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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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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It's not just the million dollar homes falling below assessed value

L

Reading this blog you know we are watching the comments of the likes of BCREA chief economist Cameron Muir and UBC Sauder Associate Professor Tsur Somerville with keen interest.

Last month we have Somerville saying:

“Most people don’t have to sell their house,” he said. “You bought it for $200,000. The price is now $150,000. Unless you have to, why would you sell it?” 

For prices to go down ­significantly, contended Somerville, “You need people who have to sell, either because the economy has collapsed and they don’t have any income or developers have built a whole bunch of units that are unsold and the bank is screaming at them or foreclosing or something like that.”

None of those conditions appears imminent. 

This week he changed his tune and said Vancouver home prices could drop by 10% next year.

Meanwhile Cameron Muir insists:

"we don’t see a recession on the horizon, and we don’t see interest rates going up any time soon, so what kind of financial calamity is going to happen in Vancouver to get people to sell for 75 cents on the dollar?”

We've shown you examples of Vancouver detached houses that currently have asking prices 23% below assessed value and Richmond detached houses 25% below assessed value.

Some have suggested that these are these extreme examples and that no such worry exists on the lower end of the spectrum where the average Vancouver income earner resides.

Without getting into the debate about whether the 'average Vancouver income earner' is into million dollar properties or not, a quick check of the comment section on the excellent blog Vancouver Condo Info turns up an immediate example to reference (hat tip Teddybear).

Here is an example of a Vancouver condo from a lower price range.

This is #2905-438 Seymour Street in the downtown core of Vancouver (click images to enlarge): 

It's a 1 bedroom, 1 bathroom condo which is currently listed at $319,000.

The $319,000 asking price, btw, is a big reduction.  It was originally listed for $389,000 on August 20th, 2012.

Now for those that discount that a $70,000 asking price cut (detractors will tell you idiots can always ask wild prices, doesn't mean squat in the big picture), the real test comes when we look at the assessed value:

As you can see... this property is assessed at $376,000.

So in a so-called 'flat' period (according to Somerville), the owners of this property have cut their asking price to more than 15% below assessed value.

Toss in another 10% drop in value next year (again... according to Somerville) and you have a property that would come in at 25% below assessed value.

Muir wants to know what is going to happen in Vancouver to get people to sell for 75 cents on the dollar?

Perhaps he should give the folks at 498 Seymour Street a call and ask them?

I suspect it has something to do with the fact that the listing indicates that this is the first time this unit has been on the market since the original sale. 

The building was built in 1996. Since then we have seen a huge loosening of credit (which triggered our massive housing boom -see our post here).  As a result it's not hard to surmise we have a situation very similar to the Boomer Trigger - i.e. people can move on price, so they will - and in doing so they still get out with a healthy capital gain.

This is an element that both Muir and Somerville appear to completely ignore. Many of these people selling for below assessed value aren't taking 75 cents on the dollar for their original 'investment'. 

It's a factor could wind up having a profound effect in the coming year.

If anyone knows the original purchase price of this unit, it would be nice to compare that to the current asking price/current assessed value  - let us know.

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As expected, large number of high end sales causes average price to jump while overall sales continue to lag

If you follow the comments section of the website Vancouver Condo Info, the chatter the past two weeks has been about the dichotomy in real estate sales for August.

While total sales for the month was very low, there were a large number of high end sales.

As ZRH2YVR noted on August 22nd, there had only been 5 real estate transactions in July over $5M (9,948,000 - 6,850,000 - 6,300,000 - 5,830,000 - and 5,000,000).

In August, as of the 22nd, there had already been 8... and one of them for $12,200,000.

(For the record they were 5,800,000 - 8,950,000 - 12,200,000 - 6,250,000 - 6,180,000 - 9,180,000 and 6,800,000)

Meanwhile in Richmond, sales were picking up. Virtually all were below assessed value, but we seem to be seeing a price point were the pent-up demand has started to rush in.

The daily total of sales hit a record streak on Friday of 12 consecutive days where the total was less than 100.

This combination of low sales and an increase in high end sales means the average was sure to spike... and spike it has.

Prices never go up in a straight line and they don't go down in a straight line either.

And the bump in the average price will be a significant factor in keeping pressure off the Federal Government from backing off on it's recent changes and upcoming OFSI changes.

As realtor Larry Yatkowsky noted:

Vancouver’s detached average home prices ricocheted off the cross bar to score an average price goal of $1,142,237 – a price not seen since January and March of this year.

The great thing is that the real estate industry, desperate to hilight positive news, will promote these figures as a sign the market is not dropping.

It will be done to calm fears that it is... and it will also hamstring attempts to pressure the Federal Government to back off.

As Yatkowsky notes in another post, the statistics paint the Vancouver market as "being different."

But a handful of high end sales cannot hide the fact overall sales are abysmal.

Market forces continue to play out and the spinning of the news can only encourage those who have allowed listings to lapse to now quickly jump back in.

It should be interesting to watch September listings numbers to see what comes next.

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Tues Post #2: Total Vancouver Inventory drops 812 listings

Did the market stumble today?

Total inventory dropped dramatically. And despite 300 new listings today, we still ended up with a net decrease of -812 from our total inventory.

Is the market turning around?

The fact of the matter is there were still 188 more listings than sales. The Vancouver market continued it's trend wherein every single day this year we have seen more listings than sales.

So why the big drop?

If you look back at the way inventory ballooned in Feb/March, it should not be so surprising that as the first of the month arrives, massive numbers of listings are expiring.

And because of all those expirations, the first business day of July will post the smallest month-to-month gain we have seen yet this year.

So now the big question.

Will all those seller's who didn't realist today survey the market and hold off on re-listing until fall - after the summer sales slump? 

Or will they see the shifting sands and put their homes back on the market within a couple of days?

Over the next few days we will hear press reports about just how bad June's sales data is.

As noted over on Vancouver Condo Info today, detached home sales in some areas were the worst in 15 years.

Here is the data from Richmond compared to the last 17 years

1995 = 112

1996 = 114

1997 = 144

1998 = 105

1999 = 135

2000 = 128

2001 = 160

2002 = 139

2003 = 166

2004 = 147

2005 = 248

2006 = 170

2007 = 198

2008 = 115

2009 = 204

2010 = 139

2011 = 158

2012 = 73 **June 28

From the West Side of Vancouver

995 = 108

1996 = 133

1997 = 140

1998 = 126

1999 = 152

2000 = 125

2001 = 189

2002 = 150

2003 = 180

2004 = 154

2005 = 185

2006 = 181

2007 = 177

2008 = 108

2009 = 200

2010 = 147

2011 = 213

2012 = 99 **June 28

And from the East Side of Vancouver

1995 = 145

1996 = 175

1997 = 185

1998 = 136

1999 = 233

2000 = 185

2001 = 269

2002 = 203

2003 = 282

2004 = 243

2005 = 303

2006 = 396

2007 = 244

2008 = 139

2009 = 238

2010 = 145

2011 = 180

2012 = 107 ***June 29

(hat tip Inventory for the figures)

Sales have been the lowest in 17 years.

So as you can see, seller's have a giant dilemma facing them.

Pull their homes off the market or realist?

July/August should be interesting months as we watch the market unfold.

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That's Gold Jerry! Gold!

The Internet can be a wonderful thing.

Ideas can be shared and, as realtors have found, it's a fabulous way to spread your message to intended clients.

But sometimes it can make you look foolish. Bloggers know this all to well.

Make a prediction that's wrong... and people can go back and bring it up for years to come.

Give investment advice that is wrong... and people will hold it against you for years.

A good example is our recent post about a hotel condo at the Blackcomb Lodge now selling for 65% off it's 2005 launch price.

One of our faithful readers, pipewrench, responded to our post and shared a link he had come across from a Whistler realtor from February 2010.

A realtor named Lillian was boldly (and publicly) wagging her finger in admonishment at potential buyers who might be sitting on the fence about a real estate purchase in Whistler.

She said:

"For people expecting the real estate prices in Whistler to drop after the Olympics, I’m afraid you’re going to be sorely disappointed...The message is, if you’re waiting for prices to drop before purchasing property in Whistler, you may be too late. The time to buy is now."

Ah yes, the'buy now or forever be priced out'mantra.

On full display then as it is now, despite the fact the realtor acknowledges that (at the time of the posting) the Whistler market was "already 15-25% lower than previous prices in 2007" and that "current prices in Whistler are down to 2001 levels."

It came, of course, during a series of articles talking about how real estate prices had collapsed post-Games at other Olympic venues.

Realtors, naturally, told you it was different here.

It's a relevant theme to touch on because as we noted on May 18th, the local real estate cabel has been attempting to dissuading people locally from believing all the negative mainstream media articles about a looming real estate crash and that buyers shouldn't be expecting a significant correction in our local housing market.

As Tsur Sommerville said:

"To expect across-the-board 10%, 15%, 20% drop in house prices, I think that being rather, er, hopeful, for a buyer to expect that."

Hmmm.

For real estate bear blogs who are watching the current Whistler Real Estate market crash hard... the 2010 posting is pure gold.

Here you had a realtor telling you in Feb. 2010 that "with a high level of inquiries and good prices, Whistler is considered good value in the resort market."

Whistler was over priced then. And it's over priced now - hype notwithstanding.

The same goes for real estate in Greater Vancouver.

Here, for your viewing pleasure, is a screenshot of the blog post (click on image to enlarge):

Now... I would love to link directly to the post so you can go and see it for yourself.  But I can't.

A curious thing has happened since pipewrench posted the link in the comments section last Monday.

Another faithful reader, Makaya, picked up on pipewrench's comment and reposted it over at the excellent real estate discussion site, Vancouver Condo Info.  

VCI seized on it's newsworthiness and, under the heading Whistler's Nasty Collapse, made it yesterday's main story.

However, about 8 hours after the post, VCI's readers suddenly came up on a dead link... the embarrassing article had been removed. Clearly some realtors were unhappy with all the embarrassing attention.

But not so fast.  

VCI contributor, patriotz, quickly accessed Google cache and retrieved the article.  Another contributor, The Ant, collected screenshots and posted the content of the article for posterity.

Real Estate Value In Whistler Best In 9 Year
Posted by: Lilian Feb, 2010

For people expecting the real estate prices in Whistler to drop after the Olympics, I’m afraid you’re going to be sorely disappointed.

According to George Klimock from The Whistler Real Estate Company, property prices in Whistler today are already 15-25% lower than previous prices in 2007. In fact, current prices in Whistler are down to 2001 levels.

With a high level of inquiries and good prices, Whistler is considered to good value in the resort market, with, for example, a 2 bedroom condo is now listed at $ 519,000 as opposed to the more expensive $ 630,000 a few years earlier.

According to the 2010 Whistler Report from Landcor Corp,the average price of a condominium has started to climb recently, back to the $400,000 mark, first established in 2002. Since 2008, the condominium market has flattened. But, new ownership types, including quarter share ownership, have been introduced into the market, increasing affordability. This likely has helped to keep assessed values stable at or close to the $400,000 level. Townhouses in Whistler, typically priced between condominiums and single detached units, ranged from $650,000 to $750,000 from 2001 to 2007, but dropped below $600,000 during the recession.

Those looking to step into the Whistler market for the first time under the notion of a lower price, may be disappointed. Whistler homeowners receive good cash flow from renting their properties out most of the year and as such are not as motivated to sell as homeowners in other areas. Whistler is considered to be near the bottom end of pricing when compared to other resorts such as Sun Valley and Aspen, with price adjustments as low as they were in 2001-2002.

“The mistake many people make when they look at prices of property in Whistler is to compare [prices] with the price of properties in their city. You can’t compare Whistler to Vancouver because Whistler is a destination resort, designed for people to own secondary and vacation properties, not their primary residences. In order to get an accurate picture of what prices are like for resorts, you have to look at other resorts like Sun Valley, Park City and Aspen. In fact, Whistler is currently less expensive than Sun Valley and Aspen and Park City is higher priced.Whistler is currently a good buy for resort property,” says Klimock.

Klimock predicts that the current sales volume in Whistler will continue throughout the year with a fairly active winter season. He believes the Olympics will be good exposure for the resort, but through the long term rather than the land rush that occurred in 2002 because speculative buying due to the Olympics has been virtually non-existent. The market will take 6 to 8 months to increase in sales, with more destination travelers arriving to the resort in March and April; after the Olympics, but prices may increase after next year.

Ultimately, Klimock believes that sales volume in Whistler will gradually increase, but Olympic success is a non-issue. “Buyers are still interested in Whistler, with or without the Olympics. As a world-class resort, Whistler has unparalleled world access and is in close proximity to a major city, Vancouver. No other resort in North America can claim that. Having the Olympics is great marketing for Whistler, but I don’t think it would have any major effect on prices or the amount of people buying.”

The message is, if you’re waiting for prices to drop before purchasing property in Whistler, you may be too late. The time to buy is now.

Kudo's to the blogging community for their quick action.

And to paraphrase that famous line from the Seinfeld episode, all I can say is... That's Gold pipewrench! Gold!

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HAM exit stage left?

Faithful readers know we have pondered about what might happened when the Hot Asian Money (HAM) that has flowed into Vancouver suddenly needs to depart.

A lot of money has been parked here are as China experiences it's own real estate bubble, a bubble driven by more stimulus money, per capita, being injected into their economy that has been injected in the USA.

But as we discussed on Thursday, a real estate crash is underway in China. 

As margin calls come due for many mainland Chinese who have invested here, the impact of the need for liquidity cannot be underestimated.

The very first signs of this starting to happen are evident in the absence of HAM in the Vancouver spring real estate market. It is, basically, non-existent.

And as the year moves from early Spring to the end of Spring... is the HAM trend ready to move to the next phase?

At the top of this post is the video promo from a realtor for 3243 W. 33rd Avenue. The asking price is $2,480,000 and here is how it is being promoted (click on image to enlarge):

Mackenzie Heights House for Sale! BRAND NEW high-end custom-built house selling now at the well sough after Mackenzie Height area. This is a dream house that comes with high-end Kitchen Aid stainless steel appliances, HRV, air-conditioning, two gas fireplaces, centralvacuum cleaner, crystal chandeliers, electronic door lock, security system with intercom speakers and monitor, jacuzzi tub in master bedroom, granite counter-tops throughout house and granite tiles at the entry foyer. This house comes with just almost everything you need. Possession is AVAILABLE NOW. Open house Saturdays. Will you be this brand new house's FIRST homeowner?

A professional video and coherent write up.

But is there desperation behind the signs by the seller?

A curious craigslist ad has appeared regarding this house - you can click on the image below to enlarge it. (hat tip to Patiently Waiting on Vancouver Condo Info):

It says, in broken english:

"Note: the owner because of a urgent to return China, so the asking price there are a lot of room for negotiation, coupled with the distribution of the total value of 80000 full set of aristocratic furniture, piano, plus on the government’s home purchase cash back, buyers will get a total of nearly 200 000 discounts, which in the vancouver west very expensive premium real estate is very difficult to find such a cheap price, welcome to the OPEN HOUSE to look at the new luxury house just completed! NEAR TO U.B.C!”

Seems odd to have a craigslist posting written like this by a realtor. Is the owner desperate to explore additional advertising options because he is desperate to sell the property?

Let's face it, how many realtors would openly advertise a seller's weak hand and tell you he 'urgently returned to China' and that there is 'lots of room for negotiation?'

Interesting.

It's a good thing a lack of sales and burgeoning inventory doesn't mean housing prices will be coming down, eh?

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"The Sizzle is coming off the Vancouver housing market" - BMO

The Bank of Montreal has a chilling report out that should send shivers down the spines of all speculators out there.  BMO is predicting that Vancouver's housing market could face a bumpy landing.

As reported by News1130 radio, BMO says Vancouver's home prices will fall over the next couple of years.

Year-over-year home re-sales are down by more than 13% in April and sales in the first four months of this year compared to last year are down 20%.

"I can best describe it as a softening of a market," says BMO Mortgage Expert Carolyn Heaney. 

BMO Senior Economist Sal Guatieri says the price of homes in Vancouver and uncertainty over long-term mortgage rates are creating a buyer's market. He also says rich foreign investors who have driven up real-estate prices in Vancouver are now looking at cities that are less expensive.

"The sizzle is coming off the Vancouver housing market," Guateri says.

The report also says condos are being overbuilt in Vancouver and that is curbing demand.

Meanwhile, over at Vancouver Condo Info, regular contributor ZRH2YVR shares some additional inventory facts.

The west side of Vancouver exceeded 1,000 available detached listings on Thursday. Sales are off 17% and listings are up 25%.

In addition to single family houses, a serious flood of apartments is going up for sale on the west side – current pace is for 1,230 of attached units (Apartment/townhouse combined).

Meanwhile Richmond will likely have a 'months-of-inventory' total which is over 12 months by the end of May. More significantly the vast majority of transactions are now for less than the tax-assessed value of the properties. Sales are plummeting by 47%.

Interesting times.

Also... don't forget about out 20,000 listings prediction competition. Put in a comment and let us know when you think Vancouver will hit 20,000 available properties for sale.

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Wed Post#1: Inventory Listings

Back on Saturday we made a post about the surge in Vancouver Real Estate listings inventory and asked what Macleans had stated on their magazine cover: Is it time to panic?

We noted that the blog Vancouver Condo Info was reporting daily updates on sales and listings with information provided by local realtor Paul B.

Those listings numbers have been telling an interesting tale since the beginning of the year.

On January 3rd, 2012 there was a total inventory of 10,671 listings.

By February 1, 2012 that number had soared to 13,368.

As of today we cracked the 15,000 mark with a total of 15,012.

Most of the surge came in January, but the trend has continued in February as listings of properties for sale are far outpacing properties sold. Take a look at data posted so far for in the month of February:

Date   Listing  Price(+-)  Sold   Inv    Inv(+-) 
Feb 1     305      74        38   13,368  
Feb 2     251      64       155   13,447    79
Feb 3     249      56       122   13,548   101
Feb 6     325      82       113   13,691   143
Feb 7     281      70       140   13,793   102
Feb 8     516     138       214   14,013   220
Feb 10    234      63        94   14,108    95
Feb 13    314     106       133   14,187    79
Feb 14    281      85       147   14,273    86
Feb 15    254      60       112   14,365    92
Feb 16    252      94       110   14,411    46
Feb 17    225      84       148   14,436    25
Feb 20    317     133       141   14,526    90
Feb 22    239      96       135   14,664   138
Feb 23    222      67       108   14,709    45
Feb 24    220      88       112   14,775    66
Feb 27    294     129       107   14,931   156
Feb 28    294     120       179   15,012    81

In two months we have added almost 50% more inventory to the total amount of Real Estate for sale.  Each and every single business day this year has seen more properties listed than sold.

And only now is the Housing Bubble truly going mainstream.

On the right you will see we have added a tracking box for daily inventory totals.  Will the onslaught of listings continue through what should prime selling time known as the 'Spring Market'?

At what point does inventory have significant impact on prices... 18,000? 20,000?

We will keep daily track on the left to chart this trend.

Hat tip to wreckonomics for the graphic above.

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Tues Post #2: A Tsunami of listings flooding market?

"If you are a seller - list now!"

                                                                            

                                                                     - Ozzie Jurock newsletter advice 

                                                                        January 7, 2012

Our friends over at Vancouver Condo Info keep track of the daily R/E numbers and the emerging story is quite fascinating.

In 2011 there was not one single day where the number of new listings exceeded 400 in one day.

In January 2012 the listings have been coming fast and furious.  On Monday those listings crested that magic 400 mark as Vancouver had 428 new listings on Monday alone (with only 65 sales). For reference in 2011 the most listings on any single day in Vancouver for the month of January totalled 292 (Jan. 17, 2011).

Even in Richmond, another haven of Hot Asian Money last year, there have been 534 new listings from January 3-16 (with only 85 sales).

Where is this going?  It's still to early to tell but I suspect a lot of sellers are sure relieved to see the banks engaging in an interest rate war with each other (as noted yesterday).

Less than enthralled with the bank's interest rate war is the IMF.  As the San Francisco Chronicle notes the IMF is concerned the record low interest rates are combining with record household debt to pose a significant risk to the economy with excessive speculation.

Will these moves blow the market even higher?

Will demand be offset by a surge of sellers willing to cut prices to take advantage of a market flush with greater fools jacked on cheap money who are all to willing to inflict 'cashtration' on themselves?

Time will tell.

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Is January shaping up to be a Real Estate disaster in Greater Vancouver?

Over the past two weeks we have seen a seemingly endless stream of negative Real Estate items, including the stunning recommendation from R/E optimist Ozzie Jurock that if you are a seller - list NOW!, if you are a buyer - hold off.

You have to wonder... what will be the impact on buyer psychology of all this bearish analysis?  I mean... who wants to catch a falling knife, right?

Indications from those close to the industry indicate that last week's numbers were absolutely brutal for the R/E industry.  Over on the blog, Vancouver Condo Info, this sentiment was echo'd by contributor ZRH2YVR who says: 

• "Sales at this time of year are typically slow, but the level of sales now is only a trickle. There is a definite indicator that the areas which have spiked last year are no longer the hot areas. Inventory of the market is high for this time of year and listings are coming in at record pace for January."

He predicts that Greater Vancouver could exceed the highest inventory on record which occurred in 2008. Those on the blog who track daily inventory and sales numbers report that the Greater Vancouver inventory total soared to over 12,000 listings last week.

While the month is only half over, Vancouver West detached sales are on a pace to see a 66% decline for the month of January. Vancouver's two closest suburbs are on track for an equally dismal performance: Richmond is on track for a 51% decline in detached home sales and Burnaby for a 59% decline.

It will be very interesting to watch the impact of all the negative stories in the mainstream media on the real estate market for the rest of the month.

There is no doubt, the swirling tides of change are brewing in the market.

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What if?

All the talk of a housing correction of 12% (or more) in 2012 - and the impact such a correction might have on those already tightly squeezed by their current debt situation - raises an interesting question.

What will banks do at mortgage renewal time?

It is interesting to watch the reactions of the average Canadian when you raise the topic of US subprime mortgages.

They know very little about what a US subprime mortgage is.

In the United States, it is common for people with mortgages to have a 30 year term at the same interest rate for all 30 years.

Subprime mortgages were for those for didn't qualify for these type of mortgages.  Subprime mortgages were for shorter terms (1 - 7 years) with teaser rates that would expire. Basically subprime mortgages were mortgages that had an interest rate that would 'reset' after a few years and the mortgage holders had to go out and get a new mortgage.

Once this is explained to them the average Canadian's brow furrows, the head cocks, and you can almost smell the wood burning as the realization dawns.

Virtually every single Canadian has a 1, 3 or 5 year mortgage with an interest rate that 'resets' at current market rates at the end of the 1, 3 or 5 year mortgage term.  And by 'reset' we mean a brand new mortgage is issued to the mortgage holder.

Virtually every single Canadian mortgage is just like an American subprime mortgage.

In the United States, as the housing bubble burst and property values began to collapse, many subprime mortgage holders were forced to renew mortgages at substantially higher interest rates. Many faced significant interest rate hikes because of their risky status and the underwater state of their mortgage vs their property value.

In Canada the situation is somewhat different with the CMHC but what will happen in Greater Vancouver to a Lower Mainland homeowner who has a $500,000 mortgage with no equity (because of HELOC withdrawals) and has seen the 'value' of their property drop 12% - 15% (or as some are predicting - 30%).

A 15% drop in 'value' means you are asking for a new mortgage that is now $75,000 greater than the appraised value of the property. 

A 30% drop could leave people underwater by as much as $150,000. (We won't even begin to factor in the situation faced by the 0/40 crowd whose 5 year terms are coming due just as the Conservatives ponder reducing mortgage terms to 25 years next March).

Will the bank renew these mortgages?

Most people assume they will.

But some people to question is this is, in fact, the case. Over on the blog, Vancouver Condo Info, one contributor noted the following this morning:

"Recently I had an informal talk with a friend who works at one of the big Canadian banks. I asked him if he noticed any changes in the mortgage business. He said it’s still going strong. Interestingly though he also mentioned that he noticed an interesting phenomenon... if the mortgage was $600k or higher (most of the time this resulted from clients rolling in other kind of debt into their mortgage payments) the principal appears to have remained at the same level for the last 2-3 years. He noted that these $600k+ clients appear to be paying the principal over the years but after a while they ask that some line of credit with $30k-60k on it be rolled in the mortgage which bumps the principal back to previous years’ values. I asked what would happen if the clients can’t pay… does the bank take the property into foreclosure? The way he answered caught me a little off guard. It felt like he never quiet thought the process through. He said that the bank will work quite hard to 'help' the client continue paying. He seemed to think that the foreclosure procedure was the solution of last resort."

What I find striking is that I have also raised this point with colleagues who work at some of the big banks and I get a similar, perplexing response.

No one really seems to know for sure because no one has really addressed this question. 

Everyone assumes that banks won't be foreclosing because it is assumed the banks won't gain by foreclosing. That to do so (foreclose) wouldn't be in the bank's interests because it would cause a glut of inventory that will crash the housing market.

But will this stop the banks?

One thing we know for sure is that there are foreclosures happening in BC and elsewhere in the country. Did the banks avoid foreclosing on these people?

Nope.

So why do you think they will avoid foreclosing on you when the time comes?

Remember... the vast majority of these mortgages carry CMHC insurance (which is why the banks were willing to make these stupid loans in the first place).  If the banks foreclose, they don't lose a penny on the loan.  They could flood the market with properties, drive market prices dramatically downward, and they won't care.

They could sell the $500,000 house to anyone who will give them anything - say $200,000 - and all the bank does is turn around and hold out their hand to CMHC for the $300,000 they lost on the transaction.

If we were to have a rash of people caught in large underwater positions on their mortgages, what is the incentive for the banks to avoid the foreclosure process (and as you rationalize why they will do this - ask yourself why they didn't do it to the people who are currently being foreclosed on)?

As it is, the foreclosure process in BC is already long and arduous (taking over a year plus to complete). Banks have a responsibility first and foremost to their shareholders. It you are in a financial bind, why will banks make it worse by renewing bad loans?

Yet the vast majority of people you talk to are convinced the banks will "work very hard to make sure you keep your property" and will utilize foreclosure as a last resort. They are also convinced that the government will step in if these conditions evolve and pressure the banks not to foreclose to protect the economy. Many are convinced CMHC will be instructed to guarantee underwater mortgage renewals so long as they are renewals.

I suspect a great many homeowners in Greater Vancouver are going to be supremely shocked at the difference between the bank's definition of 'last resort' and their own.

I further suspect they will be stunned at the indifference of government to the financial hardships caused by a collapsing real estate market when CMHC offers no such support for massive underwater mortgage renewals.

Whocouldaknown?

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Vancouver's SFH price now 3 times greater than that of New York City's

I was perusing the discussion forum over on the blog Vancouver Condo Info and vanpro has posted a link to an interesting Reuters story on home prices in the United States.

Titled 'Home prices decline in NYC area, rise in Boston', it seems home values are continuing their decline in much of the United States.  In the third quarter, values fell in almost three-fourths of all U.S. cities as Americans become more pessimistic about real estate values.

Perhaps the most interesting statistic is the fact that the median price of a single-family home in the New York metropolitan area has fallen another 3.6% and currently sits at $389,600.

As vanpro notes, metropolitan New York has a population 6 TIMES larger than the entire Greater Vancouver region, which sits on way less land than we have here.

Factor in the fact New York is still one of the great financial centres of the world with incomes and wealth way beyond that of Vancouverites and you have a situation where a Vancouver SFH sells for 3 times that of the New York SFH, which is nothing short of astonishing.

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Tues Post #1: Some reflections on our Housing Bubble

Yesterday we referenced a Vancouver Province article that trumpeted our "Housing Bubble about to burst"

That outcome is not universally accepted and poking around the local blogosphere turned up a couple of items worth passing on to you.

First, over at VREAA, they picked up on a great commented posted in reply a CBC article about the dilemma being faced by the Bank of Canada over interest rates:

• “The housing bubble in Canada is fictional. … If you can’t afford $500K for a 600 sq ft condo, can you afford $450K? Can you afford $400K? The difference is only $400 to $500 a month which in downtown Vancouver is not a lot of money … If you want to live in one of the world’s most densely populated areas, then you pay the price…”

There are a number of 'myths' that get repeated over and over as we try to rationalize and justify our housing bubble. 

They include the idea that our area is different.

That Asian money will support our housing prices even when those prices surpass the ability of local incomes to support it.

There is also the idea that our hamlet is the next Manhattan, the next New York City. It isn't.

The idea that we are running out of land is also repeated ad nausem. Vancouver is NOT one of the most densely populated area's in the world.  As VREAA succinctly notes,

• “This is the kind of throw away comment that is accepted as correct and perpetuates the mania... There will always be some weather/beauty premium on Vancouver over other Canadian cities, but this is currently disproportionately high. Property prices are two to three times fair value determined by fundamentals... In doing so [people] omit the most important cause of the 'insane' RE prices: a massive speculative mania driven by debt."

And evidence of that massive speculative mania driven by debt grows more obvious with each passing month as we compare what you can buy in Vancouver with what is available elsewhere in North America, especially the United States.

Over at Vancouver Condo Info, we get another recent example of this insanity.

Check out this home for sale in upscale West Palm Beach, Florida. It's a 6,898 sq. foot 5 bedroom home on 2.5 acres with a guest house and five car garage (click on images to enlarge).

It appears to have an average kitchen...

But I don't think you can find a theatre room in your 'average' home...

Nor will you find a beautiful pool like this with giant glass enclosure over it...

The price for this palacial hut? $925,000.

Hmmm....

Okay, let's check out Vancouver.  What can you get on the east side in Killarney for $978,000?

How about this 1,958 sq foot, 3 bedroom home on a 41.6x131.8 irregular lot.

Is this what the CBC commenter meant when he says you pay the 'price' to live here?

I would suggest that far more than above average 'price' is being sacraficed to live here right now.... so is rationality.

This will not end well for anyone foolish enough to plunge themselves into massive debt to buy here. How can people not see this?

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