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Buyers Threw Caution And Common Sense To The Wind And Bought At Vastly Inflated Prices

A report from Glacier Media in Canada. “Since May 1, 2018, only 43 detached homes in the Metro Vancouver region – stretching from Mission and Delta to the Sunshine Coast and Whistler – have sold above $7 million. All 43 of those houses sold for below asking, averaging a discount of 16 per cent off the list price. The biggest price drop seen in the region’s $7 million-plus sector over the past year was the sale of this stunning West Vancouver house (see our listing photo gallery), which sold for $10.8 million, more than $6 million below the $16.88 million asking price.”

“But this does not include homes that failed to sell, were taken off the market and then quietly given a new listing at a lower price, which are much harder to quantify but seem to be numerous. Examples include this contemporary West Vancouver mansion, which was listed at $16.58 million back in July 2018 but now has a new listing at $13.6 million.”

“Vancouver realtor Faith Wilson, who was the listing agent on the Shaughnessy home sold for $26 million, told Glacier Media, ‘Sellers have to get into the slipstream of reality. And buyers also have to be reasonable in their offers.'”

The Times Colonist in Canada. “‘We’re seeing many sellers who want to list their homes at 2016 and 2017 prices, expecting to get the same amount of money their neighbour did two years ago, which isn’t realistic,’ says Kaye Broens, Vancouver Island Real Estate Board ’s president. ‘On the other hand, some buyers are questioning the fair market value of a home they’re interested in and choosing not to purchase, which is counterproductive.'”

From CanIndia in Canada. “Ask anyone why Canada’s real estate market remains sluggish, and they will instinctively point to the much-maligned mortgage stress test. But a report issued by the Bank of Canada (BoC) paints a very different picture of what happened in the overheated real estate markets in the GTA and Vancouver.”

“The report never uses the word ‘bubble,’ preferring the more neutral-sounding term ‘froth,’ and points to excessive enthusiasm led to runaway house price growth, followed by the inevitable snap-back once there weren’t enough buyers to keep the party going.”

“In other words, people panicked. Expecting house prices to keep growing rapidly, they jumped into the market as soon as they could, and so further pushed up prices and home sales. Then new taxes and mortgage rules took hold.”

“A recent study from Zoocasa highlighted how extreme the problem has become. It estimates only the top 2.5 per cent of Vancouver’s earners, and the top 10 per cent of Toronto’s earners, could afford a detached home today. Only the top 25 per cent of earners in these cities can even afford a condo. So, in the end the blame falls on buyers who threw caution and common sense to the wind and bought homes at vastly inflated prices and sellers who cashed in on the frenzy in an era of bidding.”

From Domain News in Australia. “Melbourne’s outermost suburbs are bucking the citywide house price downturn, which has now spread to most of the city. In the year to March, the suburb with the biggest decline was inner north-eastern Fairfield, where the median house price slipped 21.4 per cent to $1,122,500, the Domain House Price Report, released this week, shows.”

“It was closely followed by South Melbourne’s 21.1 per cent drop to a house price median of $1.2 million. Canterbury and Caulfield North, both down 20.9 per cent, and Abbotsford and Hawthorn East, down by 20.8 per cent apiece, made up the top five suburbs to fall.”

“Domain senior research analyst Nicola Powell said a definite trend for Melbourne’s slowdown had started to emerge with the pricier suburbs being hit first. The latest figures revealed the cooling market was moving outwards. ‘Anything with a median over $900,000 has seen a double-digit median house price fall over the past year,’ Dr Powell said.”

The Herald Sun in Australia. “Research4 director Colin Keane said the typical lot in Melbourne’s new housing estates was now $40,000 overvalued compared to where it normally sits against the city’s median house price. With the city’s established house prices falling further, putting more downward pressure on land prices, speculators with their eyes on the 30 per cent growth in land prices seen across 2017 are now choosing to forfeit thousands of dollars in deposits rather than settle a block and sell it for a larger loss.”

From Which Car in Australia. “Sales of Australian new cars have continued to drop, with data for the month of April showing that year to date sales are down by 8.1 percent compared to this time last year, while last month’s figures were the lowest thus far for 2019. Why the big slip? The answer appears to be inextricably linked to the fortunes of the housing market.”

“It’s no small secret that the Australian property boom is over. Housing values in Sydney and Melbourne have followed the lead of Perth and come down from their peak significantly, and a broader correction in house prices appears to be in progress.”

“From an industry point of view, it’s the top end of town that’s been hurting most thus far. With high-value assets like property suddenly shedding value en masse, it’s no surprise that luxury car dealers are moving less metal as a result. Even Ferrari was flying high on the back of property price surges not long ago, but those days look to be over.”

“‘That whole luxury market has been affected [by property]. There’s a direct correlation between new car sales and housing. Sydney and Melbourne [house prices] are off significantly, so the car market as a whole has come off significantly,’ said Jaguar Land Rover spokesperson Tim Krieger to WhichCar. ‘I think it’s a result of that housing collapse in Sydney and Melbourne.'”

“And according to Krieger, there was also likely an element of substitution at play, as those in the ‘investor class’ shifted their car-buying plans toward more modest choices. ‘For people who might have bought their house for $1.5 million and then saw it valued at $2.5 million, they’d be thinking ‘beautiful, I’ve got a million dollars of equity – time to buy a Range Rover Sport! But now they don’t have that, they might be thinking of a Mazda CX-9 instead.'”

This Post Has 31 Comments
  1. ‘For people who might have bought their house for $1.5 million and then saw it valued at $2.5 million, they’d be thinking ‘beautiful, I’ve got a million dollars of equity – time to buy a Range Rover Sport! But now they don’t have that, they might be thinking of a Mazda CX-9 instead’

    He he.

    1. If it doesn’t occur to them that “This too is borrowed money that has to be repaid”, then nothing is going to stop them from spending.

        1. Spot on! We’ve been witness to this extraordinary period where if you could just convince someone to loan you buckets of money to buy housing, you could make vastly more money than if you foolishly pursued a traditional occupation and worked for a living. The loans to purchase real estate were, for the most part, sanctioned by governmental or quasi-governmental agencies; they would in many cases not have pencilled out for private lenders, in the absence of massive tax subsidies.

      1. “Borrowed”. Therefor it’s not “real” money which pretty much the mentality FBs have unless they turn a profit, then it becomes REAL money and off to the dealership to “borrow” more money.

  2. ‘Sellers have to get into the slipstream of reality. And buyers also have to be reasonable in their offers…We’re seeing many sellers who want to list their homes at 2016 and 2017 prices, expecting to get the same amount of money their neighbour did two years ago, which isn’t realistic…On the other hand, some buyers are questioning the fair market value of a home they’re interested in and choosing not to purchase, which is counterproductive’

    Stamp those little feet, stamp em’!

    1. “…’On the other hand, some buyers are questioning the fair market value of a home they’re interested in and choosing not to purchase, which is counterproductive’…”

      This tool needs a dictionary, because that’s not counterproductive, it’s extremely productive as it leads to higher and higher inventory levels, and lower and lower prices.

  3. ‘All 43 of those houses sold for below asking, averaging a discount of 16 per cent off the list price. The biggest price drop seen in the region’s $7 million-plus sector…From an industry point of view, it’s the top end of town that’s been hurting most thus far. With high-value assets like property suddenly shedding value en masse’

    ‘Anything with a median over $900,000 has seen a double-digit median house price fall over the past year’

    Again and again, the most expensive shacks get whacked first, the most and fall the fastest. Clear sign of a burst bubble.

    1. What happened to location, location, location? I guess it only matters during the bubble

      During the bust, its price, price, price

      1. ‘location, location, location’

        That’s right. The best, most exclusive, expensive, desirable shacks are down more than anything. All over the world.

        1. To quote wisdom from one of our more eloquent contributors,
          “‘Location’ is just another tactic used by realtors to get the target to pay far more than the property is worth”

          He’s right

          1. I do believe that location is a variable in the housing equations.. but another important variable is the size of the potential buyer pool. Another the actual need for the property. And still another is how it compares to the alternative.

            Soo many variables….

            And you know what usually happens to an equation when one of the variables goes to zero….

            (even worse if you divide…)

          2. Location probably deserves some premium in many cases. But often we see this premium way overdone. This is why we are seeing arbitrage with CA housing refugees fleeing to fly-over. They know that their “location” just isn’t worth it and they’ll be fine living in Ohio with their huge lump sum from some sucker who just purchased at 10x his salary.

        2. It just seems like there aren’t enough rich people out there to snap up all the multimillion dollar homes for sale, especially when prices are dropping like a lead anvil dropped into the sea.

          1. But the MSM assured me that truck loads of IPO millionaires will come in and revive this once hot market

    1. At 35-mph you can drive from one end of Driggs’ “financial district” to the other while holding your breath. At 36-mph you [will] get a speeding ticket.

  4. In a Tight Labor Market, Gig Workers Get Harder to Please

    Companies like Uber, Lyft, Postmates and Instacart could run out of manpower as high turnover plagues the side-hustle economy

    ‘Initially at least, venture capitalists were willing to throw record amounts of cash at companies putting a “gig” twist on the old contractor approach to hiring people. Companies such as Uber used the cash to subsidize growth at all costs, paying more out than they took in.’

    ‘A decade after the founding of Uber, these companies find themselves in a very different position with respect to both the willingness of their investors to tolerate losses, and the availability of workers.’

    “It struck me that in some of these markets, they’re processing thousands of job applicants every month, and these are not large cities,” says Mr. Rowland. “I asked, ‘Have you guys ever considered you may burn through the entire available labor market of people interested in or willing to do roles like this?’ and they did not have an answer for that.”

    ‘In its IPO prospectus, Uber doesn’t address the problem of attrition among drivers, but it does note that annualized attrition was near peak levels in the third quarter of 2018. Turnover is typically high in service-sector jobs. In the fast-food industry in the U.S., for instance, turnover in 2017 was as high as 150% per year. At the end of any given year, a store with a staff of 10 would have gone through 15 employees. However, at some of the companies Fountain works with, turnover could be as high as 500% per year, speculates Mr. Rowland.’

    ‘Adam Price is chief logistics officer at Waitr, a food-delivery company that has taken steps to slow the churn. Unlike gig startups, Waitr hires drivers as full-time workers to minimize turnover and cut back on the cost of bringing new people in. Each individual ride or food delivery doesn’t make a lot of money for the companies that handle them, so it’s important that other costs don’t add up, Mr. Price says. “You can end up in an upside-down situation where you never pay back their onboarding costs,” he adds.’

    ‘Even raising prices might just be a delaying tactic, says Mr. Price. The largest of the gig startups still have billions of dollars in the bank. For them, reaching profitability might be impossible without automating the jobs now filled by costly humans. If that sounds familiar, it’s what former Uber Chief Executive Travis Kalanick once said about self-driving cars—that being in the vanguard in developing them was an existential issue for the company.’

    “These [food-delivery and ride-hailing] businesses are banking that driverless technologies will be available soon enough that they can get out of this endless cycle of losing money,” says Mr. Price.’

    https://www.wsj.com/articles/in-a-tight-labor-market-gig-workers-get-harder-to-please-11556942404

    1. It amazes me that people actually engage in this “gig” economy with such a low payout. Uber and Lyft not only lose money as a business but pay their drivers sweat shop wages.

      “Earnings vary for Uber drivers on a city-to-city basis. However, our research shows that the average driver earns $8.80–$11 per hour of driving for Uber after accounting for driving expenses. “

      1. It’s a lot worse than that. Here’s the money quote from a 2018 Stanford/MIT study, followed by a link to a writeup of the study at nakedcapitalism:

        “Results show that per hour worked, median profit from driving is $3.37/hour before taxes, and 74% of drivers earn less than the minimum wage in their state. 30% of drivers are actually losing money once vehicle expenses are included. On a per-mile basis, median gross driver revenue is $0.59/mile but vehicle operating expenses reduce real driver profit to a median of $0.29/mile.”

        https://www.nakedcapitalism.com/2018/03/mit-study-median-uber-lyft-profits-less-half-minimum-wage-30-drivers-lose-money.html

        1. That was the original study, which was flawed. The revised methodology shows better earnings, but nothing to write home about:

          “Using one new method of calculating the median profit that incorporates Uber’s criticism, the figure “rises to $8.55/hour from the $3.37 initially reported,” the lead author Stephen Zoepf wrote in a statement posted to Twitter on Monday. And using another alternate method, the median profit goes up to $10 an hour.”

          Researcher Says ‘Criticism Is Valid,’ Will Revise Study Finding Low Uber And Lyft Pay
          NPR
          March 7, 2018

      2. It amazes me that people actually engage in this “gig” economy with such a low payout.

        1. Lots of people are stupid.
        2. Lots of people will do almost anything to avoid going into an office or a worksite and dealing with the people there. They tend to be productive with no people skills OR can’t survive being evaluated for productivity. So they jump at any kind of workaround presented to them.

        1. To be fair, a lot of office work is really, really crappy and pointless. Read “The Rise of the BS Job” by David Graeber for some excellent insight.

          I have heard anecdotes of people who chose to work for Uber not because they need the money but just because they like meeting people and having conversation. A family member who is extremely wealth confided in me that he was considering working a couple of hours as an Uber driver just for fun.

    2. “These [food-delivery and ride-hailing] businesses are banking that driverless technologies will be available soon enough that they can get out of this endless cycle of losing money,”

      Talk about counting your chickens before the eggs hatch!

      On a related note, I’m amused every time I read or hear how kids are deciding not to buy cars, or maybe not even get a driver’s license, because they can just use ride-sharing.

      Do they realize or care that those companies are losing vast sums of money, and are not sustainable over the long term? I’m personally skeptical we’re going to see autonomous vehicles taking over the roads anytime within the next 5 to 10 years.

    3. Imagine, these companies might actually have to hire employees and treat them well instead of treating them like disposable napkins to be discarded when convenient.

      1. They can’t afford to. These articles repeatedly come to the conclusion robots have to take over to avoid “costly humans”.

        1. And every one of these “companies” are operating at a loss every month. Uber, lyft, AirBNB, Tesla, Amazon, Apple, Google, Fakebook, etc.

          1. Fact check:

            Operating at a loss: Uber, Lyft, Airbnb, and Tesla

            Not operating at a loss: Google, Apple, Facebook, and Amazon

            Google, Apple, and Facebook are extremely profitable. Amazon makes a lot of profit, but has very thin margins.

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