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 excessive are the number of properties for sale on Vancouver's West Side and Richmond right now?

Yesterday I came across the above chart (click on image to enlarge) courtesy of Makaya on VCI.

The chart is produced by Canadian Watchdog and puts the growth of listings for newly/recently built Single Family Houses in Richmond and Vancouver West in astonishing perspective.

Never before in history have so many properties been on the market for sale.

Should the housing correction pick up speed, the rush for the exits may truly become epic.

(Hat tip Makaya)

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Tues Post#1: Turmoil?

Anyone who is old enough to remember the 1970s and 1980s will remember the rise of Japan as an economic force in the world.

And as the rising sun exerted it's economic power, wealthy Japanese were buying real estate everywhere. As improbable as it seems today, people were confident the Japanese financial taps would never be closed.

How quaint to recall this today as the Japanese miracle is in tatters and China is the economic force from the far east.

But now the China miracle is in doubt.  And as the Chinese government attempts to engineer their own 'soft landing' in real estate, HAM is evaporating before our eyes.

Which brings us to an interesting tidbit over on Realtor Larry Yatkowsky's site yesterday. Yatkowsky was moved to note that:

"Current informal coffee chats with some of my fellow Vancouver Realtors suggest a market in turmoil."

By 'turmoil', I presume Yatkowsky means 'no sales'.

Early March data from Richmond suggests there are 1,000 houses for sale in the previous HAM hotbed of Richmond with only 80 sold so far this month. This is a profound drop from the approximately 220 sold in each of March 2011 and 2010.

Presumably the other HAM hotbed of Vancouver is suffering just as severely.

Webster's defines 'turmoil' as "a state or condition of extreme confusion, agitation, or commotion." No offense, but that's how I would have described the market from 2003-2011.

Personally I think events this month suggest that this is a market withering in the throes of rationality.

It's all about perspective, I guess.

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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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New home sales on the West side of Vancouver

For the past few years we have been told that the west side of the City of Vancouver has been HAM central (Hot Asian Money) and that the influx of money from China will not only keep driving prices skyward...  but will more than support/sustain values which bears may 'claim' are out of whack with local fundamentals.

Bear blogs have noted that the influx of money into many Real Estate markets (Australia/Canada) is driven by the fact that China has pumped more stimulus into their economy per capita than have the Americans into theirs.  A lot of this money is flowing out of China and into investments like Vancouver Real Estate.

The mistake many make is to believe this money will be unending.

As we have documented on this blog, China is trying to engineer a downturn in it's very bubblicious real estate market. The spillover effect has lead to what many believe is a popping of the housing bubble in Australia. As real estate values collapse in China, as credit is reduced in China... there is less money available to funnel out of the country and into Aussie real estate.

Many have suggested (to outright ridicule) that this pattern will begin to surface here in Vancouver as well.

Since many Asians look to buy new houses when they invest their HAM money here, it is new home sales that are watched with keen interest in markets such as the west side of Vancouver.

And it is just such an analysis that VREAA focuses on in a post today.

Noting that sales of brand new homes has dropped dramatically on the west side of Vancouver, VREAA (courtesy of contributor ZRH2YVR) observes that there are currently 17 months of inventory of new builds on the market compared with a 7.5 average for the whole market.

Even more intriguing is what happens when you break up all properties for sale by price.

There is a very strong drop off in sales above the $2.8 million level.

For properties under that level, months of inventory is sitting at about 4 months. But above that value, it immediately jumps over 10 months of inventory and reaches 24 months at the 4 million level.

For your humble scribe this is of great interest for I know personally of someone who is involved in housing speculation exclusively on the west side of Vancouver.  

The modus operandi has been to buy a west side tear down for about $1.2 - $1.8 million, spend $850,000 constructing a higher end new home, and then selling that home for approximately $4 million.  

His last endeavour was his most successful and emboldened by past success (he works in partnership with three others), his group had visions of purchasing at least 3 properties this year to replicate their efforts. They have been very optimistic about how well the properties they plan on purchasing will do because the timeline will see them coming on the market in early 2013 which will coincide with the removal of the HST.

Naturally we have had numerous debates about where the market is going and the wisdom of this strategy.

As west side new home high end inventory balloons to 24 months of inventory at the $4 million level, what will the impact be on his interests.

He has already purchased at least one tear down property that I am aware of.

With over 450 west side homes for sale over $2.8 million and negligible sales, this is (as VREAA notes) a "crazy amount". 

What impact is this going to have on his group (and other speculators doing the same thing)?

With capital tied up in these projects (much of it borrowed money), new tear down's (under the $2.4 million mark) cannot be purchased.

As months of inventory grows in the under - $2.4 million category and as inventory fails to move in the over - $2.4 million category, how long before the pressures of the market start to have their impact?

How long before other speculators have to bail and sell 'below market value' to minimize losses being accused on interest payments on the borrowed money?

And what of those boomers, for whom retirement is based on capitalizing on housing bubble prices, start bailing at 20% or 30% below current market value just to ensure they 'get what they can' from a collapsing market?

We will watch sales (and actual prices achieved on those sales) with keen interest. 

I can't help recall how we saw similar scenario's play out in the early 1980's.

Of course... it's different this time, right?

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