Vancouver Condo Info

Yesterday I posted a link to a report by Genworth Financial that declared that “over the next four years, Vancouver condo demand is expected to slow to balance with supply, although a correction is not expected.”. As one poster commented, Genworth Financial was one of the first in Canada to insure zero-down and 40 year mortgages as part of their goal to “make homeownership more affordable and accessible throughout Canada”.

I’m not entirely clear how helping to drive up debt levels is helping this goal, but every company needs a slogan.

I see now that this story is running in the Province, pretty much verbatim from the press release. The story subtitle is ‘growth to continue without any correction’ which, though slightly plausible, is still surprising to see as a statement of absolute truth. Imagine a company issuing a press release with a prediction that their stock price will “rise about 6.2 per cent this year and average 4.4-per-cent annual growth through 2010″.

I don’t doubt that its difficult work being a reporter, but wouldn’t it be more efficient and cheaper for the paper to just reprint the press release without the byline? If the market does correct, I expect we’ll see a lot more of these press releases from real estate agencies, banks, mortgage brokers, etc. If we hit year over year price drops then we’ll get the ones that say ‘the worst is over!’.

Paying reporters to retype these press releases over and over seems inefficient at best.

According to a report issued today by Genworth Financial strong demand will drive steady price increases in the Vancouver condo market until 2010.

“In 2006, Vancouver’s condo market remained as strong as ever and the good news is that growth is forecast to continue without a price correction, so it is still a smart time for buyers to realize the dream of homeownership,” said Peter Vukanovich, president Genworth Financial Canada. The Metropolitan Condominium Outlook reviewed resale condo markets in Montreal, Ottawa, Toronto, Calgary, Edmonton and Vancouver based on data from the Conference Board of Canada. New condo prices were not included.

According to the news release “Genworth Financial Canada, The Homeownership Company, works with lenders, mortgage brokers, real estate agents and builders to make homeownership more affordable and accessible throughout Canada.”

So they’re an impartial source for sure.

But heres a question I have: If the market will continue to rise gently until 2010 getting further and further away from rent values, what happens after 2010 and when is the best time to sell to realize gains on a Vancouver property?

I’m worried. It seems like just last summer there was a positive vibe in the air, local dailies would run enthusiastic exciting headlines like ‘BUY THAT CONDO NOW’ and everywhere you looked you’d find press releases from realtor offices touting predictions of average house prices of ‘ONE MILLION DOLLARS’ in the next 3 years. All the local boards and blogs would have several posters explaining why ‘NOW IS A GREAT TIME TO BUY’.

These days? We get headlines like ‘SUPPLY OF CONDOS IS EXCEEDING DEMAND’ and the REBGV benchmark price for a single family home has actually dropped below what it was last July.

But the most depressing sign of all?

I can barely find a handful of postings on local blogs and boards that are bullish on Vancouver real estate these days. So what happened? How has the shine come off this particular rose? Do bulls hibernate? I’m just looking for some reassurance that buying in Vancouver is a good idea right now.

Anyone?

According to this article in todays Vancouver Sun condo inventories have risen sharply over the last six months.

Greater Vancouver real estate markets saw a 55 per cent increase in inventory of unsold presale condominium units over the last six months, which may trigger a slowdown in future development, PricewaterhouseCoopers reported today.

The rising inventory is likely a result of fewer buyers being able to afford Vancouver’s high-flying prices, Craig Hennigar, vice-president of PricewaterhouseCoopers Real Estate (PsC), said.

Hmm rising inventory, fewer buyers able to afford asking prices. But prices will keep going up right?

update: Here’s the same story in Fridays issue of the Province.

Someone down in LA/Ventura county California has started up a blog documenting ‘real estate haircuts‘ - money lost in the housing market drop there. Some of these look quite painful, the most recently posted example is an attempted flip that finally ended up selling after 377 days on market for an astounding $456,000 less than the aspiring flipper paid - a drop in value of 33%.

Examples like that make some of the recent foreclosures in Vancouver look not so bad in comparison. Someone over at the Vancouver Housing Blog posted a link to this local example on west 6th, purchased in March for $350k, with the bank now asking $319k for it ‘as is where is’.

I was browsing some news on the US housing market, when I came across this bit about mortgage debt and ARM loans in Newsweek titled Escape from the Money pit. The title was an attention grabber, but it was the subheading that really surprised me though, in bold letters across the top of the column it says:

Home buyers thought they could put their house under their pillow and let the tooth fairy raise its value while they slept. Too bad.

..Which struck me as surprisingly callous for a column in a major publication. While I certainly agree that people are responsible for what they do with their money, I think we could show a little sympathy for people who got in over their heads and are upside-down on their mortgage. Lets be honest: the average person doesn’t have the time or inclination to completely educate themselves on some of the finer points of personal finance. Its not that they aren’t ’smart’ enough, it’s that life is full of things that demand our attentions but only a finite amount of time to focus on them.

People buy houses for all sorts of reasons and sometimes the timing is off, but how can you blame them for buying at the top when nobody knows what the ‘top’ of a market is except in hindsite? The fact that house prices can go down isn’t a secret, but lets face it: It’s not really the attribute that marketers are going to trumpet and going deeply into debt is the American way.

Marco sent in this link to a Globe and Mail story about a housing affordability study that looked at cities in six nations, comparing housing prices to incomes. They rate each city with a number of years it would take to pay off the average home with the average local income. Canada as a whole is not bad at all, with a median multiple of 3.2, just slightly above the traditional ‘affordable’ multiple of 3.0.

Regina has great affordability, with a median multiple of 2.0, while Vancouver doesnt fare so well on the affordability scale. Vancouver is rated the 13th least affordable city in this study, with a ’severely unaffordable’ rating of 7.7

The survey was conducted by Demographia, a US consulting and research firm. The full PDF survey report is available here.

The Toronto Star has an article about a condo development called the Bohemian Embassy - a name that was originally used for a series of literary / cultural coffee houses run by Don Cullen. Cullen is unhappy with their use of the name and talks about his first visit to the site:

There was no one to talk to and no literature available, but clearly someone was trying to “brand” their development with a name that sounded suitably hip. The trouble is, I invented that “brand” and the last thing it represented was culture-free, cookie-cutter condos.

Now being so very west-coast, I initally thought they were refering to bohemia townhomes in Vancouver, another development with granite countertops and sisal carpets that seems very un-bohemian.. or is it? Here’s the wikipedia definition of bohemianism:

The bohemian lifestyle is often associated with cafés, coffeehouses, drug use (particularly opium, the “dark idol”), alcoholism, and absinthe (nicknamed the “green fairy”). Bohemians were associated with unorthodox or antiestablishment political or social viewpoints, which were expressed through extramarital sexual relations and voluntary poverty.

Ok, so maybe I’m wrong. Some of this sounds pretty Vancouverish: the coffee shops, drug use and particularly the ‘voluntary poverty’ bit about buying RE right now - but why so shiny? If we’re going to glom onto the ‘bohemian’ concept it seems like developers could save a lot of money by skipping the clean new materials and simply throwing some absinthe in as a perk.

I think I have just the example too: remember that old porn theater in the downtown east side that is slated to become condos? Why bother with conversion when you could simply throw some old blankets over the seats and live in a true bohemian style. The Venus theater could become ‘The Intra-Venus’ a condo development like no other!

Now pass me that bottle and contract, I’ve got some investing to do!

There’s an article by Bob Ransford in Saturday’s Vancouver Sun titled ‘Its hard to pin down what’s fueling the boom’. Unfortunately the online version of the article is only available to subscribers (here), but I found this section interesting:

It seems like the economic surge that we experienced this last year was almost wholly driven by a real estate-based frenzy that perhaps peaked over the last twelve months but remains the only visible engine of economic growth in these parts.

It was easier to make sense of earlier real estate booms in Vancouver when our resource-based economy used to go through cycles of expansion and contraction tied to commodity price fluctuations. It was even easier to make sense of the record setting real estate boom of the mid-1990’s when a new international market discovered Vancouver as Hong Kong’s sovereignty was about to be handed over from Britain to China.

So that was then, what’s driving the boom now?

Pinning down what exactly fueled our latest trend-setting real estate boom is harder. Job growth is certainly one fundamental driving the market. Many new jobs created by the institutional projects that are part of the pre-Olympic period provided the wealth that brought new home buyers to the market.

The residential construction sector itself also was a significant job creator. Kind of like the chicken and the egg. It is somewhat scary that we have little more than this to point to as our engine of growth.

That got me thinking: In previous booms once demand was absorbed or the driving economic factors were removed the market went through a down-turn with lower house prices. People that needed to sell were faced with a depreciating asset, and it wasn’t uncommon for people that bought at the peak to owe more on their mortgage than their house was worth.

So what about now? If the only driving force behind the boom is the boom itself then we never have to worry about a downturn! If the boom is providing the underlying economic factors for the boom then perhaps we’ve attained the real estate equivalent of perpetual motion!

The Cook Street condo site in Victoria is up for sale.

Vancouver developer Max Tomaszewski is offering for sale land in the heart of the village for $15 million, along with plans for a residential and commercial development dubbed Castana.

The developer is moving on to a Marina project and several development projects in Europe, but has said that if a buyer can’t be found they will complete the project. Delays on the Cook Street project have left a lot of residents unhappy:

Word that the property isn’t being developed quickly is crushing news to the Fairfield community that has been involved with numerous meetings on various proposals for the site since 2002.

“We want it completed,” said Wayne Hollohan, chairman of the Fairfield Community Association’s planning and land-use committee.

He added it’s disappointing that houses have been demolished on the site, Food Country is closed, and employees have been laid off but still construction hasn’t begun.

Amid escalating rumours about the project, Tomaszewski was asked in December if the property was sold. He replied he was tired of the “wild rumours” about the property and assured that construction would start that month.

There is no activity on the site and the building permit still hasn’t been taken out at the City of Victoria.

The development permit on the site expires in September 2008.

I haven’t been following the market in Victoria - are condo prices falling faster there than in Vancouver? Is it no longer wildly profitable to be building condominiums on the island?