Thursday, May 31, 2012

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.

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."

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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Wednesday, May 30, 2012

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.


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Tuesday, May 29, 2012

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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Monday, May 28, 2012

Whistler at 65% off now?

Well... the plunge continues.

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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Sunday, May 27, 2012

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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Saturday, May 26, 2012

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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Friday, May 25, 2012

Fri Post #2: Housing Bubble or Housing Zeppelin? - Updated

Is there a housing bubble in the lower mainland? Housing zeppelin is more like it. Bubbles, after all, are soft and cute and harmless. Zeppelins, conversely, hurtle into the ground, spewing flaming wreckage in all directions. And that’s precisely what we’re about to witness in the GVRD.

Consider the factors that have pushed our prices so absurdly high that the average family now spends 70% of pretax income to buy and own a home. Consider that we’ve already rocketed past the danger zone of most cities in the disastrous American run-up. Consider all that’s conspired to morph our region into the top two overpriced real estate markets in the world.

It starts at the top, with the federal government and the Bank of Canada. Despite doling out repeated warnings over our addiction to credit and our per capita debt, which now stands at a deeply troubling $1.50-plus per $1.00 of disposable income, those in charge have continued to facilitate easy mortgage borrowing and a credit culture. Why? For one, housing-related industries account for a quarter of our GDP. We’d look far less impressive globally were we not buying and selling obscenely expensive homes to one another.

And it filters down from there. The media, supported so heavily by real estate industry advertising (“This segment brought to you by Re/Max”), plays up self-serving industry propaganda and consistently portrays deceptive PR stunts as “news,” while blissfully ignoring realities such as plummeting sales and mushrooming inventory in former hot spots such as Richmond and Vancouver West, and an already tanking market in key neighbouring zones such as the Okanagan and the eastern Fraser Valley.

Our banks and lenders, meanwhile, squash accusations of subprime lending (loaning to high-risk borrowers – the same practice that helped crush millions of American families) while actively participating in it. Land developers literally work overtime to catch the end of the mania and the correspondingly sky-high valuations. Realtors pump the “Buy now or be priced out forever” mantra and work to falsely convince us offshore Chinese are grabbing everything in sight. Ultimately, locals are inundated from all sides with stories of unicorns and pots of gold and wrongly believe the pyramid scheme of the past decade will somehow, illogically, continue forever.

But, like The Matrix, not all is as it seems.

When the smoke clears, when developers have glutted the entire region with product (they’re almost there – just look around your neighbourhood), when realtors – mere salespeople – are no longer rock stars and pseudo-financial advisors, when the CMHC stops backing every high-risk borrower that comes calling (the corporation, run by a board with blatant ties to the real estate industry, will soon sport a much shorter leash), when newly introduced mortgage restrictions have sliced and diced the number of potential buyers, when interest rates have jumped from their emergency lows, when local TV producers stop airing dubious realtor PR stunts (helicopters purportedly loaded with offshore realtors, trumped-up condo lineups, marketers posing as investors) as hard news, when the market is flooded with the homes of bailing baby-boomers seeking to fund their retirements, when the imaginary tidal wave of incoming Chinese is revealed as the mere speculative ripple it has been, when fatigued owners realize killer home payments devastate every other aspect of their family’s lives, and most importantly, when the mania dies (manias always die) and when real estate ownership is no longer the Holy Grail, there will be nothing left but you and decades of onerous payments on a crashing asset.

You will wonder what could have possessed you to overpay by fifty or a hundred percent for a creaking “old timer” in a lousy neighbourhood or a “new” slapped-up-in-a-month-by-handymen townhouse in a future ghetto, and you will curse the day you saw the pretty ad that compelled you to do so. Your realtor will not be there to console you, your lender will not hand you free money to extricate yourself. Worse still, there will be no respite to those who, for reasons beyond their control, need to sell. They will do so at a grievous loss.

So…what do you do? If you bought near the peak (roughly mid-2011), and particularly if you’re feeling the strain already, contemplate selling – before the downward spiral picks up steam. If you’ve so far resisted the siren song, continue to resist. Instead, rent.

Renting gets a bad name in a transitory environment where even pizza delivery guys contemplate $300,000 condos, but remember: Renters are immune to exploding zeppelins. Renters are free to invest the money they saved by not buying. Renters do not surrender thousands per annum on property taxes, repairs, renovations, city utility bills, and burdensome monthly maintenance fees. And renters can move without enduring the cost and hardship of selling. Your realtor will tell you “Renting is throwing your money away.” You can tell him he’s a liar.

Buying and owning a principal residence can be a smart move. But not here, not now. Not when mania is at the helm, not while deception remains healthy, and not when the long slide they don’t tell you about has already begun. Many will lose. Heavily. Don’t be a loser.

For more discussion on the realities of the local housing market, check out two of Greater Vancouver’s busiest housing blogs: Vancouver Real Estate Anecdote Archive ( and Vancouver Condo Info (

Meanwhile, we often talk about how our hamlet here on the wet coast is influenced by outside money, particularly HAM (Hot Asian Money).

There is no doubt that the downturn in the Asian markets is having an impact here.

This blog often ponders at what point world wide conditions will trigger HAM to sell their assets here to cover margin calls elsewhere. Obviously this requires global macro conditions such as external real estate markets, stock markets, foreign government policy, etc. to play a large factor int those decisions.

With that in mind, let's cast our eyes to a website called Global Property Guide which has some interesting data on the world wide housing market.

They are reporting that in fiscal quarter 1 of 2012, the global house price downturn has been accelerating as evident from their latest house price indices survey.  Here is what they have to say...
Global house price downturn accelerates: Q1 2012

House prices fell in 24 countries, of the 36 countries for which quarterly house price statistics are available, and rose in only 12 countries (click on image to enlarge):

During the latest quarter the downturn appears to have accelerated, with house price falls in 26 countries, and house price gains in only 10.

In nominal terms only 16 countries experienced house price falls during the year, while 20 countries recorded house price rises. But the Global Property Guide's statistical presentation uses price changes after inflation, giving a more realistic picture than the more upbeat nominal figures usually preferred by real estate agents.

Faster-paced deterioration in European housing markets

Ireland's price-declines have been, over the duration of the crisis, catastrophic. It is disheartening to see more agony, yet the picture really is alarming. House prices fell 18.95% year-on-year, contrasting with a decline of 'only' 13.12% during the same period last year. Furthermore, house prices were down 5.19% during the latest quarter. Tough credit conditions, an oversupply of housing, and weak domestic demand have weighed down the Irish residential property market (click on image to enlarge):

There was also an alarming increase in momentum of house-price declines in Athens, Greece (-11.68%); in Warsaw, Poland (-10.94%); in Portugal (-10.45%); in Spain (-9%); in the Netherlands (-6.05%); and in the Slovak Republic (-5.89%). All saw bigger house-price declines this year than the previous year.

Several countries whose housing markets were last year either in recovery or only just in downturn, saw a significant deterioration in their position, with house price falls during the year to end Q1 2012 in Finland (-2.05%), in Turkey (-2.32%), Sweden (-5.34%) and Riga, Latvia (-5.83%).

In other European countries, any positive changes in the momentum of the housing markets were so feeble, that they hardly signal a recovery. These countries include Kiev, Ukraine (-2.51%), Croatia (-2.45%), United Kingdom (-3.14%), Lithuania (-3.87%) and Bulgaria (-6.21%).

Some strong European markets do relieve the gloom. In Estonia house prices surged by 9.13% year-on-year, and in Austria house prices rose by 8.24% year-on-year. In fact the upsurge in these two countries' housing markets was so strong as to propel them into third and fourth place in the worldwide league table.

Other strong housing markets over the past twelve months include Switzerland (+5.49%), Norway (+5.43%), Russia (+3.86%) and Iceland (+2.25%). The 'gainers' seem to be countries whose housing markets either never experienced the recent downturn (Austria, Switzerland, Norway), or are recovering (Estonia, Russia, Iceland).

House prices in India (Delhi) and Brazil (Sao Paulo) surged further, but momentum down during the quarter

Over the year to Q1 2012, Delhi house prices skyrocketed by 24.41%, though during the last quarter, they fell 0.07%. Some other Indian cities like Chennai and Kolkata saw house price falls year-on-year, according to NHB Residex.

In Sao Paulo, house prices climbed by 18.70% in the year to Q1 2012, but the latest quarter saw a price-decline of 2.57%.

Most Asian housing markets slowing

In the Philippines (Makati Central Business District), prime condominium prices rose by 7.34% during the year. But the figures possibly exaggerate the upsurge, because they are for Makati, the heart of the Philippines' business process outsourcing boom. In South Korea house prices were up 2.67% from a year earlier.

Housing markets in the rest of Asia cooled over the year to Q1 2012, due to government measures implemented last year. House prices in Hong Kong were up a mere 0.19% on the year, after a rise of 19.80% the previous year. There were house price falls in Indonesia (-0.13%), Singapore (-1.36%), Tokyo, Japan (-2.64%) and Shanghai, China (-3.68%).

US housing market making progress

US house prices rose modestly to 0.48% year-on-year, with a quarterly rise of 0.55%, according to the Federal Housing Finance Agency's (FHFA) seasonally adjusted purchase-only house price index. In inflation-adjusted terms, US house prices were still down 2.27% from a year earlier. But this is a significant improvement from last year's 7.44% decline in house prices.

Increased affordability and a somewhat smaller inventory of homes for sale are positively impacting house prices, says FHFA Principal Economist Andrew Leventis.

Israeli house prices weakening

House prices in Israel were down 4.94% year-on-year to Q1 2012. Prices were hit by worldwide uncertainty, plus measures taken by the Israeli government and the Bank of Israel. The fall comes amid popular protests since last summer over high prices, which have not yet waned.

New Zealand firm, but Australia under pressure

House prices in New Zealand climbed by 0.82% over the year to Q1 2012, after falling 4.79% the previous year. Sales activity has been strong for the last few months, with volumes at the highest levels since 2007.

Australian house prices fell for the fifth straight quarter to -6.04% from a year earlier, the longest downturn for a decade. The central bank has maintained the highest borrowing costs among major developed nations.


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Thursday, May 24, 2012

Fri Post #1: Bob Hoye's thoughts on Vancouver Real Estate and investing.

Meet Bob Hoye.

He is Editor and Chief Investment Strategist of Institutional Advisors, an independent financial market forecasting firm, and a frequent guest on a local Vancouver radio investment show 'Money Talks' with Michael Campbell.

Hoye gained some local fame when, in October 2007, he appeared on 'Money Talks' and told listeners that it was time to take advantage of a once in a generation market dislocation. Hoye boldly predicted that "a credit tsunami the likes we haven't seen in generations is about to hit."

A few days ago Hoye was back on 'Money Talks' with some additional advice that included some thoughts on real estate and gold.

Hoye was very clear that he believes we are now at another critical point in the markets and that its now time to either save your capital and get out of the way, or make some money.

Hoye thinks that there is no way that the Federal Reserve or other Central Banks around the world can overcome the Worldwide deflationary pressures we currently face.

His opinion is that there will be no inflation as "the credit contraction is, and will continue to overwhelm interventionist Central Bankers who are not issuing credit that pushes prices up".

Why? Bond vigilantes in a word.

As the Central Banks in Italy and Spain have found out they have to raise interest rates on their bonds to attract investors, and when interest rates rise Governments and businesses alike "cannot service the debt that is out there".

Worse Hoye sees that the the latest recovery from March of 2009 "in North America is rolling over, probably as we speak. Its already dead in Europe where they've had two quarters of negative GDP growth which defines a recession, and also perhaps really slowing down in China which shows up in your basic commodity prices."

With the economy contracting there is "nothing that government economists and Central Bankers can do to issue credit that is going to overwhelm the natural tendency for credit to contract."

What does Hoye think this all mean to today's investors?

1. Real Estate:

In short Hoye thinks that real estate is not going to recover in this post bubble economy. Worse, very high real estate in places Vancouver are going to experience a fall in pricing like US Real Estate. Hoye points out that after the 1980 boom the British Properties in West Vancouver and and high end properties in Toronto fell to 1/3 of their 1980 highs. Hoye cites history to support his post bubble real estate argument by looking back to a farm price index after the 1873 bubble in England. That index of farmland values hit 58 at the height of the bubble in 1873 then fell consistently for the following 20 years down to 38. In other words it was just a long bear market in land values after a typical post bubble economy.

2. Interest Rates:

Hoye thinks interest rates will remain low as long as confidence remains in the North American sovereign debt market."You have this oddity in the US of 10 year notes at less than 2%, and the only way I can explain these low interest rates is that in a post bubble crash the serious money that's still around goes to the most liquid items and that is gold, and it also is treasury bills in the worlds senior currency which is still the US Dollar. So its not the Federal Reserves policy to lower interest rates, its a post bubble condition that short rates fall".

3. "The Gold Market is Extremely Oversold"

Hoye is a strong proponent of buying Gold Stocks. "Just looking at the Gold Shares now, we have an index in Gold Shares going back to 1900 and there has been only one other time were it has been this oversold and that was in 1924. So one could say that this is about the most oversold you can get, and our advice on Gold Shares a few weeks ago is that people should be accumulating good quality Gold Shares into weakness. It might take another week to set the low in here, but then the performance out of this oversold should be rather good. I am content buying either good exploration stocks where you know the story, or some of the senior Golds or Gold share ETF's".

The most interesting part of the interview for me was Hoye's comments about real estate.
"very high real estate in places Vancouver are going to experience a fall in pricing like US Real Estate.... after the 1980 boom the British Properties in West Vancouver and and high end properties in Toronto fell to 1/3 of their 1980 highs."
That's a 66% collapse is real estate values.

The bubble we have created this time around has blown far larger than the 1980's version.  If property values could collapse 66% then, why is it so shocking or inconceivable to imagine that they could fall at least 70-75% this time around?


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Wednesday, May 23, 2012

Greece could trigger a 'severe recession' in Canada - TD

In case you think our focus on the situation in Europe is somewhat disconnected from the real estate situation in Vancouver... think again.

Toronto Dominion Bank has come out with an economics paper today that outlines what a Greek exit from the Euro could mean for the Canadian economy.

And it isn't pretty.

The hilights from TD:
  • Our most recent Canadian QEF builds in mild recession in Europe and continued financial market volatility due to European sovereign debt concerns. However, in recent weeks, risks of a disorderly Greek exit from the Euro zone have increased. In this report, we highlight what the worst case sce- nario would look like for the Canadian economy.
  • Canada has little direct exposure to Europe and the real economy would be hit more significantly through indirect channels. The event would lead to financial market turmoil and commodity prices would tumble.
  • High household debt and an overvaluation in the existing home market leave the economy more vulnerable to a negative external shock than it has been in the past. 
  • In a worse case scenario, where there is a systemic crisis in Europe, Canada’s economy would endure a severe recession, with the decline being substantially worse than that experienced during the 2008/2009 recession.
TD focuses on a theme all to familiar to those following the housing bubble and concludes by saying:
What separates Canada from other major advanced economies, however, is its high and rising vulnerability to domestic financial excesses that have formed in recent years. While corporate balance sheets remain strong, household debt has become excessive and the housing market is in our view 10-15% overvalued, leaving households more vulnerable to a negative economic event. A global financial crisis could be a major catalyst for a sharp housing market correction and household deleveraging – albeit to a lesser extent than was evident in the U.S. during the past recession. Moreover, Canadian governments would have less room to stimulate compared to the first crisis in 2008-2009... In a worse case scenario, the Canadian economy would likely endure a severe recession, with the decline being substantially worse than that experienced during the recent recession as both exports and domestic spending contract heavily.
Now if you were a Chinese investor who had parked money in some Canadian real estate... do you consider bailing right about now to protect your financial assets?



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Tuesday, May 22, 2012

Tuesday Post #2: Can I get a purchase order # for all the cheese we need?

If you've every worked in a large bureaucratic company, you are familiar with purchase orders.  You need them for everything.

Glancing at the world press today, I wonder if I could get a purchase order for all the cheese we need to procure?

I mean... let's face it... what good is all that whine without lots of cheese?

Tonight we start in China.  As the Vancouver Sun notes, home prices are in decline in a record number of Chinese cities.  The decline is no accident. China is engineering a much needed deflation of their housing bubble.
"Prices fell in a record 46 of 70 cities tracked by the government in April from a year earlier as officials pledged to keep restrictions on property purchases that have sapped buyer demand... The Housing Ministry said China will steadfastly continue curbs on the housing market and won’t flip-flop on its policies. This followed a pledge by the State Council, or Cabinet, last month to stick with existing property controls implemented over the past two years, where the government tightened down payments and mortgages, and imposed restrictions on the number of homes families can buy.

“The general price trend as a result of developers cutting prices and regulatory environment is continuing this month,” Chris Brooke, chief executive officer for Greater China at CBRE Group Inc., said in a Bloomberg Television interview from Beijing. “The objective is to remove the speculative element from the market."
China has been struggling with an all-too-familiar dilemma... how to prick the speculative housing bubble while helping the general economy.  Thus the China government has been implementing (and maintaining) its housing curbs while the central bank lowers the amount of cash that banks must set aside as reserves, a move the PBOC has done three times since November to boost liquidity and spur loan growth.

Of course the government's moves have been met with wide spread howls of complaint.

And attempts by some of the locals to circumvent the federal government's moves have been quashed. Wuhu in Anhui province and Foshan in the south in the past six months have tried to lift local property curbs. Both locales had their efforts halted within a week.

"Prices haven’t fallen low enough for the government to relax the property policies," said Zhang Zhiwei, Hong Kong-based chief China economist at Nomura Holdings Inc.

Whining about government attempts to deflate the housing bubble aren't restricted to China.

On this side of the Pacific, the Government of Canada is also trying to find a way to deflate the Canadian real estate bubble while still assisting lending for the broader economy.

One of the Fed's key strategies in doing so appears to be shaping up in the new regulations being proposed by the Office of the Superintendent of Financial Institutions (OSFI).

Among the host of proposed changes to the regulations governing Canadian banks are rules that would require that banks recheck areas such as employment status, current income and the current value of the home for mortgage renewals and refinancings.

“This would be a significant, significant change,” Jim Murphy, the head of the Canadian Association of Accredited Mortgage Professionals (CAAMP).

So concerned is CAAMP about the impact of the changes on it's self interest that the professional association has launched it's own organized media whine campaign.

The OSFI unveiled the proposed new rules in March and requested submissions from the real estate industry as part of the government process of consulting with state holders. A significant number of submissions from trade associations, lenders, insurers and the brokers as well as private citizens have been received.

OSFI is still reviewing them and hopes to release final rules by the end of June, along with a summary of the submissions and the reasons for its decisions.

But CAAMP can see the nuances of the political back room process at work. The OFSI proposed changes were released after the Financial Stability Board, a global financial oversight body, called on all regulators to ensure mortgage lenders were adhering to certain underwriting principles.

And with Ottawa seeking to prevent a runup in Canadian house prices from leading to a crash, it's clear you can see the hand of the Conservative government behind the proposed OFSI guidelines which go a bit further.

CAAMP has clearly launched it's counter offensive to try and stir up the general public in an attempt to influence pressure on the government to back off.

With the June deadline rapidly approaching, expect the level of whining to increase exponentially.

Cheese anyone?


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Tues Post #1: Did JP Morgan just lose $31 Billion?

Now... faithful readers know my position on precious metals, particularly Silver.

And if you have followed my posts on this, you know the significance of JP Morgan and Silver.

So when a story about JP Morgan suffering massive losses hits the news waves, it tweaks my interest.

The big buzz around JP Morgan lately has been the massive amount JPM lost in the London Whale fiasco, a massive derivatives trading loss.

I'm not going to go into it here. If you aren't aware of the story you can read Time Magazine's coverage of the story to catch up.

For those who have been watching the story, the estimation of the loss sustained by Morgan is growing significantly.  The story is slowly becoming the first possible detonation of the derivatives time bomb many pundits have waiting for.

The big speculation right now revolves around the announced cancellation of JP Morgan's stock buy-back program by JPM president Jamie Dimon.

The story begins when the Federal Reserve Bank of New York announced stress tests on various banks. The sole purpose of these stress tests was to determine under what worst case scenario the Fed was ok with allowing JPM and various other Bank Holding Companies to proceed with dividend raises/stock buybacks.

(In a particularly cheeky move, JPM front ran the full FRBNY stress test release and announced just such a dividend raise and stock buyback plan)

The FRBNY, via it's "Comprehensive Capital Analysis and Review 2012" reported the permissive gating conditions, which if met, would still enable JP Morgan to proceed with the then announced buyback. The highlighted section below details the results (click on image to enlarge):

What this chart tells you is the cumulative "realized losses/gains securities (AFS/HTM) and Trading and Counterparty Losses" for JP Morgan amount to $31.5 billion for the pendency of the stress test.

In English it means that $31.5 billion is how much pain JPM is allowed, in the NY Fed's view, to suffer before losses and dividends/buyback programs would jeopardize the capital structure. If this amount of loss is achieved, any buyback process should be halted.

As mentioned above, the big buzz around the financial world is that JP Morgan announced yesterday that their share buyback process has been halted.

As a result speculation is running rampant about just how big the CIO P&L loss JP Morgan has suffered as of the close of business yesterday truly is.

Does this imply that the CIO losses, as conferred by JPM to the Fed in private, have a statutory loss potential of over $31.5 billion through Q4 2013?

Has the Fed now barred JP Morgan from any other future buybacks, i.e., capital outflows, until such time as the trading/realized loss has been offset and the hit to the balance sheet has been undone?

Jamie Dimon originally announced the loss as $2 Billion.

Last night the London newspaper, The Independent, announced that the losses could now be over $7 Billion.

Warrren Buffet once called derivatives, "financial weapons of mass destruction." 

They are complex and difficult to understand. And this is a story that may grow in complexity with each passing day.

How much has JP Morgan actually lost on this derivative deal gone bad?

That is today's $31 Billion dollar question.


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Monday, May 21, 2012

Whistler's Empty Storefronts

It's been over a month since we last cast our eyes northward to Whistler and noted property owners had begun dumping properties to cut losses while they could, and over two since we noted some properties were selling for 50% of their previous values.

The winter ski season is now over and by all accounts it was a highly successful one courtesy of Whistler’s epic snowfall levels.

Several room-night records were broken, and Whistler Blackcomb’s latest quarterly results, released May 9, show increases in both revenue and skier visits. Overall, room nights are expected to be at least 10% higher than last winter.

So businesses should be leaping for joy, right?

Apparently they're celebrating by closing up shop.

One of the local news rags, The Pique, is reporting that Doc Branigan's restaurant is now closed due to the fact that this building has been foreclosed upon by the bank.

Will they locate somewhere else in the Village and re-open?
"Branigan's was working toward changing the liquor license so the restaurant could offer more entertainment varieties in the space but, a spokesman said, (but with this development) the shareholders decided to cut their losses and cease operations."
The Elephant & Castle restaurant in the Delta Whistler Village Suites has also stopped operations.

Property manager Drew Meredith said Calgary-based restaurant chain Original Joe's has purchased the Elephant & Castle brand and the new owners of the chain have no plans to open an Original Joe's outlet in Whistler.

In the village itself, the doors of the Pizza Café are also closed and have been for more than a week.

The European café at the corner of Lorimer Road and Main Street appears to have also closed. The cafe is notable because the owner, Miro Kolvek, was one of the six candidates in the running for the job of mayor in the last municipal election.

The Savage Beagle nightclub also closed last month.

The foot and apparel store Merrill, located in the Village Centre beside Eddie Bauer, is preparing to shut down. Store manager Dave Booth said June 27 will be the final day of operations.

Food Plus in Creekside is also closing, and Loka Yoga is looking for a new location starting June 1 after receiving notice that its rent is being more than doubled.

And it's the last tidbit that has some wondering if it isn't time to reexamine the way the municipality conducts business. The lifeblood of any municipality are it's taxes. Are Whistler's simply too high?

According to Loka Yoga’s owner the rent at the Saint Andrews House location where they had set up shop was set to jump from $2,500 to $6,700 per month!

Why the huge jump? Apparently it costs $12 per square foot each month just to cover property taxes in a Village commercial space. If that figure is accurate, that’s $8,400 per month for a 700 square foot space — just to cover the property taxes.

Whistler is now beginning to face the dreaded deflation scenario. As property values drop, revenue from property taxes falls. Meanwhile businesses, hurting from declining revenues, cannot afford the property taxes currently in place, let alone handle any increase to offset the drop in revenue from property owners.

And any cut in the tax rate can only impact municipal amenities, services which are crucial in a resort destination like Whistler.

The hard times are only just starting for the Sea-to-Sky community and the catch-22 is under way.

(hat tip to Patiently Waiting for the news links)


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