Condo crack

Today’s breaking real estate news, here.

I am in Vancouver for a couple of days, where the shores of the inner harbour are bristling with sea-blue, aquamarine and pale green condo towers. This place is condo crazy. The host of the radio show I was on  talked nostalgically about the $1.6 million rented condo he was forced out of when the owner (who bought it for $750,000) decided to sell. He would have bought in a flash, he told me, but just did not want to borrow a mill.

Another local, a real estate entrepreneur and financial consultant, told me yesterday he had clients in his office this week – distraught. They bought five units in a new building for flipping purposes, but since the market’s turned sour – and since the local condo board outlawed rental units – they can’t sell, and they can’t rent. Financial Armageddon looms.

This is a city obsessed with condo crack, and on a desperate daily obsessive spree to find the cash to feed the habit. I’ve seen this movie. It ends badly. — Garth

Who’s buying Vancouver’s zillion-dollar condos?

The hottest ticket in Vancouver this week was not for a concert or a play, but a lunch hosted by the Urban Development Institute. And they call this place No Fun City.

The guest speaker was local condo merchant Bob Rennie, whose take on the city’s unrelenting real-estate market is considered by many to be as reliable as government bonds. The event was sold out weeks ago.

To call Mr. Rennie a condo seller doesn’t quite do him justice. In the past 10 years or so his company – Rennie Marketing Systems – has sold more than 10,000 units. Last year, sales totalled $1.5-billion. Not bad for a kid who grew up without much on the city’s east side – long before homes there became million-dollar lottery tickets.

The 51-year-old’s success has helped him put together a much-prized personal art collection, buy a gold Bentley coupe and purchase the zillion-dollar home he lives in.

Mr. Rennie is constantly evaluating and judging the market, betting on where it is – and isn’t – going. For the past decade, that’s been pretty easy. The sales-and-price trend in Vancouver has graphed in pretty much one direction: up. But many in Mr. Rennie’s audience this week were anticipating he’d be forced to deviate from his usual cheery script.

In fact, hours before he rose to speak, media outlets were reporting private-sector forecasts that showed the Canadian housing market cooling. Scotiabank warned that price gains from housing would ease in 2008 and slow down further in 2009.

If there is a slowdown under way, Vancouver seems to be immune from it. At least, if we’re to believe the mind-boggling numbers provided by Mr. Rennie.

Consider this: Of the 2,743 condominiums expected to be finished this year, nearly 90 per cent are already sold. There are 2,925 condos scheduled to be completed in 2009; 98 per cent of those are sold. And 83 per cent of the 714 that will be finished in 2010 are gone.

Many of the condominiums are attached to luxury hotel developments. Mr. Rennie is selling 123 units at the Ritz-Carlton, which is scheduled to be completed by 2011. Actually, he’s already sold 60 per cent of them at an average of $2,300 a square foot. That’s right, a 1,000-square-foot condo in downtown Vancouver that you can’t get into until 2011 will cost you $2.3-million.

Mr. Rennie said he used to joke that the per-square-foot cost of a condo in the city would be 2010 by 2010. Well, 2010 a square foot has come and gone.

The Ritz is asking $29-million for its penthouse suite, by the way. The one in the Residences at the Hotel Georgia sold recently for $18-million. And Mr. Rennie just unloaded the penthouse at the Shangri La, which isn’t even completed yet, for $16-million. Three years ago, that same penthouse, not yet built and 1,000 square feet smaller, was on the market for $5.3-million.

Can you believe these numbers?

Who’s buying up all the condos in the city? Well, a good percentage of the purchasers, as it turns out, are offshore investors, people making scads of money in China and Korea, Iran and Europe. And now, according to Mr. Rennie, Russia’s nouveaux riches are moving into the market in a big way.

Personally, I don’t get it. There are other cities in North America that have far more going for them than Vancouver but have not witnessed nearly the same run on their real estate. Chicago is one that comes to mind.

In Vancouver’s case, the old real-estate adage – location, location, location – seems to be true. The value of the city’s land and housing seems to be mostly about where the old town is situated.

Yes, you can live an outdoorsy lifestyle here. And there are some great restaurants. But let’s face it, much of the architecture is third rate and the city is bereft of the kind of cultural institutions that define great cities; that define the world-class city Mr. Rennie believes Vancouver is.

I don’t see it. Not yet.

Now, having foreign investors gobbling up the condo market isn’t all bad. Many have no interest in living in the units they own. They probably don’t even know what they look like. So they rent them out to people who effectively pay the owner’s mortgage, which is how the rich get richer. But the investor condo has become an important supply of rental housing in the city, which is dwindling at an alarming rate.

Who knows where this is all heading. Listen to Mr. Rennie and there appears to be no end in sight to the fantastic escalation in real-estate prices here. He may be right. In Paris, real estate is now so expensive investors are buying 1/11th of an apartment, according to a story in yesterday’s New York Times.

Anyone want to go in on a condo with me?

52 comments ↓

#1 Popping Bubbles on 05.21.08 at 9:18 pm

Industry participants (aka The Real Estate and Indebtedness Mafia) willfully ignore and publically downplay what is going on. The mainstream media are their paid shills (grab a weekend paper and look at the percentages of advertising which is real estate or lender related!). Instead we should all worry just a little (but not too much) about…

a) the fact housing affordability is at its worst level since the last housing bubble burst [RBC. Housing Affordability. Mar-2009, p.1]

b) the fact that real housing prices have increased substantially more than during the last three housing cycles dating back 40-years (all of which ended badly) [Scotiabank. Real Estate Trends, 26-Feb-2008, p.2]

c) the fact that real housing prices in Canada have risen more from trough to peak than in the U.S., where prices and the general economy are now tanking [Scotiabank. Real Estate Trends, 26-Feb-2008, p.2]

d) the fact that Canada’s housing prices-to-rent ratio is higher than in any other OECD country save Spain and 90% higher than the long-run trend [OECD Economic Outlook No. 82, December 2007. Data table can be found in the housing price ratio tab of http://www.oecd.org/dataoecd/6/5/2483894.xls%5D

e) the fact that Canada’s housing prices-to-income ratio is 32% above historic trends and substantially above the ratio which prevailed when the last housing boom bubble popped in the late 80’s / early 90’s [same source as (d)]

f) the fact that the unprecedented run-up in prices have been fueled by a proliferation of risky lending practices such as (i) a decrease in the required down payment from 10% to 0%, (ii) an increase in the allowed amortization from 25-years to 40-years, (iiI) the proliferation of 7% cash back mortgages and other lending gimmicks (teaser rates, step mortgages, skip a payment, builder rate buy downs, etc.), (iv) the proliferation of home equity lines of credit, and (v) lenders not being on the hook for the vast majority of risky loans they write (CMHC guarantees low-down payment and/or extended amortizations)

g) the fact that studies show typical consumers do not fully understand the implications and risk of low down payment, long amortization and gimmicky (e.g. 7% cash back) mortgages. How many consumers do you think have run a scenario analysis which asks, “what would happen if interest rates went to 8%, 10% or even 12%? What would happen if my partner or I lost our job? What would happen if real estate prices dropped by 10%, 20% or 30%? What impact will extending myself for this house have on my retirement plans?”

h) the fact that housing bubbles around the world are beginning to deflate. By way of example, the UK (admittedly a worse market then ours) mortgage lending in the first quarter is down 40% to the lowest level in 33-years and things are only beginning to get rolling there. In New Zealand housing sales are down 53% year-over-year. And we all can see what is going on in the U.S.

i) the fact that housing construction is far in excess of household formation. CMHC data shows housing starts averaging 226,000 units per year from 2003 through 2007, 33% per year above the roughly 170,000 net new households formed each year [as estimated by TD Economics and others]. Based on housing permits and starts, this trend is expected to continue well into the future.

j) the fact that Canadian MLS housing inventory is at record highs while at the same time the number of sales is dropping dramatically [Canadian Real Estate Association (CREA)]

k) the fact consumer indebtedness is at record highs relative to disposable income [Vanier Institute. The Current State of Canadian Family Finances. 11-Feb-2008. p.28]

l) the fact that savings rates are close to nil even though the baby boomers should be saving for retirement [Vanier Institute. The Current State of Canadian Family Finances. 11-Feb-2008. p.9]

m) the fact that Canadian incomes have stagnated. Statistics Canada recently reported “that adjusted for inflation the earned income of the ‘average’ Canadian — the so-called median income – was the same in 2004 as in 1982”

n) the fact that the economy is bordering on a recession. The high Canadian dollar has pounded exports and the U.S., which absorbs some 70% of our exports, is likely in a recession. And what would happen if the rose comes off the construction and commodity bloom? Heresy I know, but both of these sectors are well above trend and are the only real source of strength in the Canadian economy.

o) the fact that inflationary pressures are building, raising the prospect of higher interest costs for borrowers.

I guess it is easier to put on our rose colour glasses, look in the rearview mirror and admire how pleasant the trip has been. Never mind the cliff dead ahead.

#2 Sphinx on 05.21.08 at 10:07 pm

Hi Garth,
Great post!… expect record comments on this one as it touches on how euphoric the vancouver market has turned into.

As for insane prices paid for these ‘boxes in the sky’ (aka condos), could it be that those “off-shore investors” finding a safe haven for money laundering in the Vancouver RE market?!, why not go Florida or California??? both beat B.C./vancouver weather to say the least, and an investor could buy a mega house there for same amount of $$ paid for a condo in vancouver…..just wondering.

Sphinx

#3 P* on 05.21.08 at 10:52 pm

“…and since the local condo board outlawed rental units…”

Is that legal?!

#4 Adam on 05.21.08 at 10:56 pm

Vancouver IS NOT DIFFERENT. It’s actually quite the dumpy little town. And now it’s going DOWN DOWN DOWN. I’ll enjoy it too.

#5 Another Albertan on 05.21.08 at 11:29 pm

Popping Bubbles – what are you going to do when you run out of “regular” letters? move to the greek alphabet? :-)

“as you can see from my point lower-case sigma…”

#6 SMWhite on 05.22.08 at 12:03 am

Read that article the other day, love how Vancouver gets compared with Paris, just priceless. Apparently the author of that article is also a valued customer of Vancouver’s “world class” needle exchange program.

Quick get into the market before its to late and you’ll NEVER be able to afford a “con” doh!!!

I bet that it was 40 year mortgages that helped in that whacked out 5 condo spending spree, maybe even 7% cash back? Sweet!

Sounds like Casey Serin but dumber, at least Casey stayed out of the condo market…

#7 vultur on 05.22.08 at 12:08 am

Garth,

Agree with every letter of your post. Van City is Toast City in the not-too-distant-future.

#8 mohican on 05.22.08 at 12:30 am

Spot on Garth.

Vancouvers condo speculators are going to be led to the slaughter soon. Inventory is going through the roof and sales are dropping like a stone. We all know how that story ends.

#9 Peter on 05.22.08 at 12:30 am

Garth, even Toronto has these guys from China, Korea, Russia buying condos and flipping it, i witnessed many chinese and korean free newspaper from realtors across the GTA are secretly advertising “Canada Real Estate Investment Fund” managed by their own realtor’s firm..They also promised any “HOT” money who wants to invest into this pool will generate guaranteed income of 10 % interest pa plus flipping bonus…

#10 Future Expatriate on 05.22.08 at 12:31 am

I’ve seen that movie too. In the US, the hi-rises were called “The Projects.” They ended up razing them to the ground.

The condo towers might be pricier, but they will end up every bit as vacant, and inevitably, every bit as run down as those who are foreclosed on take their revenge before they leave, leaving hi rise smelly slum tenements full of crackhead squatters. Soon to also-be-known-as “The Projects”.

With a similar fate.

Yes, the movie indeed ends badly; VERY badly.

#11 Peter on 05.22.08 at 12:32 am

Last to comment, Rennie Marketing has very aggressive condo advertising in all across GTA too..looks like he is very well diversified and attract alot of big boys banging on their advertising for them..

#12 snapshot on 05.22.08 at 12:46 am

Not to mention the serious drawbacks inherent in living in one of these Blue Tarp Specials. Dealing with the strata council in a town where everyone would really rather not have anything to do with anyone else is not pleasant, and often not even productive.

At the prices involved, these units really don’t have anything to do with being a place to live any more than a new Bugatti is primarily a means of transportation. The time is long past since the cash-strung average worker, such as tug deckhand or nurse or hardware store clerk or logger, could afford to live in anything like that.

Life is generally very expensive in Van, from exorbitant provincial and federal sales and imcome taxes to car insurance to gasoline to rent to lift tickets even. But the psychological pressure to ‘live well’ is also very high – in a place where most people are not able to do that due to prices and extreme job competition. Add to that kind of stress the depressing gloom of constant dark clouds and rain for 6 months at a time, and the pressure-cooker bickering of too many people living in too small an area as well as many trying to be more politically-correct than the next person, it’s no wonder that people are psychotic or at least squirrelly by February every year.

In order to enjoy a normal life there now, substantial cash injections from abroad or from savings or from success elsewhere are needed. This is not Abu Dhabi, where large sums can be earned by many through a variety of [legal] specialties. Further, you need to fly out to somewhere dry and sunny at least once a year in late winter, preferably twice a year, to keep from going nuts. That is becoming prohibitively expensive too.

A half-century ago when costs were a bit higher than elsewhere but life was still affordable and resource-based jobs were plentiful, and neighbors were decent and it was less of a fashion-show, you could have a relatively pleasant, inspiring life.

Now, it’s become way too weird and expensive in the lower mainland for most average people to stomach.

#13 Adam on 05.22.08 at 1:29 am

Snapshot, I think you’ve summed it up nicely right there. Something stinks in Vancouver and it’s not the pulp mill anymore that’s for sure. Take a look around at all the insane things no one can afford. The cars, the boats, the monster trucks. How is this stuff being bought? On CREDIT. Worse yet it’s HELOC CREDIT. That’s right these people have borrowed against equity that doesn’t even EXIST.

When the house prices plumit in Vancouver and the rest of this two bit country I wonder what they’ll rein in first? HELOCs. All you smith maneuvering fools who’ve bought into the oil bubble using your paper based house bubble money better cash out now! It’s gonna be fun.

#14 awum on 05.22.08 at 3:06 am

The inventory of condos up for sale has gone through the roof in the last couple of weeks in Greater Vancouver and Victoria. It’s amazing to watch it happen, especially at the time of the year when we usually expect the greatest buying frenzy. There are more properties for sale now than at any time in recent memory. Bob & co. may still have a few multi-million dollar condos to trade with swanky international millionaires, but the market as a whole is as flatulent and bloated as your grandmother after a bad burrito.

#15 Bruce on 05.22.08 at 3:34 am

Adam,

Your guess is as good as mine. I sure don’t know where people are getting all their money… Hell, I’ve seen the cost of everything go up and up(except of course my paycheck). Nobody can save anymore. The cost of gas, utilities, groceries, and everything else has gotten out of hand.

When does this insanity end? Everything is just money, money, money today. Economic collapse, as awful and devastating as it would be, is our only solution at this point. Let’s just start over again, and this time, keep all the crooked and corrupt bastards out of the game…

#16 liverless on 05.22.08 at 8:28 am

popping bubbles – great post. that’s excellent to show the sources of the information. Very informative.

#17 justmovedtoTO on 05.22.08 at 9:20 am

Having recently moved to Toronto I have found this sight to be of great help. Our house sat on the market for 8 months in Ottawa, with price reduction after price reduction until it sold. Having armed myself with knowledge from this site we decided to rent as we did not have more than 5% downpayment, but let me tell you all the banks wanted to give me loads of cash even though my wife has been at home with our child for 2 years, of course they were peddling the 40yr mortgage and “don’t worry about the dp, you don’t need one, look how much house you can afford now”. I worked in the credit card industry and I am now with another financial institution and delinquincy is up big time with all the borrowing, mirroring the same trends that occured in the US before things tanked, mortgages are down because we don’t offer terms over 25 years and creditworthiness has lopped off the bottom 25%. The analogy is that the US got pneumonia and Canada is going to get the flu.
All in all I was lucky enough to find this site, run the numbers and realize if I bought a house that if there was any bump in the road in the next few years with another kid on the way, I would lose the house, any downpayment, any equity, and my sanity.
Please keep posting factual information to help other consumers make informed decisions.

#18 Cam on 05.22.08 at 10:40 am

Here’s your answer to why we’re addicted to condos:
http://www.ctvbc.ctv.ca/servlet/an/local/CTVNews/20080503/BC_Real_Estate_080503/20080503/?hub=BritishColumbiaHome

The only person who was actually considering living in one of the condos was a 19year old who was scared of being priced out of the market. EVERY one else was just looking to flip their assignment to a greater fool. Flipping assignments has been like a lisence to print money for the past 5 years. No wonder we’re addicted to condos.

I expect that when these condo developments do come to completion, a substantial amount will be for sale as the speculators try to exit. It will only make the pricing pressures worse.

Check out Paul B’s mid May numbers for Vancouver
http://vancouvercondo.info/2008/05/may-2008-mid-month-inventory.html
That’s quite a different picture

#19 shikko on 05.22.08 at 12:28 pm

Glad to see someone else point out that Vancouver needs to stop believing its own press. I have come to the conclusion that the only people who truly believe all this guano about Vancouver being a “world-class city” have never lived outside the lower mainland as a bill-paying adult. Paris? Please; have you even BEEN to Paris? Or Manhattan, London, Geneva, Tokyo, Chicago, LA or Rome?

Vancouver is not a world class city; it’s a seedy little port town with delusions of world adequacy. This stupid belief about its world status was arrived at as a rationalization for overpriced real estate; it’s world class-ness didn’t dictate the real estate values.

I will be a very happy renter when the bloodbath starts and these complicit shills and cheerleaders get bitten by the irrationality of the market they helped spawn. Too bad so many ignorant but otherwise innocent buyers will get slaughtered as well, but…welcome to capitalism.

#20 todd on 05.22.08 at 1:31 pm

I know a family in the GTA(Vaughn) who has been trying to sell their $ 1 Million+, 4000 sq. ft. home since March 2007 and haven’t rec’d a single offer yet. They bought it in 2006 (with almost nothing for a downpayment) to do a quick flip. Their real estate agent told them the old “con” that home prices will just go up and they can’t lose…. say what? now they’re slowly bleeding to death ‘cuz of higher heating costs, taxes, gasoline, food and any glimmer of finding a buyer has disappeared. Nobody has asked about their house in months.
They recently changed their real estate agent who told them that there are way more houses for sale than buyers in the GTA and whoever tells them that Toronto is still a hot market are blatant liars. They are gonna have to drop their asking price significantly just to attract some nibblers. The trickle effect of high prices for basic necessities, lost jobs, etc. is starting to show in the housing market and it’s going to get worse for anyone who needs to sell.

#21 Keith in Calgary on 05.22.08 at 2:33 pm

Calgary is having it’s own set of problems also……..construction is still going crazy just like Vancouver is (you should see all the holes in the ground right now in downtown Calgary !!) with something like 10K new units coming on stream in a matter of months.

However, roughly 4K are currently listed on MLS for sale today, and “month to date” only 360 units have sold, as sales are off 40% compared to last year.

Condo sales here are falling faster than keys out of a Lear Jet……..

#22 David on 05.22.08 at 2:44 pm

That was an interesting article. At this point condo prices have experienced a total disconnect from reality. The only thing keeping the bubble alive is ever larger injections of liquidity and escalated debt levels. It is now a case of escalation or collapse when properties become that unaffordable. No sane individual would take on a debt encumbrance well above $750K to live in a property that amounts to little more than a glorified apartment block. There will be a price correction and it will be large.

#23 JD on 05.22.08 at 3:56 pm

Hey JustmovedtoTO:
what neighbourhood in Ottawa were you selling in?? and were you just overpriced/too optimistic at the beginning? just asking…

I too see some problems in Ottawa, but am also seeing lots of contradictory info..

#24 SMWhite on 05.22.08 at 3:59 pm

Check out mls.ca for Calgary and Vancouver…

If you don’t narrow this down to $25K increments and make it explicitly condos or homes, it will return more then 500 properties and the search is incomplete, utterly insane.

Bob Rennie can spew his verbal diarrhea all he wants, these centers are catastrophically over built and even putting you baby toe in the RE water right now is time well wasted.

If there has been people leveraging their properties via HELC(Just like during the .com and telco craze) and taking 7% cash back to pump into the TSX betting on rising RE prices like some people are hinting at, when the TSX tanks like later this fall the blip on the screen we called a recession in 2001 – 2002 will look like Christmas.

There is a reason there is 45 billion in Canadian capital waiting on the sidelines.

Kind of makes you wonder if the media has been purposely deceitful or if the ones writing the stories are specu-flippers and actually believed this could go on forever? A little knowledge is dangerous!

Is the mania out west enough along with Toronto enough to kill the market cross Canada, I say yes…

#25 Adam on 05.22.08 at 5:57 pm

Ok why is it still heretical to be a bull on the west coast? The cooling RE market has hit the national newscasts a few times now. How can anyone possibly deny that this is happening? I’ve talked with people about this recently and they look at me like I’m crazy and then quickly spout off something about how it’s different here or whatever. What the hell is going on here?

#26 Vancouveritis on 05.22.08 at 6:31 pm

Is it Bob Rennie or Rob Many?

Anyone interested in reading more about Mr. Rennie?
There’s a great article on BC Business:
http://www.bcbusinessmagazine.com/bcb/top-stories/2008/03/01/long-walk-home

#27 wealthy renter on 05.22.08 at 9:44 pm

“Whoever tells them that Toronto is still a hot market are blatant liars.”

I wish this was true, and it may be in the market in aggregate. However, in my area of Etobicoke (W9) where the airplanes rattle your skull as you walk outside, homes not updated since the 1960s (bordering on one of the most blighted areas of any major city in Canada) are selling in days. They are all very expensive and all gone.

#28 wealthy renter on 05.22.08 at 10:09 pm

Sorry to answer myself. This multiple personality moment is brought to you by the letter “B”, for bubble.

Toronto is a bubble, but I agree with Mr. Turners’ original thesis that housing [in Toronto] will correct around 2015.

There are virtually no children in many established SFH
neighbourhoods in this city. They are like ghost burbs with nobody around. The homes are mostly occupied by early post-war boomers and seniors. Many of these people are/were working class, and the percentage of this cohort without pensions or savings will eventually want to retire. They will put a downward pressure on SFH in this city.

There might already be downward pressure on condos, but I can’t see the aforementioned SFH homeowners feeling the pressure to move.

I should trademark ghostburbs, like Realtor!

Wealthy Renter, ghostburb salesperson. :)

Nah, I am too much of a bear. I would call too many people stupid for taking 40 year mortgages.

#29 vultur on 05.22.08 at 10:19 pm

Calgary is having it’s own set of problems also……..construction is still going crazy just like Vancouver is (you should see all the holes in the ground right now in downtown Calgary !!) with something like 10K new units coming on stream in a matter of months
()()()()()()()()()()()()()()
Keith, those massive excavation sites are for giant OFFICE BUILDINGS that will eventually house thousands of high paying workers eager for housing. Unlike virtually any city is North America, Calgary is experiencing an unprecedented commercial office boom.

As a resident of Alberta you are a beneficiary of that growth through super-low taxes, the highest per capita access to hospital as well as many other benefits.

Enjoy the prosperity of your province Keith. The rest of Canada looks on in envy.

#30 snapshot on 05.22.08 at 10:53 pm

shikko,

Seedy? Well, the frequent cat-fights outside the North Shore bars on the weekend are pretty entertaining; OTOH it’s easy to get shot just by innocently sitting in a movie theatre on a weeknight. And the drug industry with all its associated crime is rampant.

Don’t get me wrong, if you have substantial wealth it can be a great place. Get up at 5:30am, have the housekeeper make you a nice light breakfast of blueberry crepes, whipcreme, OJ, and champagne in front of the fireplace, while watching the fog dissipate from English Bay in the sunrise. Then drive the new Bentley down through the Properties past old man Pattison’s place whilst silently cursing him for every one of his lousy billboards. On over the bridge for a great early swim in Kits pool with the Masters. After a nice little coffee & croissant at Kits have a late morning tennis game with that great-looking grad student you met last week at a UBC function. Back over the bridge to change, have a tasty lunch around Park Royal somewhere, then on to check on the ship chander’s spring cleanup work on your twin-diesel cabin cruiser at the marina. Meet some friends, arrange for another great evening meal at the Beachhouse in Dundarave and set a time for the Saturday Rendezvous at Blackcomb, then do some shopping at Park Royal. Life can be good. But you’re not going to make money doing it, much less save any.

If you really are attracted to the haunting and occasionally brilliant landscape, it would be better to be based out of Dubai, and just keep a 48-foot Sundancer stocked at an accessible local marina. A couple of times a year, you could take an A380 sleeper cabin nonstop to California, chill a week at Catalina or Laguna Niguel, do some shopping on Fashion Island, see a concert at the OC Performing Arts Center, then fly up to Van. Fish for salmon all the way up to Campbell River, maybe do some bear hunting a bit farther north, take a few lessons in a Schweizer back over at Pemberton, and make your way back down to the city for some slumming on Granville Island or a tennis challenge at Hollyburn. When you’re ready, fly down to Argentina for a week, then a leisurely week flight back through Barcelona and Zurich.

You’ll still be hundreds of thousands or millions ahead doing that for a decade than if you were be dumb enough to buy some shitty condo in soggy downtown Vancouver, and try to time-share it out.
Boats hold their value way better than condos do, too.

#31 patriotz on 05.23.08 at 2:08 am

Anyone doubt the bust is on in Calgary?

Go to http://www.mls.ca and find any property for sale. Any.

Now go to:

dmzwww2.gov.calgary.ab.ca/Fairshare/script/asmt_TermsOfUse.asp

and look up the property assessment, based on market value July 1, 2007. I guarantee you the asking price will be below assessment, ofter >10% below. And remember that’s just asking, it will sell (if it sells) for less.

#32 David on 05.23.08 at 2:26 am

Vultur, you have a great enthusiasm for Calgary real estate. The bubble in Calgary can not continue, no matter how much you may wish it to be so. House prices outstripped incomes about 2 years ago and banking on yet more booming prices sounds silly. The Calgary market may have some stupid pricing, but compared to Vancouver aka Lotus Land the correction will be smaller.
Calgary needs a 50% inflated adjusted correction. Vancouver needs a 75% correction in house prices. Vancouver real estate has been for the past decade the proverbial dog in the manger. I watched an insipid HGTV program the other day featuring some overweight housewife wringing her hands over an offer for $731 K for lousy suburban Vancouver bungalow.Since when did a 60 year old bungalow become worth $730K? The house and land was overvalued by $700 K

#33 JC on 05.23.08 at 2:30 am

“Too bad so many ignorant but otherwise innocent buyers will get slaughtered as well, but…welcome to capitalism.”

Hey, Shikko — do NOT call it CAPITALISM. Adam Smith, Mises, Hayek, the Chicago School et al, NONE allow for a Federal Bank, none allow for the perks and quasi-monopolistic banking privilieges that lead to lunatic low interest rates reduced for political purposes.

Don’t smear capitalism for the catastrophe that is Keynsian Real Estate Insanity.

Greed and gullibility separate Vancouverites from their moolah.

#34 justmovedtoTO on 05.23.08 at 8:37 am

Hi JD,
It was Russell township, about 25 minutes southeast of Ottawa, and area many people were trying to move to because it is close enough to the city but has a small city feel, when we moved 3 years ago prices just started to get out of hand, we bought a FSBO at saved about 40K. Our asking price was too high originally but the agent said people would buy up at the time. The was very little competition but the houses in the area just sat even though the prices were dropped. One house went down 20K in 2 weeks and sold for an additional 10K below their last price drop.
The Ottawa market used to be effected by military/RCMP transfers but this year it didn’t happen, govt didn’t want to spend a ton of money relocating people. With new housing conitnuing to be built east of the city, there will eventually come a time where there will be a surplus of inventory and a ton of retiring govt workers.
A few friends in the mortgage industry have told me that 70-75% of all their mortgages are 0 down and 35-40 yrs.

#35 vultur on 05.23.08 at 9:02 am

David,

I’m not focused on the next 18-24 months. There may be some ad justly short term in Calgary but of all the places in North America it appears singularly positioned to benefit from the resource boom that in a sustainable way. The tar sands deposits represent the largest source of non-conventional oil on the planet and a modern city that houses the intellectual power to control that resource will without question benefit tremendously.

Is an avg house worth $400,000 today? The market will determine that. However, once the market stabilized this city will continue to thrive.

#36 JD on 05.23.08 at 9:36 am

thx Justmoved!!!

the 70-75% figure is scary!!

I trust you remain a Sens fan despite moving to “Centre of Universe”!! ;-)

best wishes

#37 SMWhite on 05.23.08 at 10:14 am

#26, that article almost makes Mr. Rennie sound human or that he’s sorry that Vancouver has turned into the RE speculation capital of the world(Robert Schiller’s worlds not mine), hey it is world class after all!

I’m sure he has lots of $100 dollar bills to wipe his tears with… :)

http://www.cmhc-schl.gc.ca/en/co/buho/buho_007.cfm

Is it just me or is anybody getting any weird figures from this CMHC mortgage calculator? LMAO, like in the millions?

Interesting to know that the difference in a 25 to 40 year mortgage is you get an extra 25% on the latter.

I think the main thing is to consider is, is real estate a “safe” investment at this stage of the game? I don’t even think its wise purchase for a roof over your head almost anywhere in Canada. The rental vacancy rates are going up across the country and prices dropping or flattening out.

We never paid the price after the dot com bubble and its coming to roost…

As for Ottawa I’ve been watching the market closely and its now cheaper to get a new home then a resale(because of all the news real estate moguls watching all these “Flipping” shows). In fact Kanata was one of 5 cities in Ontario that prices dropped or remained steady(Except for keeping pace with the magical inflation numbers that don’t factor in energy or food). Orleans was up 4% and Barhaven kept pace with inflation at 3%.

Bad news in commercial real estate in Kanata though, and you can be sure that will put more downward pressure on prices. Ottawa albeit a more conservative market still has problems on the horizon, it just means you’ll lose a smaller portion of the homes net worth come a downturn, so less risk. If I drop 10% down on a 400K home I can gurantee I’m just pissing away that 40K because prices will recede by at least that much over the next 5 years.

Check out these articles:

http://www.canada.com/ottawacitizen/news/bustech/story.html?id=061b84f6-f3f0-4909-b1f8-facd7fba4bbb
http://www.ottawabusinessjournal.com/291579777804205.php

Patriotz, you must have been reading my mind on the Calgary mls.ca (And I’ve been a Pats fan ever since the days of Coach Rod Rust and Steve grogan, John Stephens, Irving Fryar and Andre Tippet) Weird!

#38 Keith in Calgary on 05.23.08 at 12:18 pm

Yes they are building a couple of office towers downtown……but we are discussing rediential real estate on this blog…….and that is what I was referring to…….

The numerous condo towers going up far out number office towers…….I can make you look even more foolish and list them all by name and address if you want.

#39 vultur on 05.23.08 at 12:53 pm

I think the main thing is to consider is, is real estate a “safe” investment at this stage of the game? I don’t even think its wise purchase for a roof over your head almost anywhere in Canada. The rental vacancy rates are going up across the country and prices dropping or flattening out.

_____________
This information is just inaccurate. Vacancy rates are super-low in Calgary and Toronto. Also, it is counter-logical to your assumptions that it’s a mistake to own housing at current prices. If you believe that’s the case then you should also believe that there will be a corresponding flight to the rental market which will boost demand and cause rents to spike.

Round and round you seem to go…

#40 shikko on 05.23.08 at 1:06 pm

snapshot said:
“Seedy? Well, the frequent cat-fights outside the North Shore bars on the weekend are pretty entertaining; OTOH it’s easy to get shot just by innocently sitting in a movie theatre on a weeknight. And the drug industry with all its associated crime is rampant.”

There we go. I think this is a pretty good definition of “seedy”, to go along with having the poorest postal code in Canada, which people in The Best Place on Earth &tm; seem to want to forget.

“Don’t get me wrong, if you have substantial wealth it can be a great place. (snip)”

I would like to point out there are practically no cities anywhere on the planet which cannot be made into a great place if you have “substantial wealth”. I’ve heard wonderful things about Karachi, Johannesburg, Delhi, Rio de Janeiro, Saigon and Moscow, too…but I wouldn’t want to live in any of them without the access to the “substantial wealth” component of the equation.

#41 golden on 05.23.08 at 4:44 pm

Prices in Calgary will fall 50-60%. The last run up was all speculation. Who wants to live there anyway? Everyone wants to live in Vancouver for its warm climate. Don’t you that?

#42 Another Albertan on 05.23.08 at 6:15 pm

RE: Calgary rental vacancy rates

CREB reports about 1 to 1.5%
The apartment owner’s association quotes 4 to 4.5%.
Another “expert” says that it could be around 7% if you factor in the condos that came onto the market in 2007, tried but couldn’t be flipped, and are now in the rental pool but are not counted “officially”.

#43 goomba on 05.23.08 at 7:43 pm

“This information is just inaccurate. Vacancy rates are super-low in Calgary and Toronto. Also, it is counter-logical to your assumptions that it’s a mistake to own housing at current prices. If you believe that’s the case then you should also believe that there will be a corresponding flight to the rental market which will boost demand and cause rents to spike.

Round and round you seem to go…”

Much debate about the impact of the coming housing crash on rental rates.

Thing is, a lot of housing has been purchased as “investments” either as buy and hold, or spec flips. As prices rose, that spurred supply growth. I would imagine overall shelter supply, whether owner occupied or rental, has increased in excess of demographic growth or household formation, or whatever metric of shelter demand you care to use. I think also the turning of the market will cause a lot of those spec/flip units to turn into rentals, if the speculator cannot unload them.

Also where is the rental demand coming from? What is the pool of new renters causing the spike? There will be a few who sell to rent, but not that many. There will be the usual trickle of demographic growth, but there is no coming rental “spike”.

When you talk about a rental “spike” what you should be talking about is not so much a spike as a rental “slow sopping up of excess supply”.

I know vacancy stats are low in some areas. I question those stats, frankly. Much depends on what exactly is measured. Where I live, I believe vacancy rates reflect multi unit purpose built rental buildings, which misses most of the rental market.

#44 snapshot on 05.24.08 at 10:46 am

“I would like to point out there are practically no cities anywhere on the planet which cannot be made into a great place if you have “substantial wealth”. I’ve heard wonderful things about Karachi, Johannesburg, Delhi, Rio de Janeiro, Saigon and Moscow, too…but I wouldn’t want to live in any of them without the access to the “substantial wealth” component of the equation.”

Amen

#45 vultur on 05.25.08 at 4:14 pm

goomba,

Much depends on the location. All my buildings in calgary are full and have waiting lists. I’m in great locations and I maintain my buildings very well. My rents have risen about 75% the past 5 years. Not a bad cash return. Rent growth has certainly stabilized by as people who like to point out, I’m still hundreds of dollars per month cheaper than comparable condos if you factor in all ownership costs. And, Boardwalk controls about 20% of the entire rental market in Calgary- a market that has been shrinking with all the conversions. Granted there are no buildings to replace some of the conversions but there are more expensive and often not in areas that are as desirable. And yes, many of the converted rental units are thrown back into the rental pool, but certainly not all of them.

This situation has created a very strong demand for rental apartments in Calgary. You can talk all you want about the truth vacancy stats, but I can tell you that not only have I not a lost a month of rent due to vacancy in the past 5 years, my cash flow has grown dramatically.

It’s a great booming city and those who can’t appreciate it are either motivated by emotional factors are just not taking the time to appreciate the many positive aspects of living through such a pure growth period.

#46 goomba on 05.26.08 at 3:59 am

“All my buildings in calgary are full and have waiting lists.”

We are talking aggregate here. Not just you personally.
The question was whether there would be a “spike” in rental demand. Nothing you’ve said relates to that at all.

Do you think your units will be competing against increased rental supply or not?

#47 vultur on 05.26.08 at 9:56 am

Actually no. There aren’t many new condos close to me and when they do rent they’ll 50% more rent to cover expenses.

I see rents continuing to rise.

#48 SMWhite on 05.26.08 at 10:33 am

A “super low” vacancy rate is less then 1% a la Ottawa during the late 90’s when tech was booming, when your hitting 4% and 5%, danger Will Robinson danger, 10% like Windsor is the other end of the scale… Bad thing man, bad things!

Am I correct in understanding that rental rate increases are not regulated in Alberta like they are in Ontario, meaning you can raise your rent to whatever you want?

In 1997 I rented a condo from a Doctor that bought in 1988 at $125K. After almost 10 years, she was renting it for $800 a month minus hydro electricity.

After my first year in the building she offered me the unit for $85K. Being a lot green with finances and business cycles I passed on it. That unit now is available in the same building for $170K. From the bottom that unit would have paid back almost 8% from 1997 to 2007, but from 1988 only 2%, less than inflation…

Be careful where and when you buy and sell…

#49 Peter on 05.26.08 at 1:03 pm

I can tell you a condo worth $ 200k means you have to pay $ 1800 every month in expenses (includes mortgage, utilities, property tax, cable, home or cell phone, internet PLUS maintenance) and those are keep going up the roof with no CAP limits…If you make only $ 2000 a month (after tax) from your salary…you probably need to eat instant noodles everyday to keep your home or if you try to buy a 200K condo and try to rent it for $ 1300..good luck to you because you have to PAY the balance out from your pocket to cover NEGATIVE EQUITY…Its those who are flippers and are making money out of this country (china, russia or korea or other emerging market guys) can cover this by ripping off money from other people’s pocket…

#50 Ryan on 06.02.08 at 2:51 pm

Sell now, take a loss and save your soul while you still have one! (If you can sell still.)

These “investors/dumb realtors are going to fall hard. That is what happens when too many people “get rich” when they know absolutely nothing about getting rich. They have all gotten lucky and have pushed this market past the stratosphere.

Well, all realities that went up so unrealistically also fall down. Only the “true rich” who actually understand money and SAVING will survive.

#51 Is Canada Heading for a Real Estate Meltdown? — Dirt Simple on 06.02.08 at 11:54 pm

[…] I am with the price of housing in some parts of Canada.  I particularly enjoyed this post, called Condo Crack, about the insane prices of condos in Vancouver. addthis_url = […]

#52 littleblackduck on 11.17.08 at 8:46 pm

” As for insane prices paid for these ‘boxes in the sky’ (aka condos), could it be that those “off-shore investors” finding a safe haven for money laundering in the Vancouver RE market?!, why not go Florida or California??? both beat B.C./vancouver weather to say the least, and an investor could buy a mega house there for same amount of $$ paid for a condo in vancouver…..just wondering. – Sphinx”

The reason is because their criminal operations are in Vancouver. Even when I lived there in the early part of the decade, marijuana was a larger industry than forestry – it’s in the $$Billions. Then something like 95% of all heroin coming into North America supposedly comes through Vancouver. Then there’s the VSE – oops, I mean the Venture Exchange with all the shady penny-stocks and other investment scams.
As for the Penthouse suites? Prostitution. There’s a significant number of them that are owned by high-end escort agencies. After all, high-end hookers are the perfect match for high-end hotels and rich, but lonely ‘business’ travellers…