Spot The Speculator #96 – “In 2008, when I was 28 years old, I had saved $70,000, enough for a 20% down payment on a triplex in Toronto. I moved into one unit and the rent from the other two units paid for the mortgage and utilities.”

“I’ve always been very focused in my life. I was born a triplet and knew from an early age my parents wouldn’t be able to pay for many extras, or for postsecondary education for all of us. But I was determined to go to university and to buy a home of my own. So in high school I started working as a waitress for 20 hours a week. During the summers I took as many shifts as possible, often working seven days straight. I was a workaholic and should have cut back because my grades were suffering, but I persevered.”

“I earned enough to pay for tuition by living at home with my parents and commuting to York University. It wasn’t easy. I didn’t have a car so I used buses to make the two-hour journey to York and back each day. At one point I considered buying a car but was shocked when my dad showed me how expensive it was. I kept commuting every day for four years. Believe me, it was really depressing. I would get home every night and it was cold and dark, and I was tired. But I knew I was saving for my big goal of owning an investment property, which kept me going.”

“After graduating with an English degree in 2006, I had no student debt and $20,000 in savings from my waitressing job. Then I got a lucky break-I landed a job as an administrative assistant, paying $32,000 a year in downtown Toronto. In 2008, when I was 28 years old, I had saved $70,000, enough for a 20% down payment on a triplex in Little Italy. I moved into one unit and the rent from the other two units paid for the mortgage and utilities. Last year, I got married and my husband moved into the apartment with me. I’ve never doubted the triplex was one of the best financial decisions I’ve ever made.”

“The key for me was tracking my spending in a journal to see exactly where every penny was going so I knew where I could cut back and add to my savings. Most years I saved 70% of my earned income, which I used to pay for university and for the down payment on the triplex. By living at home a little longer than most people I was able to really beef up my down payment. That’s made me truly independent a lot more quickly than many of my friends who are still mired in debt.”

“Now my goal is to pay off the mortgage on the property as quickly as possible. I’ve done some renos over the years and I’m putting $500 a month extra on my mortgage to pay it off faster. The triplex’s value has also gone up. I bought it for $350,000 and it’s worth $450,000 today.”

– Angie Oliveira, 32, Toronto, as featured in ‘How to become a landlord’, Julie Cazzin, MoneySense 16 Jan 2013 [hat-tip proteus, who sent this link by e-mail and added “Saving 20k waitressing is a heroic accomplishment.”]
—

Angie has an admirably proactive savings habit. Because of this ability, she will quite likely do fine in the long run, but we suspect this will end up occurring despite her RE investment, not because of it.
Yes, she is describing a ‘cash-flow positive’ property (something unavailable in our city in 2008), but we’d like to see more of the math before being sure about that. Also, there is downside risk of increased mortgage rates, downward pressure on rents (TO condo glut), and unexpected expenses.
She bought a few years prior to the peak of a multigenerational bubble in real estate. If property prices drop 33% from the peak, she’ll likely still be able to maintain her ownership, but she will, on paper, have lost her profits and her downpayment. This is something we’d imagine would be particularly painful for her, given the hard work it has taken for her to accumulate her savings gains.
In that regard, it is interesting to note that it took her many years of extreme saving to accumulate $70K, but her RE purchase then rose in value by $100K from 2008 to 2012. In fact, she ‘made’ more on paper in RE than she did in entire income those 4 years, when taxation is taken into account. This is a good example of how RE price rises through the speculative mania have perverted the way in which people consider the relative value of real estate, money, work and saving; and how homes have become financial instruments as much as places of shelter.
– vreaa

Toronto Condo Seller – “I honestly never saw this coming. Never. It is very stressful. Sometimes, I am not sleeping well.”

“I honestly never saw this coming. Never. Because the boom has been now for a while, like 4 or 5 years?” [Announcer: “Maria has been trying to sell her (Toronto) loft near Square One for three months.”] “It is very stressful. Sometimes, I am not sleeping well.”
– Maria Alvarez, CityTV, 6 Nov 2012 [hat-tip to VMD at VCI]

The downside of speculation. – vreaa

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

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

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

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

“Now he’s gone and bought a place! Is the Anglo-American ownership obsession that strong that even when you know you shouldn’t be buying you do anyway?”

“My old boss recently got transferred to Toronto and has been providing a steady stream of Facebook updates regarding the RE market there – how he can’t believe he’s moving there at the peak of the bubble, how he’ll need to rob a bank, etc, and now he’s gone and bought a place! Is the Anglo-American ownership obsession that strong that even when you know you shouldn’t be buying you do anyway?”
– CanuckDownUnder at VCI 6 Jul 2012 7:21pm

Yes, the ownership obsession is that strong.
Also, people have poor understanding of how they will behave under different circumstances.
Those who ‘know’ they’ll not buy end up buying; those who are certain they’ll “sit pat through the downturn” end up coming to market at 30%-off.
– vreaa

“If I sold now, I would be in a position of weakness – I’d have to rent.”

“It’s a sunny afternoon in a Toronto industrial park, and a group of about 60 laid-off factory workers are gathered for a farewell barbeque.
The Honeywell workers lost their jobs 15 months ago as the valve and parts maker shifted production to lower-cost factories in Hungary, China and Mexico.
But it isn’t as easy as picking up and moving. “I have to take care of my father – he’s 82,” says Brendan Andrews, a machine operator, who lives in Belleville, Ont.
Instead, he’s accepting an $11-an-hour job – a wage reduction of 50 per cent – that is non-unionized. He started on a 7 am to 7 pm shift last week.
Mario Garofalo also can’t move. The 42-year-old assembler, who worked at Honeywell for 14 years, doesn’t want to sell his house and leave his parents, girlfriend and nieces and nephews behind. “If I sold now, it would be in a position of weakness – I’d have to rent. I would use up money for other things, and on living expenses,” he says.”
– from ‘Stuck in place: Canada’s mobility problem’, G&M, 6 Jun 2012 [hat-tip KC via e-mail, and Makaya at VCI]

Years of RE-cultism blurs the thinking.
– vreaa

Are You Prepared To Battle For Your Dream Home? – “One thing to keep in mind is the houses that are getting pretty crazy bidding wars are underpriced anywhere from five to 10 per cent. The list prices aren’t always an indication of what they’re actually worth.”

“John Pasalis, broker owner of Realosophy Realty Inc., a Toronto-area real estate brokerage, cautioned that the bidding wars may not be as lucrative as they seem.
“One thing to keep in mind is the houses that are getting pretty crazy bidding wars are underpriced anywhere from five to 10 per cent,” he said. “The list prices aren’t always an indication of what they’re actually worth.”
Pasalis said his company has seen “multiple offers almost non-stop for years now,” including as much as 10 or more buyers bidding on a house.
“You just get these spikes and valleys in the market where things get a little bit more heated and demand starts outstripping supply as things get faster,” he explained.
– from ‘B.C. home buyers unwilling to enter ‘bidding war’: BMO report’, Vancouver Sun, 19 Apr 2012, that noted that 23% of BC poll respondents indicated that they’d be prepared to enter into a bidding war to “battle for their dream home”.
[hat-tip space889]

Vancouver 2030, Bull Case – “Stop throwing rent down the toilet and filling your landlords shorts with money bags, stop dumping money into risky and volatile stocks or savings account yield negative interest rates.. Be an OWNER and not a renter and GET RICH”

“This Macleans article is all about predictions.. no difference than economist, fortune tellers, mayans
The fact is that Toronto and Vancouver are the most attractive cities in the world and foreigners are trying to bust down barriers to enter these two cities to lay their roots. Here’s why the RE boom will continue:
– Lots of immigration coming in; esp professionals and high net worth families
– Best banking system and excellent government policies in place
– Very competitive in the resources/oil/financial sectors
– Consistently ranked by all financial publications as the best cities to live in the world
– Best educational system in the world
– Diverse, multi-cultural, polite population that are always welcome to foreigners
– Interest rates will stay low for a very long time (think Japan)
– The Conservatives show us that time and time again that they are pro-RE and will not let prices fall at all
Here are the prices for Toronto and Vancouver in 2030:
Toronto
Vancouver -> [see chart above]
Stop throwing rent down the rent [sic] and filling your landlords shorts with money bags, stop dumping money into risky and volatile stocks or savings account yield negative interest rates..
Be an OWNER and not a renter and GET RICH”
– BobJJones commenting at Macleans 28 Feb 2012

Saved here for the (somewhat broken) record.
“Yes, Virginia, there were people who were still this bullish on Vancouver RE, circa 2012.”
– vreaa

Macleans – ‘Time to panic about the housing market; Why is everyone ignoring this unfolding disaster?’

“Nicole Austin, 31, and her boyfriend, Jim Varlas, know the mania all too well. The couple decided to sell their downtown Toronto condos and buy a house in Markham, a suburb north of the city. They moved in with Varlas’s parents and started shopping around for a house with a budget of $400,000. “Either the homes in our price range were really outdated and hadn’t been touched since the 1970s, or they would need to be renovated,” Austin says. They upped their budget to $500,000 and bid on three homes. They lost all three in bidding wars that pushed prices up as high as $575,000. “In some cases we knew what the house was worth and there was a certain point where we’d just walk away because it was getting ridiculous,” Austin says.
Earlier this month, the couple settled on a new build, paying “in the mid-to-high 500s.” But Austin says taking on a larger mortgage than expected was a fair tradeoff for finding a house in their chosen city. The couple say they expect prices to crash, but that doesn’t matter much since they plan to be in their home for at least 10 years.”
– from ‘Time to panic about the housing market; Why is everyone ignoring this unfolding disaster?’, by Tamsin McMahon, Macleans, 28 Feb 2012

The entire article is a ‘must-read’. Startlingly bearish for such a prominent, mainstream publication.
This issue’s cover was previously archived here.
Excerpts:
“Here in Canada, we patted our backs for not falling into the same trap, and basked in the spotlight as the world’s new beacon for financial stewardship. It’s a compelling narrative that has been promoted by the federal government and the Bank of Canada as they encouraged Canadians to spend their way through global economic turmoil.
But pry through the pocketbooks and bank accounts of the average Canadian and the country looks remarkably like the America of 2005—or even worse by some measures—complete with record house prices and unprecedented debt.”
…
“Since 2008, Canada’s ratio of debt to after-tax income has exploded. By the third quarter of 2011, Canadians owed an average of $1.53 for every dollar they brought in, up 40 per cent in the past 10 years and just below where the U.S. was before its housing crash. By the end of 2010, the average homeowner had just 34.3 per cent equity in their home, the lowest level in two decades and a 20 per cent drop in just four years.”
…
“There’s also a sharp rise in home ownership rates, which at about 68 per cent of Canadians mirrors closely the 69 per cent at the top of the U.S. bubble.”
…

All of the dots are laid out so obviously now, but it’s still extremely painful for most to draw the logical conclusions.
People ‘know’ that this is a bubble, but they refuse to really accept what that means.
Fantasies of mild pullbacks satisfying the ‘bubble gods’ abound.
Speculative manias only end when the excess is wrung out, when prices drop to levels supported by fundamentals, and, usually, there is overshoot to the downside. For Vancouver RE, this means price drops of 50%-66%, perhaps even more.
– vreaa

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

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

Wow. – vreaa

Potato’s ‘Rent vs Buy Investment Spreadsheet’

Take a look at this very elegant Rent vs Own comparison spreadsheet/calculator.
Thanks to ‘Potato’ for telling us about the sheet and hinting to link it.
Potato also has a page of discussion regarding the calculator at their blog ‘Blessed by the Potato’. Wise-words excerpt-
“There are a lot of assumptions and estimates involved, a lot. The question is what should you do for your life? And importantly, what are the consequences of being wrong? Don’t use this tool with unrealistic estimates to try to justify a decision you want to make, but rather try to use it to help you come to the decision you should make — and to see what happens if you’re wrong.”

Rob Carrick, G&M – “Don’t drink the housing market kool-aid”.

“Don’t drink the housing market kool-aid. The affordability gauges used by the banks – i.e., people who make money selling mortgages – are too slack. They let people buy more house than they can comfortably afford while meeting their savings obligations. If your mortgage and all your monthly debt payments would exceed 30 per cent of your monthly pretax income, then back off and keep saving. Worried that the price of houses will keep rising and you’ll never be able to afford to buy in? Won’t happen. When people like you are priced out of the market, the market must fall.” …
“Explore your inner renter (Generations X and Y edition). This is already starting to happen in the United States – young adults are postponing home ownership and instead renting for longer. Frankly, there’s a good argument for buying houses in U.S. cities because of rock-bottom prices. But young adults realize that mobility is an asset when looking for a job. Plus, they’re marrying later and often carrying big student loans. Renting makes sense in this context, as long as you’re saving the money you’d otherwise be spending as a homeowner.” …
“Explore your inner renter (Baby Boomer edition).Enough with property taxes and those never-ending maintenance costs, not to mention condo fees. If you’re a retiree selling the house where you raised your family, think about renting your next home instead of buying.”
– Rob Carrick, in ’12 ways to build wealth in 2012′, G&M, 22 Dec 2011

Wow. This is… sudden.
The implications of cohorts following this advice is a housing market crash.
– vreaa

Don R. Campbell, President of REIN, In His Own Words – “Bubble, bubble boil and trouble! I just keep hearing this whole thing about bubbles this and bubbles that… It’s not a bubble. It is a very readable cycle.”

“Bubble!”

“Very Readable Cycle.”

“Guess what? Bubble, bubble boil and trouble! I just keep hearing this whole thing about bubbles this and bubbles that.. and I just wish people would start paying close attention to the underlying Real Estate Cycle and the market drivers and the market influences rather than this amorphous bubble idea that keeps floating around… pun intended… that there’s this thing that’s going to burst.
Let’s talk about the condo market, that’s the one that everybody’s taking about “Oh my goodness there’s a big bubble going in condos”..
I like to invest in a property that exists, but let’s talk about prices, demand…
Take a look at some of these numbers… in 2010 there’s going to be 6,693 new condo units that were occupied and moved in… now 2011 15,902 units.. twice the number being put into the market.. big number, let’s be realistic… ah, but they were still being sold… 80, 90, 100% percent sold… but here’s the issue that you’re going to see… 2012 pre-construction totalling 25,893 units… 108 projects already being built… those condos are going to come onto the market over the next couple of years… let’s think this through quite clearly. If you’ve got that giant influx, it was pretty hot at 2010 at 6,000, it was super-hot in 2011 with 15-16,000… we’re going to add another 10,000 units over the 2011 number?.. wow, think of how that market is going to try to absorb this. Now, here is something that you’ve gotta know, is the average price will not be dropping.. why is that? quite clearly, is the contracts have been signed, they’ve been signed over the last couple of years, during this super hot market… so those contracts won’t come in and get registered into the average price of a condo until the keys are handed over, and that’s usually, what, a year and a half, two years, after the contracts signed. So the heat that we’re feeling here will carry through on the average price over the next couple of years. But as the market supply demand starts to get a little bit out of balance, starting in 2012, especially late 2012, you’ll probably start to see some discounts… or some ‘price slowdowns’ in that market as supply outstrips demand.. and contracts signed then will not play out until 2014.. so you’re not going to really see an average price collapse or bubble explode or any of these other terms I get to see tossed around all over the place.. because it’s all about the contracts and when the keys are handed over. So, let’s be realistic… We get 26,000 units coming onto the market in 2012, we have another 17,000 in 2013… people say “But Toronto is growing by 100,000 people per year.. but can’t we step back a little… when you’re either immigrating or migrating, the majority of those people are not going to be able to step in and afford $2,500 – $3,000 rent for a new unit, or have the money to buy one of these units. So, although the population is growing, the people who can afford to buy these properties aren’t growing. So why do I bring this up? Because, inevitably, you’re going to see that cross of the supply and demand line, you’re going to see incentives come into the market, and you’re going to see… let’s use the term ‘negative influences’.. on the market… you’re going to be seeing people buying five, six, seven units, from off-shore, and then wondering what they’re doing come 2013-2014, and those properties will then be dumped onto the market to try and realize some capital. So, let’s be realistic about the condo market: It’s not a bubble that’s going to go ‘kaboom’… What it is is a very readable cycle, that has market influencers, and market drivers, and your job is to step back from the frenzy, and when somebody says to you “This time it’s different”, run away as fast as you can… because over the last 20 years we’ve heard that three times only to see the market flatten and or fall off. Never buy something you don’t understand. Be smart. Invest well. See you soon.”
– ‘Real Estate Bubbles… Fact or Fiction’, self posted you-tube video, Don R. Campbell, President of the Real Estate Investment Network™, 8 Nov 2011

One man’s “very readable cycle” is another man’s bubble. – vreaa

“Financial planner Ted Rechtshaffen has a client with a net worth of $2-million who owns seven condos. If you are of the view that real estate only goes up, highly leveraged is a smart thing.”

“Condominiums in Toronto have appreciated at an average rate of 7% to 8% over the past 15 years. Condominiums also have the added attraction of requiring minimum cash up front until they are registered. It can take three years to build a condominium, so you can get away with putting as little as 20% down before you have to come up with the full amount.
The math is simple. You put $73,500 down on that condo and hope the value of the $367,500 condo jumps to $450,000 in three years, based on a 7% increase. That’s an $82,500 return and, even if you take out $20,000 for transaction costs, you are left with $62,500 profit, or an 85% return on your money in three years.
It’s attractive to many. Financial planner Ted Rechtshaffen has a client with a net worth of $2-million who owns seven condominiums.
“It is a strategy that has worked,” he says, adding the model could come tumbling down if interest rates rise. “If you strip it all down, it’s a highly leveraged strategy. If you are of the view that real estate only goes up, highly leveraged is a smart thing.”
– from ‘Into the arms of housing’, Garry Marr, Financial Post, 18 Oct 2011
[hat-tip SR]

From that same article:
“This real estate boom is over. It’s not crazy to invest now, but it’s not the best way to utilize cash.”
– Benjamin Tal, deputy chief economist at CIBC World Markets

Brad Lamb Is Not Worried – “We are the number one condo market for new development on the planet. This talk of bubble is ridiculous.”

Announcer: “Remember that so called real estate bubble that’s been predicted to burst for what seems like forever? (laughs)… well it certainly didn’t happen last month… Canadian home sales rose almost 3% in Sept and 11% from the same month last year.”
—
Brad Lamb: “We are the number one condo market for new development on the planet.”
Announcer: “Brad Lamb is a RE broker and developer who has “been selling Toronto property for two decades, he says 2011 could be a record breaker.”
Brad Lamb: “I’m building over 2000 condos across Canada at present, and I’d say that 50% of those are under 520sqft.”
—
Announcer: “Yet there are worries that developers may be building too many condos in Toronto.”
Will Dunning, economist: “… we don’t know how they’ll be absorbed in the market place.”
Announcer: “Brad Lamb, who builds them, is not worried.”
Lamb: “This talk of bubble is ridiculous. But, we’re going to have recessions, we have them every 15 or 10 or 8 years, and when it happens, people are going to put their hands in their pockets and not buy real estate.”
-CBC Radio, “World at 6”, 17 Oct 2011

RE Prices Make Vancouver Unattractive For Doctors

“I am a family doctor. One of my friends from residency (currently in Toronto), took a pass on moving to Vancouver after coming over for a week and seeing first hand the property prices. Just another example of Vancouver losing out on young professionals needed to upkeep our society.”
– KFPanada, at VREAA, 12 Oct 2011, 2:24 am

Left Off The List – “Toronto, Montreal ranked as pricey. What, no Vancouver?”

“Vancouver, Canada’s most bubbly housing market, wasn’t among the 73 cities studied. (When I first called UBS to ask about Vancouver, the folks that could help me were at lunch, in Zurich, the world’s second-most expensive city.)” – from ‘Toronto, Montreal ranked as pricey. What, no Vancouver?‘, Michael Babad, G&M, 17 Aug 2011, reporting on a study by UBS AG on “the world’s 20 priciest cities”. [In rankings of price levels excluding rent, Toronto ranks ninth and Montreal 17th.]

The truth is, these guys didn’t see us as important enough to consider in the rankings. As ‘three left feet’ said in the G&M comments: “Vancouver’s not on the list because globally it’s not an important city, despite what the locals claim.” – vreaa

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

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

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

Toronto – “Everyone my age and younger is getting into these 500k+ mortgages, thinking they’ve arrived in life. I rent and feel no shame.”

“I live in the Mississauga/GTA, and virtually every billboard, bus shelter and cheap cable ad scroller is taken up by the smiling face of a real estate agent. The condos are still going up, the developments are still breaking ground….it’s a suburban nightmare.
My grandparents had a nice house on the other side of the city; the result of a lifetime of hard work and frugal living. They still travelled mind you, but they saved.
Everyone my age and younger is getting into these 500k+ mortgages, thinking they’ve arrived in life. What happens when interest rates go back to something realistic?
I rent and feel no shame. The ‘buy real estate’ strategy of my boomer parents doesn’t cut it anymore. It just isn’t affordable. There’s more to life than hardwood floors and granite countertops.”
– Dr Porkchop at zerohedge.com 24 Jun 2011 19:22

Quality Of Life Calculations – “They essentially are having 20 years more enjoyment than if they lived in Vancouver.”

gse36 at RE Talks 23 Jun 2011 1:28pm –
“I know 2 people in their 40’s who just retired in Toronto ($1.2M equity in Vancouver home, paid it off, bought $600k in Toronto, plus have investment savings (and will later cash out RRSP savings)). Actively invested.
They chose retirement in Toronto as opposed to working and living in Vancouver. Sure, they could buy a condo in Vancouver, but they wanted a house. Sure, it may not be as beautiful, but there’s something to be said about having 16 hours a day to yourself and spouse (assuming 8 hrs sleep) = 112 hrs a week.
[Compare this with] what they had before: 9 hour work + 1 hr commute each way (*2) + 8 hr sleep = 5 hr left to themselves 5 days w eek. = 25 hours a week + 32 on weekend = 57 hr a week. + all the anxiety and stress from their jobs + occasional overtime, etc.
They have 2x as much free time as before. They are in excellent physical shape, and go travelling a lot (yes, and back to Vancouver too), volunteer a lot. Basically doing all the things they enjoy. Contribute back to society, and help those around them. They felt this was more meaningful than paying the bank interest and paying for a modest house.
Given there’s 20 years to normal retirement age, and they get 2x more time to do what they want than others, then they essentially are having 20 years more enjoyment than if they lived in Vancouver. More importantly, it is while they are still relatively young.”

—
Two working, tax contributing citizens fall off the map because the price of their home hits ‘x’. This is one type of ‘misallocation of resources’ that occurs with speculative manias in RE.
This kind of move makes perfect sense for the couple, provided they do indeed have enough funds for 30+ years of retirement. It should be emphasized that their easy retirement is being funded by another couple taking on the opposite end of the deal: a very large lifetime liability.
This reminds us of a recently suggested strategy: Sell your house in Vancouver, buy 3 or 4 or 5 almost identical properties in the US (depending on city/state), live in one and live off the rental income from the others, retire.
How long can this kind of price differential last?
– vreaa

Globe and Mail Video: 25% Basic Vanilla Pullback For Canada If Interest Rates Flat; For ‘Unstoppable’ Vancouver Pick Your Own Number [Ours is 50%-66%]

From ‘How bad could it get in the housing market?’ video at Globe and Mail, 20 Jun 2011 –
Rob Carrick: “You’re predicting a 25% decline over 3 years, is that the worst case scenario?”
David Madani, Economist, Capital Economics: “No, it’s basically a baseline view .. the fact that prices have risen so much relative to income… we can’t see how income growth alone will close this very large gap between price and income…”
Carrick: “Where do rising interest rates fit into that?”
Madani: “Actually our outlook right now for the next few years is one of interest rates remaining where they are…”
Carrick: “So if interest rates were to rise, that could make things substantially worse”
Madani: “Yeah…”
—
Carrick: “The Canadian market is often distorted by what’s going on in Vancouver… I mean, that market is just unstoppable…”
Madani: “25% is an average… this is not just a Vancouver story, we see this bubble-phenomenon across Canada.. … we don’t think it’ll get as bad as in the US, but we do think a ‘substantial decline’ is in store for Canada .”
—

So, 25% basic vanilla pullback across Canada.
In extreme markets like Vancouver, with or without interest rate hikes?
We’d bet Madani would now say “over 50%, easy”.
We at VREAA now foresee a 50%-66% price crash for Vancouver.
– vreaa

“The number of resumes I see at work from people currently in Vancouver looking to leave, or that have already left is pretty surprising.”

westcoastfella [living in Toronto] at RE Talks 11 Jun 2011 8:08am –
“The number of resumes I see at work from people currently in Vancouver looking to leave, or that have already left is pretty surprising. The simple fact is they make more in Toronto and pay less for everything around them, and when you’re raising a family and have no tangible ties to Vancouver, it can sometimes be an easy decision to make. My observations are anecdotal for sure, I’m one guy in one industry. But the people I hire are technical engineers earning 70-120K a year (so 60-90 in Vancouver) – not the sort that Vancouver wants to be losing in droves.”

“My brother works in the film industry in Vancouver, and after a few years of nonstop employment, no longer has steady work. He said that there is nearly nothing filming now (which is understandable given its the summer), but more alarming, there is little on the horizon for the fall. 4 regular TV shows film there in the winter, and a handful of movies – but not enough to employ the industry in any significant way, he estimated 40-50% of the usual workers are looking for work. He is leaving this summer to go to Toronto or Montreal, or possibly Europe. The high dollar is stopping some projects from coming here at all, and a lot of others are moving east.”

“I’m not too surprised that the local Vancouver media has not picked up on it, given the negativity of the implication – I’m sure they’ll finally start reporting on it when its too late.”

Spot The Speculators #41 – Ontario Couple; RE Salespeople; 700% Of Net-Worth In RE; Want To Buy More

From ‘Debt-heavy couple liable to fall victim to interest-rate squeeze’, FP 3 Jun 2011 – “In Ontario, a couple we’ll call Oscar, 40, and Nancy, 33, are raising two children, ages 6 and 8. The parents are both in real estate sales and bring home about $120,000 a year after business expenses and income tax. They are thriving in their commission sales work and have three rental properties of their own worth $320,000. With their home, two cars, one RV and other property investments, their assets total $732,700. But acquiring those assets has been expensive, for they owe $634,000, nearly four times their $160,000 annual gross income. Their debt-to-income ratio could put them into a serious squeeze as interest rates rise. In effect, they are living a bet that bricks and mortar will one day yield a big capital gain that compensates for the time, risk and effort of holding real estate. Oscar wants to add more properties. “Our plan is to build our real estate business to its maximum potential over the next 10 years, to acquire eight more rental properties and have all of them paid in 15 years and to be able to retire, if we want to, by the time I am 55.”

“Oscar and Nancy collect $3,148 in rents each month from their three properties. From that gross revenue, they pay $1,161 for mortgage interest, $60 for utilities, $238 for property insurance and $414 for property taxes, total $1,873, for net rental income of $1,275 a month, or $15,300 a year, before depreciation. They put down only $8,000 for all three properties, giving them an annual net return on initial equity of 192%.”[leverage looks wonderful on the way up. -ed]

“It is the result of high leverage and it is evidence of high portfolio risk. If property prices were to drop by 10%, the rental properties would be worth less than what they owe. Oscar and Nancy could face a cash calls from lenders.” [exactly. -ed.]

Amazing stuff, eh?
“Acquiring assets” makes it sound so… legit.
Assets: $732K (including depreciating ‘assets’ like cars and RV, so effectively less)
Debt: $634K
Net-worth (being charitable): $80K
Percentage of Net-worth in RE: estimated 700% (not a typo)
And… they are planning on ‘buying’ more!!
Not to mention that, as RE salespeople, their bread and butter income is almost completely dependent on a buoyant RE market.
They are juggling with burning dynamite, and they don’t even seem to know it.
These folks, and their lenders, should be held accountable for irresponsible actions.
Note that the couple have acted as RE ‘demand’ and helped fuel the speculative mania, and that they will transmorph into up to 4 units of ‘supply’ on the way down.
– vreaa

Cam Good Offers Locals Little Sympathy – “If you don’t want to live in a city that beautiful, with that much demand, then maybe you should live somewhere else. Either you want to live there or you don’t.”

From ‘Asian Real Estate Influx’, Global TV News, 7 Jun 2011 –

Announcer: “Demand from Asia is one of the reasons Vancouver prices have kept rising. There are now one million millionaires in China, that’s tripled since 2005… and many are looking to invest in Canada.”

Announcer: “In downtown Beijing, these women are looking to buy some real estate – in Vancouver. They are at the Beijing office of a Canadian real estate firm which offers hundreds of homes for sale in Vancouver and Toronto.”

Ma Ying, Shanghai resident – (translation over) “Vancouver is relatively cheaper than big cities in China, it is well worth it. Toronto is even cheaper than Vancouver.”

Announcer: “Can Good is the president, we met him in Hong Kong where he is now setting up another office to sell Canadian homes.”

Cam Good: “We are really at the very start of a big wave of demand coming mostly from the uber-rich in Chinese (sic) which has been there for years, but what we’re seeing now is a growing middle class, that is just now being able to afford international options for their kids/ for their children, for real estate…”

Announcer: “Fearing a property bubble, China’s government made second mortgages difficult to acquire, and is considering a new tax on principle residences… it’s led to a stampede of buyers to Canada.

Announcer: “In Vancouver it’s grown to the point Good provides helicopter tours for Chinese real estate agents. Many are buying near good schools.”

Ma Hong: (translation over) “I think I will send my kids to primary school in China, and send them to high school in Canada, which I think is better in education”

Announcer: “In the Vancouver suburb of Richmond, average home price is over a million dollars. This home sold for $500K more than it was bought for just last year. It’s considered a teardown. Many worry the Asian influx will lead to a backlash from locals squeezed out of the market. Good doesn’t have much sympathy…”

Cam Good: “If you don’t want to live in a city that beautiful, with that much demand, umm.. then maybe you should live somewhere else, because in any city, no matter where it is, if there is international demand you are going to have these concerns, so either you want to live there or you don’t.”

Announcer: “And clearly China’s new rich want a piece of the Canadian dream.”

—

Cam Good is on a roll, clearly, but his words remind us of a player taunting the goalie at the end of a, say, 8-1 win. He’s gotten a lot nastier than on earlier broadcasts. Perhaps not the best long-term game strategy for a salesman.
Cam is ‘all-in’ the ‘new Monaco’ scenario for Vancouver. File under ‘Limitless Demand Argument For Ongoing Market Strength’.
– vreaa

‘Newish’ Toronto Realtor – “I feel like something is broken in the world of real estate agency.”

Morgan at buzzbuzzhome.com 11 May 2011 –
“While new(ish) to the industry I feel like something is broken in the world of real estate agency (in toronto as that is where I have my personal experience).
I know the public thinks its the MLS and how accessible it is to the public but im not so sure…
I would love to hear other peoples opinions on whether it is that, something else or not broken at all.
I think it has to do with the number of real estate agents and the reason why there are so many.
As someone who went through the real estate licensing process about a year ago it is 1) way too easy, my high school exams were harder 2) too short 3) to cheap
The level of proffesionalism and service needs to be raised across the industry.
I have seen stats that say that over 70% of Realtors quit after the first two years. That tells me there are a lot of people who are inexpeienced and desperate out there not doing a good job and that invariably changes the publics opinion.
Whats everybody think?”

Toronto – “A young lady at work told me she was thinking about buying a condo because her money would grow more in real estate than other investments. Well, last week she bought a presale, and so did her parents and her boyfriend.”

Markey at greaterfool.ca 17 may 2011 6:13am – “A young lady at work (30+ Chinese) told me she was thinking about buying a condo because her money would grow more in real estate than other investments. I told her I believed that she would be having a Nortel moment if she bought now and I told her why. Well, last week she did buy and so did her parents and her boyfriend — from floor plans to a new development by the CNE that sold out in hours without ever having been made available to the public. She had only a few minutes to decide on the unit that she plans to flip once it is built, or to have a tenant carry the rent. According to her, foreign investors are buying Canadian real estate because, in this tumultuous world, it is a safe investment. She didn’t want to miss the opportunity. Now, I understand that a 30-year-old has never seen a real estate plunge, but her parents have. Do people really have such short memories?”

Many Amateur Landlords Will Sell In A Falling Market – “They hated having to deal with maintenance and repairs—and they hated it even more when they were doing these tasks for another person.”

From ‘Should we all become landlords?’, moneysense.ca 6 May 2011 –
“Micaela and Don bought a lovely brick bungalow in Toronto’s east-end, just on the edge of trendy East York and just north of the Danforth strip (known for its Greek food, wonderful community feel and mish-mash of post-war bungalows and beautiful brick homes).
After 18 months of raking leaves, shovelling snow, unclogging drains, replacing the eavestroughs, and other minor repairs, both Micaela and Don said enough was enough. That’s when they came up with a plan: buy a condo that included a few luxuries (such as on-site pool, workout room and sauna), rent out the bungalow and use the cash to help pay down their new, larger condo mortgage.
Just because a plan looks good on paper, doesn’t mean it’s the best option. Pretty soon Micaela and Don had to admit: they hated being house owners—having to deal with maintenance and repairs—and they hated it even more when they were doing these tasks for another person.
A few months later they sold the bungalow. Sure, they lost a $363,000 asset, but they also got a huge chunk of money that they used to pay down their condo mortgage. (Micaela and Don were judicious about paying down their mortgage and had over $80,000 in equity in the bungalow when they sold it.)”

Add watching their equity in the bungalow drip away as prices drop, and you’ll have a snapshot of the situation many local speculators will face when the Vancouver crash comes. Owners like this will add supply to a collapsing market. – vreaa

Animated Video – Retiring BC Boomers – “In five years I will realize that my money won’t last me until I’m 80. Me and millions of other baby boomers will try to sell our homes at the same time.”

Video by ‘P.’, who admits they have used poetic license and ‘exaggerated’ the positions for effect. There are, however, kernels of truth in the jest.

Most Bearish Globe and Mail Article Yet – ‘Signs point to a severe housing correction in Canada ‘

From ‘Signs point to a severe housing correction in Canada’, by George Athanassakos, G&M, 10 Apr 2011 –
“I believe that Canada’s high house prices in relation to incomes, combined with record household debt levels and overinvestment in residential construction, will cause a severe correction in the real estate market. …
Home prices are simply way out of line, especially when viewed in relation to household income. The ratio of house prices to income has historically averaged about 3.5 in Canada. It now stands at about 5.5. It is difficult to see how income growth in the future can bring this ratio close to the historical average within any reasonable period – so it follows that house prices will have to decline. …
The current consensus is that Canada’s real estate market has achieved a “soft” landing and that prices will flat line but not decline substantially over the next several years. I disagree. The housing market in Canada is already in bubble territory. Average house prices have doubled in the last 10 years, while rents have risen by only about 30 per cent. The ratio of house prices to rent is now higher in Canada than in any other developed country. …
Canada is past the point of no return. What has propped up the housing market in Canada and delayed the correction is artificial demand from Asian investors. While it is not clear when this demand will dry up, it eventually will. Once it does, watch out.”

Toronto – “I’ve earned more from the increase in the value of my home than I have in my entire professional career as a writer”

From ‘Housing: Real insanity’, Canadian Business magazine, April 25, 2011– “Nino Ricci, [age 51], an award-winning novelist, purchased a detached home in Toronto’s Riverdale neighbourhood in 1997 with his wife, also a writer. The price was at the very limit of what they could afford, even with help from both sets of parents. They managed, however, and watched as the neighbourhood gentrified and the value of their home ballooned. “I’ve earned more from the increase in the value of my home than I have in my entire professional career as a writer,” Ricci says. “But the only way I can use that money is to run a credit line, and that’s a dangerous habit to get into.” Still, a line of credit against the value of their home is how Ricci, his wife and two kids fund a portion of their admittedly frugal lifestyle, particularly when paycheques become sporadic. During especially tight periods, Ricci makes interest payments on the credit line with money from the line itself. (“There’s nothing in the rules that prohibits that,” he says with a hint of mischief.) Ricci knows this pattern may not be sustainable. The implications of an interest rate increase worry him, but an even bigger concern is what will happen if his home drops in value. “I keep wondering, should I sell my home today? Is this my last chance to actually have retirement savings?” he says. “We’re both writers. We don’t have RRSPs or any assurance for the future.”

The RE market has led to a perversion of the way we view income.
Also, note the sentiment: “I keep wondering, should I sell my home today? Is this my last chance to actually have retirement savings?”.
Imagine the effect that earnest price declines will have on this owner, and on all other owners dependent on the market value of their homes for their financial future. They will watch their plans dwindle, and many will try to sell with urgency. -vreaa

“Trusty” Toronto Real Estate Reality TV Star Contractor Charged With Extortion

From the National Post 14 Mar 2011 –
“The co-host of an HGTV show about turning unsightly properties into attractive real estate has been charged with extortion.
Barrington Anthony Sayers — who co-hosts The Unsellables and was also the featured carpenter on the W Network series Me, My House and I — was arrested on the weekend, Toronto police announced Monday.
Mr. Sayers, 41, was charged with two counts of criminal harassment, attempted fraud under $5,000 and extortion.
The saga began last month, when a woman hired Mr. Sayers, who also owns a general contracting company, to complete renovations at her home.
“The accused provided substandard work, criminally harassed and extorted the woman,” police alleged in a news release.
A graduate of George Brown College, Mr. Sayers has worked in the building trades for 17 years and has a large client base in Greater Toronto, according to a bio on HGTV’s website. A promo for The Unsellables describes Mr. Sayers as a “trusty contractor” who provides tips “for turning real estate lemons into lemonade.”

From video at globaltoronto.com:
Announcer: “She says that when she refused to pay him more than he had quoted her, for work that he had allegedly not done, things went from bad to worse.”
Client: “He started harassing me, every day, he started making phone calls, he showed up at my house when I wasn’t here, went to my neighbours asking for my whereabouts, and at that point I started to feel very afraid to be at my house”.
Police detective: “We believe that this isn’t the first time that someone has been victimized by this individual.”

Capital Economics Report – “Canadians now believe the economy is invincible. This level of hubris is disconcerting. Housing valuations have lost all touch with fundamentals, driven up by a massive surge in household debt.”

‘Capital Economics on the Canadian economy: Housing downturn to hit hard‘, a study from ‘Capital Economics’ (Toronto; London, UK; & Singapore), released 23 Feb 2011, has already been extensively discussed by Ben at financialinsights.
We archive the overview of the Capital Economics report here, for the headline bubble record. :
“Because Canada emerged from the global financial crisis largely unaffected, many Canadians now appear to believe that the economy is somehow invincible. This level of hubris is disconcerting when housing valuations have lost all touch with the fundamentals, driven up by a massive surge in household debt. We’ve seen this story played out in countless other countries and it never has a happy ending. The now inevitable downturn in the housing sector will severely constrain economic growth over the next couple of years, as consumption expands at a more muted pace and housing investment shrinks back towards a more normal size.”

This kind of strong language and equally strong bearish predictions regarding the Canadian RE markets was, up until recently, confined to blogs. Increasingly,  mainstream commentators are recognizing the bubble, and describing the animal spirits of the mania. -vreaa

“I’ve directly witnessed the negative impact of real estate pricing on our capacity to recruit/retain clinical and research talent here.”

Royce McCutcheon at VREAA 16 February 2011 at 2:47 pm–
“I’ve directly witnessed the negative impact of real estate pricing on our capacity to recruit/retain clinical and research talent here. The reality is that the offers in Vancouver (vs. Toronto or USA) have typically been lower with respect to salary and support funding. From what I gather, it’s been this way for a long time. This was somewhat sustainable in the past because Vancouver held enough appeal that some folks were willing to take a hit. Of course, that hit was usually small-ish; by my estimation, we’re talking about ~15% lower salary at most. Lately, I’ve heard multiple stories about potential hires (MDs, researchers) expressing legitimate interest in these slightly lower Vancouver offers… but only until they started investigating our grossly inflated house prices. Once these people realized the true size of the hit they’d be taking after buying a place, they walked. One individual who was being recruited for a very senior position – who had local ties and wanted to come here – spelled out that he could make much more money in his current, more intellectually satisfying position while only working 9 months a year. He pointed out that this set-up left him ample time to pay for travel and rental accommodations at all kinds of fun spots in Vancouver and surrounding areas.
We are losing talent and we are having a tough time recruiting more. I fear this fact will stay masked until we see a real estate correction, so the sooner that happens, the better.”

“This is a knee jerk reaction by idiot bankers pressuring idiot politicians that don’t understand that the condominium market in Ottawa, Vancouver, Toronto and Montreal is driven by investors.”

Brad Lamb, Toronto condo developer, in response to suggestions that 100% of condo fees be taken into account in calculations of allowable mortgage sizes by income level [a move that would reduce the qualified mortgage by about 13%], as cited at canadianmortgagetrends.com 15 Jan 2011 –
“A lot of people are going to get locked out of buying a condo, which, in most cities in Canada, is the most affordable option for housing…It’s a terrible idea.”
“All it is is a knee jerk reaction by idiot bankers pressuring idiot politicians that don’t understand the nature of the condominium market in Canada. What is driving the condominium market in Ottawa, Vancouver, Toronto and Montreal is investors. This won’t affect them. This just attacks the lowly first-time buyer.”

Last week the CREA took pre-emptive action against mortgage tightening; this week saw the condo developers join in. We hope that the Minister of Finance has the fortitude to make decisions that are in the long-term economic best interests of the citizens of Canada, rather than keeping things loose in a way that’ll benefit the minority-but-vocal vested interests.
We do agree with this developer in one major way: The condo market in Vancouver IS driven by ‘investors’. These speculators are holding deeply cash-flow negative properties, purely for assumed future price gains. When prices drop, that premise will disappear, these players will evaporate, and the market will crash. At some point condos may lead the way in Vancouver, but we fully expect all other sectors to collapse thereafter. Move-uppers will disappear, the high-end will plummet, even the market darling areas will collapse. In the end the percentage drops will be about the same in all sectors.
-vreaa

BNN Don Campbell Interview Transcript – “The Apocalypse Is Not Coming” – ‘Plateau’ As Worse Case Scenario

The interviewers ask one or two excellent questions, but the end result is a strange fudging of the issues. Spot the fallacies and misconceptions in the following dialogue. [We list the ones we spotted at the end of the transcript.] -vreaa

From Is Canada’s Housing Party Over? [28 Oct 2010 5:10 PM] BNN.ca [linked here at msn.com] –

Interviewer 1: Last week the Bank of Canada said there was a prospect of a more pronounced  correction in the housing market and this week The Economist magazine’s latest survey claims that Canadian Real Estate is overvalued by something like 24%.
So, is the Canadian Housing Party finally over?
Here to give us some perspective is Don Campbell, he is president of the Real Estate Investment Network.
Well let’s start with that right away is the bubble over here in Canada, is this the end?

Don Campbell: It’s that magic word bubble, right? You can feel it doing THIS…

…with that word… There isn’t a bubble in Canada… let’s get really clear, there is no national real estate market… it’s very regional… and you’re going to see cities like Hamilton and cities like Edmonton and cities like Maple Ridge BC do incredibly well, for the next, you know, three to five years… and other areas, that are going to be overpriced, like the Vancouver market is overpriced… and will have a tendency to be flat.
And, when they talk about this bubble in their analysis, what it is really, is a big pendulum, and a pendulum has swung so far into the buyers market right now, that you are going to see that the economic fundamentals are going to sit… and they’re going to have to grow to support that… where the pendulum is sitting… And that pendulum will swing down… let’s be very clear. [Let’s try, to be clear, yes, please, very clear. Please. -ed.]

Interviewer 1: What the government, what the BOC keeps saying, and I think they have a valid point, is that the debt people are taking on to buy their houses is really getting out of control… The house prices are running way ahead of income levels… Isn’t that going to be a problem? isn’t that really the bubble that they may be more worried about… the debt bubble.. as opposed to the housing price bubble?

DC: They are, until you look at the housing affordability index… You know the RBC puts out a housing affordability index every quarter… And I keep seeing that it’s less affordable to buy, until you look at a ten year average of our affordability issue… hugely out of whack in Vancouver… slightly out of whack in Toronto… but every city across the country, housing affordability is trading right on ten year average… it’s very interesting.

Interviewer 2: So you don’t see if interest rates start to rise that there is going to be a significant amount of people that are going to be underwater here?

DC: No, I don’t see that at all, because I’m seeing that… Interest rates are going to go up, they’re not going to go up right away, because of everything else that’s going on in the world… but you’re going to see it tick up slowly… a lot of people are still in variable rate mortgages which is a great thing to be by the way… you can win, in that game… but right now, because of that trading range, because of the ten year trading range, I’m not seeing a big bubble anywhere, except maybe in the condo market in downtown Toronto and for sure in Vancouver.

—-

DC: [Discussing CREA changes] As the listings are growing across the country, therefore softening the price increases, these changes, come the spring, probably Jan Feb 2011, you’re going to see the listings start to escalate, over and above what would normally happen, therefore keeping a cap on prices, and therefore keeping it in that ‘buyers market’ arena… Now it’s funny, a lot of people…during that ‘seller’s market’, it was frothing, people going “I just can’t find a property to buy… I can’t”, now you have that exact market you’re looking for is the property you want to buy, and there’s lots of them, and everybody’s going… “Oh my goodness, I wish it was like the olden days, when it was all full, and prices were going up fast fast fast…”

Interviewer 2: I just question that because, having spent two years looking for a house in Toronto, the product though, isn’t great, so it seems to me that if you get a good product you’re still going to have that kind of froth there.

DC: Absolutely, and …

Interviewer 2: I guess people are putting junk out all the time…

DC: Constantly… You’re going to see a lot more junk come on …

Interviewer 2: Is that going to keep prices down, because it’s still (junk)…?

DC: It’s going to keep prices down, especially in that mid-range, the lower range will always sell, because it’s inexpensive, and you look at rent… you might as well buy, in that lower range. The luxury market is actually doing very well as well… It’s that middle market… in Vancouver and Toronto, and even in Montreal, is going to be the one that’s going to be expanding in the number of listings… There’s going to be some GREAT product that comes on board during that period of time…

———

Interviewer 2: Okay, if we look at potentially what kind of retracing we may be seeing here, let’s take Vancouver which you’ve mentioned several times, we saw sales plummet there in the summer by, I think, 45%, what kind of impact do you think that this could all have on prices in Vancouver?

DC: Well, one thing I think we have to be very, very clear of is average price is just an indicator that doesn’t mean ANYTHING, really, at the end of the day, because those condo, like you said, in certain areas, are continuing to go up while others are going down. You’re going to see the ground oriented units in Vancouver, that prices are going to plateau, which means houses and townhouses… anything with dirt involved in them… because they’re just getting unaffordable… and we’re moving to the boxes in the sky… What you’re going to see is that because of the HST, a lot more sales of the RESALES side of it… and um in the resale side, right now, there are a lot of brand spanking new condos, probably like we’re seeing here in Toronto, … a lot of people bought those properties, they’ve now bought it, paid the HST, and nobodies lived in it, and they’re going to sell it into the market place so there’s going to be a lot of brand new condos coming onto the market which you’re not going to have to pay HST on and that’s where the gold is going to be.

Interviewer 1: So where’s the market headed five years from now?

DC: If we take a national average, it gives a 3-5% average, you’re going to see 2011… not a very good year… but 2012, 2013, 2014, all of our economic analysis is showing that you’re going to see a 3-5% increase which, if you put 25% down on a property… it means you’re getting 20% return on your money… that’s a pretty good place to be…

Interviewer 2: Okay, so none of this/… we’re not looking at anything apocalyptic here, none of these declines of 10% that some of the banks are predicting for example?…
Interviewer 1: 25% though (laughs)…

DC: … The Economist magazine puts that out every month, right, that rating…  The apocalypse is not coming…. I think you have to buy regionally… the number one fundamental that you have to look at if you’re buying an investment property is buy where there’s jobs… don’t buy where the jobs used to be, buy where the jobs are going to be.
You can not analyze a housing market by looking at the housing numbers, you can only analyze the future of the housing market looking at the economic fundamentals, which is jobs and in-migration.

———————

Fallacies and misconceptions in the above dialogue:

1. That “there isn’t a bubble in Canada”.

2. That areas that are overpriced will “be flat”; will “plateau”.

3. That we are in a “buyer’s market right now”.

4. That housing affordability at ten year average is reason for complacency. [hint: emergency low rates]

5. That there is no risk of “a significant amount of people that are going to be underwater here”.

6. That certain areas (Hamilton; Edmonton; Maple Ridge) and certain property types (the very low end; luxury) are immune from price drops, in fact will do “incredibly well”.

7. That there are going to be some GREAT opportunities in the spring [2011]… Including the ‘middle [mid-range] market’ in Vancouver; and the new resale [flip] condos where HST has been paid (“that’s where the gold is going to be”).

8. That “average prices don’t mean ANYTHING, really.”

9. That anybody knows what’s going to happen in the economy 2 years from now: “2012, 2013, 2014, all of our economic analysis is showing that you’re going to see a 3-5% increase.”

10. That leverage is to be embraced: “You’re going to see a 3-5% increase which, if you put 25% down on a property… it means you’re getting 20% return on your money.”

11. That a decline of 10% could be conceived to be ‘apocalyptic’. (“We’re not looking at anything apocalyptic here, none of these declines of 10% that some of the banks are predicting for example?”)

12. That the thought of a 25% price drop is laughable: “25% though (laughs)…”

13. That “you cannot analyze a housing market by looking at the housing numbers, you can only analyze the future of the housing market looking at the economic fundamentals, which is jobs and in-migration.”

14. That the possibility of a bubble existing is to be made light of.

15. That “the apocalypse is not coming.”

-vreaa

Every City Has Them – “He is convinced that Toronto is the only city in the world worth investing in.”

CTO on greaterfool.ca 22 Oct 2010 10.33pm – “I had a long debate with my nephew this evening. He is convinced that Toronto is the only city in the world worth investing in, and prices here will never drop. He says the condo market $/sqft is the same or less than NYC and that’s cheap for a “world” city like Toronto. He thinks anyone buying outside Toronto is a fool and will not double their money. So many think like him here….they are so smug and self righteous.”

Andy Yan, Researcher with Architect Firm – “Vancouver is going through a very destructive real estate market. A lot of young Vancouverites are packing up to leave.”

The article ‘There are two million reasons for high prices in Vancouver’, Vancouver Sun, 21 Aug 2010, largely rehashes the very well known ‘overwhelming demand’ argument for ever increasing RE prices in our city. But kudos to the author, Don Cayo, nonetheless, for taking the trouble to look for some words of dissent. The article ends with a mix of anecdote and opinion from Andy Yan, a planner and researcher with Bing Thom Architects –

“Vancouver is going through a very destructive real estate market. High housing costs have a great way of killing innovation and creativity. Can the next Facebook or the next Apple computer really come from Vancouver if you’re too busy trying to pay the rent?” … A lot of young Vancouverites, especially those who have an artistic bent and who thrive on the energy of a vibrant city core, are packing up to leave for Montreal or Toronto simply because it’s cheaper to live there and pursue creative goals. … “That’s serious. You’ve got to think about what’s down the road. They’re not going to be here to support us, to pay for our social infrastructure and all of that.”

[We have long agreed. Speculative bubbles have many destructive social consequences. -vreaa]

Spot The Speculator #12 – Ontario Example: 46 years old; Single; $80K income; $242K mortgage

Okay, this one is subtle. So subtle, in fact, that most Vancouverites will mistaken Sandy’s RE speculation for prudence or even undue caution. I mean, $80K income and $242K mortgage? Doesn’t she know that up until very recently in Vancouver she’d qualify for two or even three times that?
And note that the financial adviser calls her mortgage ‘a whopper’. If that’s ‘a whopper’, we here in Vancouver can introduce him to ‘the triple whopper with extra cheese’. -vreaa

Anecdote and advice from ‘DIY investor needs to define risk tolerance’, by Dianne Maley, G&M, 30 Jul 2010 –
“Sandy, 46, is single with no dependents and earns about $80,000 a year. She has a condo in Toronto for which she paid about $303,000 with a mortgage of $242,000. Her savings include a deferred profit sharing plan with her employer that is run by a professional pension fund manager; a locked-in retirement account from a previous employer worth $12,000 invested in two mutual funds; a registered retirement savings plan worth $45,000 that holds some stocks, one fund and some cash; and about $40,000 in cash [$176K in non-RE related savings].”

Some of the advice from Kurt Rosentreter, a senior financial adviser with Manulife Securities in Toronto:
“I’m all for home ownership as a cornerstone to common-sense wealth building, but this is a whopper of a mortgage for a single person earning $80,000 a year with no pension for the future. The problem is that Sandy may not be able to pay off the mortgage and save enough to retire within the 20-year time frame she has set.”

Security, Protests, Waste, Charades – G20 In Toronto

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

Hey, Toronto… You Call THAT A Bubble?!

“This house at Oakwood and St. Clair just sold for $1.05 Million ($151,000) over asking. We’re in a bubble. Now what? When it will pop. How bad it will be. 20 Neighbourhoods assessed for risk.”– Toronto Life, July 2010

From the point of view of a Vancouverite, this reminds me of the exchange where the late great Bill Hicks calls a guy in the audience who smokes “a pack-and-a-half” a “pussy”. (Bill: “I go through two lighters a day”.) From Vancouver’s perspective, Toronto is a bubble newby. But you have to admire their early insight; their ability to look at themselves critically. What do they know that we don’t? And how on earth can Toronto Life publish a cover like that? (Don’t they have any advertisers?) -vreaa

“Both announced their intentions to move out of Vancouver in the next year” – “This city doesn’t want people like us anymore. So I’m listening and leaving.”

Absinthe at vancouvercondo.info 10 May 2010 12:37 pm –

“This weekend, I had friends over for drinks and both announced their intentions to move out of Vancouver in the next year. Both are born and bred in Vancouver, but have recently spent time in Ontario. They’ve realized that life does exist East of the Rockies. One of these friends is in the artistic class – working and being paid in her creative profession, but not rolling in cash. Work tends towards feast and famine. The other friend is currently on mat leave, her husband has been recently laid off. My artistic friend said this: “This city doesn’t want people like us anymore. So I’m listening and leaving.” She also is shocked at how lovely the architecture is “even for us impoverished folks” when you venture East”

“If things ever return to normal in Vancouver, maybe I’ll move back. Until then, count me as one of the many professionals who left the West Coast for greener pastures…”

Vancouver Ex-Pat writes via e-mail to VREAA 21 Apr 2010 –

“I’m born and raised in Vancouver. Grew up in the lower mainland and went to UBC. I was a big booster of my City. I was one of those folks who would tell anyone who asked, and even those who didn’t, how great Vancouver was.  Real estate and the free money was never part of my thinking back then in the 80’s or 90’s, I just knew I loved the town. I also knew I hated eastern Canada, the eastern media, and really hated Toronto. Typical Vancouver stuff….
Then I came to see no future for myself in the area. Salaries were low, industry was stagnant, and houses were expensive. An “average” middle class life with a detached house seemed like a pipe dream back then. Now? Fantasy… That equation didn’t work for me, so I left.
I moved to Toronto. I completed an MBA, found work at a bank and make some good coin.
You know what? Vancouver isn’t that great after all… All those years watching Tony Parsons brainwashed me to think how great my hometown was… Well, its not.. I moved here with that chip on my shoulder. Funny thing is, people here in Toronto actually like Vancouver. People here think BC is a great place. They like the Island, love the Okanagan etc… I was shocked to see how my hatred of all things eastern wasn’t matched by a hatred for all things western. Locals here in TO would ask me why Vancouverites hated Toronto. I couldn’t really answer. I very quickly came to realize how brainwashed I was. Living here, I now realize that Vancouver isn’t really all what it’s cracked up to be. Sure I miss my family, friends, the Canucks, Douglas Fir.  Other cities have even more to offer their citizens. TO has an amazing theatre scene. Tons of festivals and cultural events. Imagine, the police don’t tell the citizens to stay home on New Years… And Sports? Pretty sweet… I have Blue Jays season tickets for $100. How is kool is that? I have season tickets to the Buffalo Bills for $450. Awesome. There are real things to do here, and I mean things that don’t include gore-tex. Real activities, not just the mythical ski, sail and golf on the same day crap we get fed from kindergarden onwards. But, Toronto is a fantastic city. Not only is the city alive with people and culture, but the standard of living is much higher. The salaries are better, and RE is lower. That’s an equation I can live with. Other cities in the area… Chicago? Awesome. Montreal? Fun. Ottawa? Great. Who knew there was a whole world outside of the “Greatest place on earth”?
If things ever return to normal in Vancouver, maybe I’ll move back. Until then, count me as one of the many professionals who left the West Coast for greener pastures…”

“They are all shocked by how crazy people get about real estate in Vancouver. They simply don’t understand why one would get all worked up about something that you just live in. You don’t realize how ridiculous the whole game is until you leave.”

westcoastfella at RE Talks 22 Apr 2010 8:21 am –

“I now live in Toronto, although I do travel for work and get back to Vancouver every few months. One of the things that struck me when I moved to TO was the general lack of interest in all things real estate, compared to Vancouver. When you go out with friends, the topic of conversation never goes to RE unless someone is renovating, or in the process of actually moving. No one talks about the trend of the RE market, or what the moving 3 month average is for this area or that, or what the effect of a 50 basis point rise in rates will be to the average homeowner, etc. Quite simply, no one cares – most of my friends in TO own, a few rent. Those with mortgages all comfortably afford them, those that rent are happy renting and do so for their own reasons. And we all move on with our lives. A few of my friends know of this site [RE Talks] – I have passed the occasional quote to illuminate them on the manic mindset that exists for Vancouver real estate – and they are all shocked by how crazy people get about real estate in Vancouver. They simply don’t understand why one would get all worked up about something that you just live in. Then, when they realize how much homes are here and how far people were going into debt to get homes, they are shocked again, but at least understand why people are so passionate. When you’re that far in debt, it can can mess with you. I’ll say this for Vancouver real estate – you don’t realize how ridiculous the whole game is until you leave.”

“I must talk to 5 people a week who say: “I’ve lost a ton of money in the stock market over the last ten years, but I’ve still got my house, and our plan is to sell our $1.2 million house and downsize to a $500K condo, in the next two or three or four years.”

A crucial component of the coming Vancouver RE price bust will be the liquidation of properties by those owners whose financial futures are entirely wrapped up in the market price of their primary residence. -vreaa

Danielle Park is an Ontario based portfolio manager and financial advisor. Here follow quotes from Park from an audio interview with Stirling Faux of ‘The Money and Wealth Show’ 25 Mar 2010 –

7:00 – “The problem is you have all these boomers who have been wiped out twice in the stock market in recent years, and the one solace is housing. I must talk to 5 people a week who say: “You know what, I’ve lost a ton of money in the stock market over the last ten years, but I’ve still got my house, and our plan is that we’re going to sell our 1.2 million house and downsize to a $500K condo, in the next two or three or four years.”

8:20 – “I think that boomers are going to find out that the population behind them has a whole lot less money and a whole lot less appetite for the million dollar homes.”

9:00 – “25 to 30% possible downside [in housing prices]… It could happen in a quick period of time, a few months, another way is [a long period of flat prices].”

14:45 – “If you’re thinking of downsizing… and If you’re in some of these hot cities… Try and figure out whether it’s better to sell sooner rather than later when everybody else plans to get out of overpriced real estate… I think maybe think of it sooner rather than later… and if you’re looking to buy, I wouldn’t be in a hurry. Let the prices come to you. This is the art of savvy investing.”

The New York Times – “Some See a Real Estate Bubble Forming in Canada”

‘Some See a Real Estate Bubble Forming in Canada’, Ian Austen, NYT, 19 Mar 2010

Excerpts –

Some Canadians are concerned about the prospect of a price bubble. The Canadian Real Estate Association reported that the average price of existing homes rose 19.6 percent in January compared with those in the month a year earlier, the latest in a string of substantial gains dating back through last autumn.

Such drastic percentage gains are not just a reflection of the market’s earlier depths. In some Canadian cities, particularly Toronto and Vancouver, prices appear to be heading toward record levels.

“It’s no surprise the housing market responded to low interest rates,” said Craig Alexander, the deputy chief economist of the Toronto-Dominion Bank. “The real question is what’s going to happen in the next year. It can’t continue at the current pace, otherwise a bubble will form.”

“Canadians in the financial and real estate sectors feel a little bit smarter than they should about the strength of the economy and industry over the last few years,” said Phil Soper, the president and chief executive of Brookfield Real Estate Services of Toronto. “Certainly the underlying economy isn’t strong enough to support the prices we’ve seen over the last few weeks.”

Illegal Tax Evasion Adds Fuel To Bubbles – “I know a lot of flippers using their family members to buy and qualify as a first time buyer to take advantage of the system. They sell a year later and claim the capital gains.”

Criminal tax evasion exaggerates already large profits from RE speculation, and  adds extra momentum to RE bubble markets. Honest, hard-working citizens, labouring under substantial tax burdens, trust that our revenue services are vigorously pursuing fair taxes on real estate profits. -vreaa

averagejoe at vancouvercondo.info 17 Mar 2010 10:58 am – “I know a lot of flippers using their family members (such as sons, daughters and even grandparents) to buy and qualify as a first time buyer to take advantage of the system. They will sell a year later for $100,000 (or more) [profit] and claim the capital gains.”

taylor192 17 Mar 2010 12:05 pm & 2:48 pm – “I’d like to see Mr Flaherty curb speculation. Remove the capital gains exemption for flippers, ie those selling within 5 years of taking possession. The only exemption is for those who move XX kms for work and can prove it.” … “CRA assesses professional flippers and rightfully so. My comment concerns the amateur flipper. For example the FTB who buys a property pre-sale with the expectation to sell it 1 day after it is built for a huge profit. This flipper had no intention of living in the property and should not be able to claim capital gains exemption for their principal residence. Since this flipper only does it once, they fly under the CRA radar. … I have a friend in Toronto that is on his 3th condo over 5 years with this approach. He buys one, lives in it while putting down a deposit on another building. Once complete he sells the current condo, moves into the built condo, and repeats. All legal, all his principal residence, and isn’t flipping often enough to raise CRA eyebrows.”

Condo In Florida For Price Of A Parking Spot In Toronto

RE is not portable, but there has to be some kind of osmotic price effect from one market to another. How long before Canadians get the message? -vreaa

This from ‘Half-price homes? Canadians pounce on the Sunbelt’, by Tony Wong, yourhome.ca, 14 Mar 2010 –

“Being in Toronto you become jaded at the high prices. There really is a bit of a disconnect to what is happening here and what is happening in the U.S.,” said Toronto buyer Lynn, who works at an agency representing photographers. Lynn’s first buy was a relatively new one-bedroom condominium in upscale Naples near the beach for $54,900. That’s about what parking would cost at a new luxury condominium in downtown Toronto. (An extra parking spot at the still-to-be-completed Ritz Carlton on Wellington St., for example, costs $55,000 Canadian.)

“How much do your neighbours owe on their mortgage?”

Many Canadian home owners have borrowed money against the increasing market prices of their homes. These title search examples are from Toronto. We’d expect there to be many such examples in Vancouver. -vreaa

From the Globe and Mail 28 Jan 2010 1:16 pm –

No. 17
Purchased by Dave and Chloe in January, 2004
Paid: $1,284,912
Mortgage: $300,000 (five years, 4.89%)
In 2009, the couple took out a second mortgage for $600,000 (“on demand,” prime plus 7%)

No. 37
Purchased by Rebecca and Domenic in December, 2006
Paid: $1,129,948
Mortgage: $730,000 (five years, 5.25%)
In 2009, the couple took out a second mortgage for $500,000 (“on demand,” prime plus 6%). A third mortgage was secured in November, 2009, for $580,000 (“on demand,” terms unknown)

No.18
Purchased by Geoffrey (all names have been changed) in April, 2004
Paid: $1,440,059
Mortgage: $1,275,000 (five years, 0.24% below prime)
Monthly payment: $6,555.17
In 2005, Geoffrey took out a second mortgage for $4 million (five years, prime plus 5%), secured by 200-plus acres of property north of Toronto.

“It is really hard to explain to people outside Vancouver how emotional the subject of Real Estate is here. More people have more riding on increased rises in this market than any other market in Canada.”

This from junius at greaterfool.ca 18 Jan 2010 6:07 pm –

“It is really hard to explain to people outside the Greater Vancouver area how emotional [the subject of Real Estate is here]. We have friends that moved to Toronto recently and they say even TO is nothing like Vancouver. I think the reason is really simple. More people here have more riding on increased rises in the market than any other market in Canada. There is nowhere else in Canada where more people have second or third investment properties and rely so heavily on the promise of RE to get them to early retirement.”

Toronto – “Our search felt really irrational, at times, in terms of bidding. Just because money was available to people, it seemed that was artificially inflating the price of houses.”

This Toronto anecdote could very well be a story from Vancouver. -vreaa

An article from the National Post by Paul Vieria 10 Dec 2009 quotes Graham Withers, a film and TV editor in Toronto, who with his wife Heather Harding just bought a house. He described nearly a half-dozen failed bids in the prior month in which properties sold for at least 20% over asking price –

“It was kind of disappointing in the beginning because we were careful not to stretch ourselves further than we could handle. Our search felt really irrational, at times, in terms of bidding. Just because money was available to people, it seemed that was artificially inflating the price of houses.”

____

From Benjamin Tal, an economist at CIBC World Markets, earlier in the same article –

“What the Bank of Canada is saying is that there might be too much of a good thing going on. And I think the issue here is to what extent are extremely low interest rates blinding Canadians, and giving them a false sense of confidence to buy a bigger house.”