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Chipman has posted this in the past, and I refuted him using the most clear cut logic I could muster up. Lost cause.

Rents will absolutely NOT go up because landlords need more money. It is supply and demand pure and simple. Landlords compete for tenants and tenants compete for rentals. There may be some mispricings due to market frictions and imperfections but these in no way or form constitute increasing rent levels.

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freako, i think the realtors(tm) are on to this. i’ve been watching craigslist for sometime & see a lot of the overpriced rentals on there are posted by realtors & their agencies/ partners, etc… the effect of this is that amateurs see these overvaluations & post their places at a premium. renters who are too stupid or lazy or desperate rent this crap and it becomes a self-fulfilling prophecy. chipman is even posting crap on his site to this effect.

i’m so sick of the manipulation. why are people so stupid.

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Yeah, everytime it snows in San Diego or Miami I laugh at those poor cold soulds.

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Yes of course I am. But you said “people sell only when they have no choice”. I.E. all people. That’s just not true.

Oh by way, there’s another group of people who always have to sell. They’re called “builders”, and you can see them keepin’ on keepin’ on south of the border, even as prices tank.

I say:

Let’s no feed words into my mouth alright.

Here,

Let’s assume that you have 80 percent debt on your home and the market price drops say by 10%, you have just absorbed at 50%, yeap that’s a 50% drop in the value of your equity. Do the math.
Assume a $500,000 home with the initial equity of $100,000 (your downpayment) and a $400,000 mortgage. 10% down from half a mil would be $450,000. Since you don’t own that $400,000 in money, you are only left over with $50,000 when you sell.

However, if we do the math again with a 40% stake equity (downpayment or a few years into the mortgage), but the market suddenly drops 30%, you will see a 75% of your total equity wiped out.

As I said in the earlier post, people with a significant built-up equity to cash in, which means 100% equity with no borrowed money will not be forced to sell. You see, a 50 to 100% decline of investor’s net worth in the stock market has NEVER happened before, not even the 1929 crash. Never. BUT, a 30% decline in house prices in Vancouver (though I think it would be even more) would quickly wiped out up 75% of the net equity worth.
gone. If house prices decline say 50-60% from the highs, then it would practically wipe out everyone’s total home equity.
Why?!? Because, most of them use their existing paid home equity(principle residence) to speculate on many condos and homes they bought with borrowed money.

Builders again would face the same problems. They are sellers, but they are also borrowers too! If they are forced to sell in a down market, they face the same lost of equity they did with regular home buyers but at a much magnified magnitude.

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Yes of course I am. But you said “people sell only when they have no choice”. I.E. all people. That’s just not true.

Oh by way, there’s another group of people who always have to sell. They’re called “builders”, and you can see them keepin’ on keepin’ on south of the border, even as prices tank.

Markets are set at the margins. If a significant number of discretionary sellers head for the exits, that can be enough to stop price appreciation. And then new buyers sit back and ask themselves what is the point of buying. And the downward spiral begins.

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The more reason for our prices being out of line. Our affordability has to THE worst in North America by a good margin.

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I wasn’t refering to your arguments in specific, but any argument from anybody. What is left over will hopefully be closer to the true picture, which I imagine is the ultimate goal of most posters.

But what I am trying to say is that something is missing in this analysis. Something that would explain the change in attitudes and acceptable prices/debt levels.

I see things which explain the insane valuations, but nothing that justifies them.

As mentioned, the #1 clue is lagging rents. It is such a strong bearish argument, that the onus is on the bulls to explain it away. In the absence of such an explanation, the crash is waiting, albeit patiently it seems. Mystery reasons don’t cut it.

Remember, we don’t have the exotic mortgages that US has, not are our interest payments tax deductable.

That argument has been made before. I think we do have f*cked up lending here. There is no way that we could be the 4th most expensive metro in North America without it. Our incomes are way down the list. Our population growth is mediocre. I don’t know exactly what is going on, but in the absence of evidence to the contrary, I presume that it is simply a speculative mania that will end sooner or later. I won’t bet my life on this, but I am fairly certain.

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Get a new Travel Agent. Air Canada does daily flights (non-stop of course) to Honolulu and Maui. I do a lot of travel for business, and one thing you can’t knock is our airport. Its fantastic when compared to others. We aren’t a major hub city, but the flight options are decent considering we are in the far corner of civilized North America.

Almost everyone I talk to around the US knows where Vancouver is. My flights home are typically filled with tourists in the summer.

I’m sure you know from travel to Florida that they probably don’t know where Atlanta is, or who the current president is.

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I am more then sympathetic to the people who would like to see a correction. Honestly, I am shocked at what people are paying for their homes. When I bought the first place here I was slightly worried by my 150K mortgage and I worked as hard as I could to pay it off as soon as possible. And now? People take 400-500K in mortgages without blinking.

I travel to Texas on business from time to time and what I see there makes me wonder why am I bothering to live in Vancouver. Vancouver is not 5 times better to live in then let’s say Austin or San Antonio.

I don’t mind that some of my arguments get taken apart – that’s why this board is for. But what I am trying to say is that something is missing in this analysis. Something that would explain the change in attitudes and acceptable prices/debt levels. This last real estate boom is like no other before, so what is it that has changed? Remember, we don’t have the exotic mortgages that US has, not are our interest payments tax deductable.

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I think people are looking for the trigger that will set in motion the long overdue correction. Sooner or later they will be right. The wolf did come.

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Doubt it, they looked like sincere opinions. It is good to have devil’s advocates on each side. The weak arguments will get picked apart, and we will all have a better understanding of what is going on.

For example, the observation that 1982 was the result of an quick up down market was interesting. As mentioned, I don’t agree with it, but still worthy of consideration. On that topic, as I posted at vannumbers, I think the percentage of housing stock that paid signficantly above long term trendline is much much larger now than in 1981. In that sense, this is a much more precarius situation.

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So you are telling me that this type of property (http://tinyurl.com/2oleqv) is being bought by local folks? Condos ranging from 1.4 to 13mil?

Secondly, they may be local as in having Canadian Passports, but they may not be living here. Those 300,000 Hong Kong residents with Canadian Passports perhaps? Have you seen Coal Harbour towers at night? Very few lights and activity in general, especially in the winter. Now compare that to towers where people actually live (West End, Metrotown).

Don’t take me wrong here, I would like nothing more than to be able to buy myself a brand new house in Vancouver for $200,000 like I can in Austin, Texas – but that ain’t gonna happen.

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Not true. Downsizing is an obvious exception, as is a move out-of-market to a cheaper location. Also investors may choose to get out if returns look unattractive going forward – especially if they are cash flow negative.

I say..

You are talking about people who already have a significant stake of equity in their homes. People who downsized or move to a different locale had built-up equity to cash in. People who buy homes these days DO NOT. That is the difference.
People who have no choice but to sell realize that, negative equity will hurt them more but since they didn’t put into the homes much, it’s less painful to bail out. Whereas, if you actually put 25% to 40% cash down on a home and the price went upside down however, it will be less likely for that person to walk away. This was what happened after the 80s recession.

Also, another trend that’s developing nowadays is with people using the paid homes to finance other homes or other equity plays with borrowed money. I know of several people who had borrowed money from the bank to buy 4 other homes (now valued up to 3 million dollars) and 1 land in Alberta, all from their valued $750,000 home in East Van. While we don’t have sub-prime in Canada, or at least in Vancouver, this is just as deadly as sub-prime.
This is because, they are in the false illusion that all these homes they bought with borrowed money had some built-up equity from their original home. That illusion, however, will be tested if and when the market starts to slide. One poster was correct in saying that most of the homes were bought by local BC residents, but with leveraged equity from their primary residence.

People like to protect their principle residence. Secondary and so forth and so on are not tax free when sold, so the likely of selling or walking away are much greater.

A consumer led recession had a surprisingly effect to people. It makes them savers rather than borrowers. This was true in the early 80s and 90s. That was not true after 2001, hence the term negative savers. That is why, there is this thing in the news of credit crunch bailout and the fed now reducing the discount rate, all in an attempt to prop up the market.

Why?!? Because everybody knew the game is ending, but also wanting to sell out as the prices go up again.

Just like the good old net days. People still bought Nortel even when it dropped from $120 to $75 then lower and then lower.

Be wise. Don’t try to catch a falling knife or it’s going to hurt.

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Why not, as long as CMHC and Genworth are the parties actually holding the bag? Come to think of it, they might just prefer to loan >80% LTV just to get the insurers on board. Moral hazard, anyone?

People starts selling only when they have no choice

Not true. Downsizing is an obvious exception, as is a move out-of-market to a cheaper location. Also investors may choose to get out if returns look unattractive going forward – especially if they are cash flow negative.

Once price appreciation stops, the bell starts ringing for many of these people as they realize that it’s now or never. And the race for the exits begins.

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Nice catch, Patriotz, I missed that the first time around.

OWG, here is your chance to learn something new, (unless you are playing games with us). I posted on this just the other day. NAR’s median has San Francisco up 7.4% yoy, whereas Case-Shiller has it down 3.4% yoy.

Now that is some huge discrepancy. Which is more accurate? Which is more accurate? Case-Shiller of course, as it measures apples to apples. The median is totally distorted as a result of the low end drying up due to subprimce.

The U.S. is a slaughter, and it will get much worse. As patriotz mentions, foreclosures are up. Inventory in some parts of Florida is nearing half a decade.

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Gee I heard that in 1981 too. Did they use the old articles as a template?

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BWAHAHAHA!

Come on guy, don’t peddle crap like that on this board. Florida is a bloodbath, off 25% already in many areas. California Central Valley and Inland Empire are in similar straits, San Diego and outer Bay Area (Sonoma) falling, only a matter of time till the illness spreads to LA, OC and inner Bay Area.

I don’t give a hoot what someone’s aggregate statistics say, look at same-unit prices. It’s ugly.

Oh, and pardon me for asking the obvious, but if prices aren’t falling, why are foreclosures exploding and the secondary mortgage market tanking?

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Right now, mortgage payments for most BC home owners have passed 50%. I’m not surprised if some are at the 70% mark. Which means, having a good source of income every month helps keep the mortgage in check.
Canadians, like our American counterparts down south, are mostly negative savers. A rainy day fund for most of us? Probably not. I’m guessing that the majority of BC homeowners are living pay to pay.

Remember, it’s pay to pay.

A lot of people seemed to discount this credit crisis as being nothing more than just a slight hiccup.
But is it?

If the US goes into a consumer led recession, which I believe has a very high likehood, then we will eventually get the spillover. And when that happens and the job market starts tightening is when you will start to see things crumble.

You see, if most BC homeowners have CASH, real CASH in the bank account to help them weather through a recession of up to 1 or 2 years long, then yes, home prices will stay put. No one’s selling.

People starts selling only when they have no choice. Usually, we know only by how bad the recession lingers. The 2001 recession was just a hiccup, so there weren’t any major damage done hence stable prices in Vancouver. If Alan Greenspan were to keep rates as they were when the tech bubble burst and let the credit pain from the dot.bomb linger for a year or two, all of you might have a different picture about your homes today. Mr. Greenspan did the opposite which now created a much bigger problem.

I personally don’t believe that the credit problem is small.
Are you seriously led to believe that no one here borrow money from the bank to try and invest in anything to become rich when you’re close to retirement with barely any savings from your RRSP or in retirement but chasing fantastic yields?

Vancouver homes will only loose value if the underlying borrowers are weak. Just like the homes themselves. If you build them on a weak foundation, they will eventually sink. Today’s borrowers are that foundation. How strong are their credit worthiness? Last I’ve checked with FICO, the picture isn’t pretty.
All this talk about Vancouver being the best place to live in and with the Olympics are the same sugar coating the dot.com companies made a couple years back when they pitch for more fiber optics highway.
Yeah right.

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OWG,

Thanks for trotting out that old “rich foreigner” myth. I hate to say you’re wrong, but you are.

The last I heard, most real estate in Vancouver is bought by locals, who make local salaries. Vancouverites love to drive up the price of real estate and then watch it crash back to earth, as has been done about once each decade.

Landcor released some data in 2006 showing 94.4% of BC residential property was bought by BC residents, with a further 2.4% bought by Albertans.

Here are some choice quotes from an article on the report:

“Nielsen says he’s not surprised that B.C. residents still account for the lion’s share of all the real estate buying activity in B.C. “In all my speeches for years I’ve been saying the biggest buyers of recreational and small-town properties (in B.C.) are people from the Lower Mainland,” he says.

“And that applies to (purchases of) Lower Mainland properties as well.”

“So why is there such persistent talk on the West Coast that out-of-province buyers are pushing up B.C.’s real estate prices?

“I guess it’s (just) people talking and saying Americans are buying up the province and Albertans are buying up the province,” says Nielsen.

“I think it’s more that the local people get excited and they start buying.

“I think that’s really what’s happening. So it (foreign buying) is not as serious as everybody thinks it is.”

http://www.niho.com/Press/Pres.....ournal.asp

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