‘Value’ is forever.
There are two ways to think about a purchase – you can focus on the price, or you can focus on the ‘value’. Local developer James Shouw points out that you shouldn’t really worry about all the numbers and stats because ‘Value’ is forever.
For example, in April, 2009, the number of real estate transactions both declined and increased locally.
The headlines focused on a year-over-year decline, news that would have certainly concerned real estate agents, but that should not have concerned real estate owners: whatever took place in April 2009 was not a reflection of value. In fact, in that month, the number of transactions increased more than 30 per cent from the previous month and the value of the average transaction increased three per cent.
Those numbers offer important lessons. As a developer, I’m primarily concerned about value. As a real estate broker, I’d likely be more concerned with volume. Value and volume can fluctuate in parallel, or in opposition, depending on underlying market dynamics.
There’s more. You can read the whole thing over at the Vancouver Sun. See if you can find some value in it.
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July 5th, 2010 at 4:13 am
Of course, the seller – of anything – is primarily concerned about the price he receives for what he sells. It’s the buyer who is concerned – or is supposed to be concerned – about value, which is utility (measured by market rent in the case of RE) compared to price paid.
And the Alice in Wonderland logic follows from this.
“Price is what you pay, value is what you get”
- Buffett
July 5th, 2010 at 5:35 am
They have no fucking idea what value is. They keep thinking value is price, but it isn’t. Price is what you pay (or receive) for something, value is what it’s intrinsicly (sp?) worth. That’s a rookie mistake that invalidates anything they could possibly write afterward. Thinking that price equals value is also the mistake that leads to those inflated RE prices imho.
July 5th, 2010 at 6:38 am
He never defined value. He just talked about it like it is the force or something. Jedi developer can see the future apparently.
July 5th, 2010 at 6:47 am
“jedi developer” – that’s comedy gold!
July 5th, 2010 at 7:00 am
I read it but then I realized I already read it in Rich Dad Poor Dad. This
Guyguy says all sorts of stuff but can’t figure out how to cogently tie them back to his thesis: that prices will go up in the long term. (At least I think that’s what he was saying.)But one thing is certain. Shouw is reading local blogs like this one. He’s just in denial what the crappy sales numbers really mean for the market and his livelihood.
July 5th, 2010 at 7:33 am
As a developer you are only worried about risk. What are the odds the market could tank once I commit a ton of cash over X amount of time and will I possibly go bankrupt if they don’t sell. That is all a developer truly cares about. The rest is just BS.
July 5th, 2010 at 7:42 am
Warren Buffet once wrote, “Price is what you pay, value is what you get.” I think this is where Jamie gets his thesis from. However the article doesn’t really convince.
There is no question that we often value things well beyond their functional value. Look at art, for example. Or even diamonds or other rare jewels. However even in these purchases there is an implicit sense that there is a strong potential resale value as others will see things these same way or more so in the future and the piece will appreciate as so many do.
The problem with using this comparison to Real Estate is that it overstates the premium people are willing to pay. If I buy a penthouse in Grace for $10 million am I not presuming that there is another buyer out there that would do the same when I want to sell? Or at least $9 million so I get my enjoyment for years followed by only a 10-20% loss on my property?
His problem is that he is not selling anything something unique enough to provide the value he is writing about. Prices are set by a comparative. Comparatives include properties in Coal Harbour and down the block from his. Never mind around the world in better climates and more worldly cities. He is not creating the value – or enough of it – to make the case.
The type of value he is discussing requires both uniqueness and scarcity. In the Real Estate world this is reserved for the very rare estates around the world in the many millions of dollars. It does not apply to fancy condos in Vancouver. There is always something newer and better coming next year.
July 5th, 2010 at 8:16 am
@Junius:
I will put the point a bit more concisely and bluntly.
The writer is denying there is such a thing as objective value for RE. There is – it’s the market rent.
In denying objective value, he’s claiming that price doesn’t matter, which is what all bubble deniers say.
Well price does matter. Excessive prices are the cause of all asset busts.
July 5th, 2010 at 8:16 am
For some reason, the words “value is forever” attracts all kinds of weird spam. Go figure.
July 5th, 2010 at 8:29 am
I had a great time this weekend hanging out in David Lamb park ( former Yaletown Live City Olympic site), enjoying the great jaz music. Downtown is definitely where the action is. That`s what I call value”!!
July 5th, 2010 at 8:33 am
Totally off topic but even in movies, people are stupid. Watched Brooklyn’s Finest yesterday (pretty good movie) and in it, a good cop was doing bad things because he wanted to secure a down payment towards a new home as his pregnant wife was getting sick from the mold in the house that they are living in.
He is a religious man and felt really guilty about what he was doing (the bad things) but yet he could not get himself to getting the family out of that place and perhaps rent?
I know it’s a silly movie but the point is, home ownership is regarded as ‘the only option’ and anything else is just not good enough. And in the case of the movie, it was important enough for a good person to do immoral things. Sad thing is, self-caused pressue happens in real life as well.
July 5th, 2010 at 8:47 am
If the author really believed what he was saying, why would he be selling any of his inventory?
July 5th, 2010 at 8:50 am
@Junius: “Price is what you pay, value is what you get.”
And what you get is an asset that under performs other investments by almost every measure…at least at these prices…
July 5th, 2010 at 8:53 am
The value of an article that plays the population growth card is nill. Sure, metro Vancouver population may be growing at a rate of 50,000 per yer but in Vancouver population growth has been minimal. Between 2001 and 2006 according to Stats Can Vancouver’s population increased by 32,370. That works out to an average of 6474 new people in the city each year. I would expect this trend to continue.
When I can buy the $440k one bedroom 600sqf condo that is for sale in the building next to me for less than $175k than I’d consider that good value.
July 5th, 2010 at 9:04 am
#8 patriotz and #13 “A-Sharp” Accountant,
Clearly I agree with you both. I do appreciate Mr. Schouw’s attempt to build distinctive real estate in an otherwise highly commoditized market. I believe that he believes his arguments are salient.
What I find interesting is that he starts by trying to differentiate Vancouver Real Estate and perhaps his Real Estate from the global marketplace then slides into a standard supply and demand argument.
Van Gogh’s paintings are unique and scarce AND widely regarded as genius. Therefore they are extremely valuable. There is no comparison between this sort of value and 99.99% of Vancouver Real Estate (I can’t think of the 0.01% but I allow for it!).
The scarcity we now face is in affordability and a sustained quantity of cheap debt. As affordability erodes it will take prices with it. It is now inevitable.
July 5th, 2010 at 9:04 am
Speculative bubbles can occur when you use short term financing to purchase a long term asset during a recessionary period.
During a recession, people cut back on expenditures and become adverse to risk. Most prospective purchasers become unwilling to take on long term debt and reduced the time to pay back debt. For a house, that meant a prospective purchaser was now only willing to take on a house debt for 15 years, rather than 20 or 30. (This is NOT the amortization period, this is the time that a prospective purchaser wants to become mortgage free)
Go back three years, BC was not in a recession and people were willing to take on long term debt. People felt good about their future and the housing market was not in a speculative bubble. Which is different from today, as consumer confidence falls due to social, economic and political factors.
And thats what is happening to prospective purchasers. They are becoming less and less willing to take on long term debt. The potential buyer is still willing to pay $2,100 per month for a home – but now they want the home paid off faster, and that causes prices to decline.
It is simply the “Time Value of Money”
That doesn’t mean that our prices will fall back to three years ago, that does not in itself correct the bubble. Prices will fall until people reassess the risk in purchasing real estate.
That could be a pay back period of under 10 years, as opposed to around 30 years today. A time when once again the social, economic and political fundamentals of real estate are again positive.
July 5th, 2010 at 9:05 am
Bear always dismiss expert opinion. Well look around you bear. Are you really expert in real estate? How could you be expert since you rent shithole basement with mold growing? This blog like big TDF crash right near finish line. Everyone expect big name sprinter to win but Cavendish crash out like girl, Frarar taken out by retard and Italian has been win. Everyone expect frarar or cavendish to duke out but italian win instead which is what happen everytime for your prediction bear. You lose everytime.
July 5th, 2010 at 9:09 am
So June numbers for the SFH are up (I am cherry picking just like the bears, and will ignore condo values)!
But wait, didn’t they decline last month (despite the increase in attached and condos last month), and that was the signal for the collapse of the market? Didn’t a bunch of yobs go on record and state definitively that the collapse had begun?
So a 69% list/sell ratio this week is bearish is it now?
So the expiration of a 1000 plus units is bearish is it? That declining inventory is bearish?
I know, I know bears…I “just have to wait” to see the “collapse of the Vancouver market”
I know – you waited for the market to collapse after the Olympics; after the expiration of the April 19th mortgage rules; you are waiting got the collapse following the implementation of the HST….
You bears sure do a lot of waiting….I guess it helps you rationalize your wrong predictions for the past 8 years…
July 5th, 2010 at 9:10 am
I finished reading “Ship of Fools” last night, about the Irish boom (and then crash). One interesting study done by an economics professor at Dublin University detailed the pattern of crashes. Nothing new here, he pointed out how a “soft landing” as touted by government and the media never happens after a bubble. And why not? Well, if prices are expected to level off, speculators suddenly realize that it no longer makes sense to hold onto that negative cash flow condo, thus there’s a rush to the exits.
He also points out that when prices aren’t rising, there is no panic to buy, especially when renting is far cheaper than buying. He points out “For 2000 euros per month you can pay a mortgage on something in a muddy field on the wrong side of Celbridge, or you can rent a 1 million euro house in southeast Dublin, close to the Dart line and surrounded by good schools. Once people put off buying in favour of renting, prices will not stabilise, they will crash.” Hm…that’s exactly what I figured when renting a condo for at least $1000 less than what it would cost to buy (even with $50k down). When more people in Vancouver start to realize prices aren’t going up, I expect we’ll see more turn to renting, fewer sales, then a crash.
July 5th, 2010 at 9:13 am
@Rob A.: I had a great time this weekend hanging out in David Lamb park ( former Yaletown Live City Olympic site), enjoying the great jaz music. Downtown is definitely where the action is. That`s what I call value”!!
I totally agree with you.* And when I think “jazz”, I automatically think Vancouver!**
* given that you define “action” as “overpriced shoeboxes”.
**given that you defined “jazz” as “lack of foresight”, or alternately “Vancouver” as “Montreal”, “New Orleans” or “New York”.
July 5th, 2010 at 9:43 am
@Delusional Bears: You don’t have to wait for crash. Last week crazy chicken bear actually said the INCREASING price is sign of crash because greatest fools paying too much. You can’t win against bear logic, magic 8-ball always point to crash.
Bear always trying to predict FIFA hifi outcome based on one corner kick, just like housing market.
July 5th, 2010 at 9:46 am
@Gordon C.:
Prices will fall until the risk makes sense for the price paid. Though on the way those who don’t reassess (read: understand) the risk will be burned.
Here’s food for thought: what’s going to happen to those who took out long term debt 3 years ago when there was, according to you, no speculative bubble? They may not have thought they were buying with speculation but it turns out they did.
July 5th, 2010 at 9:46 am
How much have the new CMHC rules affected real estate sales?
In many places, YOY numbers are down as much as 20-30%. Investors can no longer put down 5% on properties, it is a lot harder to buy a home with a suite (affordability down 25% on one analysis I saw), and certain buyers must qualify under fixed term rates instead of variable.
I think it has had quite a bit of impact.
July 5th, 2010 at 10:00 am
@Gordon C.:
Do you have stat to back up claim? I don’t think this jive with average buyer and the 35yr crowd. Wishful thinking good though. But it did not work for Argentina. Ask Run Buddy Run.
July 5th, 2010 at 10:18 am
@Gordon C.:
Why don’t you give us your definition of “speculative bubble”, as it appears to differ from ours.
Also note that exactly 3 years ago was the market top in Alberta. Prices have still not come back to that top, and prices in Calgary/Edmonton (with similar rents and higher incomes) in 2007 were lower than those in Vancouver.
Do you think that Alberta was in bubble in 2007? If not, why did prices go down? Note that the price of oil kept rising until summer 2008.
July 5th, 2010 at 10:33 am
10,000 ++ on the ‘waiting list’ for subsidized housing? $45,000 per year and can’t live in Vancouver? Whats happening with that law suit that found that huge numbers of social housing units at cheap subsidized rents were filled with civic workers? Still active at last glance.
http://www.vancouversun.com/bu.....story.html
It appears that the socialists want to fill their pockets while screwing the poor. Is the fallacy of ‘we’re #1′ in an ‘international city’ really just a ruse by the city council to drum up revenues, that are going into spirally wage and benefit demands. Selling the housing stock to foriegners has depleted the stock for those who live here…and why? Is it to hoist the nasty hypocrite socialists closer to their visions of financial grandeur without actually deserving the lifestyle they covet?
In the US we see what national socialism is doing to the ‘value’ of housing stock while ‘unionism’ and ‘community organizing ‘ reigns supreme.
And Fry Cook/Shithouse Swabber… I agree with you for once…survival of the fittest….excellent idea.
July 5th, 2010 at 10:41 am
@G:
I think to some degree you’re right, which is what the new rules were intended to do. But make no mistake, CMHC rules cannot permanently keep prices high. Changing the rules merely reduces the risk of significant economic fallout.
July 5th, 2010 at 10:45 am
Brief translation of developers promotional article.
“It’s different here”.
“Vancouver is special”.
July 5th, 2010 at 10:50 am
@Delusional Bears:
I agree. Vancouver real estate will go a lot higher from here. In one year, people will be paying $2,000,000 for those westside bungalows that currently list for $1,200,000. Two years from now we will be at $3,000,000 for those bungalows.
Any bears who think this won’t happen, look at the last 5 years. You’v been wrong. I’ve been right.
July 5th, 2010 at 10:59 am
Come on Bears, feel the value. Bear don’t, but bear small number, just like skinny kid in pool get sloshed around by fat kid doing cannonball. Prices going up anyway. This market like Twilight vampire, coming back from dead. V stands for Value not Vancouver Condo, just like diamonds are forever. Where diamond prices in last 100 years? That’s right, up and to the right. Bears, take advantage of buying opportunity before crazy spree after FIFA final game. Maybe also time to buy diamond to say sorry to wife for living in basement for past 5 year. Also, take her for ride on bike to beach to listen to Jaz (but not Jazz, because you can’t afford it)
July 5th, 2010 at 11:04 am
Is it possible for the administrators of this site to block the IP addresses for Supersmartbull and a couple others?
There are a few on this site who are ruining the discussion. This place used to have some pretty insightful discussions.
A Bullish perspective is welcomed, but these guys are completely wasting time and space.
July 5th, 2010 at 11:09 am
Says the hilarious developer:
“I AM NOT A CHEERLEADER”.
So Nixonesque. Shake those jowls, buddy.
July 5th, 2010 at 11:20 am
Uh oh bear listing drop off cliff as price climb again and mortgage rate plummet. All sign point to real estate take off like Lance up alps. Does it mean that bear wrong again? How could bear be wrong so many time? What bad luck bear.
July 5th, 2010 at 11:29 am
G: I quantified the change in purchasing power for a family income of $100k and various rental rates at various interest rates. It’s not an absolute figure like 25% because it is so dependent on the relationship between original household income and the rental earnings of the unit.
See link: http://pissmeoffvancouver.blog.....asing.html
July 5th, 2010 at 11:32 am
“A Bullish perspective is welcomed, but these guys are completely wasting time and space.”
And skin.
July 5th, 2010 at 11:35 am
“Value is forever” = WIN!!!
Great title, Pope, but I doubt even James Bond and the entire British Secret Service could save us now. The sharks with laser beams on their heads are upon us. Save yourselves!
July 5th, 2010 at 11:36 am
@Mike: Bear anytime anyone post bullish viewpoint it voted down faster than FIFA worldcup goal kick. This blog is bear circle jerk only. Not one bull post ever voted up. This blog about loser bear feeling better about being wrong for many year.
July 5th, 2010 at 11:44 am
I am not a [racist, homophobe, sexist, etc.] but those [racist, sexist, homophobic epithet] are ruining this [country, neighbourhood, etc.]
Up is down, black is white, doubleplusgood muthafuckas!
July 5th, 2010 at 11:48 am
…in reference to ….”I am neither a cheerleader for madly buying real estate nor an advocate of a wait-and-see attitude.”
July 5th, 2010 at 11:50 am
@Mike: This site losing steam like non-steroid TDF racers up Alps not because of bull comments, but because nothing left to say for bears. Bears have given all reasons for crash and discussed 40 times in last 5 years. Still market going up and still bears talking. And bears not open to other view, just like Maradonna will never like Pele. Maybe Mike thinks groupthink is same as insightful discussion? Bears think RE market is simple. Bull/Bear and Crash/About to Crash. But just like picking FIFA winners, not that simple. Only simple thing is rent cheque due every month.
July 5th, 2010 at 11:57 am
@Junius:
……Van Gogh’s paintings are unique and scarce AND widely regarded as genius. Therefore they are extremely valuable. There is no comparison between this sort of value and 99.99% of Vancouver Real Estate (I can’t think of the 0.01% but I allow for it!)……
And, let’s call a spade a spade: absolutely no one on the planet would buy a Van Gogh at current prices if they didn’t believe that it was going to appreciate in value – oddly enough, just like the current crop of morons who buy RE in Vancouver – the irony being that those morons would be much better off pitching in to buy a Van Gogh!
July 5th, 2010 at 11:57 am
@superduperbulltime:
“Not one bull post ever voted up.”
When it comes to Vancouver real estate there is no such thing as bulls, only worthless cheerleaders.
Stop whining.
July 5th, 2010 at 12:02 pm
@Mike: It’s been tried before banning bulls. Eventually the bears start attacking each other and then posts and traffic tail off, and the bulls are brought back. It’s a cycle like real estate. A lot of the bull posts are funny if you have a sense of humour.
July 5th, 2010 at 12:15 pm
There are no soft landings in a world of Low yield.
If properties Cashflowed strongly at today’s prices then we would not be calling this a bubble.
July 5th, 2010 at 12:16 pm
Mike:
“There are a few on this site who are ruining the discussion. This place used to have some pretty insightful discussions.”
Here are a few questions for you and the regulars to ponder:
1) Do you think CREA / RE developer wants every prospective purchaser googling Vancouver Bubble to come to this site and scare themselves out of buying?
2) Do you think anyone would persist with extremely frequent postings (voted down and ridiculed) without an ulterior motive?
3) Do you think that the intended dilution and cheapening of this site by these guys is working?
July 5th, 2010 at 12:23 pm
@Superfly: Your tin foil hat has hole. Maybe make new one with double foil.
July 5th, 2010 at 12:23 pm
3) Do you think that the intended dilution and cheapening of this site by these guys is working?
While I don’t believe there is a nefariously plotting cabal of nogoodniks, there is a confluence of interest in keeping the bubble going as you indicate. I’d love to know what skin superbull and his sockpuppets have in the game.
July 5th, 2010 at 12:52 pm
can anyone explain whats up with this “supersmartbull/superdupersmartbull” guy and he wastes all of his day making worthless posts on this site?
July 5th, 2010 at 1:00 pm
Do not feed the trolls. If you don’t like Pope’s implicit commenting policy, start your own blog.
Time to be merry! The 18K Inventory Party the Sequel is coming up very soon!
July 5th, 2010 at 1:01 pm
This site is basically the only place on the internet that people can get informed on the ponzi scheme that is Vancouver real estate. It would be a shame if all this drivel drives away people who legitimately want to decide about buying or not. I say ban some of the worst offenders not because they are bulls, but because they are trolls
July 5th, 2010 at 1:01 pm
Sam – see post 50.
Specuskeptic – blogs like this can be powerful in turning public opinion. Ask yourself what you would do if you were in the business: ignore it and hope it comes to nothing? Why not try to counter it?
Superbull – ahh the tin foil retort. I know you can do better than that!
July 5th, 2010 at 1:07 pm
@sam:
It is a typical behavior of semi-retarded individual who’s desperately trying to get attention/compassion from the group of people that he sees as role models.
July 5th, 2010 at 1:08 pm
Another awful article to make the FTB feel secure:
http://www.news1130.com/news/l.....-in-canada
July 5th, 2010 at 1:14 pm
Link to stats.
“prices have eased back” since april, but I can’t for the life of me find where they disclose how much?!
http://www.mikestewart.ca/blog/2010/07/ … s-package/
maybe you can.
July 5th, 2010 at 1:18 pm
Do bears think it is easy for Bull to discuss RE with crazy paranoid bear? SSB will take rest of day off. Let’s see how much good comment come from Specuskeptic, Sam, PRCA, BPOM that does not involve crazy conspiracy theory and amateur armchair psychology.
Here is last tip for bear who can at least make good comment. You need new blog to get rid of silly paranoid bear who add nothing to blog, not even laugh. Just Debbie Downer.
Also, don’t forget rent is late.
July 5th, 2010 at 1:19 pm
Ah…here we go.
Enjoy Bears
http://www.rebgv.org/housing-p.....2010-06-01
For those of you who said “Average does not matter at the beginning of a downturn”—BANG ON!!
July 5th, 2010 at 1:22 pm
@superfly, regarding “3) Do you think that the intended dilution and cheapening of this site by these guys is working?”
It killed two blogs in Calgary.
July 5th, 2010 at 1:27 pm
“Also, don’t forget rent is late”
are you talking to me? fyi, im a home owner, have been for the past 20 years. and ill be the first to tell you that the land i own isnt worth half what some idiot like you would pay for it.
July 5th, 2010 at 1:29 pm
As a person who currently has a bear perspective on real estate I appreciate the discusions here very much. It is also encouraging to know that I’m not the only one in this city who thinks people here are nuts about real estate. I mean who commits to 25-30 years of debt payments during one of the biggest financial crisis’ since the great depression. Only seriously delusional people I say. Apparently though we’ve alot of those floks around this area!!!
July 5th, 2010 at 1:36 pm
@Woodrow:
Another useless article short of specifics.
“First time buyers are also more likely to make a down payment greater than 20 per cent, compared to the rest of the country.”
Great, what percentage of FTB’s would that be?
Is it 3% vs. the national average of 2%?
Idiots.
July 5th, 2010 at 1:48 pm
@“A-sharp” Accountant:
Benchmark prices down across the board.
Right on schedule, April was the peak.
July 5th, 2010 at 1:57 pm
@jesse: “Time to be merry! The 18K Inventory Party the Sequel is coming up very soon!”
………………
When?
I thought we are @<17K at the moment.
Both recent buyers and sellers not relisting their properties on MLS cited inflation that will only get worst. People have been paying more for foods, utilities and taxes and salaries have increased except minimum wage.
July 5th, 2010 at 1:57 pm
Wow!
Greater Vancouver Benchmark dropped $10k or just over 1%.
West Side detached down $90K or 5%.
West Van attached down $77k or 11.5%
Send up the bat signal over China!
July 5th, 2010 at 2:00 pm
@Superfly: Great points. I think they are cheapening the message board component of this site. I think the administrator does a very good job of maintaining timely, relevant topics.
I’m all for freedom of speech. I’m also all for the right of an owner to remove patrons from his/her establishment.
I welcome bullish points of view. God knows that I would rather be right than wrong. I’m constantly looking for points of view which challenge my assumptions.
That said, somare are polluting this board with their foolish taunting of “bears”.
July 5th, 2010 at 2:01 pm
Intrest rates ar irrelevant says Garth. Yes indeed, even the lowered rates are watching the market fall, the cat is out of the bag and the bullshitters are out of yarn.
http://www.greaterfool.ca/
The rising inventory will do what the whores have been fearing. The dearth of buyers is causing nervous vendors to reduce. This pattern will continue. Now that the kool aid of artificial rates has been drained down the pissoir and reality has returned we are seeing the recession never went away, it had been hidden behind a smokescreen of debt…. with taxpayer money. The proper thing to have done would have been to let the market correct and let the greedy pigs re adjust themselves to what their ‘true value’ is.
See you bulls at the bottom. I wear black shoes by the way, I’ll expect to see my face in the shine if you expect to get paid. I’ll be the one offering your a quarter of what you’re asking.
Why a quarter you ask……because I forecast that we will chop the hyperbolic arc off the price chart and reprice real estate in Vanc back to 1995 levels before this plays out. This will accomplish a perfectly normal Keynsian ‘return to the mean’ and show a rough 2% p/a appreciation on the long term graph.
This will lead to much screaming. Revenues for local governments will plummet. But the feds know that it is nessescary to ‘re-price’ if they are to survive. Britian is already taking these steps to take the market back to pre bubble territory..thay are adjusting down 33% to 50%. This is coming…don’t doubt it. Either that or hyper inflation takes over, and the Feds don’t want that. We’ve hit the wall bulls, the game is over, time to get smart.
July 5th, 2010 at 2:06 pm
@Best place on meth:
I cant wait to see Abbotsford’s numbers.
…I’m also very very glad I sold my squamish condo in May 2008
July 5th, 2010 at 2:08 pm
Sorry for the noob question but when those numbers are reported for the Housing Price Index and it reports 3 year at +5% is that figure a compounded rate (5% per year for 3 years) or is it simply reporting that the price is up a total of 5% over three years (~1.75% compounded per year for 3 years)??? thx
July 5th, 2010 at 2:14 pm
To be fair, the origin of every bubble is a good fundamental story. The bulls can point a number of bullish factors:
1) Vancouver real estate has always carried a premium.
2) The city, with it proximity to the mountains, ocean and US border attracts people from Canada and abroad.
3) The foreign buyer and China is real, the extent to which we can argue. I live in the same North Vancouver neighbourhood that I grew up in. I can tell you first hand that the ethnic make-up of the schools has changed significantly. It is much more noticeable in the West Side, let alone Richmond.
4) Vancouver has the best weather in Canada, despite the rain. Try living in Calgary…I have.
5) Many professionals are attracted to Vancouver’s quality of life.
I think most agree that the bearish factors far outweigh the above noted bullish factors. I think the bears can appropriately link the run-up in prices to deteriorating credit standards and artificially low interest rates. We disagree on value.
I’m happy to be proven wrong.
July 5th, 2010 at 2:16 pm
@realpaul: Why would revenues to local governments plummet with falling RE prices?
July 5th, 2010 at 2:27 pm
Is anybody here able to track the new list vs relist ratio? It would be an interesting stat to have.
July 5th, 2010 at 2:39 pm
@Mike: “The bulls can point a number of bullish factors:”
I’ll assume you’re new here but here we go again. All your cited factors go some way to explain why prices are high compared to incomes but cannot explain why prices are high compared to rents. That is, Vancouver is an expensive to live in at the best of times, but is currently way more expensive to buy in. That is bass-ackwards — renting should normally carry a premium over buying, no different than a car or a cement mixer. That people choose to pay a premium to own compared to renting means they are overpaying. By a huge amount.
Investors don’t care if there are mountains, ocean, or little green men who sing you to sleep at night. They care about how they make money of their investment, which has to do with future rental income.
July 5th, 2010 at 2:44 pm
@Anonymous:
Salaries have increased but employment has dropped. Overall income is lower than before the recession and judging by the austerity of the different levels of government, this isn’t going to change any time soon. Deflation’s a b&tch.
And realpaul, I agree that in the end mortgage rates don’t matter but the “end” can be one heck of a long time. Before we get to the “end,” if rates go up it’s going to be the suckiest can of suck that ever sucked.
July 5th, 2010 at 2:52 pm
@realpaul: Why wouldn’t the government want hyperinflation? It’s to their short term advantage provided they have someone else to blame it on. Politicians always think that way, and when deflation hits the people are likely to demand it also. They’ll certainly want their pension cheques.
The only reason I can think of not to do it is that the US would lose its financial influence over China and the rest of the world. That’s a convincing enough reason for me, but I wouldn’t completely rule it out in the future.
July 5th, 2010 at 2:53 pm
@Kim Jong-il buy 3:
It’s the total over 3 years.
July 5th, 2010 at 3:26 pm
Agentwill made an interesting point that suggests the situation is even worse the the numbers suggest.
He said on his blog…
“there are many completions going through right now in new buildings (Millennium Water, Atelier) where the prices contracted in presale are far greater than their market value today.”
July 5th, 2010 at 3:38 pm
If all renters were also prospective purchasers, then the price to rent ratio would have merit. If all renters would rent properties that they would also purchase, then your argument would have merit.
But, its not true.
Most renters are not yet prepared either emotionally or economically for home ownership. Some renters do not even want to own real estate. Some renters are only here temporarily, so it doesn’t make sense for them to buy. You don’t need bank approval to rent. For some types of properties there is a limited to zero selection of rentals available ie hobby farms, water front, acreage, properties with large buildings for your car collection, etc. A tight vacancy rate and limited availability would make you settle for less than what you would buy. Or you just want to have a dog.
Your income directly affects the amount you can pay for a rental property. For home ownership, it is your income AND your down payment. That’s why two families making the same income will buy completely differently priced properties.
While on a superficial basis one may see a relationship between rents and home prices. On a deeper and more thoughtful level the relationship between rent and value is only appropriate for a small segment in the wide spectrum of properties. It might work for condos in Yaletown, but not in Chilliwack. The proof of any theory being its consistency of the results. Otherwise the contrary view would be possible that of having a low rent to value ratio. The only time this has happened in the past, when mortgages were a lot more difficult to get and when CMHC wanted 15% down payments. But since you only have to come up with a nickel down now – its not going to happen.
We are not in a price bubble because of high rent to value ratios, we are in a bubble simply because prices are too high, which exposes economically stretched home owners to risk over a longer period of time to the shocks that happen in almost everyone of our lives. The faster and longer the rise in prices, the larger the pool of highly exposed buyers grows. Since only 3 to 4 percent of all properties sell each year, it only takes one (1) percent of the total home owners to get into deep doo doo for the market to soften. Crank unemployment up to 10 percent and watch the doo doo hit the fan and we will be known as the Windsor of the West.
And no one wants to live in an economically depressed town where a cup of coffee is 5 bucks.
July 5th, 2010 at 3:41 pm
WRT the benchmark prices.
http://www.rebgv.org/housing-p.....2010-06-01
I knew that prices had been dropping hard in June and was surprised to see the numbers show a gain in prices but averages can be funny things.
I wonder how many Realturds will be showing this to prospective homebuyers?
April was the peak we all know it. Now the other 99.999% of Vancouver that thinks prices are still going up will know it now too. Look for 2-3% monthly drops with the occasional 5% drop thrown in for good measure.
This market is toast!
July 5th, 2010 at 3:47 pm
Holy #%&#!
West Van benchmark down 11.5%
in just one friggin month.
That is just insane.
The plug has been pulled folks!
July 5th, 2010 at 3:51 pm
Was just up in the Peachland / Kelowna area this weekend. For sale signs are all over the place. Jobs have been a little hard to come by for the locals and sounds like prices are quite a bit off the peak.
July 5th, 2010 at 3:54 pm
@Gordon C.:
OK that’s fair. Let’s track Yaletown condos based on rentals and prices and see how they do.
Gordon, you have a good point that certain types of properties will have other factors affecting prices other than current rental income. For a Yaletown condo I think rents are a good gauge and worth tracking.
July 5th, 2010 at 3:55 pm
Any noticable drops in downtown Condo prices yet?
July 5th, 2010 at 3:59 pm
@rp1:
Maybe because it would destroy the social and economic fabric of the country? And bankrupt the banks? Can you name one country where hyperinflation turned out to be good for business?
The PTB had very good reasons for bringing the inflation of the 70′s and the early 80′s (which was nowhere near hyperinflation) to an end. Google “death of equities”.
July 5th, 2010 at 4:06 pm
@sluggo: “West Van benchmark down 11.5%”
Even the benchmark has variance, though nowhere near as much as the mean. I think this datum is likely a bit of an undershoot, though the trend is definitely downwards.
Get ready for your Sex in the City party and don your Michael Phelps speedo. It’s beginning to look a lot like 2008…
July 5th, 2010 at 4:06 pm
@Best place on meth:
These areas are leading the way down, just as they did in 2008.
What more proof do you need that prices in the expensive areas have been driven by leveraged-to-the-eyebrows speculators, not “rich asians” paying cash?
July 5th, 2010 at 4:14 pm
#69, the majority of local government revenue comes from property taxation. In the US we have seen district after district at bankruptcy levels because prices have fallen and less revenue is coming in to the coffers. The falling assessments go down forcing the government to either accept the lower revenues or raise the mill rates ( up your taxes). When ‘values’ fall here the tax assesments ( reflecting market value supposedly ie if your prop value goes down from 1 million to 500,000) cause the revenue projections of the local gov to fail. Thats called ‘the shit hitting the fan’. I don’t know of a single entity in Canada running a surplus, instead we are seeing every city running huge deficits. If property values fall more than ten percent then we will see cities like Vancouver and Toronto plunge into debt purgatory.
A ploy in Vancouver to raise revenue has been to reduce the livable area requirements in condo towers by 47%. This allowed them to build the ‘coffins’. But, having that many more addresses on the site allowed the tax revenue projections to be jacked up thinking that they would have 47% MORE TAXPAYERS PER SQ FT THAN UNDER THE OLD BY LAW. Wonder why everyone at shitty hall got a big raise?
So, what can happen, condo’s can get smaller (hah) or the city will have to rationalize its expenditures. Cause Baby….prices be comin down!!!!!!!!!
July 5th, 2010 at 4:16 pm
@McLovin:
“April was the peak we all know it. Now the other 99.999% of Vancouver that thinks prices are still going up will know it now too.”
How Rennie-esque of you
WHEN YOU SAY LOCATION, IT’S VANCOUVER.
WE HAVE ALWAYS UNDERSTOOD THIS AND NOW
THE WORLD UNDERSTANDS IT TOO.
http://www.2300kingsway.com/
Feel the value.
July 5th, 2010 at 4:17 pm
@patriotz:
West Van isn’t exactly condo central so I wouldn’t pay too much attention to falling attached prices, even if it was 11.5%. Median detached West Van were up over $200,000 on month after all.
West Van prices seem to be outpacing the rest of the market since the 2008 decline, and holding up better this year. It’s a pattern unlike 2008, when West Van seemed far more fragile.
On a brighter note, median North Van detached prices stepped down over $50,000 from May.
July 5th, 2010 at 4:19 pm
Re: 86 Are those MOM figures from REBGV??
I thought average prices in general were up across the board according to Larry (Yatter Matters). Hard to imagine SUCH a different story between benchmarks and averages.
July 5th, 2010 at 4:25 pm
@N2V:
Yes, they are MOM benchmarks. Not median, not average.
Averages were dissected in the last posting. If you get 4 sales at 800K and 1 sale at $4 million, your average is $1.4 million.
Not a good reflection of what most properties are selling for.
July 5th, 2010 at 4:30 pm
God, I love the delusional bears here spinning the latest stats. Listen boys and girls, the offical stats show prices up!
Once again, you got caught with your pants down! Once again, your predictions were wrong! Once again, May was not the beginning of any crash!
July 5th, 2010 at 4:32 pm
I haven’t seen where anyone has commented on the number of listings being removed from the sales list. I thought it was very interesting that in June they outpace sales more than 2:1.
The numbers were 1042/496 (removed vs. sales) whereas in May they were 1:1 – 442 to 457.
I think we are seeing a market shift where people shopping for a greater fool are pulling their places off the market. Meanwhile more “must sell” listers are coming onto the market. This process should continue throughout the summer.
Still on pace for the Fall in the Fall (yes, I note it has already started.)
July 5th, 2010 at 4:42 pm
@realpaul:
1. Cities in BC are not allowed to run a deficit.
2. Property tax revenues in BC (and Ontario) are not affected by changes in RE prices.
3. The City of Vancouver retained its AAA credit rating in the early 80′s during a 50% real price decline and the worse recession since the 1930′s.
What is going to hurt the city is declining development permit revenues and of course the Olympic Village debacle. But anyone expecting California-style municipal fiscal problems is way off base.
July 5th, 2010 at 5:10 pm
@Junius
Could it be that many people don’t want the possibility of a transaction outside of the early spring/pre-summer window? (kids/school)
July 5th, 2010 at 5:15 pm
Hey, webmaster….better get that spam-filter working.
Or this place is going to turn into RE Talks…
Thank you….
July 5th, 2010 at 5:17 pm
Hmmmm…now looks like spam-filter *is* working.
Ignore my last….
July 5th, 2010 at 5:31 pm
Am I talking to myself?
July 5th, 2010 at 5:32 pm
New Listings 261
Price Changes 161
Sold Listings 118
July 5th, 2010 at 5:45 pm
View from the trenches:
I have a developer buddy who pulled the plug on a 3 unit project when he calculated that with the HST he would have to charge $100K more per unit or $300K total. When he ran his figures he calculated that if all when well there wasn’t even $300K of profit.
I wonder how this will trickle down and affect prices? Higher or lower? I wonder if this will keep inventory off the market?
On an HST related note, I went to the grocery store and noticed for the first time the effect of the HST on $150 of groceries. It was noticeable. This HST whether good for the Prov. or not is going to hit families hard. It will creep into all areas of our lives which will leave even less disp. income to spend on huge mortgage payments!
July 5th, 2010 at 5:46 pm
Supersmart Bull – You Property tax is 3 day late. Add 5% penalty to figure and send tomorrow.
You no pay we auction house Sept 5!
July 5th, 2010 at 5:50 pm
Delusional Bears Says:
July 5th, 2010 at 4:30 pm
God, I love the delusional bears here spinning the latest stats. Listen boys and girls, the offical stats show prices up!
Once again, you got caught with your pants down! Once again, your predictions were wrong! Once again, May was not the beginning of any crash!
You must be a Realturd typing on your iphone while on a break from your 3rd job at Walmart.
Averages don’t matter for the 50th time.
Prices were down in June and are falling hard. Just today ANOTHER 1% of the entire inventory dropped their prices.
Stick around, things are going to get really interesting.
July 5th, 2010 at 5:52 pm
I have converted all the HPI figures from April to June into monthly, from peak, and annualized declines. It’s looking like 2008 all over again, except this time there is nothing to prop up the market and keep it going!
http://pissmeoffvancouver.blog.....stats.html
July 5th, 2010 at 6:01 pm
nice analysis of rebgv stat report.
http://blog.richmondblog.ca/
July 5th, 2010 at 6:20 pm
@McLovin:
The solution for your developer friend is simple: PAY LESS FOR THE LAND. His HST conundrum is now solved. You’re welcome.
July 5th, 2010 at 6:29 pm
@paulb.: Thanks Paulb. The listings’ flow is not drying yet for the summer. Interesting times.
By the way, isn’t the pace of price declines even larger than what we saw in ’08?
What could the gov’s do about this? When do we start hearing the first sob stories? Whocoodanode?
July 5th, 2010 at 6:33 pm
@paulb.:
New Listings 261
Price Changes 161
Sold Listings 118
Let the re-listings begin!
July 5th, 2010 at 6:33 pm
great scott, marty!
West Van Apartment Benchmark
Apr: $727,384 (peak)
May: $667,398 (-8% off peak)
Jun: $589,734 (-19% off peak)
July 5th, 2010 at 7:00 pm
Oh goodie…Chinese property market begins collapse
http://www.bloomberg.com/news/.....banks.html
Thank goodness lots of Chinese have instead put their money in Vancouver’s invisible housing market! hahahahaha
July 5th, 2010 at 7:01 pm
Hey P, hate to interupt your stellar record but even the Shitty of Vancouver admits to running a deficit on their official website.
http://www.cityofvancouver.us/.....3859#57899
“To put it simply the cost of providing services is increasing at a faster rate than the growth in revenues available to fund them.
On the expense side the cost of hiring and keeping our skilled personnel is increasing faster than inflation and population combined. Also, the city’s contracts with other agencies increase on average by 8-10% per year (Jail, IT, Corrections, LERIS, CRESA, District Court).
On the revenue side the elimination of the local Business & Occupation Tax, voter-approved property tax initiatives limiting property tax growth, voter-approved elimination of the motor vehicle excise tax and a growing dependence on “elastic” (dependent on economy) revenues such as sales tax has contributed to our current deficit.
The two initiatives and the elimination of the B&O tax have caused an estimated loss of almost $107 million in revenue to Vancouver from 2001 through 2008.”
Vancouver has just floated a massive bond issue. Far more than the debt outstanding on the OV fiasco. There was mention of putting the extra money ‘into shortfalls in other areas’. Is ‘debt and deficit’ an argument inside a semantic conundrum in this case. They can call the debt anything they like, I call the continual shortfall and increased spending what it is…deficit spending.
BTW..I think the 6 million figure indicated on the website is wayyyyyyyy short of reality. I’ve known some crooked and creative accountants in my time. Look at how the BC gov renamed the Olympic expenses as anything else but. Bottom line is we pay property taxes based on an market value assesment. Its safer to say that the city revenues haven’t been affected by the crash in RE prices……YET!
July 5th, 2010 at 7:30 pm
@laneway:
“Oh goodie…Chinese property market begins collapse”
Same time as ours? Those bastards!
And they just lost 90K on a westside detached in a single month.
Where oh where is a corrupt communist party official/sweatshop owner to put his money these days?
July 5th, 2010 at 7:50 pm
@crashcow:
Great Scott!!!!
July 5th, 2010 at 8:11 pm
@laneway:
whoops…I meant “invincible” not “invisible”
though that huge property gain you thought you’d accumulated may soon be “invisible”
July 5th, 2010 at 8:13 pm
@patriotz: That’s laughable. CoV has been running a budget deficit every single year for as long as memory serves. What do you think they do when money runs out in the middle of the year? Shut down and go golfing in Phoenix? How do you think CoV has a AAA rating to begin with? Because it borrows money by issuing bonds to cover… oh yeah, budget shortfalls!
Not allowed to run a deficit. Right, lots of places around the world are forbidden to run a deficit, yet somehow they find ways around the issue. Call it what you want, it’s a deficit. You can’t force an entity that has the power to tax to run a balanced budget. Why would they?
July 5th, 2010 at 8:48 pm
What’s with all the spam?
July 5th, 2010 at 9:47 pm
I was throwing out my junk mail this evening when I came across some add mail from a local realtor. According to the add mail houses above 600K in Nanaimo number 124 active listings and where selling at a pace of 2 per month. For 62 months of inventory as of the end of May. I called a realtor I know and he advises me there where no sales in this price range for the entire district of Nanaimo between 1 May and 30 June. I would expect Nanaimo to have reduced real estate activity when compared to Vancouver as it historically has. I just did not expect 5 years of inventory at this price point.
July 5th, 2010 at 9:54 pm
John Hussman gave his US recession warning last week (his previous warnings being in Oct 2000 and Nov 2007) and continues writing today…
“From a Bayesian standpoint, if you always observe a certain combination of information when X occurs, and never observe that same data when X is not present, then even if X is hidden under a hat, you would conclude that X is most likely there. If I see clowns walking around the grocery store buying peanuts, and there’s a big top tent with two unicycles in front of it in the middle of what is usually an open field, I’m sorry, I’m going to conclude that the circus is in town.”
These clowns are going to pounce on Vancouver real estate hard.
http://www.hussmanfunds.com/wmc/wmc100706.htm
July 5th, 2010 at 10:20 pm
@crabman: Not sure whats with all the spam. It seems to be all trackback spam, so pings and trackbacks are now disabled, hopefully that will help.
Thanks to everyone who pointed out the drama in the latest benchmark stats – tomorrows post should be fun!
July 5th, 2010 at 10:21 pm
The Seawall repairs in the middle of summer!
Anybody noticed how our City crooks and bandits are preparing to put marking meters instead of 2hr parking on Davie St., west of Jervis St.? They will take away from us everything they can in order to support their spending habits.
Millenium owes the city some 900 million dollars for OV fiasco, yet the crooks let them build a monster highrise on Bidwell and Davie, contrary to current regulations.
Yes, we are feeding and fattening up whole bunch of incompetent morons and common thieves, and what does that say about us, I wonder…
July 5th, 2010 at 11:02 pm
How would the “value is forever” work when the mayor of North Van couldn’t afford a house… “only an apartment with a very large mortgage” (if his parents hadn’t helped him out years ago). North Van Mayor laments state of housing and affordability on the North Shore:
http://www.bclocalnews.com/community/97491409.html
July 5th, 2010 at 11:02 pm
#82 @patriotz: “Maybe because it would destroy the social and economic fabric of the country?”
A housing bubble destroys the social and economic fabric of a country and we went full speed ahead on that one.
July 5th, 2010 at 11:03 pm
@Teddy Bear: The City’s previously announced that they’re getting rid of all the free parking downtown. Supposedly it’s to encourage other methods of transport– buses, walking, biking.
…And the funny thing about development regulations is that they can be bent by any company with enough financial/political clout, or by any small developer who can convince the city that it’s a good idea for them to exceed the regs…
July 5th, 2010 at 11:46 pm
@Beatbox: Actually an interesting article. Underutilized housing is a huge problem in North Vancouver. I think, given low savings rates, that will start to change in the next 10 years, but owners won’t like what that will mean for prices.
Buy a house, get a free car. | Vancouver Condo Info Says:
July 6th, 2010 at 1:02 am
[...] even more drama in the West Van Apartment benchmark if you go back another month to the April Peak. RSS 2.0 comments feed. You can skip to the end and leave a response. Pinging is currently not [...]
July 6th, 2010 at 2:24 am
@Devore:
The city borrows money for capital projects. The ones that everyone gets to vote on at municipal election time. That’s what all those bonds are sold for. It also might have use a line of credit for day to day cash flow deficiencies but that is made up from revenues.
You don’t know jack about finance in general and municipal finance in particular. Sorry if that sounds impolite but the facts on this issue are easily referenced.
July 6th, 2010 at 2:35 am
@rp1:
Hyperinflation is in no way comparable to a housing bubble. Most Western countries have seen regional and in some cases national housing bubbles come and go for over a century.
I really think you should talk to someone from the former Soviet Union or Yugoslavia. Or someone from post-WWII China. Or read up on 1920′s Germany. That kind of thing is worlds away from what the US, Ireland, etc. are experiencing today.
Canada has not seen any major economic privations since the 1930′s/WWII, and IMHO we’ve lost perspective on what real hard times are like. Things aren’t even as bad today in many respects as they were in the 70′s and 80′s.
How to Delay Ejaculation and Last Longer with Mental Contro | Best Premature Ejaculation Exercises Says:
July 6th, 2010 at 10:50 am
[...] 'Value' is forever. | Vancouver Condo Info [...]
July 6th, 2010 at 6:48 pm
No need to tell those foolish Van bears that a house in this heavenly city is the solid investment for retirement;if they had doubt about Van RE value,let them rot to the bone and be priced out of this city forever;however,don’t forget to pay your rent on time each.whining and loud mouth won’t be the excuses for rent deferral.Our Chinese friends are much smarter than those retarded bears who have been pounding the Armageddon drum for at least 10 yrs but each time the reality slap their balls hard-Ouch…………