Monday, January 7, 2013

Is Macleans correct? Is Vancouver already crashing?

Saturday's post about Maclean's magazine's cover story is clearly the hot topic in real estate circles right now.

Besides bringing the collapsing housing bubble issue front and centre, the real estate industry is all a tither about the defacto way in which Macleans presents it's argument.

The angst is best summed up by this tweet from the website Canadian Mortgage Trends (click image to enlarge):

The industry is pissed Maclean's didn't allow access to their spin.

Local Richmond realtor, Arnold Shuchat even popped by our little corner of the internet and offered the following response to the article in our comments section:
As usual, the general press when trying to get into the specifics of a particular industry without any detailed knowledge of same creates eye popping headlines which are of more relevance to its business than to the target of its supposed study.
Faithful readers have been jumping all over 'Alphabet Arnie' (a moniker one commentator dubbed him with for using his education credentials after his google ID), but it is worthwhile noting that Mr. Shuchat is one of our local real estate agents who has been very upfront about the evolving maket conditions during the past year.

Shuchat regularly provides copious market data about price declines.

Every week Shuchat will post the top 10 price declines for properties in Richmond as well as keeping track of notable price declines in various neighbourhoods around Richmond.

As he notes:
The average observer may have had his head in the sand in Vancouver, but the market has already moved down some 25% depending upon the particular sector.
When was the last time you saw a realtor come out and tell you the market has already dropped 25% in places?  Instead all we hear from most is that the market is 'flat'.

Shuchat is from Richmond and as we know all too well, Richmond has been ground zero for last year's implosion ever since the images of the Japan Tsunami spread around the globe.  

[One wonders how Friday night's Tsunami warning might jar memories for prospective buyers considering the delta lands in the coming months, but that's a topic for another post]

Notwithstanding, Shuchat acknowledges he is in the eye of the current collapse.  But going forward he see's things starting to turn around:
Being right in the middle of it, I detect a renewed vigor among buyers as of the end of November... I see prices holding firm and buyers coming back in. The effect of all this now, is that garbage will not sell as fast as it would have and properties will have to be better prepared for the sale.
Shuchat says many Richmond properties are owned by people who "do not have to sell."

Finally Shuchat notes:
Frankly, from the inside of this industry, I think MacLeans missed their call by about 8-11 months in the west coast market, and, short of producing additional fear into the market by their article, signals to me that additional opportunities can be reaped in the existing climate by betting against broad brush articles with incendiary pictures produced by newsmaking press.
The incendiary pictures being painted by the newsmaking press are their attempt to capture what is actually happening.  With that in mind, I can't help but focus on a key point Shuchat makes: that Macleans has missed their call by about 8-11 months.

Has the market been 'flat' the last half year or has it been crashing for about 8-11 months?

Fellow blogger Observer, at his blog Vancouver Price Drop, brings this question to the forefront  in his latest post and offers a stunning comparison between Vancouver  (at our current stage of our collapse) and with what has happened in the United States.

How does Vancouver compare with other US cities at the same stage of the popping of their real estate bubble?

In Vancouver, the peak looks to have been May 2012.  

If we look at the westside of Vancouver, 6 month into the unwinding we are down -8.6%.  

After 8 months we are down -11.1%. 

At this rate it's not a stretch to believe it will be down 15% after 12 months. 

Using the Case-Shiller data for single family homes, how does this drop stack up against our US counterparts? (click on image to enlarge):

6 months into our drop, Vancouver's westside had dropped 50% faster than ANY AMERICAN CITY! And we are on track to be ahead of all cities, except Miami, after 12 months.

As Observer notes, this is not a "flat housing market" nor is it a "soft landing."

Maclean's is really the first mainstream media to report on what is happening.  Given the dynamics of the recent mortgage rule changes, current evolving economic conditions and levels of Canadian household debt... they don't see the conditions that will put the brakes on this slide.

How can you blame them for forecasting anything but a crash?

It will be interesting to see their cover six months from now.


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Please read disclaimer at bottom of blog.


  1. Not sure if this is a useless question with an obvious answer or not, but why should mortgage brokers care about home prices?

    Of course, the answer is that prices that are in an upward trajectory increases transactions --> more mortgage transactions. Once again, that proves the necessary bias of the mortgage brokers for a strong RE market.

  2. But this ship can't sink!
    Thomas Andrews: She's made of iron, sir! I assure you, she can... and she will. It is a mathematical certainty.

    (Titanic, 1912, North Atlantic Sea)

  3. But this ship can't sink!
    Thomas Andrews: She's made of iron, sir! I assure you, she can... and she will. It is a mathematical certainty.
    (Titanic, 1912, North Atlantic Sea)

    1. Na, it's just a dent...

    2. you forgotten to add "Na, it's just a dent..." Realty Ponzi Pusher. MBA, LL.B., B.C.L.

  4. Some factors can affect the outcome of the forecast. We never know, but hopefully RE prices will remain favorable to consumers.By the way, Titanic sunk near new found land on its voyage to New York city from Liverpool England.

  5. I wonder if Mr. Shuchat put aside some of the gains made during the upside of the bubble. He’s going to need it. The conditions that created the bubble are gone. The high end was sustained by a wave of nouveaux riche from Asia and CMHC backstopping of loans for high priced houses, now discontinued. There are new restrictions on immigrant investors. China’s economy is showing signs of weakness. And why would foreigners invest in Vancouver's falling market when, south of the border, house prices are beginning to show a rebound? The low end was created by easy access to cheap credit. That has been tightened significantly. A bubble is both an economic AND a psychological phenomenon. Once prices start to fall, speculative mania is replaced by fear. This is why bubbles as extraordinary as this one have a powerful tendency to overcorrect. Prices can fall farther than the predictions of the most pessimistic observers.

  6. um....where to begin with the hypocrisy of the RE insiders?

    If you call it in the first month of the correction.... no, not a correction, there is no data to prove it!! Call it when 8-11 months of data are clearly now showing it IS correcting, you are a lazy laggard... and an alarmist telling only one side of the story!!

    I for one am so sick of the RE insiders and the MSM -- how many times, month after month after month after month did we have to endure the endless fearmongering of buy now or be priced out forever?!!

    These douches can all go frack themselves...!! ;-)

  7. I like how when MSM is helping the RE industry pump up sales with the banks providing the fuel the same people are very supportive (even though none of the articles provided any counter points as to the insane nature of the gasbag we have built) that as soon as the coin flips they freak out about how its not fair or correct lol.. morons. Darwin is about to have a field day in Canada, a financial field day..

  8. hey...keep the monkey out of this! ;-)

  9. I was searching my email inbox the other day for strings from the downswing in 2008 when I thought the bubble had began burst. I was quick to jump on the 'its crashing bandwagon' and blew my horn for all to hear. At that time I was not as well versed in factors contributing to Vancouvers/Canadas real estate market and was only going on the textbook real estate upward spiral/spring model.I felt like an idiot when the gov's measures were rolled out to keep this market propped up. After that the whole industry went into crazed junkie mode and made it inflate twice as fast getting high on money and fear. Well, the artificial help this bubble received from Ottawa has left town in a hurry like a scam artist in a snake oil cart. Its over folks and there is no help on the way.

  10. That chart is interresting however i'm not sure if it's an apples to apples comparsion. We would need to compare the "west side vancouver" equivilants for each of the major cities in the charts or compare the average % drops across Vancouver. I do believe there will be a drop not a soft landing but the comparison above just doesnt seem to be quite balanced :)

  11. Alphabet Arnie here. It is by chance that I happened to find all this commotion. I couldn't help but notice the spike in activity on my site thanks to Googleanalytics following my comment on the McLean's article on your blog. Had I known that certain credentials might lead to such attitude, I would have studied for a degree or two in "Anonymous", perhaps leading to the initials A.N.O.N., but I digress.
    I will ignore the negative "realtor" trash from the "anons". I will tell you this:

    1. In Dec 2010 & January of 2011 my newsletter advised my clients to sell half of their local real estate positions if they had more than one residential property;
    2. I required from buyers, double the usual deposit amount to protect my listing sellers in anticipation of a shocked market;
    3. All of those who took my advice are quite content.
    Most people do not have a second property. Their investment in their home is a hedged one, in that they enjoy and live in it. Not many homeowners who hail from this country at least, are prepared to get out and sell their property just because of price without considering principal family and life-cycle issues. Where are they going to move to? This makes residential housing as a market, different from the stock market.

  12. cont'd from previous post...
    In addition, nobody would expect to call a stockbroker, ask how much the shares of say, Coca Cola are trading for, get the answer "$66.00" and then proceed to put a sell order in for $85.00, because "We are not in any hurry" and "my neighbour sold his shares for $70.00" and we think the market is moving up. In the stock market, you are out in a matter of minutes "at market". In Lower Mainland real estate, such is not the case, at least any more. But owning a house, contrary to what many homeowners think, does not make one an expert on the market. Hence, listing a property for what some seller "wants to get" in a stalled or descending market necessarily requires months of frustration and produces exaggerated price reductions until the proper market price is reached. That "exaggeration" helps to fuel the "bubble" verbiage.
    Some of us charged professionally with advising clients in real estate have a finger right on the market pulse and are not paid simply for filling out paperwork for a transaction. That is the difference between a full-service broker and say Ameritrade where one can get a stock trade executed for $7 in some cases.
    What bothered me about the McLean's article is that I am tired of seeing mediocre reporting whether it be in terms of investment analysis or real estate that does not set out solid analysis to enable readers to form an opinion on where things might go.
    In my experience, whether it be in relation to the stock market or the real estate market, the real money is made on the buy side by buying right. And, that time is not when everyone else including the newspapers and the press says it's time to buy. Smart investors sell into market strength and buy on bad headlines.
    My comments about finding buyers coming back to the market is my own experience. They want to move out of their parents' houses, move up from the cramped townhouses, stop renting etc... These people know that at a 25 year amortization schedule, 47% on average of each of their monthly payments over the first 60 months goes towards repayment of their principal loan, and given of the very shoddy rental accommodations in my market, that is an attractive proposition for some of them.
    In conclusion then, so that we all understand each other, A McLean's article back in early 2011 would have been something much more interesting than the one that came out telling us what already happened. At that time though, it would have been difficult to show a front cover with real estate burning.
    As for where we go from here, which is the million dollar question, I will leave that for the "anonymous" experts. You can also keep buying McLeans so that you know perhaps when to buy back in, if they write again, if, as and when the market has already moved up 25%.
    By the way, cute dog... English Lab?

  13. It's been more than six months. Have they printed a retraction?