you to tolerate a 50%+ drop in the market value of that property in the medium-term. -ed.]

2. Prices will be stable because of demand factors.
Our real estate is “desirable”, there will be “a high number of new immigrants”, and there is “a lack of land.”

3. Buyers must compromise.
If your feet are wet and cold, buy whatever boots [used, overpriced, leaky, mouldy -ed.] are available for all the money you can afford.

4. Prospective buyers should go ahead and buy.
“Buyers should buy because they need a place to live.”
“You are standing in the cold and need warm boots. …while you wait your feet are getting wet and cold. What should you do?”

5. Prospective sellers shouldn’t sell.
“If people panic and put their condo on the market at the same time, they will be creating an oversupply and this will really hurt them.”

6. Only irresponsible cowboys would disagree with our sensible and measured approach.
“Real estate is not a gamble.”

A few thoughts:

* Regarding timing the market: Yes, it can be very inconvenient to attempt to time the market, but one does not by any means have to get it “perfect” to succeed handsomely. Just because a lot of people get it wrong (especially the herd followers) doesn’t mean that prospective buyers should be nihilistic and buy used overpriced mouldy boots at first opportunity. One simply has to be a buyer in the vague vicinity of market bottoms and a seller in overheated markets (in case-in-point uber-overheated market, no-brainer). So, we strongly disagree regarding “don’t try to time the market”, and especially regarding “requires perfect timing”.
Just ask any market participant in the US. They had about a 5 year window where it was bad to buy and good to sell, and they’ve now entered a likely 5 year+ window where it’ll be manageable to buy and lousy to sell. Where’s the ‘perfection’ necessary in getting that vaguely right?

* Note the old argument for ongoing robust demand, from all the usual quarters. We now note the interesting juxtaposition with fear of oversupply from seller panic.

* The encouragement to compromise and buy, and the implication that buying is still prudent (“not gambling”) in this market, is sales talk.

[Again, we would make the point that talking about the Vancouver RE market without mentioning the possibility/probability of us being locked in a massive speculative mania in RE (as now identified by many analysts, including writers for The Economist and Maclean’s itself) is overlooking the obvious and is just plain silly. Like talking about Neil Armstrong without using the word ‘Moon’.]

– vreaa

Canadian Business Housing “Crash!” Cover

– cover, Canadian Business, Jan 2012, for the record. [hat-tip ‘J’]
Featured article ‘Prediction: The Canadian housing market will crash’, by Joe Castaldo, 12 Jan 2012, was recently discussed on these pages [VREAA 21 Jan 2012].

“Sky-high Vancouver housing prices were one of the reasons why my son, a young engineer, and his wife chose to move to Montreal, where they were able to buy a townhouse for half what they’d have to pay here.”

“In fact, sky-high Vancouver housing prices were one of the reasons why my son, a young engineer, and his wife chose to move to Montreal, where they were able to buy a townhouse for half what they’d have to pay here.
They miss Vancouver terribly, and we miss them and our little granddaughter. But we realize the vast distance separating us is the penalty we pay for living in Lotusland, and my son pays for having a real job.”

– from ‘We need to look at a greater variety of housing options’, Jon Ferry, The Province, 27 Jan 2012
Hat-tip to Patiently Waiting, at vancouvercondo.info 27 Jan 2012 2:44pm, who also adds:
“A smug Boomer newspaper columnist is suddenly concerned about housing affordability. Why?
He’s only concerned now that it affects him personally.”

Maclean’s – “Yes, we’re in a bubble, and it will probably pop soon. The signs of a bubble are unequivocal.”

“Are we literally living in a bubble? And when it bursts, will it get as ugly as it did south of the border? Here’s where the most recent speculation is pointing:
Yes, we’re in a bubble, and it will probably pop soon.
The signs of a bubble are unequivocal. At 13 years and counting, Canada’s current housing boom is one of the longest-lasting in the world, the Bank of Nova Scotia noted in a recent report. The real price of Canadian homes has increased by 85 per cent on average since 1998. Prices stagnated in 2008, at the height of the financial crisis, but they were back on the rise again as soon as 2009, when they grew by nearly 20 per cent, according to the Canadian Real Estate Association.
Meanwhile, Canadian household debt set a new record last year. On average, the debt burden of Canadian families stands at 153 per cent of their disposable income, according to Statistics Canada. That’s almost as much debt as American households had at the peak of their bubble.”

“The scary part is that, by most accounts, 2012 is going to be the year when housing prices start heading south. The housing market is already showing signs of weakness. Despite a rebound in December, housing starts fell in the last quarter of 2011. And in some smaller markets on the west coast, condo prices have already declined 15 per cent, according to Merrill Lynch. The bank predicts that prices nationwide will slip by five per cent this year in the best-case scenario. A spike in unemployment could trigger a 10 per cent price drop.”

“No, it won’t be “housemageddon.”
The good news is that, in all likelihood, our bubble won’t go KABOOM! Instead, we seem to be in for a painful but not devastating pop. That’s because only certain parts of Canada are in a bubble. Overcrowded markets in B.C. and Ontario may be close to busting, but many other areas of the country remain very affordable. The very same survey that ranked Vancouver most-unaffordable-city after Hong Kong rates Canada the third most affordable country, after the U.S. and Ireland.” …
“Most likely, then, the Canadian market will let the air out gradually. As inelegant as that sounds, it’s good news.”

– excerpts from ‘What happens when Canada’s housing bubble pops?’, Erica Alini, 26 Jan 2012 [hat-tip Potato]

Well, hard to get more mainstream, or more definite, than that.
All of the signs of a speculative mania were very definitely present by 2006-2007, but the MSM were silent about it then.
Now, 5 years and tens-of-thousands of overextended buyers later, it is even more glaringly obvious that the bubble is present, so the media ‘warns’ of this. What do they expect the record high number of homeowners to do about this now?
The MSM are rear-view commentators, and their articles have little predictive capacity. Like all other mainstream commentary recently, this Maclean’s piece is overly optimistic in its price-drop predictions.

Note ‘Maclean’s’ is calling for a soft landing. All those predicting a slow gradual reconciliation of prices and the fundamentals (which are currently far, far below prices) have to answer one big question:
Who do they imagine these buyers will be, who will step in and buy, in an orderly fashion, all the way down?
Who will, essentially, step in and bail out current owners, with promises to pay banks a stream of money for the rest of their lives, at these still very elevated prices?

And, while they’re pondering that, ask them for historic examples of speculative manias that have resolved with a soft landing. (There aren’t any.)
– vreaa

‘The Province’ Runs Three “Avoiding Vancouver” Anecdotes

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

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

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

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

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

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

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

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

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

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

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

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

Request To Readers From Edmonton Journalist Max Fawcett

Max Fawcett, an Edmonton journalist, writes: “I’m working on a story for an Edmonton magazine about educated/middle class people leaving Vancouver for Edmonton. Do you know anybody like this? Have you run into anyone like this in the course of your online travels?”
Any readers who can help Max with his request, please contact him at maxfawcett@gmail.com
[Max’s own story about his leaving Vancouver was featured at VREAA 14 May 2010.]

Americans See Canadian Housing Bubble – “One of the conference attendees was as curious about housing prices in Canada as Mr. Kass, and looked at me as if I was crazy. As if somehow simply being Canadian meant I had a direct influence on it.”

“I’m in New York right now for an economics conference earlier this week hosted by Barry Ritholtz who, among other things, curates a great website: ritholtz.com, better known as The Big Picture. It was a fantastic event with many clashing views given equal voices.
During the final presentation, Doug Kass, president of Seabreeze Partners Management, mentioned that the Canadian real estate market is giving bigger warning signs than the U.S. market did before its real estate meltdown. So even Americans are starting to wonder aloud how long house prices can stay so high. This was one of the few views that went unchallenged. …
One of the conference attendees was as curious about housing prices in Canada as Mr. Kass, and looked at me as if I was crazy. As if somehow simply being Canadian meant I had a direct influence on it.
I still don’t know if, when or how a Canadian housing market correction will occur.”

Preet Banerjee, G&M, 14 Oct 2011

Mike Brock, National Post – “The hidden Canadian housing bubble”

“Let me be provocative and say that our real estate bubble has the same fundamental problem as the one in the U.S., which exploded gloriously, kicking off the financial crisis.”
“The proof is in the pudding. For the 150-year period starting in 1800 and concluding in 1950, real estate prices followed a flat trend, which put them, overtime, in line with the general inflation trend. Then, starting in mid-1970s, throughout the western world, this underlying trend ended. It was replaced with a price appreciation trend in excess of the underlying inflation trend and, for the first time in measured history, developed a multi-decade trend divergence between income and price.”
“Considering the average Canadian consumer has the highest debt-to-earnings ratio in the OECD (155%), there are many reasons to question the underlying assumptions of the Canadian banking system.”
– Mike Brock, ‘The hidden Canadian housing bubble’, his ‘Full Comment’ article headlined at National Post, 4 Oct 2011

Hidden to many, but not to us. Right, readers?
Another expose getting MSM space, things may be changing.
Note the vitriol from the bubble-deniers in the comment section of the article. “Hogwash”, etc.
– vreaa

Global TV – Young Couples Leaving BC – “You’re not putting all your money into the house itself.”

Tanya Beja, reporter: “Mike and Elaine Garland want their son Nicholas to grow up with the same opportunities they did: a house, a backyard, maybe a dog, but when they look at the cost of real estate, they know their options are limited.”

Elaine Garland: “Knowing that our dollar didn’t go very far in this city… kinda was disappointing for me, because I grew up in this city, I was a Burnaby girl.”

Beja: “So the ‘Burnaby-girl’ and her husband are heading East, getting ready to move to Newfoundland, where a home costs half of what they paid here.”

Mike Garland: “Out here you feel like you’re struggling, every week, trying to pay the bills, pay your mortgage, and the commute. You never think you’re getting ahead.”

Beja: “The Garlands have no doubts that a new life in Newfoundland will allow them more time with their son, and more money for his education and activities like hockey.”

Mike Garland: “I think it’s a better choice to raise a family… you’re not putting all your money into the house itself.”

Beja: “Holly and Rob Williams know what it’s like to struggle: Thousands of dollars in debt, they want to start a family and own a home, something they say thay can only do by moving to Ottawa.”

Holly Williams: “We don’t want to be house-poor, and I do believe, that if we stayed, we would end up being house-poor.”

Rob Williams: “… looking forward to the next step in life, which is going to be children, which is going to be more expensive… the option is clear, it’s very clear, what has to be done.”

Beja: “For the first time in more than a decade, more people have left BC this year than the number moving here from other provinces.”

Feras Elkhalil, head of a tech recruiting firm: “In the past, we’ve been known to call across the nation, just to get that good, specialized talent into Vancouver, and it has been easier, to sell a lifestyle and temperature change, … but that’s gone.”

Beja: “BC prides itself on its livability and lifestyle, but are we selling a bill-of-goods? … Ours is the most expensive in the country, costing more than eleven times the median income.”

“But our income is at the bottom of the list, Vancouverites make less than people living in places like Regina and Saskatoon.”

“If young people continue to leave, it could spell trouble for our economy.”

– above excerpts from Global TV, 3 Oct 2011.

Kudos, on this occasion, to Global TV and to Tanya Beja, for plainly stating aspects of the effects of housing prices.
The montage of clips from the ‘Best Place On Earth’ BC advert interspersed with voice-over questions about housing is the closest Global has come to asking real journalistic questions about our RE.
It’d be even better if Global went further, and joined some of the dots:
Given the prices and incomes, we’re experiencing a ‘speculative mania’ in housing prices, aren’t we?
And, given the effects on migration that they cite, and given that prices have been driven up by bubble-dynamics, are prices sustainable?
– vreaa

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

Tanya Beja, of Global TV, would like to hear from readers who have sold their Vancouver homes and now rent:
“I work with Global TV, and I am a regular follower of your blog. I’m doing a story next week comparing renting vs. buying in today’s market, and am wondering if you know of anyone, or have contact info for anyone, who may have sold their property in the past year or so in order to rent instead? This is part of a week-long series examining the high-cost of living in BC.
Thanks so much,
Tanya Beja
Global TV”

The irony of this request was not lost on us, given our past criticism of Global’s poor and industry-serving coverage of our housing bubble. For a moment we considered waggishly suggesting that Tanya talk to Gord Goble, who meets the description of recent-owner-come-renter but is also someone who has actively taken Global to task for their faux-news-reporting on local RE issues.
We responded saying we could post a request to readers, adding “You guys may follow VREAA but, boy, your reports sure don’t reflect that. How about a Global piece on how the relative “high-cost of living in BC” is almost entirely attributable to a speculative mania in housing? That really is the case, and history will prove that viewpoint correct.”
Tanya responded:
“My goal with this series is to get a snapshot of what’s happening to first-time buyers. I’m not intending to forecast the future, but at least with the renting story I do hope to challenge the idea that buying real estate in yvr is always a ‘smart investment’.”
So, in that spirit, let’s try to help her out, and see if Global can in any way redeem themselves before judgment day. (Melodrama intentional.)
– vreaa

CTV Host Tamara Taggart – “Real Estate stories are always great, they never get tiring, you know?”

Tamara Taggart: When you want to buy a home, you want to buy a home now..!
Linda Steele: You do
T: …you don’t want to wait until 2013. Oh and, by the way very nice apartment [featured earlier in clip] they were looking at, I like it a lot
S: I know…
T: Gorgeous…
S: They didn’t buy it, by the way..
T: Oh, so it’s still on the market! (smiles and waggles head) … What about off-shore people… are they jumping at prices?
S: Well, that’s kind of a fiction, the Chief Economist of the BC RE Board says not true, a lot of people have heard these rumours, but only 2-3% of the buyers are foreign investors from mainland China, the vast majority are just recent immigrants who bought homes to live in and they are your neighbours and they’re staying.
T: There you go, thank you… Real Estate stories are always great, they never get tiring, you know? Thanks a lot.
– from ‘Is Vancouver’s housing bubble about to burst?’, CTV 27 Sept 2011 [time 2:50 onwards]

“On the one hand, I love real estate; on the other hand, real estate is fabulous!”

Taggart demonstrates the excitable frisson that many owners of appreciating homes in BC demonstrate for the sport of Real Estate.
Watch as glee turns to disgust in coming years.
Hardcore contrarian bears will only consider buying when CTV ‘news’ is completely and utterly devoid of any RE stories.
– vreaa

Vancouver Sun Editorial Unashamed RE Promo

‘Detached homes can be had for just over $500,000 in Squamish, less than hour’s drive from downtown Vancouver.’ [Sun image and caption]

It is one thing to run obvious RE-promotional articles by industry insiders (Cam Good [Vanc Sun 21 Apr 2011], James Schouw [Vanc Sun 2 Jan 2010]), it is something else entirely to run an editorial encouraging people to overextend themselves into questionable RE purchases in the latter stages of a speculative mania.
‘Editorial: To dream the impossible dream — home ownership’ [Vancouver Sun Editorial, 25 Aug 2011] encourages “median-income earners” to “lower expectations”, to “make compromises” in property choices (smaller properties; different class of property; outside of the city), to use variable rate mortgages, and to amortize their mortgages over 30 years. In short, it encourages them to find a way, almost any way, to buy.
The editorial is dismissive of the recent RBC report showing the extreme lack of affordability in Vancouver: “… depressing numbers may be valuable for studying trends, making predictions and agitating for policy changes, but they are not useful as a buyer’s guide to the market.”
You are persuaded to step up and buy:“The variety of properties available at different price points and flexibility in financing, including variable rate mortgages and extended amortization, along with a bit of luck, can help fulfil the dream of home ownership for agile buyers willing to keep their options open.”
Vulnerable, naive prospective buyers may be influenced by this peppy argument. ‘Be agile, be flexible, be lucky: be a buyer.’ Those who take the Sun’s advice will very likely prove to be in the group of buyers who will be most severely adversely affected by the coming bust. There is not one word in the article about a possible downturn. It reads a lot like the smooth words of a sales promotion, trying somewhat desperately to get the last buyers, the most dodgy quality buyers, to step up and clear product.
We record the fact of this editorial here, as we’re sure we’ll have reason to return to it in 2 or 3 or 4 years time. It is just one example of the role the Sun has played in this mania.