Vancouver Condo Speculators

This long Maclenas article, “The shocking truth about the value of your home,” about the housing crash in Canada is mostly just more of the same, except for an especially long story about one Riaz Kassam. He’s been in every newspaper, just do a google search. He was also featured in the Globe & Mail on February 19th, 2009: “Bad timing exacts a heavy price.” (The Globe article also profiled Lou Skoda, the now-infamous 79-year old living on a fixed income who also bought a pre-sale that he can’t afford).

I’m not sure if I should feel bad for these people or not. On the one hand, these people will probably go completely belly up, as in bankrupt. Some were told by real estate agents, real estate companies, economists, and anyone else who had an interest in seeing the market continue to rise, that real estate prices would continue to go up for the forseable future. On the other hand, these people are the reason that housing prices are so expensive and unaffordable right now for everyone else. These people bought homes they couldn’t afford, based on the ridiculous assumption that the price of the previous residence would only increase, and the price of their new presale condo would only increase as well.

Before you feel too bad for Riaz Kassam, realize that he owns at least 4 downtown condos, which he rents out (so why does the media call him a computer analyst when clearly he’s more like a full-time landlord/condo-flipper?) and he recently tried selling a BMW online for $97,500.00. According to the Macleans article, he’s learned his lesson: “Kassam has learned that you shouldn’t always believe what you read in the papers and what the economists say on TV.”

I Told You So!

Hilarious video of bearish Peter Schiff on various talk shows in the past few years getting laughed at by his peers:

Somewhere around the middle of the clip there were a few stock recommendations. Ben Stein recommended buying Merrill Lynch when it was trading at $76.01. It’s now trading at $8.34. Someone else said Goldman Sachs is cheap and recommended buying it at $175. It’s now trading at $53.31. Ballsy Peter Schiff countered those recommendations with “Stay away from the financials. They’re toxic. They’re not cheap, they’re expensive. You think they’re at low P/Es? They have no earnings. Their earnings are going to disappear.”

Global TV Says Vancouver Housing Bubble Has Burst

Just over 4 months ago, I wrote that the Vancouver housing bubble had finally burst. The mainstream media has finally come on board and is supporting the idea that housing prices will fall over the next few years, based on a report from Central 1 Credit Union. Take a look at this report from Global TV:

Global TV is now saying that the “air is now officially out of the real estate balloon.” My only complaint with the piece is that there is no mention of the complete lack of affordability being any factor in the price drop. They are attributing the drop to “the global financial crisis and a big drop in consumer confidence” which have “combined to drive the housing market into recession.” Helmut Pastrick mentioned the “uncertain and volatile times we’re living in.” They say “how many times have we heard that somehow Greater Vancouver’s real market was insulated from what was happening in virtually everywhere else in the western world….that prices were falling?” They talk as if there are only two possible outcomes: either Vancouver is insulated from the rest of the world in which case our prices won’t fall along with the rest of the world, or Vancouver is not insulated in which case our housing prices will fall because prices are falling elsewhere. Even if Vancouver were completely insulated from the rest of the world (no trade, no communication, an island in the middle of the ocean) our housing prices would have to fall in order for affordability return to normal levels. Yet the piece leaves us with an overwhelming feeling that Vancouver’s real estate market woes are the fault of others, the fault of a US/world credit crisis and of a US/Canadian recession, the fault of some mysterious outside, external force. There is some mention that speculators and investors, who up until recently were lining up to pre-buy condos are likely to be the hardest hit, but no mention of their part in causing this mess. No mention of the fact that housing prices were just too damn high and affordability too damn low.

The real estate agent near the end says that we are now (or are soon to be) in a “classic move-up market.” What he is saying is that when housing prices are low, it is easier to move up from a small townhouse/condo to a house, for example. It’s funny because this is what a lot of people were doing when market prices were high; taking the equity out of their home and buying a second home or moving into a bigger house, while taking on more debt. Obviously when market prices are on the low-side it is a better time for a “move-up”, just like it is a better time to buy, or to enter the market for the first time. When market prices were high it is a better time to “down-grade”, or to leave the market entirely and become a renter.

The piece also got some of the math wrong. A drop of 12%, 13%, and 5% is an overall drop of 27.2%, not 30%:


The above is just a complicated way of saying that you had something that was reduced by 12%, then 13%, the 5%, the result would be a reduction of 27% from the original, not 30%.

Hmm, my guess is that no banks will be offering 0% down mortgages any time soon… at least not unless you have some other really expensive assets that they think they can repossess..

Predicting the Housing Market

Vancouver Condo Info posted two housing market forecasts from Helmut Pastrick, one from March 17th, 2008 and one from August 20th, 2008. They are remarkably different.

The first one from the CBC goes like this:

housing prices will continue to rise by as much as 10 per cent this year and as much as seven per cent in 2009

And the second one from the Globe & Mail goes like this:

housing prices, down marginally from their peaks early this year, are likely to drop by 10 per cent before the market rebounds, he said.

It’s amazing to me how Helmust Pastrick, Chief Economist of the Credit Union Central of British Columbia, can make such an awful prediction when so many non-experts saw this crash coming. It is impossible to know when the market was going to peak and start falling but it had to happen eventually. Armed with the knowledge that it had to happen eventually, how could Helmut predict a 10% rise in 2008 and 7% in 2009 knowing that at any time the market could crash? The only alternatives are that either he knew the market was going to crash soon but chose to ignore it or that he was truly convinced that the market was going to continue rising just like it has for the past 6 years. The whole reason why there were so many non-experts who didn’t see this crash coming is a) because of idiots like Helmut Pastrick who feed their garbage predictions to the media and b) the idiots in the media who quote the idiot experts and their predictions without questioning them.

Over at Vancouver Condo Info, one commenter said “That’s a whopping 20% difference. I am sure reporters will ask Mr. Pastrick the tough question: why the 20% change in forecast?” I’d like to see a reporter do this, however, it is not going to happen, or at least it won’t make it into print. If anyone does see anything like this, let me know.

Vancouver Housing Bubble Has Finally Burst

The Vancouver housing bubble has finally burst and here is just some of what I have seen in the past month or so that has led me to this conclusion:

Look for the real estate people to stay positive all the way down to the bottom. Check out this awesome graph charting David Lereah’s (US National Association of Realtors Chief Economist) comments.

Buy vs. Rent Calculators (for a Home)

I just discovered a great buy vs. rent calculator at the New York Times website. Check it out:

New York Times buy vs. rent calculator (don’t forget to check out the advanced settings on the right-hand side!)

Don’t forget about the VanCity buy vs. rent calculator, which I blogged about previously: Vancity buy vs. rent calculator.

The Canadian government also has their own rent vs. buy calculator.

B.C. Housing “Severely Unaffordable”

The 4th annual International Housing Affordability Survey has measured housing affordability in cities all over the world. Vancouver has a median housing price to median income multiple of 8.4 and Kelowna has a multiple of 8.5. 5.1 & Over is deemed “severely unaffordable. For housing to be considered affordable, the multiple must be 3.0 or lower. Assuming salaries don’t change much, that would mean the median house price in Vancouver would have to be $179,700 to be considered “affordable.” I’m not sure if that will happen but we’re going to have to see a decline eventually as the current levels are unsustainable.

Are Home Prices Peaking? um, yeah

This article asks that age-old question: Are home prices peaking? A recent report from Scotiabank says that each city needs to be evaluated on its merits, and that

Toronto, for instance, has seen a big rise in home prices over the past decade, but it’s happened fairly gradually, with prices going up by about 4% a year. The steady trend suggests that current prices are sustainable, at least for the short term. In comparison, the increases in Vancouver, Saskatoon, Calgary and Edmonton have been far larger and more sudden. “There is growing evidence of overvaluation in home prices in some parts of the country,” writes Adrienne Warren, a senior economist at Scotiabank. She adds that she anticipates a “cooling in both housing demand and price appreciation in the months ahead” across Canada.

A new report from Royal Bank says that “conditions in Saskatchewan, Alberta and British Columbia warrant caution.”

A professor from the University of Toronto says that:

The key factor for real estate forecasters to look at is affordability, which measures the percentage of our incomes that we spend on our homes. Affordability is vital, because when residents can no longer afford local homes, prices stop rising. A lack of affordability led to the 1990 housing bust in Toronto. At that time, the average Torontonian with a detached bungalow was spending just over 60% of his income on housing. Right now, Torontonians are spending about 45% of their incomes on housing.

And how affordable is housing in Vancouver right now?

 In Vancouver, owners of detached bungalows spend an incredible 71% of their incomes on housing.

Surely the 71% figure must be a percentage of after-tax income. If it were as a percentage of gross income, after income taxes are taken into account there would be virtually no money left for food for the average detached bungalow owner. Yep, home prices in Vancouver have peaked alright.

B.C. Isolated From Economic Storm?

If you want a laugh check out “B.C. isolated from economic storm, say analysts.” There is a bit of a mismatch between the headline and the article. None of the analysts quoted in the article actually say “B.C. is isolated from economic storm.” The dumbest quote award goes to Aron Gampel who apparently said “we have this commodity and construction boom of epic proportions which is keeping the western provinces essentially at full employment.” Who knows, maybe he was misquoted; maybe he meant it as a warning rather than a positive thing. To me it seems like a BAD thing that a huge chunk of our employment comes from the construction/housing sector bubble (which is about to crash). Here’s another good one: SFU business professor Lindsay Meredith “predicts some British Columbians will start belt-tightening” but then a few paragraphs later Meredith “sees no black clouds on B.C.’s economic horizon.” Overall, shoddy journalism. Unfortunately there is no author given.