Entries from March 2011 ↓

Grow a set

Banks slather over them. Cater to them. Draw them in. Builders tug the heartstrings. Feed the need to nest. Parents prod and push. Peers pressure. So, overwhelmed by marketing, media and societal expectations, young couples find themselves in bidding wars, standing in line outside sales trailers, borrowing unfathomable amounts of money, paying whatever it takes, and being reassured it’s all a rite of passage to adulthood.

Of course, it may equally be a path to penury.  Tens of thousands of new buyers in the last two years have gambled real estate values will only go up. Because if they don’t, well, fail. Even flatlined house prices will be a disaster once interest rates start to normalize at the end of next month and buyers fade. A correction of any kind would put them under water.

Suddenly, buying something costing hundreds of thousands of dollars with 5% down (or less), which consumes most of their disposable income, with a debt you can’t get your parents to fix, and is falling in value, would look idiotic. Like it does in the US right now. Or Britain. Or much of Europe. Or, soon, Australia.

Days ago I told you about a nascent movement in that country – with a Canada-style housing bubble – urging hormonal young property virgins to go on strike. The logic’s simple: reduced buyer demand will hasten lower prices. It will also give the kids some much-needed social reinforcement that refusing to buy a crappy houses from a greedy seller with a crushing debt, is cool.

Here’s an update: Since then the Buyer’s Strike has gained traction. This past week it was discovered by the MSM, and started blazing through the key social media sites. There’s now momentum behind it, as this television interview shows. The only question that remains: will Canadian kids grow a set?

While our spent youth drink the LePage-Re/Max Kool-Aid, the deluded citizens of Vancouver continue to bombard me with reasons why the Chinese will eventually eat all of it. Here’s one now:

Dear Garth: I enjoy reading your penetrating and insightful commentaries on the Vancouver real estate scene.  As much as I wish all you have predicted would come true, my reason begs to differ.  I am of Chinese origin (from Taiwan), but unfortunately the wrong kind for the Vancouver housing market.  In a few clearly futile recent attempts at house browsing I encountered, almost exclusively, hordes of Chinese buyers, sellers and realtors streaming through house after house, whose language I understand but with whom I apparently share little in common.  These are people who can easily put down $5 million in cash to buy a house with no questions asked, whereas I rely on a wage easily represented by that 31 to 1 price-to-income ratio for Vancouver.

This brings me to my question.  All the predictions you and other respondents made at your column about an impending bursting of the bubble seem to be based on one number, namely this price-to-income ratio of 31 that cannot sustain the current housing market.  But if I just step into any weekend open house in Vancouver, my logic tells me that the correct ratio to use should be instead the Vancouver house price versus the Chinese millionaires’ income, which is more like one-to-one.  And in this picture, Vancouver houses are really dirt cheap and has ample room to grow another several hundred percent.

I also know there is practically an endless supply of Chinese millionaires for the size of the Vancouver market, and they ALL want to buy houses here, driven by several factors:

  • The same mass hysteria that emptied all the Chinese supermarket shelves of salt during the recent Japanese nuclear scare.
  • All East Asian governments have recently implemented severe laws cracking down on property speculation, making gambling in Asian real estate not profitable any more.
  • Vancouver continues being ranked the number one city to live in the world by The Economist.  There is a Chinese obsession with rankings.
  • Vancouver has excellent educational resources.  There is a Chinese obsession with education.
  • Vancouver is one of the best North American cities for keeping up an East Asian style of living.
  • Buying with cash, these millionaires can afford to sit out any temporary downturn without lowering their house price, unlike in traditional bubbles.

I wish all your predictions would come to pass tomorrow so finally I would be able to borrow frrom the bank up to my eyeballs and get maybe 200 square feet of house somewhere in New Westminster.  But from what I said above and from what I read in the Chinese newspapers,  I do not believe it will ever happen.  Maybe you are trying to prevent a mass panic by not giving the picture I am painting?

Isn’t it time to get real and talk about the real price-to-income ratio as I described?  And isn’t the right question to ask what the BC government plans to do in the face of this runaway situation that will eventually drive every non-Chinese-millionaire out of a house?  Nothing?  This “bubble” is not like all the ones before, and relying on it to burst by itself because of the phony price-to-income ratio is unrealistic.  I can see this ratio go to the hundreds if nothing is done about it.  So please help me out here.

See what I mean? Delusional. The yellow peril thing is being played to the hilt by local real estate marketing groups like The Key, and repeated ad nauseum by the Vancouver media. There has not been a single hard number generated in the past three years to show the extent of Mainland Chinese money flowing into the city’s housing market. Just a short swim away, Victoria’s real estate board has found that 90% of buyers there are Canadian, and eight out of 10 live in BC.

Are Chinese buyers gobbling up some houses? Without a doubt. Are they responsible for runaway prices? Hardly.

Grab a mirror, Van City. Take a hard look. You’re house junkies. Get over it.

Now look at this. And tell me how it ends.


Seventy per cent of us own homes. Mortgage debt’s gruesome. Affordability sucks. So most families save nothing. Never have we gambled so much on houses. And has any politician talked about real estate yet?

Of course not. Tax credits for piano lessons, money for tuition, cheaper credit cards and an add-on to the CPP – all interesting, but basically irrelevant. A week into this federal election campaign we just don’t know where the parties stand on, say, banks giving mortgages to people with no money, CMHC’s unfunded liability, zero-down financing, taxpayer-subsidized real estate speculation, wall-to-wall debt, spiraling property and land transfer taxes or how anyone justifies a SFH price of $1 million in a city where families make $83,000.

In fact, real estate stuff – while at the very core of middle class finances – leaves most elected people flummoxed. In the Spring of 2008, still an MP, I published the book this blog is named after and tried to warn my colleagues that real estate speculation could help lead us into a financial mess. They didn’t care. That autumn, the bug hit the windshield. Right in the middle of an election campaign stocks markets tanked, fear exploded, jobs vanished and nobody could sell a house.

Today there’s a good case for believing risk is higher. Few of the reasons the world came to the brink of depression have been addressed. Governments owe far more. Most families have borrowed their brains out, while putting less in their RRSPs and more into paving stones and drywall. The Home Reno Tax Credit, all on its own, was responsible for adding billions to personal lines of credit, as people did all they could to spend $10,000 so they could ‘save’ $1,500. Argh.

Meanwhile, there’s a new war in Arabia, melting nukes in Japan, near-depression in America and too many people here tell pollsters when it comes to retirement, they’re probably screwed.

And the government party offers a $75 tax credit for art classes.

Ah well. In the last election the guy who won said there would be no deficit in Canada. And we bought it. Deja vu all over again.

But here’s one post-election result it looks like you can count on – an interest rate increase on May 31st. Given blog dog Mark Carney’s recent comments about leaping commodity prices along with his ceaseless warnings about our ongoing debt fetish, it’s almost certain. Carney has the numbers showing how real estate has completely messed up family balance sheets. Only by turning off the taps of cheap credit can he hope to do something about it.

And this will come on the heels of what’s turned out to be a crappy Spring real estate market in most parts of the country. In Toronto, March sales (they’ll be announced next week) are running below last year’s levels, making this the tenth consecutive month of YoY sales declines. As far as I know, that hasn’t happened for 18 years.

Sales are also brutal in the Okanagan Valley, prime Ontario cottage country, Edmonton, great swaths of the GTA and most of the Lower Mainland outside of nutty Richmond and volcanic Vancouver. In short, there are more markets in decline right now than ascending. And how could it be otherwise? People simply don’t have more money to spend – they just have a capacity for debt. As I’ve said before, were it not for cheap rates and government stimulus, we’d be back swapping squirrel muffin recipes. And, of course, both of those will end.

How horny has real estate made us? I whisk you to Victoria, where anguished dad Ted writes:

My son and his fiancée are in desperate need of advice.  He – a PHD candidate, she – a nurse.  He – no income except for education covered the most part by bursaries/scholarships.  She has a pretty good salary.

Problem – she came into the relationship with a condo in suburban Vancouver – lined up for granite/stainless and the like.  Prices are on the way down, so they listed and can sell for a 20k loss owned to the bank due to the decrease in mortgage rates over the years.  They rent a townhouse in Surrey and have the condo rented – not sure if it’s at a loss or not.  She doesn’t want to take the 20k hit so they are now talking about buying another place at a lower cost in order to not have to pay the 20k – madness, but she seems determined.  My son doesn’t have the time/strength to argue.

I’ve been reading your blog for a few years and agree with wholeheartedly with your views – I already see the ugliness in Victoria where I live. The question – can you give them some advice?

But there is none, Ted. Like my MP colleagues three years ago as the financial fires licked at their asses, most people pay no heed. They’re deniers. They believe what exists now will carry on forever, without end or consequence. They’ll argue rates can’t rise, credit won’t tighten and trouble visits only dumb Americans.

So I’m giving up. No more wagging finger. No sermons. No mocking of the idiots among us. There are just too damn many.

If political leaders don’t care about the sacrificial property virgins, house-locked Boomers, a debt-devastated economy or looming retirement crisis, why should I?

Damn, I miss the Rhinos.