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May 2007 Benchmark prices – A whole new record

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Wow. Just wow. The Real Estate Board of Greater Vancouver just released their benchmark stats for May 2007 and prices are up again – a record price of $711,245 for the detached benchmark. Have we attained the least affordable city in North America status yet?

And Condos and Townhomes? Also up:

Now who says thats a bubble?

Stats from agentwill who adds “I have no idea when this will end. All I know is that despite so much logic against these rising prics, well, it ain’t ending.”

Freako added some quick numbers in a previous post that I’m going to repost here:

“Based on the latest ING rates and 20% down, that results in payments of $3,536.29 before taxes, maintenance or repairs.”

“How is this remotely possible? i punched the the mortgage amount into ING’s “how much can I borrow calculator”, and the required income is $143,000. What percentile of households earn that?”

..and to round this post up reductimat sends in this link to a scotiabank study that forsees a slowing in the Canadian Housing market, but ‘certainly not a bust’.

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craigpbbrett

1) "You can tap dance around the income question all you want, but that does not address the fact that rents, which are an indicator of actual demand for shelter and actual incomes, are just as out of whack with prices as official incomes."As someone else noted, the increase in rents is far outstripped by the increase in prices. But if you think about it, the tight rental market could also be partly explained by the grow-op effect. How many of the 18,000-plus grow-ops would normally be rental units? How many renters derive their income from the drug industry? Just more known unknowns.2) "How many kilograms of pot sells for $20,000 'wholesale'?Where is the bulk of the product being sold? (locally?, US?)"It wholesales for about $1500-1700 a pound, depending on quality. All the good stuff goes south where the pricing… Read more »

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patriotz

Ah yes, 1981's greatest hits. All that HK money. Didn't stop a huge crash that year and two bear markets in the 90's. I think that in a couple of years it will be much harder to rent-out basement suites with all the rental condos that will be availableThis was definitely the case in the mid-1980's.

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Andrew

Spolde has a good point. There still is lots of money coming in from Asia.Talking to coworkers (many who are from Hong Kong) uncovers anecdotes such as, "My friend's family found a house they liked in Richmond for $600k, and bought it. In cash."

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Patiently Waiting

I know of one large suburban basement suite that was rented since last Summer for $875. Its now being offered for $900. Not much of an increase.I think that in a couple of years it will be much harder to rent-out basement suites with all the rental condos that will be available. A further difficulty for some homedebtors.

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freako

"patriotz: rents have been increasing, and given the extremely tight rental situation, further, accelerating rent increase can be expected. "Yes, but still at a fraction of the rate of RE appreciation. The gap has been widening if anything.

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markx

patriotz: rents have been increasing, and given the extremely tight rental situation, further, accelerating rent increase can be expected. So fundamentals are going on bull's favor, but I do believe it will be temporary. There were alarms of rental shortages in Florida around 2005, but rental supplies magically reappeared when flippers couldn't flip their property and put it back on rental market.The rental market would be interesting once this bubble bursts. Rentors might start doing credit checks on landlords to avoid getting kicked out due to bank foreclosure.

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rentah

Each grow-op generates about $20,000 a month in cash — at wholesale prices. Now do the math: 18,000 x 20,000 x 12 = $4.3 billion.freako makes excellent point about where the money ends up.Let's do some back of the envelope math here, but first some data, please:How many kilograms of pot sells for $20,000 'wholesale'?Where is the bulk of the product being sold? (locally?, US?)

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patriotz

I'm increasingly convinced that our market is decoupling from the usual fundamentals because our fundamentals are not representative of this city's economy.You can tap dance around the income question all you want, but that does not address the fact that rents, which are an indicator of actual demand for shelter and actual incomes, are just as out of whack with prices as official incomes.Explain that one. It's just a bubble, period.

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markx

"BC Hydro suspects "I suspect that's just a number used to grab newspaper headline. Plus, I'm not sure if each and every one of these suspected grow-ops generate 20,000 in cash.Plus, was grow-ops non-existent in 1999? Is the weed market in a bubble now as well?

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craigpbbrett

Jim said:"I am not disputing this fact-because I don't know, I do know the GDP of the GVRD is about $170 billion per year."According to BC stats, BC's GDP last year was about $136 billion. The GVRD contributes about 55% of that.Marxx said:"The 4 billion figure is grossly exagerated, as usually done with financial figures regarding crime."Hardly. BC Hydro suspects there are 18,000 grow-ops in the province based on electricity usage. This is an undercount because most grow-ops rewire around the meter box so they're off the radar.Each grow-op generates about $20,000 a month in cash — at wholesale prices. Now do the math: 18,000 x 20,0000 x 12 = $4.3 billion.As I said, this is an undercount of grow-ops and does not include all the weed grown outside.Now $4 billion-plus may seem like a drop in the bucket out… Read more »

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markx

The 4 billion figure is grossly exagerated, as usually done with financial figures regarding crime. One misleading calculation is multiplying the estimated total drug production/border crossing by a very high street price. Or total estimated drug export by final destination street price. Media reports on police raids tend to use this figure to emphasize the police effort, but the reality is that much of the drugs crossing border probably won't be sold at a high street price. Many criminology reports have confirmed this, suggesting that total cash flow of the drug trade is not as large as often stated.

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freako

"'When you look at affordability [measures], especially on condominiums, [Vancouver] doesn't look that horribly overpriced,' Somerville added. 'People make adjustments in high-priced markets.'"Strange statements indeed. Saying that condos are more affordable than low density is stating the obvious. Of course they are, and for good reason.But Tsur goes one further and suggests that the affordability of condos precludes "overpricing". Totally inappropriate. An Pinto is more affordable than a Mercedes, but that does not mean that it is a good deal for that fact alone.As mentioned, there are very good reasons why relative pricing relationships exist with regards to condos, townhomes and SFH.

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Jim

craigpbbrett said… " size of the drug industry as implied by the estimated $4 billion of revenue a year". I am not disputing this fact-because I don't know, I do know the GDP of the GVRD is about $170 billion per year and the Olympics with the multiplier effect is about $4 to $7 billion in total. forestry and mining and tourism are far bigger than $4 billion. So I guess its not drugs driving housing. It's probably a speculative frenzy driven by wage earners(in some cases high wage earners).

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markx

"He also sentenced Talita James, a convicted cocaine dealer who bought two villas in one day for $1.1 million, to 27 months for her purchases and for committing a crime while on supervised release from federal prison."A quote from Housing Bubble Blog regarding Colorado. Why bother selling cocaine at a couple hundred a deal when you can get millions for signing a name on a dotted line?

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markx

"So frankly whether or not some paper mill in BC is in trouble or not has nothing to do with RE prices in Vancouver. It's all global. "It does matter. Forest sector has been booming for the past few years, with the US housing bubble. The city is 50% asian, but the asians work local jobs and earn local salary. They work in an economy driven by forestry sector. They might be more inclined on RE speculation instead of stock speculation due to their culture, but that doesn't improve the fundamentals a bit.The rich man in Asian is in RE, not mutual fund or software, like Buffet or Gates. In that regard, we can say that Vancouver is more inclined towards RE speculation, but that doesn't mean that bubbles won't pop.

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markx

"People in Vancouver have no idea of how much in illgotten gains are sloshing around this city. "Just like in Florida. The south american and European drug lords did pore money into the RE market, but it's the local boys that created the bulk of demand. When the party ended, the local boys are the last fools left. Illegal money is almost always exagerated in western society. When you look at the numbers, local police officers are probably bigger buyers than supposedly filthy rich crime lords.

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markx

Swirlyman: What you predicted may actually come true. Extrapolate the recent gains, and you can probably buy whole USA by selling City of Vancouver, nevermind GVRD. In reference, it took the whole Tokyo to equal USA, but I think Vancouver can do better.

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craigpbbrett

"So I'd imagine most of the drug money in Vancouver is actually accounted for."Yes, in large part accounted for in the purchase of real estate. But what we don't know, and probably never will, is the EXTENT that illegal business contributes to local RE. There are no metrics to track it.What is obvious is that considering the:1) size of the drug industry as implied by the estimated $4 billion of revenue a year, 2) the amount of money generated by the underground economy as implied by the very low number of tax returns filed by immigrants, and finally 3) the inflow of often dubious foreign funds (for eg., 85-90% of China's millionaires are estimated to be corrupt bureaucrats and their kin), that Vancouver's housing market will probably continue to defy fundamentals.

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patriotz

That's what they said in 1981, too.That's what they were saying last year in Miami, too.And there is a downside to the global economy – like a global recession, brought on by maxed-out consumer demand you know where. Naw, can't happen.

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OWG

I would suggest that somebody plots the graph of Vancouver Real Estate Prices vs. Hong Kong and China major stock indices…or any other major ecomomic indicators for that part of the world.I suspect that the reason that our RE prices are detached from fundementals is that they have nothing to do with the local economy. This city is 50% asian. There is also significant chunk of population from Europe. And then on a top of that you have rich Americans looking for some nice properties. So frankly whether or not some paper mill in BC is in trouble or not has nothing to do with RE prices in Vancouver. It's all global.

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jesse

"'When you look at affordability [measures], especially on condominiums, [Vancouver] doesn't look that horribly overpriced,' Somerville added. 'People make adjustments in high-priced markets.'"I see. The inference being a dual income family can easily afford a condo, so what are you complaining about? Bravo, Dr. Somerville! Bravo.Banks have money they want to lend. People have jobs. Lenders and borrowers agree on loans that they think they can afford. Until the banks' money spigot or debt servicing cash flow is crimped, party on. (Note the latter happened in the States followed in subsequent months by the former. This has not happened in Vancouver yet)In any case, the renter's discount is hands-down the best deal going. I think it is to the point now where you can pay rent, save for downpayment, AND take an expensive vacation and still be ahead compared to… Read more »

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aetakeo

And since they are still working (and are probably workaholics) at the peak of their earning potential, it's nothing to them to take out a $400K loan to buy a condo.According to StatsCan via the BC government, 18% of families make 100K/year or more in the lower mainland. Everyone else makes less.So that 18% of the population is buying condos for a LOT of wanna-be actress babies.

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chrisnott

Re: real estate prices decoupling from incomes and known unknowns, I think much of the lower end of the market (condos) are being bought by well-off parents for their spawn, er, offspring. They know that their 18yo actress wanna-bes couldn't ever afford to buy something and they need to get them financially settled in some way or they will be leaning on the parent purse-strings for many years to come. And since they are still working (and are probably workaholics) at the peak of their earning potential, it's nothing to them to take out a $400K loan to buy a condo. I live right next to a prime case study.

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Drachen

craigpbbrettLike I keep saying every time someone brings this up. SMART criminals, the ones who make lots of money and don't get caught do what's called, "money laundering". Which is to say that they funnel their ill gotten gains through tax paying front companies.Organized crime has been doing this ever since Capone got busted on tax evasion. So I'd imagine most of the drug money in Vancouver is actually accounted for.

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Jim

Rob Chipman is a large property owner and manages millions for investors. Were he to make a bearish statement he would be in conflict with his clientelle.

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