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Prices Can Only Go One Way And That’s Down

A report from the Globe and Mail in Canada. “Call it Exhibit A for the state of Vancouver’s slumping market for detached houses. In a gauge for rundown properties, a buyer paid $1,980,000 last month for a three-bedroom teardown in the city’s Point Grey neighbourhood, nearly three years after the seller bought it for $2,880,000.”

“The listing took 14 months to sell, underscoring the sluggish sales activity across the region. Housing sales have tumbled to a 10-year low in Greater Vancouver as a market once fuelled by bidding wars gives way to a period of declining prices.”

“Simply put, the psychology swung last summer to being a buyer’s market, with consumer confidence eroded by an array of B.C. taxes on real estate, said Phil Moore, president of the Greater Vancouver board. ‘Anything above $3-million has been hardest hit,’ he said. ‘Buyers don’t like instability and they’re looking for homes that are liveable.'”

“Look no further than the Vancouver teardown as a dramatic example of the turmoil in the detached segment. The listing in the Point Grey neighbourhood on the city’s west side went on the market for $3,070,000 in November, 2017. The house, built in 1912, languished for six months without any takers. Last May, the seller lowered the asking price in what would be the first of four markdowns.”

“Finally, after slashing the list price to $2,199,900 on Jan. 7, the knockdown sold days later for $900,000 lower than what the seller paid nearly three years earlier, or a 31-per-cent plunge. The listing agent, Danielle Lu, said she couldn’t say much about the transaction. ‘I am sorry that I can’t discuss anything about my client. It is their decision,’ she said.”

From CTV News in Canada. “January real estate numbers show further softening of the Metro Vancouver real estate market, and nowhere is that effect more dramatic than on Vancouver’s West Side. One realtor says a lack of foreign buyers is why homeowners who bought in the pricey part of the town a few years ago are now selling for huge losses.”

“‘The West Side housing market…became very reliant of foreign capital flowing in,’ said Andrew Hasman, the realtor for an owner who finally managed to sell their 1920s character home after more than a year on the market. ‘All of those buyers have kind of hit the sidelines and without those buyers, prices can only go one way and that’s down.'”

“The property in question was first listed for $2.7 million. It then dropped to $2.4 million and then $2.2 million. Hasman said the home finally sold a couple of weeks ago for less than $2 million—$612,000 less than the owner paid for it 20 months ago. A different home located nearby is currently listed at $2.5 million. In June 2016, it sold for $4 million.”

“Last month, a detached fixer-upper in East Vancouver was listed for just shy of $1 million, a price that has been unheard of in the city for years. While devaluing has been the most dramatic on the West Side, the trend extends right across Metro Vancouver, with most detached homes selling for well under their assessed value. Townhome and condo prices have fallen too.”

“While the downward trend is good news for those looking to get into the market, it was a tough lesson for Hasman’s client. ‘The seller is not happy, but it’s just the reality and for whatever reason, they had to sell,’ he said.”

From ABC News in Australia. “West Australians are making more calls per capita to the National Debt Helpline than residents in any other state, as the legacy of a mining construction and housing downturn continues to bite. ‘We’re getting a fifth of the national calls, [but WA represents] only a tenth of the population,’ said Bev Jowle, executive officer of the Financial Counsellors’ Association (FCA) of WA.”

“While the FCA is grappling to understand what is driving the spike in calls, a large number of callers have cited mortgage stress and property repossession. ‘The mining downturn, I think, really started the ball rolling,’ Ms Jowle said. Ms Jowle said many workers who had received redundancies in the immediate aftermath of the mining boom used the money to pay down their mortgages or other debt.”

“‘Now that [money has] run out, they’re starting to have to go back to making repayments on the mortgage,’ she said.”

“In some areas, particularly the North West, those home owners were now in negative equity, Ms Jowle added. ‘They can’t sell the asset, they can’t live off the asset and their income isn’t enough to sustain the debt that they’ve got on their assets,’ she said. ‘We know that the mum-and-dad investors often were borrowing to the hilt on their own mortgage, extending that mortgage to buy the second house, and now they’re having difficulty renting that house out for the cost of the mortgage.'”

This Post Has 44 Comments
  1. ‘A different home located nearby is currently listed at $2.5 million. In June 2016, it sold for $4 million’

    Still no bubble?

    1. British Columbia took very specific steps to discourage foreign buyers, so those appear to be working. Bad news for anybody who bought recently and wants to sell, good news for locals looking to buy.

      1. Just Google Vancouver median income

        “…median household income of $72,662 across Metro Vancouver region”

        I bet the locals are lining out the door to buy these “cheap” shacks! Now is the time to buy John…hurry before the locals buy them up!!!! Buy two or three! 2.5 Millions steal!!!

        1. Why buy a house in Vancouver when prices are plunging? Buy later after prices crater for 75% less.

  2. ‘They can’t sell the asset, they can’t live off the asset and their income isn’t enough to sustain the debt that they’ve got on their assets…We know that the mum-and-dad investors often were borrowing to the hilt on their own mortgage, extending that mortgage to buy the second house, and now they’re having difficulty renting that house out for the cost of the mortgage’

    Look at the upside, the loss is tax deductible! Negative gearing they call it. Australia, Australia, Australia, we love ya!

    Monty Python – Australian Bruces

    https://www.youtube.com/watch?v=bNBy1D1Y0h4

    1. It’s the mortgage on that second house that will sink your finances in the absence of hefty home equity gains in perpetuity.

  3. “While the downward trend is good news for those looking to get into the market, it was a tough lesson for Hasman’s client. ‘The seller is not happy, but it’s just the reality and for whatever reason, they had to sell,’ he said.”

    “THEY HAD TO SELL”, this is what separates buyers from sellers. Some sellers HAVE TO SELL while buyers can window shop for as long as they want. Sorry FBs and specuvestors, buyers got the advantage here.

    1. I would add that there are some buyers who feel like they “have to” buy. This isn’t a true “have to” but it is almost true to them because it is so ingrained into their world view. For example, it could be millennials just starting a family and feel like they “have to” buy because that is how they always envisioned the next phase in the progression of how their life plays out. They “have to” buy because they need a yard and they need a separate nursery so that mom can create a princess room.

      1. “They ‘have to’ buy because they need a yard and they need a separate nursery so that mom can create a princess room.”

        A blast from the past …

        “I want that house!”

        Watch “The Nastiest Wife on Television” on YouTube
        https://youtu.be/20n-cD8ERgs

        1. Nothing throws financial reason out the window quicker than a diabolical clock and nesting instinct.

          1. The money pits are sequential and exponential: wedding; getting pregnant/having a baby; buying a home. If your girlfriend or wife is on Pinterest multipy with increasing factors of 10.

          2. “If your girlfriend or wife is on Pinterest multipy with increasing factors of 10.”

            Or worse if she’s got an Instagram profile. 🙂

      2. Yes that’s the reason for many. It’s almost a trophy or a status symbol until it’s obtained

    1. Whoever is bought and paid for by AIPAC. These are de facto unregistered foreign agents for Israel’s Likud Party.

  4. Another day, another $190 million in cryptocurrency gone forever. It was only blockchain, after all…

    Business
    CEO’s Death Leaves Investors In Cryptocurrency Exchange In A Bind
    February 5, 2019 7:05 AM ET
    Heard on Morning Edition

    The Canadian cryptocurrency exchange says its founder and CEO, Gerald Cotten, was the only one who knew crucial passwords to access some $190 million in bitcoin and other funds.

    RACHEL MARTIN, HOST:

    Good morning. I’m Rachel Martin. Fans of the digital currency bitcoin say they love it because it’s secure. But investors in the Canadian cryptocurrency exchange are in a bind. They have this account worth $190 million U.S., and it’s locked in a so-called cold storage account online. Thousands of investors have money in there. But only one person had the password, and he died. Security experts want to break in and free the bitcoin, but they can’t, you know, because it’s so secure.

    https://www.npr.org/2019/02/05/691521593/ceos-death-leaves-investors-in-canadian-cryptocurrency-exchange-in-a-bind

    1. Did the LA typhus outbreak hit the construction workers? Or was it just run-of-the-mill housing market Eee-bola?

  5. i posted some of the following yesterday – but given todays topic – think it is very applicable.

    2/3’s of the market in Vancover condos were investors. Other than Dubai – where has that happened. How horribly did it skew the market

    —————–
    Interesting blog from Canadian agent. Purchaser motivation for end user in Vancover condos went from 89% in 2010-2012 to 33% in 2016-2018. So in the last 3 years 67% of condos sold were for investment purposes

    https://vancitycondoguide.com/shades-of-miami-2007/

    1. “Houses are for living in, not for speculation.” – Xi Jinping

      How about you try getting your populace to comply with that and keep the mania limited to smog-choked China instead of exporting speculation to the US and Canada?

      1. Just because he said it doesn’t mean he meant it. Probably different messages for different groups. Or maybe it’s like Trump and he was thinking logically at the time and then figured out later what side his bread was buttered on.

    1. Pay attention as to how the line on the chart rolls over just before a recession kicks in and then notice what the line is doing now.

      FWIW.

        1. After seeing comments last night on Twitter regarding the mortgage interest deduction, it could get ugly if that graph doesn’t show an increase in 2018. People are pissed and confused about TCJA; it appears to have had one too many moving parts. Some people are claiming that their MID was eliminated while not understanding that the standard deduction was almost doubled. Other people are confusing MID and its cap for new mortgages with the SALT cap. Comments on Twitter are likely to amplify the confusion and anger.

          1. The most interesting outcome of MID is the cluelessness and shock from FBs that purchased recently thinking they now “own” a tax deductible loan. 2018 tax deductions will be sure to disappoint.

          2. Clueless NJ resident who spent >$750K on a home in 2018 wasn’t getting too much sympathy in the pity party he was trying to throw for himself.

          3. Emotion vs. reason and the TCJA: The anger is being directed at the federal government. Those angered enough will flee their high-tax state, possibly without ever understanding the underlying reason.

          4. “Some people are claiming that their MID was eliminated while not understanding that the standard deduction was almost doubled.”

            My tax refund more than doubled this year, and I’m not sure why (use turbotax). I filed last week, and the refund hit my checking account this past Monday!

      1. Pay attention as to how the line on the chart rolls over just before a recession kicks in and then notice what the line is doing now.

        It’s rolling slowly this time…like the Titanic.

    2. Except for in this case the reason for the decrease in tax revenue was from tax cuts, not decline in jobs or GDP. So until we see job losses, then I doubt we will enter a recession.

  6. R u gonna buy today’s baby bear dip?

    If stock-market investors missed January’s surge, they’re out of luck, says Goldman
    By Mark DeCambre
    Published: Feb 6, 2019 9:43 a.m. ET
    – The Nasdaq Composite has surged more than 19% since its Dec. 24 low
    – The stock market may have already put in the best gains of 2019, Goldman says

    Missed January’s stock-market rally? Well, then you likely missed the bulk of 2019’s best gains, say strategists at Goldman Sachs.

    The main U.S. benchmarks enjoyed a boomlet last month, after a withering stretch that took hold in October and culminated in a brutal beatdown of bullish investors on Dec. 24—marking the worst decline on the session immediately before Christmas on record.

    However, from that lowpoint, the Dow Jones Industrial Average (DJIA, -0.33%) has climbed 16.5%, the S&P 500 index (SPX, -0.37%) has ascended by about 16.3%, the Nasdaq Composite (COMP, -0.51%) has surged by 19.3%, while the small-capitalization focused Russell 2000 (RUT, -0.13%) has jumped by more than 20%, according to FactSet data.

    “We argued that a modest bounce at some point early in the year was likely, and if investors missed it there would be a risk of missing the bulk of the returns for the year,” wrote analysts at Goldman, including strategists Sharon Bell, and Peter Oppenheimer, in a research report dated Feb. 4.

    “The rally we expected has happened swiftly, and given this we see relatively modest returns on equities from here.” Goldman said.

    The strategists make the case argue that while December’s nadir isn’t likely to be retested soon, a period of “flat and skinny” trading ranges for equity markets is in the offing.

    “So given this we see no reason to return to the December lows. But, while we saw a bounce in equity markets in 2019, we also argued that this would be followed by the resumption of a ‘flat & skinny’ trading range, with relatively low equity returns,” the strategists said.

    Goldman economists believe that current environment in the U.S., marked by a Federal Reserve that may be slightly more accommodative than it presented in December, will support growth outside of the U.S. along with crude-oil prices (CLH9, -0.99%) that had declined sharply along with risk assets like stocks.

    That backdrop should stabilize the sluggish global growth that has gripped much of the developed world and emerging markets like China, even if it doesn’t result in a fresh rally for U.S. stocks.

    1. Well, then you likely missed the bulk of 2019’s best gains, say strategists at Goldman Sachs.

      There’s still time to get in on 2019’s best losses, though.

      1. Gen X won’t go in easily. We’re always suspicious of everybody. And we still remember how to survive without a cell phone.

          1. That Fannie and Freddie study that talked about a glut of housing by aging boomers projected the tipping point about 10 years out. The thing is that most people want to stay in their homes as long as possible and will do everything they can, until it just isn’t feasible. Assisted living centers and single-level condos aren’t that appealing to many and typical the demographers have underestimated how long someone can stay in their own house. It’s not 60s through 70s, it’s more like 85+ when living in one’s place without family or a designated caregiver because precarious. I’m going through this right now with my grandmother. She has her adult children rotating through staying at her place, but she should probably just be in an assisted living center due to her inability to perform basic ADLs (activities of daily living) on her own.

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