The Elusive Canadian Housing Bubble

[lakedaemonian]

Re: The Elusive Canadian Housing Bubble

i have had an open loop geothermal heating/cooling heat pump system for almost 5 years. my total energy cost/year [electricity+oil back when i burned oil] has been 40% lower than the average of a few years prior to installation. otoh, the system is complicated and finicky, requiring much more maintenance and attention than one would have hoped.

Some family have a very extensive geothermal heating/cooling system.

They are quite happy with it.

I'll be seeing them again in August in the US.

I had a good luck last year when visiting. Pretty impressive and pretty expensive installation.

[lektrode]

Re: The Elusive Canadian Housing Bubble

i have had an open loop geothermal heating/cooling heat pump system for almost 5 years. my total energy cost/year [electricity+oil back when i burned oil] has been 40% lower than the average of a few years prior to installation. otoh, the system is complicated and finicky, requiring much more maintenance and attention than one would have hoped.

how so, jk ?
like what sort of maintenance and attention?
being a refrig guy, am interested to hear stuff that the marketing dept would rather not get into...

[GRG55]

Re: The Elusive Canadian Housing Bubble

Brings a new meaning to "retirement fund"...



I think the strategy in Vancouver rests on the assumption the Chinese are going to provide "retirement fund" liquidity for the locals as they relentlessly buy up every last home, apartment, condo, duplex, garage, teepee and birdhouse in southern B.C. After all, the worker's paradise the Left Coast of Canada has become will make them feel right at home (although the unfettered access to political satire and internet porn might confuse them initially)...

Apparently my ol' hometown, Vancouver, is being touted as a "superstar city", as desirable as London (the UK version), Paris and Milan (Milan?? ). Truth is Vancouver is an ugly city in a stunningly gorgeous setting (when it's not raining). Time to check in with Garth:

The straw man

May 22nd, 2014

A few days ago Vancouver’s version of Brad Lamb, but shorter and hairier, upset the locals. Bob Rennie said house prices are high in that delusional city because it’s a global destination. So get used to it.

This is a familiar theme. Other local house-floggers, like Cam Good (the bogus yellow helo guy), have claimed in the past that people in Vancouver should stop bitching about foreigners buying up real estate, and compete with them. Three years ago he famously said:

“If you suffer from real estate impotence, don’t blame Chinese people. Besides, getting all worked up about it will only make it worse. Have a glass of wine. Relax. Stop feeling sorry for yourself and pick up the phone to call a realtor or a mortgage broker, either of whom will be more than happy to show you how easy it can be to get your real estate groove on. Real estate is the best investment you’ll ever make.”

Without a doubt, untold squads of dank, damp yet horny house seekers have been driven into a buy-now-or-buy-never frenzy by fears of yellow peril. Local realtors and developers have for years used the spectre of massive Chinese investment as a prod to induce otherwise sane people into paying insane prices for houses they can only afford by inviting strangers into the basement. And it continues.

The latest ‘proof’ of the Asian invasion comes from, of all places, the New Yorker magazine, wherein a column on globalized real estate investment mentioned Vancouver as a key destination for offshore moolah. Van writers, xenophobes, moldy basement-dwellers and people with Kits-lust sooo believe this stuff. No matter that the mag used a real estate company survey (duh) as the key source of statistical data, or a meaningless study on energy use suggesting lots of condos are dark.

Vancouver Sun columnist Barbara Yaffe ate it all up. She just wrote this: “Vancouver is one of the world’s new “superstar cities” — on par with London, Paris and Milan. And so, locals seeking a roof over their heads no longer are bidding only against other locals. They are confronting a global marketplace, with all the challenges that implies.”
London, Paris, Vancouver? What kind of bad sushi are they serving on Robson these days?

“I think local realtors are being disingenuous blaming high prices on foreign buyers (and not low interest rated and excessive borrowing) because it suits their needs by making people feel it is inevitable and permanent that they will need to pay more than they can afford for real estate,” writes blog dog Joe. “If enough people buy that argument, it won’t become self-fulfilling, but I think it could practically lead to more people making bad financial decisions in the near term (buying at the peak of the market when interest rates will inevitably rise). That’s worth trying to forestall.”

You bet. Along with the racism that is so evident in this pathetic blog’s comment section from people who blame every poor Asian guy from Surrey or Burnaby for unaffordable houses. This realtor-fed myth that homes cost too much because of Chinese money has governments actually considering controls on real estate ownership – a massively dumb idea. The last thing our stuttering economy needs is less international investment, or to send out an isolationist message.

Besides, Canadians have nobody to blame but themselves when crap houses in East Van sell for a million bucks. Below is an interesting piece of data just published by Straight.com, showing non-resident occupancy levels for various Van hoods. You will quickly note that in the vast majority of the city it’s between 0% and 7.7%. Some invasion.


Vancouver (and to a lesser degree Victoria) have always carried a real estate premium because of geography, climate and the hemming-in by mountains and sea. This started to bloat about the same time housing prices erupted in other centres, like Toronto. We all know why. After the GFC of 2008-9, freaked-out governments brought in emergency interest rates, then experimented with zero-down payments and 40-year mortgages. They gave us new first-time buyer tax incentives, sweetened RRSP home-purchase withdrawals and doubled the cash CMHC threw on the property bonfire. Meanwhile banks loaned indiscriminately, started offering cash-back bribes and financed a condo explosion.

Real estate became a mania, then an obsession. The home ownership rate soared, and mortgage debt along with it. Suddenly everyone piled on, because we all love to buy high and sell low. And when prices had been forced into the realm of fools, we blamed the rich Chinese guys buying houses 99% of Canadians couldn’t afford anyway. It’s called the straw man argument. It’s a fail.

Ironically, of course, the market is turning. Fred sees that. He sold his DT condo, rented a place, got a baby and is now looking for bigger digs.

“The plan was to rent first, then wait for the Garth predicted decline in prices,” he says, “but the latter may be coming sooner than I thought it would. I am a diligent searcher of the local MLS listings and a year ago, if you tried to search for a house that had a minimum of 5 bdrms and minimum of 3 bathrooms, with a mortgage helper of some sort (we would either rent it, or move one set of boomer parents in to it) in Coquitlam, Port Coquitlam or Port Moody under $600,000K, nothing sane could be found on there.

“Yesterday that same search yielded 9-10 options and a few of them, just by looking at the pics, are actually places that would appeal to us. Could it be that the plummet is coming even before the rate hikes? If it is, what Armageddon awaits when the rate hikes do kick in? Moreover, my good friend has been one of these speculative buyers, who did well with one buy, is drowning with another buy and is about to have a third come online, which he is resolved to renting at a loss, cause flipping it now that the building is done could wreck him. So when it comes to articles like these, I wonder where this data is coming from and wanted your thoughts.”

And you have them. Vancouver’s been punked.

[jk]

Re: The Elusive Canadian Housing Bubble

how so, jk ?
like what sort of maintenance and attention?
being a refrig guy, am interested to hear stuff that the marketing dept would rather not get into...

first problem was my original well collapsing. it had been an incredibly reliable and productive well, but i knew that it was dug through some pretty funky rock, and water quality was mostly great but got turbid after storms after the well had been hit - twice - by lightening. [because of the funky rock, the first hundred feet down had casing. the well itself was 400 feet deep.] then the new well seemed fine, but suddenly the water was notably acidic [my wife drew a bath and the water came out green.] then that cleared up and low voltage electrically controlled valves started burning out. we suspected something was wrong with the power supply to the house, but the utility kept saying there were no problems with our transformer. [we're the end of the line and have a transformer that serves just our house.] then, after burning out perhaps 15 valves over the course of 2 years, the transformer itself burned out completely and was replaced by the utility. i now have a claim in for the 2 years of expenses caused by their gradually failing transformer.

[GRG55]

Re: The Elusive Canadian Housing Bubble

Well, a "profession" that is already suffering from a certain lack of credibility (I am recalling, in particular, some of don's posts on the subject) seems to be going the extra mile to cement that reputation. From the always entertaining Garth Turner's "Greater Fool" blog:

BRA talk

June 8th, 2014


It looked perfect. Three bedrooms, two-and-a-half baths, 45-foot lot, smokin’ garage with bench, on a great street in the hood they wanted. Jim and Cindy were smitten. So after viewing it with a nice realtress we’ll call Bea Ware, they made any offer – conditional upon a satisfactory home inspection.

But the house failed. Some knob-and-tube, vermiculite insulation, saggy deck boards, roof and furnace at the end of their lifespan. The vendors weren’t willing to drop the price by the thirty grand needed to fix things, so Jim refused to sign a waiver and the offer died. End of story. On to the next listing. Adios Ms. Ware.

A month later, success. Better house, offer accepted, good inspection, deal firmed, hugs & kisses. Cindy was pumped. Then Jim got a call from the old agent. He hardly remembered her name, as they’d interacted for only a few days. She was calling as a courtesy, she said, to remind the happy couple they were legally obliged to ensure she received 3.5% commission on the price of their new home.

“Are you out of your friggin’ mind?” Jim asked. “How can you possibly ask for money when we bought another house from another agent that you had nothing to do with? You’re a crazy woman.”

Then Bea reminded Jim that he and Cindy had signed a BRA – Buyer Representation Agreement – when they put in the offer with her. “So what?” he said, “we didn’t buy it.” But that mattered not. Bea had filled out the BRA saying she was their buyer representative and in the event they purchased a single-family home anywhere in the entire city during a period of 90 days, she was entitled to commission. If the seller or the listing agent didn’t agree to share the commission with her (fat chance of that), it was the buyers’ responsibility to do so.

“You signed it,” she said, “and if you want to close this deal, you’ll need to abide by the conditions you accepted.” Jim lost it.

This is a true story. And while the BRA has been kicking around the industry for years, realtors have made a big push recently to snag every purchaser in this web of entrapment. The massive Toronto board has been pumping it hard, and starting the first of the month, Alberta realtors will be asking every buyer to sign. Don’t.

A story in the Edmonton Journal days ago gave the typical realtor spin, without the least attempt to explain what this document actually does:

Starting July 1, Realtors in Alberta will ask their clients to sign a written service agreement. While this has been standard practice for sellers, the rule change being implemented by the Real Estate Council of Alberta means people trying to purchase a home will also sign a buyer representation agreement.

The document lays down the ground rules of the relationship between the real estate agent and the client, which have typically been implied or based on conversation, said Kevin Clark, chairman of the council, which licenses Realtors in Alberta. “What are my expectations of this? When do I go out and how many homes are we going to look at, how do I write an offer, who does the writing and who develops the offer, how do you get paid and how long does this relationship go on for?” Clark said. “What a written service agreement does, is basically take all that I’ve just said and puts it down in writing so there is clarity of the relationship between the two parties.”

Sounds harmless, right? Almost reasonable. But it’s not about trust. Or service. Even duty. It’s about money. So let’s review again the three ways that BRAs can bite you. As I said here a year ago, they all have to do with commission.

First, you (the buyer) could be liable for the entire commission on the purchase of a home if the vendor decides not to pay, if there is a dispute over the amount, or full payment is not made at the time of closing for whatever reason.

Here’s what the BRA says: “The buyer agrees to pay directly to the Brokerage any deficiency between this amount and the amount, if any, to be paid to the Brokerage by a listing brokerage or by the seller. The buyer understands that if the Brokerage is not to be paid any commission by a listing brokerage or by the seller, the Buyer will pay the Brokerage the full amount of commission indicated.”

Second, you (the buyer) could be nailed for commission if you end up buying (or even renting) any property whatsoever if you don’t do it through the guy who made you sign the BRA. Even if you do it months after the agreement expires. Even if another agent shows you that property.

Here’s what the BRA says: “The buyer agrees to pay the Brokerage such commission if the buyer enters into an agreement within 90 days after the expiration of this agreement (Holdover Period) to purchase or lease any property shown or introduced to the Buyer from any source whatsoever during the term of this Agreement, provided, however, that if the Buyer enters into a new buyer representation agreement with another registered real estate brokerage after the expiration of this Agreement, the Buyer’s liability to pay commission to the Brokerage shall be reduced by the amount paid to the other brokerage under the new agreement.”

Third, if you (the buyer) enter into an agreement to buy a house, then get cold feet and back out, or decide you can’t actually afford it, or face death from your wife if you complete the deal, you’re screwed. Now your agent can sue you (along with the seller) since the agreement makes you liable to pay the commission as if the closing had taken place.

Here’s what the BRA says: “The Buyer agrees to pay such commission as described above even if a transaction contemplated by an agreement to purchase or lease agreed to or accepted by the Buyer or anyone on the Buyer’s behalf is not completed, if such non-completion is owing or attributable to the Buyers default or neglect.”

Yes, you should have a trusted agent assisting you in any purchase. But if you sign a BRA, you are the greater fool.

[aaron]

Re: The Elusive Canadian Housing Bubble

Do not use a real estate agent. Ever.

[Polish_Silver]

Re: The Elusive Canadian Housing Bubble

The realtor contracts are just plain ridiculous. But people keep agreeing to them. Before buying the 2nd house, they should have renegotiated the contracts with both realtors---make them split the fee.
We sold a condo ourselves once. It is paperwork, but doable. Let the title company do as much as possible. The realtors make plenty of mistakes, too.

[GRG55]

Re: The Elusive Canadian Housing Bubble

Yes, and jk's post on The Crisis in Europe, and, and, and ...

Always a gentle reminder that FIRE/FED/BoC/BIS/IMF/Oligarchs/etc. can kick the can much longer than even sane, logical, well-prepared people can believe.

Perhaps we should start one of those famous Canadian pools. You know, the one where everybody picks a date & time guessing when "the barrel" will fall through the lake ice - signifying the arrival of Spring.

When the bottom falls out from under each of these things is anybody's guess.

But, like you, I have noticed that the tone, frequency, and volume of things is ramping up. It appears to be getting sporty again.

Still "sporty" after all these years...
I am thinking about posting this chart under the "News with Antispin" forum to see if we can get some semblance of a rational explanation for such persistent, institutionalized irrational exuberance from our host.

[GRG55]

Re: The Elusive Canadian Housing Bubble

Elevated threat

June 12th, 2014

Despite being an accountant, Elaine still has a personality. “There’s something very wrong with this picture,” she fumes. “I can only say that this will end badly, and I fear it’s coming to an end soon.”

The burr under her saddle comes from watching people with no money make seriously bad decisions, thanks to seriously bad laws.

“Why do I live in a country where Client A can walk into a bank, get a mortgage for almost $1 million, with $50k down, even though he has never made more than $50k per year in his life? (And yes, true story, right now he’s making the monthly mortgage payments by renting out rooms-essentially he operates a rooming house-is this what CMHC intended when they said their mandate is to help provide affordable housing)?

“Meanwhile, Client B is a couple with $2.5 million in net worth. They wanted to buy a commercial building, with a $400k downpayment, for $1 million (mortgage = $600k). Three big banks later, the answer was a resounding NO.

They said the banks actually sit down in a committee meeting, and evaluate whether or not the property in question is worth it. Really? Banks doing their due diligence? As far as I can see this doesn’t happen in the residential mortgage market where you can get a mortgage for nearly anything, anytime, anyplace. Because the CMHC does not operate in the commercial market so the bank knows it’s got it’s ass on the line (ie-actually has to worry if it will lose money or not, imagine that!).”

Elaine’s totally correct. When it comes to handing out first mortgages for residential real estate, the bankers are poodles. But try to get financing to expand your welding shop and hire four more people, and they turn into rabid pit bulls. The risk in giving fat house loans to people who can’t manage their sock drawer is wiped away by CMHC. And this is how we precisely how end up with the condo economy.

“As an accountant I can see there is something very wrong with this picture. Sadly, too many of my clients have made big mistakes when it comes to residential real estate. Too much debt, too little equity, too many crazy hopes of getting rich quick. It’s gone on far too long and has dragged far too many people into bad situations.”
Well, Elaine’s not alone. She’s got me. And the Bank of Canada. Again.

That’s what this means: “Our analysis shows that household imbalances remain the most important vulnerability and could amplify the impact of external shocks. Despite some signs of a soft landing, valuations are stretched and there are signs of overbuilding. Canadian households are highly leveraged. Household debt-to-income ratios remain at historically high levels despite a recent moderation in the growth of mortgage credit and continued low-interest payments on mortgage debt.”

As I mentioned earlier this week, bank boss Stephen Poloz has delivered his SHTF report, detailing what he and the missus stay up at night worrying about. The top threat is overvalued housing and all of the billions in debt (a trillion, actually) that families have taken on so they can live beyond their means. For example, if China blows up (his example, not mine), we’re in deep trouble, with a severe impact because of falling commodity prices. And won’t that be fun in Edmonton and Calgary, where they think real estate will always go up? Or the shock could come from Europe, where things are so bad interest rates have been dropped to almost zero.

Such a threat was ‘moderate’ back in December, according to Poloz. Now is it ‘elevated.’ In fact the bank’s Financial System Review has just (for the first time) warned of a ‘sharp correction’ in Canadian real estate values.
So, add in our central bank to all those (like the OECD, The Economist and the IMF) who think millions of Canadians are sleepwalking into a financial smackdown. But this time the thinking is that it won’t take a spike in interest rates or a surge in unemployment to prick the bubble. External events, over which Ottawa has zero control or influence, could easily do the job.

Which, I think, is Elaine’s point. By letting the banks shift all the risk for dumbass real estate loans to the taxpayer, we’ve created this giant moral hazard. It’s now in the interests of bankers and their shareholders to encourage rampant real estate speculation and a culture of house lust so personified by yesterday’s heroine. So what if people have historic levels of debt? Or that the economy’s dependent on people selling each other houses instead of actually making stuff? Or that mortgage rates plunge, and real estate bloats? As long as everyone gets caesarstone and Miele, do we really care?

We’re seriously messed up. Lost our way.

[GRG55]

Re: The Elusive Canadian Housing Bubble

And the bubble lunacy continues to inflate - June 2014 data:



The formula

July 11th, 2014


“Ok,” says Joe, “so I was a bit curious about how this whole bidding war process works, so I decided to dip my toe in any see how far in the process I could go with a low-ball offer on a slanted semi.”

And he did. The prey was 105 Millicent Street, an unrenovated, somewhat scary semi on a 20-foot lot in the dodgy Davenport-Dupont area of Toronto, with laneway parking and ‘as is’ appliances. Asking: $599,000.

Of course, this is the sole hot zone. Despite what you read in the MSM, the Toronto market is not on fire. Sales are muted overall, with scant action in the high end and a growing inventory. But when it comes to semis costing under $1 million, it’s hipster heaven. For some reason, they love these half-houses where the person on the other side of the wall might be raising genetically-modified rats, collecting body parts or is simply an Abba fan.
Anyway, there were eight offers.

“I expected the usual agent tactics such as, “put your best offer forward, you might not get a second chance” or aggressive recommendations to remove any conditions on the offer,” says Joe, “but I never expected that my agent would pull out “the formula”. “The formula” is a highly scientific algorithm mastered by agents, which determines the final sale price based on the number of bids. In my case, this wizardry was used to recommend to me to adjust my offer to 16% over asking.”

The formula? I was hungry to know more. So Joe forwarded his agent’s instruction:

“The listing agent has strongly suggested that everyone come in with their best offer and they are not guaranteeing a second chance. If you have anymore money that you are willing to offer, don’t keep it in your back pocket,” she said. “Every agent knows they are competing against 7 other parties. There is a formula that we typically use for calculating what dollar amount to offer based on how many offers there are, this is typically 1% – 2.5% of the purchase price per offer. 2% per offer for 8 offers is $695,840.”

Silly, silly, naïve little Joe. He also wanted his offer conditional upon financing and a home inspection. So when the agent recovered from uncontrollable spasms of laughter, she replied:

“I know you really want to do an inspection as well but please be aware that this condition could also be a deal breaker. Entirely your choice, I just want to be honest and realistic with you. Another suggestion would be to up your deposit amount since you have two conditions. A stronger deposit shows more seriousness.”

So, there ya go. This is how virginal first-time buyers are talked up. It’s how a $599,000 house turns into one worth $695,840 before you’ve even put pen to paper. It’s a lesson in how the vulnerable are pushed into buying geriatric pieces of residential flotsam like this without a shred of protection against defects, or shielded from the real possibility of a low appraisal and a financing crisis following a nutso bidding war.


Joe’s story, unfortunately, is typical. Thousands of properties have been purchased recently by people who paid too much, absorbed excessive debt and have been left exposed to years of repairs on junker houses. It’s hard to believe the kids can be talked into spending $600,000 or $800,000 without even a working knowledge of the structure they’re taking on, or devoid of a financial parachute – and do it all in a competitive, pressure-cooker environment, egged on by greedy agents and a voracious vendor they’ll never see again. But it’s common. And it’ll end in tears.

Dan Werner is a well-known equity analyst for the Chicago-based investment firm Morningstar. A smart dude, actually. He thinks people like the eventual buyer of 105 Millicent are toast.

“Many investors believe that financial crises are things that happen to other people in other countries at other times; crises do not happen to us, here and now,” he says in a report predicting our housing market will crash by 30% over five years. “History has shown, time and again, that ‘this time’ is not different. We believe the same is true for the future of Canadian residential real estate.”

He carefully explains why. It’s worth reading about. Especially if you believe what your mom told you about buying a house.

For example, the argument is made on this pathetic blog by house-humpers that real estate’s safe because Canadians have tons of equity in their homes. Well, turns out we have exactly the same equity Americans had in 2005, before their market collapsed. In fact, at the height of the bubble there 22% of mortgages were for 80% or more of the value of the homes financed. In Canada the number is now 23%. Oops.

And Werner points out that of the 2.5 million hipsters who have cashed in RRSPs to buy houses, a quarter can’t pay the money back – even with the ridiculously lenient 15-year period given them. The conclusion: they’re drowning in debt. So just imagine what any kind of mortgage rate hike will do. As loan costs return to historic norms over five years, says the analyst, housing costs could consume 75% of the average person’s take-home pay.

Finally, what about the way CMHC backstops the banks, and therefore the entire housing market? Well, a 20% plop in house prices, the report claims, would trigger $12 billion in default insurance claims and wipe out three-quarters of the federal agency’s cash reserves.

Isn’t it weird how every external expert – Morningstar, The Economist, Robert Shiller, the OECD – says Canada’s at risk, while we all know we’re special?

What’s wrong with them?

[dlaw52]

Re: The Elusive Canadian Housing Bubble

I just had a conversation with my 23 year old daughter about Vancouver real estate. She has been working as an online purchaser for over 2 years now and making a very good income. Her boyfriend is also well paid and works for his own company as a web designer so I have been fretting that perhaps they would take the plunge and buy at a very bad time. I was a bit worried about this how this conversation would go as she has a tendency to the opposite of what I suggest (a strategy that has worked out quite well for her funnily enough) I brought up the subject but she cut in telling me that she was not interested in buying at this time as prices were just too expensive and that she felt that she would be better off to continue renting. She told me about a conversation with a couple of health care professionals she met on a recent trip to Costa Rica and how they were all feeling pretty much the same. After I pried my jaw from the table I commended her on her wisdom and felt a bit better as it would seem that not all young people her age are willing to play the game. Hopefully this is a trend.

[Polish_Silver]

Seeing Milan is believing

Apparently my ol' hometown, Vancouver, is being touted as a "superstar city", as desirable as London (the UK version), Paris and Milan (Milan?? ). Truth is Vancouver is an ugly city in a stunningly gorgeous setting (when it's not raining). Time to check in with Garth:

I visited Milan briefly for a job interview. The core of the city has the tourists, Da Vinci spots and insanely expensive housing. The bulk of the area, where normal people live, is butt ugly. Worse than Silicon valley by a long shot.

It is simlar in Grazz. The core is very scenic, but much of the outskirts is not beautiful.

Prague too, except the beautiful part is quite large and definitely a great place to spend a week (month?).

[GRG55]

Re: Snatching the pebble!

Is there not some truth in this? When I visited Vancouver in the mid 1990's, the word was that people from Hong Kong were buying up everything. I have never seen numbers, but aren't there enough scared millionaires in China to buy up the entire west coast of British Columbia?

Could we finally be approaching the final blow off phase in Vancouver? Seems some of the natives are now trying to buy the place back from the Chinese...



Lost dog

July 14th, 2014

Days ago a blog dog and occasional poster from Kitsilano made a conditional offer in his Vancouver hood. Then he sat and wrote a long note about why he regrets me.

"It’s been a long journey,” he started, “but I am saying good bye. I have read this blog consistently almost from the beginning. I have no doubt it has helped many people throughout Canada make informed decisions about finance and real estate. Unfortunately, you did not help me one bit other than provide occasional entertainment.”

For you heathens, Kits is one of Van’s it neighbourhoods. About 40,000 people live in this piece of the Westside between the Art Deco Burrard Street bridge and tony West Point Grey. It’s young. Over 60% of the residents are below the age of 40, and they earn about the average for the city – sixty thousand. And yet, thanks to low mortgage rates, basement suites, the Bank of Mom, house lust and (as noted below) foreign buyers, the average detached house costs almost $1.6 million.

(By contrast, the centrally-located, Toronto demand neighborhood of Leaside also has an average house price of $1.5 million. The average household income there is $330,000.)

So why would people making that kind of income over-extend to buy a house that comes with a lifetime of debt?
Silly. This is Vancouver. The only point of existence here is to own a house. And to hate those you perceive are preventing it.

“Your advice about Vancouver was dead wrong,” says the Kits dog. “Man up and admit it. The market should not have been measured relative to the rents and income of residents. It is truthfully driven by foreign investment. I live here and know – you do not.

“We contacted the nice Asian couple who has been subsidizing our rent for 18 months. We asked if they wanted to sell and if so how much they wanted. They wanted $1m more than they paid in 2010. Virtually every house in our neighbourhood is now owned by mainland Chinese. The house next door to the one that we are purchasing just sold. It is now being advertised on craigslist rentals properties. Clearly, an “investor” purchased the property.
“There are 60 schools in Vancouver with more than 50% ESL students. Some schools have more than 70% ESL. Did that happen by accident? Does Pickering have schools with 70% ESL?

“The real estate prices in this city may or may not end badly. As long as a significant number of mainland Chinese want to park money in Vancouver there will be less and less opportunity for local tax paying residents to buy a single family home. Go ahead, call me a racist and tell me there are no stats to support my assertions. My response – good bye.

“Your arguments made good sense and we decided not to buy. Who could have predicted that our city would be purchased a little bit at a time by foreigners until they dominated the market and started competing against each other for property? Clearly, you and we did not. Do everybody a service, and stop implying this market is like every other market. It has unique aspects, and one of them is material foreign money.

“It no longer matters anyway. The average family in Vancouver can no longer afford a single family home. Foreigners will continue to buy and they will play musical chairs with each other until the music stops. Most people you guided against buying a single family home in Vancouver likely never will be able to now. I honestly believed that with our family income and the length of time we have earned that income that we would have a very nice home by now. The market simply continued to move against us. Oh well, the good news is that we capitulated and I never have to visit this site again.”

See what real estate in Vancouver does to your brain? Bitter, resentful, angry. And after all that useful common sense and resistance has been worn down to the bone – capitulation. Now we have another young family gone from liquidity and mobility to debt and materialism. You can bet our departed colleague will come to defend and justify those prices that households like his cannot, and should not, afford.

Good luck to him. Hopefully, it works. But renewing a million-dollar mortgage in five years might be a life-altering experience. Is he counting on more Chinese coming along, making his place worth $3 million? How does this ever end well?

But let’s put perception aside for a moment. Instead, here are some facts.

The median sales price for a detached house in Kits is currently $1.6 million. Prices peaked at $2.3 million in the winter of 2013. We are now back down to where values were in early 2011.

More...

[jk]

Re: Snatching the pebble!

"vancouver goin'-up!" [for those who remember]

[aaron]

Re: Snatching the pebble!

"vancouver goin'-up!" [for those who remember]

He was right. We made fun of him.