Vancouver Condo Info

Nero pointed out this article in the Globe and Mail about the Big Six Canadian banks urging the government to tighten up mortgage rules to control runaway speculation in the Canadian real estate market.  Just to be clear, these are the same banks that are making pretty much risk free income from these government insured mortgages.  About 40% of their loan portfolio is Canadian mortgages.  As Nero says:

In what world do the banks have to tell the government to rein in lending and squeeze profits?

The article points out that the banks aren’t so much concerned about people defaulting on their mortgages (the government owns that risk), what they’re really concerned about is mass foreclosures affecting peoples ability to pay off their credit card bills and other loans, since THOSE debts are not government insured.

So these are the big banks, why don’t they just tighten up their own lending standards? Patriotz summed the issue up nicely:

The banks are essentially facing a prisoner’s dilemma problem. They know that if the bubble continues, and collapses, they all will be worse off. But there is no incentive for any individual bank to restrict lending, because its competitors would just take the business, and thus that bank would end taking the biggest hit.

Also an agreement among the banks to restrict lending, even if it could be arrived at, could be viewed legally as a conspiracy in restraint of trade.

So the banks must appeal to a higher level to restrict lending to all of them equally.

So will Flaherty listen to the banks and tighten up mortgage lending standards and if so, what form will that take?  One point to remember is that this issue is about a national housing bubble, and I don’t believe there’s another major market in Canada that is as detached from local incomes as Vancouver.

update: Patriotz points out that Flaherty has made his decision, and somewhat sensibly decided to stick with the ‘warn them mildly and let them dig their own grave’ approach.

“In terms of Canada, we’ve been watching and monitoring carefully and we continue to do that. There are certain tools available to the government if we choose to use some or all of them. As you know, we did so in 2008, and we’re continuing to watch. Right now, there is no compelling evidence of a housing bubble in Canada. There are some signals in the market that are concerning,”

Mark Carney of the Bank of Canada feels the same way:

The central bank has no immediate worry about a housing bubble. However, Mr. Carney reiterated that households should be cautious about taking on home loans at current rates, which will inevitably rise.

“We’ve alerted to this issue, the broader issue of household debt,” Mr. Carney said. “We want to ensure people manage their affairs recognizing that the current situation with interest rates is extraordinary and extraordinary won’t persist.”

Both Mr. Carney and Mr. Flaherty have been urging consumers to act cautiously when buying homes for several months now.

Thus wraps up the first week of February 2010, which means it’s time to do our regular end of the week economic news round up and open topic discussion post.  Here are a few stories to kick off the weekend thread:

-Global stock markets slide
-Vancouver prices hit January peak
-Unveiling the Fairmont Pacific Rim
-Fixed or variable rate mortgage?
-VREAA: Froogle Scott 3
-Whistler debt woes mount
-Our friend Bob in Seattle
-Canadian building permits rise
-They’re laughing with you, not at you
-Boon or bust for the Downtown East Side

So what are you seeing out there? Post your news links, thoughts and anecdotes here and have and excellent weekend!

Several people wrote in and posted a link to this article in Macleans about the Canadian housing bubble.  It’s an interesting read and a good introduction to anyone who wonders what all this bubble talk is about.

Room 32 of the B.C. Supreme Court in Vancouver is where dreams of owning a home go to die. It’s the main foreclosure court in the Lower Mainland, where banks and other lenders ultimately turn when homeowners can’t keep up with their mortgage payments. The homes get seized, then sold off. “There are many tears on that carpet,” says Andrew Bury, a partner at Gowlings and the top foreclosure lawyer in the city. But lately the cramped courtroom has come to represent something else entirely—the utter insanity of Canada’s red hot housing market.

Last week Bury was in court to seek approval for the sale of a one-storey foreclosed home in central Richmond for $670,000. That was already $40,000 more than the house had been valued at two months earlier. Then, as he always does, Bury asked whether any other bidders were interested in the 2,000-sq.-foot home. Ten hands shot up. What happened next left him stunned. After a secret auction, the winning couple offered a whopping $852,500. “That’s an extreme case, but it’s the kind of thing we’re seeing all the time now,” says Bury. “It’s a feeding frenzy out there.”

The article points out that we have many scary similarities to the US housing bubble and excessive household debt levels that have raised alarm from many corners.  All the same arguments have been made for why ‘it’s different this time’ from ‘wealthy foreigners’ to ‘drug money’ to that old ‘running out of land’ gem.  Meanwhile the elephant in room keeps getting bigger and bigger.  Interest rates going up just a few percentage points ( a near certainty ) will push many people into deep financial trouble.  Unfortunately as the situation down south showed us, it’s not just first time home buyers and recent purchasers that get hurt when speculative housing bubbles collapse.

This should come as a surprise to no one, but this province leads the nation when it comes to concern over personal debt according to an RBC report.

RBC chief economist and senior vice-president Craig Wright said much of the debt concern centres around higher real estate costs. “Historically, if you look at the housing market, it’s always highest [in B.C.] in terms of affordability.”

The survey also notes that B.C. residents have the grimmest assessment of the economy in the country (43 per cent characterized it as good, compared to 48 per cent nationally), something Wright found a bit surprising because RBC expects the 2010 Olympics to boost B.C.’s economy into recovery mode. “It may be that [B.C.] is looking backward instead of forward.

“We expect to see B.C.’s economy grow by a solid 3.3 per cent in 2010 before moving higher to 3.4 per cent in 2011.”

Good solid growth, I’m guessing that’s why they’re sponsoring the games.

Some more winter-game accommodation stories in the news:  There appears to be a problem with the plan to house some visitors in a cruise ship.

A plan to berth an 1,100-room cruise ship in North Vancouver for use as a floating hotel during the Olympic Games appears to be in serious danger of sinking.

Edmonton-based Newwest Special Projects – which has marketed the Norwegian Star to Games visitors for the past nine months – said in a statement over the weekend that sales have been disappointing while expenses have increased beyond expectations. It said it is negotiating with its partners to try to lower costs and keep the project alive.

They initial priced rooms at $1,300 a night, dropping that to $500 per night in October and recently lowering starting prices to $275 per night including free meals.  They appear to have removed their booking gateways from the internet as they work out their current problems.

You know how when company is coming you shove everything into closets and close the door, pretending that the mess doesn’t exist?  Well some busybodies have been opening up our closed doors instead of just enjoying the fruit punch:

VANCOUVER, British Columbia – Five blocks away from the venue for Vancouver’s Olympic opening ceremonies, four grizzled addicts huddle in the rain, injecting themselves with heroin behind a trash bin.

Welcome to Downtown Eastside. Here, life is gritty, volatile and the slightest misstep can invite brutal retaliation.

“It’s a jungle,” said Glen, a 49-year-old heroin addict who goes by the street name Trouble. “You want to get out of here.”

That’s from an article over at MSNBC, and it doesn’t really improve after that:

As Vancouver prepares for the Olympics and the descent of the world’s media, the Downtown Eastside remains a huge problem — 15 square blocks of despair, squalid rooming houses and alleys populated by thousands of addicts, the homeless, the mentally ill and the drug dealers who prey on them.

This neighborhood is the most concentrated drug and poverty ghetto in North America, with high use of heroin, cocaine and methamphetamine, according to criminologist Benedikt Fischer of Simon Fraser University. It’s also the only place in North America where drug addicts can shoot heroin into their veins at an officially sanctioned injection site.

Now why would a US news outlet want to make our city look bad?  I have a theory.  MSNBC is a joint venture between Microsoft and NBC.  I suspect that Bill Gates is jealous of our property values, particularly since the Seattle market has dropped so much, and he’s pulling some strings to make us look bad.  Everyone who lives here knows you don’t go down to Main and Hastings unless you want to score some junk or catch a hot new disease, so what’s the big deal?

Well that theory explains the yanks anyways, but what’s with the British?  They’re taking their potshots too, and we’re supposed to be on the same side!  We’re part of the commonwealth!  We’ve got the queen on our currency!

Conservative estimates now speculate that the games will cost upwards of $6bn, with little chance of a return. This titanic act of fiscal malfeasance includes a security force that was originally budgeted at $175m, but has since inflated to $900m. With more than 15,000 members, it’s the largest military presence seen in western Canada since the end of the second world war, an appropriate measure only if one imagines al-Qaida are set to descend from the slopes on C2-strapped snowboards. With a police officer on every corner and military helicopters buzzing overhead, Vancouver looks more like post-war Berlin than an Olympic wonderland.

That’s from the Guardian article Vancouver’s Olympics are heading for disaster.  You know what I think?  I think everybody is just jealous.

Thanks to G and jjss for the links!

We’re closing in on the weekend, are you getting excited?  Every Friday we do our end of the week economic news round-up and open topic discussion, so lets get ‘er started!  Here are a few stories to kick off the talk:

-CMHC: Homebuilding poised for a revival
-Bankers get the bonus, taxpayers take the risk
-Demographia: Vancouver ‘least affordable’ housing (pdf)
-UBC: Olympics offer no economic gains
-Toronto and Vancouver have hottest market
-2000 fewer million dollar homes in the lower mainland
-Scotia Capital thinks Canada in a housing bubble
-Don’t bite off more mortgage than you can chew
-The Desjardins affordability index
-BOC: Household debt ‘most prominent risk’
-US home sales plunge, worst drop in 40 years
-Seattle home prices hit new low
-More China bubble fears

So what are you seeing out there in the streets and lanes of Vancouver?  Post your news links, thoughts and anecdotes here and have an excellent weekend!

Now that the W has revitalized the Downtown Eastside, eliminating the scourge of homeless, drug addicts, panhandlers and prostitutes there’s just one more bold step to complete this neighborhoods transformation: 270 sq foot micro condos.

For those keeping track, that’s the size of two parking spots.  You can tell your grandkids about the good ol’ days when your family lived in a spacious 450sq foot condo.

John Stovell, general manager of Reliance Properties, said there’s a strong need for more affordable rental units in the downtown area.

“So many people contact us, not with a specific size they want, or specific amenities, but they tell us where they want to be in the neighbourhood and how much they can pay. So often that amount is just not achievable for anything but a very specialized product like this,” he said.

“By cutting away the non-essentials, that is the only way to get to that price-point in Vancouver,” he said.

The Conference Board of Canada is predicting perfect stability in the local real estate market for the year ahead.  They see the Metro Vancouver real estate market as currently hot, but not overheating and predict that it ‘likely won’t overheat as 2010 progresses’.

While Metro Vancouver home sales in December tracked a pace that was nearly three times higher than sales last January, board senior economist Robin Wiebe said new listings also rose keeping the overall market in balance.

“Though [the market] is closing on the top of the balanced range, buyers are provided with a reasonable choice as the go out searching for homes,” Wiebe said in an interview.

However, Wiebe added that “it wouldn’t take much to tip [the market] over into seller’s territory.”

That is one factor that has the Conference Board putting Metro Vancouver on the list of cities it expects will see property prices rise between five and just under seven per cent along with Victoria, the Fraser Valley, Calgary, Regina, Ottawa and Halifax.

Edmonton, Saskatoon and Montreal are among the cities that the Conference Board expects will see price increases over seven per cent, with Winnipeg Toronto and Hamilton among cities that should see price increases between three and five per cent.

The Conference Board is estimating that no Canadian cities will see price decreases in 2010.

The full article can be read in the Vancouver Sun.

News Flash! This just in, hot off the presses!  Vancouver has become one of the most unaffordable cities in the world.

Vancouver not only has the least affordable housing of 28 markets measured in Canada, but of 272 metropolitan markets ranked in Ireland, the U.K., New Zealand, Australia, the U.S. and Canada, according to statistics compiled by the Winnipeg-based Frontier Centre for Public Policy.

We’re number one! We’re number one!

The numbers are calculated by dividing the median (or middle) residential house sale price from the third quarter by median annual gross household income. In Vancouver, for example, a median home price of $540,900 was divided by median household income of $58,200 to create a multiple of 9.3. The group describes as “severely unaffordable” any reading of 5.1 and over.

Not only that, it is “unprecedented in modern history,” the group said.

Ah! A brave new era!  We’ve broken records and surely now prices have nowhere to go but up!  Congratulations to everyone who took part in the contest by bidding up home prices, and a special thanks to the CMHC.  I don’t think we could have done it without your generous support!