What's wrong with this picture?

Let me ask you... what's wrong with the picture above?  

Click on it to enlarge and take a look at it for a minute.  

The picture was taken this morning and captures the corner of Cambie and Marine in Vancouver - site of this week's hottest Real Estate topic; the four hour sell-out of the development known as Marine Gateway.

In case you aren't aware of what went on, Global TV provides this synopsis:

Marine Gateway, and the 415 pre-sale units that sold, is big news because at a time when listings are soaring and sales have been falling off a cliff, the pre-sales at this development have bucked the negative trend.

In fact it has completely turned that trend on it's head.

Hmmm.

Let's put that into perspective.

A sell-out of pre-sale condo unit offerings hasn't happened in Vancouver in over six years.  As Global TV noted in this story, you have to go back to the Woodward's presale in 2006 - before the collapse of the world financial markets - to match an opening day pre-sale sellout of a condo development.

And Marine Gateway sold out even faster than that Woodward's development.  

Woodwards (with similar prices) took 12 hours to sell 536 units.

At Marine Gateway people started lining up last Thursday. And as the lineups began, news spread that over 11,000 people had pre-registered for this development.

But by Saturday morning only about 100 - 150 people had actually lined up (one commenter over at Vancouver Condo Info pegged the number at only 106).

So 106 people bought over 400 units?

Hmmm.

Interestingly when you watch the Global clip, one buyer laments she was only able to secure a 1 bedroom condo (without an available parking spot at that). How come? Did she come late and miss out?

No... she stresses she showed up on time.

Even more curious is the fact that Global didn't find anyone to talk to that walked away empty handed.

Hmmm.

One can't help but observe that this was a very carefully planned and prepared offering.  As the Global story notes, Rennie Marketing Systems had a lot at stake here.

Checking craigslist in the week before the offering, the infamous Condo King wasn't leaving much to chance.  There was clearly significant marketing and networking done prior to the sale.  

As you can see by these ads (click to enlarge), other realtors were already on board offering the units to customers in advance of the Saturday opening. They were even offering to rebate 20% of their commission to get you on board early:

A lot of preparation went into trying to make this pre-sale a one day success.

Watching the Global TV clip you quickly notice the emphasis being placed on promoting the key feature of Marine Gateway: it's location on the Canada Line. Rennie bends over backwards to replace the R/E mantra of "location, location, location" with the new mantra of "transportation, transportation, transportation."

It's a theme I suspect we will see a lot of in the coming months.

In fact, a few days after the Global piece above aired, we are treated to another treatise emphasizing the "transportation, transportation, transportation" mantra:

And it's in this latest piece we get a glimpse of a wider issue at play here.  

Apparently Bob Rennie has 3 other developments about to go to market along transportation lines. 

• Next month Rennie will pre-sale of 300 units at another Canada Line Station - Brighouse Station in Richmond.
• In September he will launch 230 units at Coquitlam Centre where the new Evergreen Line line will be opening.
• And a month after that 1,100 units, two towers, will go to market along the original Skytrain line in Vancouver at Joyce Road.

Can you imagine how crippling a flop in sales last Saturday could have been? Failure to sell out at Marine Gateway would have been devastating.

I wonder how disappointed Rennie Marketing was when only 106 people showed up in the sales line up by Saturday morning?

But Marine Gateway didn't flop.

Instead we were witness to  THE MOST SUCCESSFUL pre-sale launch in Vancouver history, a perfect event for what is touted as the cutting edge model of what's crucial to real estate sales in the modern city.

All accomplished in the midst of a market which has been screaming negativity week after week from the likes of the mainstream press with their talk of a housing bubble ready to burst.

Amidst negative statements on debt and the real estate bubble from the Governor of the Bank of Canada and similar statements from the Federal Finance Minster.

Amidst warnings from the heads of some of the nation's biggest banks on the threat of a bursting housing bubble.

And all framed by several months of negativity of actual sales results released over the past few months.

Hmmm.

I can't help but think of all the shenanigans we have seen over the last few years.

I think they call it 'staging'.

You know what I'm referring to.... development marketers hiring people to stand in line, creating a 'buzz' for a pre-sale. Staged helicopter tours supposedly flying wealthy Asian buyers around proposed new developments. Realtors bringing in 'surprise' competing parties just before a couple is about to make an offer on a house (thereby pressuring you to act right away).

All done in the name of 'staging' the right 'optics'.

So what are the optics created by Marine Gateway?

Would it be wrong to cast such a suspicious eye on a record breaking sellout anomaly that occurs at time when other realtors are openly talking about how dead the market has been so far this year? When only 1% of the registered people interested in the development actually show up on sales day?

Hmmm.

Which brings us back to the picture at the top of this post.

As I said, it was taken this morning... a full five days after what has been a supposed record breaking pre-sale sellout in a dead market wherein only about 106 people lined up and created a 415 unit sellout of a development which will be a springboard for a host of new developments with a "transportation, transportation, transportation" theme.

That picture is conspicuous for what is NOT there.

Let me ask you... when was the last time you saw a developer sell out an offering and not promote the crap out of that success with "SOLD OUT" banners plastered across every conceivable sign posted on the property?

It's been five days and there is nary a single 'sold out' sticker anywhere.

I could understand the day of, or maybe even no stickers until after the weekend was over... but nothing a full five days afterward?

Especially when this is the first of several developments being launched along the transportation network by the same promoter this year.

Perhaps they're waiting until after Cam Good's helicopter makes a fly by?

Hmmm.

(Note: follow up post available here)

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The Trigger?

As followers of this blog know, China has been trying to engineer a 'soft landing' in their real estate bubble for a few months now.

With property values down over 40% in some cities, some wonder if the 'soft' landing is becoming a 'hard' landing.

Nothwithstanding, China appears resolved to maintain the course they have charted.  In fact China's Premier Wen Jiabao has said he believes there would be chaos if the curbs in the Chinese property market were relaxed.

The ripple effect from these property curbs are being felt around the world and especially in the Village on the Edge of the Rainforest. As property values tumble in China, the evaporating equity is turning off the taps for high end real estate sales to HAM in Vancouver.

But while real estate sales are down, the market has not stalled completely. Canadians continue to pig out on mortgage debt and it has finally reached the point the feds believe it may be time to engineer our own 'soft' landing in the real estate market.

If you have been following the news the past week, several banks have publicly come out calling for a tightening of regulations with an increase in minimum downpayment to 7% and reducing amortization periods from 30 years to 25 years.

This public proposals have been followed up by draft set of changes put forth by the Office of the Superintendent of Financial Institutions (OSFI) of Canada - proposals which will likely be implemented.

(It's less of a draft than a preview of what is coming)

Some of those proposals would leave the casual observer scratching their head in wonderment that they are not already in place.

Banks would have to double-check borrowers’ finances before approving loans.

Home values would have to be confirmed.

HELOCs would see tighter regulations with be less available to access, a move that would slow the use of home equity for more real estate speculation.

Considering how we like to puff out our national chest and boast about the 'soundness' of our banking system, you might find yourself scratching your head that these conditions aren't already in place.

Ditto for the suggestion that banks end the practice of giving cash back to applicants to cover their downpayment.

The claim that our country doesn't give out zero down loans is a lie.

Banks will give you as much as 7% of mortgage back to you in cash.  This means you don't need the 5% down and can actually walk away with money in your pocket to buy a house.

Cutting this off is going to have a dramatic effect on the entry level buyers.

Another change with a dramatic effect is a proposal clarifying mortgage renewals.

This is a topic we have discussed numerous times and have never been able to ascertain clear guidelines about.

What would happen if, at mortgage renewal time, you were seriously underwater (25% or greater) on your mortgage?  Would you be able to renew without coming up with a serious amount of cash to correct the underwater status of your loan?

The common belief is that once you score a mortgage, it’s just automatically renewed at the end of each term at the prevailing rate - regardless of whatever your house happens to be worth.

Random queries to low level mortgage 'specialists' often bring quizzical looks and noncommittal answers.

Nobody has ever definitively answered this.

Now the OSFI does.

The OSFI intends to implement a new regulation which will force the banks to re-calculate the loan-to-value (LTV) ratio of a mortgage every time the home loan comes up for renewal.

What does that mean?

If the housing bubble begins to burst and values fall by 20 - 25% or more, vast numbers of Canadians who bought in the last five years with small down payments (or none at all courtesy of the 7% cash-back programs) of could be in a position where they owe more for the mortgage than the property is worth.

In order for the LTV to be restored to the ratio of the original mortgage, Canadians would have to make up the difference.

As Garth Turner noted earlier today:

"A $400,000 condo bought with 5% down would have a 95% LTV. If, upon renewal, three years later the unit was worth $320,000, then the maximum mortgage amount offered would be 95% of the new value, or $304,000, instead of the original $380,000. In order to renew, the owner would have to hand over $76,000, less the small amount of principal paid."

This is a stunning clarification and as the ramifications becomes known in the mainstream, it could have a chilling effect on the speculative fever so rampant in our market.

The feds are determined to engineer a 'soft' landing in the real estate market and the sum total of all these changes are sounding alarm bells.

Watch for a full court press by the real estate industry to try and temper the implementation of these changes.

Canadian Mortgage Trends is first out of the gate in launching an offensive:

“If the government decrees new insured mortgage regulations, and/or rates rise significantly, and/or unemployment unexpectedly spikes, it could form the proverbial perfect storm that blows over housing valuations. It’s one thing to induce a measured housing correction (which is probably needed in some regions), but a policy-initiated free-fall is another matter.”

And that's the fear, that the scope of these changes could initiate a free-fall.

For years bears have speculated that rising interest rates would be the trigger that burst the bubble.

Bulls have revelled in the fact that the weakened economy had handcuffed the Bank of Canada from even attempting to burst the real estate gravy train by raising those rates.

If will be interesting to see what happens next.

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"It's a market that will have a lot of units for sale and more coming on stream."

Over the past two months we have been talking about the exploding number of real estate listings in Vancouver, listings which have grown by more than 50% since the first business day of 2012.

On his Facebook page today, local real estate icon Ozzie Jurock made a post which contained the following observation about the real estate market in greater Vancouver:

"(It's) a market that will have a lot of units for sale and more coming on stream."

Jurock used this teaser to let followers know about his OpEd piece in yesterday's Vancouver Sun, a piece that had several nuggets of interesting info and expanded on his observations about increasing inventory:

As of Feb. 29, 2012, there were 6,000-plus condos for sale through the Vancouver Real Estate Board - up 15% compared to the previous year.

At the same time, sales of used condos were down by 18%.

Add to this the fact that - according to MPC Intelligence - there are some 8,000 pre-sale condos being launched in the first six months of this year.

Now Ozzie's piece was all about how to buy a condo in such a market, but anybody looking to sell in the environment must have felt their blood run cold when they read this.

Because you saw that correctly - a tsunami of pre-sale condos is about to descend upon the real market, a wave of product which will more than DOUBLE the current available condo inventory.

Perhaps this explains some realtor advice given to some friends recently.

Looking to sell their Coquitlam condo (which they bought brand new 5 years ago), their realtor commented on the current competitive marketplace.

His advice?

Completely renovate the condo - new floors, new paint, new appliances, etc - because this was the only way to successfully market the unit against new stock coming on the market.

At first I wasn't sure why he was adamant they take these steps. I know listings were going up, but I had no idea the amount of available condo inventory was about to more than double.

Now it all makes sense - the local real estate sales game is about to become a highly competitive sport.

And - I suspect - a very ruthless one at that.

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A clear and present danger

It's fascinating to watch the media as the housing bubble enters the public consciousness. 

In addition, one wonders how the recent 'fire sale' of low interest offerings from the mortgage divisions of the big banks will counter counter the growing public concern about the state of real estate. 

On a personal level I have many friends and associates who have bombarded me with queries at the uber low 3.99% 10 year mortgage offerings and ask "why not?" 

You have to believe sales will see a boost in the last half of March as housing lust pulls in the remaining holdouts to buy at the top of the market. But the media warning signs still shout 'DANGER' to all who wish to see them. 

Even today CBC is reporting on a TD bank report which says:

"Overvalued housing markets in several Canadian cities and high household debt poses a clear and present danger... The report flags Vancouver as the market with the greatest risk of a housing price correction."

And yet how many selectively block out these messages? 

More significantly, how bizarre is it to watch one arm of TD bank actively encourage Canadians to plunge themselves into what could become one of the worst financial decision of their lifetimes while another cries out about the danger of doing that very thing? 

Says the TD economist:

"all cities are at risk when interest rates eventually rise from their present 'exceedingly' low levels. Household debt growth over the past decade has been fuelled not as much by credit card borrowing but largely by loans secured by real estate, in particular home equity lines of credit. The ratio of debt-to-personal disposable income, which is now above 150% is likely to reach by late next year the 160% peak experienced in the U.S. and the U.K. before their real estate corrections occurred."

When rates do return to more normal levels, higher by two to three percentage points than they are now, TD estimates more than one million Canadian households, or about 10% of those that currently have debt, will have to devote 40% or more of their income to making their monthly debt payments. 

The Bank of Canada calls that a level that puts households in a financially vulnerable position. 

In Vancouver, the situation will be far, far more dire. 

Thus I content myself with reminding those who will listen... don't be seduced. 

Meanwhile the banks look for a mea non-culpa. TD says an acceptable way to manage the current situation is not for banks to agree to lend less.

“To do so would be collusion, and it is illegal.”

Instead TD is calling for several options to head off further growth in household debt. 

The first is to ask the federal government to shorten the maximum amortization on mortgages from 30 years to 25. TD also believes the feds should also raise the minimum down payment for a mortgage from 5% to 7%. 

Both moves are long overdue but clearly the Conservatives have been waiting until public consensus is on their side before making such a move. 

The fact of the matter, though, is that it is too late.

The damage has been done. Canadians have pigged out on debt and a giant segment of our society is going to get crushed when the tide turns. 

Queen’s University prof Louis Gagnon says we could have a housing panic if the borrowing does not stop.

“It would be a classic case of everybody dropping their asset at the same time just to make ends meet.”

Meanwhile a new research paper from Pacifica Partners concludes.

“Our outlook on Canadian real-estate remains negative and we believe Canadian housing will begin an extended contraction phase.”

The above mentioned changes should be made to Canadian mortgage rules but this is closing the barn door after the horse has already run away.

Curiously TD is suggesting that banks be required to stress test credit applicants who apply for home equity lines of credit to demonstrate their ability to pay it off in 20 years.

They are also suggesting that banks should be required to impose a sort of stress test on borrowers in order to qualify for a mortgage, a test that would require borrowers to demonstrate to handle interest rates in the order of 5.5%.

How much do you want to bet the banks would be doing this already if CMHC weren't guaranteeing Canadian home mortgages?

This is your greatest indication of the 'clear and present danger' the housing bubble is about to force on our country.

Banks aren't properly vetting mortgage applicants. Banks HAVE been lending out money to people who can't pay it back.

TD Bank says that:

"Implementing all these measures gradually would be sensible for the long-term, and not just in the current environment.”

Agreed, but it doesn't defuse the ticking time bomb we currently face. 

We do face a clear and present danger... and that danger looms larger than most people realize.

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"A little is alright" - the danger of inflation

Earlier this week US Federal Reserve Chairman Ben Bernanke uttered this infamous phrase about inflation:

"A little is alright"

This blog has talked about the dangers of inflation before.  And just like interest rates, the idea that inflation could rear it's ugly head again is considered insanity by villagers on the Edge of the Rainforest.

But Bernanke has a different message, "a little is all right." Or at least that’s what he said when asked about the evidence of inflation in the U.S. recovery.

This is a change for Bernanke. In the past he has simply said he  doesn’t see inflation. The Fed chairman recently described the prospects for price increases across the board as “subdued.”

Bloomberg picked up on Bernanke's shift from 'subdued' to 'a little is alright' message and made some good points.

Looking back at history, inflation has a way of coming about suddenly and, once it does, can be very difficult to stop.

The thing about inflation is that it comes out of nowhere and hits you. Monetary policy is like sailing. You’re gliding along, passing the peninsula, and you come about. Nothing. Then the wind fills the sail so fast it knocks you into the sea. 

Right now, the U.S. is a sailboat that has just made open water, and has already come about. That wind is coming. The sailor just doesn’t know it.

“Sudden” has happened to us before. 

In World War I, an early version of what we would call the CPI-U, the consumer price index for urban areas, went from 1% for 1915 to 7% in 1916 to 17% in 1917. 

To returning vets, that felt awful sudden.

History has other examples. In 1945, all seemed well: Inflation was 2%, at least officially. Within two years that level hit 14%.

All appeared calm in 1972, too, before inflation jumped to 11% by 1974, and stayed high for the rest of the decade, diminishing the quality of life for everyone.

As central banks around the world massively increase the money supply (the true definition of inflation - it just takes several years to see it reflected in prices), we are told not to worry by Bernanke.

First he told us it isn't there.

Now he is telling us a little is a good thing.

Why will this time be any different?

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Unmasking the US Federal Reserve

A 35 minute video in which Joseph Salerno, Economics Professor at Pace University, speaks on the US Federal Reserve and exposes some of the fallacies regarding how the Federal Reserve functions, creates money, and controls the monetary system the United States.

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Tues Post #2: A Day Made of Glass

Saw this over on Mike 'Mish' Shedlock's blog and was wow'd by it so I thought I would share it.

It's a promotional video by Corning for Photovoltaic Glass and it's possibilities.

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Tues Post #1: Foreclosure Tours on Vancouver Island

As the housing situation worsens on Vancouver Island, foreclosure tours are becoming common place as this piece on CHEK news observes.

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Gold, Central Banks and Canada

CTV's Question Period talks about Gold, Central Banks and Canada's official holdings with Eric Sprott.

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Ottawa Citizen Newspaper chastises Federal Government on debt message

Yesterday the Ottawa Citizen newspaper chastised the Federal Government on it's mixed message about Canadian debt.

Here is the content of their editorial:

OTTAWA CITIZEN MARCH 10, 2012 

Why is the federal government warning Canadians about debt while it is encouraging aggressive mortgage lending?

When it comes to interest rates and housing prices, it's difficult to see the thread of consistency in federal government policy. Bank of Canada governor Mark Carney and Finance Minister Jim Flaherty frequently warn Canadians that levels of household debt are too high. At the same time, the Bank of Canada's low interest rates make possible the low mortgage rates that are fuelling the housing market.

The government encourages risky mortgage lending even more by facilitating it through the Canada Mortgage and Housing Corporation. The government-owned mortgage insurer charges a substantial premium to home buyers with less than 20 per cent to put down, a federally mandated practice that effectively takes the risk out of mortgage lending for Canada's banks.

As concerns about a contraction in Canadian housing prices increase, the CMHC is finally getting some long overdue scrutiny. This week, the Ottawa-based Macdonald-Laurier Institute recommended a thorough review of how Canada finances mortgages. The institute questioned whether home buyers are paying too much for CMHC mortgage insurance, a fee which can be up to 2.9 per cent of your loan, higher if you are self-employed.

This mortgage insurance fee costs home buyers thousands of dollars, and the institute asks whether the fees are unduly high. The fact that the CM-HC has returned profits to the federal government of $14 billion over a decade suggests that this is a cash cow.

Other organizations, including the International Monetary Fund and the C.D. Howe Institute, are worried that the publicly owned CMHC has taken on too much mortgage liability, exposing Canadian taxpayers to undue risk. While there is a debate about whether Canada has a housing bubble, housing prices have increased 44 per cent since 2006. The CMHC's total loan insurance portfolio is now $541 billion, up from $350 billion in 2007. The Howe institute has suggested encouraging private mortgage insurers to play a larger role.

The main question, generally unasked, is why a federal agency has to take the risk out of mortgage lending for Canada's big banks. It's particularly pertinent with banks lowering rates again this week as they fight for more lending businesses. Normal businesses take risks. Why not our banks?

Our financial leaders say they are against debt, but their policies encourage it, and the government makes a tidy profit off insuring it. As long as those policies persist, they should spare us the lectures.

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Polar Opposites

Meet Willow Tufano.

See's 14 years old and is going to give us a glimpse of what has to be the polar opposite of Vancouver manic real estate bubble. Fittingly she lives in the other corner of the continent... Florida.

Believe it or not Willow, at the tender age of 14, just bought a house in the Sunshine State.  

You read that right... she just bought a house.

In 2005, when Willow was 7, the housing market was booming. Home prices in some Florida neighbourhoods nearly doubled from one month to the next. Her family moved into a big house; her mom became a real estate agent.

But as Willow moved from childhood to adolescence, the market turned, and the neighborhood emptied out. "Everyone is getting foreclosed on here," she says.

After the housing market in the US collapsed, Willow's mom (Shannon) started working with investors who wanted to bid on cheap, foreclosed homes.

Sometimes Willow tagged along.

Recently her mom saw a two-bedroom, concrete-block home on auction for $12,000 — down from $100,000 at the peak of the bubble. Shannon was telling her husband about the house, when Willow piped up.

"I was like, 'What if I bought a house? That would be crazy,' " Willow says.

Willow wound up splitting the house with her mom and plans to buy her mom out in the next few years, and put her name on the title when she turns 18.

The place was a mess when they bought it. They cleaned it up and rented it out to a young couple for $700 a month.

Think about that for a moment.

Houses are so cheap in some parts of the United States right now that a 14 year old can buy them.  And the monthly rent that the 14 year old is collecting would equal the cost of the house in less than two years.

Compare that to the west side of Vancouver.

Multi-million dollar homes here command about $3,000 per month in rent. It would take you between 55-80 years of monthly rent to collect the cost of these homes.

I imagine, dear reader, your jaw is hitting the floor regardless of whether you are reading this in Vancouver or in Florida. Yet each reader (be they in Vancouver or Florida) is muttering the exact same thing about the other city:

"That is just whacked!!"

Indeed it is.

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I can see clearly now...

There is an old saying that goes "hope clouds observation."

A wise saying to remember as events heat up on the real estate front.

As the 2008 Financial Crisis took hold in early 2009, real estate watchers in Vancouver eagerly anticipated a housing implosion.

But ultra low interest rates and the on-going expansion of CMHC's balance sheet resuscitated a real estate dependant economy.

The anticipated collapse morphed into a small correction.

And it was not by chance.  Our government purposefully intervened to make it so.

It was a huge gamble for our federal government. The Conservatives gambled that if Canadians could be nursed through the worldwide recession (which normally last 4-5 years, at most), then economic growth would mitigate the huge surge in debt that the government stimulus would create.

One small problem.

Not only has this not been your garden variety recession.  It isn't contained to being a severe recession (on the world stage - the efforts have rendered the worldwide recession a curiosity in Canada).

The worldwide situation is turning out to be a once-in-a-multigenerational downturn that may well last 10-15 years (if not turn out to be something worse).

But this turn of worldwide events has transformed what had been an 'economic plan' into a quandary.

As bears sit on pins and needles waiting for a condition that defies economic sense to collapse upon itself, the Canadian federal government now shifts their focus from blowing up the housing bubble to now trying to engineer a 'soft landing' without triggering a housing crash.

From Carney (the Bank of Canada governor) and Flaherty (the Minister of Finance) we have endless jawboning about the hazards of the massive household debt they were responsible for creating.

Both men huff that the number one risk to the Canadian economy continues to be household debt  - which currently stands at a record 153% of disposable annual income.

The dilemma, of course, is that interest rates must be kept low to try and stimulate business spending and give businesses a break on their borrowing. But it's the consumer who continues to do all of the borrowing and the money is funnelled into the housing bubble - aided and abetted by a banking industry addicted and dependant on the revenue generated from these mortgages.

So jawboning moves to small steps to 'engineer' the soft landing.

The 0% down/40 year mortgage conditions were eliminated.

And it's replacement, the 5% down/35 year amortizations, were subsequently axed as well.

Now the 5% down/30 year amortizations are supposed to be doing the job.

But still no soft landing. Rumours now swirl that we will have 5% down/25 year amortizations at the end of the month... or perhaps even 10% down.

Meanwhile a tight rope is walked trying to prevent participants in the housing bubble from panicking.

Bank economists issue reports and forecasts attempting to ensure public confidence doesn't collapse and trigger a wave of sellers without buyers.

Each bank echo's statements like this one from Bank of Montreal's chief economist Sherry Cooper and senior economist Sal Guatieri who said last month that there is no housing crash coming, rather Canadians should......

“Expect the housing boom to cool rather than crash… While the housing boom is unlikely to continue unless mortgage rates drop much further, neither is it likely to bust… In our view, the national housing market is more like a balloon than a bubble… While bubbles always burst, a balloon often deflates slowly in the absence of a pin.”

But a curious dynamic is developing,  the 'soft landing' is quickly morphing into signs of a collapse. It's difficult to see outright, because statistics skew what is happening.

 Sales are plummeting but what little sales that are occurring are at the high end of the market and the numbers distort the averages.

Witness what we are seeing in Greater Vancouver right now.

March sales throughout the Lower Mainland region are on track to collapsed 30% from March of 2011. Sales of detached homes in Richmond are off 55%. On the west side of Vancouver (HAM central) sales are down by 50%.

In Burnaby sales are on pace to be off by 40%.

In the midst of this carnage there have been 5 sales this week of properties which changed hands for over $7 million, including 2 for over $10 million.  This will trigger a record average price for a single week of real estate sales.

See what I mean... the statistics are going to be royally skewed.

But the mortgage divisions of the various banks are not fooled... they can clearly see through the aberrant  numbers... and they are concerned.

Bank of Montreal (BMO) has suddenly brought back its 2.99% special mortgage, a half point drop off it's five year term. 

BMO has also slashed their 10-year mortgage to just 3.99%.  This is the first time a major lender has ever offered such a low rate for a 10 year term.  What was it BMO's Sherry Cooper said about the "housing boom being unlikely to continue unless mortgage rates drop further?"

On Thursday afternoon TD Canada Trust matched BMO's 2.99%, but for a four-year loan. Other banks are sure to follow in a desperate attempt to stimulate the market and match the competition.

Which brings us back to where we started this post.

"Hope clouds observation."

Many bears are all hyped up in anticipation that the crash has started. As Sean Connery said in the movie, The Untouchables:

"Don't wait for it to happen. Don't even want it to happen. Just watch what does happen."

There are still many twists ahead. 

But if you are a bear, take heart by this recent quote from BMO chief economist Sherry Cooper. 

Cooper - who told us that unless rates dropped further, the housing market would deflate rather than burst - has suddenly had a change of heart (not too surprising since it is her own bank that has launched a new mortgage war with the lowest rates in Canadian history):

“We’ve always said the market remains vulnerable to a correction in the face of a shock. It could also 'pop' in the absence of a shock should current frothy trends persist.

The next few weeks will, no doubt, generate significant 'froth.' Watch what happens, don't be disappointed, don't be surprised.

Just watch what does happen... and allow events to play out.  Don't let hope cloud your vision.

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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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Mon Post #3: Newsflash... it's "a stagnating housing market and in Vancouver prices are already falling from sky high levels a year ago"

On Sunday we told you that it's not the news per se that's important... it's how you spin it.

The GVREB had been hard at work MOPE'ing the news (Management of Perspective Economics) and had downplayed the third worst February in real estate sales on record (a decline of -17.8% from February of 2011) into a "pre-spring hike" in sales.

This was achieved when the GVREB compared those very same abysmal February 2012 numbers to that of the absolutely horrendous January 2012 numbers... instead of comparing them to the results of February 2011.

As a result February's abysmal numbers were promoted as being 61.4% higher than the horrid January numbers... thus a "pre-spring hike".

So how embarrassing is it for the GVREB, after heralding an awesome February in real estate sales, to open up today's edition of Canadian Business Magazine?

Generally the article painted a rosy outlook for Canadian Real Estate nationally by the CREA...

"Risks to the Canadian economic outlook remain elevated owing to the European sovereign debt quagmire, but the continuation of low interest rates is the silver lining. So long as the European debt crisis is contained and a global economic recession avoided, low interest rates will support Canadian home sales and prices - CREA chief economist Gregory Klump"

But buried in the article were a couple of real gems.

First off our old friend, CIBC economist Benjamin Tal, tells us the new CREA forecast is "if anything a best case scenario forecast."

Ouch!

Then Tal goes on to say his bias leans more "toward an expectation of more significant price declines."

Oh really?

Tal expects further price declines and that these declines will MORE SIGNIFICANT than what we have already seen?

Pass the popcorn and tell us more!

"This is basically a stagnating housing market," Tal said. "This is 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."

Seems Benny is reading from a different script than the GVREB this month. What about Vancouver?

"In Vancouver, prices are already falling from sky high levels a year ago, especially in the once bustling condominium market."

Now I ask you... when you read the GVREB's take on February's numbers, did you come away with the message that Vancouver's prices are already falling from sky high levels a year ago? Or that more, significant price declines are in our future?

Hmmm... didn't think so.

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Mon Post #2: The shifting sands in China spells bad news for those in real estate relying on HAM

One of the arguments you hear from locals who dismiss concerns that our real estate prices have surpassed what local incomes can support is that Vancouver is in high demand and endless streams of wealthy Asian investors will buy what locals cannot afford to purchase.

As we have noted here before, China's history is replete with boom and bust cycles. In addition, the policies of the US Federal Reserve have been exporting inflation to the far east.  At some point China is going to react and begin focusing their economy inward.

Few people believe this is going to happen. Fewer still fully understand the repercussions this will have on the world economy.

Evidence that this trend is starting in earnest comes today from Reuters who report that Chinese Premier Wen Jiabao has cut his nation's 2012 growth target to an eight-year low of 7.5%. Wen Jiabo has made boosting consumer demand the year's first priority as Beijing looks to wean the economy off its reliance on external demand and foreign capital.

"We will improve policies that encourage consumption," Wen told nearly 3,000 delegates of the Communist Party-controlled legislature.

China has vowed to wean the economy off dependence on exports, smoke-stack industries and government-backed infrastructure, and promote balanced growth that will elevate the incomes and spending of farmers and workers.

The lower growth numbers just reflect the reality that growth is going to be slower because the rest of the world is going to be weaker. China is in for some rough times ahead. And rough times means less money for entrepreneurs to spend overseas.

China could be headed for its slowest full-year of growth in the last ten years. The economy ended 2011 with its slackest quarter of growth in 2-1/2-years at 8.9% as it felt the chill of the euro area debt crisis and a sluggish U.S. economy.

The outlook for the real economy remains cloudy, according to the latest surveys of China's vast factory sector and the burgeoning services industries that are key to rebalancing growth and generating more stable domestic-driven demand.

The Premier also pledged to curb speculative demand in the property market. The government will continue to defuse rising local government debt, regarded by many investors as the key risk to fiscal sustainability (and the source of the liquidity for the exploding Chinese real estate market). Government figures show about 10.7 trillion yuan ($1.7 trillion) was owed by local governments at the end of 2010.

Chinese investors (who have been spending money like drunken sailors on Vancouver Real Estate) are about to experience huge cash flow issues. Somehow I suspect what money is available for investments, that money isn't going to be spent in a real estate market that EVERYONE can clearly see is overvalued and ripe for a major correction.

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Mon Post #1: Like ripples from a rock cast into a still pond...

On Saturday we shared with you a blog post by well known US blogger Mike 'Mish' Shedlock as he compared the bubble in Vancouver with the bursting bubble in Ireland.

In a reflection of the power of the global village that is the internet, the story has been picked up by a number of sources including the website Business Insider.

Headlined 'See What $890,000 Buys in a Housing Bubble and After the Bubble Pops', it's further evidence that Vancouver's reputation as a city firmly ensconced in a housing bubble is now solidifying in the mindset of investors around the world.

It is only a matter of time before investors, even potential wealthy Asian HAM buyers, begin to completely shun our market. Catching such a public and well known 'falling knife' is not something savvy investors do.

You can almost hear the ticking of the housing time bomb, MOPE not withstanding.

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It's not the news per se that's important... it's how you spin it.

Managing perception.

The concept has become so crucial in modern society that managing perception has become an art form.

Commodities trader Jim Sinclair is famous for deriding all the MOPE he sees in the press today.  That's the acronym he utilizes for all official attempts to put lipstick on the pig of a declining economy: the Management of Perspective Economics (MOPE).

Blogger Charles Hugh-Smith wrote about the practice last month and noted immediately in his post why the great game of perception management is so important:

"The economy will expand if you believe it is expanding - because you'll be 'animal spirited' into buying a lot of stuff on credit that you can't afford."

Smith observes that economists speak of these magical "animal spirits" that fuel economic expansion, but that this is simply a colorful term for perception management: when people perceive others reaping outsized gains in profits or pleasure from taking risky bets and freely spending borrowed money, then they will feel an overpowering urge to follow the herd and leverage their capital (if any) and disposable income (if any) into risky bets and zealous over-consumption, i.e. "animal spirits."

Conversely, when said risky bets blow up and participants have lost their ever-loving derrieres by following the herd, then "animal spirits" quickly dissipate as the herd thunders off a cliff to its financial demise.

The task of the financial/political/media Status Quo is to convince people to overlook the abundant evidence of economic deterioration and focus on heavily juiced "evidence" of robust "growth."

The game plan is this: if the Status Quo can convince you that the economy has righted itself and from here on in everything will get better and better, every day and in every way, then we will abandon financial rationality and start buying homes we can't afford on credit, cars we can't afford on credit and boatloads of stuff from China that we don't need on credit (of course looking cool is a "need," i.e. having an iPad to carry around).

In other words, believing it is so will make it so.

Which brings us to the latest media reports of February's Real Estate results.

The Vancouver Sun headline blares, "Metro Vancouver market balanced, board says: Price for residential properties up six per cent in a year according to report"

The article regurgitates the press released cranked out by Real Estate Board of Greater Vancouver (REBGV) president Rosario Setticasi. It heralds a "pre-spring hike in sales.",

Pre-spring hike in sales?

Haven't we been hearing constantly about how real estate sales are tanking in the Lower Mainland the last 2 months? How is it that we have a "pre-spring hike in sales?"

According to the REBGV:

“With a sales-to-active-listings ratio of over 18%, we see fairly balanced conditions in our marketplace as we move into the traditionally busier spring season. Sales reached 2,545 in February, a 61.4% increase over the 1,577 sales in January.

Wow! A 61.4% INCREASE in sales!!

With a headline like that and opening statements like that, it certainly appears like the market is rip-roaring hot, right? I mean sales are up over 61.4%... holy crap!

Of course that's the perception you're supposed to gleam from glancing at the article.

Dig a little deeper and you see that those 'rip-roaring' February sales actually constitute a DECLINE of 17.8% from the 3,097 sales that were recorded in February 2011.

Which means compared to last year, February 2012 was dismal. Yes they were a huge improvement over a disastrous January 2012, but they were still atrocious.

How atrocious?

The February 2012 sales in Metro Vancouver were the third lowest February total in the region since stats began to be gathered in 2002.

But the headlines and the press statements don't shriek sales are down 17.8% from last year, do they? Nor do they proclaim that February sales were the third lowest total in the last decade.

Of course not! Instead you are fed the line that sales are UP 61.4% from last month.

Then there is the benchmark price.

Not only are such measures highly skewed in a market with low sales volumes (as several sales of high end homes completely distort the averages) but this month's benchmark price comes on the heals of the industry radically changing the way the benchmark is calculated.

With that change put in place during the middle of last month, the REBGV is happy to tell you that the the benchmark price for detached properties increased a whopping 10.5% from February 2011

But as Garth Turner noted two weeks ago, the CREA changed the way the numbers are crunched so that the public accepts a new House Price Index that now masks the evolution of a national housing decline.

Gone will be average prices, replaced by a benchmark number – expressed relative to 2005 pricing, and taking into account property differences and the social aspects of a piece of real estate.

"It’s an even better tool for local real estate boards to mask evolving market realities, hide the early signs of a correction and remove raw data from the hands of consumers. It’s bad enough that the public MLS already omits vital information, such as the number of days a house has been on the market, price changes during a listing or previous sales history. But now being given a broad, homogenized index-based McNumber for a wide area is nothing but soma for the masses."

So don't listen to all that negative press you've been deluged with the past month or so.

It's a shiny happy world out there in bubble land.  Open that wallet. Plunge yourself into debt. It's a great day to buy a house...

... all you need is the right perspective.

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Sat Post #2: Another Vancouver comparison, this time with Ireland

Well know US economic blogger, Mike 'Mish' Shedlock, paused today to take another gander at Vancouver's Real Estate mania and held up a comparison to a recent sale that just completed in Ireland.

As faithful readers know, Ireland has already seen it's massive credit induced housing bubble collapse.

Prices on the Shamrock Isle continue to dramatically correct. At the height of its' bubble, Ireland was very similar to Vancouver with it's huge disconnect between fundamentals and bloated real estate prices.

With today's post, Shedlock takes a look at what $899,000 will buy you in Vancouver vs Ireland.

There is this 1 bedroom beauty at 2119 East 3rd Ave, Vancouver, MLS® Number V934050, listing Price: $899,500

Or we have this tear down at 1016 East 7th Ave, MLS® Number V930461, Listing Price: $899,000 (In Detroit you could pick up a piece of crap like this in a similar neighbourhood for $250 - $500... see yesterdays posts).

Or you could have bought this property in Donegal, Ireland for $860,000.

It's a stunning 55 room hotel sitting on 3.2 acres of land overlooking the Donegal coastline and set against spectacular scenery. The hotel sold yesterday at a cut-price property auction for the jaw dropping equivalent of $860,000 CDN.

It's truly amazing.

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