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90% off Vancouver house prices!

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If there was an Olympic event of bear market predictions I do believe Nicole Foss would win some gold.  Have you ever heard anyone predicting 90% off house prices?

The topic is Canada, and its enormous property bubble. Human beings are notorious for not being able to recognize a bubble when they are in one, and Canadians are no exception. We are a rationalizing species, not a rational one, and there are always rationalizations for why it’s different this time – for why this time those outrageous valuations are justified. Well, its never different this time.

Bubbles create virtual wealth through speculation. People simply agree that something should be worth more (and more, and more) than it was before, although the underlying value has not changed at all. They will part with any sum in chasing momentum, because they think there will always be a Greater Fool who will pay more. Often they do this with borrowed money, leveraging their exposure to risk.

Eventually, the Greatest Fool, Biggest Sucker or Most Aggressive Speculator has been found and fleeced. Then there is nothing to support prices at anywhere near the stratospheric levels they have reached on the back of easy credit. People will then simply agree that the asset which has been the focus of speculation should be worth less (and less, and less) than it was before, as the asset bubble bursts. The virtual wealth component will eventually be more than wiped out, as all asset bubbles undershoot when they implode. For those who had been speculating with borrowed money, and for those who had been carrying the risk of that lending, the result is being wiped out. The leverage that seems to magically defy gravity on the way up will magnify the losses on the way down.

You can read the full thing over at The Automatic Earth, and you can view the Keiser Report interview with her over on YouTube (starts at the 13:40 mark).

A 90% market crash is a pretty outrageous prediction, you don’t see that kind of drop in real estate very often.  It happened in Tokyo and in some individual cases in US bubble markets, but here in the best place on earth? Pshaw! Believe it when I see it.

Though that would be one hell of a rollercoaster ride.

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crashcow

a 40-50% plunge now makes me feel bullish!

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patriotz

@observer:

An article in the MSM (Yahoo is pretty mainstream) about housing that talks about price/income and price/rent?

I'm impressed.

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observer

Could a U.S.-style collapse happen here?

http://ca.finance.yahoo.com/news/Could-U-S-style-…

Enjoy!

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Dave

@CRASH JPMorgan-Chase:

Good luck with that.

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Renting

The DTES has always had a drug problem. Don’t fall for the revisionist history. Yes drugs, like alcohol, have been around for a long time and you can find them in any Canadian neighborhood. The question is when does it become a "problem". Drugs may have been there in the DTES 50 years ago but it was not the problem it is today. There are lots of drugs and alcohol in other areas but it doesn't mean you can't park your car without having the window smashed for change by a crack head or there are people shooting drugs on the street. The DTES has many more problems than drugs. Mental health issues are probably a bigger issue. The point being it used to be a nice place in the past and it is now one of the biggest shxt… Read more »

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CRASH JPMorgan-Chase

CRASH JPMorgan Chase

Google it

Youtube it

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Supraboy

@Best place on meth:

I know that you're the first to commit suicide around here. Must suck to be renting a basement while homeowners ride the rising tide of inflated asset prices.

Imagine if all of you chipped in to buy a 500,000 condo in Richmond earlier this year, you'd be up at least 50k right now.

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WBC

In his case the place sold for around $1 million so it took 6 other relatives to send the $150K each to complete the deal which took some extra time. If they go to this much hassle to buy here, they must know more than we do why their cash is better hidden here than back home.

Well lets see in country where average salary is $100 a month where do you think that money came from? From their business savvy? Right…

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Anonymous

" Reclaiming the DE from the drug den it is today would do more than clean up crime,"

The DTES has always had a drug problem. Don't fall for the revisionist history.

http://thetyee.ca/Views/2008/08/13/DTESHistory/

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coastal

A friend recently sold his house and I learned something about these offshore Chinese buyers that come here with no family connections in Canada with big bank accounts. They are only allowed to take out, (or bring in to Canada) $150,000 at a time. In order to complete a house sale, they need several family members to send $150K each then they pay back the Chinese relatives back there.

In his case the place sold for around $1 million so it took 6 other relatives to send the $150K each to complete the deal which took some extra time. If they go to this much hassle to buy here, they must know more than we do why their cash is better hidden here than back home.

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"A-Sharp"

@space889:

I also want to add that because of fractional reserve banking, even though the money is owed within the country, It can still cease to exist through the process default, be realized as a loss on the banks, and then restrict further lending.

So…yeah it nets out within the economic entity (canada), but that still does not help for RE prices which are dependent on increasing credit.

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Best place on meth

@Supraboy:

Supra, did you know that the Christmas holiday period has the highest number of suicides?

Have you considered it?

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chip

@Renting:

'Hastings street used to be one of the nicest areas for shopping and restaurants in Vancouver. Now it is the worst."

There are some fantastic old buildings down there too. You can step over a drug addict and into a foyer with marble flooring, spiral staircases and old photos of the building with Model Ts parked out front. Reclaiming the DE from the drug den it is today would do more than clean up crime, the reintroduction of the city's architectural past would do a lot to counterbalance the sterile skyscape of condos it has become.

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ReadyToPop

If the strains in the economy were less acute, the party could be more relaxed. But China escaped the full force of the world recession only by resorting to a reckless credit-driven expansion; state-owned banks have near doubled their lending in just three years. Today's Chinese banking system has trillions of dollars of non-performing debts. The world economy cannot absorb the volume of Chinese exports; there is not the demand. The gravely unbalanced Chinese economy is a bubble about to pop.

China is a bubble about to burst

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Yalie

Royce – here are a couple of graphs showing the relative portion of US and Canadian federal debt held by foreigners. They're a few years out of date, but they show the relative difference between the US and Canada pretty well nonetheless:

From the Canadian Govt. (Budget 2008):

http://www.budget.gc.ca/2008/images/chap3-2a-eng….

From the New York Times:

http://www.nytimes.com/imagepages/2005/09/30/busi…

So, as of a few years ago at least, Canada had less than 10% of it's net federal debt held by foreigners, while the US had over half. I can't seem to find more recent graphs, so I can't be sure of the precise picture today.

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Alum

Hey guys,

Just express your reasons if you disagree. Voting down realistic comments will not help you observe a RE crash 😉

@Alum:

I agree that high interest rates combined with high unemployment can lead to a correction in housing in Vancouver.

Housing prices is more sensitive to Unemployment rate, though.

If interest rates go up, but people still have income, they stick to their RE.

:

@Alum:

Pure Bullshit !

1- Look at poor condo unit list tracker performance. It is at all time low of 285. The party has started since it reached below 300.

Last year it was well above 600 folks

2- I wonder how idiots get the 90% down? Why not up baby?

Current score: -8 +1Thumbs down!

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patriotz

@space889:

Actually there is still the problem of when mom needs to pay a big bill like their kid’s university tuition, buy a new car, TV, etc and dad can’t come up with the cash.

You left out Mom's offshore bank account, which is the equivalent of Japan's huge foreign assets held by the private sector.

What's going to have to happen is that Japan will draw down its foreign assets.

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space889

@Yalie: Actually the difference is not as big as you think. Take your example that the dad is the government and mom is the citizen lending to the government. Mom lends dad $500K at 1% interest rate. Well you can argue that the net debt to the family is $0 and that if the dad doesn't pay, no big deal, they aren't bankrupt. Actually there is still the problem of when mom needs to pay a big bill like their kid's university tuition, buy a new car, TV, etc and dad can't come up with the cash. Now you could say well just go to the bank and borrow. However if the bank looks at the family asset and liability and the fact that the dad can't repay the debt at all and can barely keeps up with the interest… Read more »

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WFT?

@Supraboy:

Apparantly, in Vancouver there are more "multiple bids from Chinese buyers" than there is rain.

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Supraboy

90% market crash, hahaa……too early for April fool's. We're 10 months post olympics, I'm still waiting for you suckers to toss in the towel and get with the program. Just buy and STFU. Bunch of pussy morons here who are in denial. Last time I checked with a real estate agent in Richmond, they've got multiple bids from Chinese buyers.

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Savvy Investor

@Anonymous: And who exactly is left to buy after taking a 90% shave?

Me! Many units! All cash!

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Anonymous

@Anonymouse:

90% off is an insane prediction. What would rent yields be at those prices? Better than almost any other investment. So people would invest in real estate. And we know what that does to prices. ………………

And who exactly is left to buy after taking a 90% shave?

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Troll

@Anonymous:

@bestplaceonmeth, “Detroit is on the verge of bankruptcy. It will be years before that happens to Vancouver.”

Somehow, not reassuring, is it?

You're right, it's not reassuring that BPOM doesn't know how to make useful comparisons. Detroit began it's long spiral downwards long before their automotive industry went into decline or the financial crash of 2008. Vancouver's past is nothing like Detroit's and it's a good bet that it's future won't be like it either.

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patriotz

@Best place on meth:

CoV wasn't even close to bankruptcy in the 1930's.

Basically any municipality that can set taxes at will (like in BC) is solvent as long as its expenses are less than the rental value of its property base. CoV has never been remotely close to that.

Remember also that unlike many US cities, BC municipalities are not on the hook for schools, welfare, or other social services. Also municipal pensions are an obligation of the province, not individual municipalities.

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Lilypad

@gladimnotyou: Nice analogy, Mr. Sexist himself. Merry Christmas to you too. Sometimes this blog is just full of sickos.

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