Real Estate

Vancouver housing bubble?

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Nov 3, 2002
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http://www.greaterfool.ca/ wrote:Here are three homes of note, now suffering Mr. Market’s spanking.

“Eagles Landing.” 3275 Campion Rd . Originally listed at $10.8 million. Now $6.7 million.
“Ardmore Hall.” 9344 Ardmore Drive. First listed at $13 million, then reduced to $8.4 million, then $7.99 million, and (this week) $6,188,000.
“Villa Madrona.” 660 Lands End Road. It hit the market at $19.2 million, became $18.7 million, then $9.9 million, and (this week) $6,998,000

The total dollar reduction for these three homes is almost $27 million, for an average decline of 57.5%.
This is from Victoria.
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May 30, 2012
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adamtheman wrote:
Jun 5th, 2013 9:40 pm
Who are they? Is that the rumour du jour? People with bags full of money sitting on the sidelines waiting to buy up all the homes after only a 15-20% drop? Not sure about that.

What people always fail to recognize when prices decrease is buyer psychology. If I had a home worth $1 million dollars in Vancouver today and I came up to you and said, "Hey, I'll sell you this for $800k right now", you would probably jump on it. It would be a great deal. You get a $1 million dollar home for $800,000.

But if we flash forward 3 years from now, and the house is only worth $800,000, and I come up to you and offer it to you for $800k, suddenly you won't be so anxious to buy it. You'll be scared of how much the market has fallen and probably overly cautious to buy anything. House prices will be dropping all over the place. It's the same reason why the stock market crashed in 2008, and why no one bought stocks even when the S&P 500 was severely underpriced - FEAR. So people can sit here and say that they would buy a house for a 20% discount, but it won't be a 20% discount when that time comes - it will just be market value.
true... however ppl are also afraid that if I don't buy the 800k now, someone else might... and the price might go up next month.... interest rate could go up if i don't fix my mortgage....
that's why price sometimes simply adjust... instead of a crash.... i'm not saying that a crash is out of the question... I'm just saying it's still premature to call a 50% crash.... today or a few years ago....
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iownyou wrote:
Jun 7th, 2013 9:38 pm
true... however ppl are also afraid that if I don't buy the 800k now, someone else might... and the price might go up next month.... interest rate could go up if i don't fix my mortgage....
that's why price sometimes simply adjust... instead of a crash.... i'm not saying that a crash is out of the question... I'm just saying it's still premature to call a 50% crash.... today or a few years ago....
Of course nobody knows precisely what the future holds, but at least to me, it is pretty clear that there is a huge valuation gap between wages, prices of other consumer goods in the economy, long-term interest rates (ie: bond prices), and the prices of other investments such as the equity of firms that actually provide employment in Canada and elsewhere.

Could this mean that instead of a 50% drop in house prices, we're due for a doubling of wages? A tripling or quadrupling of the stock market? Of course.

But things like rents, wages, typically move rather slowly, especially when there's neither a shortage of housing, nor a shortage of labour. So we have to look at what is left as a realistic option, and a fall in house prices seems to fit the bill. Of course, nailing down a timeframe is problematic.
TodayHello wrote:
Oct 16th, 2012 9:06 pm
...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
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Based on the relationship we have observed over the last 14 years between real estate prices increasing as (mortgage) interest rates have been decreasing, I am expecting that house prices in Vancouver will noticeably fall when interest rates start to increase (or there becomes a fear that that interest rates are really ready to rise). Until then, people seem to keep exchanging homes for money and based on what I have seen just driving around, signs keep going up, and places seem to be selling relatively quickly (within first 2 weeks of sign being seen and certainly within 4 weeks). I do think that this market is selecting for sellers that are putting their properties on the market with the goal of selling and pricing their homes accordingly but I am surprised that the buyers are out there at these still really high prices and uncertain future. And of course the mortgage promotions are continuing to tempt people who qualify for the financing.
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choclover wrote:
Jun 9th, 2013 12:11 pm
Based on the relationship we have observed over the last 14 years between real estate prices increasing as (mortgage) interest rates have been decreasing, I am expecting that house prices in Vancouver will noticeably fall when interest rates start to increase (or there becomes a fear that that interest rates are really ready to rise). Until then, people seem to keep exchanging homes for money and based on what I have seen just driving around, signs keep going up, and places seem to be selling relatively quickly (within first 2 weeks of sign being seen and certainly within 4 weeks). I do think that this market is selecting for sellers that are putting their properties on the market with the goal of selling and pricing their homes accordingly but I am surprised that the buyers are out there at these still really high prices and uncertain future. And of course the mortgage promotions are continuing to tempt people who qualify for the financing.
Yeah there will always be some activity, of people trading houses amongst themselves. Sell a $1M house in Richmond, buy a $1M house in North Vancouver, for example. Or however that shakes out.

However, with the CMHC limit being effectively hit, the problem is, the new buyer really isn't in the market anymore. But there's still a robust amount of supply. Which, even in the absence of interest rate changes, certainly does hit the market and lower prices. Since the asset class certainly isn't cash flow positive (after expenses), there's no reason to expect house prices to naturally grow on their own. Nearly everyone who is sitting on Vancouver RE is slowly watching their equity bleed away in real terms.
TodayHello wrote:
Oct 16th, 2012 9:06 pm
...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
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Nov 3, 2009
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A quick bit of anecdotal info on the houses in my area (Grousewoods, north Canyon Heights)... after a few months of little activity *boom*, almost everything sold in the last two weeks. Quite surprising. Dunno if they all took a haircut, or if people realize how nice this area is once the rain is gone, whatever.

That said, unless they all took at 40% discount, it's still a better deal in this neighbourhood to rent than buy.
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Apr 12, 2012
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North Vancouver
[QUOTE]A quick bit of anecdotal info on the houses in my area (Grousewoods, north Canyon Heights)... after a few months of little activity *boom*, almost everything sold in the last two weeks. Quite surprising. Dunno if they all took a haircut, or if people realize how nice this area is once the rain is gone, whatever.[/QUOTE]

It's the season to be moving and buying homes - it's just a cycle that's you and everyone else in every market is seeing. We just bought a house in the Norgate area and homes there go from 700k (needs fixing) to 900k (fully renovated) 3/4 bedroom - 1400sq ft with a backyard.
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CingKrab wrote:
Jun 14th, 2013 8:04 am
http://www.cbc.ca/news/business/story/2 ... -bank.html

Not Vancouver but Bank of Canada is worried about the excess supply in the Toronto condo market.
Well no kidding, we're already on the brink of deflation, and there hasn't even been a complete de-celebration of the housing market and housing prices.

BoC is likely behind the curve right now in terms of interest rate cuts. And the BoC ought to be very alarmed at the existence of a rogue and unregulated bank in Canada's economy, the CMHC, with nearly $1T in subprime mortgage assets and 50X leverage.
TodayHello wrote:
Oct 16th, 2012 9:06 pm
...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
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CingKrab wrote:
Jun 14th, 2013 8:04 am
http://www.cbc.ca/news/business/story/2 ... -bank.html

Not Vancouver but Bank of Canada is worried about the excess supply in the Toronto condo market.
Veritas Investment Research released a paper back in September 2012 about the grim reality of Condo market. The bottom line paints a picture of excess supply, low returns and a tightening credit market. Essentially heading for a bust than a boom.

A few memorable quotes:
No mortgage pre-approval was required to buy a unit. This is surprising, because the banks generally talk about pre-approvals being in place for approximately 70% of units before the development loan is released to the developer. We are unsure of the ramifications as the sales staff might have been less focused on pre-approvals given the particular circumstances (Project X sales staff claimed > 70% pre-sold, and Project Y financing is being provided by pension funds). Only a valid driver’s licence was required to purchase a unit, along with a down payment cheque.
The sales staff stretched the truth (mightily). The salesman at Project Y misrepresented immigration statistics, saying 70% of immigrants settle in Toronto and that 370K immigrants in total are expected next year, when the real numbers are 30% and 250K. Meanwhile, at Project X, the saleswoman said achievable rents in the neighbourhood are $3.50/sq. foot; we have checked rental rates at a number of nearby condos, which are actually in the $2.50-$3.00/sq. foot range.
At one sales centre, BMO was willing to lend half of the required 20% down payment. Apparently, BMO is qualifying the prospective borrower on the full mortgage before approving the down-payment loan. Nevertheless, it is indicative that the industry is bending over backwards to make it easy to take the plunge and buy.


Here's a link to the paper:
https://jumpshare.com/v/nKj4Bw21ZuNY4Ma ... 2DSYYLTNJQ
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Jul 23, 2011
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I believe what you see in Krugman's charts is a focus on Canadian real estate from investors since '08 crash whereas in US the prices have adjusted. How long would this focus lasts is anybody's guess but it won't be forever. In any case, the market is too hot and this isn't the 90s where you're sure to make a buck on your investment.
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Mark77 wrote:
Jun 7th, 2013 10:38 pm
Of course nobody knows precisely what the future holds, but at least to me, it is pretty clear that there is a huge valuation gap between wages, prices of other consumer goods in the economy, long-term interest rates (ie: bond prices), and the prices of other investments such as the equity of firms that actually provide employment in Canada and elsewhere.

Could this mean that instead of a 50% drop in house prices, we're due for a doubling of wages? A tripling or quadrupling of the stock market? Of course.

But things like rents, wages, typically move rather slowly, especially when there's neither a shortage of housing, nor a shortage of labour. So we have to look at what is left as a realistic option, and a fall in house prices seems to fit the bill. Of course, nailing down a timeframe is problematic.
But it's completely different market right now (and in the past 5 or 10 years) then when my parents had a mortgage for example. Yes, housing has increased faster than wages, but that's primarily because interest rates have dropped.

For example, the banks usually qualify people at 35% or 40% max of their take home pay. My parents never had an interest rate lower than 12% when they had their mortgage...no wonder house prices were $120,000, interest rates were 4 times what they are today. Shouldn't affordibility be the biggest thing that will cause a housing collapse? Looking only at the National average of around $375,000 for a house, with only 20% down, the purchaser would require a mortgage of around $300,000. With a 3% interest rate, you're looking at monthly mortgage payments of just over $1400 on a 25 year amortization. That is easily affordiable for a family making average salaries in Canada.

So what's going to cause affordability to drop? A dramatic increase in unemployment, where all signs point to a decrease or a dramatic rise in interest rates. I don't think anyone expects dramatic interest rates increases, especially when deflation seems to be the talk right now.

It's 5 years old now, and I still don't see a catalyst for a 50% in the housing market. It has to be one of those 2 things, a doubling (or more) of the 5 year rate or a dramatic increase in the unemployment rate (15% or higher). Which of these are the RE Bears projecting will happen??
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Apr 7, 2013
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Vitalogy80 wrote:
Jun 17th, 2013 4:04 pm
It's 5 years old now, and I still don't see a catalyst for a 50% in the housing market. It has to be one of those 2 things, a doubling (or more) of the 5 year rate or a dramatic increase in the unemployment rate (15% or higher). Which of these are the RE Bears projecting will happen??
That's assuming that the market has absolutely no speculation in it. If that were true, then prices would have never gotten as high as they currently are. Right now if I kept renting the house I have, as opposed to buying it with a 25yr mortgage at a 3% rate, I would come out with more equity by renting, due to the interest on mortgage payments, taxes, utility costs, repairs, insurance. This assumes 0% appreciation over 25 years. No drop, no gains. This would be a person's financial assessment if there was absolutely no speculation.

We all know it's not like that though. We assume there will be price changes! Most people during the past decade have assumed it will appreciate (and they've been right). What happens when people start realizing it's not appreciating anymore? All of a sudden, it seems like a poor decision to buy a house or hold your house. Speculators are much more likely to sell at this point, driving the price down. This causes more people to panic, and sell as well.

The chain in my mind goes like:
1. Young professionals, immigrants, etc. come to Canada and look at buying a house (new buyers)
2. They do some financial calculations and realize it makes no sense to buy.
3. Housing levels off because there are fewer new buyers.
4. Speculators, etc see the prices faltering and sell as well, causing further declines, and more panic sells.

I fit into the first two steps, and decided not to buy. It just made no sense. Anyway, my point is that commodities bubble and crash all the time, with no need for an external trigger. It's just part of the natural cycle for humans to be exuberant on the way up, and panic on the way down. Housing is so slow though. I think we're going to see this take a lot longer than some people in this thread think it will.

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