Why I am a real estate bear. Are you one too?
Preface: I had already written my post when I began a discussion with a co-worker of mine late in the afternoon. We began to talk about real estate prices (on Bowen Island, where she has family) and it was obvious that she had no clue about anything to do with real estate. That, however, didn’t stop her from affirming with the utmost certainty, that “we’re in a lull, and by the spring prices will start back on their inexorable climb.” Just then a co-worker jumped in claiming that he was going to wait until after the Olympics (about 2 years) to buy. When I told both of them that I expect a bottom in real estate prices (real prices, if not nominal) around 2014/2015, they looked at me like I was nuts.
I just smiled knowing that this is exactly what my friends/acquaintances in the US were thinking about 3 or 4 years ago. They no longer think I’m nuts and one or more of them e-mails or calls every couple of days to get my opinion on the real estate market. Well, here’s my original post below:
A native Vancouverite, I had lived abroad (in 4 different countries) for 13 years before returning to Vancouver this summer.
I have never personally owned real estate, but growing up in this city I was a casual observer of the manner in which my family’s (and friends’ and neighbours’) fortunes were party to the vicissitudes of the Vancouver real estate market. I saw my parents purchase a home on East 19th ave and Clarke Drive for $33K in 1973, tear it down in 1989, build a new home there and sell it for abou $500,000 (in about 1990), which my parents used to buy a building lot (right near the top of the market). There they built another home, the cost of which took the remainder of the profit from the sale of the earlier home, even though labour costs were mostly free (our labour, not counting opportunity costs). Then I left Vancouver and have watched at a distance as prices reached truly astronomical levels in this city.
As I stated earlier, I don’t own any real estate, but I began my long journey into trying to understand what was going on in the world of real estate in about 2003, which is about the time I started to seriously consider buying a home in the northeastern US (which is where I was living at the time). I thought that I could buy a 2-3 bedroom house, rent out a couple of the bedrooms and have my roommates help pay my mortgage. But when I started pricing things out, I realized that it just didn’t make sense financially.
My gut (and my analytical nature) were telling me that something was wrong. What’s more, I had moved to the US from Europe (where I lived for about 4 years) and just could not believe the amount of new cars on the road; something just didn’t add up and I couldn’t understand how I, who was making about the median wage for the area in which I was living, couldn’t even come close to comfortably purchasing a home, while families (not individuals, but families) whose gross net income could not have been much higher than mine at the time, were out purchasing four-bedroom McMansions so that they could park their two cars–one of which was obligatorily an SUV–in the driveway. That’s when I had to find out what the hell was going on…which led me to various “bear” sites on the Internet. I then realized that I wasn’t the only one who thought like I did…
That’s when I found the one-word answer to the dilemma: Debt. In fact, it was insane, “you’ve never seen anything like it” levels of debt that individuals/families were taking on without seemingly the littlest regard for a strategy of how they were going to ever pay it back. Everyone (and his two-year-old son and pet cat Wheezer) was going into debt at a rate that I just knew was not sustainable. So, I’ve been a housing bear since about 2003…
That doesn’t mean that I’m a natural “bear”, but I’ve been aware of the unprecedented amount of debt that is weighing down the balance sheets of families, companies and governments worldwide and which still have to be resolved in some manner before anything like a sustainable recovery is in the works. I think this will take years, rather than months…
What about you, what are the specifics of your own personal “awakening” with respect to the real estate market in Vancouver (or any other city)? Did you know that the realtor mantra “real estate only ever goes up” was b.s., or did they have you fooled for a while? When/why did you begin to think that most Vancouverites were nuts and deluded about the value of our real estate?
-The Dude
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January 7th, 2009 at 6:53 am
I am bear bear bear and a little bit bull. Let me explain.
Was born and grew up in Vancouver. Remember the 81/82 horror clearly. Waited a few years after that and bought my first house in Richmond. Happy homeowner! Proud too. Then came an economic downturn in early 90’s and we moved to Australia, bought another house there. Sold the Richmond house at profit. Have stayed long enough in Australia to watch our house go into negative equity for 10 YEARS. Then a miracle—prosperity returned to the Lucky Country. New cars, trips abroad, full renovations being done up and down the streets. My neighbour across the road spent $100K, the one next door $200K! Everyone was reno crazy.
But the beautiful thing was this: now I could entertain thoughts of moving back to The Best Place on Earth. If my house was finally worth some good money, then we could return in triumph!
So a trip to BC was in order. First stop, Victoria, home of my family. Signed up for real estate listing emailed daily. Tromped around looking at ordinary homes. It was June/July 2007. I didn’t know then what I know now. But I had a rude awakening and the reality of the insanity struck my mind like a bash from a 2×4—we will never be able to afford a house in this place. Maybe ever. Ohhh such despair. Return to the other Best Place on Earth, Australia, to lick my wounds. What was I thinking? Vancouver has obviously moved on while I’ve been away for 17 years. They don’t know about my pitiful plans to return to my native land and what’s more if I haven’t got the money to buy then I must be really dumb. That’s a subject for another time.
June 2008, return to the Island, talk to the REALTOR who now lets me know there is a “correction” occurring, and now is a good time to buy. Better than last year. Oh? Well guess what? My house in Australia is worth A LOT less now than last year, but never mind that, the exchange rate is murderation.
It was in trying to make sense of the local market that I began googling for no-bullshit real estate talkers. Thank god I found some straight shooters. What I’ve read has put my mind to rest. I have TIME. There is no rush to buy. (my family in BC thinks I’ve already missed the boat to come back here, get a job, and a nice home. This makes me depressed but my back is against the wall at this end of the world).
Since that moment of despair in Victoria 18 months ago (not knowing RE was at its peak) I’ve been watching the RE drop down and down. That has been enormously satisfying. As some others who have long been around Vancouver can vouch for, this is the part of the cycle we live for. So satisfying. It does hurt to think I might not be able to afford to move back. I’m not so young anymore and don’t have the luxury of decades to bounce back financially. So houses must fall by an awful lot, from my vantage, because I really love BC and want to come back, if only for the last few years of my life.
December 19th, 2008 at 10:06 am
Oh, no Mike, you’ve ruined my day. And CIBC has such a fantastic record, too.
http://business.theglobeandmai.....iness/home
Globe & Mail: “Bank Most Likely to Walk into a Sharp Object”
December 19th, 2008 at 8:31 am
Well Well now!
All the real estate bears are proved wrong again!!
Benjamin Tal says Vancouver and the West will fare better than the rest of the country!
No Real Estate Armageddon!
Oil is at all time lows, the CONSERVATIVES want to spent $30 billion to get Canada moving again…
You bears need to tell me how this situation is going to turn into the end of days you all predict?!
December 18th, 2008 at 8:44 pm
109,10 is a troll who call himself former btk and currently bdk.
December 18th, 2008 at 8:38 pm
California average now only $32,000 away from a full 50% reduction. If it’s true that when the US gets a sniffle Canada gets a cold then this is what we could be looking at soon.
http://www.doctorhousingbubble.....to-285000/
December 18th, 2008 at 8:30 pm
from now on I’ll call myself ‘realpaul’. Thanks paul.
December 18th, 2008 at 8:29 pm
from now on I’ll camm myself ‘realpaul’. Thanks paul.
December 18th, 2008 at 8:28 pm
A new Paul has hijacked my name #123 is not my post.
December 18th, 2008 at 8:24 pm
Vanboom2 109-10, your pretense of being a new-English speaker/immigrant from ‘Kazahkstan’ is getting a bit old, don’t you think? Why you want to insult immigrants by pretending an ignoramus POV is rather bizarre. Are you someones alter ego perhaps.
December 18th, 2008 at 7:05 pm
i am bad i should have proof read what i said. first paragraph disillusioned with not…
December 18th, 2008 at 7:04 pm
This is a great thread I really love reading everyone’s story. I haven’t posted much but I will give my story too.
I started off as a perma bear I guess but not of real estate but of Vancouver. I grew up here went to school for most of my education and worked here for most of my life. I was an engineer and I grew disalussioned that I could afford a middle class lifestyle with what was considered decent work.
For me I had enough in the early part of the decade. I decided I needed a new career or a new location. For the first few years I was all over Canada and away from home and I heard of the rising real estate prices everytime I phoned home. I know real estate was cyclical and expected an increase as prices seemed to bottom out and there was a new found confidence in the city due to a new government and the belief that the olympics would bring prosperity. I did not buy the hype but I new that people would act accordingly and drive up prices. But I expected modest growth.
I don’t know how I would of saw things if I was in Vancouver when prices took off. Maybe I would have been overcome with fear and bought in. But being away it gave me perspective and I knew it was nuts and something was not right. At first I thougth it was just Vancouver. Of course travelling on and off for the middle part of the decade I met people from all over the world who bragged about their countries real estate. Then I realized it was something not just locally driving this.
Regardless I made up my mind I couldn’t live in Vancouver anymore. I said to myself its a big world why do I have to define succes by how everyone else defines it”as owning Vancouver real estate” I figured I could advance my career and have a better standard of living my moving. I believed that everyone else was a coward in my profession and they allowed themselves to get treated like crap by not moving. I did more for my profession by quitting and leaving Vancouver than almost any other engineer I believed.
Anyways I moved to Calgary where oil was taking off. Being a skeptic I believed in high oil prices but didn’t quite believe all the hype I first encountered when I came to Calgary. Then I saw real estate was becoming as insane in Calgary as it was in Vancouver. Before I moved to Calgary 3 years ago I discovered VHB and once I was there this site and the calgary contrarian which is now defunct. (alberta bubble took over)
About 3 years ago everything became clear reading the great posters on this site like (freako, the pope, vhb, and later poster like patriotz etc. )(I know i rarely post and its mostly to argue about things i disagree about but I agree with 99% of what goes on here)
Its funny when I moved to Calgary people would get downright angry with me when I didn’t believe houses should be as high as they were in Calgary and didn’t buy into peak oil as why oil went so high(apparently people forgot about iraq). Anyways I was accused of being negative. I always felt positive in my belief I would buy at a discount to 2006 prices.
I am glad I found this site because not only did it reinforce my belief but it gave me knowledge to understand what is going on and predict how this will all end and what to do. I believe in cash for the time being and I will buy when the prices are right.
I keep on thinking it will be vancouver. But my mind keeps on telling me even if prices go back to 2002 levels why should I. It was 2002 when I decided I had no future in Vancouver because of career issues not just property prices. I felt prices were too high back then with relation to income. But then again I am no longer an engineer. I am now a comodity trader if I could find work in Vancouver which is doubtfull it would pay better. Anyways I have saved more money in the last three years than I had up to that point in my life. I will most likely be able to buy in cash when this all explodes or get away with a small mortgage.
December 18th, 2008 at 6:43 pm
Vancouverboom2 thank you so much for the information regarding immigrants.
If you could send me an email at
vancondotalk@gmail.com
I’d love to get more information from you.
It’s great to see at least one sane person left in Vancouver, the best place on earth!!!!
December 18th, 2008 at 6:38 pm
I think it’s gonna be hard to pinpoint the bottom of this market because there are some many other macro-economic factors involved right now. The recession that started last year in the U.S. shows no signs of turning around. In fact, there is a greater risk now that it will become self-feeding and evolve into a prolonged recession or depression as consumers and business continue to cut back spending. The bottom can happen anywhere from 2010-2018. I believe we are lagging the U.S. by atleast a year, so we should see a bottom in the hardest hit areas such as LA, Miami, and Las Vegas first.
December 18th, 2008 at 6:31 pm
Pope: Is this ad on your site just a coincidence or is it deliberate? (not that there’s anything wrong with that).
http://www.gaybeardating.com/?.....aff_cp=IMG
December 18th, 2008 at 6:19 pm
Told you so,
you are right in second paragraph- majority of immigrant does not buy right away they like to buy within three year of their residency but what all these new flood do to previous residence? They help those previous residence push them forward to buy,some of investor through migration and immigration buy right away based on landcore data those were some of 5% in 2007.there are words in market that most of buyers are from within city within city means immigrant,migrants,and extended family members(extended family means local anytime)within three years of their residency.
December 18th, 2008 at 5:49 pm
alexcanuck,
Thanks for the advice. As I told ellery, I will give this serious consideration.
Regards
arit
December 18th, 2008 at 5:47 pm
ellery,
Thanks for the explanation about hedging. Now I understand. It is a very different approach from mine. I’ll think about it. I need to balance “hedging’ versus “medal or jail”.
My line of thought is this:
What is the worst case scenario, and can I afford it?
The worst case scenario is that I lose all the money which I am not using right now, and I find myself in 2016 in the same situation that I am today. Today I am happy. No debt.
Of course I also have RESP and RRSP which are not invested in the abovementioned risk.
Regards
arit
December 18th, 2008 at 5:45 pm
Vancouverboom2
I am just tired of the argument about immigration offsetting the huge supply under construction.
Firstable, go sit at an immigration Canada office and tell me if the mayority of people you see there look like they have the means to buy a $400k apartment off the bat. Most of the immigrants that come in to Vancouver dont have savings nor land high profile jobs that would allow them to buy property under current market conditions. The typical immigrant with a bachelors degree that just arrived to Canada wont get hired for more 50k. Now imaging what those without a degree make.
Besides, go step in to a bank and try to get a mortgage loan with no previous credit history and just holding your Permanent Resident card. They wont even give you a credit card with a $1,000 line.
Now, I tell you all this from personal experience. So unless you get 30,000 of rich immigrants coming to Vancouver each year or the property value declines 50%, the condo towers will remain empty.
December 18th, 2008 at 5:41 pm
Arit:
I second ellery. All eggs in one basket bit. A few points to ponder.
Outsourcing of care. Many procedures can be done overseas for much less, AKA medical tourism. China, for one, has no recognition of patent law and intellectual property rights and can copy most anything for less. Shoddy quality, but that doesn’t dissuade people who either can’t afford the real thing or don’t realize the difference. And if you’re thinking care homes, that also can be done elsewhere, and patients can enjoy a better climate to boot!
Some potential patients won’t be able to pay for terribly expensive stuff if they lost everything in the great crash of 08/09 and had to start over. Less realistic profitable demand than some projections. Our (excellent) public health system can’t possibly supply everything for everyone forever.
Lots of over-enthusiastic hype and outright scams in the field. (as in all areas)
Certainly some winners there, and a reasonable amount could be allocated, but all? Do more research, think it through, and then ignore me, ellery and the “experts”, make up your own mind and accept the consequences.
December 18th, 2008 at 5:38 pm
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December 18th, 2008 at 5:29 pm
Sorry, more bad news for Vancouverboom2
More bad news for speculators Government to build 200,000 homes to stimulate the economy and create jobs
This doesn’t look good for the those who are overextended and need the revenue from the mortgage helper suite, and it sure doesn’t look good for specuvestors who bought in the last few years.
December 18th, 2008 at 4:50 pm
Sale by owner,
Those facts are still available you can see lowest rental vacancy rates in vancouver 0.5% where is the supply that some of your friends are talking about?.Even if there is anything exist as we go those unit need to cover up flood of 30,000 people every year so supply has soaked compared to demand and future developer will only step in if their margin of profit is guaranteed that’s why it is very difficult for bears to walk farther away from the next trap either you buy to encourage developer to make more or you pay higher prices for available resale inventory but lots of sellers already pulled off their units off the market.
Paul,
Beautiful weather as long we are in vancouver and i am expecting a flood from Ontario and Quebec could break into vancouver to take a shelter under our solid economy and fill more application to full fill supply for the required labour force.I also feel like some richi rich can also enter here to buy because there is no question remain among canadian or world about vancouver,Vancouver is rock solid and heart touching forever.
Just one tipping point will start a new race my weather forcasting tools spotlight that tipping point close to march,I have also successfuly traced a small magnitude two week ago that was helpful to shake the bucket of confidence based on my weather forecast April stats would be very interesting to watch main while scientists are inspecting all the gears.
VB2
December 18th, 2008 at 4:49 pm
arit
“hedge a little, man”
sorry, I wrote my post quite quickly and re-reading it, it sounds a bit rude!
anyway, what I meant is “hedge your bets”. Hedge, verb: ” to prevent complete loss of a bet by betting an additional amount or amounts against the original bet.”
In other words, putting all your savings in one stock, any stock, even the best stock ever that Warren Buffett personally fed-exed you a guarantee on is completely bananas. I would never put more than 25% of my savings in any one sector, let alone any one investment. Just a thought.
December 18th, 2008 at 4:36 pm
and now i loooose all my money and share bed with brother and sister
therein lies your dilemma …..
if your sister is turning tricks
and the charge is too low you can’t up
for that by doing greater volume even if it is family members…..
December 18th, 2008 at 4:13 pm
Our awakening:
In 2005 my wife and I was considering buying an investment property, so in order to educate ourselves, I did an online search and found RET. On RET, I was intrigued by VHB’s posts and I soon found my way to Van Housing Blog. What I learned from VHB (and verified for myself) not only put the kibosh on purchasing an investment property but it ultimately lead us to the decision to sell our primary residence early 2007. I admit it was a gamble at the time because the market was still robust, but aside from what I thought were unsustainable prices, we weren’t too happy with our location and the condition of our home. So instead of going into further debt by doing an addition/renovation or moving up the property ladder, we decided to sell and rent. As renters we enjoy a stress free life. As a bonus we have also reduced our consumption costs (cheap rent, shorter commute, and buy less stuff we don’t need due to lack of storage). We hope to get back into the market when home prices are more inline with traditional metrics and maybe pick-up an investment condo as well
December 18th, 2008 at 4:10 pm
also in six months more than five thousands units come and tv towers is best one but no buyers and already 20,000 sellers pent up demand is for buyers where are buyers?
December 18th, 2008 at 4:08 pm
born i was in kazakstan and here i came and now it is to buy i did for much more money than should paid i did so blog i do and tell people buy now or pay less later is why nutslaps too smart so i tell them to buy and make sense i do not no one thinks me smart but i keep everyday saying and telling that market good even though market bad and now i loooose all my money and share bed with brother and sister and in decades to come i won’t be so poor and own condo i will that will be same price for decades to come no reason to listen to me nutslaps no sense i make yeah yeah and the price does down decades to come nutslaps yeah land making machines everywhere too much land not enough people in small canada not enough people want to move here and make not enought moneys to buys the wisemans condo from my and that is why buy now and burn money for decades yeah
December 18th, 2008 at 4:05 pm
Hmmm, 1000 units available for rent downtown now on craigslist.
It sounds like there is a lot of pent up demand for rentals…
ext>> Found: 1000 Displaying: 1 – 1000
[ 1 | 2 | 3 | 4 | 5 | 6 | 7 ]
December 18th, 2008 at 3:40 pm
Paul #99: “The Permits and Planning people should be ashamed of themselves.”
True. We should elect intelligent planners, not sadists who will allow buildings where it is impossible to store even a bag of rice.
Downtown apartments are not ecodensity, they are sadodensity.
Some people made loads of money in the last boom: nobody will take that away from them. The crappy housing stock (small, leaky, you name it) is there to stay for decades. Politicians are partly responsible and will have to pay for this somehow.
Those condos are like glass fishbowls….a one way ticket to diagnosed depression….
December 18th, 2008 at 3:39 pm
Boom2 Rob,
Rich International immigrants
Rich Albertans
No deficit government
Solid Financials
Low supply
High demand
Multiple bids
Resource Rich
Booming Economy
The Olympics
We won’t be affected by the US
There is no overhang on supply, it will all be absorbed
Prices will continue to increase at least till the 2010
Prices will really spike once the international investors visit Vancouver in 2010
It’s different this time
It all fell apart, told you it wasn’t different this time
December 18th, 2008 at 3:33 pm
Hmmm
At Wal Mart…..There is now a run on Sub Zero fridges and Red Knobbed Wolf ranges by parties with free ads on CraigsList trying to sell their condo assignments .
PS Wal Mart greeters now giving out rain – checks.
December 18th, 2008 at 3:25 pm
Post #99
“The Permits and Planning people should be ashamed of themselves” .
Agreed.
Their “flavour du jour” zeitgiest has long term consequences. Terms like LEEDS and Green Roofs litter their nomenclature oooooo ahhhh
500 Sq.Ft shoeboxes are the new ” SRO’s “?
Their ramping -up of new OCPs etc.was unprecedented .
It gave the illusion of demand.
Richmond planners and the City Center Area Plan had visions of 50 years into the future and planned accordingly…WTF !?!
Most OCP’s are 5 – year plans which allow for much needed flexibility.
Was that ACTUALLY a long term vision, or a sop to the Big Developers to flood the market ASAP and cash -in ? .
Now they are in gridlock ..the “stool/turd ” of any/all future development is stuck half way in the ol’ intestine, maybe for years.
In many cases, your Local Gov’t CAO and Head of Planning are the gods in any given City, the elected officials are simply the rubber stamp ” puppets” .
December 18th, 2008 at 3:19 pm
Look at what I found out about Peter Wall of Wall Financial Corp. (e.g., Wall One, Playhouse Development behind Olympic Village).
“Wall’s friend Bob Rennie, who has worked extensively with him, described the Wall formula as “Great location, smaller suites. Put in a Sub-Zero fridge and a Wolf range with red knobs, and they’ll line up to buy it”.[38] In May 2008, Wall Corporation bought a building at 1212 Howe Street in downtown Vancouver. In charge of the building’s sales and marketing campaign, Rennie claimed that it “played right into Peter Wall’s model of ‘take a prime location and undersize the suites a bit’ “.[39]”
http://en.wikipedia.org/wiki/Peter_Wall
December 18th, 2008 at 3:08 pm
http://www.canada.com/vancouversun/pdf/salgov1.pdf
December 18th, 2008 at 3:05 pm
Top level people believe that Vancouver is the best place on earth, and they have the numbers to back them.
http://www.canada.com/vancouversun/pdf/salgov1.pdf
http://www.canada.com/vancouversun/pdf/salgov2.pdf
http://www.canada.com/vancouversun/pdf/salgov3.pdf
http://www.canada.com/vancouversun/pdf/salgov4.pdf
http://www.canada.com/vancouversun/pdf/salgov5.pdf
http://www.canada.com/vancouversun/pdf/salgov6.pdf