Thursday, March 29, 2012

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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  1. Ever seen an avalanche happen in real life? We're going to get the real estate version of it here in Vancouver.

  2. If that scenario plays out, boomers will climb over each other to slash their asking price to make the sale. You're right, it's the perfect storm.

  3. Holy crap Whisperer... you are right, this could create the perfect storm.

  4. If bought 40 years ago at say 50k and sold for about 1.5m thats a compounded 9% yearly return? Not including prop taxes, interest, maintenance etc....
    Reasonable as an 'investment' but not out of this world returns.
    Just saying... people don't look at the raw math sometimes.
    Somebody go ahead and factor the other costs to get the final return, it would tax my puny brain far too much.

  5. @whisperer - good post and great metaphor with "Boomer Trigger" on the deflation. I 100% agree with where this is going. By definition of a bubble there are a good number of people who have come to be believe in the inherent "value" of their real estate. With prices set at the margin, by the lowest sellers, these people will unfortunately tend to follow the market down, never lowing enough to cynch a deal and only look back at what could have been..By that point, the market will have substantially imploded.

    To that point - @jaksun - thanks for the Math. As a conversation point IMHO sustainable rate of growth for housing is a point or so more than GDP - so 4-5% say. You've demonstrated another bubble metric. That rate would put those homes in the $300-$400k range today, perhaps slightly more as Richmond's become more diserable over time. Funny enough, by the looks of them, that's just about exactly what a person could buy something similiar for in the suburbs of my new home town of Seattle. The funny looks people see when coming to visit seeing new homes in the 300's and really really nice ones in the 500's is telling. Even more so is the discussion that follows about all the reasons it's different and doesn't compare.

  6. Isn't the Richmond house sale you describe indicative of an overzealous asking price and the fact that HAM dropped Richmond like a hot potato after the Japanese disaster? It seems that all the boomers are doing fine selling to HAM. Maybe in Hamilton, Ontario etc., they have to worry. But not here.

  7. Overzealous asking price? Yep.

    The point is that suddenly he was willing to come down so dramatically.

    It will be interesting to see what the property next door goes for in the next little while.

    While he have to come down even lower if sales continue to stagnate or another property nearby sells for even lower?

    We need to watch what happens.

    Panic can do interesting things and the stage is set for a panic potential.

    Time will tell.

  8. "We are about to find out that economics and finance has a far bigger impact on your life than politics, and if you don't believe me let me finish with a very clear declaration, and hold me to this, come back at me years in the future.

    The sovereign debt problems along with the costs of an aging population are going to revamp society in the most profound way, and the part that worries me, that includes violent social unrest, and those who don't understand it are just going to be road kill along the way."

    Michael Campbell (the brother of former B.C. Premier Gordon Campbell) made the above statement on his "Money Talks" radio show last Saturday on radio station CKNW in Vancouver, B.C.

    If anyone wishes to listen to these words for themselves click on the following link to CKNW's audio vault enter March 24 in the date drop down box, 8:00 AM in the time drop down box and then click on "listen". When the audio starts to play, move the slider ahead to 39 minutes and 30 seconds to hear the quote. (Put your mouse on the bar just above the "listen" tab, click the mouse, hold it down and then slide the pointer ahead on the bar. You have to release the mouse to see where you are, and then repeat the process again one or two times to get to the 39 minutes and 30 seconds mark.) You do not have to register on the website to use the audio vault. It is strictly click and play. CKNW's audio vault stores program audio for a period of 30 days.

  9. What does the boomer trigger mean for young Gen-Y families hoping to buy their first home? Will price undercutting and a flood of inventory make Vancouver real estate somewhat accessible for a generation who have come to expect that they will be priced out forever? I hope so.

  10. Gen-Y becomes road kill again! If a collapse in prices occurs it's going to take the whole economy down with it and those young and inexperienced will be let go first.


    I totally agree with the "Trigger Point" scenario mentioned in this post. This is something that I have been stating to people as being the greatest danger to real estate today. The huge buildup of equity by the leading edge baby boomers who will be looking to dump their high priced real estate and relocate to other parts of the country. I am one of those so I speak from experience. I purchased one of those units in Lynmour Village in December of 1969, 1878 s.f. 3 b.r., 3 level. It was my first home, I was 25 and making all of 8000 per year. The unit cost $20,800, interest was 9.75%,condo fee $30.00 and taxes $250 per yr. This represented 30% of my gross monthly income. Or putting it another way, the cost of purchase was 2.6 times my annual salary (mine only). A far cry of what it would be today in todays dollars. This is what's happened to prices since I first purchased. Today that same unit costs 8.5 times what my salry in todays dollars would be. Incrdible. Much worse in Vancouver, probably double that. So what has caused this? I say, banks loose lending policies and gov'ts allowing zero downpayment, cash back mortgages and the lowest rates we will ever see again in our lifetime. As this post states, its a perfect storm. I have no doubt that we will see prices drop 50% from the levels we have today. There is no way in my estimation that a condo such as I bought back in 1969 should cost any more than half what it is listed for today. If you want to place the blame on anyone look no further than the policy makers in Ottawa and the greed of our banks and throw in the manipulative tactics of realtors and the real estate pumping media. Period.

  12. Great article, glad to find this blog. I agree also, we bought/built on acreage in Langley in 1979 for $200,000, sold in 2009 for $1,400,000 with the intent of retirement savings. I think there will be a panic in the upcoming years for my brother and sister baby-boomers wanting the same thing.