Field Report from UBC condo projects
May 29, 2010
by Crashcow
I woke up this morning with a massive hangover. Wow, what a 40% sales-to-list party that was! But with today being Alumni Weekend, I decided to check out my Alma Mater and tour the empire of new condos she’s been feverishly building.
Even though we’re now essentially in June, the day was cold, wet and wintery. But as any Vancouverite will tell you, this only a small sacrifice to live in the Best Place on Earth. A minor inconvenience, if you will.
As I entered into UBC and drove passed some new buildings, I became confused. My navigation sense turned dismal. If you haven’t visited UBC in over 5 years, chances are you will not recognize this place either. Entire communities the size of the Olympic Village have recently been built multiple times over. According to U-Town, there are now eight emerging communities, with Wesbrook Village being the largest. Talk about inventory glut.
The Sales office at Wesbrook Village sat empty. Balloons walloped in the wind. I saw no people and no amenities, except for a Save-on-Foods. The villages felt like ghost towns; it was quite the sobering contrast to Rennie’s sunny and euphoric circus at the Olympic Village. But then we ran into a friend that I hadn’t seen in ages. It turned out she was living in one of these new communities and had an interesting story.
She is a first-time buyer that entered the market a few months ago during the climax of the buying frenzy. After getting bruised several times in bidding wars, she toughened up to outbid the hounds. Victory was hers, as were the keys to a new UBC condo for over $600/sq.ft on leased land. The conversation was very insightful:
Me: “What shaped your decision to buy in UBC?”
Her: “I bought this condo as an investment. UBC is quickly becoming a world-class university and is increasing its student capacity. There is always going to be strong housing demand from students and families. My goal now is to build a portfolio with as many condos as possible. You should really take this opportunity to own here.”
Me: “Actually, I’m really enjoying renting at the moment. I did own a condo, but then sold it in fall of ‘07.”
This comment stirred a puzzled reaction in her.
Her: “Why? Do you think the market is going to…”
For some reason, she had trouble finding the next word. Any one of “drop”, “fall”, “correct”, “tank” or “crash” would have done just fine. Instead, she silently motioned a dive with her hand. This was clearly a fragile person.
It utterly amazes me that someone with higher education would consider leveraging themselves to the moon in order to snap up as many condos as possible without even seriously considering a drop in prices. It’s no surprise to us that politicians, real estate agents, brokers, bankers and developers have failed us. But it’s sad that our academic institutions have not equipped us with the most basic of financial street smarts.
I look forward to The Great Cleansing ahead.
-crashcow
June 2nd, 2010 at 12:19 pm
@e jackson:
The debt is going to have to be repaid whether or not prices go down, and regardless of how quickly prices go down. The only way out is to sell to a greater fool, which simply passes the debt burden on to someone else. Continuing high prices do not make the debt problem go away.
And so what if there is no longer someone around to pay the inflated prices that today's buyers have paid? They still have the same house, and they're still making the same payments. They thought the house was worth the price when they bought it, so why should they complain about having to pay the debt back? If they din't have the resources to pay off the debt without selling to a greater fool, they shouldn't have bought in the first place.
June 2nd, 2010 at 11:32 am
@jim: Wow dude you are unnecessarily angry. You need some of that BC Bud to calm yourself down.
There are plenty of speculators out there that own 2 or 3 properties. Sure, that definitely exists. During the height of the bubble here, there were guys here who would buy as many houses as they could, and talk about how the strategy can't lose. I'm sure the same thing is going on in Vancouver.
But I guarantee you, a large portion are just regular people that want to live in Vancouver but can't find a way into the markets. They are the ones who are going to really get creamed, and they are the ones that will stop spending. And guess what happens when people stop spending: many, many jobs are lost. I hope you're not someone who loses their job because unemployment goes through the roof because people stop spending. That's what happened here, and the same thing will happen in BC.
June 1st, 2010 at 9:06 pm
@e jackson: You make this all sound like a big sob story, like all these buyers had no choice, like they were forced at gun point to buy… wah wah wah… Give your fucking head a shake, no one had to buy or was forced to buy anything. In fact, what do you think would have happened if they DID'NT buy? There would have been no bubble in the first damn place. I refuse to feel sorry for anyone that was dumb enough to buy in the last 3 years because they are part of the problem, they bid up prices and bought into the bullshit. What really pisses me off is that they will all go crying to the government for a hand out and bail out. People need to wake the fuck up here and realize that bubbles don't last, emergency rates don't last, the laws of supply and demand only go so far and then greed and stupidity take over and stupidity knows no bounds. Every friggin time I see some stupid bastard pull up to an open house driving a 10 year old piece of shit car worth 500 bucks that he probably is still making payments on, wearing about 13 bucks worth of clothing thinking that it is his God given right to own an 800K plus home because every other loser he knows is doing it and the stupid ass bank is willing to lend him the money knowing full well that within 5 years the dumb bastard will default on it but they don't give a shit because they would NEVER lend out their own money that recklessly, SHIT NO, it's the CMHC's money they are lending so why would they give a flying fuck, it's gauranteed by every man, woman and child in the country thanks to Jimbo, I shake my head and think "there goes another stupid bastard I am going to have to bail out in 5 years".
June 1st, 2010 at 3:42 pm
@Jeff:
If you needed some support for the 50% decline in San Diego…
http://www.doctorhousingbubble.com/wp-content/upl…
June 1st, 2010 at 3:25 pm
"If and when the housing market starts to drop, it will really hurt a lot of people."
GOOD. Sanity then may return.
June 1st, 2010 at 3:11 pm
One further thing, crashcow. I urge you not to be so smug about wanting a real estate crash. In Canada, the mortgages are recourse, meaning that people will be burdened with a large debt for a long, long time, especially in the Lower Mainland. If house prices drop, it will create an economic impact that will affect everyone.
At least in California, people had the option to walk away from their mortgages. In Canada, they don't have that safety net.
There are several types of people right now:
1) People who owned their homes for a long time and have lots of equity. Vancouver is filled with them, especially the older, richer areas in the West End. They won't likely move, so home prices are meaningless to them. My parents fall into this category. They have a $1+ million dollar house, but they scrape by with their pension checks.
2) People who still have mortgages but have some equity. They will be able to refinance after their term is up, but if interest rates jump, which is likely, their disposable income will be hurt. They will be pissed but they probably don't want to move anyway, unless they are ready to move up from a condo to a house.
3) People who have mortgages, but have zero equity because they bought too close to the top. These people are vulnerable to 2 things, negative equity in their homes, and increased interest rates. Either of these can cause these people to lose their homes. Negative equity is worse because they will need to dump their house because they can't afford to paydown their mortgage just to even be eligible for a new term. This is something that NO ONE talks about. I think people especially first time home buyers just assume that they will rollover their mortgage. They don't realize that the 20% equity still applies, which I think will bite a lot of people. These people will lose their home angrily and be indebted.
4) People who buy their homes for cash and are speculating. They are the least affected, but once they see house prices stop rising, they will likely dump their properties, leaving a huge glut for years.
If and when the housing market starts to drop, it will really hurt a lot of people. I've seen this far too often in the Bay Area. Many people who just want to get a place to live jump into the markets not because they are looking for an investment, but because housing is so oppressive that they just want the pain to end. They see housing get more and more expensive, and kick themselves for not jumping in earlier, and get caught up in the notion that housing is an investment, when it's absolutely not.
Like I said, many many people will get screwed, so I really hope their isn't a huge burst. I think probably there will be, just from the number of homes I see for sale on MLS, it's staggering. But I really feel sorry for anyone who is buying right now, I hope they are rich and can afford to buy all-cash so that changes in interest rate and drops in prices don't affect them much.
June 1st, 2010 at 2:01 pm
I'm a former Vancouverite, and am living in the Bay Area right now. I witnessed the housing crash first hand in CA. My friend sold his house in Stockton, CA for a 50% gain in one year back in 2005/2006. Another friend bought a house in 2001 for $300k, saw its value go up to $675k in 2005/2006, and then it's now worth about $280k. All the houses are down over 60% in that region, so I have a taste of what people think vs what will happen.
I definitely think Vancouver is in a bubble. The question is how much will be affected, and what will spur this bubble to burst.
In the US, unemployment ticked up, and once house prices stabilized and stopped climbing, it caused the first wave of owners to sell. Their mentality was that even if they couldn't afford it, they could hold onto it for 1 year and sell it for $50k and then use that for a downpayment elsewhere. Once that prospect declined, they sold or were forced to sell, which spurred the first decreases in home prices, and ended up causing a domino effect.
In Canada there isn't the same level of poor people buying houses they can't afford. But there is the same level of speculation, and the same level of delusion. House prices can and will drop in the Lower Mainland. However, this can go on for a long time before the speculators retreat because the easy money is gone.
I think there will be several phases to this crash in Vancouver.
First off, the condos will go first. There are far too many condos for sale, and far too many in the hands of speculators. When looking on MLS, it looks like people think that $450k is a good price for a 1 br-1ba condo. I think those prices could drop to $350k, easily, once the manic buying stops and the manic selling starts. It's hard to call the levels of inventory I've seen not panic selling. I heard a story of realtors only listing 25% of their inventory for fear of driving down prices. I imagine there might be a lot of shadow inventory lying in the background.
Single detached in the good areas, like Kits or Kerrisdale will likely go down, but not very much. Those will still likely be $1+ million homes. Everywhere else will go down at least 10-15%.
The second phase, which will be much more painful, is when peoples mortgages reset after 5 years. If house prices drop and remain at their dropped levels, those who bought at the top will find they will need to pay down their mortgage just to get a new mortgage! This happened a lot in California and around the US.
Because Vancouverites are already indebted to the hilt, they won't have the extra money to paydown, so they will need to sell. There will be a wave of selling, likely over the next 5 years, keeping prices low. Speculators won't step in this time, because they will wait for the market to bottom, which will mean even more inventory on the market. I think most of the demand is from speculators which means once they've moved on, there will be a glut of houses. This is what happened in the hardest hit areas of CA, a complete glut. I think once the house prices tick down, it will take 10+ years to recover.
In unemployment ticks up, then Vancouver house prices will be even worse off. What the BC government needs to do it create jobs jobs jobs. Get more people to move to Vancouver, and create some industry there that can add tens of thousands of more jobs, and you can sustain a decent housing market. Without that, there is no way these prices will be sustained.
June 1st, 2010 at 10:29 am
crabman –
LOL, SD for 50% off.. where in crackville? Show me where you can buy SD for 50% off, get real!
June 1st, 2010 at 7:48 am
@Jeff: Australia is in a bigger bubble than we are, and Honolulu is down 15% from peak to about $450k for the median-priced home (much less than Vancouver).
And as far as your "great places will never go down in price" theory is concerned – San Diego is a pretty nice place too. Prices there fell 50% from the peak in 2005 to the bottom last year.
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June 1st, 2010 at 5:11 am
[...] UBC condos on leased land – field report from the open house … [...]
June 1st, 2010 at 1:02 am
@Chilled:
Carney of course is an Irish name (i.e.neither AS nor P) which means "warrior" or "soldier" in Gaelic.
But maybe "looter" or "pillager" would be more appropriate in this context.
June 1st, 2010 at 12:43 am
What planet do you live on Jeff. Is this the same realtard Jeff? If so it's understandable that you have your head up your ass. Rates are going up and will most definately have an adverse effect on RE. Only an idiot would compare the price of paradise to a frozen rain forest. Hawaii and Australia is cheaper than Vancouver and far more desireable. A good argument for the return to fundamentals and they will return they always do. Thinking otherwise is like trying to despute gravity.
June 1st, 2010 at 12:16 am
Jim –
Thanks.. but great places like Vancouver will never go down in price. Just look at Australia pushing new peak levels, or Hawaii holding up extremely.
I tend to think that Vancouver will stop going up in price at the same rate as the past and maybe slow down to something like 0-5% per year increases over the next 10 yrs.
That will give incomes enough time to catch up to prices don't you think?
May 31st, 2010 at 11:59 pm
@Jeff:
When the economy improves interest rates will rise and make housing too expensive even for those with jobs. The US market started to crash while the economy was doing well and interest rates were going up to keep inflation
in check.
Canada's market has gone up due to timing. Prices were starting to crash in 2008 as interest rates were going up. The historically low interest rates stabilized the market in 2009. This current price increase is fueled by those same low interest rates, pent up demand because of , previous job uncertainty, future demand pulled back because of fear from increasing rates and changes in mortgage law. We should know
for sure by the end of summer, as sales should
drop off significantly by then.
May 31st, 2010 at 11:36 pm
End of day numbers, anyone?
May 31st, 2010 at 11:25 pm
@Chilled: "Just a prelude to what is to come for those with an MBA. A small room resembling a cell, eventually."
Or A cell, for economic crimes against humanity.
May 31st, 2010 at 11:12 pm
@oneangryslav2:
Moreover, this is a freakin’ rain forest, dontcha know.
I’ve never understood those who complain about the rain here. …….
I wasn't complaining; just pointing out the obvious.
I've never understood all the morons who pretend Vancouver has great weather! It doesn't; Vancouver has the worst 'weather' of any major city in North America. Oh ya, take a look outside, it’s raining. Big surprise! Of course we live in a rain forest! Lots of Vancouverites apparently haven't noticed. You know, everybody wants to live in a rain forest, especially condo dwellers – after all, when you have a 400 sq ft home, you never feel like going outside.
May 31st, 2010 at 11:11 pm
Jim –
I'm with ya my friend, everything you say makes sense.. but show me some proof.. we are in one of the most severe recessions and prices are going higher. What will happen as the economy improves? Isn't it only logical that prices will continue higher as people gain confidence from the economy improving.
May 31st, 2010 at 11:04 pm
Instead of speculators lets call them specustupids!
Interest rates go up, wages go down, supply goes up.
Hmmm, bitter specustupids make big dumb
May 31st, 2010 at 10:45 pm
Nice to see the realturds out in full force tonight doing the usual schtick… lying, manipulating and other bottom dwelling antics. The real panic in 2008 kicked in when inventory hit 20,000 we are within 1K of that number now. But don't worry realturds, your useless job of pounding in a sign and collecting $20K is still safe, if the market falls Carney will just lower rates… oh wait, already zero in real terms so that one is out. Maybe CMHC will backtrack on the new regs they implemented in April, no , that would make Flaherty look even more incompetent. I don't want to get into why long term rates will continue to rise because of LIBOR and government debt because your 5 weeks of education cannot possibly allow you to comprehend the concept. Higher debt per capita than the US at the peak of their bubble, highest debt level of any G20 nation, 3 of the most unaffordable cities in the world, more than 20% of all home owners stuggling to pay their mortgages while under emergency low rates… ah fuck it, let this mother implode and roll over all you morons in the process.
May 31st, 2010 at 10:22 pm
money will still be "free" for the rest of the year, not sure how 100 bps of rate increases are supposed to slow this thing down anytime soon?