Tues Post #2: Peter Schiff on Bernanke's recent public lectures

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Tues Post #1: Another 'peak' at what's happening in Whistler

Time for another trip up the Sea-to-Sky highway to see what's happening in Whistler.

The picture above is of Greyhawk Condominium.

Specifically unit #303-3317 Ptarmigan Place, Whistler BC.

Unit #303 is a 2,200 square foot “penthouse”. Designer furnished and equipped, it was described as an open floor plan, 2 story, with vaulted ceilings, 3 bedroom plus full office property with the best of everything: full house sound system, TV’s in every room, electronic blinds, air conditioning, top of the line appliances, steam shower, jetted 2 person tub, rare and unique wood species, travertine tiles, granite counters, heated floors plus an HVAC system.

Located in prestigious Blueberry Hill steps away from the Valley Trail and the Whistler Golf Course, the property was purchased in 2007 by an Okanagan resident for $1,730,000.

It was listed in early 2009 for $1,995,000.

According to zrh2yvr who posted over on Vancouver Condo Info, the property sold this week for $1,250,000.

That's $745,000 less than the asking price, $510,000 less than what the owner paid for it in 2007.

It's an example of a wise 'investor' cutting his losses before the real crash takes hold in earnest.

Would you have the guts, or the brains, to do this?

Or would you hold out until you got 'what your property is worth'?

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The Illusion of Housing as a "Great Investment" - Robert Shiller

Still working on 'The China Trigger' topic I mentioned in the last post.

In the meantime, some interesting comments made by Yale professor Robert Shiller about real estate.

He says that historically home prices have not been a good financial investment - they essentially tracked the rate of inflation from 1890 to 1990.

But during the housing boom of the 2000s, the mind-set of most Americans (and Canadians) was that housing was a great capital-gains-generating investment.

Collectively we fell into that illusion and it created this spectacular bubble. We have to reflect now that we had a kind of crazy mind-set in the last couple of decades, and we have to get back to thinking like people used to think. Housing is a depreciating asset, goes out of style; it's going to end up in the wrong place. People will want to live somewhere else, so it's not any automatic capital gain.

And how did we fall into that illusion?

How did we get this idea that home prices only go up? There are a number of elements of it. I don't know where to start. One of them is that we had a lot of inflation. I'm talking psychology now. You're asking how we got into a wrong view. In the 70s and 80s, we had a lot of inflation and then Paul Volcker came in and stopped it. So inflation has been declining now for 30 years, and we've lived our lives in that environment.

But we still encounter examples when someone says, "My grandmother just sold her house." Especially five years ago, say this happened five years ago. Grandma sold their house for $300,000, and do you know what she paid for it in 1952? It was only $30,000 or something like that. So it went up ten-fold. Now those stories are in all of our repertory, but when you really look at it, what was just consumer price inflation over that period? It was something like that. She really didn't make any money off of it. And she was putting money into it year after year and maintaining it. So we forget that. It's that kind of bias.

Also I think that we're influenced not by population growth so much, but by the sense of the growing wealth of the world and the finiteness of land, and we mistake land for…well that's another thing that happened. We started to think of urban real estate as land. And that's a change in our thinking.

If you go back hundreds of years, there was land speculation in this country, but there was no housing, not much urban housing speculation. So it was common sense. Talk to George Washington, if you could, all right? George Washington was a land speculator, and he owned Mount Vernon as among his speculations. But for George Washington, speculating in real estate meant buying thousands of acres for a shilling an acre or something like that. Not buying a house in the city, so we've changed. It's become much more proliferated as something that everyone does. You buy this house and it's going to make you a lot of money.

It's also just the bubble itself -- the Fed had very loose policy and that encouraged the bubble and prices were going up fast, so that proliferated stories about real estate as an investment. Anyway, that's a complicated analysis of our psychology. But it is a unique phenomenon, really, that it was so national. And it also reflects our better communications now. It wasn't as easily so national in the past.

A video clip of the interview in which Shiller made these comments is on the website Motley Fool.

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Globe and Mail: What will make the housing boom go bust? 'Greed'

Today's edition of the Globe and Mail newspaper contains an article which asks: What will make the housing boom bust? 'Greed'.

The article notes that speculation in Canadian cities such as Vancouver and Toronto is wildly out of control, and states that the real-estate bubble in this country is overdue for a correction painfully similar to the one south of the border... a theme all too common for blogs like this one.

The Globe speaks to Ben Jones, the Arizona-based accountant who launched the  Housing Bubble Blog in December, 2004. At the time he was one of only a handful who was raising concerns about the vulnerability of the U.S. housing market.

Now, almost eight years later, Jones still sees signs that the real-estate mania is far from over in America. As part of his blogging experience, he keeps tabs on Canada and sees a lot of pain in our future.

Says Jones:

From what I can tell, the condo markets in Toronto and Vancouver are even crazier (than the US was). Prices are still going up and the participation of so many foreign investors is indicative of a more vulnerable market than in, for example, Miami in 2004. And that was a complete disaster.

China probably has the largest bubble in the world and when it blows, it’s going to shake the globe. There have been housing bubbles before, but never all over the world. Every time I hear people talk about the housing bubble in the past tense, I cringe.

Jones casts his eye at the Canadian market, sees all the speculation, sees the huge debt ratio Canadians have amassed and has this to say about our current real estate prices:

Artificially low interest rates and lower mortgage standards have enabled your bubble to do a head fake and push even higher. The same thing happened in Australia and China. You guys should be further along the road to recovery than us and you’re not. I would chalk that up to your government policy. Any objective economist should be able to see what’s going on in Toronto and see that it’s a disaster in the making. In the United States, everybody knew that it couldn’t go on forever, but at the root of a mania is the belief that the trees will grow to the sky.

And what of all the stories about the Chinese speculating with their money by buying Canadian real estate?

I posted the recent story about that Toronto house that sold for $400,000 over asking price. And it was just a bungalow. It really reminds me of 2004 when Californians were spreading across the whole country, buying property left and right, using their equity from the California bubble to create bubbles in other areas, like Las Vegas. We called them “equity nomads.”

China probably has the largest bubble in the world and the fact that they’re using their bubble wealth to drive up prices in Canada is the rolling-bubble phenomenon playing out on a massive scale. If the real-estate market collapses in China, are they going to close on all these condos they’re buying in Toronto? I kind of doubt it.

It’s even more complicated, because the Australians have a pretty big bubble and their resource-based economy is largely dependent upon China. It’s a house of cards: China goes down, Australia goes down and they drag down the market in Vancouver and Toronto, which trickles down to the U.S. That’s the danger people are willing to ignore when things are going up.

But everyone says it’s different here.

Ask yourself, why are the Chinese buying all these properties in Toronto and Vancouver? To make money. Yes, they say they are really nice places, but they say that about every bubble market.

Florida is a really nice place. California has great weather. I don’t think that justifies paying $400,000 over asking. Toronto was a really nice place 20 years ago, but nobody was paying half-a-million dollars for a condo.

It forms what I like to call The China Trigger and tomorrow or the next day I will discuss this is greater detail.

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Is Vancouver's Real Estate Situation comparable to the Titanic? - Updated

Faithful readers know we have been charting the number of real estate listings in Vancouver with keen interest this year.

Rest assured that local realtors are also looking at these numbers... with growing concern.

Today local Vancouver realtor Larry Yatkowsky casts his eye at the burgeoning listings of properties in Greater Vancouver and wonders if comparisons can be drawn to the voyage of the ill fated Titanic.

Yatkowsky posts the graph above (click on image to enlarge) and observes that the:

"total listings in Vancouver, Fraser Valley and Chilliwack (combined) continue to climb. In a matter of days the Titan accumulation of listings may eclipse the all time high achieved last year."

Yatkowsky notes that at this time last year, total listings were 21,705 units. The all time record for total listings was achieved on October 1, 2011 when the market had a record high point of 25,248 listings.

Yesterday total listings exceeded the April 12, 2011 number by 2,417 units (24,122).

"In recent days we have seen total listings leap higher by 200 and more units per day. Assuming this accumulation continues, it seems feasible to suggest that Total Listings will surpass last years record this month – a full five months ahead of last year."

The concern, of course, is that the heavily anticipated Spring Market is failing to materialize.

Yatkowsky suggests that, by themselves, such a load of listings might not sink the market. But when the weight of dismal sales from the non-existent Spring Market (which in Vancouver is currently recorded as -29.2%) is added to the equation, the outlook becomes increasingly questionable.

Says Yatkowsky...

"It is suspect that the combined weight of both an extraordinarily high number of listings and depressed sales may not need the services of an iceberg to cause upending calamity. Indeed, as many have warned, it may only be a small ripple of a change in interest rates that will be needed to destabilize Vancouver Real Estate’s Titanic voyage."

Without a surge in sales to dampen the listings surge normally provided by the Spring selling season, the onslaught of listings over Spring, Summer and Fall could swamp the market.

Is the tipping point near?

Meanwhile Cameron Muir of the BC Real Estate Association has released more bearish news.

Muir paints the dismal March sales in dollar volume of homes sold through Multiple Listing Service.

In BC that 'dollar volume' declined 26.5% to $3.8 billion in March compared to the same month last year.

A total of 6,882 MLS residential unit sales were recorded over the same period, a decline of 20%.

Said Muir:

"The spike in consumer demand recorded a year ago was not repeated last month. A marked increase in high-end home sales a year ago pushed up unit sales and skewed average prices higher."

Oh? Isn't that 'spike in consumer demand' called the Spring Market?

It's also curious that at this time last year, Muir wasn't pointing that high end sales were misleadingly skewering prices higher. He seems to have left this tidbit out when those average prices last year were trumpeted in press releases. Weren't they held up as evidence of the strength of the Vancouver market?

Muir goes on to say:

"... so it’s no surprise to see fewer home sales and lower average prices in March of this year.”

I bet it's a surprise to all of those who thought HAM was supposed to keep out inflated home values high forever.

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Macleans puts household debt and the Bank of Canada’s anxiety levels in a graph

In the graph above, Macleans Magazine charts Canadian's debt-to-income ratios, alongside some increasingly alarmed quotes from BOC governor Mark Carney or other Bank officials.

Macleans notes that it has been years since Bank of Canada governor Mark Carney first started warning about Canadians piling on too much personal debt.

Rising household debt, after all, has been the most dangerous byproduct of his low interest rate policy, which was initially designed to help Canada sprint out of the Great Recession.

Later this low interest rate policy was partly dictated by the need to help sputtering Canuck exports.

Right from the get-go, though, Canadians haven’t been listening.

As the situation has become more dire, so have the Bank’s warnings.

Today Canada’s ratio of household debt compared to disposable income is inching toward 160%, the peak seen in the U.S. and the U.K. just before their respective housing busts.

Macleans also notes that Carney is still sounding those warnings. Last week, he finally raised the prospect of raising interest rates, cutting people off from all that cheap money, even as the Fed down south sticks to near-zero rates.

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Interesting Inventory numbers yesterday

Off to the right you will see the inventory and sales numbers for yesterday.

403 new listings with only 159 sales and the stunning trend for this year continues: every single day this year listings have outpaced sales.

Total Inventory climbed by another 130... it's gone from 10,671 on January 3rd and sits at 16,475 today.

Even more stunning is the fact this comes on a Tuesday after a glorious, warm, sunny long weekend.  As one posted over on Vancouver Condo Info noted, it completely debunks the excuses heard earlier in the year about bad weather holding off purchasers.

The spring market is here but the buyer's are not (although some will argue the sales numbers are published with a delay and that this weekends true sales figures won't be reflected until later in the week).

Regardless, the trend in undeniable.

And speaking of trends, UBC currently has a stunning 215 properties on the market. The infamous Hampton Place (home of all the anti-Hospic campaign) has 45 properties alone for sale.

Like Ian Watt said yesterday, the next quarter could prove to be very interesting. People are not really motivated to buy right now. And so far sellers aren’t willing to drop their prices, and they’re not motivated to sell right now. But of the two, it's highly unlikely buyers will become more motivated because mortgage rates are already super-low.

What will be the trigger that affects prices?

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Tues Post #2:The Real Estate standoff

Local realtor Ian Watt on the current 'standoff' between buyers and sellers of Vancouver Real Estate.

Downtown condo sales are down dramatically, 23.5%. In 2011 Jan-Feb-March, we had 808 sales; in 2012 Jan-Feb-March, we have 619 sales. We used to have about 11.5 sales per day, now we have 8.5 sales per day...big changes. But the pricing, as far as condo sales is concerned, hasn’t changed all that much... Our listing counts are only up 5%; not a big deal right there... But it goes to show you that people are not really motivated to buy right now... And it goes to show you that sellers aren’t willing to drop their prices, and they’re not motivated to sell right now. So, it’s a bit of a stand-off. Only time will tell if this is going to impact pricing... if people become more motivated to buy, or more motivated to sell... but as far as things are concerned right now, it just means activity is down... Eventually, if this continues, it’s going to impact prices... and I can’t see it going up anytime soon... I can’t see buyers becoming more motivated because mortgage rates are already super-low... and sellers don’t really want to sell all that much, because if they bought in the last two years and they have to sell now they’re going to take a loss. So, it’ll be very interesting to see what happens in the next quarter.

Thanks to VREAA for taking the time to transcribe the key points.

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Tues Post #1: They're everywhere, they're everywhere (but you will be surprised to learn who 'they' are)

Does anything define the California stereotype quite like this Santa Monica police car outfitted with a surf board?

Spending time travelling down the Pacific Coast Highway in Southern California, it wasn't hard to leave the dreary rain of Vancouver behind.

And how could it not be so?

Temperatures in the high 20's, low 30's Celsius. Warm, sandy beaches. Cops who carry surf boards when they go to work... mmmm.

Even when you return to the spring type of day we had yesterday here at home, it's hard to think of the Village on the Edge of the Rainforest as the 'Best Place on Earth' (our provincial government's PR slogan the past few years) after having spent almost a week in the California sun.

Seems I am not alone as a Canadian with that sentiment... but I'll come back to that.

I couldn't help but notice that even in SoCal, there were constant reminders of the local real estate scene.

Helicopter's abounded where ever I went.  Your faithful scribe constantly looking skyward to see if any were yellow and carrying Cam Good with a load of eager Asian real estate buyers.

Why would I think this?

I was in California but one day when I opened the USA Today newspaper to an article telling me that HAM was everywhere in America and buying up real estate:

Buyers from mainland China and Hong Kong are snapping up luxury homes, often paying cash, in major U.S. cities such as New York, Los Angeles and San Francisco. They're coming by the dozens to buy foreclosed properties in downtrodden cities in Florida and Nevada. Chinese buyers are even starting to snap up pricey commercial buildings and hotels in Manhattan.

Yes... it's official. HAM has taken on the same spectre as the Japanese in the mid 1980's. 

And even in California you can't escape articles that Asians with money are snapping up everything.

But an interesting tidbit leaped out at me. Seems denizens of the Land of the Red Dragon aren't the main source of Hot Money gorging on real estate in America.

In the U.S., the Chinese are now the second-largest foreign buyers of homes, behind Canadians, accounting for $7.4 billion of sales in the 12 months ended March 2011, up 24% from the previous 12 months, according to the National Association of Realtors.

Canadians are the largest foreign buyers of homes in the United States?

Hmmm...

Maybe Cam Good should consider flying Vancouverites down the California coast instead of Asians around B.C.?

But if Canadians are plowing themselves into record levels of debt, and they are doing this buying up real estate both at home and in America, it makes you wonder just how devastating things will be when the real estate bubble pops in earnest in our country. 

When the crash comes,  it's not just going to be felt here in Canada.

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Away for a bit...

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Mon Post #2: More on the latest Cam Good/Global TV scam - updated

In our earlier post today we made note that our good old buddy, Cam Good, who was in the news promoting selling Condos in a fashion similar to the wildly successful Groupon coupons.

Cam gained notoriety last year when he hired a helicopter and flew supposed realtors from China around White Rock promoting condos he had for sale there. The suggestion was HAM was moving south to White Rock as well.

Turns out those realtors from China were actually Canadian realtors of asian descent from Vancouver.

Is Cam up to similar tricks again?

Did you note the interview with one of the prospective investors, Tara Fluet? That's a screenshot of her above from the Global TV interview.

Tara is identified as a ‘White Rock Investor.' What does she have to say about her experience?

“With Groupon, and the way it exploded, you do get great deals on there, so, why wouldn’t it work with condos, the developer here wants to sell the last few units, so if 20 people come in and buy them all at once, they’re obviously going to get a better deal than coming in one by one.”

To refresh your memory, here is the clip:

Interestingly if you a google search for Tara Fluet you get the following:

Apparently she's works as one of the realtor 'sales representatives' for Cam Good in the marketing of those very White Rock condos. (hat tip VREAA).

One of the commentors on the thread at VREAA said:

I phoned Global TV to complain about this and spent 10 minutes trying to point out why the lack of information about Ms. Fluet’s connection to Cam Good might mislead viewers into thinking her views as an “investor” were impartial.

The woman I spoke to at Global could not for the life of her understand what I was objecting to, even though I tried repeatedly to explain it. In fact, she grew indignant. She insisted that if Ms. Fluet is an investor, it was perfectly appropriate for her to comment even given her connections to Cam Good.

Faithful readers will recall that while discussing Marine Gateway, I mentioned that I had been told it is common practice to strike a deal with realtors that, if they want to be an exclusive agent to sell in a development, they had to pick up 5 to 10% of those options each. Once the development is finished, and all the developers suites are sold, then those realtors could sell the units they picked up to be a part of the sales team. It means that these exclusive agents could by buying up half of the pre-sales at an offering themselves.

As a sales representative for Cam Good's White Rock development, she probably had to pick up a few units herself.

Technically that makes her an 'investor' and, as far as Global TV is concerned, can be portrayed on their broadcast as an ordinary investor.

Riiight!

Real estate investor? Or real estate con artist?

You decide.

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Mon Post #1: Helicopter Cam shifts to Groupon for Condos

Always in search of a gimmick, 'Helicopter' Cam Good shifts to marketing condos the Groupon way.

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Median prices down $300,000!!

Statistics for the month of March are starting to trickle in.  As we mentioned yesterday, despite banks offering the lowest interest rates in history, March has been a harsh month.

Inventory is the highest it has even been in the month of March. Total sales are 28% below what were recorded in March 2011, the second lowest total in 10 years.

Over on the blog Vancouver Condo Info, the month's stats are being discussed with interest on the following area's that have been supposed stronghold's for Asian buyers:

In West Vancouver it is reported there are 1007 listings with only 113 sales (down from 180 sales).  The most shocking statistic however is that the median price is now down $300,000.

In Richmond 1081 total listings with 63 sales (down from 141) and a drop in the median price of $100,000.

On the West Side of the City of Vancouver of the 476 listings, there were only 57 sales and a drop in the median price of $300,000.

West side realtor Larry Yatkowsky described the Vancouver situation as "loaded with listings, lacking with sales and falling prices."

Yatkowsky cautions that this story still has a ways to play out and we agree. But so far the Spring market is  starting out as a bust.

Mind you, those 120 day guarentees on last month's 2.99% bank mortgage offering are still out there.

On the other hand, as the Vancouver Sun reports, although there are record low interest rates available with record high inventory available at this time of year, more than half the people surveyed don't believe that it's a good time to buy.

And that consumer uncertainty will almost certainly continue to be reflected in sales figures.

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March 2012 Real Estate Sales

March 2012 was an interesting month for our real estate bubble here on the Wet Coast.

With another go at the lowest interest rates in history, there were some expectations that the second half of March might see a resurgent rise in sales to rescue what was shaping up to dismal month.

And in some ways there was.  Sales did rise, but not enough to do anything but put lipstick on a pig of a month.

Total sales for March came in at 2,934 units sold and total listings surged in March by 1,386 and total inventory now sits at 16,298 (up from 10,671 at the start of the year).

This is a historic high Inventory level for the month of March.

The sales totals are 28% below what were recorded in March 2011. This is the second lowest total in 10 years (2009 was the worst with 2,265).

Meanwhile early updates from West Vancouver, courtesy of Larry Yatkowsky (and hat tip to Makaya), show that West Vancouver had a horrible month.

Homes in the HAM (Hot Asian Money) hotbed on the North Shore have their average price down 7.9% and the median price down 13.6%... in only one month.

March now joins January and February as horrid months for R/E sales in the Village on the Edge of the Rainforest.

Will the Spring Market be a no-show this year?

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Marine Gateway Sign Watch - Day 13

So it's been almost two weeks since the supposed complete sell out of pre-sales of all 415 condos at the Marine Gateway development.

Since our original post and then second post on the topic, we have eagerly awaited some notice being put up which announces the success of the endeavour.

But as we enter Day 13 of the "MG Sold-Out Sign Watch", we can't tell you that we have seen anything yet.

As you can see by the picture above which was taken this morning (click on image to enlarge), not only are these still no 'Sold-Out' signs, the billboards promoting the development are being dismantled completely.

Now unless the Stonehedge-style collection of posts which remain are some sort of clever abstract sign, it looks like there is still no evidence on site that the historic sell out took place.

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The Boomer Trigger

As we wait for news of the Federal Budget, an interesting scenario for you to ponder.

Tuesday's post made reference to Vancouver realtor Larry Yatkowsky and his website comment that a number of his colleagues believed that the Vancouver Real Estate market is currently in a state of  "turmoil."

All the negative reports about Real Estate in the mainstream media are combining with an absence of Asian buyers to severely dampen sales activity.

Tuesday's post also referenced early March data (unconfirmed) from Richmond suggesting that there are 1,000 houses for sale in the previous HAM hotbed with only 80 sold so far this month. This is a profound drop from the approximately 220 sold in each of March 2011 and 2010.

Yesterday Yatkowsky, in his monthly series of community snapshots, profiled Richmond and confirmed the trend of slowing sales with data available to him.

His description: March R/E sales in Richmond are best described as 'sliding into one of the communities deep ditches.'

R/E sales in Richmond have been sagging for a few months now. And for those properties that do sell, it seems that they only do so because sellers are prepared to move significantly on price.

Such is the case with this property at 6231 Gibbons Drive in Richmond.

This 3,500 square foot house sits on a huge 21,857 foot lot in the prestigious Terra Nova neighbourhood.

It's been on the market for a long time, originally listed on February 28th, 2008 for $2,388,000, the home competes for buyers with it's neighbour at 6251 Gibbons Drive (listed for $2,480,000).

Being side by side, the fact that both properties were simultaneously for sale was promoted as a selling point as you can see in this listing for 6251 Gibbons Drive (it makes note of the fact that the neighbouring 6231 is for sale too).

And why not? With almost identical asking prices, perhaps both could be picked up as a package deal, ideal for a speculator looking to develop. The massive lot size makes it a prime candidate in the high end Terra Nova area.

But the property has languished on the market for years now.  

Even at the height of all the HAM insanity, which seemed to bring other Richmond properties in line with it's high asking price, 6231 failed to sell.

Houses like 6231 represent what I like to call 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 $1.5 - $2.5 million dollars.

Thus the Boomer Trigger... trigger the sale of the one significant asset they 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.

6231 Gibbons Drive represents the perfect example of this... and why the Boomer Trigger could burst the massive Greater Vancouver housing bubble.

The red hot real estate market in the Lower Mainland has started to turn. Richmond has stagnated. Down 10% month over month. 

Concern is mounting among the Boomers:

• Media reports have covered the stagnating markets on Vancouver Island.
• Kelowna's mounting foreclosure situation is on the radar.
• Whistler hotel condos are off 50% from their peak.
• The Governor of the Bank of Canada has been sounding warnings for over a year now.
• Widespread media reports are now predicting the housing bubble is about to burst.
• Expectations are that Finance Minister Flaherty will introduce a bubble busting budget to trigger a soft landing in real estate.
• The banking regulator in Canada has proposed highly restrictive loan regulations.

And with MOI treding up, inventory trending up, banks withdrawing capital from mortgage lending, Asian money disappearing as China engineers it's own soft landing in real estate and CMHC tightening up thanks to OSFI; it’s all there.

A perfect storm.

Enter the Boomer Trigger. Home owners, like the one at 6231, probably see the writing on the wall. It's time to act and strike a deal before it is too late.

I am told 6231 Gibbons Drive sold this week.  

After lowering the asking price to $1,888,000, the property sold for $1,428,000. That's $960,000 off the original asking price or 40% lower.

It's still a windfall for the owner.  Sure... it's not the $2.4 million he originally insisted upon. But unlike the condo at the Four Seasons Whistler hotel which sold for 50% off the original $1.1 million purchase price, this house was probably bought for only $60,000. 

With that perspective, $1.4 million is a massive appreciation over the original purchase price. 

And coming down almost a cool $1 million off the asking price to make the sale isn't all that hard to do once the psychological barrier of what the property is 'worth' is overcome.

It's the Boomer advantage.

Look for more and more Boomers to pull that Trigger if conditions continue to stagnate as the year moves along.

And if they do, market 'turmoil' will quickly become market 'panic'.

In fact 'panic' doesn't even come close to describing what could evolve.

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The Noose tightens... Whistler is down 50%

It's fascinating when you talk to people about real estate in Vancouver. No one can conceive of a 25% drop in prices, let alone 50% or greater.

If you are one of them, faithful reader, take a moment and cast your eye up the Sea-to-Sky highway to Whistler.

You remember Whistler.

Co-host site of the 2010 Olympic Games, best ski mountain in North America. Was it only 6 years ago the real estate furvor started taking off there?

Sites like Whistler real estate online.com hailed the 'can't-miss' money making opportunities that abounded.

"Real estate Whistler is very popular and in demand and will continue to provide all types of buyers, sellers, and investors with opportunities... Get involved with Whistler properties before the 2010 Winter Olympics.

Have you seen real estate Whistler recently?... There are many different types of properties available today on the market for real estate Whistler. The price ranges vary from as low as $100,000 to over $10 million. Don’t let real estate Whistler values keep you away though as there continues to be a lot of interest in the area. Real estate Whistler will boom through the 2010 Winter Olympics and astute investors will see their profits soar."

Here's a screen shot of that site for the archives incase it disappears (click on image to enlarge):

So let's check in on Whistler. How are those "astute investors" making out with those "soaring profits"?

Not so good apparently.

Headlines in the local news on March 1st tell us real estate is crashing hard: 'Hotel condominium units hit hard by current economy - Some units selling for half of original value.'

Condos selling at 50% of their original value? Say it isn't so.

Quoting from the article:

Those who own a condo unit in a Whistler hotel are sitting on great potential, but at the moment the units are not showing great value.

Real estate consultant Denise Brown with Re/Max Sea to Sky Real Estate reported that a unit that originally sold in the Four Seasons Whistler for about $1.1 million was recently resold for only $520,000.

"We've seen the prices come down significantly," she said.

The article is a great read for those interested in what happens to speculative dreams that turn to a nightmare.

We hear from Pat Kelly, of the Whistler Real Estate Company, who tells us that when condo hotel units first became available in Whistler expectations were high.

"The economic climate in Whistler and around the world was much different and the number of destination visitors to Whistler was larger. People were buying on vision. Revenue has not met expectations in the last few years."

According to Kelly, the lower than expected revenues produced through hotel condo units have combined with exchange rates, high strata fees, high property taxes and fixed overhead costs to drive prices down.

That last sentence of Kelly's summarizes the whole speculative mania:

"People were buying on vision. Revenue has not met expectations in the last few years."

Meanwhile RE/Max's Denise Brown observed that the people who were relying on the hotel condo units to produce high returns beyond covering all the costs associated with owning this type of property are getting out of their investments. And they're clearly willing to take a 50% loss to get out of those investments now before it gets worse. There simply aren't the buyers today who are willing to make the same mistakes those earlier 'astute' investors made.

Said Kelly:

"People aren't willing to spend as much in Whistler as they were a decade ago. It's not anything wrong with Whistler or that Whistler is worth less. It is just that people are prepared to spend less."

The collapse we are seeing on Vancouver Island and in the Okanagan has now crept to within a mere 90 minute drive up the Sea-to-Sky highway from Vancouver.

How much longer until we start to see these same comments about real estate here?

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Tues Post #2: On the Price of Gold

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Tues Post#1: Turmoil?

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

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

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

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

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

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

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

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

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

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

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

It's all about perspective, I guess.

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Poster Child - Updated 2

Last Saturday I posted aboutt the tsunami of condo pre-sales that are due to come onto the Greater Vancouver Real Estate market in the coming months.

Ozzie Jurock made reference to it on his Face Book page and described the spring/summer condo market as:

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

In an OpEd piece in the Vancouver Sun, Jurock noted:

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.

The battle for condo market sales is about to become very intense. And with 8,000 pre-sales coming on the market, a battle within a battle is sure to emerge.

Clearly the first shot was fired by condo king Bob Rennie with the launch of Marine Gateway last Saturday.

As we noted in Thursday's post, Rennie marketed the development around a whole new theme shifting the mantra of "location, location, location" to one of "transportation, transportation, transportation".

In the months ahead, he will be expanding on this theme as he goes to market with 3 more developments along the rapid transit system:

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

The transportation theme is going to be part of a major marketing strategy weaved among a number of initiatives which attempt to put Rennie's clients at the forefront of the coming tsunami wave of product.

It's going to be a very,very tough market.

Compounding the challenge is all the negativity that has been prominent in the mainstream press recently.

• There have been countless 'housing bubble' stories in the press.
• Both the Bank of Canada and the Finance Minster continue to make bearish statements on debt, the real estate bubble and interest rates.
• The nation's biggest banks are openly calling on the Federal Government for tighter mortgage regulations.

And all this has contributed to several months of rapidly declining real estate sales.  Let's face it, who wants to catch a falling knife?  Especially when everyone seems to be saying that very sharp knife is going to fall.

That's why we cast a suspicious eye on the sell out of Marine Gateway in four hours on Saturday.

Witness who were there have commented on other blogs that there were only about 110-130 people lined up for pre-sales (Global TV covered the sale saying it was less than 150). Yet all 415 units sold out?

Given the shenanigans we have seen from the real estate industry over the past year, things like:

• realtors snapping up pre-sales to market later,
• development marketers hiring people to stand in line, creating a 'buzz' for a pre-sale,
• staged helicopter tours supposedly flying wealthy Asian buyers around new projects,
• and realtors bringing in 'surprise' competing parties just before a couple is about to make an offer on a house (thereby pressuring them to act right away) - just to name a few.

... it makes you wonder about the legitimacy of the supposed 'sell out' of pre-sale contracts at Marine Gateway.

Not to suggest there's anything illegal happening here.  No doubt all the units are contractually spoken for.  

But how many went to realtors whom had inside connections and how many were sold to actual buyers/speculators? How many units were going to go unsold on Saturday but were suddenly "spoken" for?

Perhaps those 415 presales (options to purchase) weren't all actually available for sale.

It's my understanding that most lenders will ask that 40 to 60% of the condominiums in a development have an option to purchase before the bank will fund the project. I am told it is common practice to strike a deal with realtors that, if they want to be an exclusive agent to sell in the complex, they have to pick up 5 to 10% of those options each. Once the complex is finished and all the developers suites are sold, then you can sell yours. It means that these  exclusive agents could buy half of the pre-sales at an offering themselves.

In this way if 130 people show up to buy, you could have a sell out because half of the pre-sales are sold to the exclusive agents. It's a sell out, but it's just pure theatre.

The stakes here were simply too high for anything but a sell out.

The huge marketing effect to be leveraged on the Rennie developments coming up later this year that would be bolstered by a record breaking sellout at Marine Gateway cannot be underestimated.

There hasn't been a sell-out of pre-sale condo unit offerings in Vancouver in over six years. 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.

With a 'the sell-out is back' tagline, what an opportunity to market the next three projects.

Marine Gateway can be held up to potential buyers of the next three rapid transit line projects and they can be told 'buy now before you are priced out forever'.

When you consider this, how many of you out there (if you have your own real estate development company) wouldn't snap up all 415 pre-sale contracts (and sell them over the next 3 years as Marine Gateway is constructed) as a spring board to launch 3 other developments in this type of intense competitive market?

Personally I think the events at Marine Gateway were just that... pure theatre.

Either way, one thing is certain.

Those speculators (and exclusive realtor agents) who snapped up these units will either profit immensely or founder badly on this effort. A huge gamble is being taken here.

As Ozzie Jurock noted on the weekend in the Vancouver Sun,

"many made a lot of money by 'flipping' pre-sale contracts in the past, but the rules and risks are much different now."

Ozzie's right.  The rules and risks have indeed changed. And if the restrictive mortgage regulations proposed by the OSFI are implimented, the game will change even more dramatically.

If that happens Marine Gateway could well become the Lower Mainland's speculative Waterloo.

Time will tell.

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Real Estate correction predicted by MSM

Global TV's newscast today did an piece on a looming real estate correction and started off:

"The Bank of Montreal is putting a scare into anyone heavily invested in Real Estate or heavily in debt."

Predictions of a correction in Vancouver Real Estate have now gone mainstream.

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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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