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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IC4
IC4
11 years ago

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… Read more »

ellery
ellery
11 years ago

Oh, no Mike, you've ruined my day. And CIBC has such a fantastic record, too.

http://business.theglobeandmail.com/servlet/story

Globe & Mail: "Bank Most Likely to Walk into a Sharp Object"

Mike Stewart
11 years ago

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?!

Anonymous
Anonymous
11 years ago

109,10 is a troll who call himself former btk and currently bdk.

realpaul
11 years ago

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.com/southern-calif

realpaul
11 years ago

from now on I'll call myself 'realpaul'. Thanks paul.

realpaul
11 years ago

from now on I'll camm myself 'realpaul'. Thanks paul.

paul
11 years ago

A new Paul has hijacked my name #123 is not my post.

paul
11 years ago

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.

other ted
other ted
11 years ago

i am bad i should have proof read what i said. first paragraph disillusioned with not…

other ted
other ted
11 years ago

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… Read more »

New Guy
New Guy
11 years ago

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!!!!

Paul
Paul
11 years ago

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.

Lily pad
Lily pad
11 years ago

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_id=google&a

vancouverboom2
vancouverboom2
11 years ago

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.

arit
11 years ago

alexcanuck,

Thanks for the advice. As I told ellery, I will give this serious consideration.

Regards

arit

arit
11 years ago

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

I told you so
I told you so
11 years ago

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… Read more »

alexcanuck
alexcanuck
11 years ago

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… Read more »

Anonymous
Anonymous
11 years ago

404 Not Found

Price Reduce, Must s
Price Reduce, Must s
11 years ago

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.

vancouverboom2
vancouverboom2
11 years ago

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… Read more »

ellery
ellery
11 years ago

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.

blueskies
blueskies
11 years ago

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…..

nisei
nisei
11 years ago

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.… Read more »