Saturday, November 20, 2010

A quick review...

Sorry about the sparsity of posts, but I have been very busy with work and there hasn't been much to say about the RE market.

In fact I have been making good money at work, enough in the last month for the down-payment on the median house! The only problem is the house is here.

Oh well. Rather be here than there.

So the time has come for some introspection. Have us bears been dead wrong? Well for a number of years we were - truth be told. Then we were VERY right late 2008 and early 2009, as the financial system in the US and Europe collapsed due to the RE bubble bursting.

However our drop was very short-lived. This was due to 'emergency' 0% rates and actions by our Federal Government to put in place the same things that collapsed the US:

1) Very long mortgages
2) Very lax lending
3) Pumping up the CMHC (read Freddie and Fannie)
4) Keeping rates too low for too long

Our local economy was also saved from the catastrophe going on the US, by a resurgent China which brought buyers for all things Canadian (thank goodness) from Lumber to Oil to Uranium to...well RE.

We have, as discussed on Larry's blog, many wealthy people in this city and a lot of them make their money right here. People for who $2.5 Million for a home makes perfect sense.

So we bounced back and our bounce has now faltered. Sales are way down, but then so are listings so that we are in a bit of a stalemate and sellers who can't get their price are pulling their stuff off the market and some buyers are giving up and offering good bids.

There has certainly been an up-swing in the market recently, though I would have to say that this up-swing is mostly in the sought after areas. The further you get from down-town Vancouver the more of a buyer's market it is. Take a look at the price reductions in the OK for an example.

In some areas things are sizzling and some speculators took advantage of the slow down in Summer to buy and are now trying to flip it immediately. One for a $200K profit in one month!

Of course we have no laws to restrict flipping or to penalize it.

So a speculator can buy, leave empty and then wait for a desperate buyer to come along or just leave it empty. After selling they will pay tax at capital gains levels - assuming they declare it and do in fact submit a tax return. This will be after deducting agents fees, any 'costs' , and interest and management fees etc. In comparison joe-blow working in a factory making something will be paying a higher rate of tax with very little deductions.

In Canada RE speculation which causes public harm is not a big deal. Our politicians couldn't care less. In fact they don't care about speculation at all! Eg....

1) Look at gas prices. How come all gas companies sell within a few cents of each other. Their oil comes from 100 different sources- some have cheap locked in contracts with producers- others are buying on the spot market. Yet they all sell at the same price..huh!

How is that possible? Wheat prices go up and down, yet bakers will sell similar bread for different prices, why don't oil companies. Why are they allowed to set such close prices.

2) Media. The government has allowed a few monsters like Global to gobble up all newspapers and lots of TV stations and that's OK. Would it be ok if Jim Pattison owned 80% of the supermarkets in town or Shopper's owned 80% of the pharmacies...of course not.

Canada is the speculators best friend and no where is this best demonstrated than the laissez faire attitude we have to RE speculation.


Back to the market. Is this a little breather before we head up again or are we about to change course. This one is hard to call.

The Bank of Canada stopped with the rate hikes at the first whiff of 'double dip' in the US and Carney went back into his bunker- though still whining about Canadian debt levels (but doing zero about it except whining) and the US Fed is back to buying it's own debt..huh!? Yup that's right buying it's debt, and the Chinese are caught between worrying about over-heating and worrying over the youth who may not be happy if their material aspirations are not met.

All these will play out into RE.

In 2007 I know we would get a big correction.
It came late 2008/early 2009.

In Spring 2009 I mentioned that with 15% drops and with 30% lower carrying costs we may have had the 40% drop I was anticipating and some people would probably start buying.
They did and the market went ramping up again.

We have now accounted completely for the drop in interest rates, so that RE is just as unaffordable as 2007.

Frankly speaking I have no idea what will happen next. Maybe we get a commodity superboom which drives prices. Maybe natural gas prices shoot up and eradicate our Provincial deficit, or maybe we just stagnate here until the rest of the world recovers and off we go again.

Or maybe we change course....


  1. I think it's soon time to give up. Immigration numbers are too great and the particular kind of immigrants that Vancouver attracts prefer real estate to any other asset.

    We've been priced out of our city and all the trashing around in the world won't change anything. I, personally, will give up if it doesn't happen this spring. And, so far, there's nothing but stagnation and increasing SFHs scheduled for this spring.

  2. Fish, I must salute your courage. Hold on. Sanity will eventually prevail. A hero is one who hangs on 1 second longer than the others...
    I live near the border and do most of my shopping in the US. I considered once spending 2milion in a house in the white rock aera and then checked some property north of Seattle. 2 millions buys you there a 40unit appartment building with a cap rate of 8%. that is 160000usd per year net income. And I did just that with my cash. And have rented a very similar house for 2500cad/month with a 3 year lease. I am sure till then the madness that has gripped vancouver will fade away. I dont even bother to check the prices in the area anymore. Sometime I just wish I had a greencard so i wont have to come back here again. Despite all the TV propaganda we are much worse than our neighbours south who haave more liberties, less taxes and lower prices, more choices for everything.

  3. Well egg-head you may be right and it is disheartening. Vancouver 'could' be different. It took a worldwide banking collapse for our prices to falter. What will it take for a prolonged correction? A worldwide depression?

    French. Wow those number are staggering. Buy a house for $2M and then pay another $1000 a month for taxes, repair etc or rent it for say $5000 and get $11000 from the apartments- crazy!

    At least buyers in Victoria are doing better. Mid-month sales are down 25% from last year. Inventory is up 30% from last year. MOI running at 14 and unless they have a late month surge, I would expect YOY prices to be slightly down.

    Whistler is still running at 70 weeks of inventory and while it is difficult to get price comparisons,persuing the sales it looks to me that prices seem to be coming down significantly.

  4. Well maybe Vancouver is different but Bears in other regions of the province are starting to be right.

  5. Vancouver is different. I expect it to be the very last market to crash, if it does at all, simply because attitudes here are cemented and loans are backed by the government. It will take bond market crash (interest rate spike) to bring this place down. I'm pretty sure that is coming, but it could take a while and it's not worth waiting for.

  6. rp1 you could be right. lets see what would bring prices down quickly:

    1) Another financial crash. banks pulling in their horns, and this time the Feds and Carney will porobably be less quick on the bail-out.

    2) Sudden spike in inflation and a rapid rise in long AND short rates (ie no where to hide)

    3) Softening of the economy. ie a slow-down in China removing some of the bid for commodities and removing some Mainland buyers too.

    That's about it. i cannot think of anything else that would bring about a sudden withdrawal of demand and drop in prices. Anyone else see something I missed?

  7. A simple end to the construction boom, and continuing problems in the US economy (pretty much a given) hurting what's left of our export industry. A spike in unemployment will do it. Doesn't matter how low rates are, if you don't have a job you can't pay the mortgage.
    We are frighteningly dependent on construction jobs here, that and HELOC (By whatever means. House as ATM.)

  8. Look outside Vancouver for a moment to Victoria and Kelowna. It's already begun. Vancouver may take another year before it starts coming down with the same symptoms but the distress in those markets is close to irreversible. I can't see there being too much of a disparity for too long; there is enough economic crossover that everyone comes down with the flu eventually.

    Inflation in China is a real problem. If that's the purported source of recent price strength in Vancouver, you've been officially warned there's problems on the horizon.

  9. Fish- what I have noticed is that trends don't change abruptly. Particularly in high priced, slow moving items like housing. It is a slowly evolving process. The 'flash-crash' of 2008/09 was not a trend change, as we went back up.

    I think we are now at the beginning of the trend change process.

  10. Fish,

    How about a more honest appraisal of what's going on in the OV? What do they say? That 40% are sold? Well, if they are, those are strange buyers who neither want to rent or live in them. The place looks 85% empty to me.

    Perhaps, maybe, the OV can be some sort of death knell for the greater West side market.

    Otherwise, it's a sideways grind until interest rates spike or someone cries Uncle on the US and Canadian economy, jobs and death of the consumer that drives said economy and jobs.

  11. OV could not get worse really. I see in the North Shore News (another Canwest-Global rag) that the Evelyn project in West Van won't be affected by the OV BK. Same developer.

    So somehow the developer managed to over-leverage themselves for OV and yet keep their other projects seperate. They probably had sharks advising them. Meanwhile who did Sam Sullivan and Peter Ladner and their merry band have advising them.

    Hopefully not just the City hall staffers. And if not why not? And if they did- why isn't the City suing them too.

    I often think that too many law-firms, financial advisors, politicians, developers are too close for our comfort in this city. JIMVHO

  12. I often think that too many law-firms, financial advisors, politicians, developers are too close for our comfort in this city.
    Just the city? I'd go all the way to Victoria on that one, Fish.

  13. Update on the EVElyn. Whoopsy, thar she blows:

  14. Yes I saw that too.

    The dominos are falling on these poor guys.

    meanwhile how about the City just having a big fire-sale 40% off on the OV and getting them off the books?

    Make sure it is one per person, by lottery if needed and only sold to tose hwo have resided in vancouver for over a year?

    I guess that's too logical. A slow bleed with heating, security, insurance, depreciation and repairs and no taxes has to be endured until tax-payers cry uncle and then dump them.

    Two more days until the end of month numbers.