Friday free-for-all!
The world is going through some interesting times: a hangover from the boom of loose credit, house prices dropping in many cities, inflationary pressures and skyrocketing energy prices. This is our open-topic weekend post to discuss anything related to economics and real estate on the global and local level. Here are a few stories I’ve noticed this week:
- June 2008: Vancouver house prices drop slightly.
- Real estate inventory continues to grow
- Screen Actors Guild strike threat looms.
- Kevin Falcon cares about your convenience
- Victoria: love the weather, not the street people
- Americans move to Canada (less than vice-versa)
- Canadians work more for less
- Canadians no longer spending like ‘drunken sailors‘
- Loonie predicted to drop
- Canada from a Hawaiian perspective
- Will gas prices kill the suburbs?
So what are you seeing out there? Post your news, links and anecdotes here and have an excellent weekend!
note: any conversation on real estate or economics is allowed, please keep it civilized. when posting articles please only quote pertinent points and link to the original instead of pasting the entire article here. Pasting a link will automatically create a clickable hot-link. Thanks!
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July 3rd, 2008 at 9:20 pm
I know of at least 4 west side realtors who each have just put their homes and at least 1 additional investment property up for sale in the past 7 days … I’m sure it’s a coincidence … also know of two people who bought earlier this year before the sold their original residence - both places are up for sale b/c they can’t sell even at the price they bought 4 months ago.
Anecdotal, but still …
July 3rd, 2008 at 9:42 pm
how long will it hold? and how much will it drop (if it does)? any predictions?
July 3rd, 2008 at 10:06 pm
July 3rd, 2008 at 10:34 pm
July 3rd, 2008 at 10:36 pm
You forgot the part where you tell us why we are immune to significant job losses. Not that I agree with your premise, but it would be nice at least if you told us why your premise holds.
July 3rd, 2008 at 10:37 pm
http://agentwill.com/statistics/real-es … tatistics/
The market cannot be saved. It can only go DOWN for the next two to three years.
July 3rd, 2008 at 10:38 pm
Some of us have spent some time (some would say too much time!) getting ready for what is coming. Now you tell us that we aren’t ready for what is coming? Believe me, we’re ready. We’ve been ready for a l o n g time.
Why on earth would you think it is the *bears* who would arrive at the bust without their pants on?
July 3rd, 2008 at 10:49 pm
Detached got big hit in west van,north van and burnaby.
Attached got hit in eastvan and vanwest.
Over all appartment performance remain same some cheer up moment rob a’s area rocking upward prove that downtown is the place for action”the best place to be”.
Interesting point:Actually average prices are up by $904,167 in june over 887,503 in may.I know it’s difficult to translate housing prices there are lots of way to look at them but area realtor can assit us better.
Finally rbc found out there is no housing crash in vancouver in decades to come.no crash,in the housing market-Royal Bank optimistic about economy
http://www.cbc.ca/money/story/2008/07/0 … eport.html
July 3rd, 2008 at 11:11 pm
Well San Diego, LA, Phoenix, Miami, etc. are all down over 20% to date and where have the significant job losses come from?
Real estate.
Cough.
July 3rd, 2008 at 11:32 pm
http://agentwill.com/statistics/real-es … tatistics/
Benchmark prices are DOWN for ALL CATEGORIES. DOWN DOWN DOWN!
RECORD INVENTORY, DEPRESSED SALES, and PRICES DOWN DOWN DOWN. Specuvestors, it’s time to sell your second property before you lose even more money as the market tanks. Get out while you can.
July 4th, 2008 at 4:56 am
http://www.canada.com/vancouversun/news … c48cd17237
July 4th, 2008 at 5:38 am
I think Matt has a point with respect to job losses. I’m not sure what you do but like most people out there I have a real job with the real prospect of a layoff. I certainly wouldn’t be the first to go, and I’m looking forward to cheaper RE prices. But if you’re not nervous about an overall recession, you’re naive, or living off a trust fund.
July 4th, 2008 at 6:10 am
I think you’ve been brainwashed by realtors, who seemed content to pump real estate even in the midst of a possible downturn. A real estate friend of mine told me that unless you have real estate appreciating a gross of 10% or more (that’s before deducting interest charges, carrying costs and so forth) and in past few years after 2002, it was the case. It’s not now and most realtors are talking about a 3.5% YOY increase which they say is still a good investment for RE.
What an oxymoron, when in fact a 3.5% YOY is NOT a good investment, because you are already loosing money on interest alone (unless you can show me a way to qualify for a 1% mortgage) and if you signed on a 40 AMS, then yeah, you have a LONG WAY to go to loosing your money. Tell me Matt, do you love loosing your money YOY? Apparently, there are hordes of people who are content in loosing their money for 8 straight years while hoping for a Nasdaq rebound.
No one really knows how deep the correction will be, but we know that based on the Landcor website that the rise of the Housing Price Index mirrored those homes in the States, especially the boom states of California, Florida, etc..
And no, having well paying jobs is no guarantee for a sustained house prices either. We need not look far and long to Japan, where they had make work projects, a good economy (wonder where they have money to develop Nintendo Wii, Sony Playtstation 3, Canon 1dsMk III (an $8000 DSLR camera) and the list goes on and on. If you did happen to visit Japan during the housing bust, you wouldn’t even notice that home prices were deflating to their 23 year lows unless somebody told you so. Nope, there were jobs alright. The problem is with the confidence in the asset itself and credit availability to buy them. Human psyche is unpredictable. One day, you get overconfidence and then all of the sudden, pure pessimism pours in undermining confidence. You can examine many US corporations with very low PEs these days. These companies produce and deliver food and medicine to us. We have to buy them, some people more so than others and yet their stock prices are depressed. Why??
What’s supporting our current housing boom is basically credit. Buying a home with cash is possible to some, but we all know that it’s pretty pretty rare. The immigrants argument suggest that they buy these homes with cash, but looking at the rich immigrants stats suggest otherwise. And with the inflationary pressures we are facing now with 20 to 30% increase in some food items, as opposed to our CPI’s 2.2%, sooner of later central bankers are going to fight it with higher rates. European countries, Australia and even China are raising rates. Traditionally as rates increases, home prices will drop.
And don’t forget that as rates increase and so will the monthly mortgage payments for home owners as they renew.
Matt, you also mentioned well paying jobs. I have no doubts that there are well paying jobs in Vancouver, but traditionally the pay rates are lower than competing US states and our eastern provinces. The only well paying jobs these days that I know of are in the construction or its related businesses. They are well paying because, they pay more than the minimum wage and you don’t need a lot of education to boot with higher pay either.
But I also happen to know someone who had been in this construction and home reno business for more than 20 years and during the last few downturns, they had shed jobs and so did their peers.
So where do we go from here.
House prices will either drop like what we see in the states, or plateau for a few years until economic fundamentals catches up with prices.
We know that in order for fundamentals to catch up, wages have to go up significantly. But the trend these days is for a muted salary increase in the private sector, whereas you are much luckier if you happen to work for a public sector with a strong union. But, by exactly how many? Definitely not a lot and besides, many of these people may have already homes or homes already paid off. They may own a secondary, but by asking them to buy 2 or 10 more additional houses during the downturn to justify even higher prices is like asking them to become little Bernankes. Even Bernanke himself has a limit of how many ABCPs he can buy as he himself is running pretty low in his reserve. Once these measures are exhausted, what do you think will keep house prices rising again?
I just don’t see wages climb at the same rate as houses over the last 6 years did, but if it does, I’m not complaining. Which means, we have more spending money! But if BC is the only province in Canada or even in the world with 100% wage increases, BC companies will quickly become uncompetitive, which means MORE job losses.
So wages, while increasing, will increase gradually based on fundamentals. Which means, home prices must fall back to fundamentals. We bears only expect to see the natural equilibrium restored and that we are nice. Restoring back to price fundamentals is a reasonable expectation, but I hope it doesn’t act like Nasdaq where 8 straight years of down will make any bullish investor a bear, or like Japan house prices going all the way down.
July 4th, 2008 at 7:00 am
The market becomes normal if a two income family with average salaries can afford to own a modest home, should they choose so OR ownership of said home costs same or less then renting it (like in: isn’t it cheaper to buy stuff then to rent it???).
This is my benchmark.
Do you think it’s unreasonable?
Because if it is then either our social/political/economic system is seriously flawed and/or has departed too far from what it was meant to be or perhaps it is because it is different here and no rules apply? I don’t think so.
July 4th, 2008 at 7:03 am
This is scary!!! How bad is it when 4 of the them “in the know” are listing their places?
I went to an open house recently and the listing agent has called a few times to see the place again and to put in an offer!!! I’ll better wait a bit!!!
July 4th, 2008 at 7:21 am
July 4th, 2008 at 7:29 am
..or prepared. Are you living month to month or have a heavy debt load? Do you have no savings? Getting laid off would be a drag, but I’ve got enough saved up to live for a couple of years without income.
But lets be realistic, if Vancouver were plunged into a situation where there was no work I’d simply move to where there was work.
July 4th, 2008 at 7:37 am
Some bulls think that ‘everyone’ will be screwed because they assume ‘everyone’ is as unprepared for a downturn as they are. (Not accusing Warren of this.)
Again, we have been teased for 3 years about being ready for a downturn ‘too early’. Well, now that a downturn has arrived, don’t suddenly assert that bears are going to be sucked down with the overleveraged homedebtors. The boom created some winners and losers. The bust will do likewise, but shoes will be on other feet.
July 4th, 2008 at 7:51 am
AGREED! We’ve all been waiting for a downturn, not because we’re looking for some dramatic bloodbath but because we expect to be able to afford something that is so basic-a place to live. And if you’re a young and educated with cash in the bank, there should be no reason why we can’t attain that goal. This hasn’t been possible for the past few years. When you think of it, a house should just be a house, a place to live and raise a family, and maybe 30 years down the road, provide you with a bit of change to help with retirement (maybe). Not an “investment” which will make you a millionaire quickly. Well, soon enough we should be back to fundamentals and people won’t be so excited about real estate.
July 4th, 2008 at 7:55 am
I have multiple income sources and a decent savings pile. I could live quite a while if I lost my job, but I’d rather keep making/saving money and retire early.
I’m sure lots of bears could survive without jobs for months, but that takes them right out of the market for a house even at bargain prices. That is all.
July 4th, 2008 at 8:10 am
The simpleton warehouse worker who should have stuck with one studio but went and bought two will lose $6,000 in “value” and pay $2,000 to subsidize the occupant for deacades to come and might be able to avoid bankruptcy by working two or three jobs.
I have no sympathy for these greedy folks. I worked in real estate for years and years and despite what you hear about rich people buying real estate it was actually a lot of average families from the suburbs and single hairdressers who live downtown who were mortgaging and re mortgaging their principal residence to play a flipping game that they didn’t understand while arrogantly dismissing any intelligenct advice, these are the same people who won’t even buy balanced mutual funds because they consider them too risky.
It’s unfortunate that there is no risk tolerance assesment done before they sign away their life savings, it’s hard to have any sympathy when you see the fools talking about their “feelings” and what they “think” on this blog before going to their jobs in the warehouse, delivering pizza or in Rob a’s case working at starbucks.
Hey Rob are you one of the starbucks employees getting axed? Don’t worry there are a lot of cafe’s downtown, everyone knows this.
July 4th, 2008 at 8:46 am
If we ever got to the point where everyone with a bearish opinion of the local market lost their job the big problem wouldn’t be that they wouldn’t be able to buy a house - no one would be able to sell a house or make payments, the entire system would collapse and thats not going to happen. All thats going to happen is that people who’ve gotten overly used to living on cheap credit, or think house prices will go up forever and is the only investment you need are going to find things a lot tougher.
Of course if you work in real estate or construction related sectors you might find things getting a lot tighter in the coming years, but its not like you don’t have a chance to start diversifying your skillset while times are still good.
July 4th, 2008 at 8:59 am
And purchasing it from an ex-bear who over-leveraged themself would be icing on the cake! I have zero sympathy for anyone who bought in the last few years, period.
July 4th, 2008 at 9:07 am
What are you talking about? What 20% drop. 50% to 60% drop? Get real dude.
July 4th, 2008 at 9:17 am
Ah, but the stakes are higher for some than others. Bitter renter can survive without a job without going bankrupt. Harry Homeowner will not be so lucky.
There’s no turning back now. No way out. See you on the other side.
July 4th, 2008 at 9:20 am
That is one of the interesting things about this bubble. Historically, owners have acted in a more fiscally responsible manner than renters. But get the cause and the effect right. They are owners BECAUSE they are fiscally responsible. They are not fiscally responsible because they are owners.
Now it has reversed. Of recent buyers, I am convinced that they are overrepresented by fiscally irresponsible individuals, and vice versa.
Turning the world upside down may lead to some weird situations going forward. Will a block full of renters snub their noses at the trashy owners who just moved in?
If anyone was in doubt, I was being cheeky in the last sentence.
July 4th, 2008 at 9:25 am
July 4th, 2008 at 9:28 am
Come on Warren. Nobody is exciting about people losing their jobs. However, they feel that the sooner our economy (and spending) adjusts to fundamental reality.
Did I wish for the Nasdaq bubble to end? Hell yes, because I KNEW that it was based on hot air. Would we be doing anybody any favours by letting it go on? No. Did I wish that the valuations were true and we had indeed had achieved a paradigm shift that would bestow prosperity on our entire society. Yes. But I know that it was not to be. It is the exact same with the RE bubble. I wish for the INEVITABLE correction to come and go, because that is what is best for all in the end. False prosperity is worse than no prosperity at all. Don’t confuse realism with pessimism.
July 4th, 2008 at 9:30 am
Actually, it is ALL of the median PRE-TAX income. Add in interest, taxes, and what have you, and a May buyer had a sh*tty month (whether he knows it or not). Of course, and buyer pre April is still sitting on gains.
July 4th, 2008 at 9:38 am
July 4th, 2008 at 10:03 am
you priced out bear there is no discount for you,i have no sympathy either for these sitting out folks because there was an oppertunity to get in at the same time when other people got in now keep on sitting on the fences.Any body getting older than 35 year just forget about buying ever in your rest of life enjoy your life on rent now.
July 4th, 2008 at 10:05 am
tightened credit availability:
banks are finding it harder and more expensive to get money and are very careful who gets access to it…..
debt deflation!
July 4th, 2008 at 10:19 am
But as far as jobs do affect real estate, Vancouver is in a unique position with some 85% of new jobs created in BC over the last several years occurring in construction. When the building stops, the job losses will be severe. Very severe.
July 4th, 2008 at 10:29 am
Amen.
July 4th, 2008 at 10:31 am
Why do you think I’m renting again? My situation could be different from yuors. I’m suggesting average people DO NOT get over leveraged on real estate in Vancouver because you’ll lose ALL YOUR MONEY. It’s too late for you bevcause you’re an idiot and nothing gets into your brain. This is most likely because you are inadvertantly huffing paint industrial solvents at work. There is just no way anyone could be born as stupid as you.
you should write
“I think i try to be smart and now I go to work at warehouse and all my money goes to mortgage and I eat kraft dinner for dinner for decades to come while rpice go down and no immigration and boomers sell the houses theys own and no buyers and now I am a bum, but buy now because bargain and i am dumb and think good idea it is, market go up”
July 4th, 2008 at 10:35 am
In Abbotsford I’ve heard from two different sources that there’s a delveloper of a housing development that just dropped the prices on his new houses 70-80K to $499,000.
A realtor was telling me that apparently listing prices are remaining pretty much unchanged, but deals are being made with price drops of as much as 13% as sellers are slowly coming to realise how difficult it is to sell right now.
July 4th, 2008 at 10:48 am
July 4th, 2008 at 10:56 am
July 4th, 2008 at 11:05 am
HOWEVER, given that there will be some pain, I would much much much rather be a debt free renter than a leveraged up homedebtor.
July 4th, 2008 at 11:18 am
If we had a recession with double-digit unemployment at the same time as a housing collapse, we will once again see $80K condos in East Van and $200K SFH in New West. Even with a much reduced income, many of us will be in a much better position to buy.
July 4th, 2008 at 11:27 am
Well, on the bright side of the equation at least we won’t get the double whammy of losing a job and having a huge mortgage. I’m not worried though, I’m self employed and my income is not dependant on the local economy to a great degree and my wife has tenure.
“Even with a much reduced income, many of us will be in a much better position to buy.”
I agree 100%, if one member of a couple loses their job and has to take a lower paying job you still have say 75% of the household income. With real estate below 50% of what it costs now it’s a no brainer that it’s easier to buy in a slump. There’s also the added bonus that the person who had to take the lower paying job will get a good position after the economy recovers which means making mortgage payments will be easy.
July 4th, 2008 at 11:28 am
The difference being that some of the investment during the tech boom did go to productive uses. With housing there are just more houses, unless you consider stainless steel appliances an innovation.
July 4th, 2008 at 11:40 am
Also increased risk of default, directly through a specific applicant’s job being unstable, (or nonexistent) or generally poor economic outlooks causing a lender’s overall risk to increase. Even with home equity as collateral the bank still needs to make money off the interest or what’s the point.
July 4th, 2008 at 11:43 am
I say - Bring It On!
I’m ready.
Let’s see who’s left standing after the dust settles.
I come from a place where people were giving away generations worth of heirlooms/wealth/savings/jewelry etc. for a loaf of stale bread at some point in history.
The only people afraid of the market correcting to normal state are the ones who will be left with nothing but their “RE Investments” and a mounting, no longer manageable debt. Unless they can figure out a way to eat granite and stainless steel they better be soiling their pants now as there is nothing they can do soon but moan and bitch and scream for help and mercy.
July 4th, 2008 at 11:58 am
With the RE market busting and recession clerly visible on the horizon, the bill for a decade long credit bubble is comming due and you’ll be surprised how many of your friends and neighbours were swimming naked.
If you were a bear over the last few years, you likely have hundreds of thousands in savings to buy distressed assets. If you are an over extended bull, you are SOL.
Times like this are just transfers of wealth from people without cash to people with cash.
July 4th, 2008 at 12:18 pm
I blame the reduced down payment requirements. A minimum 25% down payment is a pretty good test of fiscal responsibility. Not only does it give the lender some buffer before the equity turns negative, it also weeds out people who don’t know how to save. Giving out loans for hundreds of thousands of dollars to people who can’t even save up tens of thousands is a recipe for default.
July 4th, 2008 at 12:22 pm
July 4th, 2008 at 12:28 pm
As an ex-spec builder who keeps in touch with the gang that’s still active, let me assure you that the same thing is happening in Coquitlam and on the North shore. During the last coffee break with a bunch of builder buddies, I learned that most of these guys are not proceeding with new projects and are letting recently acquired permits expire. Unlike developers of large multi-unit projects, that could take a couple of years from commitment to completion, small-time house builders sometimes have the advantage of bailing out at the first sign of trouble.
Although most of these guys with unsold new houses are scared $hitless as not even price drops are generating much interest, one of the guys FINALLY had the subjects removed from a recent sale that enabled him to escape with only a small loss…or so he claims. Anyway, this guy was so happy, you’d have thought he just won the lotto. Needless to say, he sprung for the coffee and doughnuts.
July 4th, 2008 at 12:56 pm
++1 VHB
When the going gets tough, the tough get going. I am with Simpleton. I want to see high interest rates, high fuel prices, credit bust! Blood on the street. The faster the better.
This will separate the wheat from the shaff.
After the dust settles, those left standing can meet here for a beer in the blogosphere.
By then we will need new blog titles:
“Vancouver post bubble”
“Vancouver un-real bargains”
“Vancouver bear advice”
“Vancouver apartment info”
“Financial advising and I told you so….”
“Vancouver Housing Blog - the resurrection”
Best regards,
arit
July 4th, 2008 at 12:56 pm
Prices are high even for a very very strong economy. If our economy falters badly (ie. severe recession), housing will drop EVEN more. In other words, affordability WILL IMPROVE no matter what happens to our economy.
I presume that if somebody lost their job, they will be unable to buy. However, odds are that they will be employed long long before prices have gone up any significant amount.
The other worry is access to credit. I can’t see CMHC stop giving insurance any time soon, so any responsible renter who squirreled away his “equity” (rental savings), will be in a position to make a decent downpayment.