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Vancouver Sun: at least a year till ‘collapse’

The Vancouver Sun ran an editorial this weekend about the ‘firm foundation’ of the local real estate market.  The gist of the piece is that people should not panic over last weeks declaration that the Canadian housing boom is ‘officially over‘.

Compare Canada’s situation with the horror show south of the border and beyond. American homeowners from Blaine to Maine have witnessed the value of their property go down almost as quickly as it went up. The median price of a single-family resale home fell 8.7 per cent in February from a year earlier, the most in four decades of record keeping, according to the Chicago-based National Association of Realtors. Some cities, including Miami and Las Vegas, have reported declines approaching 20 per cent, which is widely expected to be the U.S. national average price drop in 2009.

Let’s not compare too closely to the American market though, because if we did we might worry about the recent increase in listings.  In the US prices continued to increase as listings grew, unfortunately as soon as the trend changed and appreciation stopped people were less interested in buying and the bottom fell out of the market.

I do appreciate the assertion that the ‘firm foundation of the local market lets it weather boom-bust cycles’.  What else is the local market supposed to do, disappear?  We’ve weathered many boom-bust cycles and we’ll weather many more, the only problem is that ‘firm foundation’ can turn out to be a lot further down than some people expect.  We survived 50% drops in the early eighties and lesser drops in the nineties but that doesn’t mean that buying at those peaks was a great investment.

I guess the point of the editorial is this: Don’t panic, because the local market won’t crash for at least a year:

The bad news, according to the IMF, is that real house price movements tend to lag cyclical peaks and troughs — generally by one or two quarters, but in Canada’s case as many as six quarters. In other words, the collapse here may be a year to 18 months away. According to the Canadian Real Estate Association, sales dropped 13 per cent in the first quarter of 2008 from a year earlier and the ratio of new listings to sales stands at a nine-year high.

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158 Responses to “Vancouver Sun: at least a year till ‘collapse’”

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  1. 1
    Tony Danza Says:
    The REIC is like a little kid believing that if he closes his eyes then the monster in his closet can’t see him and won’t get him. Good luck with that, there’s a massive monster in Vancouver’s closet, it’s real and it’s going to hurt a lot of people.
  2. 2
    Vancouver Sucks Says:
    Yes, the local market won’t crash for another year. So let’s just all calmly walk to our real estate brokers right now, and put our houses on the market for good measure….
  3. 3
    Silly Says:
    This article makes no sense- first it says according to IMF Canada is undervalued, then it says Metro Vancouver is different than the rest of Canada. So it would be logical to assume that Metro Vancouver is, in fact, overvalued according to IMF?
  4. 4
    jesse Says:
    The train of logic is off the tracks. There is no mention of the runup of prices in Vancouver or poor affordability. Platitudes like “running out of land” and “not as vulnerable to a recession” are all symptoms of the author’s confirmation bias and are arguably blatantly untrue.

    “then it says Metro Vancouver is different than the rest of Canada”

    Actually that was never said. I think, based upon subsequent paragraphs, the author meant exactly the opposite — that Vancouver is MORE immune to a housing downturn than the rest of Canada.

    [tinfoil hat] It almost looks like some lobbyist from the RE industry told the Sun to run a piece contradicting Porter’s analysis. It had to be editorial because they couldn’t find any of their regular “experts” with the stones to risk calling out Porter as wrong. [/tinfoil hat]

  5. 5
    franko Says:
    .
    .
    “So let’s just all calmly walk to our real estate brokers right now, and put our houses on the market”

    If you want to beat the rush, ya might wanna run like hell. April inventory is at a 9 year high. NINE FRIGGIN YEARS.

    Will there be blood?….Rivers of it! and sooner than you think.

  6. 6
    jesse Says:
    “So let’s just all calmly walk to our real estate brokers right now”

    I love the law of unintended consequences. I don’t think that was the author’s intent but it was so poorly written it could certainly lead to a rush for the exits.

  7. 7
    Esoteric Says:
    This is really an unbelievable editorial.

    Let’s just itemize all the delusional concepts that have been debunked:

    1) X City is “special”.

    2) “Everyone” wants to live here.

    3) Wealthy immigrants will protect us from a housing correction.

    4) They’re not making any more land.

    5) Vancouver is a world-class city.

    What a pile of crap. San Francisco is a world-class city. Miami is a world-class city. NYC is a world-class city. Los Angeles is a world class city. Every single one of those “world-class” cities has seen an ongoing correction.

    Every single mindless real estate analyst forgets the single most important aspect of real estate:

    Can people pay for it?

    In Vancouver the answer is no. We are over-building. People are getting every bit as greedy and delusional as our friends across the border.

    The correction is coming. If you can’t see that, your reasoning capabilities must be seriously questioned.

  8. 8
    Anti-Pesto Says:
    So listings are at a 9yr high, how far did prices drop that year? 20%-30%-50%? Enlighted me.
    A 9yr high is something no doubt…But, (remember total inventory is also much higher now then 9yrs ago) It’s not like inventory has never been this high, yet people are still claiming this will lead to unheard of price drops. Are we just picking the stats we want?
  9. 9
    bdk Says:
    Nine years ago the market was still hooped.

    There had been no unprecedented run up in prices but there had been a really awesome asian flu and it was followed up by the leaky condo crisis, which would have been classified as a natural disaster had it happened in one day.

    It seems to me TD Bank lost money in 2000 because they had so many people walk away from their mortgages.

  10. 10
    Jerom Says:
    Notice no one mentions the number of housing-related jobs created over the last 5 years and how that’ll play out in a housing crash…. This article’s really just an attempt to stop the ball from rolling off the cliff.
  11. 11
    franko Says:
    .
    .
    Anti-Pesto,

    For your information, that inventory runup 9 years ago was followed by an 8% price drop…according to my chart anyway. Anybody with more accurate info?

    And as bdk pointed out, that was not preceded by the most insane bubble of our lifetime.

  12. 12
    exx Says:
    nevermind those jobs playing out in a housing crash, what’s going to happen to all of them when the condo/olympic boom is over? Or will we continue building condo’s at an incredible pace even PAST the olympics? Even though we’ve “run out of land(tm)”.
  13. 13
    Anti-Pesto Says:
    See 8% is a beleivable number, as would be 12% or even 15%. 50% is not as some people are predicting.

    I don’t think we’re in the most insane bubble of our lifetimes, anyone see the price of oil, how about gold, the tech stocks had a bigger bubble as well (although we know how that ended). Fact is a correction is due, and I’ll buy the arguements for it, I don’t buy the arguements for a crash though. Convince me.

  14. 14
    Drachen Says:
    Anti-Pesto

    Why is 8-15 believable but 50% is not? Do YOU have some sort of statistic to back that up or is it a “feeling” you have.

    I am sick and tired of morons with “feelings” about the market who haven’t done any research walking around cocksure and arrogant like they invented the mortgage or something.

    There’s this wonderful tool called the Internet. Perhaps you’ve heard of it. Use it. Report back here after you’ve educated yourself and I’ll be happy to share some of my data. Better yet you don’t even need to go anywhere, you can just read through the posts on THIS BLOG and learn what you need to know. Stop being a lazy bastard, get off your ass and learn something before shooting your mouth (fingers?) off.

  15. 15
    Anti-Pesto Says:
    The running out of land theory is true though. We can argue it but it doesn’t change the fact. We can increase density to build more units yes and we are, but the land we are building it on is ever increasing in price. The only option we have is to build more units on each lot to bring down the unit cost of the land.
  16. 16
    anomalous Says:
    Did they have a land-making machine in Miami? If not, why didn’t that stop the on-going crash there?
  17. 17
    anomalous Says:
    Drachen why so grumpy?
  18. 18
    Drachen Says:
    “build more units on each lot to bring down the unit cost of the land.”

    Funny I didn’t see any discounts on the Shangri La because of their efficient usage of land. Hmm maybe there was ANOTHER reason why their prices were so high huh?

    All I’m asking is that you THINK about these things for a second or two Pesto, that’s all.

  19. 19
    Anti-Pesto Says:
    *l* my feelings have done pretty well for themselves financially, hope yours have been this good.
    Reading stats about the past is a sure fire way to predict the future?
    I hope no one is basing their investments soley on this blog or others like it, otherwise we’d all be buying gold and it would be at $5000/ounce and homes would be worthless
  20. 20
    Anti-Pesto Says:
    Umm I didn’t say the costs of the units must be cheaper, I said the land costs per unit are reduced. It’s called math.
  21. 21
    Tony Danza Says:
    I’ll buy the arguements for it, I don’t buy the arguements for a crash though. Convince me.

    No, you convince me that prices won’t crash…

  22. 22
    Drachen Says:
    “Reading stats about the past is a sure fire way to predict the future?”

    Do you THINK that people like Warren Buffet invest based on empirical evidence or on instinct? Doing “pretty well” for yourself on gut feelings only means that you’ve been lucky. I know people who did “pretty well” in Vegas, it doesn’t mean that theirs was a wise investment strategy.

    Also, I don’t think you understand how to extrapolate past market performance into future trends. What does $5000/ounce gold have to do with anything?

  23. 23
    Drachen Says:
    “No, you convince me that prices won’t crash…”

    Exactly TD, we have a solid rational argument based on reams of empirical evidence and at least 3 proven ways of interpreting the data.

    He has “feelings” and yet he’s asking US to prove ourselves to him!

  24. 24
    everyone Says:
    Actually Granville Island is a man-made island, it was built in 1917. But maybe they won’t make any MORE land and everyone will decide that this is the only city in the world so all the other land outside of it doesn’t really count.
  25. 25
    anomalous Says:
    USA population density: 31 per sq Km
    ~overbuilt, currently crashing

    Canada population density: 3.3 per sq Km
    ~we’re running out of laaaand!

  26. 26
    Dosh Says:
    don’t worry about it antipesto, some people cant handle a dissenting opinion. They want to be right so the get louder and louder thinking that will change reality.
  27. 27
    /dev/null Says:
    I’d like Anti-Pesto to answer Drachen’s question - “Why is 8-15 believable but 50% is not?” Some markets in California have dropped 25% and are just getting started. Some dropped 5% in a month - an annualized rate of 60%.

    I’ve never heard a good explanation for what changed in the last five years that justified a doubling of price?

  28. 28
    bdk Says:
    You guys are funny today.

    I thought the Gold hitting $5,000 an ounce was a reference to the unnamed hysterical spammer/rice king from Richmond?

    Speaking of Richmond a really good example of the land argument is near no.4 and Alberta, I believe it’s called Mandalay Bay?, seven years ago it was 15 run down rented dwellings and now there are hundreds of units, a new school, a park and need I mention it’s crawling with rich immigrants who simply cannot own enough of the units (at any price) and are constantly on the phone calling their rich friends telling them that Richmond has cafe’s and to hurry up and get here because it’s so world class!
    Of course the one exception to all these buyers is an elitist Starbucks barista named Rob A. who’s Mummy re mortgaged her house in order to get a down payment on his studio and he thinks he’s pretty sweet too, but other than him it’s all elite rich immigrants who want to be near the cafe’s.
    Where else will you get free internet AND a cup of coffee? Duh! Hurry up and invest every cent in these units because if you don’t you’ll be forced to rent them for a fraction of the carrying cost and if you don’t own then you simply cannot be a world class coffee drinker at the cafe!!!

  29. 29
    Anti-Pesto Says:
    Building Granville Island, the new convention centre, or filling in a chuck of Victoria Habour in HK was surely enough to reduce land prices.

    Heres a fact for you, most people buy everything on feelings, they could have all the facts in front of them but the final decision comes down to does it feel right. If it doesn’t then no purchase is made.
    That’s what people looking at only stats fail to see sometimes, last year the US economy was still doing alright, it wasn’t the unemployment or high interest rates that brought the housing market to it’s knees, it was a change in consumer confidence. People stopped beleiving in housing and that was the end. It’s the same reason it went up to begin with.

  30. 30
    BBY Says:
    In BC, the landmaking machine is a chainsaw. Still lots of dumpy vacant lots in Surrey and the valley that aren’t crown forest or part of the ALR. You can even see them from skytrain. Take a drive along Marine way in Burnaby, and there’s available land. New shopping mall even. There still real dumpy SFH lots within 2 blocks of Patterson Skytrain station that could easily be bought out for new density condos. Look at the old brewery lot by Royal Columbian Hospital. Huge hunk of land that still sits empty and probably will until the next RE boom.

    If you wanna talk “no more land, too many people”, look at Japan. Aren’t they still recovering from a RE crash they had years ago. And now there’s a Global RE crash?

  31. 31
    Drachen Says:
    I can handle dissenting opinions Dosh. The problem I have is with uninformed opinions which are misrepresented as things of great value. I can give 25 cents to any bum on the street and ask for an opinion on the future of Vancouver real estate.

    What bugs me is that you and Pesto simply seem incapable of recognizing how stupid and pointless it is for you to attempt any sort of debate with no debating points other than your “feelings”. It renders you immune to intelligent discourse and makes you look like a fool.

  32. 32
    Anti-Pesto Says:
    The reason I beleive a 50% correction isn’t in the cards is because the market (people) won’t allow it, if prices were to get down 30% somehow, the amount of new buyers entering the market would stop the bleeding really fast, their are examples of certain cities in the US that have dropped more, sure, but there are countless more where the bleeding has stopped at a certain level as buyers see a reason to get back in.
    Vancouver has been the most expensive city in Canada for years for no logical reason. Is anyone suggesting we will be passed by Toronto because the salaries are higher there and they could afford to pay more?
  33. 33
    Tony Danza Says:
    some people cant handle a dissenting opinion. They want to be right so the get louder and louder thinking that will change reality.

    Funny Dosh, this describes you to a tee. If you can provide a quantitative analysis to support your bullishness, you will be much better received in this forum.

  34. 34
    Drachen Says:
    “most people buy everything on feelings, they could have all the facts in front of them but the final decision comes down to does it feel right. If it doesn’t then no purchase is made.”

    So what you’re arguing is (without any supporting evidence I might add) that the majority of Vancouverites feel the same as you? Or that your feelings alone are enough to support the market? Do the banks have a say in this because they seem to “feel” that they should tighten lending standards? Are you also saying that $1,000,000 for a crappy house “feels” equally as good as $400,000 for that same house?

    Oh and by the way “most people buy everything on feelings” is an opinion not a fact. But I’ll give it to you that if you stretch the semantics in your favour you’re probably right (however that still doesn’t make it a fact, facts are PROVEN things, not hypotheses and until you go out and interview at least a fair percentage of “most” people it is merely conjecture on your part).

  35. 35
    Tony Danza Says:
    there are countless more where the bleeding has stopped at a certain level as buyers see a reason to get back in.

    Link please! Where is this happening?

  36. 36
    Anti-Pesto Says:
    Am I trying to sell anyone anything? If you don’t agree with my “feelings” then that’s great, we’re not a couple so my feelings shouldn’t affect you.
    I’m not asking for financial advice from a blog, don’t worry about me. I just feel sorry from people that might be reading these blogs and making desicions based on what they’ve read on them.
  37. 37
    Dosh Says:
    Drachen you say my only debating point is based on my ‘feelings’, but that’s not true. I don’t need to base anything on feelings, just look at a chart of house prices, where have they gone? Up. Thats not a feeling, thats just reality.
  38. 38
    Warren Says:
    I don’t know about 50%, but a big drop is coming. There seems to be more evidence than ever that things are finally turning.

    Anecdotally, I’ve talked to multiple people recently who still want to buy. I try for about 30 seconds to explain a few basic facts, but then I walk away and go bang my head against the wall somewhere.

  39. 39
    disbelief Says:
    I think antpesto needs a visual aid… Look up the real estate roller coaster and take a ride. How can real estate possibly go up when it has it the top… Sayings like “What goes up Must come down” remember that one. This is common sense… Our number one trading partner going in to recession this will have an impact…
  40. 40
    Tony Danza Says:
    Anti-Pesto,

    Please tell me which buyers will backstop our market when it slides? You suggest that you are following the goings on in the US market, are you not aware that the banks have tightened lending? Many banks now require at least 10% down and some will not lend on condos. So who in this market (except a small number of bears) will have 10% down and the will to buy into a falling market?

    Link for claims made above:
    http://thehousingbubbleblog.com/index.html

  41. 41
    Tony Danza Says:
    Am I trying to sell anyone anything? If you don’t agree with my “feelings” then that’s great, we’re not a couple so my feelings shouldn’t affect you.
    I’m not asking for financial advice from a blog, don’t worry about me. I just feel sorry from people that might be reading these blogs and making desicions based on what they’ve read on them.

    So they should make a decision based on their feelings, or yours? Why are you posting here? No one here is worried about you, don’t sweat it.

    BTW fools like this will be the ones crying for bailouts and whining that they were blindsided by the market.

  42. 42
    Drachen Says:
    Dosh

    “just look at a chart of house prices, where have they gone? Up. Thats not a feeling, thats just reality.”

    Dosh dosh dosh… Please tell me you’re not that stupid. If I throw a rock up in the air really hard, one second after I threw it it’s still rising and I pause time and turn to you and say, “Will the rock continue going up, or will it come back down?” By extrapolation I presume your response would be, “It will go up forever.”

    Can you really be saying that? So if we went back in time two years your opinion would be that the US housing markets would continue upwards forever. Go back even further and you’d be of the opinion that Tech stocks would go up forever.

    Pick anything that’s risen abnormally high without a fundamental shift in the basic economics of that commodity and it did not continue rising forever. It fell again. Time and again, sunrise, sunset, sunrise sunset. But you’re saying that THIS time, THIS time it’s different. Yet you offer no explanation WHY it should be different this time.

  43. 43
    bdk Says:
    Dosh you’re right,

    I believe you need 100 people for an accurate sample, actually it’s not a belief it was first year Statistics.

    So let’s find 100 people and survey them.

    That way we can prove everyone thinks the same way as we do.

    If you aren’t into finding people willing to do a survey let’s find some proof here to show all these clowns armed with their statistics and historical data that our feelings are better.

    Where are you going to buy your next investment?
    I’m really hoping to find an investment property that will break even, do you know of any buildings downtown where I can rent out the property for the mortgage? Obviously everyone wants to live downtown so I can charge any amount of rent right? It’s where the action is right?

    So which buildings should I look at? Spectrum? 33 Pender? Ginger? I want to invest where the action is!

  44. 44
    bdk Says:
    This proves the market can only increase!

    “When a particular asset class delivers outstanding
    returns over an extended period, investors
    become convinced that there are solid fundamental
    reasons for the trend. Theories are
    developed to justify participation and disregard
    valuation considerations. In the early ’70s, the
    “Nifty Fifty” stocks like Polaroid and Xerox were
    going to make money forever. At the beginning
    of the decade, the Internet was going to render
    traditional industries irrelevant. Today, growth
    in China and India is expected to translate into
    a permanent shortage of commodities.”

    See, prices are going up! I told you!

  45. 45
    Anti-Pesto Says:
    Invest in something you beleive will go up, not something someone tells you must because of past performances.
    Again I’m not suggesting anyone buy real estate as none of my posts have said that. I’m just saying don’t buy the BS that gets posted on these blogs. Most bears are hibernating waiting for prices to go down before buying that will limit any downturn. There are others that claim they will buy if prices drop 20% but in fact they won’t they will still be scared and think what if it goes down some more. My “feelings” are alot of the people here fall into the second category.
  46. 46
    franko Says:
    .
    .
    LOL….Dosh to the rescue of A-P
    Talk about dumb and dumber, with comments like:

    “Just look at a chart of house prices, where have they gone?”

    Hard to believe that one glance at that insane chart would not have the oppoosite effect on anyone with a lick of common sense….especially with inventory at a 9 year peak.

  47. 47
    Anonymous Says:
    “The reason I beleive a 50% correction isn’t in the cards is because the market (people) won’t allow it, if prices were to get down 30% somehow, the amount of new buyers entering the market would stop the bleeding really fast,”

    “There are others that claim they will buy if prices drop 20% but in fact they won’t they will still be scared and think what if it goes down some more.”

    Do these two views not cause some sort of cognitive dissonance.

  48. 48
    punface Says:
    I think even amongst us bears, belief in a 50% price correction is a radical opinion.

    Sure hope it does. I’ll have bought a condo already once prices are down 20%, but I’d probably be able to buy a house as well if they were down 50% :)

  49. 49
    Patiently Waiting Says:
    “What’s the difference between a middle class house and a prison cell?

    One is a 10×10 room where you sit and ponder your poor decisions while staring blankly at the floor and decide to get religion to help you out of your bondage and the other one is for criminals.”

    Not Mssing It on HBB
    http://thehousingbubbleblog.com/?p=4421

    Replace “middle class house” with “Vancouver condo”.

  50. 50
    arbitrage Says:
    i’m not relying on a certain set percentage drop to figure when to buy a place - i’m going to buy when it isnt cheaper to rent the same place.

    If rents for some reason went up to $5000/month - than i would recalculate what a proper price for a condo/house would be. If i cant afford to pay $5000/month - than i am forced to move.

    If rents drop to $500/month, than i use that to calculate a proper price. Not some arbitrary percentage drop.

    Of course there’s a bunch of soft factors like “pride of ownership”, the associated stability (or conversely, the ball and chain of a mortgage), etc… - but these things can only shift the basic value so much.

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