Monday, September 9, 2013

Globe and Mail on the Condo Market: Lots of supply, low demand, prices softening.

In case you missed it, there was an article in the Globe and Mail on Friday titled, "Vancouver condo buyers take a second look", and the picture it painted was anything but rosy.
Derek Hynes was thinking like a lot of Vancouverites when he purchased his one-bedroom condo in one of Surrey’s new towers. He thought its value would rise each year, enough to make the purchase an investment in his future. He’d build equity until he had enough to purchase a bigger place, maybe even the down payment on a house.
Of course what Hynes is discovering is quite the opposite.  As the G&M notes, the expectation of buyers like Hynes is that that every home should build equity, a hangover from the pre-2008 years, when it seemed that real estate had nowhere to go but up, up, up. Average income earners were purchasing presale units and flipping them by the time they were completed, pocketing $50,000 or so in the process.

But those days are long over and articles like this one in the Globe show that a shift is underway.
As many condo owners who purchased five years ago and are trying to sell today can attest, the equity simply did not materialize. They are often breaking even, or selling for slightly more or less. Today, a condo in Vancouver is no longer viewed as a winning investment, so much as affordable housing and forced savings plan.

And if you consider that mortgage payments are still higher than those in Toronto, condos aren’t even that affordable. A recently released real estate report on Canadian cities says: “Despite the 2012 drop in Vancouver’s median condominium price and a further decline expected in 2013, the area’s affordability is forecast to remain the weakest by far among this report’s eight cities, both this year and throughout the forecast.”
Say it isn't so?

Apparently Hynes, purchased his 620 sq. ft. condo for $182,000 (which was $7,000 below the asking price) and he was recently thinking of selling the unit until he saw that his neighbour on the same floor, with the same suite, has just listed for $179,000.

Talk about a kick in the groin.
“I thought it would at least keep its value, so I’m surprised,” Mr. Hynes says. “If it had kept its value, I definitely would have sold right now.”
Hynes says his work colleagues, friends and relatives are facing the same situation. His cousin just sold her condo after renting it out for five years, and she lost money on it.
“It was for the exact same reason I’m losing out,” Mr. Hynes says. “Because there are so many condos in the area.”
What sellers are discovering, according to the article, is that there are too many new condos. Since the economic slump of 2009, condo starts have been on the rise, and above the 20-year average ratio of starts-to-population growth. Developments were going up almost as if it were 2007 again.
“This left the inventory of completed but unsold apartment condominiums very high by the past decade’s standards,” says the Genworth/Conference Board of Canada report, which provided those numbers.

With the slump in prices, sales have recently picked up. The benchmark price of an apartment decreased 1.1 per cent from August, 2012, to $366,100 in August this year, according to the Real Estate Board of Greater Vancouver. Sales last month went up 40 per cent over August, 2012.

“Even though the real estate market is booming, the prices mostly remain the same,” says Vadim Marusin, who’s the founder of, a new real estate search engine that maps the Multiple Listing Service listings
Urban Analytics’ Michael Ferreira tracks the market on a quarterly basis, and he sees a condo glut that’s softening prices.
“We’ve seen the unsold inventory of product under construction increase steadily over the last year. Not to the point of concern for oversupply, but certainly to the point where buyer urgency is not as great.”
Tell that to the people like Hynes who are watching their condo values drop in price since 2008 instead of going up.
Because buyers know there is another building coming up, they aren’t pressured to buy, adds Urban Analytics’ analyst Jon Bennest.

“In some markets where there’s a lot of supply and not as much demand, it’s hard to say that we’ll see a price increase. In others where there is less supply and consistent demand, we do see those areas increasing. So it’s very specific to the submarket,” says Mr. Bennest.
Enter Bob Rennie and his "Transportation, transportation, transportation" mantra.

The bulls will claim that with the city population steadily growing by about 37,000 people a year, the condo will remain the only affordable housing option for a lot of people. And the people with real equity – foreign investors and local boomers – will continue to look to them for investment.

But how long will we continue to cling to the dream that wealthy foreigners will support and maintain our over inflated market?

For property owners like Hynes, who are already in a loss position,  they are now like the stock buyer who refuses to cut their losses.
Hynes says he’ll hang onto his condo long enough to see that happen.

“I’m in a situation where I cannot afford to sell it, so I’m going to be renting it out, probably next month.
(Hynes now has a family and says he will rent out his condo and use the money to rent another place, in an area with better value.)
“For me, it feels as if I am moving backward in life, but I have no choice, because I need to move on because I have a family now. I am going to move out and go rent a basement suite in Coquitlam.

“I know a lot of people can’t afford their mortgages because there are tons of cheap basement suites in Coquitlam.”

You can't help but survey the scene and think of the Financial Times' conclusion of the debt situation in China we talked about in our last post: "Plenty of tinder, lots of fuel, all it needs is a spark"

And when that spark comes you know things will ignite rather quickly.


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  1. except the story was about Surrey

  2. Don't be so convinced it's only Surrey.........

  3. I know someone in the same situation, but get this twist: he gets an offer at near to asking, which he turns down cold, then his realtor who also has a place in the same building, sells HIS unit to that same buyer. I guess the realturd saw the writing on the wall and decided to get out quick. Meanwhile my friend is still sitting on his unit and won't sell because he can't get what he thinks it's worth.

    1. They are minting idiots faster than house millionaires in Vancouver now. Too damn funny. "Hey Mr is my price"...."OK,I will take it!"....."Screw you pal, I want over asking!"

  4. Condo owners in my area(South Delta) have been seeing losses for at least a year now. Its no surprise to me that this happening, its only going to get worse as interest rates normalize. A realtor friend of mine showed me a sale in a 8 year old building, the sale happened a month or so ago for the same price it was bought for in 2006. Another friend who just sold bought in 2010 for 260ish just sold for 235k. A nice 11 or 12% haircut. He just lost all his equity and owes the bank a few thousand dollars. How many more of these losses are we going to see in the next few years, I'd say we are looking at prices reverting back to 2004/05 levels, ouch.

  5. Good luck renting it out for what you want versus what you'll get.

  6. Another victim of industry brainwashing.

    It's hard to believe the situation this country is in after the real estate collapse that happened to our US neighbors in 08. In most major Canadian cities we're directly on the path of proving we learned nothing from them about overextending ourselves to buy real estate. You'd think we would have learned a lesson.

    But no, watch how many people like above who are going to not settle now in an attempt to get a higher bid particularly in condos later.

    The housing crisis in Canada has building for more than a decade now. The reaping whats been sown phase is just ahead. Yet we've still got people who are sleepwalking towards the cliff thinking its just peachy out there and will only improve as the years go on. Blind, deaf, and dumb we are.

    Just the way the bankers, government, and corporations want us

  7. My question is, what would be the spark to ignite the tinder? I can think of a spark that has already happened, ie govt interventions on tightening borrowing. What kind of a cliff could happen to Canada?

    1. Yeah, that is my question too. As long as employment is stable or does not increase too fast and incomes do not deteriorate there are precious few reasons a crisis in price will erupt. The blessing of living in a wealthy diversified economy is that we can skirt the worst of problems the world is throwing at us and hardly feel the ill winds that are blowing. Despite being a hard core bear in the past I am beginning to soften my stance and accept that our country and credit system are much stronger than I formerly believed. This is not the Canada of the 1930's that is for sure and the government has behaved responsibly in cooling the market gradually over time. Others might disagree but the facts speak for themselves. There is no crisis in housing on the horizon.

    2. Seattle just opened up the pot market, so Vancouver's actual economy just sprang a very bad leak. Forget the "hot Chinese investor" red herring that the media kept flogging....THIS is the pin that pops it.

    3. Deeply cynical, but probably right.

      If it isn't cramming four UBC undergrads in to a "basement suite" it's a boutique grow op or something similarly questionable.

  8. Oh no the guy is down 3k in 5 years! Ahh!

  9. We are a nation of lotto tickets as a financial plan....why WOULDN'T we all be complicit in inflating the world's very biggest, most dangerous real estate bubble? Especially since when it blows up here, the wolrd suffers no consequences...just a really, REALLY good laugh.

  10. Here is a new one. Sunlife says Canadian home prices will fall 15%. The only odd part is that I cannot ever recall Sunlife's economists commenting on housing. Must mark a departure in the thinking amongst the elite organizations. Some of you will know that Sun is amongst the largest and most influential financial organizations in the world. I therefore take thier warning on housing and the economy more seriously than just about anyone else out there and I am sure they would not have spoken up unless they had good data to back their remarks.

    Housing to fall 15% in Canada --Financial Post

  11. people are deciding Vancouver's unfriendly population and rock -bottom wages are starting to wear a little thin...almost every other city has better opportunities than Vancouver