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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

April 11, 2016 | Cruel April

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

KISS modified

The intersection of greed and stupidity is a tough place. Katy lives there.

Three years ago the blog dogess emailed me the 1,100 square-foot semi she was renting in the “trendy and gentrified” Mount Pleasant hood of Vancouver went on the market for $900,000. That was outrageous, she said, “but not compared to the ex-hoarders piece of junk down the street selling for $1.1 million.”

Thirty-six months to the day, she was in touch again.

“Anyhooooo, move forward just three year,” says Katy, “and, after having reno’d the kitchen/living room, the place has just sold for DOUBLE the 2013 price, at $1.62million – and that was $300K over asking!

“WTF??????? It’s a 90-yr-old SEMI (as in only HALF of the property in the photo)! Can’t say I blame the owners for taking advantage of the sheeple’s insane panic mentality before things get messy! They literally doubled their money and if they’ve any sense they’ll keep it and run!

“Can you say tulips?!!!!”

So here’s the property:

SEMI

By the way, there was no Asian seller. No Asian buyer. Just a greedy vendor and a stupid purchaser, in collision.

This is worth mentioning since we have two seriously diverging local economies in the nation. Consumer confidence, incomes, job prospects and property values are now stagnant or falling in a majority of cities, from Saint John’s (the oil money is gone), to anywhere in Nova Scotia (or Saskatchewan), Winnipeg, pretty much all of Alberta, anywhere 60 km from King & Bay, Ottawa and all places where stuff used to be dug up, pumped, refined or machined. This is despite the fact mortgage rates are at record lows, and it’s rutting season.

So what’s happening in YVR, and to a far lesser degree in 416, is classic pre-crash behaviour. Prices have spiked insanely and with each spurt higher, they breed more excess. There’s panic buying everywhere, as an entire region (the Lower Mainland has about two million souls) comes to believe families are being “priced out forever.” You need only read the histrionic local media or listen to the cheap radio that city produces to know the Yellow Peril card is played daily, and effectively. People are being forced into buying decisions that were incomprehensible to them two years ago. Those wise enough to sell can name their price.

Housing’s become detached from economic fundamentals, including average incomes, net migration, debt service ratios, household savings, job creation and economic expansion. BC has turned into California, where a disproportionate amount of the GDP became dependent on a single industry (real estate). Eventually the state, the eighth biggest economy in the world (Canada is number 11) ran out of money, paying its bills with IOUs.

Today the average detached house in Van sells for more than $1.7 million. Sales are running 56% above the ten-year average. There is nothing – nothing – that people talk about, other than housing, speculation, flipping, land values, teardowns, mortgages and real estate wealth. It is an obsession, a social disease, a cult mentality that has led to excess beyond anything so far in the Canadian experience. This is the Klondike, Nortel and first sex all rolled together. Nobody can look away.

The search for reasons is academic. Many blame offshore investors, especially the Chinese, but that’s now all mixed up with the huge local Asian population. Others are savaging the real estate industry, assignment clauses, shady brokers and guys in shiny suits, soccer hair and cars with doors that flip up. Of course the cheap money policies of the Bank of Canada have been a big factor, along with parental financing and the fact Vancouver has more in-house rental suites than any other city on the continent.

But the real culprit is speculation. The fear of being priced out has pushed buyers to offer anything in order to own, and with increasingly large debt loads. Nowhere else in Canada is leverage used so massively or cavalierly – because everyone expects real estate values to continue to climb. In their eyes, the foreign money will never stop. Rates will never rise. Buyers will never prevail. Assessments never fall. And government will never cool the market – because it mean wholesale financial slaughter.

Geoff lives rents a condo in New West, thirty minutes from downtown Van. He just sent me this:

“Long time reader of your blog, but it all hit home this afternoon.  Got home around 3, to find a line-up, about 20 people deep, getting onto the elevator.  So many folks piled on, the damn thing broke down.  The reason?  Open house in my building.

“Decent looking place, but what the ad doesn’t tell you is that, rumour has it, the previous owner DIED of a drug overdose in the unit.  There were also about 3 SPCA orders posted to the door for a few months, so I’m guessing the tenants weren’t taking care of the place all that well.

“Based on the number of people here, I’m guessing the apartment will sell well above asking.  If a bidding war on a place someone died in isn’t a sign madness, I’m not sure what is.”

Remember these days. Your kids will want to know what happened before the event.

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April 11th, 2016

Posted In: The Greater Fool

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