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I agree 100% here. The problem is exacerbated because margins are now very thin due to rising labour costs. One spec builder I talked to said they made their profits on land appreciation and lost on the structure. It is not going to be pretty if prices start dropping.

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That’s actually not the only economic concern. Almost all the reduction in unemployment in the past 5 years has been due to construction/RE jobs (yes). Supply will start waning if buyers do not materialise this year and the vicious cycle will begin.

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In terms of MSM articles this one isn’t bad. Looks like a few reporters are perusing the blogs and the comments! Maybe they saw the post on MSM bias a few weeks’ back? I’ll remember the name Jim Sutherland for future reference.

He missed mohican’s blog though albeit the FPPS blog is not 100% RE focused.

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A good way of thinking about your line of questions is understanding the difference between balance sheet and income/cash flow statements. People make careers out of this stuff I hear.

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2. Be Condo-Wary

This category of real estate attracts a large proportion of the wrath dispensed by the bad-news bears, who regard it as the domain of flippers and “specuvestors,” a group they disdain or, at least, envy and resent. On the upside, it’s led to blogs like Condohype.wordpress.com, which wittily dissects the marketing efforts behind our city of glass (admittedly an easy target). On the downside, it’s contributed to global warming due to the number of bears driving around counting darkened windows—a sign, they believe, that an apartment is empty, which means it is owned by a speculator who will be forced to abandon it to foreclosure when the market turns, a crucial stage in the process leading to real-estate armageddon.
All this said, many sane and sober prognosticators regard downtown condos, and apartments in general, as vulnerable, and recent market statistics provide some evidence to support the view. One of the culprits is a flood of assignments—units that were presold and are now nearing completion, at which time the original buyers (those specuvestors) will have to pay in full, something they had no intention of doing. Due to taxes and fees, assigners will have to sell for as much as 10 percent more than the original presale price just to break even, which in a slowing market will be difficult. Assuming Vancouver’s population continues to grow toward a seemingly inevitable three or four million, the long-term future of apartment living is bright—but in the short term there could be blood.

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http://www.vancouvermagazine.c.....gout.shtml

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Except for what I see in several neighbourhoods and from what I hear from my builder buddies (I used to be in the business), hard evidence of “recently completed houses not moving” is a little hard to come by.

Before the condo craze, the percentage of SFH units was much greater in 81, and many of the current new houses are either marketed exlusively, or don’t seem to hit the MLS sheets….so you have to trust your own observation.

Believe me, spec builders of new unsold houses are scared s**tless, and will soon have to drop prices to limit potential losses, not unlike those presale condo flippers on craigslist.

BTW, current futures for framing lumber are now $230/M, as compared to $430 in 2005. No wonder BC sawmills are shutting down at a record pace.

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You said:

“Reecently completed upscale houses that were built at the peak of high material prices and high labour costs ARE NOT MOVING.”

I’m always look for indicators. Do you have a source for this information?

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You might want to talk to KRRSH. He’s a dumb as a rick and apparently has as much money as Trump. He firmly believes real estate will never drop. Selling to him should be as easy as stealing candy from a window licker.

Oh and Blueskies, sorry to burst your bubble. I think Krrsh has been using vagely feminine nicknames that are also the names of real estate developments. I don’t mind, since I told him I’d buy his kids’ organs to keep his DNA out of the gene pool. I also implies his mom is providing “happy ending” massages out of Spectrum. I’m probably fair game.

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No she didn’t continue to buy RE. Her credit was history! She continued as an agent, moving to Calgary then Toronto, essentially following where the market was hot. She gave it up around 1990. She never did recover. A lot of people did but my Mom was a bit of a gambler and horrible with money. She always had a hard time budgeting making $30k in one month then making nothing for 5 months, never saved for a rainy day. I learned a lot from watching her mistakes. I may have been young but I remembered it all well, and I to this day, have benefited from her mistakes and vowed never to do the same.

That’s why I laugh at people in this market, it’s like pre 2001 never ever existed in this city. It’s happening all over again.

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We moved here from Manitoba a couple of years ago and bought a townhome in Langley in the mid-300s. The prices have moved up a bit – but not much. We have a 25-year variable rate mortgage with about $50,000 in equity. Anyways, we’re selling because we want to keep what little equity we have.

Listings are going up, sales are decreasing, and we think prices are likely to decrease as more homes become available. Any decrease in price is going to screw my family’s financial security.

And if we’re selling – what do think families with 40-year, 0-5% down payment mortgages are thinking? I just hope we’re selling earlier than the rest of the sheep and the Vancouver Sun/Province continues to print their hyped-up advertiser-backed real estate industry stories to keep the stampede at bay.

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Incur the debt, obtain principal — like “pre-saving” and hold it or waste it as you see fit, much as you would unexpended income that has gone into savings. The spending would be on interest to obtain the principal — this is the anti-saving part.

I guess we are just talking about unexpended income with this measure — once the unexpended income is “saved” it goes into another bucket as an asset? As you say jesse — that asset value can decrease to negative, or increase, without any impact on “saving” *as a rate*.

Though I guess some increases and losses, when they are realized, would count as income / negative income ie interest or a capital loss. But if you are underwater on your condo, for example, and have to pay to get out — no impact on “saving” though a real whack to your net worth. And potentially interest paid on debt to pay it down would count against income.

So, if I rack up a LOC for 10k — I created an asset of 10k, while increasing my future spending on interest by 60ish bucks a month.

I could put the 10k in a savings account — and have it earn income of 35 bucks a month (offsetting the spending on interest). Or put a downpayment on a condo assignment, which if I flip it for 50k more than the price I paid will net me 40 k in income, which will boost my savings rate. Or buy a skookum HDTV. Which has no impact, other than adding a very rapidly depreciating asset to my portfolio.

Accountants must lead very boring lives, I think.

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There are still people who never recovered from that emotionally and it caused more than a few divorces!

Did your Mum ever try to flip property or be a landlord again after the crash?

There were people who’d just built nice cabins in Alpine Meadows in Whistler who had to walk away from them, it would have been really sad…

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“I think a huge protion of agents fall into this category. They don’t know shit.”

That’s the funny thing. People think that agents have their hand on the pulse of the industry but in reality they have every reason to avoid this sort of knowledge.

Sincerity is key to salespeople, if you KNOW that your client is making a huge mistake you won’t be half as good at selling or acting as a buyer’s agent.

Beyond that there’s the guilt, most people lie to themselves on a regular basis to avoid guilty feelings. How would you feel if you KNEW that you’d been at least partially responsible for the financial downfall of dozens or hundreds of families?

So start with a culture of denial THEN add in a pinch of only getting info from OTHER people who are in the same boat and what do you have?

Vancouver.

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Unfortunately, most of the young bulls here have never experienced a housing crash or a recession, and all those crazy graphs of prices does not seem to phase them.

One of the first signs trouble in 81 was that spec builders on tight margins could’nt unload new houses without taking lossses.
Sound familiar?
Reecently completed upscale houses that were built at the peak of high material prices and high labour costs ARE NOT MOVING.

Just like 81, lumber prices are now dropping dramatically and other materials will soon follow as the recession nears. But that will be too late for spec builders, as many of them will be wiped out by then…just like 1982.

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so true! and they drink the Koolaid ….lethal combination

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Funny you should ask. My Mom was an agent back in the early 80’s. I was just talking to her about it all yesterday on MSN ( she has since moved back to Germany). I was telling her that me and my wife are thinking of selling our townhouse in Steveston cause I know a crash is coming and I would rather take the money and run now. She told me if you want to sell, sell it fast. She said the market in 1981 turned so fast that she herself didn’t even have time to unload her properties. It was a carbon copy of what is happening now. She had 4 condos and three houses, and litterally a month later they were all worth half the money. Bankrupt! Just goes to show agents don’t know shit. She said EVERYONE was treating it like easy money, can’t lose and it could never possibly go down or crash cause too many people would lose their shirts. Well we all know what happened.
It was interesting that when the winds of change came through that by the time she listed her properties she was ONLY getting offers for 50% off list price!!!! 3 months before she was getting offers to buy her properties even though they were not listed. Here is what struck me the most. She said the biggest catalyst to the collapse was flippers. Like herself, everyone in her RE office were buying up as many condos as they could, who cared if you could afford them, just unload them down the road for huge gains. This was the golden comment ” In hindsight there was no real demand at all to live here and buy housing, the condos and houses were being traded as stocks and bonds, people had no interest in living in them”

My Mom was an awsome agent, would fight tooth and nail to get you a good deal, but she had no clue about economics and fundamentals. I think a huge protion of agents fall into this category. They don’t know shit.

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In accounting terms, the principal increases the difference between an asset and the debt on the asset. Debt is a liability. Savings in this definition is equity so either increase your assets (bank account) or decrease your liabilities (pay down debt).

And it is possible to have negative equity and not be bankrupt; many US homeowners are finding this out.

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TV Towers is a far better location than Spectrum(s), We’d be in false creek north or yaletown if we had to do it again because it just takes too long to get to Coal Harbour during rush hour (Georgia,Melville, Pender all back right up with commuters heading to North Shore not to mention Hornby, Seymour, Dunsmir and hastings).

Regardless of renter, owners, speculators etc. it seems to me that anyone who’s been in Spectrum 1-4’s opinion is that the building has a higher percentage of trouble makers than the others and I’ll go one step further and say it is destined to be a slum, having no parking really screws things up too because no one will want to park their cars in that area when they visit. They’re still trying to rent units out in there which have been vacant for six months!

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No doubt! Was anyone here around Vancouver during previous housing crashes? How did the general attitude towards house prices change in 1982 or in the 90’s? I remember general negativity towards the condo market when the whole leaky condo mess started getting lots of news coverage, I also remember late 90’s headlines about local ‘underwater’ mortgages (people who owed more on their houses than they could sell them for).

Look for these headlines in the next couple of years again here.

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