In these two sets of numbers lie Canada's housing bubble.

There's an article in today's Vancouver Sun by Barbara Yaffe.

Titled: The high cost of home ownership: Canadian homeowners carried nearly $1.2 trillion in mortgage debt last year, the article shares a stunning statistic:

The Canadian Association of Accredited Mortgage Professionals estimates, homeowners in this country — of whom 60 per cent carry mortgages — owed nearly $1.2 trillion in mortgage debt last year, up from $664 billion in 2008. In other words, national mortgage debt has nearly doubled in just four years.

Combine that with the fact that CMHC has gone from $100 Billion in insured mortgages in 2006 to almost $600 Billion today and you know where Canadians got the money to bid the price of real estate to astronomical levels.

Debt fuelled our bubble, plain and simple.

Throw in emergency level interest rates to facilitate the low monthly payments on massive mortgage amounts and you get a real sense of why the bubble has continued for so long.

But make no mistake.  These are not real estate prices which reflect intrinsic value.  The real estate bubble is born of excess credit.  Massive, excess credit.

This is a scenario that has been repeated over and over the past 500 years.

• Tipper and See-Saw Time (1621)
• Tulip mania (top 1637)
• South Sea Company (1720)
• Mississippi Company (1720)
• Railway Mania (1840s)
• Encilhamento ("Mounting") (1886–1892)
• Florida speculative building bubble (1926)
• Roaring Twenties stock-market bubble (c. 1922–1929)
• Poseidon bubble (1970)
• Japanese asset price bubble (1980s)
  • 1997 Asian Financial Crisis (1997)
• The Dot-com bubble (1995–2000)

A boom caused by excess credit will always bust. Ours will be no different.

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Wed Post #1: It's election day

It's election day in the Province of BC.

As the Vancouver Sun noted four weeks ago, if you turn on any radio talk show you hear callers complain bitterly about the government. But increasingly fewer are taking advantage of the one opportunity they have to do anything about it.

In the 2009 provincial election, voter turnout dropped to a modern-day record low of 55% of registered voters.

Today it will be the people who vote that matter. The people who don’t, the folks that political scientists and commentators worry about, won’t be heard from.

Make sure you make the time to cast a ballot. You can go to the Elections BC website to find polling stations.

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Newsvertising 2: Are there other sections of the Vancouver Sun/Province that are nothing more than real estate advertising dressed up as news?

Yesterday we introduced you to the topic of 'Newsvertising',  a disturbing trend wherin our City's major daily newspapers publish paid advertisements dressed up as legitimate news stories; executed in a way that doesn't clearly tell you that what you are reading isn't news.

You pay them and they make it look like news.

Marvellous.

It's a disturbing journalistic development, especially when leveraged by a real estate industry desperate to 'massage' rapidly falling consumer confidence; confidence which we are now told is dropping faster than ever before.

It begs the question: what other news sections in the Sun/Province portfolio are the editors prepared to journalistically pimp out?

Did you happen to catch two more of those real estate Gallery portfolio's that the Vancouver Sun ran over the past week? You know... like the one that profiled the infamous fake mansion in West Vancouver.

There was this one on March 21st which compared what you could buy in Vancouver vs. Roswell, Georgia.

And then,  on March 25th, the Sun ran another comparing what you could buy in Vancouver with Beverly Hills, California.

In each of these cutsie infotainment-style news pieces the Vancouver Sun gave credit to the originating source, a luxury real estate blog called PriceyPads.com

Faithful readers probably recognized the comparative style format at play from local blog The Thirties Grind. That's where writer Melissa Carr has spent the last year cranking out real estate comparisons in a feature titled the Absurd Vancouver Property of the Week.

Carr has been earning a certain level of notoriety as Global TV and CKNW radio have taken to regularly inviting her on-air to discuss the insanity.

Enter Pricey Pads.

Pricey Pads (PP) has a strong local Vancouver presence and bills itself as a "luxury real estate" blog.  Run by Mitch Cal, he says:

Pricey Pads was created as a way to showcase the greatest Estates and Mansions around the world. It continues it’s goal to compile updated lists of the world’s most expensive luxury Real Estate and Rentals in todays market. Keep checking back for frequent updates and new and exciting features! Be sure to “Become a Fan” of Pricey Pads Facebook Fan Page to see much more content.

Interested advertisers can contact PP for property listings, advertising and support/requests.

Cal even boasts that PP has "worked with the Auctioneers auctioning Sheryl Crow’s Estate on an advertising campaign and have been involved with a number of Realtors from Canada, Brasil and the United States to help market their properties."

Real estate promotion seems to be PP's gig.

One thing PP doesn't regularly do, however, is profile Vancouver properties in a value-vs-value format with other North American cities. From what we can see, this is something new for them.

Incredibly this hasn't deterred Pricey Pads from achieving an astonishing level of success in garnering media attention with their new concept. One can only marvel at the speed in which they were able to gain major newspaper coverage not once, but twice in the same week with their new feature.

It took Melissa Carr and The Thirties Grind over a year to crack Vancouver's major media and gain exposure.

PP seems to have pulled it off in less than a day.

You see, PP published their Vancouver vs. Roswell, Georgia comparison on their website on March 21st. Later that same day it appeared in the Vancouver Sun.

That's impressive.

Presumably some sharp, eagle-eyed editor just happened upon the Pricey Pad piece the moment it was posted and said, "wow... we need to pick up on this and print it in our newspaper. Our readers would find this very interesting!" 

Suddenly the Sun has their latest real estate oriented human interest story for us and Pricey Pads benefits from unexpected media attention to their website link in the Vancouver papers locally, and nationally as the gallery feature syndicates across the country.

Riiight!

You don't suppose Pricey Pads paid the Vancouver Sun to feature them in their little infotainment Gallery, do you?

How can this be though?... There's no indication that what we are looking at is a paid real estate advertising feature. No indication that the Sun is actually running a promotion to drive web traffic to a for-profit website.

Newsvertising. 

It's the formula by which a once respected news organization sells it's journalistic integrity and soul in a misguided attempt to financially survive.

Based on what we have shown you the last two days, how can you trust the actual motive/source behind anything printed about real estate from an organization employing this formula?

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Richmond Real Estate Agent: "CNY non-event, actual sales hard to come by."

Real estate agent James Wong is out with his latest assessment of the market in Richmond. Refreshingly frank, Wong once again pulls no punches on the outlook:

Home sales in Richmond for February, 2013 at 219 homes was a 33% improvement compared to the previous month. But, it was 32% lower than the sales registered a year ago in February, 2012. Home prices continued to drift down, and price discounting continued by motivated sellers trying to sell their properties. The supply of homes spiked up 12% compared to the previous month as more sellers put their homes on the market in anticipation of a better spring market.

The overall months-of-inventory (MOI) moved back up from 10.50 months to 12.27 due to the higher supply of homes. The housing market in Richmond leads the lower mainland in having the highest MOI. The Chinese New Year effect sellers were hoping never materialized. The busier viewing activities the past few weeks did not translate into a recovery in the housing market for Richmond.

Richmond real estate market outlook

The busy spring season is with us now. But, the large price gap between sellers’ asking prices and buyers willingness to buy, had resulted in lack luster sales. The standoff is expected to continue as most sellers are holding off making deep discounts to their prices. Homes that were sold were mainly those priced at or below their city assessment values.

The Chinese New Year effect proved to be a non-event for 2013. While viewing activities were reported to have increased significantly, actual sales were hard to come by.

More listings can be expected for Richmond in the coming weeks. The negative market sentiment and buyers holding off buying the next few months will continue to exert pressure on sellers. The current MOI at 12.27 months is expected to move higher to re-test last year’s height of 14.09 months in September, 2012. Richmond’s housing market will continue to suffer due to high inventory and below average sales. Further erosion in home prices in Richmond can be expected in the foreseeable future.

A housing market recovery in Richmond is best tracked by monitoring the MOI. Buyers should exercise caution when buying. The current housing market in Richmond is still trending down. Buying now should be mitigated at prices discounted deeply, and well below current prices. 

Tough challenges for Richmond home sellers

The stand off between Sellers and Buyers will not be solved soon. The slow housing market in Richmond is expected to continue into next year. Motivated sellers who need to sell will bring homes prices down. The only way out for them to sell their homes is to lower their prices significantly to attract buyers. As home prices decline, buyers will stay on the side-line and wait for a suitable time to buy. Until the market stabalizes, the number of buyers willing to enter the market will be curtailed.

Meanwhile the Vancouver Sun has come out with the type of stark housing comparison normally reserved for the blogosphere.

Readers are shown this eight bedroom, 12 bathroom mansion in Roswell, Georgia.

It sits on 3.2 acres and is a 37 minute drive from downtown Atlanta. It includes 23,000 square feet of floor space, a million-dollar pool, a ballroom big enough to display a 10-car collection and a 3,200-square-foot courtyard. 

Asking price? $3.75 million:

Or, if you can go as high as $3.99 million, you can grab this this four-bedroom, three-bathroom ‘solid liveable home’ at 1050 Laurier Ave. in Vancouver's upscale Shaughnessy neighbourhood.

And we didn't even have to airbrush in a fake mansion to get this one on the pages of the Vancouver Sun.

I guess that's an improvement.

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Chinese New Year is upon us... will real estate sales surge? - Updated

This coming Sunday is Chinese New Year.

And Chinese New Year (CNY) has been an annual harbinger of a sales surge in our little Village on the Edge of the Rainforest... at least up until last year.

In 2012 CNY was a dismal flop. Declining market conditions back home combined with the negative images from the Japan Tsunami cast a pall across the CNY euphoria.

But with some semblance of a recovery in the economy, and press reports of fleeing capital in the midsts of a Chinese corruption crackdown, many have been eagerly anticipating another CNY surge.

And that's the thrust of an article in todays Vancouver Sun,  Realtors prep for Lunar New Year upswing in sales - In previous years, industry gets a bump during holiday time in China.

Sales in Metro Vancouver’s real estate markets have slowed, but realtors are still gearing up for the Lunar New Year period when, in recent years, the region has seen a bump in transactions associated with an influx of visitors for the holiday.

“It’s hard to say what’s going to happen this year, but I expect we will see a bump in sales activity during the month of February,” said Cameron McNeil, president of project-marketing firm MAC Marketing Solutions.

However, McNeil said Asian buyers have been more active in the Metro Vancouver market in recent weeks than they were through the middle of 2012.

By the end of 2012, property resales had declined 23 per cent to 25,032 transactions within the region of Metro Vancouver covered by the Greater Vancouver Real Estate Board, and realtors were describing the market as a standoff between buyers and sellers.

Asian buyer have been more active in the Metro Vancouver market in recent weeks?

Oh?

Now it must be said that the daily sales stats are not an accurate reflection of what went on that particular day.  They can be delayed weeks at a time.  But those numbers have been abysmal.  So the first reaction is to scoff at the statement.

It wreaks of another lame attempt to generate phantom demand as a lever to encourage buyers to "buy now before the surge prices you out".

McNeil said his salespeople are seeing an increase in activity, including from Chinese buyers.

“To me, (Chinese buyers) are a leading indicator,” McNeil said. “What I mean is, when Chinese buyers are active, it is a little bit of a bellwether (for the overall market), and the Chinese are active.”

Buyers are taking their time, McNeil said, but for developments in good locations with “fair values, prices aren’t coming off and are selling very well.”

He added that locations with established neighbourhoods, good schools and proximity to rapid transit are popular.

The message here is clear: Chinese buyers are a leading indicator and realtors are here to tell you "they're buying." The implication? Get ahead of the curve before prices start going up again.

As one comment at VCI noted (hat tip Bo Xilai):

Yeah, I can see wealthy Mainland Chinese buyers consider proximity to rapid transit as being SUPER important to their buying decision.

Why take the Bentley when you can ride the Canada Line?

Maybe Mr. MacNeil is trying to get his real audience – brokeass first time home buyers – off the fence.

And that is exactly what the entire "news piece" is all about.

Comically - after the big pump - the stage is set to soften the inevitable disappointment.

On the Chinese zodiac, 2013 is the year of the snake, but McNeil said that factors little in anyone’s buying plans.

Lunar New Year is one of the times of the year when the Chinese visitors who are drawn to Vancouver tend to come, which is something the real estate industry noticed and catered to with receptions and sales events. The result, McNeil said, has been “quite a few transactions out of that time period.”

Albert Leong, managing broker for the Macdonald Realty Westmar office in Richmond, added that China shuts down for Lunar New Year, which gives executives and business owners time to take a break from their companies and travel.

“At the same time, they come here with some money,” Leong said, and those inclined to spend some time in Vancouver might buy property.

However, Leong is also sensitive to China’s internal economics, which haven’t been as strong as in previous years as the economies of its customers in Europe slow down and the United States struggles to bounce back.

And his impression is that there are fewer Chinese coming to Metro Vancouver.

“I think they are in recession just because their customers, the U.S. and Europe, are doing less business (with China),” Leong said. “I think for the government, the incentive is there to keep everyone home and keep their own economy (growing).”

The CNY period is upon us and sales data over the next few weeks is going to paint a very telling story.

Four sales days after the first of the month and we already have a net inventory increase of almost 600 new listings (an average increase of 149 per day).  If net daily listings were to increase at this rate, February would close with an astounding increase in inventory of (+2,832), a total which would eclipse any increase seen in 2012.

Those planeloads of vacationing Chinese nationals better start buying quick. 

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The old standby argument

Received some interesting emails from some concerned about the 'slow' pace of listings to start off the year.

Ummm... slow?

In the three days following the first day (where the month end expiries cycle off the rolls), we have had a net increase of 423 new listings.

That's an average increase of of 141 per day.

If we were to keep up this torrid... err... 'slow' pace, there will be a net increase this month of +2,961 and bring us to 14,750 for the month.  Last year we didn't see that level until the start of March.

And it must be noted, listings don't normally start picking up speed until the middle of January.

Food for thought.

Meanwhile our buddy Tsur Somerville has been busy spinning the 2013 property assessments from BC Assessment.

As most readers already know, the 2013 numbers are based on valuations made in July 2012... meaning they have missed the last half year of horrid R/E data.

In an article discussing the assessments, the Vancouver Sun noted that over the past five years, single-family homes were the big winners, particularly in Burnaby, Vancouver and Richmond, where the five-year gains are still more than 20%.

However, this year, for the first time in many years, a number of homeowners in some areas of B.C. will see a drop in their property assessments. In tony areas like Whistler and Vancouver's west side, assessments fell, while more affordable areas like Surrey or the Tri-Cities, held their own.

But Somerville is out promoting that those who own Single Family Houses (SFH) have nothing to fear:

Single-family homes have been the winners over the long term while apartments have been struggling, an analysis of Metro Vancouver real estate statistics released last week shows.

"The resource that is scarce is land," said Tsur Somerville, director of the centre for urban economics and real estate, Sauder School of Business at the University of B.C. "You can always build more condominiums, but if you want a backyard, there's a limited space."

He said that isn't likely to change soon, despite the large cohort of baby boomers who could choose to downsize in the near future.

"Most people stay in their houses longer than you expect," Somerville said. "They want space for the grandkids."

Ahh yes.  The whole "they aren't making any more land" theme is a favourite of Somerville's.

In an August 21, 2010 edition of the Vancouver Sun (link no longer available) titled "Vancouver's housing affordability problem boils down to too many people on too little land", Somerville noted:

What drives Vancouver's house prices so relentlessly to levels four times higher than Winnipeg's, and more than half again what Torontonians pay?

It's simple, says Tsur Somerville of UBC Centre for Urban Economics and Real Estate. 

"If you want Winnipeg-level house prices here, all you have to do is tear down the mountains and fill in the ocean."

Well, that puts slow or stop to the steady influx of people - though the massive loss of amenities if our landscape were to be suddenly levelled might do that automatically.

"Depending where you draw the circle," Somerville says, "70 per cent of the land isn't developable. It's mountains or water or the United States."

Then, on top of this insurmountable geographic limitation, add the relentless population growth that, in good years and in bad, ranges from 1.3 to 1.5 per cent a year.

"The higher the population of a city, the higher the house prices," he says. "If we lose 70 per cent of the land, our metropolitan area of two million will have the same house prices as a seven-million metropolitan area. Because people have to commute the same distance."

It's as if Somerville has built his entire thesis of Vancouver Real Estate independent of the role played by the credit easing strategies of the Federal Government and CMHC since 2001.  

And because of that, he simply cannot acknowledge that they may play a part in the bubble's unravelling.

When all else fails, fall back on the "they're not making any more land" argument.

Of course sandwiched between the 2013 snippet and the 2010 treatise, we have this from October 3rd, 2012:

“West Vancouver, the west side (of Vancouver) and Richmond are all down five to eight per cent from the peak earlier this year,” noted Tsur Somerville, director, centre for urban economics and real estate, Sauder School of Business at the University of B.C. “In contrast, the Coquitlams, the Deltas, the Maple Ridges, the Burnabys are down one to three per cent. The areas that had the most intense run-up in 2010 and 2011 are the ones where prices are weakening more.”

Somerville noted that a few areas still saw prices rise in the year, including Squamish’s five-per-cent price hike - the highest in the region.

“This is the first time since 2007, 2008, when prices have come down by this degree,” added Somerville. “When you have nine months of continuous months of weak sales, it will show up on the price side.”

Somerville believes high prices, and reduced economic optimism, are behind the sales drop. “And cycles happen.”

This is pretty much the only time Somerville admitted prices were falling. For some reason the whole 'cycles happen' and prices have fallen 'by this degree' talk vanished... replaced by the 'flat' market and 'flat'  prices mantra.

You don't think that had anything to do with the fact that cycles contain collapses? And that by admitting prices move in cycles, you pretty much acknowledge that a collapse not only can occur... but will occur at some point?

Just a thought.

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Media notes R/E groups attempting to "calm fears of a local housing crash"

On Thursday we told you how the media was filled with economists and 'experts' who were now predicting that prices will, in fact drop, but will do so by a moderate level that does not resemble the U.S. crash.

The purpose of all these ascertains? Preventing panic. A fact the Vancouver Sun noted yesterday:

Greater Vancouver will see home sales tumble by one-fifth this year, but the market should rebound in 2013, the B.C. Real Estate Association says in its new forecast as the group moves to calm fears of a local housing crash.

It is exactly those types of fears which are encouraging sellers to accept 75 cents on the dollar for properties (examples of which we have profiled over the past couple of weeks).

Of course the sellers aren't actually taking only 75 cents/dollar on their real estate.  Most bought before the big blow-up of the bubble during the 00's and they are still enjoying a large capital gain.  They just see the writing on the wall and are cashing out while there are still profits to be realized.

And those signs are everywhere.

Vancouver movers are reporting stiff declines in business due to the falling real estate market and the slowdown is effecting a broad segment of society:

Tradesmen, Builders and Craftsmen, worry about the later half of 2012 and the speculation around the slow down of the Vancouver Real Estate Market... Competitively priced houses are now sitting on the market for an average of 5 to 7 months. 

Scott Moe of RE/MAX says: "All across the board people are saying how slow it is out there. I have 24 listings right now and only had 4 showings on the weekend!" The slow down of BC's real estate industry extends well beyond just builders and realtors. Many local businesses are affected by slow real estate sales.

Which is why early signs of panic are now starting to pop up.

And there signs of more problems ahead.

Concerns are spreading through the Chinese media with headlines that: “All Canadian banks will introduce new mortgage rules by November 1st, 2012”What will those new rules entail?

All-Canadian banks and financial institutions will start on the 1st of next month to take up increased tightening housing mortgage measures. There will be new rules for those without sufficient proof of income documents.  This will include the self-employed who will only be able to obtain no more than 65% of the mortgage property value in their loans. Prior to the implementation of the new requirements, some banks allowed self-employed people up to 75-80% of property values in a mortgage. 

Mortgage experts believe that the new measures will have the greatest impact on new immigrants.

As one contributor on VCI noted (hat tip VMD), the OSFI will require lenders to limit maximum LTV ratios of “nonconforming residential mortgages” (eg. Self-employed without adequate income verification) to 65%, meaning the borrowers will need to put 35% up as a down payment.

New immigrants will be impacted due to inadequate income documentation, which looks at average income of the last 2 years. - (Previously new immigrants were required to put down 30% DP) - 

HELOC LTV limitations will be implemented by Nov 1st as well.

In other words, the saviour of wealthy Asians buying our overvalued property at prices high above what local incomes can support is about to take another big hit.

Combine that with tightening regulations on what entry level buyers can now overspend on greasing the property ladder at the entry levels and you have a recipe for even steeper declines.

Perhaps that's why a Winnipeg real estate agent is now running this ad (hat tip Makaya):

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Wed Post #2: June sales data forces declaration of 'buyers market'.

As noted in today's Vancouver Sun, the number of residential property sales has hit a 10-year low in Metro Vancouver leading the Real Estate Board of Greater Vancouver (REBGV) to declare a buyer’s market.

But even with another month of declining sales, rising listings plus an average detached house price that has DROPPED 14% in just four months... the REBGV gleefully headlines (and the Vancouver sun obliges) that the Benchmark price for detached properties has INCREASED 3.3% from June 2011 to $961,600

To think, it only took two changes to way the HPI Benchmark price is calculated in 2012 to pull this rabbit out of the hat... ain't statistics grand?

The Vancouver Sun notes that this recent REBGV announcement is significant since the board has in recent months been calling the market “balanced.”

How painful was it for the REBGV to bring itself the make this declaration?

Of course this is the same REBGV which Vancouver Sun columnist Pete McMartin recently observed:

would have viewed the crash of the Hindenburg as the result of “normal deflationary conditions.”

According to the REBGV’s June report, sales of houses and apartments dropped to 2,362 last month, a 27.6% decline compared with 3,262 sales in June 2011, and a 17.2% drop from just last month.

The ugly truth is that June sales were, in many categories, the lowest totals for the month in the region since records started being kept in 1995 and 32.2% below the 10-year June sales average of 3,484.

Even Global TV was recently moved to call the Vancouver market 'depressed".

If it's a buyer's market, why aren't homes selling?

You just can't put lipstick on this one.

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Are bloggers Public Enemy No.1 in an attack on the fundamentals?

Watching the news this week, you can  can see the real estate industry mounting their latest counter offensive to spin their message.

And that message will be... 'fundamentals don't matter'.

Despite having rejigged they way the benchmark price is calculated (twice this year, actually), the reality of the market is becoming hard to ignore.

Sales in May for all forms of housing across the Multiple Listing Service were down over 15.5% from last year, and the lowest for the month of May since 2001. For detached homes sales, the news is  even worse: They were down 25% for the same period last year.

While sales have fallen, the number of listings has risen. In the Vancouver westside, which is held up as the main beachhead for the Asian invasion, the total of active listings — those homes for sale that haven’t sold — has risen to 1,100 properties at present from 600 a year ago.

The pathetic attempts to neutralize the impact of these figures prompted Vancouver Sun columnist Pete McMartin recently to state the obvious:

Commenting on these numbers, the resolutely sunny Real Estate Board of Greater Vancouver decided this was “indicative of balanced market conditions.” But then the board would have viewed the crash of the Hindenburg as the result of “normal deflationary conditions.”

Yesterday we drew your attention to one of the latest piece by Global TV (Global reports the facts, concludes ours is now a 'depressed market', but then claims we're 'different').

 Global has also been unable to ignore the obvious:

Vancouver Real Estate had defied trends and showed steady growth for far longer than anybody believed possible. The evidence is not in the polls, which very often contradict one another, but on the ground, in the neighbourhoods where plum properties have always sold quickly and at a profit. Sellers are finding the days of multiple, over-asking offers have disappeared... and buyers are getting the pick of the crop with buyer reduced signs popping up all over the place.

They were even forced to admit that Vancouver is now "a depressed market".

So if the spin no longer works and the ugly numbers cannot be ignored, what do you do?

Invalidate the usefulness of the numbers, of course.

You could see the strategy launched when Bob Rennie spoke to the Urban Development Institute on May 17, 2012. Rennie said:

I joked with the CHMC’s board a couple of years ago, that the Vancouver market never went up on fundamentals, so why would we go down on fundamentals.  

However, our market really does have fundamentals but our fundamentals cannot be captured in a 90 second elevator conversation, at the water cooler, in a sound bite, and especially not on a blog or 140 character tweet.

And what are those fundamentals that cannot be captured in a 90 second conversation?

I think we saw that in the Global TV piece yesterday as well.

The spin we are going to see is the same as we have heard over and over before. "Rich people wanna live here.  We have limited area due to the mountains and the ocean.  And we have the scenic and lifestyle advantages of those same mountains and ocean." 

This is basically what Global TV said when they trotted out Tsur Sommerville:

Sommerville: Now we have a situation where prices aren't rising, they're flat. We have a situation were listing are rising, sales are falling and there isn't any of the kind of angst or anxiety out there in the marketplace. Instead what it's replaced with is less worries about people driving prices up and more worries about Greece blowing up the world economy.

Global Reporter: Vancouver is that market that is way different than any other kind of market.

Sommerville: Vancouver is very hard to figure out because so much of the purchases are done by wealth. Either people immigrating with wealth or people receiving wealth from parents or relatives so the normal 'what are incomes doing and what are prices doing', that just doesn't work out here well.

Global Reporter: And that may explain that while there are price reductions, average selling prices just aren't going down. Unlike other depressed markets in the world, there's no pressure to sell. And with our geography, the mountains and the ocean, it's not likely to change.

I suspect this will be the theme for the foreseeable future.

Claim prices simply can't go down here.  Tell everyone that wealth wants to be here. And desperately try to convince you to "buy now or be priced out forever".

And to the one segment of the community that the industry can't influence the peddle this message - the blogosphere - Rennie summed up his frustration in that May 17th UDI speech:

I do have a huge concern over what Tracie McTavish, the president of our company calls, your “Keyboard Courage”, referring to what is becoming a dangerous and apparently acceptable practice which is, negative market commentary that is nothing but speculation.

Speculation made by spineless, signature‐less, individuals on a blog, on a blog that in most cases has less than 500 followers.

Then the next thing you know, the mainstream media picks up on the negative as fact and all of a sudden, it’s breaking news and our industry spends the next 6 months attempting to dispel the rumors and sound bites.

The dispelling of the "rumours and sound bites" of the basic market fundamentals (ie. the inescapable reality of the hard sales data) has begun.

And it would appear that in this attack on the fundamentals, the blogosphere is being cast as Public Enemy No.1.

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Misplaced anger?

Back on March 22nd, Vancouver Sun columnist wrote a column that garnered a lot of attention in the real estate blogosphere.

Ostensibly the article was an attack on affordable housing.  A view reinforced by the headline which blared: "Affordable housing in Vancouver? Who wants that?"

It made me chuckle.

If you talk to those scribes who write for the mainstream news and have a conversation with them about their profession, there is one interesting complaint.

They don't get to write the headline for their columns.

It's their Editors who do that.  And often the writers themselves disagree with the choice of 'eye-catching' headline.

This particular column about the Vancouver housing scene was a rant against Social Engineering.

McMartin's opinion is that the meddling of the Social Engineer's rarely works and more often causes more problems than it solves.

In the case of housing affordability, he offered this quote:

"There's nothing that this task force can do to make Vancouver as inexpensive as Toronto or Edmonton. But I do believe it will mean changes in the processing of building permits, and in the wording of zoning bylaws that ultimately will lead to increased competition and more affordable housing choices."

To which McMartin countered that this would lead to more densification - an outcome he did not believe people wanted.

McMartin closed with another quote:

"The only thing that's going to make housing in Vancouver cheaper is a collapse in housing prices."

To which he replied:

Hands up, you well-meaning social engineers, who want that.

Now the real estate bear community jumped all over McMartin for this.

I think he got a bad rap, personally.

He was railing against social engineering.  The point he was making is that all the social engineers would create was more densification... not affordable housing, something most of us don't want.

McMartin was saying that the only thing that would create affordable housing was a collapse in housing prices. A fact, he noted, that none of the social engineers would actually want (if only due to the havoc this would create on social services).

And I agree with the point of the March article.

But because McMartin had spoke about his own travails with home ownership when he first moved to Vancouver, he was vilified for appearing to be against deflating the housing bubble.

Today McMartin came out with another article.

It concludes by noting:

"In the meantime, in the very near future, on Monday, Mayor Gregor Robertson’s Task Force on Affordable Housing will deliver its recommendations. After months of consideration and research, city hall will finally reveal how government can make housing more affordable, despite the fact that the market has been busily doing just that. In real estate, timing is everything."

It's another cheap shot at Social Engineering.

Those who want regulations on flipping houses, or regulations on foreign buyers, etc... they are missing the point.

Our real estate bubble has been created by cheap credit and policies that accommodated massive debt.

Flippers, speculators and foreigners may have capitalized on it... but they are not the problem to be addressed.

With this latest article, McMartin will get flack from the real estate blogging community again.

The headline, "The Market is Teetering! Happy Now? implies McMartin is unhappy with the regulatory changes that have just been made instead conveying what his column is actually doing: taking a shot at the social engineers.

McMartin isn't criticizing the steps just taken by Flaherty and Carney, he's taking yet another cheap shot against the Social Engineers.

And I completely agree with him.

Hopefully most of the blogging community appreciates what he is railing against.

Side note

Some interesting stats in the body of this latest article.

Meanwhile, Metro’s real estate market is holding its breath. Or possibly it’s stopped breathing. It’s hard to tell.

Sales in May for all forms of housing across the Multiple Listing Service were down over 15.5% from last year, and the lowest for the month of May since 2001.

The news for detached homes sales was even worse: They were down 25% for the same period last year.(Commenting on these numbers, the resolutely sunny Real Estate Board of Greater Vancouver decided this was “indicative of balanced market conditions.” But then the board would have viewed the crash of the Hindenburg as the result of “normal deflationary conditions.”)

While sales have fallen, the number of listings has risen. In the Vancouver westside, which is held up as the main beachhead for the Asian invasion, the total of active listings — those homes for sale that haven’t sold — has risen to 1,100 properties at present from 600 a year ago. That is, during all the time the alarmists were certain that Asian buyers were pushing up house prices across Metro, the market in that neighbourhood most cited as the cause of those rising prices was already languishing.

The take-a-way here is that the dreadful statistics are now getting mainstream coverage.

Combine this with the press from the latest Flaherty, Carney and OFSI offerings and the psychology of the general public regarding real estate is taking an absolute beating.

It will be fascinating to watch the last half of this year.

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Thurs Post #1: Interesting Times

The third week of June, 2012 is rapidly turning into 'the week that was'.

Will we look back at this as a major turning point in our housing bubble?

It started off with the Vancouver Sun outlining upcoming changes for CMHC mortgages by the OSFI. A barrage of negativity hits the mainstream media telling people to prepare for changes like:

• Home Equity Line of Credit mortgages reduced from 80% financing to 65% financing.

• Lines of credit to be either amortized, or amortized after a specified period of time.

• More stringent income requirements for self-employed borrowers.

• All mortgages to be reviewed upon renewal (currently as long as payments are made, it is unlikely for a bank not to offer a renewal to a client).

• Funds from cashback mortgages are not allowed as a source of down payment

• Use of the five-year posted “benchmark” to qualify uninsured terms of one to four years and all variable terms (currently most lenders use a three-year posted or a lower rate to qualify uninsured mortgage).

• More limits on underwriting exceptions.

• Home insurance to be included in debt-servicing ratios (it is currently not included.)

• More public disclosure of statistics pertaining to institutions’ mortgage practices.

• More accountability from management to ensure lenders are adhering to their underwriting guidelines.

Egads.

These measures being discussed in the media are, by themselves, enough to create a stir. But that was just primer for the next round.

Canadian Mortgage Trends fired off a tweet earlier today which proclaimed: "What the industry didn't want to happen, happened"

And what are they referring to? What is the dire news they didn't want to happen?

CMT announced that the former No. 1 lender in the mortgage broker market announced that they are closing their doors to new business as of July 31, 2012.

FirstLine, a broker lending subsidiary division of CIBC, was put up for sale earlier this year but a deal could not be closed.

A source familiar with the discussions told CMT: “The buyer struggled to come to a deal that made sense so CIBC chose to let FirstLine die a natural death on its own."

This was a development CMT says marks "a moment of truth for the broker market."

But if that weren't enough, press reports last night confirmed what we alluded to yesterday. Specifically Ottawa is tightening up on mortgage rules.

"The country’s biggest banks were caught off guard on Wednesday night as the Department of Finance prepared to clamp down on mortgages by reducing the maximum amortization for a government-insured mortgage to 25 years from 30.

Ottawa will also limit the amount of equity that can be borrowed against a home to 80 per cent of the property’s value, down from 85 per cent.

Ottawa will announce two other changes, according to a source. It will no longer allow high-ratio mortgages over $1-million, and it will cap the gross debt service (which looks at a consumer’s total debt payments as a percentage of their income) at 39 per cent.”

The third week of June 2012.

I suspect we will be looking back on this as a significant signpost on the road that was the Canadian Housing Bubble.

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Conflict of Interest?

If you follow Real Estate in the Village on the Edge of the Rainforest, you are well acquainted with C. Tsuriel (Tsur) Somerville.

Somerville's official title is Associate Professor, Real Estate Foundation Professorship in Real Estate Finance Director, UBC Centre for Urban Economics and Real Estate.

(try saying that 3 times fast)

The Vancouver bear blogosphere prefers to call him "that real estate flunky from the UBC Sauder School of Business."

He earns that title because, as the media's 'go-to' guy when a 'non-partisan' expert opinion is sought, he seems to constantly come across as nothing more than a spokesperson for the Real Estate industry.

Take, for example, this quote from an article in the Globe and Mail last month.

As sales slump and listings soar, the Globe comes out with a story headlining "Cooler housing market no catastrophe."

To hear some people talk, one of the hottest housing markets in the world is experiencing a serious course correction. Prices are down significantly over last year. But what does that mean?

Tsur Somerville, the oft-quoted real-estate economist from the University of B.C., doesn’t see signs of a major real-estate story brewing. He actually holds a refreshing perspective on the local scene. He won’t even go so far as to say that buyers hold the advantage at the moment, even though supply far exceeds demand.

Critics content Somerville will NEVER go so far to say that it's a buyer's market, a viewpoint driven largely by comments like this one from a recent Vancouver Sun article titled 'Vancouver's Housing Market unlikely to face significant price correction - expert':

Although the Vancouver housing market may be out of equilibrium, a significant correction is not expected, said Tsur Somerville, director at the University of B.C. Centre for Urban Economics and Real Estate at the Sauder School of Business.

To those who watch Real Estate, Somerville is as R/E optimistic as every single rah-rah realtor who eternally flogs the 'it's a great time to buy' mantra.

So is all the criticism of Somerville simply sour grapes from the real estate bear blogosphere because the man, an expert in his field, won't come out supporting the outcome they foresee?

Or does Somerville actually have a bias toward supporting the real estate industry?

Last week a faithful reader passed on this interesting link to me (hat tip alexcanuck).

It's the website for the Sauder School of Business. Specifically the sponsorship page acknowledging those companies who provide significant funding to the Centre for Urban Economics and Real Estate.

i.e. The source of funding for Tsur Somerville's paycheque.

Toss into the mix the fact that the courses he teaches at the Sauder School of Business are:

• Commerce 307 - Real Estate Investment
• Commerce 408 - Real Estate Development

And you would be hard pressed to believe that someone who teaches you about investing in real estate or developing real estate - two field's where boundless optimism is crucial - then it's doubtful this person is going to come out and tell you the market is in trouble.

Besides... if he's telling you the market is in serious trouble, who's going to sign up to take his courses?

So what do you think?

Is there a conflict of interest... or at least the perception of a conflict of interest here?

I suspect in a poll of the bear blogopshere, the answer is all too obvious.

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