The Gamblers: Know when to hold. Know when to fold. And they're folding.

On December 23rd we talked about 5575 Elm Street, a Vancouver westside property that had seen it's asking price reduced by over 20% but was still listed over $400,000 above the assessed value of the property.

We mentioned that 2013 will be the year many begin to accept that the values established over the past year are not coming back and that to sell, homes will have to be listed below assessed value.  

As Global TV noted, the price increases of the last decade are long gone.

Driving this new reality is that fact so many properties are already selling below assessed value. 

In November we told you about a westside house that had sold for 32% below assessed value. December hasn't seen a replication of this type of drop, but there have been numerous sales 5%-20% below assessed.

And when you have conditions where sales are down almost 30%, it shows you in which direction the market is heading.

Seeing the writing on the wall, more and more speculators getting out the market at a loss.

2171 S.W. Marine Drive is one of those properties:

Originally listed at $2,180,000, the house is assessed at $1,885,000. It just sold for $1,570,000 or -17% below assessed value. More significantly, the seller originally paid $1,700,000 in February 2011.  That's a loss of $130,000 (not including commissions and Property Transfer Tax or PTT) in only 22 months.

Then there is 1706 W. 59th Avenue:

The seller originally bought the house in August 2011 for $1,700,000.  It was listed for $1,790,000, it's assessed at $1,697,000 and it just sold for $1,600,000.

That's only -5% below assessed value but it's a loss of $100,000 (not including commissions and PTT) in only 16 months... and this seller' is counting his lucky stars he only lost that much.

There is 3721 W. 16th Ave:

They were asking $1,288,000, it is assessed at $1,200,000 and it just sold for $1,030,000 or -14% below assessed value.

How about 2718 W. 24th Ave:

Assessed at $1,864,000 it was on the market for $1,750,000 and recently sold for $1,580,000 or over -15% below assessed value. (A faithful reader advises this house sold in 1998 for $455,000, sold again in 2004 for $700,000.  With no changes to the house whatsoever, it has now sold for $1,580,000.)

Finally we bring you 4118 W. 13th Ave:

This house is assessed at $2,529,000.  The seller was originally asking $2,900,000 and accepted $2,308,000 earlier this month or -9% below assessed value.

As we go into 2013, homes on the westside of Vancouver are routinely selling for 5%-20% below assessed value.

In this environment, asking prices above assessed value are a non-starter. Is it any wonder speculators continue cut their losses and get out while they can?

Earlier this year pundits insisted Vancouver westside properties would hold their value. Then some told us the market would see a 5%-10% correction - at best while others were adamant that sellers would never sell for less than what their property was worth, let alone less than what they initially paid for it.

All of these claims were dead wrong.

All eyes are now firmly focused on the upcoming Spring market.

(hat tip timber2012 on RET)

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How low will they go? Westside speculators still looking to bail - UPDATED

Post updated with original purchase price

This forlorn looking specimen of a single family house is located at 3955 Blenheim Street in Vancouver.

Situated near the corner of Blenheim and West 23rd, this was one of those prime candidates last year for a HAM flip on Vancouver's desirable westside.

Sitting in the Dunbar school catchment (with Lord Byng Secondary and Lord Kitchener Elementary just around the corner) it had all the elements a speculator could want including a slow speed school zone area,  wide asphalt back lane and a large lot perfect to build a 4000 sqft mansion with a lane-way house.

When it was originally snapped up in 2009, the speculators who bought it up were focused on renovating the house.

But when the market started to turn this year, they tried to bail on their investment.

You may recall we profiled their efforts back on March 1, 2012. The focus of our attention was a February 22nd craigslist ad (click on image to enlarge):

The speckers outline what they have done to the property so far:

Already spent $500,000 for the works. Will need about $250,000 interior works for your personal choices of flooring, kitchen and MBR bathrooms fixture, paint and partition layout, sprinkler & sewage upgrade. Permit with floor area 3497 sf plus bonus open space 400 sf of crawl space 3'11" high in the basement. Roof top has some winter water view with a flat roof in drawing for a potential roof top deck.

And the incentive is laid out for you to take this off their hands:

Quick $2.1m price for handyman or contractor who can do some finishing works and resell it easily for $2.6m-2.8m and up once completed.

So why are they selling?

Reason to sell - my partner and I have different tracks for our train of thoughts now.

Fast forward almost 10 months and the property still languishes on the market.  As VREAA noted today, they have bypassed the craigslist route and opted for a realtor to professionally sell the property.

But instead of $2,100,000, their asking prices has now dropped to $1,599,000.

Their focus has also shifted from finding someone who might be interested in finishing the reno, to seeking a developer who will tear it all down and build a new mansion (i.e: someone catering to HAM).

If nothing else you have the primary reason potential buyers aren't buying right now.  A $600,000 drop in asking price in 10 months?  Who wants to catch this kind of falling knife?

It shows you how real estate is massively overprice right now.  The speculative frenzy we've been through is nothing short of astonishing.

One of the contributors to the comments section (hat tip Eric Langhjelm) advises that this property was purchased for $1,180,000 in 2009. If the speculators who bought it have indeed already sunk $500,000 into the property in improvements, these speckers are already in a loss position particularly when you factor in transaction costs and interest on any money borrowed to finance the deal.

You have to imagine that if anyone wants to buy it for lot value, prospective buyers aren't going to give a damn that these speckers have already sunk $500,000 into the house.  I would be surprised if they could even fetch their original purchase price for the lot right now.

It's crystal clear now that our market is unwinding.

At $1,599,000... this property is still massively overpriced.

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Did we say -40% below assessed value? Correction... it's now -50% below assessed value.

Last week we told you about a White Rock condo that had breached the 40% below assessed value mark.

Located at 1371 Foster Street, Unit #306 was for sale last week with an asking price -47% below it's $228,200 assessed value (last week's asking price $119,000).

Well the asking price has been cut again.

Now it's down to $109,900, a stunning -52% below assessed value with no buyer in site.

As we noted last week, this building has an upcoming strata repair assessment of $63,000 that will be levied against owners. But notwithstanding this, we have seen condo units with large levies before that have sold.

The fact it's not moving is a reflection of the current market, a Lower Mainland market that now has it's first entry in 50% BELOW assessed value club.

(hat tip Observer and Vancouver Price Drop)


Meanwhile on the -30% front

Speaking of the current market, Observer notes we have two more entries in the -30% below assessed value category.

The first is 32913 14TH Ave in Mission which clocks in with an asking price -33% below assessed value:

And the second is #125- 3411 Springfield Dr. in Richmond which now has an asking price -32% below assessed value:

Like rats on a sinking ship, speculators bailing on the west side of Vancouver

Finally Observer shares another fascinating stat which I couldn't resist highlighting.

The west side of Vancouver has long been held as the epicentre of our stunning housing bubble and the  bastion of HAM (Hot Asian Money). Because of this speculators have been buying houses to flip like it was the one day shoe sale at Army/Navy.

But in what is another sign the bubble is bursting in the Lower Mainland, Observer notes that over 20% of listed homes in Shaughnessy right now were purchased just one year ago (this is not including new builds, so the figure is actually higher).

These are speculators desperate to get out and cut their losses.

Profiled is this listing at 1029 Devonshire Crescent, Vancouver:

This home last sold on June 25, 2011 for $2,499,888 .

The current list price is $2,380,000 (assessed value is $2,401,000)

IF the house sold for list price, there would be $125,238 in transaction costs and a $119,888 loss on the sale for a total loss of  $245,126.

So this specker is looking at a quarter million loss and no buyer in sight.

Guess you gotta know when to hold... and know when to fold.

And the speculators on the west side are folding, big time.

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Thurs Post #1: You gotta know when to hold... know when to fold. Speculators bailing and taking a loss - UPDATED

We've covered properties in Vancouver that are listing 23% below assessed value and houses in Richmond selling for 25% below assessed value, but there are other less dramatic sales taking place that are worth noting.

More and more we are hearing stories about speculators abandoning their 'investments', cutting their losses and getting out of the market.

A couple of examples for you.

First up is...

3341 West 33rd Avenue in Vancouver

It's billed as perfect for Investors or Builders:

Investor or Builder Alert! This house is situated on a large 56' x 130.59' lot in a wonderful neighbourhood. Main floor features include a gracious entrance with cross-hall living room and dining room, oak floors, leaded glass windows, a comfy kitchen and den with 3 bedrooms up, recreation room, office and another bedroom down, this house offers great accommodation. Close to excellent schools (St Georges, Crofton House, Prince of Wales), shopping, parks and Dunbar Community Centre. Move in, rent out or build your dream home on this 7313 sf property.

Presumably this is why someone bought the property in February 2012 when they snapped this house off the market for $1,958,000. I guess they thought they got a good deal because the property is assessed at $1,986,100, so they bought it for below assessed value (click on images to enlarge):

But the buyer's bullish sentiment has turned because as you can see in the above screen shot, the house has been back on the market for $1,988,000.

Lucky for him, a greater fool has been found.  He bought for $1,958,000 and he sold it this week for $1,933,000.

That represents a loss of $100,000 in less than 9 months.

And while it isn't a property selling for 23% below assessed value, it is an example of how a house has sold twice this year below assessed value, each time lower than the time before.

Another example of a speculator getting burned is...

3475 West 26th Ave in Vancouver

From the description:

True quality and attention to detail is the best way to describe this beautiful 4 bed, 3 1/2 bath Dunbar Craftsman home. Showing better than new with open living gourmet kitchen, beautiful hardwood floors, mouldings & built-in cabinetry.Very generously sized bedrooms incl. huge master with bright and spacious en-suite and walk-in closet. Quality features include in-floor radiant hot water heat on all 3 levels, built-in speakers for sound on main & upper floors, granite counters throughout and newly renovated basement with 8 1/2 ft. ceilings, bar, surround sound & full bath. Basement has its own outside access and could be easily suited. Extremely private professionally landscaped back garden and 2 car garage. Steps to Lord Kitchener Elem.

Now this house was only built in 2003, so no developing or upgrades to be done here. So you have to figure when our latest speculative investor grabbed this one, he was simply hoping to play the flip.  

In 2011 he paid $2,410,000.

Assessed value? $2,286,000.

It was sold this month for $2,185,000.

That's a loss for our speculator of $225,000 off the original purchase price, a cost in commission of $66,000 and property transfer tax of $46,000.  Total loss: $337,000 in 16 months.

Then there is...

4490 Blenheim Street in Vancouver

From the description:

BEAUTIFUL BIG LOT AT CORNER of W 29TH AVE & Blenheim in PRESTIGEOUS MacKenzie Heights area! Lot SIZE 56.10X122, UPDATED home with newer kitchen and S/S appliances, newer flooring & bathrooms, newer double-glazed windows, functional layout with 4 generous sized bdrm up, elegant living and dining rm, 2 bdrm suite in bsmt is great for mortgage helper. CLOSE TO ST. GEORGE'S & CROFTON HOUSE PRIVATE SCHOOLS, PW HIGH SCHOOL, UBC, shopping and transit. To hold or build a 4790 sf new home, MUST SEE!

4490 Blenheim is only assessed at $1,716,000...

... but it was one of those properties where you really get to see the speculative rolling of the dice.

4490 was bought in July 2011 for $1,920,000.  That's right, in July 2011 they paid $200,000 MORE than assessed value.

In January 2012 our speculator tried to flip the property by listing it for $2,380,000.  But no greater fool was forthcoming.

It finally sold this month for $1,630,000.

With realtor commissions and property transfer tax, that's a loss of over $400,000.

In all three cases the sale price is not a stunning drop below assessed value, but unlike Boomer Trigger types (who have sold dramatically below assessed value and still reap a healthy profit), these are speculators who are cutting their losses and getting out of the market.

And that's point.  It's another canary in the proverbial coal mine.

Experienced investors are starting to accept they have mistimed the market.

Rather than hold and wait, they realize the future is only going to get worse and the collapsing market is  not going to turn around anytime soon.

So these guys are taking the hit and getting out before it get's worse.  More significantly... they aren't lining up to buy 'investment' properties either.

In it's own way, it will have a significant impact on our market as well.

(hat tip to Makaya on VCI for these 3 examples)

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Tues Post #2: How crazy is real estate speculation in Vancouver?

You gotta love the chutzpah of a bubble market.

The video above is for 1490 Balfour Avenue, a mansion in the toney Shaughnessy neighbourhood of Vancouver.

It's 8 bedrooms, 5 bathrooms and 3 half bathrooms. A massive 9,414 square foot house on a 17,827 square foot lot.

The current assessed value of the property is $3.05 million.

So how crazy is the speculation in our market?

Well...  in May of 2011 this house was acquired for $2.98 million.

In January 2012 it was listed for $5.98 million!

(Really? You're trying to flip a home for a $3 million profit?)

In March 2012 the asking price was 'reduced' to $4.88 million.

Recently the asking price was 'reduced' again and the current asking price is $3.988 million. Here is a screenshot of the current listing (click to enlarge):

If it sells for that price, it still amounts to a $1million gross profit in one year. Clearly the buyer was hoping to take advantage of HAM (Hot Asian Money) and the evaporation of that market has cut the bottom out of this buyer's wild expectations.

You have to wonder if the property is marketed as '40% off'?

Such a deal, eh?

Hat tip: gse36

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Real Estate Inventory

Inventory continues to build for real estate in the Village on the Edge of the Rainforest.

As you can see by the graph to the top right of the blog, the total for yesterday hit 15,305.

Inventory has increased each and every day of the year with the exception of February 29th. But even on that day, new listings outpaced sales 249 to 145. The reason total overall listings dropped that day was because a large number of listing contracts had expired at month's end.

The jump to 15,305 yesterday (+144) was the 3rd largest single day inventory increase this year. The daily average inventory increase over the last month has been 60 per day.

As noted by b5baxter in the comments section over at the blog Vancouver Condo Info, if the current pace of inventory increase is maintained we could reach 16,000 listings in approximately 11 days (March 19, 2012) and 20,000 listings in 78 days time (May 25, 2012).

That would double the total inventory available for sale at the start of the year.

Real Estate watchers are following this trend closely.

You have to wonder if we will see more speculator panic like we profiled yesterday if supply continues to outstrip demand.

Everyone seems to know a handful of people who are dabbling in the real estate speculation game.  Is it a stretch to imagine there are at least 1,000 hard core real estate speculators at work right now (with 4+ properties on the go) and another 2,000 with 1-3 properties in play?

Could it be that half the current inventory on the market is held by speculators?

It's my understanding that later today, Garth Turner's post (www.greaterfool.ca) will focus on how half of all sellers of Vancouver condos who purchased since 2008 are now selling at a loss.

With changes looming in the mortgage rules later this month, are we reaching a tipping point in the Vancouver market?

Will genuine panic grip even a small portion of all those speculators as they scramble to cut their losses?

Interesting times indeed.

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More speculator panic? - Updated

In our last post we related that CIBC economist Ben Tal had come out with some very bearish comments about Real Estate.

He had said his bias leans towards...

"an expectation of more significant price declines. This is basically a stagnating housing market, not a housing market that is going to be on fire. This is a housing market that you'll see activity moderating and prices actually going down. In Vancouver, prices are already falling from sky high levels a year ago, especially in the once bustling condominium market."

So you have to wonder if there is any signs of concern amongst speculators.

Last week we profiled speculators who had bought a west side home to renovate and flip... but were desperately seeking to bail mid-renovation.

But what of those condo speckers, the ones who signed up for pre-sales.  As some of them see their completion dates near (and the balance beyond their 10-15% downpayment looms), are any of them affected by the plunge in sales and explosion in listings we have seen so far this year?

Let us turn to craigslist.

Here we have a CL posting from someone who is trying to dump a pre-sale assignment for a townhouse at 277 Thurlow Street in the very upscale Coal Harbour of downtown Vancouver by Stanley Park. (click image below to enlarge)

Due for completion at the end of this month, it seems he is most certainly feeling the heat of those 'falling prices' Benny Tal was referring to.

The craigslist headline screams:

"Panic Sale - Reduced to Cost"

Offered is a luxury townhouse at the new Three Harbour Green development. With a closing date of March 31st, 2012 fast approaching, the burden of moving a 2,303 sq ft, 2 Bedroom + Den (with private roof top Patio and 2 full, 1 half bathrooms) seems to be weighing on our dear specker.

Asking price (which is advertised at being at cost): $3,500,000.

Promoted as 1 of only 2 townhouses available in the development, it seems our eager specker is in worse shape than you might have noticed at first glance.

Not only did he snap up this unit in the presale, but the CL notes he also has the 2nd townhouse for sale as well (listing for $3,000,000).

Yikes!

The contact person is in the CL ad goes by the first name of Alok (contact number 604-664-9915).

A search of that phone number comes back as belonging to Alok Kansai, a manager of the Vancouver (Surrey) branch of the countertop, flooring and cladding company Hari Stones Limited.

So it seems our speculator works in the R/E construction industry.

Clearly, as he services the real estate bubble, he couldn't help but try to grab himself a piece of the speculator pie.

But with the market turning, and with only 15% down for the assignment, one can only wonder at the mounting stress as he grapples with coming up with the remaining 85% of the $6.5 million due on these two townhouses.

Interestingly the CL advises that the GST is included in the advertised price on "these units only".

How many other units is this supplier is dabbling in, I wonder?

How will he be affected by the changes to the Canadian 'liar loans' to the self employed as banks no longer accept undocumented statements as to their 'income'?

Even if he can managed to pull off following through on the $6.5 million in new mortgages these two town homes require, what happens when he has to complete on the other units he has acquired in pre-sales?

More importantly... if Tal's predictions of "more, significant price declines" come to fruition how ugly are things going to get for him and other speculators in similar positions?

Me-thinks the 'panic' is only just starting to set in. I suspect we will be seeing a lot more of these 'panic sales' in the months ahead.

(ht to SunBlaster in Vancouver Condo Info comments section)

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Thurs Post #1: Where's the HAM?

For those who follow Vancouver Real Estate, you may recall back in the third week of January there was great media speculation that there would be an influx of Asian buyers to the Lower Mainland for Chinese New Year.

The Vancouver Province headlined on January 19th: Chinese cash buyers may be about to spice up choice neighbourhood real estate market and for sale signs sprouted everywhere on the West Side like those in the picture of Granville Street above.

Julia Lau believes sales are about to spike in certain neighbourhoods, in conjunction with the three-week holiday associated with Chinese New Year. Lau’s clients are wealthy Chinese businessmen who set their families up in tony areas of Vancouver and West Vancouver that offer multi-million dollar homes with top schools. These investors like to buy Vancouver property while visiting the wife and children at this time of year, Lau says. “In Chinese culture we buy one home for living in and a few for investments,” Lau said. “Most of my clients buy in cash, so they don’t need the bank. They would not be forced to sell (due to changing financing conditions.)” Lau predicts that in the Chinese investor season from January to May this year, she will sell ten luxury homes per month — a little slower than last year’s frenetic sales pace.

Hyped up by these expectations, Vancouver homeowners rushed to the market with a surge of real estate listings in the first two months of 2012.

But sales fizzed and the boom seems to have busted before it could even get started.

High end HAM target homes on the westside of Vancouver (over $2.5 million) stalled as months-of-inventory have ballooned to over 10 months of stock.

What gives?

Could it be that Lau's clients, who "buy in cash, so they don’t need the bank", might be having liquidity problems?

CNBC is out with a story reporting that 'China's Home Prices Have Fallen for the Fourth Consecutive Month'

Compounding the problem is the fact that the strident clampdown on the housing bubble is sending the Chinese stock market plunging as Bloomberg noted yesterday.

Thus the expected influx of wealthy Chinese - those investors whom Lau said "like to buy Vancouver property while visiting the wife and children at this time of year," - suddenly find themselves 'cash poor' as the imploding markets at home take hold.

Surprise, surprise... suddenly there's no money to splurge on Vancouver Real Estate.

But as the market on the West Side of Vancouver stagnates on the sale of properties valued in the over-$2.5 million category, it's a different story entirely in the under-$2.5 million category.

Local Speculators have been snapping up properties like hot cakes with dreams of capitalizing on what has been a redevelopment cash cow the past few years. Massive profits have been made as HAM snapped up redeveloped West Side homes at ridiculous prices.

But is the tide starting to turn? As the over-$2.5 million market grinds to a halt, are there strains developing in the ranks of the speculators?

Ads are now appearing on Craigslist from developers attempting to bail on properties they are in the middle of renovating.

Here is one such property at Blenheim and W. 23rd

(click on image to enlarge)

The speckers outline what they have done to the property so far:

Already spent $500,000 for the works. Will need about $250,000 interior works for your personal choices of flooring, kitchen and MBR bathrooms fixture, paint and partition layout, sprinkler & sewage upgrade. Permit with floor area 3497 sf plus bonus open space 400 sf of crawl space 3'11" high in the basement. Roof top has some winter water view with a flat roof in drawing for a potential roof top deck.

And the incentive is laid out for you to take this off their hands:

Quick $2.1m price for handyman or contractor who can do some finishing works and resell it easily for $2.6m-2.8m and up once completed.

So why are they selling?

Reason to sell - my partner and I have different tracks for our train of thoughts now.

'Different tracks for our train of thoughts'?

Sounds to me like the prospect of an imploding Vancouver housing bubble is starting to spook these speckers.

Is this the start of a trend? It will be interesting to see how the under-$2.5 million market on the West Side of Vancouver evolves if the evaporating HAM situation fails to reverse.

On that note, the situation in China is being driven by deliberate tightening by the government as officials implement an array of measures to curb growth in the real estate sector.

Will tightening continue?

Yesterday Reuters

quotes Wang Shi, founder of Vanke (China's biggest developer by revenues) in Hong Kong just after he completed a one-year study tour in the United States:

"If China does not control property bubble, once it bursts, the country cannot withstand. I truly hope tightening will continue."

I have a feeling there aren't too many in China's government who will disagree. That means you can expect further drops in the Chinese Real Estate market, further drops in the Chinese stock markets, and a lot less money available for Asians to 'invest' in Vancouver Real Estate.

The speculation game on Vancouver's West Side is about to get very rocky.

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