Friday Free for All!
Easter Edition! Here’s our weekend open-topic posting to discuss anything related to economics and the real estate market. A few stories to get us started:
-Condo supply growing like crazy
-The disappearing first time buyer
-Oil, gold and the Canadian dollar drops
-Canada following US downturn
-More pain in store for Canadian banks
-Turner answers questions about ‘greater fools‘
-Condo marketer says Translink plan ‘prudent‘
-Vanoc opposes any Beijing boycott
-Price of gas has Americans cutting back elsewhere
-BBC: LA’s subprime shanty towns
So what are you seeing out there this fine holiday weekend? Post your news, links, anecdotes and comments here and have a great weekend!
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March 20th, 2008 at 10:33 pm
March 21st, 2008 at 3:49 am
March 21st, 2008 at 7:30 am
http://www.npr.org/templates/s.....d=88732648
March 21st, 2008 at 7:31 am
My advise to them is simply this. Learn from the BRE-X shareholders and sell for whatever you could get for and just walk away, albeit a tad poorer.
A lady in the report said that, if this doesn’t get resolved soon, she might have to sell her house to get some cash. She used to be a real estate broker too and wouldn’t want to get involved in this mess if she knew it was ABCP.
Oh come on… ABCP offers attractive rates. ABCP invest in among other things mortgages in American housing which prices were going up like a space shuttle. Fundamentals were completely broken. And if she was a former real estate, shouldn’t she know that the boom was unsustainable??
Scary prospects are unfolding..
March 21st, 2008 at 7:34 am
“we’re battling a headwind
The Economy: Canada’s risk of falling into recesion sharpens”
…..so how’s that Decoupling Theory coming along?
March 21st, 2008 at 7:57 am
“homeowners are worried that house prices might start to fall”
They call that a crisis? I thought the crisis was that houses were unaffordable. Falling prices are the return to normalcy.
March 21st, 2008 at 7:58 am
I just got back from the USA, your counterparts from the NAR are really pumping the idea that boomers should be investing in farm land.
They hype goes something along the bio fuels boom, and anticipated food shortages pitch.
Any plans in the works for you guys getting on board this new scam?
Or do you think the Olympic BS has a little mileage left?
March 21st, 2008 at 8:06 am
Here we go! Soon enough those investors will realize they can’t get the rent to pay the mortgage and dump the condos back on the market. Price declines, anyone?
March 21st, 2008 at 8:11 am
Anyway, had a talk with a friend this morning who’s talking about getting away from Van, he’s a plumbing trade. Talking about Fort McMurray for a bit and then buying in the interior or island.
He knows a developer working on some land around Bear Mountain. He has a proposal for a new sub-division there and if it goes through he’ll build it and retire. I talked to him about being careful buying anything on historic highs, he listened but wasn’t concerned. Says that Bear Mountain has many foreign investors showing interest and he figures if he picks one up he will see some serious gains. His exact words were, I’ll do better than my RRSP’s. I know what you’re all thinking, believe me, I do.
It’s not worth wasting my breath trying to dissuade him, his mind is already made up. The longer this goes the more people will get sucked in. I’m still going to wait it out for two more years, job is going good, but if I don’t see things change post-olympics or sooner, I’ll be packing up and going somewhere else, somewhere affordable and sunnier.
March 21st, 2008 at 8:13 am
I would love to get stats on this.
Also, if it were true who wants to live in a city whereby one is the “poor” local while Victoria is ruled by 50 somethings from Calgary.
Any comments?
March 21st, 2008 at 9:19 am
Same kind of fallacies that are spread everywhere. One of the first rules of critical thinking is that the burden of proof lies with the person making an existential claim. In this case, “Rich Calgarians are buying up the island.”
If the person making that claim cannot offer any proof then the statement has as much value as, “Unicorns live in Madagascar.”, “George W. Bush is a really smart guy.”, or “Aliens ate my pet cat and replaced her with a clone.”
We get the same kind of argument here in Vancouver but it’s Asians or Americans. It’s just BS sold by the agents as a plausible explanation (if it’s not examined too closely) for the possibility of future gains.
March 21st, 2008 at 9:54 am
10 over 10 man, The work force is busy till 2020 tonz of project in non residential construction.Unemployment rate is to fall 0 around 2010 to onwards then may be another olympics. British Columbia is going to creat 250,000 job from free trade with India and we have lots of job shortage in all other sectors.Raise after raise you can face the elimination challenge, Buy or move with the hammer of inflation or get in with full pocket,Best real estate on earth Vancouver,B.C.bpe.
March 21st, 2008 at 9:59 am
March 21st, 2008 at 10:31 am
Tell us how their investments turned out in about 12 months from now.
March 21st, 2008 at 11:00 am
Yeah, if the Albertans are so flush why is RE falling in Alberta?
The Californians were supposed to be propping up RE values in every outpost west of the Rockies. How did that work out?
The whole of southern BC is trolling for Alberta RE money, because its traditional economy (forestry, mining) is practically dead. That’s spreading it way too thin.
March 21st, 2008 at 11:07 am
well, current real estate brokers know re only goes up, up, up….
so ironic, isn’t it?
March 21st, 2008 at 11:10 am
Lower demand + greater supply = price increases?!
Man, the industry is drunk on hype.
March 21st, 2008 at 11:33 am
March 21st, 2008 at 11:38 am
“And if she was a former real estate, shouldn’t she know that the boom was unsustainable??”
Do you think the secretaries at Enron knew what was going on? I can tell you for certain that the technicians at Nortel had no clue (I knew one who’d convinced everyone he knew to invest (except for me)).
Agents are just salespeople. Next time one of those annoying ‘flat rate’ natural gas salesmen comes around ask him if he knows what his company’s stock is worth and where it’s going in two years.
March 21st, 2008 at 11:53 am
2008-03-21 11:33:27
First time buyers disappearing not because they don’t want to live here. They still do (hence demand is there), however they can’t afford to because of prices. So someone else with deeper pockets are buying it up. Seems like an influx of wealth from other sources to push the market higher. I hope we don’t end up like Whistler, where locals have to rent and foreigners are the landlords.”
I guess we better beg, borrow, and steal, just to get in right? And couples should get a second job, buy a 2 bedroom leaky condo in East Vancouver, and rent out the second bedroom as a mortgage helper to 6 or 7 foreign students right?
Are you a realtor? or bad at math?
Do you know it is impossible to get price out of the market indefinitely?
As for Whistler… if the locals accept the conditions they live in, it proves that eventually a high consumption of pot is bad for analytical thinking.
March 21st, 2008 at 12:25 pm
Don’t confuse me with a RE bull….for I am not.
March 21st, 2008 at 12:38 pm
It just seemed that way to some people I guess. Anecdotal evidence is a nice snapshot of things but it’s really useless for building an argument.
March 21st, 2008 at 1:45 pm
Richmond has so many buildings under construction I can’t count them. New West has about 4 or 5 high rises completing soon, UBC, etc, etc. It’s everywhere overbuilding to the extreme for the rich Albertans.
Sorry, but there aren’t really that many rich Albertans, the wealth, like everywhere else is concentrated in a few hands. I’m off to Calgary next month to see my retired in laws, and my friends none of whom are overly wealthy. Like Californians, they are not buying up all the land, and those that do will loose on it soon.
March 21st, 2008 at 1:50 pm
We’ll see how this turns out!
My guess, the boomers are throwing their money away by betting on their kids ability to pay. A 30 year old getting a 40 year mortgage is still paying for it at 70!
The one thing going for the banks here is that there is at least some skin in the game. Zero down isn’t a very big part of my friends business. Neither is 5%.
Prices will drop, but they may not walk like in the US; depends on how much more mommy and daddy are going to pony up to keep up the payments for their kids.
March 21st, 2008 at 1:59 pm
Does this mean condos/housing are subject to risk?
Housing starts rose a phenomenal 15.4% in February to an annualized 256,900 units from 222,700 in January. However, most of the increase came from the volatile urban multiples component. Despite the surge in February starts, however, some moderation in activity for all of 2008 is expected from the slightly under 230,000 housing units started in 2007.
March 21st, 2008 at 2:11 pm
http://www.cbc.ca/consumer/sto.....ravel.html
March 21st, 2008 at 3:04 pm
March 21st, 2008 at 5:37 pm
If you rent a house to someone who can’t afford to buy it, you are losing money. The reason is simple: the tenant is not covering your costs of ownership. If he were, he could afford to buy it.
Li Ka-Shing probably builds more condos in Vancouver than anyone else. Does he rent them out, or sell them? Why is that you think?
March 22nd, 2008 at 4:24 am
March 22nd, 2008 at 6:07 am
Prices will drop, but they may not walk like in the US; depends on how much more mommy and daddy are going to pony up to keep up the payments for their kids.
I say.
Well, I don’t think they can. Canadian mortgage bearer is responsible for paying off the mortgage or the difference of it when it gets sold plus transaction costs. This is different from the Americans where they could actually mail back the keys, hence the term “jinglemail”, back to the banks and walk away, although I heard that in some American states, walking away endures similar penalties. Besides, I suspect that if their parents provides the downpayment for the loan, they too may provide some guarantees to the bank. So that is why, your friend’s bank isn’t too worried. The question really is, will these kids simply walk away?
I’ve seen some many people in the work force nowadays that come in to work whenever they like, when they like and when they leave, they sometimes don’t even give a darn of a notice either. If they do, it’s a couple of days and then they vanish like Merlin.
The Carpe Diem’s website actually described the US subprime mortgage as being as very small part of the overall mortgage lending practices. It’s the 40 year AMS that Canadians are signing up for that is troubling me. This I will have to agree with Mr. Turner for once.
If the Vancouver real estate does fall, the overbuilt condo market will go first, because it doesn’t take a lot of condos to bring prices down in the same neighborhood. Good neighborhoods with established home ownership won’t suffer that much as a previous poster had posted. This is because, once the mortgage is paid for, a 50% price drop won’t matter. West Vancouver in the 80s is different from the West Vancouver of today. 25 years had passed and many of these residences had already paid off their mortgage. However, residences in new condos with 40year AMS haven’t! That is the difference! So, expect significant prices drops in areas where there are condo overbuilding.
March 22nd, 2008 at 7:39 am
The 80-81 boom lasted for a far shorter time than the current bubble, which means a much smaller % of the housing stock carried shaky financing. When the bubble pops all categories are going down. Just like south of the border, and just like previous Vancouver bear markets.
March 22nd, 2008 at 7:44 am
Ofcourse,People like to spend money on future of the city not on Olympics or Fifa,for example few year back there was World Cup in West Indies two month’s long there was nothing up,the spectators left the tournament half way because place and length of tournament was boring.
E2 Since the annocement of 2012 olympics home prices are falling in most cities of UK but VANCOUVER IS UP while Juggernaut across the border has fallen on it’s knee.
In Vancouver you can CATCH all the action of life,we are not just ol but bpe.
March 22nd, 2008 at 8:23 am
March 22nd, 2008 at 8:41 am
I’ve attached a list of amenities required to make the big league of cities.
http://www.thisislondon.co.uk/.....article.do
March 22nd, 2008 at 9:32 am
Of course it would. Call me Austrian, but I have long argued that rising gas prices is not a CAUSE of inflation. Inflation occurs when there is too much money chasing to few goods. In this case there is ONLY a shortage of gasoline (compared to demand). Since demand for gasonline is inelastic (people will buy similar amounts at almost any price) there is less money to spend on other goods. Thus demand and price for non-gasoline items will drop. One price up, another down. Not inflation. Our MEASURE of inflation, CPI uses FIXED baskets and may be impacted by a shift in consumption. Thus CPI has gone up, but inflation has not. At least from an Austrian point of view (which is th correct one IMHO).
March 22nd, 2008 at 9:45 am
People start to default on their mortgage because of variable interest rates contracts: when form 3.5% up to 6.2% in 2 years. (Banks increase rates to cover their los in the sub-prime mess).
Mortgage rejection went from 3% to 10% in the past few months (banks not willing to take risks anymore).
They also said that in the UK one mortgage out of 2 is rejected at the moment.
They also said the financial crisis should hit Europe with a lag of 6 to 9 months and that they are ready for the worst. They were worried that Trichet would not act like Bernake did, so that the hit would be even more painful.
They believed the world is many months from the end of the global crisis.
March 22nd, 2008 at 10:17 am
That depends if money supply is inelastic. In our current system it is, though in others, such as the Weimer republic printing presses, the money supply was elastic.
March 22nd, 2008 at 10:47 am
“They were worried that Trichet would not act like Bernake did, so that the hit would be even more painful.”
I think that’s a backwards way of putting it. Bernake’s morphine was just helping the market walk on broken legs for longer, in the end the pain is greater than just letting it break, waiting until it hits bottom and THEN start picking up the pieces. If you’re already overextended in trying to prevent an inevitable crash you have nothing left to start rebuilding with.
The BOC, the Fed and the CMHC are just trying to put the fallout off until after the next election cycle, it’s 99% politics and 1% economics IMO.
March 22nd, 2008 at 11:37 am
Don’t be fooled. I suspect that the shape shifter in question is actually a well-educated and “successful” RE guy who is bored with life and who is somewhat annoyed with the ideas expressed on this and other RE blogs. He’s just “having a little fun” as he would put it, while he degrades the nature and quality of posts on the blog. This in itself suits his purpose because he doesn’t want the blog taken seriously. Some day he will truly be “outed” and he will be embarrassed when that happens, at which time he will proclaim “Oh No! I’m-bare-assed!”
March 22nd, 2008 at 12:27 pm
I view them as two separate eventualities. Overexpanding money supply (the provervial printing presses) IS inflation. Rising gasoline prices are a possible RESULT of inflation, but not inflation itself. If gasoline prices rises in the absense of excess liquidity IT IS NO inflation, even if CPI ticks up a notch (it does this because the CPI basked is fixed, and cannot account for economy wide changes in the basked).
March 22nd, 2008 at 12:32 pm
Not sure what you mean by “inelastic”. Elastic supply literally means that the amount supplied drops if market prices drop. The “price” of money is the interest rates, and money supply sets interest rates, this statement does not make sense. I presume that you merely mean that the money supply is somewhat fixed, or not. Our money supply is ever expanding (our economy grows), and the BoC has a straight inflation target. If inflation (as measured by CPI) ticks above their threshold (2%?) the shut off the taps for a while.
March 22nd, 2008 at 12:37 pm
Now this is interesting. It means that builders and lenders also believe it is different here. Maybe the builders think that they can limit their exposure through presales but what about the lenders? Where does the buck stop? My guess is with the tax payer (c/o CMHC) and some unwitting creditors such as Norwegian fishing villages (as happened with U.S. subprime). I doubt that our major banks are stupid enough to leave skin in this game. In any case, the lenders are the achilles heel in this shell game.
March 22nd, 2008 at 1:30 pm
Don’t be fooled. I suspect that the shape shifter in question is actually a well-educated and “successful” RE guy who is bored with life and who is somewhat annoyed with the ideas expressed on this and other RE blogs”
I am not so sure how successful he really is. I drive by his place of business on my way to SFU, and it doesn’t exactly exude success. And the bald guy he has working for him looks like somebody who just got out prison.
As for educated…. he seems to parrot superficial knowledge retargeted superficial knowledge from illiterate Surrey housewives calling in the Bill Good Show.
I think his character Kiingi, Krissh and Satv are his attempt at reproducing some character from Mordecai Richler writings but fails miserably and is quite banal really.
March 22nd, 2008 at 2:28 pm
http://www.bclocalnews.com/business/16872171.html
“Don’t feel too ‘bubbly’ about real estate”
March 22nd, 2008 at 3:26 pm
March 22nd, 2008 at 4:04 pm
How does one define inflation? Some use simple price increases…core/ producer/ over-all… define it as you will.
Or money supply, again define it as you will.
Depending on the definition one can show inflation running at almost double digits or near deflation. I suspect we have both.
Inflation in things that have relatively inelastic supply..oil and wheat..and deflation in other categories such as housing in the US and UK and cars.
I think we agree in that further inflation in the first category will likely lead to more deflation in the second. However so much hot money has gone into the commodities that I suspect we are due for a good shake out.
As to my second statement. Our money supply is inelastic because our Central banks have inflation targets (however they define it) which they are supposed to at least aim for.
March 22nd, 2008 at 4:42 pm
Or money supply, again define it as you will.
I thought I clarified that with the “call me Austrian but” and “from an Austrian point of view”. It is indeed an unresolvable debate, and I gave one particular point of view (and identified it as such).
March 22nd, 2008 at 4:44 pm
This is not a good measure. It is used as a proxy but, in certain cases, can lead to extraneous results. As a theoretical example, imagine if all prices rise by 5% but consumers scale back spending by 10%.
March 22nd, 2008 at 4:47 pm
And where did that hot money come from in the first place? If it was created as part of fractional reserve banking system, then it was inflation. If it was diverted from other goods, then not inflation. Again, as per the Austrian view.
Our money supply is inelastic because our Central banks have inflation targets (however they define it) which they are supposed to at least aim for.
I guess you could look at it that way, but the term does not sit well with me. Money may be created or destroyed as part of attempts at regulating the economy, but it is not produced or consumed in the traditional sense. Hence I don’t think the term “inelastic applies”. Taken literally, inelastic supply means that the same amount would be supplied no matter what the price. That obviously isn’t the case.
March 22nd, 2008 at 5:32 pm
Over the last few years and the next few years we are looking at about 3-4K completions/year in Vancouver. With an average of 1.5 people per condo that’ll house 6K people hmm that’s the same figure Vancouver’s been growing at for a long time. That is also assuming all those condos are occupied which we know they won’t be. So I can’t see this oversupply, it’s not like Vancouver is expanding, all new supply is only condos/townhouses, knocking down old houses for new houses doesn’t increase supply.
March 22nd, 2008 at 5:57 pm
Densification=an increase in the density of something
If you want specific best place on earth term then google “ecodensity”
http://www.vancouver-ecodensit.....t.php?id=2
I agree with your stats on completions, but it’s speculation and not immigration that’s driven the prices up.
There were also the same amount of people coming here between 1989 and 2004 and there was minimal appreciation in resale values of condominium units.
If you saw the same stats canada immigration numbers you’ll agree we have the lowest immigration right now since 1994?
March 22nd, 2008 at 6:13 pm
I agree with what you’ve said maybe I didn’t explain it clearly, what I meant is knocking down old houses and rebuilding a new one does not add anything to supply. Only when you upzone is there an increase in supply, we know there is no vacant areas getting new sfhs home in the city proper so really all new supply is coming from those condo completions. Within the city proper I don’t beleive we are seeing an oversupply. Wether those 6K new residents each year can continue to afford the every growing prices is the valid arguement.
March 22nd, 2008 at 7:17 pm
Over the last few years and the next few years we are looking at about 3-4K completions/year in Vancouver. With an average of 1.5 people per condo that’ll house 6K people
Do you know what the population is for DT Vancouver? These are huge numbers in the relative sense. It was 80K as of 2007 (doubled from 40K 20 years ago). Six thousand a year is 7.5 percent of current population. Downtown is growing, but currently houses only about 3-4% of the Metro Vancouver poulation. If the area grows by 30K a year, based static on static proportions, DT would get about 1200 far below the 6K capacity. Of course things aren’t static, and DT is growing fast. But don’t scoff at 6K, it is probably far more than fundamental demand. Second, it remains to be seen whether living downtown is fad or a long term shift.
March 22nd, 2008 at 7:30 pm
Maybe we are and maybe we aren’t. But just what is so magical about the city proper anyway? The region is essentially one market. Does it matter what side of Boundary Road you’re on really?
March 22nd, 2008 at 8:05 pm
March 22nd, 2008 at 8:42 pm
Could you explain how you arrive at that conclusion?
March 22nd, 2008 at 8:52 pm
That’s not what’s happening in my neighbourhood where every time they tear down an old house they replace it with two or three townhouses and a carriage house. Or else they jack up the basement, put in a new foundation with at least eight foot ceilings and turn it into a two bedroom basement suite. One three bedroom house has been replaced with four townhouse/carriage house units.
The zoning on most of the lots is multifamily. So far they are all quite attractive and blend in well. If this is ecodensity, I’m all for it.
March 22nd, 2008 at 8:58 pm
New supply=3000-4000/condo units a year.
Average household for condo 1.5-1.6
So new supply can house ~4500-6400people/year.
We know Vancouver has been growing at a rate of 6000/year. So there is no oversupply of units.
In fact we could argue that the city is undersupplied as we know a certain percentage is bought as second homes/vacation/no used at all.
If I’m missing something let me know.
March 22nd, 2008 at 9:15 pm
March 22nd, 2008 at 9:28 pm
Average household for condo 1.5-1.6
So new supply can house ~4500-6400people/year.
I think you grossly underestimate construction. For example, what about the Parklane East Fraser lands development below marine drive. What about all the densification (duplexes etc). CHMC showed 65 deteached and 700+ condo starts in February 2008. If se assume 2 per unit, that is capacity for over 1500 people IN A SINGLE MONTH. Sure not all months have starts like that, but you need to go beyond your assumption that a simple condo unit estimate multiplied by 1.5 equals added housing capacity in Vancouver.