Vancouver Condo Info » hype

Racist marketing and fact-free media

RTYT — Tue, 24 Jan 2012 08:34:17 +0000

Look at this garbage. It’s an article submitted by “The BC Real Estate Convention” and printed as if it’s actually news in the Vancouver Sun. First off, the writing is atrocious. Don’t they even have an editor read these advertorials before they’re printed? Second, there are lots of statements presented as fact that have absolutely nothing to back them up:

Experts claim that the Chinese Mainland buyers and investors will continue to seek for overseas investment opportunities, in Vancouver.

Which ‘experts’ are these? Oh never mind, we’ll just take your word for it then.

As it is more cost efficient to purchase a property rather than renting, and considering the long term returns of the investment, purchasing properties in Vancouver become high on demand.

Yeah, somebody is ‘high on demand’ if they really believe that current prices in Vancouver make buying ‘more cost efficient’ than renting. There are many many markets around the world where buying is ‘more cost efficient’ than renting, Vancouver ain’t one of them.

However, as much as Feng shui is a well respected practice by many Chinese immigrants and potential home buyers and investors, there are always those “intelligent” ones that seek to obtain the optimal economic value from their investment in Vancouver’s real estate.

Wow. I don’t even know how to respond to that.

If you go to the The BC Real Estate Convention web site you’ll see that this trade show is sponsored by The Vancouver Sun and Province.

Then there’s this piece over at 24 hours:

Metro Vancouver will receive an influx of businessmen from mainland Chinese this week, intent on spending their two-week Lunar New Year holiday with family, as well as scooping up significant amounts of real estate.

Julia Rowell, sales manager at downtown Vancouver’s Maddox development, said this phenomenon has been going on for over 25 years, but 2012 looks to be especially busy.

Yeah? I think TPFKAA says it best:

HAHAHAHAHA! That’s absolutely hilarious!!

So in 1987, (a full five years before Deng Xiaoping’s reforms that enabled creation of individual fortunes) HAM from mainland China was increasing sales just after CNY.

/facepalm.

The hype seems to be working on the listings side. This year started off with the second highest number of listings in the last ten years and has grown at a faster rate than any of those years, especially on the west side:

I’m sure those sellers are hoping this hype pays off, and maybe it will, but then again maybe our market isn’t driven solely by wealthy offshore buyers. Most local first time buyers aren’t in the market for multimillion dollar homes anyways, so how would this even affect them?

Blaming ‘Chinese buyers’ for out of control prices is simplistic and racist. This city is nearly half asian so of course ‘Chinese buyers’ have an impact, but what about easy credit, low rates, CMHC pumping and local speculators?

Just for comparison, the city of Monterey Park in California has the highest percentage population of Chinese Americans of any US municipality. Here’s what home values there look like over the last few years:

This post was submitted by RTYT.

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Worlds Busiest Real Estate Agent in the World!

Ten Volt — Mon, 28 Nov 2011 08:15:03 +0000

Hey guys, Ten Volt here – World’s busiest real estate agent in the world – and I’ve got something exciting to share with you. I’ve started to ‘vlog’ or ‘Video Blog’ despite my busy schedule. How do I handle it you ask? I do it in my car. I’m hardcore.

Remember, if you need a condo, a townhouse or just advice on how to live in a luxury car, you give me a call. Ten Volt is here for you and I’ve got car payments to make. Follow me on the twitter or drop me a comment on the youtube. Be safe and wear your seatbelt.

This post was submitted by Ten Volt.

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Mortgage loan approvals by province

Fri, 09 Sep 2011 07:15:52 +0000

One metric that nicely captures both the credit and mass psychology components of the current Canadian real estate craze is the total dollar amount of mortgage loan approvals as a percentage of GDP.

[...]

The total amount of mortgage debt would be expected to rise, but in a healthy and sustainable real estate market, it would rise in tandem with GDP growth, meaning loan approvals as a percentage of GDP should stay range bound. That they haven’t is but one more indication that this is a market driven by unsustainable dynamics.

http://www.theeconomicanalyst.com/content/mortgage-crazy-look-loan-approvals-province

This post was submitted by Mansur al-Hallaj.

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Advertorial in the Vancouver Sun

Karl Marx Carney — Tue, 30 Aug 2011 08:56:49 +0000

In an editorial the Vancouver Sun says the best way to afford a house in Greater Vancouver is to buy a house far outside of Greater Vancouver:

That being said, RBC’s average price of a standard two-storey house of $843,300 may understate the case because there is virtually nothing detached on the west side for under $1 million and it’s slim pickings on the east side as well. Indeed, the Real Estate Board of Greater Vancouver says its benchmark price for all single detached homes in Metro Vancouver is $902,000. However, anyone prepared to commute can buy a lot of house nearby at prices far below those in the city. Detached homes can be had for just over $500,000 in Squamish, less than hour’s drive from downtown Vancouver; and $360,000 in Mission, at the end of the West Coast Express line. There are also bargains – relatively speaking – in Tsawwassen, Coquitlam, Langley and Surrey and other Lower Mainland communities.

How much are they being paid to publish this crap? Here’s the full Advertorial.

This post was submitted by Karl Marx Carney.

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TD: Vancouver house price to drop $133,400

The Pope — Thu, 14 Jul 2011 08:01:16 +0000

Sensational headline no? Here’s the deal: The REBGV benchmark price for a Greater Vancouver house is $901,680. TD Bank economists have just released a report in which they predict Vancouver house prices to drop by a remarkably precise 14.8% in the next two years. Based on the current benchmark price for a detached home that would be a loss of $133,400.

Now I know that for most of you $133k is nothing, but for some of us that’s real money.

“A combination of more subdued job and household income growth, rising interest rates, the recent tightening in borrowing rules for insured mortgages and fewer first time home buyers are expected to be the chief culprits behind the slowdown,” TD says.

Vancouver’s real estate market will fare the worst in the next two years. TD predicts a 25.4-percent peak-to-trough decline in sales and a 14.8-percent pullback in prices by 2013.

Of course everyone knows that different housing sectors drop at different rates and TD is predicting the worst carnage in the Condo market. What do you think will suffer the largest price drops – west side houses or east side condos?

Hat-tip to Real Professional for the link.

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Toronto more expensive?

wreckonomics — Wed, 13 Jul 2011 08:01:13 +0000

Hey guess what everyone, Toronto is now more expensive than Vancouver.

..Or at least it’s more expensive to rent there if your paying with US currency. Don’t worry, we still have the most overpriced real estate.

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Luxury sales set to climb

thenonymous — Thu, 23 Jun 2011 08:35:25 +0000

Here in Vancouver a ‘luxury home’ is one that costs more than 3 million and looks like a $300k house in Tampa. And that’s just the market segment that is set to soar this year.

The 2010 total has already been surpassed, with 384 homes over the $3-million price point sold so far in 2011, according to Macdonald Realty.

There have also been 66 homes over $5 million sold so far, and a predicted 132 over$5 million by the end of the year.

A total of 40 condos over $3 million have so far been sold, including seven over$5 million.

However, the trend partly reflects price increases that have pushed previously cheaper homes over the $3-million luxury home threshold.

The trend is your friend, get in now while prices are going up.

This post was submitted by thenonymous.

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Stay Classy Vancouver

Scurry — Thu, 16 Jun 2011 05:30:37 +0000

As the smoke from burning cars rises above the downtown vancouver skyline it’s time to mark the peak of the vancouver housing bubble. Hype and excitement can only get you so far, eventually the bill has to be paid.

Downtown will get cleaned up pretty quickly, broken glass will get replaced, the fires will be put out. Our reputation as the worlds biggest sore losers may last a little longer, but that too will fade.

The ride down for house prices? Thats going to take longer and hurt a lot more people in the long run, but eventually the bill has to be paid.

This post was submitted by Scurry.

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Don’t like the bubble? Move!

mortgagefree — Wed, 08 Jun 2011 07:05:13 +0000

Local realtor / hype artist Cam Good is in the news again with some advice for people that are unhappy with the current market or think there’s some imbalance with current house prices: move somewhere else.

The video is also available on the Global News website. Hat tip to southseacompany for the link.

This post was submitted by mortgagefree.

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Japanese buyers push up prices

The Pope — Thu, 12 May 2011 08:21:46 +0000

”We are in the beginning of an international movement of money of historic proportions, something on the scale of the Marshall Plan after World War II or the British influence after the First World War,” said Jon C. Minikes, a partner at Jones Lang Wootton, an international real estate consulting firm. Besides real estate, the Japanese have become major investors in stocks, bonds and artwork in the United States.

From the New York Times published December 15th, 1986

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Livable, lovable or leaveable?

The Pope — Tue, 10 May 2011 07:05:51 +0000

Asp pointed out this column in the financial times about Vancouver consistently making it into ‘top livable city’ lists, but not drawing lots of population or interest on a global scale:

Vancouver is Hollywood’s urban body double. It is famously the stand-in for New York, LA, Seattle and Chicago, employed when those cities just get too tough, too traffic-clogged, too murderous or too bureaucratic to film in. It is almost never filmed as itself. That is because, lovely as it is, it is also, well … a little dull. Who would want to watch a film set in Vancouver? To see its skyscrapers destroyed by aliens or tidal waves, its streets populated by cops and junkies, its public buildings hosting romantic reunions? Yet Vancouver (original name, Gastown) has also spent more than a decade at the very top of the charts of the best city to live in the world. Can that really be right?

No. Not at all. In fact, Vancouver’s boringly consistent topping of the polls underlines the fundamental fault that lies at the heart of the idea of measuring cities by their “liveability”. The most recent surveys, from Monocle magazine, Forbes, Mercer and The Economist, concur: Vancouver, Vienna, Zurich, Geneva, Copenhagen and Munich dominate the top. What, you might ask, no New York? No London? No LA or HK? None of the cities that people seem to actually want to emigrate to, to set up businesses in? To be in? None of the wealthiest, flashiest, fastest or most beautiful cities? Nope. Americans in particular seem to get wound up by the lack of US cities in the top tier. The one that does make it is Pittsburgh. Which winds them up even more.

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Global real estate hotspots

wreckonomics — Mon, 25 Apr 2011 08:55:46 +0000

Forbes has an item about the top ten global hotspots for real estate investment and there’s one pacific rim jewel that is missing.

The biggest fallers seem set to be Geneva, Zurich, Washington and San Francisco, while Vancouver falls out of our future top 20 entirely. The three biggest winners point to a rebalancing within Brazil, Russia, India and China, with the main cities to watch being Mumbai, Moscow and São Paulo. They look set for a dramatic upswing in their status, with each expected to climb by between six and eight places over the next decade.”

New York and London remain the No. 1 spots to invest in global real estate, but honestly, who can afford it? Soon, we may be asking the same thing about São Paulo.

Wait. Vancouver falls out of our future top 20 entirely? Why?!?

This post was submitted by wreckonomics.

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Bubbling up in the media

wreckonomics — Thu, 14 Apr 2011 08:11:44 +0000

Picture this: a noon news story on Global TV that has a financial expert talking about 25% house price declines in Vancouver. It happened and AJ Sull from Pacifica Partners Capital Management played the counterpoint to the Royal LePage argument that everyone wants to live here:

Of course, by the time the story was repeated at 6pm, it had changed a bit.

Meanwhile over at news1130 they’re reporting on Joe Castaldos warning to young buyers about the ‘normalacy’ of this market and the National Post has a comment about the lack of election talk around a Canadian housing bubble.

In a comment yesterday reader Real Professional commented about the medias difficulty in finding voices of balance when it comes to real estate. There’s no shortage of Realtors who long for that moment of airtime to raise their profile but when was the last time you heard somebody talk about the potential downside of the product they were peddling?

Even if a reporter can find talking heads for both points of view the publisher or broadcaster of the news product may be disinclined to upset advertisers. Reader Southseacompany points out this tidbit about Sun reporter Ben Parfitts early stories on the leaky condo crisis and pressure from advertisers to bury the news.

So what does it tell you if there are all these reasons why we don’t see mainstream media stories about housing bubbles, and yet we’re starting to see all these stories about a housing bubble? Reporters, economists, former politicians, etc.. Is this the tipping point?

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A strategy to beat rising interest rates

wreckonomics — Wed, 06 Apr 2011 08:23:47 +0000

RE/Max has released a report saying that the Metro Vancouver real estate market is being driven by first time buyers looking to avoid higher interest rates down the road. Did we get US style mortgages where you can lock in low rates for the entire mortgage term? Maybe I haven’t been paying enough attention.

Re/Max said the prospect of higher mortgage rates has prompted many of those determined to get into the market to act in the early part of this year.

It also noted the federal government’s newly implemented conditions for mortgages that reduced the maximum amortization period for government-insured mortgages to 30 from 35 years, and limited the amount people can borrow when refinancing their mortgages to 85 from 90 per cent of the value of their homes.

Led by the Bank of Canada’s relatively low benchmark rate of one per cent, homebuyers continue to enjoy mortgage rates that are low by historical standards. However, it’s not expected to last.

Just this week, most of Canada’s major banks hiked their mortgage rates, with standard five-year, fixed rates moving up 35 basis points to 5.69 percent a year.

Locking in for 5 years on 25-30 year debt because you expect interest rates to rise sounds like an interesting strategy.. Be sure to get as much as you can afford, because by the time you have to renew at a higher rate your income is sure to have risen tremendously right?

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Open political thread

The Pope — Mon, 04 Apr 2011 15:34:31 +0000

Alright, let’s talk politics. Who do you think will best guide the economy through any future troubles and which party will best handle the housing market from your point of view? Is that the same party you normally vote for?

This is the thread to tell us who your voting for and why, or who your voting against.

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Condo Sales and Marketing Tricks Part I

jesse — Mon, 28 Feb 2011 09:00:51 +0000

With a few new and old developments selling quickly in Vancouver it is time once again to open up the hood and take a look at various techniques (dare I say “scams” which I will use interchangeably throughout this post — apologies in advance) used by real estate salesmen and marketeers to move their product. I am expert in neither salesmanship nor marketing but do have a gargantuan tumor of skepticism.

This is the first in a planned series of posts surrounding sales and marketing tactics used in the real estate industry, focused mostly on BC but many tactics are universally applied pretty much everywhere. Sales techniques generally involve establishing: the good for sale is scarce, trust with the customer, the product has value to the customer, and the product has value to others besides the customer.

This first post concentrates on condo presales.

Confidence Scam

The technique I saw in action in Toronto. What happens here is that many prime units are listed as “SOLD” in big red letters on a big wallboard. Customers are obviously disappointed with this but a sales agent takes their number and will phone them if one comes available. Of course within a day or two they get a call, either indicating the unit is back on the market or the owner of the presale is looking to sell it for a quick profit due to some cash crunch or whatever. This works well when the customer believes they have an inside track to the prime units through the sales agent. In many cases ethnicity or other commonalities are used to their full advantage to foster trust.

This line of salesmanship is particularly offensive — it comes across as a gambling house scene out of the movie The Sting. The atmosphere is loud, fast-paced, and it’s hard not to think “something bigger” is going on and you need in on it. Phone calls from salespeople are filled with background noise and conversations are fast and interrupted, giving further sense of urgency. Include the trusted “insider” shepherding the buyer to the till, and the fix is in.

Now or Never

This works particularly well if you’re in the middle of a lineup. Salespeople can be pushy and fast, “requiring” you to sign a thick and complicated contract quickly. If you don’t buy now, they say, there are dozens more waiting in the line. The sense of urgency is thick, and an ultimatum is often given. Luckily in BC there is a cooling off period after signing a contract, where you can renege if you get cold feet. One hopes the adrenaline and endorphins wear off before that period ends.

Crying

Don’t laugh. Salespeople will cry to get a sale. Remember Gil, the Glengarry Glen Ross-esque salesman from the Simpsons? Don’t fall for it. There are many things to cry about in life; walking away from a “hard up” sales agent doesn’t even come close.

Lineups and Media Hype

The idea here is to produce the appearance of impending scarcity by producing lineups in lengths far exceeding the number of units being sold. If successful — and it often isn’t — the media are often quick to pounce on the opportunity of an easy story, and the positive feedback loop is closed. Lineups beget lineups and the development sells out quickly. The same technique is used at night clubs. We witnessed this recently with the new Metrotown Bosa condo/hotel development and to a lesser extent with the Village at False Creek.

Pre-selling to Insiders

This technique was used most recently by condo marketing virtuoso Bob Rennie on the Village at False Creek, where he claimed 30 units were sold to a select few “insiders” who got first kick at the can. This technique is useful because it shows customers that industry insiders have confidence in the market so the investment is a good one. In the case of the Village at False Creek, the astute will have noticed it was unclear whether or not the 30 presales actually completed. The wording of the press is a bit ambiguous:

“Rennie said it’s his initial goal to try to sell 60 condos in 60 days and he might already be more than halfway there. Last week, he did some market testing and got offers on 31 units, he said.”

Hm. He got offers but did he close? You need to close, man.

Bait and Switch, Lost Leaders, and Discounts

This is simply offering specific units at discounted prices but only having more expensive or less desirable units for sale. This is pretty common everywhere. Discounts are, again, pretty straightforward: slap an “up to 50% off” sticker on a billboard and witness a feeding frenzy ensue. The obvious question, of course, is up to 50% off what, exactly?

False Comparables

I’ve never witnessed this first-hand but, if a developer has other projects on the go close by, they can temporarily inflate asking prices, giving the sense that a particular unit is priced to market.

Condo Fee Discounts and Other Incentives

This is where the developer will, through agreements and warranties (some legally required, mind), provide a lower strata/maintenance fee for buyers. This can sometimes be done through straight incentives (offering to pay a certain % of fees for N months) or through a prepaid warranty. When these incentives end and the strata is flying solo, fees can escalate significantly. Other incentives include discounted financing rates (0.5% APR or whatever), cars, additional parking spots, paying the HST, the list is endless.

Add-on Fees

This applies to condos as much as cars. The sticker price isn’t necessarily what you’ll be paying. Be sure to look at the bottom line.

Walk-through

This is where presale buyers are only given a very short time to do a walk-through to look for deficiencies. Often only one hour is allotted. Any deficiencies (mostly cosmetic; large deficiencies are usually covered under warranty) not noted are the responsibility of the buyer. Think about this for a second: you buy a $500,000 asset and are given only one hour to find deficiencies?!? Does that seem reasonable?

Layout Changes

Often presale contracts are worded such that the developer has the ability to change suite layouts and this is laid out in the contract. CBC Marketplace did an exposee in early 2008 on this and other dirty tricks about 3 years ago. Make sure you know what you’re getting. If it’s ambiguous, well, I guess you know better next time. Go to the link for more useful tips on how not to get shafted. A derivative of this scheme is to produce showrooms with dimensions on the large side of what actual units will be. Vaulted ceilings and lighting are used to make a suite seem larger than it really is.

Forgetting about Parking

Many people incorrectly assume a condo comes with a parking spot. Not necessarily…

Developer Financing

This isn’t necessarily a scam but some developers have agreements with financing outfits to allow buyers to obtain mortgages. This can be an advantage or a disadvantage but, given how much other hanky-panky could be going on, I would be cautious dealing with these outfits. It may turn out to be a good deal due to reduced overhead or the developer throwing in incentives (mentioned above), but it may not be as good a deal as you think.

How to Protect Yourself

So what are the methods available to bolster a defense against being taken to the cleaners? Some people suggest using a buyer agent to help guide you through the morass. To this I suggest, even then, it pays to tread carefully. If a buyer agent is paid only on a successful closed sale, there is an inherent and unavoidable conflict of interest to close the deal. I would even suggest using an agent on a fixed retainer, and use someone who you know well, if that’s possible. Additionally, if you have a trusted friend or family member who knows some of the pitfalls to avoid when buying, employ them and get multiple angles of advice. Friends and family, in my experience, have often been more lucky than competent so even that advice should be evaluated carefully. It should be self-evident to retain a lawyer who is working for you, and paid the same regardless of your end decision.

As an additional aid, I prefer to concentrate on the numbers and blatantly ignore sales tricks. It comes down to the price and what income (imputed or rental) I reap from it. If you know what you’re willing to pay beforehand, it’s dead easy to walk away. I haven’t been into a condo or presale sales room for a while now simply because the numbers don’t work for me and it’s doubtful the price could be negotiated sufficiently lower to where they do.

You can attempt to change clauses in the presale contract more to your advantage. Given the complexity of the contracts this is no small feat. If sales are slow, however, it can’t hurt to try crossing off every clause that is not to your advantage. Remember how much money is at stake: hundreds of thousands of dollars of your income, past and future. In the corporate world, a contract of that size typically go through several revisions, sometimes major, before they are signed, as well as many hours confirming the contract is in the best interests of the company. Why not with a condo purchase?

Conclusion

Condo sales and marketing is fraught with different techniques designed specifically for extracting as much money from you as possible. I have attempted to list a smattering of the usual tricks for your perusal. Check out the comments for more tips and warnings from our loyal readers. This is not to say that buying a presale condo is always a bad idea; this blog would simply encourage you to properly account for the risks and be cognizant of the sales tactics used.

© jesse for Vancouver Condo Info, 2011. | Permalink | 95 comments | Add to del.icio.us
Post tags: condo, hype, marketing, presale, sales, scams

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The Village Selling Well

jesse — Mon, 21 Feb 2011 09:00:16 +0000

This blog has highlighted many of the stories surrounding the Vancouver housing market with a bearish tinge. But often I find myself cheering for the other side, most notably with the sad state of affairs over at the Millennium Water Village at False Creek development, where thaumaturgist Bob Rennie and a maniple of marketeers have been tasked with selling the remaining units to recoup some of the money the City borrowed to complete the project. I provided some estimates of projected losses a few months ago, based on average price per square foot. Hoodsurf provides the quicksheet of the approximate pricing.

Well wonder of wonders, it looks like the opening weekend was a stupendous success. The BC forum/Gong Show Realestatetalks has filled in some anecdotes from the front lines. Apparently over 70% sold over the weekend with an additional waiting list of 100.

Is this a bullish sign for Vancouver? Well I don’t know about that. A look across the water from the development yields well over 1000 condo units for sale. Here’s a map search of a small smidgen of the downtown core courtesy MLS map search:

Why aren’t these units selling? Was the Village at False Creek well-priced, or was it simply the red “30% off” stickers on the unit doors? What we do know is that there are now over 100 fewer people who will be available to buy these units already for sale. The weekend was marvelous for showing, a crisp sunny weekend, and that couldn’t have hurt.

It’s useful to pay attention to the tactics employed by Mr. Rennie, including

Withholding specific price information, only ranges
Pre-selling certain units to “insiders”, giving the pricing some semblance of acceptability
Blitzing the print and TV media in the week leading up to the event
Telling City Hall to go into a room and talk to nobody

Heavens knows what went on behind closed doors…

I commend Bob Rennie for ostensibly pulling this matzo ball out of the fire, at least in part. The discounts were significant and apparently “aggressively priced” compared to comps. That certainly helped, along with his ability to tap into the local media and his many years of experience punting real estate. In my view, based on cap rates alone, even at current price the development is significantly overpriced, as are most if not all condos in Vancouver these days.

This development was facing off the taxpayers of Vancouver — and the public services it offers — versus individuals who can afford to buy expensive real estate. In speculative bubbles like this one, for me it’s not about who wins and who loses, it’s the depraved entertainment of seeing wild animals fight over scraps of meat. But on this specific occasion, I was rooting for Bob from day one and, for today, to him I tip my hat. Well done.

Sincerely,

A bearish blogger

© jesse for Vancouver Condo Info, 2011. | Permalink | 96 comments | Add to del.icio.us
Post tags: condo, hype, millennium, rennie, vancouver

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A sustainable housing market.

The Pope — Mon, 24 Jan 2011 09:45:13 +0000

Many people have pointed out this CBC news video about a couple of recent sales in Vancouver and VREAA has a good breakdown transcript of the story and some opinions on it.

This story has everything you need to kick off another year of real estate mania in Vancouver BC: a dilapidated tear-down selling for half a million over asking price, hundreds of thousands in profit for holding a house for a couple of months, whispers of wealthy foreigners and a grinning salesman hoping it never ends.

So what do you think? Can the multi-year rise (pretend 2008 didn’t happen) in Vancouver house prices carry on indefinitely? If you’re bearish on the local market are you starting to doubt your outlook? Does the current market have you thinking about moving to a different economy or just taking on a giant CMHC backed mortgage and buying here? How is the Vancouver real estate market affecting your day to day life and outlook?

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90% off Vancouver house prices!

The Pope — Wed, 22 Dec 2010 05:15:33 +0000

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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Porter: Debt to Asset ratio is key

The Pope — Thu, 16 Dec 2010 09:39:58 +0000

It’s Debt-week here on Vancouver Condo Info! Following up on yesterdays story about the Mark Carney interview (which was a follow up on Mondays BOC warning about Canadian debt levels) we have a response from Doug Porter of BMO:

“The continued laser-like focus on debt overshadows the other half of the balance sheet,” BMO chief economist Doug Porter said Monday.

Namely, Canadians are borrowing. But they’re also saving, and they’re worth more than they used to be.

The savings rate has averaged four per cent over the past year and is now below the U.S rate of 5.8 per cent. But Canada’s rate is now more than double the level it was at during its all-time low in 2005.

And as Porter notes, Statistics Canada’s rate of personal savings as a percentage of disposable income doesn’t give the full picture of how much Canadians are actually saving.

The current rate narrowly looks at how much households are saving from current income but ignores unrealized capital gains as well as returns in tax-sheltered vehicles like RRSPs and tax-free savings accounts, Porter said.

A better measure might be to track the change in household financial assets as a share of income. It’s much more volatile (prone to 50 per cent swings in both directions within the same year), but for the last five years, it has hovered at roughly double the published savings rate. And it’s never gone below the conventional “savings rate” in the last 15 years.

Yes, it might be better to use a measurement that’s prone to 50 per cent swings in both directions within the same year, as long as it presently looks good, but what happens if asset prices fall, or interest rates rise? In his interview Mark Carney pointed out the embarassingly obvious flaw in this argument:

“The debt endures, the asset prices go up and down,’’ he said. “People in Ireland, people in Iceland, people in the United States that took out big mortgages on assets that were worth a lot more for a long period of time, found out that the asset’s not worth very much but the debt’s worth exactly what it was when I took it out.’’

The extreme example would be Japan, where despite long term zero percent interest rates, home prices dropped dramatically over their ‘lost decade‘. A home owner in Japan would have a very decent debt to asset ratio at the peak of their bubble in 1989, but just five years later that ratio would have gone negative by as high as a factor of ten.

Meanwhile over at BMO, they’ve listened carefully to Mr. Porter and Mark Carney. After weighing the merits of both points of view they promptly raised mortgage rates as much as .25% for the long term.

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Vancouver loves hot asian money.

The Pope — Thu, 25 Nov 2010 09:15:18 +0000

There’s an article in the Globe and Mail that asks that classic question “Is Vancouver in a real estate bubble?“. Well.. actually it doesn’t really ask that, it’s just titled that. What it really explores is Realtor anecdotes about wealthy foreign buyers.

If “buyers from China” answers the “who” question about Vancouver’s unique real-estate market, the follow-up question—“Where is this leading?”—is harder to answer. The torrid affair between eastern Asia and Vancouver real estate, now in its third decade, is actually a love triangle from which each party derives very different things. When wealthy Chinese immigrants buy property in Vancouver—and they utterly dominate the top end of the market—they’re actually buying a form of insurance. What the federal and provincial governments get out of these newly minted Canadians turns out to be a modern form of the infamous head tax that was imposed on Chinese migrants in the 19th century. And what Vancouver gets is an economy that boasts a lot of froth, and not much substance. From all three angles, it feels like a relationship that is built not so much on Commitment as on enjoying the good times while they last.

Ah yes, the wealthy foreign buyer and their almighty impact on the market. I guess we’ll just have to trust the Realtor anecdotes, since that’s all journalists seem to rely on when writing these articles.

.. Gosh, wouldn’t it be nice if there was some actual data on foreign buyers? Wouldn’t it be really great if someone sat down and put those numbers into perspective?

Oh! Look! Somebody has.

The article outlines a typical scenario in which, “one of the parents, usually the wife, moves to Canada with the children while the husband stays in Asia, coming for visits when he can.” So the number of total investor immigrants represents 2500 households at best! When this number is compared against the total annual sales volume for the Greater Vancouver area, we find that it accounts for at best 7% of total sales! That puts things in a whole different light, doesn’t it? As it turns out, rich Asian investors undoubtedly account for less than 10% of the total sales volume, and I would suggest that it is likely significantly less than that given the propensity of many Asian cultures to live in extended family (multigenerational) households.

Now given that the entire article is premised on the argument that there are lots of rich Chinese investors coming to Vancouver to buy extremely expensive houses, the above data calls this foundational assertion into question. In fact it leaves it in a smoldering pile.

Go read the full post over at the Financial Insights blog.

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Inside China’s Housing Bubble

specuskeptic — Mon, 22 Nov 2010 09:13:15 +0000

This Salon article is relevant if the Chinese have an effect on the local market… and possibly some lessons to learn.

Money shot:
“But as one employee of the factory told me, the primary force pushing Guangxi’s economy forward is housing. In fact, the land upon which the factory was situated had become so valuable that the company was planning to sell it and move to another location — that was the primary business development plan!”

That’s a new twist on the flip.

…….

“One government official we spoke with on Thursday, representing the Guangxi Ministry of Commerce, apologized to us for the fact that the building we were meeting in had “only been built in 1995.” If you want to know what 10 percent economic growth, compounded annually, looks like, a visit to the city of Nanning offers a visceral introduction. But it also sounds a warning bell.”

Read the full article over at Salon.com

This post was submitted by specuskeptic.

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Who wants $75 bucks?

The Pope — Wed, 17 Nov 2010 08:23:33 +0000

Who wants free money?

..or a free barstool?

Ok.. so it’s credit actually and not entirely free – but it’s still a very good deal. We’ve been approached by CSNstores.com to give away a $75 gift code to use on any of their sites, including allmodern.com, cookware.com and everygameroom.com. Go ahead, treat yourself to a foosball table or an acid green bear lamp.

So how do you get the credit? Well we’re a random meritocracy sort of site, so here’s how it will work. Any registered member that submits a story within the next two weeks (or already has a published story) is entered to win the credit. We’ll take the total number of submissions and put them into the random number picker over at random.org to select the winner. The $75 gift code will then be emailed to the address associated with the winning members account and you can do whatever you want with it*.

Just a few simple rules: Add your article submissions at http://vancouvercondo.info/submit. you can submit as much as you want, but each submission must be original content. If you link to a current news story you must present your own opinion or analysis on it at the very least. Copy and paste content will not be accepted. Content must be submitted before midnight November 30th, but may not be published until after that date.

We’ve had a good run of community submitted comment lately and would love to see this continue. Thanks all!

*What you do in the privacy of your own home is up to you. Promo Codes can cover domestic shipping costs within the US, but there are some International Shipping taxes and duties that it will be unable to cover, but hey.. $75 bucks.

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BMO cuts rates “great time to buy”

The Pope — Thu, 02 Sep 2010 07:01:04 +0000

The ‘increasingly wobbly’ Canadian housing market is getting a boost from the Bank of Montreal with a mortgage rate cut and aggressive news release.

“It’s a great time to buy a home,” Martin Nel, a senior BMO official, said in news release announcing the change. He added that people who take advantage of the offer will benefit.

“If ever there was a time to buy, it is now,” Mr. Nel said.

The move which takes effect Thursday brings the bank’s key five-year rate to 3.59%, down from 3.79%, making it one of the lowest five-year rates ever offered by a Canadian bank, says industry newsletter Canadian Mortgage Trends.

But some experts are already scratching their heads because of the aggressive tone of the announcement as well as the timing, given the recent spate of warnings about the uncertain state of the market, including one earlier this week from the Canadian Centre for Policy alternatives predicting an imminent collapse.

When the big banks make mortgage rate changes they generally just disclose the new numbers without commenting on housing market conditions. If pressed, bank officials are usually quick to explain that the change in these consumer lending rates are merely a function of fluctuations in their own borrowing costs.

“It’s a bit puzzling to me,” John Andrew, a professor at Queen’s University’s School of Urban and Regional Planning, said of the BMO announcement. “Perhaps they are concerned that the number of new customers will fall off precipitously.”

And why would they care about a drop off in new customers? Ah, here it is later in the article:

The housing market is important to the banks because residential mortgages make up the single biggest asset class on their balance sheets.

There are nearly $1-trillion of home loans outstanding, according to the Bank of Canada, about half of which is held by the chartered banks.

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What to do about falling prices.

The Pope — Wed, 11 Aug 2010 09:08:44 +0000

No Longer Looking points out this great editorial in the Vancouver Sun. I’m trying to figure out if it’s intent is the calm people about the Vancouver real estate market slow down, or freak them right out:

I penned this editorial to calm fears that the real estate market in Vancouver was collapsing and I’ve added some brief comments at the end.

Living in Canada’s most expensive housing market, residents of the Lower Mainland are obsessed with real estate prices and mortgage rates.

And no wonder. The benchmark price for detached homes in Metro Vancouver last month was $793,193. A down payment of 25 per cent would leave the buyer with a mortgage of $594,894, in which case a difference of just one percentage point in the interest rate can vary monthly payments by $500.

In comparison, the average price of a house in the Greater Toronto Area is $420,482. The standard down payment brings the mortgage to $315,316 and the interest rate impact to $260.

They recommend NOT walking away from an underwater mortgage – just keep paying more than they house is worth, after all:

..it might be a few years, perhaps a decade, before real estate prices return to the heady levels of 2007. But there’s a good chance they will.

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