TD's Mortgage Clause change creating big stir. Catches mortgage industry by surprise.

A recent story over on Mortgage Broker News is creating a bit of a stir.

It seems TD Bank has quietly changed the fine print on its Variable Rate Mortgage contracts for conventional mortgages – specifically around when a spike in loan to value triggers demand for a lump-sum payment or a new appraisal.

Under the terms of the new clause, if, at any time and for any reason, the loan-to-value on a conventional mortgage exceeds 80 per cent, the bank has the right to direct the borrower to bring it under that 80 per cent threshold or to obtain an appraisal proving the fair market value is indeed higher. The new wording replaces a similar clause that sets that trigger at 75 per cent but limits the scenario to instances where interest rate fluctuations have driven LTV over that 75 per cent mark.

Patrick Mulhern of Invis Mulhern Mortgages, who tried to get an explanation from TD without success, suspects that change is really a hedge against any future price correction for Canadian real estate.

Under the terms of the new clause, if, at any time and for any reason, the loan-to-value on a conventional mortgage exceeds 80 per cent, the bank has the right to direct the borrower to bring it under that 80 per cent threshold or to obtain an appraisal proving the fair market value is indeed higher. The new wording replaces a similar clause that sets that trigger at 75 per cent but limits the scenario to instances where interest rate fluctuations have driven LTV over that 75 per cent mark.

Mulhern believes that new, wider clause speaks to the lender’s concerns about a possible market correction and its power to drive down property values.

“In the new clause, it states that if at any time the principal balance exceeds the max LTV.” he said. “This protects the lender in case of property devaluation."

The amendment took place sometime last year, according to Mulhern, and he was only made aware of it because of an increase in variable rate mortgages he recently arranged.

“Unless I’m reading it incorrectly this type of clause has nothing to do with rate fluctuations and everything to do with loan-to-value,” Mulhern said. “Property value decreases would have a huge impact on all TD variable rate mortgages.”

Garth Turner, who covered the story in a blog post today, noted the impact this change could have:

If, at any time or for any reason, the value of your house drops to a level less than 80% of the amount of mortgage debt, then the bank can demand you write a cheque to cover the difference. If you don’t, your mortgage goes into default. You also have the right to have your property appraised (at your cost) to prove it’s worth at least 80% of the loaned amount, whenever the bank demands such proof.

The old limit was 75%, and the former wording also limited the nightmare scenario to situations in which rising interest rates triggered the action. This time anything – like unemployment triggering a highly local market decline – means you have a problem.

One realtor Turner spoke to had this observation:

“I think it’s preparation in the event of a price melt down and they want a 20 % cushion instead 25% to minimize the bank’s exposure to non CMHC mortgages.”

Garth Turner agreed and said:

"Exactly. The bank is preparing its non-insured portfolio against what might be inevitable, if the Bank of Canada is correct.

It’s only prudent, if you’re the lender. 

It’s a potential hell on wheels, if you’re the borrower."

The clauses are compared side by side. First the old (click image to enlarge): 

and the new:

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Media Manipulation

As we look back on the year that was, the dominant theme of 2013 has been media manipulation by the real estate industry.'

Leading the way was MAC Marketing Solutions, the condo marketing firm exposed for lying to and deceiving the public on TV.

But MAC was only the most visible example this year.  Media manipulation in the real estate industry  has been a source of contempt by the likes of this site and other excellent venues like Garth Turner's blog.

Fake mansions, paid individuals in condo line ups to create 'buzz', monthly 'Franken numbers', real estate agents posing as buyers, the list goes on and on.

But nothing is as particularly galling as the real estate press release regurgitated as news. 

Pundits, such as Garth Turner, regularly rail against a lazy and corrupt media who allow themselves to be used as pawns by a gleeful industry more than happy to feed them content.

Each month you can do scan of the nation's media and see a story regurgitated virtually word for word in publication after publication and news broadcast after news broadcast.

And it isn't just the case for real estate. It is the disease of our media today and it is so widespread it has become comical. Check out this example which Conan O'Brien couldn't help but lambast on a recent show:

Why write your own story when you can simply rehash the script from a press release dropped in front of you.  Conan calls it 'scary' and 'frightening', an understatement if we ever heard one. But this type of media manipulation currently shapes everything you read, hear and watch.

Everything.

In the old days, we only had a few threats to fear when it came to media manipulation: the government propagandist and the hustling publicist. They were serious threats, but vigilance worked as a clear and simple defence They were the exceptions rather than the rule—they exploited the fact that the media was trusted and reliable.

The late Andrew Brietbart, a master media manipulator,  once said: “Feeding the media is like training a dog. You can’t throw an entire steak at a dog to train it to sit. You have to give it little bits of steak over and over again until it learns.”

And it's clear the major mainstream media has been well trained.

In our real estate focused country, that's what the real estate manipulator's have artfully achieved - they have trained the media. It's crucial to their business.

Thankfully there are bloggers like Turner, VREAA and the contributors to Vancouver Condo Info whose vigilance is omnipresent.

Today we salute you all.

(For a great holiday game, don't forget to check out: MAC Marketing's version of Where's Waldo")

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Take your lumps, or buy useless insurance: the state of the real estate market in BC

The Vancouver Island Real Estate Board (VIREB) is out with their stats for the month of April.  And as with all the real estate boards, they try to pretty-up the ugly stats.

Nanaimo home sales are up by 12 per cent screams the news headline.

Real estate sales were up 12 per cent in Nanaimo last month and seven per cent on the Island north of the Malahat, compared to a year ago, according to new sales figures from the Vancouver Island Real Estate Board.

Happy days are here again? Not quite.

Prices fell six per cent, on average in the VIREB region, and nine per cent in Nanaimo during the same period.

Those are averages only; sales fell by as much as 24 per cent in the Comox Valley and grew by as much as 46 per cent in Campbell River, while prices dipped as much as 14 per cent in Port Aberni-West and rose two-per cent increase in Campbell River.

But on average, "prices are down compared to last year," said Cathy Koch, Nanaimo VIREB spokeswoman.

And that's the dig... prices are down on the Island.

It's final act as a bubble starts to unravel in a negative feedback loop and the condition the Industry pumpers fear the most.

So what do they recommend on the Island? Well... realtors don't make money unless there's a transaction happening.  And sales won't happen unless sellers accept reality and cut prices.

Ergo Ms Koch comes out with this tidbit for sellers...

Sellers need to price accordingly, and be ready to make less on the sale, which they'll likely make up on their next purchase.

Acceptance of what's coming on the Island?

Over in the Lower Mainland, were not quite there yet. But the fear of falling real estate prices is palpable.

Hence this little promotion: Buyers’ insurance policy protects homeowners from price drops. Garth Turner chimed into today with his take on this little marketing ploy:

You know the market’s in trouble when houses get the same treatment as flat screen TVs. But this is exactly what desperate realtors are reduced to these days. The so-called Buyer Protection Plan is sweeping through the Vancouver real estate biz, with about a hundred agents so far signed up.

You buy a sexed-up, web-smart TV at Best Buy and then find it cheaper at Costco? No probs, says BB. We’ll refund the difference.

You’re scared to buy a million-dollar fixer-upper in a Van hood because houses are falling? No worries, say the realtors. We’ll protect you. Sort of.

The bold idea: if the house you buy today is worth less in a year (almost a 100% certainty in most of the Lower Mainland) then up to 5% of the purchase price is refunded. For this to happen you need (a) a realtor offering the plan, (b) a seller willing to put 5% of the purchase price into a trust account for a full year and pay a lawyer to do so, (d) a premium payment of $299 and (c) statistical evidence of a price drop – not in the value of that house, but in average prices as determined by the real estate board.

So, it’s useless. Every house is unique. A buyer might only benefit if the home were appraised independently in a year, but that could easily (and legally) be challenged by the seller before funds were handed over. And a limit of five per cent? Pshaw. If I were buying in Van these days I’d want something closer to 20% – and no buyer alive is going to put $300,000 into a non-performing trust account upon unloading a $1.5 million house.

Clearly the Spring market has failed to respond as hoped.  So the advice today on one side of the Georgia Straight is take you lumps and take less for your house.  On the other, go ahead and buy at the higher prices and "buy protection."

Alrighty then.  What gimmick comes next?  Getting Vince to promote real estate?

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A dreamer, a realist and the scammers still scamming...

Interesting to watch reality to set in for some sellers.

3294 Wellington is a 5 bedroom 4 bathroom mixed use dwelling that contains 3 suites above a convenience store.  Originally listed for $1,390,000, it was Vancouver's biggest price cut last week as the seller trimmed 28% off the asking price bringing it down to $998,000.

Even so, it's still way over the assessed value of $658,200 as sellers struggle with what's going on.

Other's, particularly in Richmond, can see the writing on the wall.

This is 5542 Cornwall Drive in the upscale Terra Nova neighbourhood:

As one of our faithful readers pointed out, it's assessed at $1,417,000.  Originally listed for $1,338,000 it has languished on the market since April 2012.  It sold on April 3rd, 2013 for $1,095,000... 23% below assessed value.

We are told the seller was a realtor.  Given the timing of the sale (right after the HST ended), it's clear he was simply happy to dump the property and wasn't waiting around for the phantom surge the removal of the HST was supposed to represent.

Over on Garth Turner's blog, we have the latest example of real estate media manipulation.  It's almost a sport now for the online community to ferret out this ridiculous BS.

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MAC-gate helps expose the myth of HAM (Hot Asian Money). Early stats show Chinese New Year a sales disaster

One of the side bonuses to the MAC-gate scandal has been the exposing of the myth of HAM as something that is going to keep our housing bubble afloat.

The media has been quick to identify the main reason for MAC's media lie - perpetuating the import of the Chinese property buyer.

From Friday's story in the South China Morning Post newspaper titled: Bogus buyers exposed in scam to boost property market in Vancouver - Deception aimed to create the impression that Chinese buyers are still flocking to buy into Vancouver's housing market, where prices are falling

The deception was intended to create the impression that Chinese buyers were still queuing up to buy into Vancouver's teetering real estate market, which has long been fuelled by money from China and is now rated as the second least-affordable city in the world, behind Hong Kong, according to the Demographia consultancy.

(Note: the google translation incorrectly translates the figure as a 7% drop. The news article does actually use the number 70%.  Not sure why google turns a 70 into a 7).

... to an article in yesterday's Globe and Mail newspaper titled: There’s scant evidence behind the myth about foreign buyers of Vancouver real estate.

While the stunt was roundly slammed, it also reignited a debate among real estate observers: Just how much truth is in the long-standing narrative that foreign money is driving the local market? Anecdotes abound about foreign investors scooping up Metro Vancouver real estate, driving up prices and creating anxiety among locals – a bogeyman haunting the dream of home ownership – but evidence to support such a claim is scant.

... the word it out.

Don't get it wrong, all rumours have some basis in fact and the myth of HAM is no different.

But the excessive manipulation of this myth has been a criticism of the online community for years.

Garth Turner has spoken about it lots beforeand railed against the deceptive media ploys that have been used:

As many people now know, Amanda is a young administrative marketing assistant at MAC Marketing Solutions in Vancouver, a company developers hire to flog condos to the rabble. She crossed the ethical line last week when the company tried to (once again) milk the incredibly lazy, gullible and bush-league Van television media...

Of course, this is not the first time. In 2011 you might recall Cam Good, head of The Key – another house-flogging, Van-based professional pumping outfit – hiring a yellow helicopter to ferry around “Chinese investors” with three TV crews stuffed into the back of the chopper. The intentional buzzing of defenceless places like White Rock was intended to goose the myth of HAM – Hot Asian Money – and feed the meme that legions of oriental Donald Trumps were about to gobble up the region, pricing the locals out forever.

But as this blog pointed out days after Global and CBC ran their yellow peril stories, the Chinese dudes were actually Canadian realtors from the burbs, posing as rich vultures from Guangdong. Mr. Good’s company also tried to pass off an employee as a consumer in a weird scheme that brought the Groupon concept to selling condos.

And there have been many condo marketing ploys besides these. How about the fake condo sale line ups to create the media and buying frenzy?  As Turner notes:

People (Asians, preferably) were offered money, plus lawn chairs, portable heaters, food and porta-potties to camp out in from of a sales centre for 24 hours prior to opening. TV news crews were invited to come and witness the spontaneous news event and the stories they ran begat longer lines, people being the lemmings they are.

Turner originally covered this story in Feb, 2011 and we followed up on February 17, 2011 (with citations from numerous craigslist ads by VREAA).

The selling period associated with Chinese New Year (CNY) for 2013 is now coming to an end and statistics are proving the fabricated hype is once again just that: a fabrication.

The dedicated contributors to the comments section of Vancouver Condo Info show us the reality.

In the supposed HAM hotbed of Richmond there are 399 homes on the market with an asking price of over $1.4 million. That's a MOI (months of inventory) of 28 months!  There are 65 homes on the market asking over $2.4 million.  Only 15 such homes have sold in the past 12 months meaning there is a stunning 52 MOI!

Contributor VMD shares with us this translated Chinese news article revealing that there has been a 70% Drop in Home Sales Since Chinese New Year.

Contrary to what the condo marketers were telling us, there actually was no rush of buyers coming into the market this Spring. The CNY sales period has been a disaster.

As Garth Turner observes, there have been lots of high-end houses bought by people who made their money in Mainland China, and that will continue. But many of the realtor shenanigans portrayed in our local media as 'news' are nothing more that the work of shrewd marketers out to create anxiety and competition amongst local buyers.

This time one of those marketers got caught.

In the coming weeks it's crucial that the governing bodies that oversee the integrity of the real estate industry take severe and strong action to ensure these "dishonest tactics" aren't used again.

The people of Vancouver deserve nothing less.

(hat tip: yvr2zhr, VHB, VMD, VREA, Vancouver Condo Info)

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Thurs Post #5: Globe and Mail expands it's examination to other incidents of media deceit

In an earlier post we brought you the coverage of this issue by the Globe and Mail newspaper as well as pointing out that this is not the first time there have been examples of media deceit in the Lower Mainland.

Nor is it the first time MAC Marketing Solutions had a tie in with that deceit.

Well the Globe and Mail has now expanded their examination of the issue to include those other infractions.

This is the latest in a number of questionable marketing tactics to be exposed within Metro Vancouver’s real estate community. During a media blitz announcing the Groupon-style sale of units at a Surrey condo development last year, one woman identified to a television news crew as an eager local investor was in fact a sales manager for Key Marketing, the company behind the scheme.

That same company has also taken groups of Chinese buyers on helicopter tours of Metro Vancouver properties, and at least one of those trips was believed to be misleading. Garth Turner, a business journalist and former politician, reported the Chinese buyers on a Feburary, 2011, trip – on which several media outlets were invited – were in fact local real-estate agents and brokers and the trip was meant to promote a new condo development.

Cam Good, president of The Key, which includes Key Marketing, was a partner at MAC Marketing Solutions from 2004 to 2009, according to his LinkedIn page.

According to 2011 data by the Landcor Data Corporation, 75 per cent of those who purchased Metro Vancouver condos as investment properties are from Metro Vancouver. About 3 per cent are from the U.S. and 2 per cent are from other countries.

The Real Estate Council of B.C will be investigating the matter.

You can read Garth Turner's post on this issue here.

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What lies ahead? One local real estate agent calls the bottom.

As the news about November's real estate sales circulates in the media, the main emphasis shifts from declining sales to actual prices.

The mantra being pushed is that prices aren't (and won't) be coming down.  We saw that message on November 30th:

"If you've been staying out of the housing market, waiting for a big drop, you might be in for a long wait."

And it's been a theme Tsur Somerville has pushed since early October.

Yesterday it was Eugene Klein, president of the Real Estate Board of Greater Vancouver (REBGV):

November home sales in the Vancouver area fell 28.6 per cent compared with a year ago as what was once the country's hottest real estate market continued to cool.

Despite the sharp drop in sales, the board said the MLS home price index composite benchmark for homes Greater Vancouver was $596,900, down just 1.7 per cent compared with a year ago. The index peaked in May at $625,100.

"Home sellers appear more inclined to remove their properties from the market today rather than lower prices to sell their properties," said Eugen Klein, president of the Real Estate Board of Greater Vancouver.

At this stage of the process, it's no surprise that listings are being pulled to wait out conditions.  And it isn't really surprising that the real estate industry is focusing on the convoluted HPI to dampen the impact of any price drop.

For while the HPI is only down 1.7%, the average detached home price is now down 14% from the February 2012 peak.  Who wants that figure prominently publicized?

Conditions are mimicking what we saw in 2008 when the Financial Crisis started.  As Garth Turner noted, the parallels are eerily similar. 2008 saw a huge drop in sales and the average price started to plummet:

Of course the collapse was resuscitated. "In 2008 a variable-rate mortgage was 6% and a five-year loan was 5.75%. The world fell into a financial... and the Bank of Canada rushed in emergency interest rates. By May of 2009 a VRM had collapsed to just 2.25% – the lowest point in history. With rates almost 4% lower than they’d been months earlier, and mortgage payments slashed by more than half, the collapse in real estate prices and sales was quickly reversed"

The efforts were complimented by the federal government's bailout of the banks through the Insured Mortgage Purchase Program (IMPP).

Not only was the collapse halted, but the bubble blew even higher as Canadians plunged themselves into historic levels of debt:

But as the crack cocaine of cheap easy money has run it's course and the government has started to pull back on those emergency measures, the slide is happening again (despite the HPI only dropping 1.7%):

So as the average price mimics 2008, what divine intervention will occur to see that prices only 'flatline'?

What is going to cause prices to resume their upward trajectory?

The changes to the mortgage rules have frozen out the entry level buyer, the ones who used to be balt o to get into the market with nothing down.

Without their business the market freezes, as Thomas Neal of Royal LePage Estate Realty noted in the Globe and Mail:

While people are still coveting single-family houses, those move-up buyers who already own a condo are more hesitant to purchase a house because they don’t know how long it will take to sell the condo. That’s a change from the dynamic of the last eight years or so when condo owners would often list the unit first, reap more than they expected in a bidding contest, and then in turn funnel that money into winning the competition for a house.

“Now they’re not buying first; they’re selling first,” says Mr. Neal. With that shift, he explains, the number of buyers out there is cut roughly in half.

Enter the current industry campaign: "buy now because prices won't be going down."

I have a feeling this theme is going to ramp up over the winter months before the Spring re-listing begins in earnest:

It’s a market that’s winding down in the dwindling days of November. Few new listings will arrive on the market in December. Those sellers who do list now have likely already purchased another property.

“If you don’t have to sell I think you’re going to wait until the spring,” says Mr. Neal.

As for those sellers whose condos and houses are already lingering on the market, Mr. Neal predicts many of those people will be taking down the “for sale” sign by Christmas.

“People who don’t sell in December will be back out on the market in February,” he says.

And when they come back in Spring, they want to hear that there will be people to buy their homes.

Perhaps that's why some bearish agents are starting to change their tune about market conditions.  Let's face it, who wants to list with an agent who tells you it's only going to get worse.

Perhaps this explains the about-face in attitude from real estate agent Andrew Hasman.

In 2011, when prices were going crazy on the west side, he was calling the market 'unhealthy' and warning about the consequences:

"The local person is completely out of this market," he said. While skyrocketing prices have made business good, Hasman said that the current market, with housing prices rising 10-15 per cent each year, is unhealthy.

"Anytime you have extremes in markets, it's never healthy," he said. "You end up with a bubble. If the local economic base can't support these levels, then at some point you're going to have a lot of people burned big time. It's not sustainable."

In July 2012 he told us that:

This feels like the first Normal Real Estate market in many years. That is if you can even define or remember what 'Normal' really feels like.  Gone are the bidding wars and gone (for now) are the days when homes were selling in mere days. For buyers there is now good selection and no pressure to make that big commitment... Sales of homes across the Greater area of Vancouver are at levels not seen since 2000!

Overall, prices still seem to be holding with some price softening in specific markets only. Vancouver’s Westside looks to be one of those markets.  Fewer buyers from China, tougher mortgage regulations and concerns over the global economy are all weighing on consumer confidence. I predict these market conditions will continue through the balance of 2012 with further price softening.

So does Hasman see more dismal times ahead for when all those disgrunted sellers re-list in the Spring?  Apparently not, according to his December 4th market report:

We continued to slow sluggish sales activity on the Westside during November. That being said there is some promising news. The number of homes on the market at the end of November has dropped substantially since peaking in mid-September. I have also noticed a lot more calls on our listed properties combining with more viewings too. Even though sales volumes continue to remain well below last year’s levels, the shrinking supply and stable sales volume over the past 6 months points to a stable market moving forward. In fact, I’m going to go out on a limb and predict a robust Winter Market with brisk activity in January and February.

Really? And what are we going to hang our hopes on for this resurgence in the market?

For home owners thinking about selling in 2013, keep in mind if you list your home in March (based on the last 4 years of sales activity) you missed the best time for selling. Home owners that listed their homes just before Chinese New Year achieved the highest selling prices. The period of Late January to end of the February was the busiest time for housing sales the last 4 years. Why should this year be any different?

Ummm... because that period in 2012 also wasn't like the years before it?  Based on 2012, that period was a disaster. Are we really going to continue to hang out hats on Hot Asian Money (HAM) again this Spring? 

It appears so. Hasman not only pins his clients hopes on HAM, he goes further than that and calls a bottom for the market:

I do not see any housing crash or even much more downside to house prices. Prices have already slipped 10-15% in some cases and I feel that is as far as it will go.

So there you have it: Buy now, because prices aren't going to go down.

Pardon me if I read the tea leaves a little differently.

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Speaking of rising household debt...

Yesterday we posted about CTV squaring off Garth Turner vs Sommerville/Pastrick over the topic of a real estate collapse over rising household debt.

It's not a theme exclusive to Garth Turner.

In fact CBC was, on the very same day, discussing that very topic.

Reporter Neil MacDonald (pictured above) was describing how a US style housing nightmare could hit Canada and how Canada resembles a slow motion replay of the American crash.

Stories are now routinely surfacing in the Canadian media suggesting collective madness when it comes to affordable living. I watched America's nightmare unfold, and it appears pretty evident to me that a sequel of some sort is coming to Canada. So I ran that thesis past Robert Shiller, of Yale University, probably the foremost authority on real estate in America. He co-founded the Case-Shiller Home Price Index and predicted the American collapse in 2005, a year before it happened. "I worry," he told me, "that what is happening in Canada is kind of a slow-motion version of what happened in the U.S."

The worries Shiller was getting at — and the Bank of Canada — is the debt Canadians are carrying. Contrary to Sommerville and Pastrick, both Carney and Shiller agree with Turner that rising household debt is a serious threat.

Household debt in Canada has grown by leaps and bounds. In the early 1990s it was a manageable 75% of household income. Today it has ballooned to 150%. That's just about exactly the level Americans were at when everything imploded there in 2006. Worse, there are concerns about the way the debt is concentrated.

As the Bank of Canada has been pointing out, Canadian debt is disproportionately concentrated in the most vulnerable households, defined as those devoting 40% or more of household income to paying interest charges. That means those households are extremely sensitive to any sort of shock — be it a rise in interest rates, a drop in home prices, or, worst of all, job loss. The central bank's analysis suggests that if interest rates rise to 4.25 by mid-2015, fully one fifth of all Canadian debt would be held by those households least able to finance it.

Don Drummond, a former chief economist of the TD Bank, says that's "rather scary."

Robert Shiller says;

"People are investing in real estate that is tough for their budgets because they think it will make them rich, and that can continue only as long as [prices] keep increasing. "When they stop increasing," he says, people back off, and the bubble then collapses. "So it has its own internal dynamic."

And it's that internal dynamic which Turner was warning is the trigger which is starting to send values cascading down today.

Of course who are you going to believe? The likes of Garth Turner, Mark Carney, Don Drummond and Robert Shiller?

Or a man you makes his living teaching university courses in Real Estate Finance and depends on a growing real estate market for his academic income?

Not really a tough call to make now, is it?

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Are we heading for a Cataclysmic Correction? "That's bunk", says Sommerville

The war of words is heating up in Vancouver's housing bubble.

Yesterday it was CBC's profile of Vancouver and today CTV picked up on the story.

Former Member of Parliament, and noted critic of the Canadian housing bubble, Garth Turner was profiled on CTV with his warnings about our overblown Vancouver Real Estate.

CTV told viewers that Turner's message was simple: Metro Vancouver's real estate market is about to collapse.

"I hope people are listening. This message needs to be heard. Sales in August were pretty awful and they continued to deteriote through September. But you know what? This is going to be a year or two or three before we hit bottom. And I think the market could lose 30 or 40% of it's value."

To balance Turner's warnings, CTV turned to the resident market defenders we have come to know and love the last few years: Tsur Sommerville  - Associate Professor, Real Estate Foundation Professorship in Real Estate Finance; Director, UBC Centre for Urban Economics and Real Estate (As one VCI contributor said... can we possibly use the term 'real estate' any more often in a title?) and Helmut Pastrick, Chief Economist for Central One Credit Union.

CTV tells us these local economists are shrugging off suggestions that our real estate market is setting itself up for a collapse.

Our buddy Sommerville doesn't mince words as he tries to deflect the rising angst about the worsening market dynamics by attacking Turner directly.

"He's being saying this for like four or five years. So if you keep saying this then possibly one time you could be right and then you get to be a genius."

Oh? What are you saying Tsur? That the reality is that - at some point - the market is going to collapse 40% in value and that it's a no brainer Turner will be right if he keeps repeating this mantra?

It begs the question, if you believe the market will collapse by 40% at some point, when do you think that will occur?  But I digress.

As for suggestions that the market collapse will be triggered by rising household debt, Sommerville is even more blunt:

"That's bunk. In order to get dramatic change, dramatic drops in housing markets, there has to be... the market has to be pushed."

And rising, unsustainable household debt isn't the lever that will push the market?

Next we cut away to Helmut Pastrick to pick up the theme dismissing a possible collapse as a result of rising household debt:

"It could only be the result of a major economic recession, a downturn, or perhaps a financial crisis, a political crisis, typically outside of BC's borders."

Garth Turner counter's that our region is so overvalued, the outside forces Pastrick refers to aren't needed.

"The world doesn't need to change, the ground doesn't need to shift, interest rates don't need to pop up to have a cataclysmic correction."

CTV then quotes several 'average' people and captures them in quintessential denial that any such  collapse is possible. The whole dilemma is summarized as divergent opinions common to the spectre of real estate.

But the mere fact bubble busting news is now common place on the nightly media and that gloomy sales statistics are undeniable means it is clear the desperate fight for market perception is ramping up to new level

If you want to see the full CTV story, it could not be embedded. You can watch it here.

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CBC National: Vancouver Housing - Bubble or Bust

 

Last night on CBC's The National, Vancouver's overheated market was profiled.  Above you can watch the full segment.

As you watch it, however, you might be interested in this update to the story.

One of the key interviews is with Philip Chan, a realtor who also developed and built a house at 2575 West 7th Avenue in Vancouver which he currently has for sale.

Chan is trying to sell a new 1,700 square foot unit in this house which is part of a triplex. Originally the unit was listed for $1,790,000.

As the CBC piece outlines, Chan cut the asking price to $1,570,000...

... a price cut the National notes amounts to a drop of 12%...

Chan describes the $200,000 price drop as an adjustment, a classification CBC pounces on as a "sugar coating which attempts to cover the reality that prices are tanking".

Chan disagree's and argue's that it can't possibly drop much more.  The story then cuts away to Garth Turner who explains that the market can - and will - drop a lot more.

At the end of the piece, CBC tells you about a confident Philip Chan who doesn't believe the market can drop much more below the 12% it already has for his property.

What the story doesn't tell you is that Chan's property has in fact already dropped - a lot more.

As you can see here, the property's asking price has been cut significantly below that $1,570,000 asking price and is now on the market for $1,373,000...

Even more interesting is the fact this lower price is not recent.  As noted on Observer's excellent website Vancouver Price Drop, this property was profiled in the 17th position in the Observer's Weekly Drop segment for September 10th.

At the end of the CBC segment (and what they described was a 12% drop in the value of his property), Mr. Chan is quoted denying the market can drop much more.  He asks, "how much more can it drop?"

Well... that drop is now 23% and still no buyers in sight.

Why CBC was hesitant to profile how dramatic the collapse is becoming is unclear.

But one thing you can be sure about is that there is no doubt Mr. Chan is a lot less confident now than the CBC story would lead you to believe.

(hat tip s Says on VCI)

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Wilfully blind, voluntarily ignorant?

Two days ago we told you about an article in BC Business Magazine that heralded "The Real Estate Mania is Over."

The article observed.:

History shows that Vancouver has always been a real estate boom-and-bust city. Now that the most recent mania appears to be over, with sales falling and prices threatening to follow, there's no reason to think that's going to change.

They told us...

Fear and worry are rampant in Vancouver these days: the mighty real estate market is struggling. Whether it is in a tailspin or due for a monstrous crash is the subject of endless dinner conversations, office cooler chats and online messages.

But ultimately BC Business Magazine dismisses the inevitable crash saying:

Was this a massive bubble? Slightly. When prices rise that much, we’re nudging bubble territory. But bubbles imply resulting crashes, and I don’t believe we’re going to have one. Of course, prices will drop a bit, but an American-style catastrophe isn’t going to happen.

All the evidence and the author concludes 'I don't believe we're going to have a crash'?

There's a moral here.

The doubters will only believe it's a bubble if we have a crushing crash.

Until the crash occurs, no manner of charts, theories, or tales of congruent circumstances (leading to this very outcome in other countries) will convince them until prices actually collapse. To them... real estate always goes up.  It may have 'little pull backs', but it always goes up.

Always.

Nothing personifies this wilful blindness like realtor Mary Cleaver. Introduced to us yesterday via Garth Turner's blog, Mary is one of those who have swallowed the Kool-aid in pitcher sized gulps.

For your enjoyment pleasure, two videos from Ms. Cleaver.

The first is from January 2012 and Mary explains why buying real estate is far better than the stock market:

Next, our pixacious airhead attempts to counter the 'housing crash' stories on CBC's National back in May by insisting Vancouver isn't in an overheated market. From the youtube video description:

Contrary to general statements made regarding the real estate market in Canada, the Vancouver housing market is far from over-heated. April stats tell a story of lots of inventory and fewer sales than in both March of this year and April of 2011. With the exception of parts of East Vancouver, much of the city is in a balanced market and trending toward a buyer's market. Buyers find themselves with plenty to choose from, time to make a good selection, prices in many areas stable or even lower than in the last year or two, and historically low interest rates. For Greater Vancouver statistics for April, go to www.dexterrealty.com. For more information and to contact Mary, go to www.marycleaver.com

And now the video...

As I said, until the crash occurs no manner of charts, theories, or tales of congruent circumstances will convince people like Mary of what is coming until they see, with their own eyes, prices actually collapse.

And when they do, you can bet all Mary will be able to muster is: Who could have known?

Maybe we need to do our own youtube or car cam video to explain it to her?

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Another West Side Realtor says the market is collapsing, tells clients "you must cut prices to sell"

Summer may have finally arrived on the Wet Coast, but the saying of the week remains 'when it rains, it pours.'

But instead of the endless Rainforest drizzle, the topic du jour is realtors.

For the last week and half the focus has been realtor Keith Roy.

But another horse has entered the Vancouver West Side race of realtors telling clients the market is crashing.

As profiled by Garth Turner yesterday, realtor Sam Wyatt is the latest to do a spit-take on the REBGV/BCREA/Sauder School of Business kool-aid.

Wyatt's synopsis of the Vancouver real estate market?

“This market is collapsing.”

You don't say Sam?

From his website:

Homes are simply not selling in the same volumes as they have been and the longer people wait to reduce prices, the larger the inventory will grow.

Last month I pointed out that the active listing volumes for detached Westside houses actually exceeded the highest volume during the credit crisis. In June the number of houses actively listed was even higher at 1078. During the credit crisis, the active listings of detached homes on the Westside never exceeded 1053 houses. Keep in mind also that the three year average number of active detached homes listed on the Westside between January 2009 and December 2011 was only 589. This is a very serious situation.

One of the most influential elements of the Vancouver West real estate market has been the large proportion of sales to foreign buyers, particularly from China. From a purely anecdotal point of view, the number of these sales has significantly diminished. We have been in a "top-down" market were the sale of the most expensive real estate has driven up prices in the rest of the market as sellers have opted to down-size or move to less costly neighbourhoods. By moving into lower price points, the sellers of higher priced real estate were able to drive up prices because they were relatively flush with cash compared to those making lateral or up-size moves. As a result, the closer to the entry level of the market, the fewer gains were made. Gastown apartments have made little price gains if any over the last 3 years while detached homes have nearly doubled. When houses prices fall, the rest of the market will almost certainly follow.

The new rules for Canadian Mortgage and Housing Corporation (CMHC) insured mortgages will have a detrimental effect on sales at the entry level of the market. Maximum amortization periods for insured mortgages have been reduced to 25 years. Over the past several years this maximum has fallen from 40 to 25. The most recent move from 30 to 25 years will be the most significant in that it will exclude many first time buyers from qualifying even while interest rates are near all time lows. If the banks follow suit and adopt the CMHC rules , as they almost always do, it will likely also dissuade many investor buyers from purchasing condos to rent out. I predict this because the lower amortization period will significantly increase monthly mortgage costs and lower the proportion of those payments that are tax-deductible interest.

Vancouver's real estate market is getting and is going to get hit from both ends. So, now that you are thoroughly depressed, here is the bright light: IF YOU SELL NOW, YOU WILL STILL BE SELLING NEAR THE TOP OF THE MARKET. If you plan to sell, you will need to price BELOW the most recent comparable sales prices. If you don't do this, your listing will stagnate.

While it lacks the flair Keith Roy had for kicking his industry under the bus, it's another indication - from a realtor himself - of the looming potential for our housing bubble to burst in spectacular fashion.

It also echo's Richmond realtor James Wong's advice that if you "want to sell your property, deep price cuts are needed."

With realtors seemly tripping over themselves to publicly tell you to bail on the market ASAP... it might almost make the average person begin to take notice of what's coming.

Horrors!

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Ain't Gonna Happen??? Hmm... perhaps it should be - How Low will it Go?

Our housing bubble is now mainstream news.

Sales of existing homes in Vancouver sank 15.5% from a year ago May, with the sales for the month coming in the lowest for any May since 2001.

At the same time the active inventory backlog surged 16.8% and new listings were up 14.4% from a year ago.

As listings soar and sales tank, the man on the street in now openly discussing 'The Bubble'.

But talk is now moving past whether or not there is a bubble. Gluskin Sheff chief economist David Rosenberg is in the Financial Post proclaiming that Vancouver’s housing bubble has burst."

It all comes on the heels of May data which shows Vancouver's single family houses are now down 12% with no signs the slide is going to stop anytime soon.

Garth Turner takes a look at the data and proclaims:

"The event’s just begun. This was a lesson bitterly learned by those early vultures who swept down on US real estate in early 2006, smelling blood, only to end up catching a falling knife. After doubling in value over the last eight years, with the economy marking time, salaries trailing inflation and unaffordability off the chart this market is not going to clock out at fifteen per cent. If prices can dip 12% in a few months, they can decline 40% over the next 18 months."

True... but for many 40% is just too hard to fathom.

Consider this musing from Vancouver realtor Larry Yatkowsky.  He broaches the concept of a 32% drop in prices and consider's it a level most of us would not imagine:

Let’s start at the highest average price ever reached in Vancouver for a detached home – a mere $1,235,244. Now let’s also assume this market is on the skids sliding down the drain faster than we think to bottom out at something most of us would not imagine – a market that drops so much it hits May 2009′s Average Price of $831,171. With a price drop of $404,073... that's a 32% drop from the all time high.

Of course some of us can imagine it.  We don't think it's all that hard, actually.  But the disbelief in daily discourse is more than palpable.

Even in our little corner of the blogosphere it draws comments of incredulity.

On Tuesday we made a post about Random Thoughts.

Among the commentary that followed, one faithful reader (DG) opined:

"I would agree with prices dropping but your prediction is beyond impossible. It is basic economics and as you can see from the various RE blogs that there are people sitting on the sidelines waiting for the drop to enter into the market. There are many. These people will support the price and keep them from dropping beyond 20 to 30% as rates continue to stay low."

So a 30% drop is impossible?

My prediction, as you know all too well, is for a drop of 70-85% when all is said and done.

But I can't help but be fascinated by the steadfast belief by so many (... I say this because I encounter it in day-to-day discussions as well) that prices simply won't drop beyond 30%.

Even Yatkowsky finds a drop of 32% unimaginable for most.

Thus our post.

Ain't Gonna Happen vs. How low will it go?

So the first major signpost on this journey is the 30% mark. We will watch and focus on it.

Unimaginable? Unattainable?

With apologies to Rod Serling...

"This highway leads to the shadowy tip of reality: you're on a through route to the land of the different, the bizarre, the unexplainable... Go as far as you like on this road. Its limits are only those of mind itself.  That's the signpost up ahead - Next stop... The Bubble Bursting Zone."

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