May 2007 Benchmark prices - A whole new record
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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June 4th, 2007 at 5:13 pm
June 4th, 2007 at 5:24 pm
June 4th, 2007 at 5:38 pm
Is it something in the water? Microwaves? Subliminal messaging?
Am I ever glad that I wear a tinfoil lid.
June 4th, 2007 at 6:30 pm
June 4th, 2007 at 6:36 pm
I think we have been for a while. But we are approaching SF, OC and Oakland (the top three) like a run away freight train.
The most accessible U.S statistic is the median. It always has its problems but right now it is very misleading. The subprime debacle hit the lower end hard, so median actually went up in most markets. Quality adjusted (Case Shiller) was down down and down. Of course, as the impact trickels through the trade up market, and foreclosures pressure prices across the spectrum, I expect the U.S. median to implode any month now.
Last month, our median was SIGNIFICANTLY higher than the benchmark (anybody know where it is posted?). In U.S. dollars, Mohican calculated it to a whopping $722,800. If our median moves a similar amount as the benchmark, and with the rise in the dollar since, we could be somewhere around $745,000. The two priciest cities in North America are Oakland and SF at $788,000 and $748,100 respectively. Those are March medians.
If flat, we could be neck in neck with San Francisco. If the U.S. median buckles, we could be at the VERY top of North America. Scary thought since we are near the bottom of hundreds of metro areas in incomes, and our population growth was only at an annualized 1% in q4 2006.
For some perspective, Seattle is at $380,200. In other words, HALF of our prices. And that is after Seattle has racked sizeable gains (34% since 2004).
Other medians:
Sunny San Diego: $592,200 (about 20% less than Vancouver)
Even sunnier Phoenix: $262,500 (almost ONE THIRD of Vancouver prices).
Nutting futs I tell you. I don’t think 1982 can be avoided.
June 4th, 2007 at 7:14 pm
What is shocking is how many sales there still are. Roughly even; up a little from 2006 in Greater Vancouver, and down a little in the Fraser Valley.
Where are all these people with diseased minds coming from? Who are these people? Personally I know many people who jumped two or three years ago. But now I only know a couple of potential first-time buyers and they appear to have backed off in frustration (I really hope so).
WHO ARE THESE CRAZY CRAZY PEOPLE!!!
June 4th, 2007 at 7:32 pm
June 4th, 2007 at 7:32 pm
June 4th, 2007 at 8:03 pm
June 4th, 2007 at 8:13 pm
Well, even with the higher prices, uptick in rates, and increasing inventory, sales are still at very high levels.
There is only one conclusion: There is still demand out there. There are absolutely no psychological limits to what this demand will pay. The only limitation is access to financing.
On that topic, since:
1. Only Oakland and SF have higher median prices than ours
2. There are many U.S. cities with significantly lower prices
3. But those incomes dwarf us.
4. Yet suffered from excessive flipping and exotic mortgage lending on speculative buys.
We MUST have an equal if not worse situation with regards to shaky mortgages.
Maybe our kind aren’t defined as “exotic”, but something is amiss.
Me thinks that the senior analysts at the major financial instutions are meeting as we speak with regards to policies that would put an end to the extreme affordability stretching. In the current scenario, I don’t think 25% downpayment will be nearly enough cushion. The risks are not insignificant, I don’t think the banks are that stupid.
What about CMHC? I don’t think there is much discretion in their policies, but with the amount of defaults we would see even if we only gave up the last two years of gains, they must be concerned. Surely a worst case scenario is modeled somewhere in their risk analysis.
What about Genworth? The lesson on the home front MUST raise concerns about Canadian opeations. And I know that Immelt is a tightwad for risk control. A buddy of mine started a venture that was bought out by GE. Any contract of material size had to be approved from the top. They must be proceeding very cautiously. Vancouver is an accident waiting to happen.
June 4th, 2007 at 9:00 pm
or maybe it really is different anyways
those numbers are simply amazing
go Vancouver lets be first in something
even if its in unafordability.
June 4th, 2007 at 9:17 pm
June 4th, 2007 at 9:42 pm
June 4th, 2007 at 9:43 pm
I’m left feeling like something will happen in part due to the housing bubble - recession via the states, out-migration, even higher interest rates - and all the bulls will blame the secondary issue, and sitting in the rubble say, “oh yah, well, see? it wasn’t affordability”.
And then, because Vancouver is extreme in beauty and in politics and in bubbles, we’ll do it all again.
Hopefully, by then I’ll have a home and sell at the next top, but still. It’d be nicer to be sane.
June 4th, 2007 at 9:52 pm
Fuji
“What I really don’t understand is the argument Rob keeps proposing - that affordability doesn’t matter.”
He says a lot, yet says very little. Don’t read to deep, don’t argue, because there is nothing to argue. Prices go up, prices go down. They always do. Lately they have been going up. Interesting times to hold a random walk point of view. The charts look far from random. Not that long ago, Rob thought that rising prices in themselves meant improving fundamentals.
June 5th, 2007 at 12:07 am
June 5th, 2007 at 12:44 am
Aww, who needs a real economy anyway.
Capital inflows can only last so long. You need incomes to support housing prices, as they are finding out in Florida.
June 5th, 2007 at 2:12 am
Maybe the olympics really are extending our boom.
Anyone know what these barely-speaking-english asian buyers will tend do if depreciation looks imminent? will they dump or hold?
June 5th, 2007 at 7:11 am
1) The local drug industry produces several billion dollars in revenue but we have little idea where that money ends up.
2) There is a massive illegal economy in Vancouver, something hinted at with the fact that a) less than 60% of immigrants file tax returns; and b) that The Economist recently noted that Canada has become home to the most criminal syndicates of any country in the world.
Look at the effect of just one corrupt Hong Kong cop on Vancouver RE (from the Asian Pacific Post):
“A covert police study obtained by The Asian Pacific Post showed that Hon and his family had bought at least 11 residential and commercial properties and established a dozen companies in Vancouver and a restaurant on Robson Street.
The properties were mainly located in the posh Shaughnessy, Kerrisdale and South Granville neighbourhoods.”
People in Vancouver have no idea of how much in illgotten gains are sloshing around this city.
June 5th, 2007 at 7:29 am
That prices keep rising is no surprise to Tsur Somerville, a real estate expert at the University of British Columbia, since “we know whenever markets slow down, activity slows down before prices slow down.”
June 5th, 2007 at 7:58 am
June 5th, 2007 at 8:54 am
Like 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.
June 5th, 2007 at 9:05 am
June 5th, 2007 at 9:18 am
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.
June 5th, 2007 at 9:50 am
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 owning, if you can put a true cost on ownership
June 5th, 2007 at 9:52 am
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.
June 5th, 2007 at 11:41 am
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.
June 5th, 2007 at 12:54 pm
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.
June 5th, 2007 at 1:03 pm
June 5th, 2007 at 1:08 pm
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.
June 5th, 2007 at 1:14 pm
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.
June 5th, 2007 at 1:22 pm
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?
June 5th, 2007 at 1:28 pm
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).
June 5th, 2007 at 1:59 pm
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.
June 5th, 2007 at 3:01 pm
June 5th, 2007 at 3:50 pm
“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 of a total provincial GDP of about $136 billion, but it isn’t really. Most of the value of overall GDP is channeled directly back into the business as operating costs and such. The average profit margin is about 12-15%, so out of that total GDP, about $20 billion is available for investment. But then that $20 billion is now subject to tax of say 30%, so now you have about $7 billion available for investment in something. How much of that $7 billion is directed toward real estate it’s hard to say.
Now, back to the drug industry’s $4 billion-plus. Well, their biggest operating cost is real estate, so housing gets a huge share there. Of the considerable profit remaining, how much goes again into housing in the form of residences and investments?
Again, hard to say. But any way you slice it, that $4 billion is suddenly the proverbial 900 pound gorilla.
And this is just one slice of the pie. Canada has a big and growing ex-drug, black economy and we’re a significant recipient of money earned from the vast web of corruption in China.
There are no sound reasons why Vancouver RE is behaving the way it is. I’m increasingly convinced that our market is decoupling from the usual fundamentals because our fundamentals are not representative of this city’s economy.
June 5th, 2007 at 7:43 pm
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?
June 5th, 2007 at 9:38 pm
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.
June 5th, 2007 at 10:10 pm
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?)
June 5th, 2007 at 10:18 pm
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.
June 6th, 2007 at 6:16 am
Yes, but still at a fraction of the rate of RE appreciation. The gap has been widening if anything.
June 6th, 2007 at 6:43 am
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.
June 6th, 2007 at 3:54 pm
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.”
June 6th, 2007 at 6:02 pm
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
This was definitely the case in the mid-1980’s.
June 6th, 2007 at 7:47 pm
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 is better. Good weed is apparently hard to find in Vancouver.