BC real estate marketers getting desperate; Obama vows deficit cuts

BC real estate marketers getting desperate

The city of Vancouver is still showing relative strength in sales with most recent data suggesting sales to new listings maintaining a steady 50% reading.  We won’t know how sales levels will be affected after the March 18 rule changes, but we do know that there will be a reduction in available credit and potential buyers after that date.

Regardless, it’s the periphery that is currently rotting, and I’d suggest the gangrene will reach the core before too long.  We know that January data on Victoria was very weak, but how is the rest of the Vancouver periphery doing?  We’ll look at months of inventory which is essentially a measure of how long it would take to clear out all available housing stock given the most recent month of sales.  For perspective, a balanced market is typically considered to have 5-6 months of inventory.

Victoria:  10.4 MOI

Whistler:  16 MOI

Central Okanagan: 20 MOI

North Okanagan:  25 MOI

Amid drying demand, we’re finding marketers resorting to increasingly desperate/unscrupulous measures.

Exhibit 1: Olympic village condo prices to be slashed by one third

“Condo prices at the troubled Olympic village project will be reduced by an average of 30 per cent from May 2010 levels”

Pity the poor fools who bought pre-construction.  And where are all those rich Asian speculators?  Well, the answer is quite simple:  The illusion of price increase has now disappeared.  The reality is that any investor and even most people buying residential properties in Vancouver are momentum chasers.  Once that momentum vanishes, so will the sales, ironically enough.

Exhibit 2: Realtors take to the sky in Vancouver; Media spin at its finest

Last week an air tour was organized for several Vancouver realtors.  The tour was organized by The Key, a real estate marketing organization.  According to their own blog, the specific purpose of tour was as follows:

“The tour was designed to showcase AVRA, the soon-to-be built 17-storey concrete tower, located in the heart of downtown White Rock. One of the city’s few highrises…”

It was a bit of marketing.  But being the clever people they are, they invited the local media to attend the helicopter boarding.  The result was the following story which ran on Global BC the next day.  The link includes the video clip:

Chinese buyers flock to White Rock

Of course the main point of the Global clip was to highlight mainland Chinese buyers’ insatiable appetite for Vancouver real estate.  I have no doubt that there is money coming in off of the Chinese mainland into Vancouver.  However, we know from the stats that this influx of wealthy Chinese immigrants accounts for less than 10% and likely less than 5% of total MLS sales in the Greater Vancouver Area.

But the ‘It’s different here’ mentality dies hard.  According to the following articles, the rich Chinese buyer story is alive and well all over the world….and even out of this world (thanks to Bubbly over at Vancouvercondo.info).  Rich Chinese investors are buying homes in:

FloridaEurope…including many castles,  London,   Korea,   Australia,   Thailand,    Dubai,    Singapore, and France (translation required).

So ravenous are those Chinese investors that they are even purchasing real estate on the moon.  But of all the global destinations, they evidently have a particular fancy for Vancouver given its sunny weather and ‘cheap real estate‘.

Exhibit #3:  Get paid to stand in a line!

Ever wonder how new condo developments manage to have long lineups of eager buyers at times when the broad resale market is acutely slumping?  Wonder no more!

Thanks to JV for emailing this to me yesterday, though I see that Garth Turner has beaten me to it by posting this gem over on his blog.  Here is a link to a Vancouver Craigslist ad looking for people to…..wait for it……stand in line outside a new condo development before the sales department opens:

“People needed to line up for new condo project

Just as the title says, we need people to hold spots and line up for a new condo project located in Burnaby (Kingsway/Willingdon Ave). Line up may start as early as weds/thurs night. Grand opening is Saturday February 19, 2011.

Warm beverages and washrooms will be provided by the developer.

Shifts are determined on how long you would like to stay. (preferably 8hours+)

Get paid cash quickly for sitting in a line up!”

The sad part is that it no doubt works.  I’ve noted before that people are a lot like lemmings…..following the crowd always seems like a great idea to most.

 

Obama vows deficit cuts

On to other matters.  I wrote yesterday about the necessities of austerity for most western nations.  Today we get news that Obama’s 2012 budget will contain some ‘hefty’ spending cuts:

President Barack Obama said the $3.7 trillion 2012 budget that he sent to Congress today would cut scores of government programs….“The only way we can make these investments in the future is if our government starts living within our means,” Obama said.

I’m still not sure that Obama understands what he means when he talks about living with one’s means.  As John in Ottawa noted in the comments section of yesterday’s post,

“There are 307,000,000 people in the United States of which 42% pay taxes. Median income is $34,140. If the US wishes to “pay as you go” then they must tax each and every tax payer $28,700, leaving roughly $5,450 to live on…..(after which) the state, municipality and school board will want a slice.

When a budget reaches 84% of gross median income, can the debt ever be paid off?

This is the question on everyone’s mind during this financial crisis. What does “full faith and credit” mean with numbers like these?”

Well said.

Cheers,

Ben

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25 Responses to BC real estate marketers getting desperate; Obama vows deficit cuts

  1. jesse says:

    To give some perspective on the Olympic Village, the cited discounts merely put the properties in line with comparables in the area. The major flaw with the initial pricing was linking how much it took to build them with how much they’re worth on the market — given the horrendous price-rent ratios in Vancouver this is testament to how much of a f-up that development was.

    Based on prevailing rents for the units that are occupied, prices will likely need to come down to around $350 per square foot to make the numbers work. I expect even after the 30% discounts being bandied, they are still close to 2x expensive compared to where they will end up in a few years. I hope, for the benefit of the City, they sell these things off pronto.

    Anecdotes from a few commenters on Vancouver RE blogs indicate there was some heightened activity at the Village over the weekend. Perhaps the anticipation of some significant sticker discounts has adequately stoked the fire.


    On the White Rock sensationalist helicopter story (to give even more perspective), this is nothing new in the sorted history of BC real estate shenanigans. Stories of busloads of Hong Kong investors being driven around Vancouver neighbourhoods buying properties without setting foot inside existed 20 years ago. This latest puff piece of Realtors taking to the air, in many ways, shows how little things have changed and how instructive the studying of history can be.

  2. Mango says:

    I am shocked Ben how you miss such huge points with your blind bearish coloured eyes.

    1. Listen to the man from Asia – they want schools, freehold land, etc. He never mentioned cheap, etc.
    2. People line up is not a scam, it is used by real estate investors who want to get the best flats but cannot go through the mess. That is bullish, not bearish.
    3. When you say

    “The city of Vancouver is still showing relative strength in sales with most recent data suggesting sales to new listings maintaining a steady 50% reading. We won’t know how sales levels will be affected after the March 18 rule changes, but we do know that there will be a reduction in available credit and potential buyers after that date.”

    What you talking about??? March 18th has an impact of 400$ a month on ONE MILLION DOLLAR HOME…do the math, it is meaningless.

    4. People are getting to bearish on the Olympic Site, don’t kid yourself, investors are trying very hard to get in and showing discount bids on the whole thing. That doesn’t happen in a weak market for that type of real estate. Push and pull, price will be found and those will also trade higher once the government finally cuts the trade at a loss, then people in Vancouver will complain a year from now that they should have waited as prices are higher.

    • fatjay says:

      “400$ a month on ONE MILLION DOLLAR HOME…do the math, it is meaningless”

      Are you serious? You can’t buy much in Vancouver for a million anymore. Most of my friends in my age group 30-35 want to get into a townhouse or a detached home, and crazily enough, the bank is willing to lend to a lot of us. However, $400 a month is NOT meaningless in our income bracket (anywhere from about 110k-200k annually), and I really don’t believe that everyone buying $1,000,000 homes are actually throwing cash around.

      Personally, I’ve been preapproved to purchase almost a million dollar place, but even if I was buying I know I could never afford more than about 650k.

      Unfortunately, not everyone I know is as conservative as me. I know people who will take every penny that the bank will offer them and they are probably dependent on the rental income from their basement suite. Losing their renter or $400 would put them into the red each month.

      How many people walk into a meeting with a mortgage broker with a budget and knowing exactly how much they can afford to spend each month? Probably not as many as should. I think that a lot of financially illiterate people are told that the bank will loan them X dollars so they use that as their price point, when instead it is actually their breaking point.

      $400 is not meaningless.

      • Mango says:

        You should stay a renter, if 400$ a month is going to be a breaking point for anyone buying a million dollar home, they should not purchase a place. You should maybe leave Vancouver – 110k to 220k can’t cut anymore is what you are telling me?

        110-200k, that is anywhere from 5-10k a month after taxes, if 400$ a month is less than 5%-10% of your monthly income.

        You said
        “I really don’t believe that everyone buying $1,000,000 homes are actually throwing cash around.”

        LMOA – what are they doing exactly?

  3. “Listen to the man from Asia – they want schools, freehold land”

    Of course they do. The big unanswered question is why Vancouver? Why not the innumerable other communities with just as much to offer but at substantially less costs? An even bigger question perhaps: How much of the sales activity is actual foreign money buying these properties and how much is it locals who have been convinced to buy assuming that there will be a never-ending stream of rich Asians to sell to later? Now quantify that and show me that we’re not dealing with a small sliver of total sales concentrated in one area and one market segment and you’ll have a point.

    “People line up is not a scam, it is used by real estate investors who want to get the best flats but cannot go through the mess. That is bullish, not bearish.”

    Rubbish. Perhaps used by some investors, but exceptionally unlikely that this is going on given the wording of the ad.

    “What you talking about??? March 18th has an impact of 400$ a month on ONE MILLION DOLLAR HOME…do the math, it is meaningless.”

    I wouldn’t say it is meaningless. But more to the point, what is the relative effect of a doubling of interest rates on a 30 and 35 year am mortgage? Figure that out and then you’re getting to the crux of the issue.

    • Mango says:

      1. Heard mentality. Already in Vancouver and not stopping
      2. Rates are not doubling, so your point makes no sense. The current change is 5/35 to 5/30. Foucs Ben on reality, not your gloomy predications.
      3. I use people all the time for real estate new builds, how do you think those little dots get on those big boards. It you believe it is a scam, you should report it to the authorities.

  4. jesse says:

    @Mango: “people in Vancouver will complain a year from now that they should have waited as prices are higher.”

    It will either be the City complaining a year from now they should have sold more of the units today, or people complaining they should have bought a year ago. But by all means, keep believing only one is a potential reality. Even at the 30% discounts you will have people renting these things out at 4% cap rates. Numbers Guy says the price vector will trend downwards.

    • Mango says:

      and what rate do you expect from RE Mr Cap Rates??

    • jesse says:

      4% is too low. Right now US cities with growing populations and declining unemployment, and stable economies are at 7%. Just saying.

      • Mango says:

        Move to the US. If you do the math right on on I, not P+I, you are doing better than 7% in parts of Canada, ex Vancouver. Van has been better to hold, keep a flat carry renter and then sell into the upswing market.

      • Mango says:

        Also, why 7%? Where did you come up with that number??

    • jesse says:

      “Van has been better to hold, keep a flat carry renter and then sell into the upswing market”

      Basically you’re stating Vancouver RE is the equivalent of a perpetual growth stock, and it’s possible to trade on technical measurements. I sincerely wish you the best of luck on these fronts.

      • Mango says:

        no, what I am saying is that getting high cap rates is hard in Van

        follow the line on this graph since 1977

        http://canadabubble.com/charts/vancouver-housing-average-price-history.html

      • jesse says:

        Vancouver has produced significant swings in prices in the past 35 years. However there have been two times in the past 35 years when price-rent ratios been close to having “made sense”: 1985 and 2000 (caps of around 9% and 7% respectively on decent quality condos, from my memory), and it would be odd if in the next 35 years we don’t see a retrenchment of the “making sense” periods, even if only a touch-and-go.

        Your argument is betting on the market’s inherent volatility to bail out poor yields: within one’s investment horizon, prices will be at or above the level paid in real terms. I’m stating that’s a form of technical analysis — looking at past voltatility as indication of future volatility. Maybe… but it’s also possible, if the debt levels are as severe as the statistics indicate, BC could be in for a US or Japan-style house price recession that could last a decade or more.

  5. mac says:

    Mango,

    You pay people to line up to hold your place in line so you can buy condos? Or are you saying you’re a developer and have used people to make your pre-sales marketing look busy. I can’t understand what you’re saying.

    Mango, if you are an agent or a person who places money for Mainlanders, please say so. We’d all like to hear what’s going on from an insider’s perspective.

  6. Mango says:

    and finally Mr Mac.

    No, I am not an agent, developer or anything close. What I am saying is if a new development is coming up in a area surround with houses, I want to my hands on high floor, view, etc. To do that in Canada, sometimes you have to get up early and stand in line. I pay someone else to do it, once they are in, they call my mobile and I go in and do the paperwork.

    now I have to get back my Valentine….

  7. Pingback: Real Estate marketers paying people to stand in line | Lievertising

  8. Declan says:

    Comparing total budget/person (i.e. an average) to median income just shows that inequality is out of hand in the U.S., not that government obligations are unreasonably high. U.S. government spending is still in the middle to low end of the OECD nations (these numbers look about right), they’re just too chicken to collect the necessary taxes from the wealthy to pay for their spending.

    There’s nothing insightful about comparing a mean to a median!

    • John in Ottawa says:

      Please excuse me for using a median instead of a mean. A mean would have added $500/year to the kitty. That’s going to help.

      As for your government spending numbers, actually they don’t look about right. Don’t use some unknown blog to illustrate a point when source data is available.

      I’ve pulled just a few numbers directly from the OECD. They have to be crunched through Excel and I can’t post illustrations in comments, so forgive me for only sampling.

      The following numbers represent the percentage of all revenue against all expenditures for all levels of government for selected OECD areas from 2001 through 2009, except for Australia and Korea which are 2001 through 2008, the latest numbers available. You may find them surprising.

      United States: 88% (73% in 2009)
      Euro area (16 countries): 95%
      Canada: 100% (99.970% to be exact)
      Australia: 102%
      Korea: 112%

      I’m not going to compare a giant economy such as the US against a small economy like Italy to try to suggest that the US fits nicely into the middle of something. You trying to do so is no better than dividing averages and means.

      It takes the Euro Area economy to approximate the US economy.

      The US economy stands out as one sick puppy. It has been for a very long time. It’s demise started as early as 1974, and it is only going to get sicker. Find me a reasonably comparable economy anywhere in the world in as bad shape. I know of one in recent history; it was the Soviet Union.

      Your point about inequality is very well taken. I wish I could show a graph. If the US were to tax their top 10% at 90% they might be able to dig themselves out of this hole, but as the top 10% of US income earners control far more than 50% of the assets and 100% of the political agenda, that will never happen.

      • Hoser says:

        John, the other thing that jumped out at me from your initial analysis is that you consider tax revenue to be 100% income tax, when they account for just under half (source). Ironically, if the US *lowered* their corporate tax rate, they might actually increase revenue, and repatriate billions of corporate profits sitting offshore (example).

        I’m not denying that the US is dire straits, just that your analysis is missing something.

      • Declan says:

        The mean income in the U.S. is the same as GDP/capita (by definition), which is around $47k last time I checked.

        The blog I linked pulled the numbers from the OECD so we’re using the same ultimate source. You’re looking at govt. revenue vs. govt. expenses (i.e. net deficit) whereas I was looking at govt. revenue vs. total revenue (i.e. what percent of the economy passes through government hands).

        Your numbers don’t really surprise me much although I thought Canada would show more of a deficit (are they correcting for pension accumulation, i.e. CPP stockpiling?)

        Anyway, I think we’re mostly in agreement that the U.S. has budget problems but that they could be fixed by imposing taxes on their wealthy citizens similar to what exists in most OECD countries but that that is not going to happen because the U.S. is [becoming] a plutocracy.

  9. John in Ottawa says:

    The analysis was not meant to be all encompassing, and of course left out corporate taxes. That didn’t make it any less useful as a back of the envelop illustration.

    My numbers today were much more encompassing and simply make the matter worse.

    As for corporations, I’ve never understood why corporations, particularly SMEs, pay any taxes. Corporations don’t “enjoy” the fruits of their profit. As far as I’m concerned, only distributions to individuals should be taxed.

    Stop taxing corporations and we could probably get away with taxing dividends as ordinary income.

    • Declan says:

      Corporate tax is a withholding tax. If there was no corporate tax then money could be accumulated tax free in a corporate structure indefinitely (like an RRSP for someone that never retires!) which would introduce some perverse incentives into the tax code.

      A better option would be to mandate 100% payout of all profits, tax the profits as income in the hands of the shareholders and then if they wanted they could return them to the corporation tax-free from then on (TFSA for corporations). This is basically your suggestion, but tweaked to avoid the withholding issue.

      • John in Ottawa says:

        Spoken like someone who has never run an SME (Small to Medium Enterprise).

        Small business is the engine of employment in Canada and the US. It is responsible for the lion’s share of the rate of change of employment during recessions and recovery.

        It makes no sense to force SMEs to bleed off their cash through taxes. As for holding unwarranted amounts of cash without taxation, baloney. SMEs are in the business of putting cash to work, but they need enough to ensure that payroll and other expenses can be safely met.

        Taxing SMEs, and perhaps all corporations, is akin to the medieval practice of bleeding patients.

  10. Pingback: A call for data: Just how much of a role does Hot Asian Money play in the Vancouver real estate market? | Financial Insights

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