Vancouver Condo Info

Looks like our largest trading partner is now ‘officially’ in a recession as declared by the National Bureau of Economic Research.

WASHINGTON - A panel of the National Bureau of Economic Research said Monday that the U.S. economy fell into a recession last year.

The NBER says its group of academic economists who determine business cycles met and decided that the U.S. recession began in December 2007.

Many economists believe the current downturn will last until the middle of 2009 and will be the most severe slump since the 1981-82 recession.

According to the Organization for Economic Cooperation and Development, Canada is in a recession and heading for a deficit. And who’s to blame? Ontario and BC.

Across Canada EI claims actually dropped month over month, except for in Ontario and BC where they surged 14% over the year in Ontario and 11.5% in BC. Ontario has the auto manufacturing sector to blame for the downturn, while here at home we’re seeing an alarming decline in forestry revenues not to mention the sharp downturn in the housing market where prospects are looking more grim with each passing month, particularly when it comes to downtown Vancouver condos.

Meanwhile in the financial sector Canadian banks have started asking Ottawa for a major cash injection to help stem a rising tide of bad loans.  BMO figures show bad loans have already exceeded the peak reached in 2001 after the dot com crash, and are well on their way to levels seen in the last recession almost 20 years ago.

The bright side? If you’re looking for temporary office space to sublease in Vancouver, it looks like you have lots of options right now.

From the Globe and Mail:

The commercial market for apartment buildings in British Columbia has “come to a near standstill,” according to a report issued Monday by real estate firm Avison Young (Canada) Inc.

“There is now a standoff between purchasers, who in the wake of the global credit meltdown have changed their pricing expectations, and vendors, who are looking for yesterday’s pricing in a much more challenging market,” Avison Young principal Rob Greer said in releasing the report.

The number of real estate transactions in British Columbia’s “multi-family market” has dropped to 76 so far this year, down from 153 in the corresponding period of 2007, according to a survey by Avison Young.

“The total value of multi-family investment transactions year-to-date … amounts to $270-million – approximately 52 per cent of the $519-million recorded in all of 2007,” Avison Young said.

Local private investors accounted for the majority of buyers and sellers in 2008.

Prices for apartment buildings are likely to fall even more next year, Mr. Greer said.

“Should financing troubles continue through 2009, we may see values move as much as 20 per cent as investors re-evaluate their required returns on investment,” Mr. Greer said.

Avison Young said in its report that the “once prevalent multiple-offer situations have shifted to ones of price reductions and lingering listings.

“Of the current 130 listings on the market, approximately one-quarter have received at least one price reduction in recent months. This does not include any recent sales that involved a price reduction to induce the sale,” according to the report.

It looks like Vancouver’s housing slump is starting to get attention from outside Canada. Several people pointed out this Bloomberg article about our declining real estate market.

West Vancouver builder Sean Hanley thought Canada’s real estate market would be immune to the housing recession that sent values tumbling in the U.S. Then the economy slowed and oil prices fell.

The price of a detached house in this upscale community fell 22 percent in October from a year earlier, helping to drag the average residential price in Canada down by 9.9 percent, the biggest decline in 26 years, according to the Real Estate Board of Greater Vancouver and the Canadian Real Estate Association. For Hanley, that’s meant nary a buyer for his five-bedroom home.

“It’s been a little bit surprising the consequences of the subprime crisis have been so far-reaching,” said Hanley, 48, who has cut his asking price to C$3.99 million ($3.26 million) and is now offering a C$100,000 bonus, on top of regular fees, to the agent who delivers a buyer.

This isn’t the first time we’ve seen offers of a bonus to the buyers agent instead of a price reduction, but I’m a bit suprised that it’s acceptable to openly pay the buyers agent to represent the sellers interest.  Is this even an effective technique?

It looks like the ‘correction’ phase of the Canadian real estate market cycle is picking up steam and Vancouver is strapped to the front on the locomotive.  Homeowners who relied on property values to boost their net worth are discovering that they’re suddenly poorer than they were a year ago:

When Pat Webb moved to Vancouver a year ago, she didn’t think twice about buying a condo in tony Kitsilano, among the hottest neighbourhoods in the city’s booming real estate market.

But in August, the 70-year-old retiree decided to move back to the United States. She had sensed Vancouver’s market was slowing, but a neighbour’s condo had sold a week earlier, so she too tried to sell.

She listed her one-bedroom, 705-square-foot condo for the price she paid – $509,000 – on Aug. 30. Ms. Webb has since reduced that to $485,000. It still hasn’t sold.

And condo owners in downtown Vancouver are predicted to suffer the most in coming years:

Condo owners in downtown Vancouver are at greater risk for price depreciation than single-family homeowners in the suburbs, a BMO Capital Markets economic analyst said Tuesday.

“Condo prices could drop faster because of overbuilding,” Robert Kavcic said in an interview. “When you have excess in the market, that pushes prices down.”

A BMO survey released Tuesday suggested B.C.’s housing starts have to fall by about 25 per cent from current levels to return the market to sustainable numbers.

For those wondering why people would hold on to an investment that by all measures is set to decline for years, you can blame denial, which can be an incredibly strong force.  For an example of denial at work just look to the US where prices have been falling for two years and realtors still struggle to get the message to owners who believe that their property is different and is actually gaining value.

Remember that rumour that the construction of the Olympic Village is running into credit difficulties and the various assurances that taxpayers wouldn’t be on the hook?

Well funny thing.. It turns out the city has authorized a (until now) secret $100 million rescue for the financial troubled Olympic Village.  Article in the Globe and Mail:

The new financial obligations are on top of a $190-million loan guarantee the city had to give Fortress Investment Group, which has provided a $683-million loan to Millennium to build the 1,100-unit village.

The village is destined to become a residential complex after the Olympics but most of the condominiums have yet to be sold. Meantime, the value of real estate in Vancouver has plunged in the past several months and is expected to continue to decline over the next couple of years.

This has raised questions about the future of the project and whether Millennium, which agreed to pay the city $193-million for the land on which the village is being built, can still make the venture financially viable.

The latest revelations come despite assurances over the last several weeks by civic officials that financing around the project was not a concern. Other civic officials stated publicly there had not been any changes in the agreement the city had with Millennium - even after council had secretly agreed to forward the company and/or its lender up to $100-million to keep the project afloat.

Now you’re all real estate speculators.  This deal is of course, not without a bit of controversy:

Details of the city’s involvement in bailing out the project’s cash-strapped developer have until now been kept secret. Councillors are under a publication ban and have been told they face serious repercussions if they discuss publicly the decisions taken at the in camera meeting.

Growing controversy around the project also appears to be behind the yet-to-be announced resignation of the city’s chief financial officer, Estelle Lo. Ms. Lo tendered her resignation recently after months of apparently expressing concerns the city might be assuming too much financial risk in an effort to meet its obligation to get the Olympic housing built on time, according to a source.

Now that we’re all investors in this project, I find myself getting excited about the future of Vancouver real estate. I’m sure eventually this deal will pay off big - In Montreal it only took 30 years to pay off their Olympic sized debt, and just look at some of the great post-Olympic buying opportunities in Sidney!

Gordon Campbell has pledged to freeze BC property tax assessments at their 2007 level to ‘help people cope with turbulence in property values’.  I’m trying to figure out the motivation for this move, perhaps to people that don’t understand property tax it seems like a relief?  Our property tax system is not set up like California, where property tax is dependent on the assessed value.  The crashing California real estate market has meant less money flowing into government coffers, leaving cities scrambling to make their budgets work.

In Vancouver your property tax assessment only matters in its relation to your neighbors.  Every house price in Vancouver could drop across the board by 50% and the property tax paid by each owner would remain the same.  This protects city tax income, but can be tougher on tax payers.

Tax assessments in Vancouver are done in July, which coincidentally was very close to our market peak.  Freezing assessments at their 2007 value may help to make it appear house prices haven’t fallen as far as they have if the 2008 assessments are never made public.  I don’t believe this is a motivating factor though, since the REBGV benchmark price and average sales price data still paints a more complete picture.

According to an article in today’s Sun the BC Real Estate Association is projecting a sales drop of 28% across the province this year, with a slight rebound in 2009 as consumers ‘recover confidence’.

Muir said home prices have been declining since their peak in the first quarter of 2008, but on balanced over the year, he expects the $453,000 average price to remain three per cent above the overall average home price of 2007.

Muir expects the average home price to decline nine per cent to $413,000 in 2009, but downward pressure on prices to ease by the second quarter of next year as homes become more affordable and inventories decline.

The BCREA’s prediction is the latest housing forecast to be released and is more optimistic about recovery than the forecast released last week by Central 1 Credit Union, which forecast prices to fall more steeply and sales recovering in 2010.

Meanwhile at an industry meeting in Ontario realtors got a pep talk about the current downturn as an oppourtunity to “raise the bar”.

Serious agents who stick out the downturn will have the opportunity to shine, they added, although their optimism appeared lost on some participants.

“They’re basically saying that next year is a writeoff,” one audience member said to colleagues at her table.

The downturn may have a silver lining, causing the industry to “raise the bar” on customer service, said panelist Michael Polzler, regional director at Re/Max.

“There are far too many agents out there who don’t specialize, who do just two or three deals a year. Would you use a part-time lawyer or a part-time dentist? We need to raise the bar,” Mr. Polzler said.

On a side note: I’ve started up an experimental Vancouver Condo Wiki If any of you feel the need to obsesively catalog predictions, track sub markets or share tips and links.  If this works out I’ll eventually add a link from the main page of this site. For now you can find it at http://vancouvercondo.info/wiki

The Globe and Mail is reporting today that Merrill Lynch & Co are growing more ‘alarmed’ that the Canadian housing market is tracking the US housing crash with a 2 year lag:

Falling prices, overbuilding and too much unsold inventory in Canada are creating a trend similar to that in the United States a couple of years ago, Merrill economists David Wolf and Carolyn Kwan said in a research note Tuesday.

“Though the consensus does seem to be gravitating towards our view of a sustained downturn in the Canadian housing market, we still do not sense any particular alarm in either the policy-making or forecasting community. We ourselves are getting more alarmed by the day,” Mr. Wolf and Ms. Kwan said in their report.

They aren’t the only economists to raise the warning about a two year lag, though many still emphasis the differences between the US and Canadian housing markets:

The same two-year lag idea was raised this summer by Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc., who called the apparent trend “unnerving” in a report in July.

At the time, Mr. Porter said there were many reasons why the two markets were different, but said even a pale version of what had happened in the United States would be bad news for Canada.

House prices posted a record 16.6 per cent year-over-year decline in the United States in August, according to the benchmark S&P/Case-Shiller Home Price Index report, also released Tuesday. The index has now shown year-over-year declines for 20 months.

Taking into account the two-year lag, Merrill’s data suggests the ramp-up in construction of housing units in Canada may be even larger than it was in the United States.

The number of units under construction currently is just off the peak hit in May, which was the highest recorded in 36 years of available data and 97 per cent above the long-term average, the report said.

By contrast at its peak in 2006, U.S. housing construction was 54 per cent above the long-term average, it added.

Of course, just like in the US its a bit vague to speak of a national housing market - the averages are pulled up in a boom and down in a bust by a few select cities, in our case Vancouver and Toronto are showing some alarming supply issues:

As of August, there were more condos under construction in both Toronto and Vancouver separately than there were in all Canadian cities combined a decade ago, Mr. Wolf and Ms. Kwan said.

“And as in the U.S. two years ago, we are now seeing completed units pile up unsold in Canada, a clear sign of overbuilding and an ominous sign given the voluminous supply still in the pipeline,” they said.

Inventories of unsold new single-family homes in Canada rose by 56 per cent year over year as of last month, close to the maximum increase in July 1990, which marked the last housing market downturn, the report said.

At the peak in April 2006, inventories of unsold new single-family homes in the United States were up 26.5 per cent over a year earlier, the report said.

The two-year lag could be the result of Canada having more room to run up because its recovery started later than that of the United States. Strong commodity prices and looser lending standards initiated in 2006 may also have contributed to the lag, the report said.

Hat-tip to Dingus for this link.

From an Article in the Vancouver Sun:

VANCOUVER - Dropping real-estate values are sending more British Columbians into financial crisis and causing a spike in personal bankruptcies, according to professional debt counsellors.

Federal Industry Ministry data show that B.C. consumer bankruptcy filings for August were up more than 10 per cent over the same period last year.

August also saw a 16.3-per-cent increase in proposal filings, an alternative to bankruptcy.

And that was an improvement over July, when B.C. consumer bankruptcy filings were up 14 per cent over the same period last year and proposal filings were up 20 per cent.

“It’s a big jump,” said B.C. Association of Insolvency and Restructuring Professionals director Lana Gilbertson. “We don’t know if it will continue upwards, but during the recessions of 1981 and 1990-91 there were rapid increases in insolvency rates.

“Our professional community is seeing more and more individuals who can’t sell their property for what they thought it was worth and who can’t refinance or borrow more money against their property. They’re stuck,” she said.

For several years, Canadians have suffered from high levels of household debt, low rates of personal savings and feelings of stress about their finances, said Gilbertson.

“But a strong real estate market  in B.C. kept many afloat as homeowners were able to use a growing equity in their property to offset their consumer debt,” she said.

Funny how the answer to consumer debt was house debt, even after we saw how well that worked out in the US.  Meanwhile at least one economist is saying get ready for deflation:

Japan was mired in a nearly decade-long bout of deflation, which is defined as a sustained fall in asset prices. Economic theory indicates the solution to falling demand for prices is stimulus - either from the central bank, or by the fiscal authority to increase demand and borrow at interest rates that are below those available to private entities.

Rosenberg was one of the few economists on Wall Street who rang alarm bells about the housing bubble, and warned that the fallout from the bust on credit markets and the underlying economy would be huge. He now forecasts the worst consumer-led U. S. recession since the 1970s.

Other economists have also warned of a deflationary-like scenario, not just in North America but also Britain.