Globe & Mail article - "The great BC real estate bust"

[Johnny Horton]

BestPlaceToBeAGuidanceCouncellor:

No long term vision whatsoever. If things look rosy today then they must be rosy tomorrow as well.

Ok, if you're so smart then how come you don't have a house with a picket fence and a dog, and a garage, already paid off?
Instead, all we hear is JEER JEER JEER.

So why should anyone listen to your Spew...Captain Spewblower???

[noreason]

Mostly musing from me but when we bought our condo this summer, there were tons of young couples like us, first time home buyers driving up the market.

For my generation, we haven't seen prices for decent condos lower than 300k. That's reality and most of the generation seems to accept that although say 20 years ago, our parents could buy a very very nice house in that range. Whether the new generation are idiots or not for accepting these new prices remains to be seem but I think most of us want to move on with our lives in new homes.

The windfall from selling condos to us kids has allowed the previous condo owners to trade up to a SFH and increased competition in this area.

I don't think this will continue to be sustained much longer but expect prices to stabllize a bit in the near short term.

I have also heard that there is quite a large chunk of US mortgages up for renew in 2010 and their low introductory rates of ~2.5% will go up to around 4-6% range and with 25% of these renewals already struggling to keep with the current 2.5% payments.

I believe the US is probably in for another big dip in prices and if this prediction holds true, it will definitely affect us as well.

However, there's probably one major difference between us and the USA is in most states I believe you can just hand your keys back to the bank and walk away without any further penalties making foreclosure very easy.

Here, you are liable for any shortfalls from the foreclosure sale and any creditor can come after you up to 6 years after you've declared bankrupcy! Foreclosing is probably the very last resort for a CDN home owner (which seems to be owner occupied sales driving the market these days).

I believe if everything plays out, you will see prices dip again this time next year in both countries but not nearly as bad In Canada nor will there be much foreclosures as what the US will experience.

Anyone else have thoughts on this?

[bestplaceonmeth]

However, there's probably one major difference between us and the USA is in most states I believe you can just hand your keys back to the bank and walk away without any further penalties making foreclosure very easy.

Here, you are liable for any shortfalls from the foreclosure sale and any creditor can come after you up to 6 years after you've declared bankrupcy! Foreclosing is probably the very last resort for a CDN home owner (which seems to be owner occupied sales driving the market these days).

And THAT'S why our government is so desperate to keep the housing bubble inflated.

When it pops it's going to be an even bigger disaster than down south.

Hundreds of thousands of people stuck with their huge mortgages - screwed for life.

[noreason]

And THAT'S why our government is so desperate to keep the housing bubble inflated.

When it pops it's going to be an even bigger disaster than down south.

Hundreds of thousands of people stuck with their huge mortgages - screwed for life.

Conversely, this means prices are more sticky when buyers are committed to holding on even if their mortgages are underwater. There is less incentive to just walk away, less risk of a total collapse like in the States but *if* it happens it will be much worse.

I'm predicting there will be another correction (this coming from someone who just bought recently .. lol), prices will dip a bit but most CDN homeowners are in it for the long haul and won't just foreclose unless they have no other option.

[meeeeeep]

Plenty of states had full recourse mortgages (meaning the homeowner is on the hook for any shortfall) and people still walked away.

[registered]

I'm predicting there will be another correction (this coming from someone who just bought recently .. lol), prices will dip a bit but most CDN homeowners are in it for the long haul and won't just foreclose unless they have no other option.

Sorry, I don't believe in "seller's unions". Prices start to drop and you'll see assets unloaded as fast as process permits, just like any other, as sellers tear each other up to maximize personal returns. "The DOW will stay high because stock holders won't sell". "Gold prices will stay high because holders won't sell". Sounds pretty ridiculous without the emotional attachment.

[betamax]

Conversely, this means prices are more sticky when buyers are committed to holding on even if their mortgages are underwater. There is less incentive to just walk away, less risk of a total collapse like in the States but *if* it happens it will be much worse.

I'm predicting there will be another correction (this coming from someone who just bought recently .. lol), prices will dip a bit but most CDN homeowners are in it for the long haul and won't just foreclose unless they have no other option.

A recent study suggests the majority underwater in the US are NOT walking away, yet prices fell regardless. Prices are set by those who sell, not those who hold.

http://www.sacbee.com/static/weblogs/re ... 494467.pdf

[jimtan]

Conversely, this means prices are more sticky when buyers are committed to holding on even if their mortgages are underwater. There is less incentive to just walk away, less risk of a total collapse like in the States but *if* it happens it will be much worse.

I'm predicting there will be another correction (this coming from someone who just bought recently .. lol), prices will dip a bit but most CDN homeowners are in it for the long haul and won't just foreclose unless they have no other option.

A recent study suggests the majority underwater in the US are NOT walking away, yet prices fell regardless. Prices are set by those who sell, not those who hold.

http://www.sacbee.com/static/weblogs/re ... 494467.pdf

You're being silly. Prices don't fall much if the overwhelming majority don't sell. That matters. It is the reason why Vancouver RE didn't collapse. In the States, the foreclosures were liquidated in a messy spiral all the way to the bottom. Momentum matters.

[freako]

You're being silly. Prices don't fall much if the overwhelming majority don't sell

Are you for real? Prices are set at the margin. Only a few percent of the housing stock turns over in a given year, and it would take only require a small fraction of underwater owners to sell for prices to fall dramatically.

[eyesthebye]

Conversely, this means prices are more sticky when buyers are committed to holding on even if their mortgages are underwater. There is less incentive to just walk away, less risk of a total collapse like in the States but *if* it happens it will be much worse.

I'm predicting there will be another correction (this coming from someone who just bought recently .. lol), prices will dip a bit but most CDN homeowners are in it for the long haul and won't just foreclose unless they have no other option.

A recent study suggests the majority underwater in the US are NOT walking away, yet prices fell regardless. Prices are set by those who sell, not those who hold.

http://www.sacbee.com/static/weblogs/re ... 494467.pdf

You're being silly. Prices don't fall much if the overwhelming majority don't sell. That matters. It is the reason why Vancouver RE didn't collapse. In the States, the foreclosures were liquidated in a messy spiral all the way to the bottom. Momentum matters.

those who don't learn from history...

As with last years "collapse" - when prices dipped 15% all the inventory disappeared. Sellers are very savvy here - if they don't like the selling price the house comes off the market.

[registered]

Sellers are very savvy here - if they don't like the selling price the house comes off the market.

So you admit Vancouver is driven by speculators.

[noreason]

Conversely, this means prices are more sticky when buyers are committed to holding on even if their mortgages are underwater. There is less incentive to just walk away, less risk of a total collapse like in the States but *if* it happens it will be much worse.

I'm predicting there will be another correction (this coming from someone who just bought recently .. lol), prices will dip a bit but most CDN homeowners are in it for the long haul and won't just foreclose unless they have no other option.

A recent study suggests the majority underwater in the US are NOT walking away, yet prices fell regardless. Prices are set by those who sell, not those who hold.

http://www.sacbee.com/static/weblogs/re ... 494467.pdf

Thanks for the study Betamax, very interesting. It seems to suggest home owners think irrationally when it comes down to their homes no?


Back to registered points, I don't think you can compare real estate like a common commodity like gold. RE is hardly a liquid asset, nor homogeneous and I doubt home owners view their homes as a commodity either.

Even in the stock market you will find human tendency to hold on to loser stocks when it makes more sense to move on and rebuild your capital. As the study suggests and even you pointed out, people think with emotions rather with logic when it comes down to their homes.

Prices are set by those who buy and sell or other wise - supply and demand.

If the majority of home owners (the ones who have been driving the markets recently) can afford to stay in their house and not sell even if they are underwater then you can bet that supply will be limited even if prices do fall. Big difference from empty neighbourhoods in the states.

[Lost Soul]

If the majority of home owners (the ones who have been driving the markets recently) can afford to stay in their house and not sell even if they are underwater then you can bet that supply will be limited even if prices do fall. Big difference from empty neighbourhoods in the states.

Anecdotally (sorry guys), I'd say that over 3 out 4 open houses we've gone to in the past year have been vacant properties -- I remember up until 2006 or so, the majority were occupied. Read into that what you will.

[registered]

Your post encapsulates so many of the questionable bull assumptions it's worth expansion.

- You draw parallel with the well-known disposition towards loss aversion, using the example of holding stocks to the bottom. Why wouldn't the same principle hold for housing?
- If stocks can fall when people hold, why can't housing? Dot.com?
- Irrationality in a down market appears to be granted, why must an up market be rational? If not, by what known economic principles can irrational markets up or down be permanently sustained?
- Your breakdown appears to discount, contrary to all evidence, the heavy participation of speculators in contemporary RE markets. Why doesn't their action set the market price? Judging your home's 'real' worth emotionally at $500K means nothing if your neighbour sold for $300K.
- Have people stopped living? What effect will the normal events that drove buying and selling in the past - births and deaths, new and lost jobs, marriages and divorces - have on the market?
- Correct, supply and demand. What are the components of demand in Vancouver today? I honestly have no clear picture from your post. Who buys when prices are exploding but refuses to sell should they plummet?

You suggest a self-contradictory scenario often advanced here, a city of property owners rationally buying when the market appreciates turning irrational should it drop, who sacrifice deeply to avoid being priced out forever but won't reexamine those choices should 'forever' become 'in a year or two', who tooth and claw outbid each other buying but stand as a community as sellers, who aren't speculators but who's lives are determined by housing prices, neither selling nor moving nor dying if the market isn't favourable.

[vreaa]

I'd say that over 3 out 4 open houses we've gone to in the past year have been vacant properties -- I remember up until 2006 or so, the majority were occupied. Read into that what you will.

This anecdote has been archived at Vancouver Real Estate Anecdote Archive as reflective of important activity and sentiment in the local RE market.