Random thoughts

A few random items for you this morning.

(1) On the topic of HAM

The topic of Hot Asian Money (HAM) in Vancouver is a strong one. There have been lots of stories about how west side houses have been snapped up by HAM and sit vacant (the Courier newspaper did an article about this, but I don't have the link at the moment).

In a report released by the Bejing News, google translated here, Bejing alone has 3.8 million vacant houses, presumably bought by speculators in the real estate frenzy there and those homes are being held for the right time to 'flip'.

3.8 million?  Even in the United States, five years into a bursting housing bubble, it is estimated only 2.54 million homes are available for SALE!

Imagine the panic to dump if the China/world economy turns significantly downward?

(2) On the topic of Vancouver Speculators

Speaking of not ending well, a discussion went on the other day over in the comments section of the blog Vancouver Condo Info. Contributor 'Patsan' noticed that one person (Gary) was advertising 3 homes for rent on the west side of Vancouver and the tone of the craigslist ad seemed 'desperate'.

I noted that if the phone number listed was 'googled', there were a whole host of properties available for rent from this 'Gary' person. One diligent reader of the site did some research and noted:

"This Gary guy has at least 12 West Side and Richmond properties advertised for rent. They are all vacant and available now and if you goggle the address all were recently purchased. Most of the properties on the West Side sold for close to 3 million and the Richmond ones are in the 1.5 million range. The guy must be a rental agent or ring leader behind investors who have recently dropped at least 20 to 30 million on houses to rent. The ads all state minimum 1 year lease so they are not looking for quick flips. None of the ads have photos or much details. The guy doesn’t have any houses advertised that appear to have been previously rented so he must be a newby to the game."

And this is just ONE group of speculators in Vancouver.

Now multiply Gary's group by a couple of hundred and imagine the speculative panic here if the housing market in Vancouver turns downward.

(3) Comparing Statistics

Speaking of the euphoria that buyers were in a year ago, contributor VMD over on Vancouver Condo Info posted some comparisons of single family home sales from last May 2011 to this May 2012 to show just how bad sales are this year compared to last year.

1. Van West

Sales YoY -47%

Lists YoY +36%

2.West Van

Sales YoY -59%

Lists YoY +23%

3. Burnaby

Sales YoY -38%

Lists YoY +23%

4. Van East

Sales YoY -28%

Lists YoY +26%

5.Coquitlam

Sales YoY -21%

Lists YoY +21%

6. Richmond

Sales YoY -20%

Lists YoY +11%

VMD notes Richmond was the first to slow down last spring, so its numbers were pretty bad last May. This May is even worse.

Will Boomers pull the trigger in greater numbers as the market worsens and slash the price point they will accept even more? Thus pushing the drop from 12% to 20%?

Could the drop accelerate even greater than that?

(4) If we slide downward, how far could we go?

If you follow this blog, you already know my thoughts.

Consider this musing from Vancouver realtor Larry Yatkowsky who broaches the concept of a 32% drop in prices:

Let’s start at the highest average price ever reached in Vancouver for a detached home – a mere $1,235,244. Now let’s also assume this market is on the skids sliding down the drain faster than we think to bottom out at something most of us would not imagine – a market that drops so much it hits May 2009′s Average Price of $831,171.

With a price drop of $404,073... that's a 32% drop from the all time high.

Consider that a 32% drop in prices only takes us back to 2009.

Larry argues buyers will rush in at this point (and I agree), but rather than establish a bottom for the 'correction' - I can't help but recall the 'phases of a bubble' chart:

A rush of buyers into the market at this point would just about reflect these phases perfectly, wouldn't it?

Can you see all the pieces falling into place for a significant drop?

Is a 70-85% collapse in prices still all that hard to fathom if these elements come to pass: The China Trigger + The Speculator Trigger + The Boomer Trigger?

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Mon Post #2: "It's a stabilizing period"

Rationalization.

Wikipedia says rationalization, In psychology and logic, is an unconscious defense mechanism in which perceived controversial behaviors or feelings are logically justified and explained in a rational or logical manner in order to avoid any true explanation, and are made consciously tolerable – or even admirable and superior – by plausible means.

In brackets, Wiki defines rationalization as "making excuses".

Today's Vancouver Province newspaper carries a story which headlines: Housing sales in Metro Vancouver hit 10-year low in May.

Greater Vancouver housing sales hit a 10-year low in May, dragged down by plunging sales of high-priced homes in West Vancouver, Richmond, and on Vancouver’s pricey west side.

This comes as May sales figures show that detached-home sales fell 59% in West Vancouver, 46% on the west side of Vancouver, and 25% in Richmond.

Eugen Klein, president of the Real Estate Board of Greater Vancouver (REBGV), calls the negative numbers "a stabilizing period" and attempts to put a positive spin on the situation by saying fewer sales and more listings mean that buyers can look around and haggle over price.

“People are talking all the time about affordability. There’s more room to negotiate with sellers. That’s when you have better affordability.”

Ahh, yes. More "room to negotiate with sellers." Bet all those people out there with homes on the market are calmed by this assessment of the market.

Meanwhile compare that with realtor Larry Yatkowsky's take on seller's angst at the moment, a viewpoint we posted yesterday:

"Probably, on average, about a 150 or 160 homes in Vancouver are reducing their price every day in the hope of catching, getting ahead of the train and maybe get out before they can't."

Remember that... it's not concern or panic... it's a stabilizing period as people try to get out before they can't.

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Mon Post #1: China's bubble is starting to break

Patrick Wolff, founder and chief executive officer of Grandmaster Capital Management LLC, was on Bloomberg Television's "Money Moves" talking about China.

In his words, China's bubble is starting to break.

The thing that is really striking about China is that there is an extraordinary double standard in the world today. You know, what you have in China is a state dominated, really state controlled, economy. It's, you know, it's not really capitalism by any stretch; it's something different. And it's very striking to me that the same people who would probably be apoplectic at the idea of the US government tightening regulations even a little bit in some area--that I know you were talking about the Volker Rule earlier where obviously there is a lot of debate on that as their should be--but the same people who would be really really upset about that, somehow come to believe that the fact that China's government controls everything in China is a good thing. I don't think it's a good thing; I think it's a bad thing.

I think there have been years and years of debt-fueled mal-investment. And it's come to a head. And when it breaks, as it seems to be breaking now, it's a long way down.

Another reason we shouldn't expect HAM (Hot Asian Money) to flood in and support the Vancouver Housing Market.

(hat tip World Housing Bubble)

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Sun Post #2: Why Central Banks won't be able to stop the systemic risk crisis emerging in Europe

Those who have followed this blog over the past few years know there is one theme that we repeat ad nauseam: the 2008 Financial Crisis was an earthquake the depth and breadth of which none of us fully understand nor appreciate.

And that crisis is not over.

Yesterday Graham Summers of Phoenix Capital Research had this take on the current state of the Financial Crisis that emerged in 2008.

Summers believes events in Europe will escalate and that Europe will collapse before the end of the year and very likely before the end of the summer. When this plays out, the fallout will be worse than 2008.

And the world Central Banks will not be able to control the damage.

Summers thinks the Crisis coming from Europe will be far, far larger in scope than anything the US Federal Reserve has dealt with before.

He also thinks the Fed is now politically toxic and cannot engage in aggressive monetary policy without experiencing severe political backlash (this is an election year).

The Fed’s resources are spent to the point that the only thing the Fed could do would be to announce an ENORMOUS monetary program which would cause a Crisis in of itself.

Summers breaks down the key facts:

• According to the IMF, European banks as a whole are leveraged at 26 to 1 (this data point is based on reported loans… the real leverage levels are likely much, much higher.) These are a Lehman Brothers leverage levels.
• The European Banking system is over $46 trillion in size (nearly 3X total EU GDP).
• The European Central Bank’s (ECB) balance sheet is now nearly $4 trillion in size (larger than Germany’s economy and roughly 1/3 the size of the ENTIRE EU’s GDP). Aside from the inflationary and systemic risks this poses (the ECB is now leveraged at over 36 to 1).
• Over a quarter of the ECB’s balance sheet is PIIGS debt which the ECB will dump any and all losses from onto national Central Banks (read: Germany)
• It means we’re talking about a banking system that is nearly four times that of the US ($46 trillion vs. $12 trillion) with at least twice the amount of leverage (26 to 1 for the EU vs. 13 to 1 for the US), and a Central Bank that has stuffed its balance sheet with loads of garbage debts, giving it a leverage level of 36 to 1.

And all of this is occurring in a region of 17 different countries none of which have a great history of getting along… at a time when old political tensions are rapidly heating up.

As bad as the above points may be, they don’t even come close to describing the REAL situation in Europe.

Case in point, regarding leverage levels, PIMCO’s Co-CIO Mohammad El-Erian (one of the most connected insiders in the financial elite) recently noted that French banks (not Greece or Spain) currently have 1-1.5% capital relative to their assets, putting them at leverage levels of nearly 100-to-1.

And that’s France we’re talking about: one of the alleged key backstops for the EU as a whole.

The Federal Reserve, indeed, Global Central Banks in general, have never had to deal with a problem the size of the coming EU’s Banking Crisis. There are already signs that bank runs are in progress in the PIIGS and now spreading to France (see El-Erian’s comments in the article above).

Summers observes the EU is a colossal mess beyond the scope of anyone’s imagination. The World’s Central Banks cannot possibly hope to contain it. They literally have one of two choices:

1. Monetize everything (hyperinflation)
2. Allow the defaults and collapse to happen (mega-deflation)

If they opt for #1, Germany will leave the Euro. End of story. So even the initial impact of a massive coordinated effort to monetize debt would be rendered moot as the Euro currency would enter a free-fall, forcing the US dollar sharply higher which in turn would trigger a 2008 type event at the minimum.

Moreover, Summers observes the Fed is now so politically toxic that Ben Bernanke is literally going on the campaign trail to attempt to convince the American people that the Fed is an honest and helpful organization. Put another way, there is NO CHANCE the Fed can announce a large-scale monetary policy unless a massive Crisis hits and stocks fall at least 15%.

Finally if the Fed were to announce a new policy it would have to be MASSIVE, as in more than $2 trillion in scope.

Summers points out that the $600 billion spent during QE 2 barely bought three months of improved economic data in the US and that was a pre-emptive move by the Fed (the system wasn’t collapsing at the time).

So Summers concludes that given that the Fed will only be able to announce a large scale program in reaction to a Crisis, whatever it did announce would have to be ENORMOUS, a kind of shock and awe, attempt to rein in the markets.

Moreover, it would literally be THE LAST QE the Fed could hope to ever announce as political outrage from the ensuing Dollar collapse and inflationary pressures would likely see the open riots and/or the Fed dismantled (this has happened twice before in the US’s history).

In simple terms, the Fed’s hands are tied until a huge Crisis hits.

And then, if the Fed acts it’s going to have to go “all in” with a massive program. If it does, we will still experience a Crisis, as the Dollar would collapse pushing inflation through the roof as well as interest rates (which in turn would destroy the banks as well as the US economy).

In simple terms Summers believe that, this time around, when Europe goes down (and it will) it’s going to be bigger than anything we’ve seen in our lifetimes. And this time around, the world Central Banks are already leveraged to the hilt having spent virtually all of their dry powder propping up the markets for the last four years.

Most people believe the Fed can just hit “print” and solve everything, but Summers believes they’re wrong.

The last time the Fed hit “print” food prices hit records and revolutions began spreading in emerging markets. If the Fed does it again, especially in a more aggressive manner as it would have to, we would indeed enter a dark period in the world and the capital markets.

Country	GDP
European Union	$16 trillion
United States of America	$14.5 trillion
China	$5.8 trillion
Japan	$5.4 trillion
European Central Bank	$3.8 trillion
Germany	$3.2 trillion
US Federal Reserve	$2.8 trillion
France	$2.5 trillion
United Kingdom	$2.2 trillion

Banking System	Total Assets	Total Assets Relative to GDP	Total Assets Relative to Central Bank Balance Sheet
Europe	$46 trillion	287%	1,210%
US	$12 trillion	82%	428%

Summers insists this is not Doom and Gloom, it's reality.

Graham Summers isn't the only one with this view.

World renown investor George Soros is singing a similar tune.

Germany and its central bank are unlikely to lead the way out of the euro zone debt crisis within three months time, after which it will be too late, U.S. billionaire George Soros said on Saturday.


Speaking at an economic conference in Trento, Italy, Soros said that the euro crisis - which he defined as a sovereign debt crisis and a banking crisis closely interlinked - threatened to destroy the European Union and plunge it into a lost decade like Latin America in the 1980s.


The Greek crisis is liable to come to a climax in the fall. By that time the German economy will also be weakening so that Chancellor (Angela) Merkel will find it even more difficult than today to persuade the German public to accept any additional European responsibilities. That is what creates a three-month window," he said.

As I have stated many times, this crisis is far from over.

The Central Banks of the world will not permit the massive deleveraging  and destruction of debt that must occur for the capitalist system to repair itself.

So it MUST intervene.

Mark Zandi, chief economist at Moody’s Analytics, said yesterday that President Obama will not let Europe fail.

"Europe is the key swing factor. If Europe addresses its financial troubles, and keeps Greece in the eurozone, the financial markets are likely to settle and boost U.S. employers’ confidence. But if Europe slowly worsens, it will be a drag on the U.S. economy."

I tend to agree with Grant Williams who says

as we approach the endgame for Europe, the choice facing those empowered to make decisions about how it ultimately plays out is actually a fairly simple one—allow massive, widespread sovereign defaults and a continent-wide bank-run or print unlimited amounts of Euros... is anyone still confused about how this will all play out?

Europe’s ‘leaders’ will NOT arbitrarily choose to inflict the pain necessary to deal with the current debt crisis when they have the means to print free money at their disposal and the only impediment to doing so is an as-yet undetermined percentage of 81 million German citizens.

If Germany has to leave the EU in order for the moneyprinting to happen, then they will leave - either because they choose to or because the ‘Latin-bloc’ (which now includes France) forces them to. Either way, the end will come in a shower of confetti paper money.

There may well be a period of deflation or deleveraging prior to inflation taking hold, but with inflation the central bankers’ firehose of choice, we can be fairly certain that inflation is in our future.

Because the Central Banks MUST intervene, I believe tremendous opportunity lies ahead in terms of Gold and Silver, especially Silver.

I don't believe the world will return to a Gold Standard, nor should it. But there will be a tremendous flight to both Gold and Silver as this plays out, even while other commodities collapse.

And that represents a huge opportunity.

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Sun Post #1: Vancouver has "too many sellers trying to cash in at the same time."

The falling Vancouver market continues to make news in the mainstream press.

Yesterday it was CBC with a story lamenting that Vancouver has "too many sellers trying to cash in at the same time."

The Mother Corp tried to balance the negativity by looking for the silver lining in a market with a huge decline in sales and a massive increase in listings.

But the best they could do was headline the bad news by saying, "Uncertain fate for Vancouver real estate prices".

While the fate of the current downward trend may be uncertain for CBC, they do tell us exactly what you have been reading here on an almost daily basis:

Vancouver's real estate market has taken another interesting turn, with listings up and sales down during what is usually a busy time of year.

In May, average prices for houses have dropped about $150,000 compared to one year ago. That 12-per-cent drop wiped out two years of price increases. The reason appears to be that too many more sellers are trying to cash in at the same time. Listings are up by 23 per cent, but fewer are buying: sales are down 24 per cent.

Probably, on average, about a 150 or 160 homes in Vancouver are reducing their price every day in the hope of catching, getting ahead of the train and maybe get out before they can't," said realtor Larry Yatkowsy.

Reality is starting to set in.

The Spring Market is not going to arrive this year. Sellers are starting to slash their prices.  The Boomer Trigger is being pulled.

Is the market starting to crash? We will see. As economist Tom Davidoff, of UBC’s Sauder School of Business says,

"It’s going to take several months of data-confirming of what we seem to be seeing before I would be anywhere close to be prepared to say, 'That's it, we had a bubble and now it's bursting.'”

But if you're a Boomer sitting on the sidelines who plans on relying on the bubbilicious values for your retirement fund... do you wait to see?

Or do you jump in, list your house with the others and pull the trigger by slashing your selling price aggressively before another 12% evaporates from the market?

And what of the ones already listed but watching a market drop while listings stagnate? Time to cut and run?

We shall see.

The video from CBC...

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Bad Apples

The stereotypical image of the used car salesman is that of a carney side-show huckster. Every car is a 'deal' and each one is 'priced to sell fast'.

When it comes to qualities like honesty and integrity, survey after survey has the used car salesman's knuckles scraping the bottom of the barrel alongside those of politicians, insurance agents and telemarketers.

Is it fair?

Not really. Despite Web sites filled with consumer vents against lying auto salesmen, there's no real evidence that they lie more often than anyone else does.

If a car salesman claims that his lot's signature sedan offers a smoother ride than other guy's, is that any more dishonest than a brand of toothpaste claiming it gets teeth "as white as they can be" or a sign in a café window touting the "world's best coffee?"

Ultimately those well worn catch-phrases become immediate signal that you are being conned in some way. And you immediately get you back up when you see them.

It's the same in real estate these days.

As soon as you see those catch-phrases, alarm bells go off.

One of my favourites is that beauty phrase: 'priced to sell fast.'

When you see that you almost immediate question it.

Such is the case with this listing pointed out by the blog Vancouver Price Drop:

The address is 4875 Skyline Drive in North Vancouver. From the description:

Panoramic view of Lions Gate Bridge, city & water. Enjoy this gorgeous fully renovated stylish home. New roof, new kitchen, new floor &new bathrooms. Infloor radiant heating with heat recovery ventilation system, double glazed brand windows, hardwood floors, too many details to mention here. Beautiful open plan great for your parties. This house present 4 bdrms, 3 full baths, living room & rec room. Entertain your family & your guests here. Family friendly & one of the most prestigious area in North Vancouver. Come & See it for your self. The property is gated with a FLAT driveway & giant grassy yard for the children to play in. Very quiet area. Handsworth Sec School catchment area. Call LS for showing. Priced to sell fast.

Ahh yes, priced to sell fast.

You believe that, right?

But because Vancouver Price Drop makes it their mission to track properties in the Lower Mainland, we now know that the current owners of the house bought the place less than a year ago for $960,000.

Based on the old pictures of the unit, they appear to have done very little in renovations ($100,000 max according to Price Drop).

Next the home is listed for $635,000 more than they paid.

The house sits on the market with no interest being shown in the property and the owners drop their asking price several times over a period of two months.

The listing is then pulled, the price RAISED by $300,000 to $1,750,000!

This tops out at almost $800,000 over what they originally paid... and the realtor has the nerve to advertise the property as “priced to sell fast” in the description?

Would you trust the realtor listing this property anymore than you would trust the man pictured at the top of this post?

It's these types of shenanigans that give good realtors a bad name.

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Friday Post #2: Vancouver detached home statistics for May 2012

Every month realtor Larry Yatkowsky releases month end real estate data and the information he provides is greatly appreciated.

And as you can see by the graph, the drop in the detached average home prices continues.

The May detached average home price of $1,037,331 is down from February’s high of $1,235,244. It has now dropped 12% Year Over Year (YOY).

As Yatkowsky notes, this is a low not seen since November 2010 when the average was $1,043,161 meaning two years of gains have now been wiped out.

Clearly the combination of rising listings and declining sales is starting to have its effect.

Active listings for detached homes in Vancouver are at an all time high of 7,577 units, up 23% YOY.

Meanwhile sales for detached homes in the City are down 24% YOY.

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Friday Post #1: Reality... it can really get you down

If you click on the image above, you will see a real estate listing for a Vancouver property at  4890 Hudson Street (near Granville and West 33rd).

It's on Vancouver's west side, HAM central for the past few years.

From the listing:

AMAZING NEW PRICE! Prized corner lot home (72' x 66' x 125') on the highest point in Shaughnessy with mountain and city views. This character home oozes with wonderful heritage charm, plus has been extensively renovated throughout. Main flr: elegant living rm, cross hall dining rm, oversized great rm, updated gourmet kit with top of the line appls, eating area, mud rm/laundry rm-all exposed to a beautifully established 4-season garden. Upstairs: 5 generous sized bdrms! Kids' wing has a 3pc & 2pc & Master has modern marble 3pc ensuite. Downstairs has many options: kids' rec/media rm with a space for crafts/computer, yoga/exercise rm. wine cellar; or a revenue generating suite with sep entrance.

$2,599,000 is an "AMAZING" new price?

Perhaps they call it 'amazing' because that's how they feel about how they have had to come down on what they originally wanted?

On February 28th, 2012 it was listed for $3,468,000.

The asking price was then reduced to $2,798,000.

Currently it's on the market for $2,599,000.

That's a reduction of $869,000 in only three months.

And while it goes without saying that the pie-in-the-sky original price was unrealistic, I wonder at what point the owners really start getting depressed at the harsh realities of the market?

(hat tip to timber2012)

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That's Gold Jerry! Gold!

The Internet can be a wonderful thing.

Ideas can be shared and, as realtors have found, it's a fabulous way to spread your message to intended clients.

But sometimes it can make you look foolish. Bloggers know this all to well.

Make a prediction that's wrong... and people can go back and bring it up for years to come.

Give investment advice that is wrong... and people will hold it against you for years.

A good example is our recent post about a hotel condo at the Blackcomb Lodge now selling for 65% off it's 2005 launch price.

One of our faithful readers, pipewrench, responded to our post and shared a link he had come across from a Whistler realtor from February 2010.

A realtor named Lillian was boldly (and publicly) wagging her finger in admonishment at potential buyers who might be sitting on the fence about a real estate purchase in Whistler.

She said:

"For people expecting the real estate prices in Whistler to drop after the Olympics, I’m afraid you’re going to be sorely disappointed...The message is, if you’re waiting for prices to drop before purchasing property in Whistler, you may be too late. The time to buy is now."

Ah yes, the'buy now or forever be priced out'mantra.

On full display then as it is now, despite the fact the realtor acknowledges that (at the time of the posting) the Whistler market was "already 15-25% lower than previous prices in 2007" and that "current prices in Whistler are down to 2001 levels."

It came, of course, during a series of articles talking about how real estate prices had collapsed post-Games at other Olympic venues.

Realtors, naturally, told you it was different here.

It's a relevant theme to touch on because as we noted on May 18th, the local real estate cabel has been attempting to dissuading people locally from believing all the negative mainstream media articles about a looming real estate crash and that buyers shouldn't be expecting a significant correction in our local housing market.

As Tsur Sommerville said:

"To expect across-the-board 10%, 15%, 20% drop in house prices, I think that being rather, er, hopeful, for a buyer to expect that."

Hmmm.

For real estate bear blogs who are watching the current Whistler Real Estate market crash hard... the 2010 posting is pure gold.

Here you had a realtor telling you in Feb. 2010 that "with a high level of inquiries and good prices, Whistler is considered good value in the resort market."

Whistler was over priced then. And it's over priced now - hype notwithstanding.

The same goes for real estate in Greater Vancouver.

Here, for your viewing pleasure, is a screenshot of the blog post (click on image to enlarge):

Now... I would love to link directly to the post so you can go and see it for yourself.  But I can't.

A curious thing has happened since pipewrench posted the link in the comments section last Monday.

Another faithful reader, Makaya, picked up on pipewrench's comment and reposted it over at the excellent real estate discussion site, Vancouver Condo Info.  

VCI seized on it's newsworthiness and, under the heading Whistler's Nasty Collapse, made it yesterday's main story.

However, about 8 hours after the post, VCI's readers suddenly came up on a dead link... the embarrassing article had been removed. Clearly some realtors were unhappy with all the embarrassing attention.

But not so fast.  

VCI contributor, patriotz, quickly accessed Google cache and retrieved the article.  Another contributor, The Ant, collected screenshots and posted the content of the article for posterity.

Real Estate Value In Whistler Best In 9 Year
Posted by: Lilian Feb, 2010

For people expecting the real estate prices in Whistler to drop after the Olympics, I’m afraid you’re going to be sorely disappointed.

According to George Klimock from The Whistler Real Estate Company, property prices in Whistler today are already 15-25% lower than previous prices in 2007. In fact, current prices in Whistler are down to 2001 levels.

With a high level of inquiries and good prices, Whistler is considered to good value in the resort market, with, for example, a 2 bedroom condo is now listed at $ 519,000 as opposed to the more expensive $ 630,000 a few years earlier.

According to the 2010 Whistler Report from Landcor Corp,the average price of a condominium has started to climb recently, back to the $400,000 mark, first established in 2002. Since 2008, the condominium market has flattened. But, new ownership types, including quarter share ownership, have been introduced into the market, increasing affordability. This likely has helped to keep assessed values stable at or close to the $400,000 level. Townhouses in Whistler, typically priced between condominiums and single detached units, ranged from $650,000 to $750,000 from 2001 to 2007, but dropped below $600,000 during the recession.

Those looking to step into the Whistler market for the first time under the notion of a lower price, may be disappointed. Whistler homeowners receive good cash flow from renting their properties out most of the year and as such are not as motivated to sell as homeowners in other areas. Whistler is considered to be near the bottom end of pricing when compared to other resorts such as Sun Valley and Aspen, with price adjustments as low as they were in 2001-2002.

“The mistake many people make when they look at prices of property in Whistler is to compare [prices] with the price of properties in their city. You can’t compare Whistler to Vancouver because Whistler is a destination resort, designed for people to own secondary and vacation properties, not their primary residences. In order to get an accurate picture of what prices are like for resorts, you have to look at other resorts like Sun Valley, Park City and Aspen. In fact, Whistler is currently less expensive than Sun Valley and Aspen and Park City is higher priced.Whistler is currently a good buy for resort property,” says Klimock.

Klimock predicts that the current sales volume in Whistler will continue throughout the year with a fairly active winter season. He believes the Olympics will be good exposure for the resort, but through the long term rather than the land rush that occurred in 2002 because speculative buying due to the Olympics has been virtually non-existent. The market will take 6 to 8 months to increase in sales, with more destination travelers arriving to the resort in March and April; after the Olympics, but prices may increase after next year.

Ultimately, Klimock believes that sales volume in Whistler will gradually increase, but Olympic success is a non-issue. “Buyers are still interested in Whistler, with or without the Olympics. As a world-class resort, Whistler has unparalleled world access and is in close proximity to a major city, Vancouver. No other resort in North America can claim that. Having the Olympics is great marketing for Whistler, but I don’t think it would have any major effect on prices or the amount of people buying.”

The message is, if you’re waiting for prices to drop before purchasing property in Whistler, you may be too late. The time to buy is now.

Kudo's to the blogging community for their quick action.

And to paraphrase that famous line from the Seinfeld episode, all I can say is... That's Gold pipewrench! Gold!

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That's not a bubble... this is a bubble!

Vancouver is regarded as the most bubblicious real estate city in North America right now.

Annually it vies for the top or second spot as the most unaffordable city in the world. But if you think we might even get some twisted respect for that, think again.

Another bubblicious city in the world is Sydney, Australia.

And a nearby resident of Sydney is John Hempton. Hempton writes a blog named after the company he works for called Bronte Capital.

According to his bio, Hempton is the Chief Investment Officer for Bronte and comes to the firm with extensive experience in global markets via Platinum Asset Management - an Australian based global asset management fund. He lives and works in Bronte, New South Wales.

After visiting the left coast of Canada, Hempton has this insight about our real estate situation he would like to share with Vancouverites: "That ain't no bubble."

From his May 19th, 2012 post...

I have just returned from visiting relatives in Vancouver. I mostly stayed in West Vancouver with my retired aunt and uncle but also stayed in outer-suburban areas with my police-officer cousin.

I was looking for a bubble - after all Vancouver is a notorious property bubble - but - speaking as someone from Sydney I could not see one. Everything was so cheap. Houses especially. Cars too.

A Mountie and his drug-rep wife had a material standard of living that would match a partner in a second tier law firm in Sydney. House prices seemed impossibly low.

The only place where my material standard of living was markedly higher than the outer Vancouver middle class was that I have a decent surf beach locally and the local restaurants and coffee shops are much better in Sydney. Also alcohol is cheaper in Sydney - which is in part taxes and in part protection. (Alcohol is much cheaper in parts of the USA.)

To offset the beaches and restaurants, my cousins had a ski resort up the hill. And food (other than dairy) was cheaper. Quality was high. Dairy seemed to be another industry-protection issue.

And housing was much cheaper and much higher quality.

I remember thinking that Sydney was in a bubble when it got as expensive as Vancouver now is. But then housing prices doubled. After that they seemed to drift upwards.

I have given up predicting the end of the Sydney property bubble. It will happen. It feels like it might happen now. But it has felt like that before. And before that. And before that.

I would rather be short Sydney property than long it (though my wife might object). And that stance has cost me money in the past.

There is a scene in Crocodile Dundee where a New Yorker pulls a switch blade on Dundee. He pulls out an Australian bush knife which is far more impressive. 

That is how I felt about Vancouver. You call this a bubble? I am an Australian. I can show you a bubble. Vancouver - that is just kids having fun.

Many Vancouverites will share your frustration with the bursting of the housing bubble, John.

I really don't know much about what's going on in Sydney except that Australia, like Canada, is still waiting for their bubble to pop.

But if Sydney is that much more bloated than Vancouver, well, then all I can say is... may God have mercy on your citizens.

At least whatever mercy he can spare after the carnage strikes here.

Turn! Turn! Turn! (to Everything There Is a Season)

As we watch available real estate inventory surge to just under 19,000 properties  for sale in the Vancouver market, it has many anticipating that the long awaited correction may finally be coming to the Village on the Edge of the Rainforest.

Sales have been slumping dramatically. HAM (Hot Asian Money) has been a no-show in the Spring  market, and Inventory levels are surging - almost double from where they were five short months ago.

But as we have cautioned numerous times before... don't assume.  Watch and see what happens.

Recall that a while back we talked about several triggers which could implode the market.  There is the China Trigger, The Speculator Trigger and The Boomer Trigger.

The China Trigger may start the ball rolling, but I think the Speculator Trigger and the Boomer Trigger will be the ones that create the sheer panic which will lead to wholesale price liquidation... particularly the Boomer Trigger.

By now faithful readers are well aware that the majority of the self-indulgent Boomer generation have failed to prepare for their senior years.

Seven out of 10 Boomers do not have enough money set aside for retirement. And since 2011 marked the beginning of the great Boomer transition into retirement, this financial planning statistic is significant.

Starting in 1946, the demographic Post-World War II baby boom began. And the Boomers at the front of this wave have benefitted most from seemingly everything.

After having been raised in the post-war affluence of the 1950s and 1960s, the first wave of boomers entered their mid 20's starting in 1971. As they settled down between 1971 and 1976, these first Boomers bought homes which sold for between $40,000 and $60,000 in suburb communities like Richmond.

Now, as these Boomers head into retirement without adequate funding to carry them through their golden years, the vast majority have a very simple retirement plan: sell their bubble inflated asset of a house, downsize and live off the proceeds.

A average house on a large lot bought in 1971-1976 in Richmond for between $40,000 - $60,000 is now 'worth' between $1.0 - $2.5 million dollars.

Enter the Boomer Trigger... trigger the sale of the one significant asset Boomer's have to fund their retirement. At the same time, if the market slows, Boomers can use their original purchase price advantage to under cut other sellers in a collapsing market - a maneuver which has the potential to crash the market if done by a large number of Boomers at the same time.

Well, as we have noted for most of the past six months, the sales of single family houses in Richmond has been coming to a slow crawl. Inventory is at all time highs.

And today I have another example of a Boomer who may have pulled the Boomer Trigger to undercut other sellers in a stagnating/collapsing market.

Allow me to draw your attention to this typical 1970s house which can be best described as a 'tear-down'.

It's address is 6840 Coltsfoot Drive (near Granville and No. 1 Road).

Billed as "4 bdrm plus den 2 1/2 bath home in great area, perfect to live in now and redevelop later", the house was constructed in 1973 and it is a 1,992 square foot home sitting on a 7,385 square foot lot - perfect for the speculator redeveloper.

Throughout 2010 and the start of 2011 these properties were the hottest thing going in what was known as HAM central - the Vancouver suburb of Richmond.

It came to market at the start of 2012 with an 'assessed value' of about $1.1 million.

But 2012 isn't 2010 or the start of 2011.

Recognizing that the Richmond real estate market was already stagnating, the owners of 6840 Coltsfoot Drive listed their home for sale on January 16th for only $968,000...

That's right,  the original asking price was below assessed value!

What a deal, eh?

Last year, speculators would have launched into a furious bidding war to seize on this opportunity.

This year? Nothing... nada.

It has sat on the market for months now.

Recently the owners of 6840 Coltsfoot Drive cut their asking price to $868,000 (click on image to enlarge a screenshot of the reduced listing - hat tip ZRH2YVR):

6840 Coltsfoot Drive recently sold... for $800,000.

That's right. Assessed at almost $1.1 million. Listed for $968,000. Asking price cut to $868,000. And it just recently sold for only $800,000.

Is this the sign of what's to come?

And what of the Boomer next door or down the Street?

Last year compatible homes were selling in Richmond for $300,000 - $400,000 over the asking price.

Those bidding war prices, along with the original asking prices, were way above assessed value.

We profiled a couple of those sales here.

But the tide has turned.

Earlier this year we profiled an owner in Terra Nova who slashed almost $1 million off his $2.3 million asking price. Now we have this lower tier example of a house being sold for significantly below 'appraised value' .

Smart Boomers (those who are wise enough to see what is happening) are pulling the Boomer Trigger and selling for whatever they can get.

As a Boomer do I dump mine too? Or do a wait to see if the market recovers?.. only to discover a market that continues to stagnate as inventory hits 22,000 or 23,000. If I wait... will the only offers coming in at that point be for $650,000?

How long before homeowners drop by this site which is showing Richmond homeowners how many of their fellow residents are cutting asking prices on their homes??

It's a falling market right now. And as homeowners begin to realize their current 'assumed value' is evaporating, will more Boomers start to panic like the ones at 6840 Coltsfoot Drive?

We shall see.

Clearly the pressures of the market are starting to wear on some sellers.

And price cuts are happening everywhere, even the west side of the City of Vancouver.

As noted on the blog, Real Estate Talks (hat tip Makaya), there were 9 price changes on the west side on Friday, all decreases:

4460 West 6th was $2,748,000, new price $2,640,000 (–$108,000)
3760 West 17th was $1,698,000, new price $1,598,000 (–$100,000)
160 West 59th was $1,350,000, new price $1,280,000 (-$70,000)
475 West 38th was $2,990,000, new price $2,780,000 (-$210.000)
5637 Baillie was $2,348,000, new price $2,331,000 (-$17,000)
4452 Crown was $2,680,000, new price $2,550,000 (–$130,000)
1816 McNicoll was $2,498,000, new price $2,350,000 (-$148,000)
5276 Blenheim was $3,388,000, new price $2,998,000 (–$390,000)
3348/3352 West 3rd was $2,198,000, new price $1,988,000 (–$210,000)

This is from ONE day only.

Every single day we are seeing between 150-200 price changes in the Graeter Vancouver market.

If you bought one of the 9 places listed above last year with a minimum of 5% down, you are seriously underwater today.

And just think... these homes will sell for much less than what is currently being asked for.

Make no mistake... many of these houses were originally listed with prices that were too high to begin with.  But last year they would be snapped up without a second thought... part of a surging market.

The market surge is gone.

To those sellers who recognize this, they are jumping on the chance to sell to anyone who is interested even if it means accepting offers significantly below assessed value.

Sellers not attuned to this dynamic are simply cutting their asking price to somewhere just above assessed value, or not at all.

And what of those out there - naively unaware of the current market dynamics - currently looking to buy a house.

Some sellers are salivating at the prospect.

The Financial Post is suggesting another round of mortgage wars is on the way.

Could it be that there are some house horny young couples out there who can be induced into the market in the next few months?

I can't imagine anyone doing so, but you know there are some foolishly itching to exercise a recent mortgage approval; a move that will trap them in what is increasingly a falling market.

They will think they are getting a good deal.

Their realtor will say "it's a great time to buy" (translation: "it's a great time for me to make a commission.")

They will rationalize their deep desire to own their own home and it will overwhelm the common sense of all the mainstream media articles out there right now warning of a looming housing collapse.

But these buyers will be catching a falling knife... and making the most disastrous financial decision of their lives.

What else can you do but point out the emerging trend and hope they see the reason behind your cautionary words?

For everything there is a season... and buying right now is 'out-of-season'.

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Whistler at 65% off now?

Back at the end of March, we talked about Whistler hotel condominiums selling for 50% off their original issue price.

Well... the plunge continues.

This unit in the phase 2 development of the Blackcomb Lodge in the Whistler Village has had it's asking price slashed again.

According to the realtor, these lofted studios were selling at $369,000 at their 2005 launch after a $5 million dollar upgrade to the lodge.

And despite the fact they sleep 6, include a fully equipped kitchen, indoor swimming pool, hot tub, sauna, ski concierge and that the strata fee includes all utilities, phone, cable & hydro... the current asking price is now a stunning $240,000 off the original 2005 price.

That's a 65% haircut on the original investment... and no buyer in sight!

Seems the downhill slide in Whistler continues.

(hat tip to Makayla)

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The Euro: which way will it go?

Is the Euro doomed?

The BBC broadcast a documentary today about the euro crisis. Their conclusion? The powers that be will prop up the euro at any cost because the alternative is financial Armageddon.

Contrast that with this article in the UK's Telegraph newspaper which tells us Lloyd's of London is preparing for a Euro collapse.

The chief executive of the multi-billion pound Lloyd's of London has publicly admitted that the world's leading insurance market is prepared for a collapse in the single currency and has reduced its exposure "as much as possible" to the crisis-ridden continent.

Richard Ward said the London market had put in place a contingency plan to switch euro underwriting to multi-currency settlement if Greece abandoned the euro.

In an interview with The Sunday Telegraph he also revealed that Lloyd's could have to take writedowns on its £58.9bn investment portfolio if the eurozone collapses.

Europe accounts for 18% of Lloyd's £23.5bn of gross written premiums, mostly in France, Germany, Spain and Italy. The market also has a fledgling operation in Poland.

The contingency planning comes as German politicians piled the pressure on Greece ahead of elections on June 17.

A conservative member of German chancellor Angela Merkel's cabinet said today Germany would not "pour money into a bottomless pit".

On Sunday, Swiss central bank chief Thomas Jordan admitted his country is drawing up an action plan in the event of the euro's collapse.

Meanwhile Jim Sinclair offered the following viewpoint on his blog today:

The critical decision at the G-8 meeting and several of the bilateral meetings that took place on the sidelines of the Camp David gathering centered on the decision to plunge ahead with the bailout of the European banks in an effort to save the Euro system, with Greece still inside. President Obama is terrified that a financial meltdown of the Euro system will spill over into Wall Street and result in his losing the November elections. Behind the scenes around Camp David, Christine Legarde put the IMF squarely behind a bailout of the European banks, with the full backing of the Federal Reserve and Treasury in the United States to boost the leveraged lending of the European Central Bank (ECB) to prop up the European banks. ECB will take junk bonds and other vastly over-priced assets as collateral for loans to the Spanish, Greek and other European banks. This will offset an additional estimated $500 billion in new write-offs by bondholders of Greek debt.

The bottom line is that if Greece leaves the Euro, the contagion will spread overnight to Spain, Portugal, Ireland, and, perhaps, even Italy. So, the IMF, the Obama Administration and the ECB are all on board to further delay the reality of the financial and banking crisis through hyperinflationary measures. The idea is that the situation will take many months to fully play out, and Obama and his re-election team hope that the system will hold together past the November elections.

Which way will the Euro go? And how will it impact Canada?

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What will be the total inventory increase in June?

Recently we played a speculative game about when will we hit the 20,000 total listings mark for Vancouver Inventory (a summary of the predictions will be posted tomorrow).

But what about monthly inventory?

On the right we keep track of the total inventory numbers published by Paul B each and every day as well as keeping month end totals.

On January 3, 2012 we started with 10,671.

On the close of the first day of the next month, Feb. 1, 2012, we had a total of 13,368 (an increase of +2,727 from Jan. 3rd)

On March 1, 2012: 14,912 (+1,544)

On April 2, 2012: 16,o74 (+1,762)

On May 1, 2012: 17,122 (+1,048)

And the totals for May currently stand at 18,800, an increase of + 1,678 so far this month.

In fact May is on track to contain the 2nd highest increase in Inventory this year.

So what about June?

Anyone care to take a guess at what will be the total increase/decrease in listings at the close of the day on July 3rd, 2012?

(July 2nd - the first monday of the month - is a holiday in lieu of the Sunday stat so not totals for that day).

Will June eclipse May or will the pace soften?

If you don't have a Blogger ID, please attach a moniker so we can identify the prediction.  All submissions entered in the comments section (or via email) before June 1st will be considered.

So what say you?

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