Vancouver's vacuous economic engine

Excellent commentary in the local 24 hours newspaper on Wednesday titled: Vancouver needs corporate offices more than condos

On the sleepy West Coast, despite the spin coming out of city hall, Vancouver remains a backwater when it comes to attracting or developing corporate headquarters.

Planners blame a lack of housing affordability, which discourages companies from setting up shop here. Civic politicians point fingers at our obsession with cyclical resources such as forestry and mining, rather than trying to grow the small, but emerging green economy.

At the end of the day, most homeowners are not fussed about a lack of a corporate presence here in Metro Vancouver. But they should be. Compared to Seattle, which generates significant tax revenue and jobs from industry titans such as Microsoft, Boeing and Starbucks, we are bit players.

Our jobs and growth plan is based upon condo development and land speculation. However, take that away, and our local economy is as emaciated as your average catwalk fashion model.

For far too long, we have associated new condo towers with rising property values. In other words, our region has convinced itself we don’t need jobs to increase our personal wealth — we merely need a hot property market.

It is painfully obvious we have lulled ourselves into believing we have a “real” economy. The sad reality is we are only one real estate crash away from finding out that we don’t.

So true.

Speaking of real estate and the slowing market, Landbaron over on VREAA notes that when you a 'Vancouver' craigslist rental search, over 10 pages of 100 rental listings are returned on March 28th alone.

As VREAA notes:

The idea is that some properties held empty (speculating upon future price gains) start coming onto the market as rental properties if they cannot be sold for the ‘right price’. That way, when the crash comes, an entire extended families RE holdings go underwater, rather than one home being battered with a price drop.

Multigenerational wealth destruction.

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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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The correction going on in Vancouver is a "fairly sizable one" - RBC

Meet Paul Ferley, Assistant Chief Economist at RBC Capital Markets.

Ferley captures out attention for some comments he made on the Business News Network earlier today.

BNN was running a story on December's real estate numbers which showed Vancouver home sales plummeting again.  BNN started of talking with Cameron Muir, the Chief Economist from the B.C Real Estate Association.

Muir comes on the program carrying the "there is no bubble" standard that he and Tsur Somerville have been pounding for the last little while.

He insists that, after surviving the Great Financial Collapse of 2008, if the Vancouver Real Estate market hasn't collapsed yet then it won't.

As if to point out the absurdity of his comments, while Muir was insisting the Vancouver market has been 'flat' since 2008/2009, BNN flashed across the screen the fact that Vancouver home sales were down 31% year over year in December.

BNN notes how jarring the statistics for sales declines are. Does this not concern Muir?

As always our buddy Cameron dismisses the poor sales, insisting all signs are for positive growth. Muir jumps on the fact that November and December saw sharp pull backs in the number of listings on the market - conveniently ignoring that this happens every year in November and December.

But as we showed yesterday, the number of active listings on the market right now is far higher than in previous years.

BNN contrasts this with comments from Paul Ferley, assistant chief economist at RBC Capital Markets.  Ferley says the bank's research on housing affordability in Vancouver showes that prices in the city had become frothy.

"Certainly the Vancouver numbers have been suggesting stresses in that market with affordability deteriorating and at some point a correction was likely going to have to play out. It was a market looking like it was poised for a correction."

Ferley adds that while prices have yet to fall as dramatically as sales, the city could be headed for "double digit" declines in home prices.

“You're seeing a correction in Vancouver – a fairly sizable one."

The focus on the Spring Market ramps higher with each passing day and the stage is set with Muir and Somerville firmly staking their reputations on a crash not happening.

(hat tip VREAA for Van. Sun image)

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A Festivus for the Restuvus

Happy Festivus everyone!

Wanted to take a moment an hilight a post made yesterday over on VREAA.

This is 5575 Elm Street on Vancouver's west side:

This 5 bedroom, 6 full bathroom, 1 half bathroom, 5,101 sq ft single family home sits on an 8,114 sq ft lot and is described as such:

The perfect "10" Kerrisdale custom-built home by Loukas Designs with over 5000 sq ft luxury home. Large 50' x 162' lot. East-facing front to greet the morning sun. 10' to 11' ceiling all over, gourmet kitchen with carrera marble countertops, Sub-Zero fridges, Miele D/W, Thermador stainless steel stove, French doors open to huge west-facing gas-heated covered patio w/ built-in BBQ overlooks the blue swimming pool & hot tub. Total of 5 bedrooms, 6 baths, a media room & exercise room. Bsmt offers suite potential for nanny or the in-laws. H/W floors throughout, radiant heat, built-in surround music system and 3 car garage. The fenced backyard is a kid's heaven. Priced to sell.

On July 27th, 2012 it was listed for $4,880,000.

On December 9th, 2012 it's asking price was reduced to $3,990,000 and advertised as 'priced to sell.'

Priced to sell?  Hardly. It's assessed value is $3,545,000.

As VREAA notes, at 20% off it's original asking price it is still overpriced - particularly in a market where single family homes are now selling at below assessed value.

But it gives you an example of how much further our market has to go.

The first signpost along the path of reckoning in 2013 will be Chinese New Year.  This has sort-of become the orgy period of excessive property over-bidding in our market - until last year.

There will be many holding out with expectations that HAM (Hot Asian Money) will be returning in 2013 (we will discuss this more in a future post).

It it doesn't, the sellers will seriously re-evaluate things.

According to a contributor at VREAA (hat tip Canadian Watchdog), this home sold on May 31, 2010 for $3,079,000.  It is an example of our speculative frenzy that this purchaser could turn around and ask for $4,880,000 a mere 2.5 years later (an increase of 58%).

I would love to know what this home sold for in 2006 when it was originally built (if anyone knows, please advise and this post will be updated).

I sincerely believe even those with a bearish view of the market will be shocked to see how far values fall to eyes accustomed to 2011/2012 prices.

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.

We will keep our eyes on this property as the New Year moves along.

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Real Estate Agents in Vancouver predict declining market thoughout 2013

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Yesterday we noted that Vancouver real estate agent Larry Yatkowsky had updated us on the average price figures with the November 2012 data that had just been released.

In the comments section, Mr. Yatkowsky replied to one of his contributors and made a very interesting comment of his own. When asked if there might be an uptick in sales in the spring 2013 which would drive prices higher, Yatkowsky agreed with the commentor that we the average price for single family houses would probably fall below $1,000,000 and that:

"that is probably a reality as there is little actionable support out there. The sense we Realtor types get from our coffee sessions is that everybody is waiting and digesting the mortgage rule changes. The scary part is nobody will really know when the bottom hits. By the time we get there and figure it out it will have passed.

The Vancouver real estate market is a box of chocolates. A best guess low may be early 2014.”.

That would be 16 more months of continuing declines - at best.

And it gives you an idea of what the market is really like when those with an inside view of the market are worried that things might not turn around until Spring of 2014.

(hat tip VREAA)

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