The Black Swan

Every so often a market takes a dive, but they usually turn around. After a while it it starts to look like it’s hit bottom and a recover is just around the corner. The people with their livelyhoods tied to the market hold out hope of a turn around. Then oil starts washing up on the beach.

The phone call was short and to the point: A buyer who had agreed to spend $500,000 (U.S.) on a beachfront home with a stunning view of the Gulf of Mexico was backing out.

The cancelled sale was a blow to real estate agent Linda Henderson, but it wasn’t a surprise. Globs of thick, pungent oil are washing up on the shores of Alabama’s Dauphin Island, and the smell on some days is enough to drive the island’s predominantly senior population back into their homes.

It’s also enough to drive real estate agents to despair. “I can tell you that things have pretty much dropped to dead,” she says. “We were on track for our best year since Katrina. This is devastating – you can say that the spill killed the real estate recovery.”

Full article in the Globe and Mail.

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Anonymous
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Anonymous

I am 29, work as an engineer in the Vancouver area and make a little over 100k a year. I work with 600 other people many of whom make much more than I do. 100k+ salaries among people in the Vancouver area that are in their late 20's / early 30's are not that uncommon. Many couples I know are pulling in close to 200k. The average incomes don't come close to this, but as mentioned, a lot of people I know are pulling in a lot of income under the table. This is the competition for houses in Burnaby / Vancouver / Downtown / Richmond.

Ulsterman
Member

“but I would be willing to wager there is greater percentage of people in Vancouver looking to be RE investors (either speculative or long-term landlord) compared to anywhere else in North America.” I agree with VHB and his US Housing Porn comment. The original poster demonstrated amazing short sightedness if he really believes Vancouverites are the most property obsessed population. He should have lived in the UK or Republic of Ireland over the last 10 years. Getting rich from flipping houses usurped almost all other conversation. Every monkey was at it. As i've said before, my hometown of Belfast has become a much nicer place since house prices fell 40% over the past 2 years. The ugly swagger has gone from the people. Now no one talks about property speculation – it's a forbidden topic because you never know who… Read more »

VHB
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VHB

@Anonymous: credit cards.

bums up2
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bums up2

"You have to define some sort of index to measure collective inflation or deflation. Consumer price, wage, and asset price inflation/deflation are all different phenomena and can move in different directions"

You're confusing cause and effect and calling them the same thing. Inflation isn't a rise in prices; rising prices are however a common symptom of inflation, which is simply a net expansion in the supply of money and credit.

Prices change for lots of reasons. Scarcity, for example, has absolutely nothing to do with money supply, but if we were to have a severe oil shock it could move the price of gas up even if prices everywhere else were collapsing because we were in severe deflation.

http://globaleconomicanalysis.blogspot.com/2006/0

Anonymous
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Anonymous

@anonymous456: What you say your about experiences doing people's tax returns is interesting. We keep hearing about 40k average incomes and no "big employers" in Vancouver. When i'm out and about i cannot help but wonder where people make all the money they do to allow them to "live in that house / drive that car / buy those $200 jeans etc" It MUST be the level of comfort people have living in debt that allows them to spend so lavishly. I just took my 9 year old to see Star Wars in Concert at GM Place – very impressive show. However, it's amazing how much everything costs, and yet so many appear to have no problem paying these prices: Ticket $75, "event parking" $25, child's Star Wars T-shirt $35-40, soft drink $4-5, mini doughnuts $5, event program $30!!! Now… Read more »

Whitebear
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Whitebear

http://tinyurl.com/343lg8t This is the killer scenario that I hope every night before bed that I won't wake up to this. IMO, it's not about the fundamentals of the absurb valuations in Vancouver. It's about the resolve governments will attempt to kick the can down the road. Those bearish on the real estate, are you prepared for such scenario? Check out the latest news on the US housing market and what do you think the US administration will attempt to do next? We can easily be looking at a situation where the nominal prices is up 2x from here while the real prices loses > 50%. The Canadian government has not even gone the quantitative easing route yet as the US, EU, the UK did. That's a route that I can guarantee they will take if housing really craters in a… Read more »

patriotz
Member

@vibe:

Just because prices rise in some asset classes doesn’t mean deflation is not occurring. The value of money must either be increasing, decreasing or staying the same, it’s a tautology.

There isn't any such thing a a global objective "value of money". Only the prices of individual goods, services, or assets. You have to define some sort of index to measure collective inflation or deflation. Consumer price, wage, and asset price inflation/deflation are all different phenomena and can move in different directions. When they do you can't really say objectively that there is "inflation" or "deflation" without qualification.

Of course at times they do all move in the same direction, usually up, but sometimes down (early 1930's, Japan less severely recently).

bridgeman
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bridgeman

YUPPIES = Young Urban Professionals

That is where the term originated in the 80’s. (along with parachute pants on civilians) also DINK’s = Dual Income No Kids.

They were negative terms for people who were probably having more fun than the people who lobbed them.

Think Bud Fox in the movie Wall Street.

Ironically, there are a lot of young urban people in Vancouver, but not a lot of young professionals- this aint exactly manhattan.

Salisu
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Salisu

@huckmeabone: Wherever there is a vacuum – economic or political, outside forces will move in. It is only a matter of time before the true shade of Chinese intentions in British Columbia, beyond "investing in RE" emerges. The Chinese invasion is subtle and silent but salient. You only realise it when everything you see is tagged, ‘Made in China’ and English is officially SL in BC.

Anonymouse
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Anonymouse

@crashcow: "@Anonymouse: OK, looks like you agree on the first three points. Let’s discuss the fourth…" I only conceded on the one point about how investment mentality was as strong in the U.S. I stand by every other argument I made. Its interesting that everyone here tries to dismiss the "its different here" argument. You have to keep in mind that in reality, every city, every market is different in some respect. There are many places in the U.S. that did NOT experience the RE boom from 2003-2006 (nor did they experience the ensuing bust). In the bust some cities dropped 40%, some 10%. Even within the same city certain locations experienced different conditions. Every place IS different. That is not to say that any particular city is immune from a bust but there is always a unique set of… Read more »

Not Again
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Not Again

@huckmeabone:

I thought you were going to stick to real estate.

huckmeabone
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huckmeabone

Hey PC assholes you may want to watch the CBC Expose on CSIS.

They confirm everything that the rest of us have been suspecting for years!!!!!!!

China aggressively spying, influencing and recruiting other chinese within Canada. This includes Canadian politicians.

Tony Danza
Member
Tony Danza

@Anonymouse: Is this a new development? Not sure how long you've lived in Canada but Vancouver has always been located where it is today, so has Montreal and Toronto. So what's different this time?

Anonymous
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Anonymous

@VHB:

I remember the show called, "My House is Worth What?!" on HGTV. (Hosted by Kendra whatever the name was… who won the Apprentice several years ago)

That was the pinnacle of the US puffery.

crashcow
Member

@Anonymouse: OK, looks like you agree on the first three points. Let’s discuss the fourth… Your argument is the classic “Everyone wants to live here.” That the price elasticity of demand for Vancouver real estate is low because there are few good substitutes for this ‘pristine paradise.’ But I say to you and all prospective buyers – you can have your cake and eat it too. You don’t need to buy to live here, rent! But of course the herd never wants to rent during a housing boom. It’s clearly documented that during the housing boom in the US, Americans had the motto ‘ownership is kingship.’ But after the peak in ’06, ownership suddenly felt like a ball and chain. The herd’s mindset will change here in Vancouver too. All it takes for a bubble to burst is for price… Read more »

Absinthe
Member
Absinthe

@Anonymouse: I have American relatives who are lovely people, but who are my canaries in a coal mine. They have been taken out by every bubble there's been. They currently are locked into three investment rental houses in an upscale coastal market, and they're losing month over month. What they're learning is what the Vancouver rental market is beginning to learn. 1) Rents are tied to incomes. 2) In a bubble, every owner thinks they've got a Spectacular Luxury Home that will bring in Above Average rents.(Just like everyone thinks they're an above average driver.) Granite isn't *actually* as big a deal as people think to the renting public. Price and location, space and light, silence or noise tolerance, pets or no pets – these things matter. 3) Like any business, being a landlord requires planning, work, specialized knowledge, and… Read more »

HappyRenter
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HappyRenter

A 24 year old making 110k in this city is an anomaly. I think a person getting into a trade, real estate sales or drug dealing right out of high school would more likely be at that income level than a recent university graduate. Interpolating statistics for average income by age would indicate the normal 24 year old in Vancouver likely makes between 30 – 40K.

Recent graduates are having an incredibly hard time finding decent work as the employment situation remains bleak. The reality in this city is probably less than 10% of the 24 year old demographic can afford to buy a home without a massive cash infusion from parents.

Dave
Member

@jim:

You do realize that listings expire don't you? Before you go off on a rant and start calling people stupid, you might want to get your facts straight. mmmmmm…k?

realpaul
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realpaul

What we've seen in all real estate downturns is people rushing on a collapse and buying, but then they get burned too. In the 80's we had ten years of slow motion collapse where investor after investor had thought he'd bought at the bottom only to be proven wrong. It took twelve years to bottom out before we had a two year flattening trough where the market was stable. Then the government stepped in and played silly buggers with the market. Canada will not publish its debt to GDP figures but most other western countries are 125% in the hole. The USA continues to dig itself into a hole which they admit will be technical insovency at 125% by 2015 at the current rate of deficit spending. A spectacular feat for a peacetime economy. And here we are in little… Read more »

Boombust
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Boombust

A professional is generally a person who is “prescriptive”. They can select a course of action/treatment that will. hopefully get a job done.

Teachers, doctors, lawyers…

Whiteman
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Whiteman

@Boombust:

Nurse are not professionals. Why did people vote him down? There is only a handful of jobs classfied as professional and nurses are not one of them. Doctors however are. Real estate agents are not.

Professionals were designated by the Royal Charter.

AACI
Member
AACI

Kafka says: “@AACI: Well, that means your assessment hinges on: 1. Carrying costs rise 2. Mortgage rates rise Really this is what the bears and bulls differ on in terms of their rational expectations of these two variables. A more interesting question is how these two move together when you include, say a unit’s own rental suite into the mix.” I’m not sure what kind of distinction you are trying to make between 1 and 2? IMO they are equivalent for all intents and purposes within the context of this discussion since we are really only considering one variable that has the potential to shift substantially (carrying costs of mortgage financing). Also, my assessment is not contingent on higher rates in the future, fundamentally the market is already (has been for several years) unbalanced. A rise in carrying costs will… Read more »

Junius
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Junius

#92 Whitebear,

Good grief. Another full of bull who can’t add and doesn’t understand statistics. Listings outpace sales every day for 3 months but somehow we pop back into a sellers market because of a con job done on the weekend to try and convince people Van Re is back.

New term – Deniabull. A bull living in total denial of the current collapse of Real Estate in Vancouver.

It is different here. We have more stunned Bulls and Greater fools than anywhere.

crabman
Member

@Anonymouse: Deal! And if you are right and Vancouver doesn't drop much more than 10%, I'll invite you over to my (future) home in Seattle or Portland for a pint!

Anonymouse
Guest
Anonymouse

@crabman: Agreed. Actually some of those friends who invested bought at the peak 2 years ago and are burned a bit right now. Its always the ones late to the game that get hurt. But even with those stories I still know people who want to invest!! Look, I'm not here to say that you are all a bunch of idiots. I come to this site regularly and enjoy reading the insight here(helps to validate that I am not crazy). I'm just saying that I am doubtful of a huge 40-50% crash. Now, if I'm wrong I will gladly come back to this site in 2 years and invite you all to my $600k Cambie house and we can share a pint (or a cranteeny!) on my back porch and have a good laugh over how wrong I was. I… Read more »