Peter Colls

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Bears/Bulls BC Real Estate Guide from BC Business - Published in BC Business Sept 7th, 2009

I subscribe and this is a great objective article so much better researched, understood and written than daily "sell newspaper headlines", many of which I have bought over my 21 year career, only  to read, NO OBJECTIVE,  valuable or timely information. Most all headlines, like all our media these days tell you something happened a few days, or months ago. I ALWAYS ask my and every other receptionist if they are busy and pulling their hair out or reading Judith Krantz. I also do this at every competitor's office I visit. EVERY TIME! The answer can intended to sell newspapers, but which will spur a fast market or slow a slow one…. Yikes! Aren't we smarter than that?!?!?! ALL you have pondered is debated WELL here.


Trends and micro-markets are where real professionals earn their keep! BC Business 
did a great job on both sides of the story that follows, and the great thing here is we 
have 18 months of hindsight to gauge what the Bears and Bulls have said that long 
ago, going into this spring 2011 BUSY market…. But not ALL markets. Call me anytime
if you are buying or selling and would like to discuss market thinking and strategy. 
I have a lot of"Time on the Water" being a RE/MAX Realtor throughout Metro 
Vancouver and Whistler for over 20 years with almost $200M in sales volume….. 
so a few opinions and comments to add.Economists? What do they know? So-called
 industry experts? Forget about it. For the real dirt on which way the market is 
heading, you’ll need to start digging for answers in some unexpected places.
Anyone who’s read a real estate article or two will be familiar with the oft-quoted 
usual suspects: developers, realtors, condo marketers, economists working for banks, real estate companies and government agencies. 
Undeniably these are well-qualified people who know a great deal about the subject. 
Most of them even work in the field, and of course anyone who’s ever held a job knows
what “work” means. Between reports, secondments, committee meetings, ancillary 
projects, emails, phone calls, lunch dates and farewell gatherings in the boardroom, if 
these experts spend two or three hours a week thinking and writing about real estate,
they’re performing some kind of magic. No wonder so many of them were caught 
flat-footed by last year’s sudden downturn, then blindsided again when things picked 
up this spring. 

How They Really Feel........

A BULL, ON THE BEARS:

“Bears are the most negative people here. Since they are negative by nature, they are
unable to accept any real, assumed or potential risk. Hence they are poor decision 
makers, hence are being referred to as ‘basement dwellers.’ . . . They get offended 
rather easily and may threaten to collect their toys and go to their own sandbox. Any 
light at the end of the tunnel, to them, instantly becomes an oncoming train. If 
everything else fails, they will resort to personal attacks on others.” 
[Post on Real Estate Talks by Steinbock on May 3, 2009] 


A BEAR, ON THE BULLS: 

“There is apparently no shortage of greater fools with the means to borrow huge 
sums of money. These people can’t see beyond their monthly payment, so they’re 
getting suckered by low interest rates like lambs to the slaughter. I blame government
for manipulating free markets and thus enabling all this insanity. . . . Of course, it 
won’t be long before this house of cards comes crashing down. But hey, it hasn’t 
happened yet (which happens to be the typical bull’s reasoning).”
[Post on same by Feuille on May 4, 2009]


Now contrast the official sources to another type of real estate expert, one who’s 
never quoted in the newspaper articles. This is a person who doesn’t spend an hour 
or two a week obsessing over real estate; 100 hours is more like it for her or, more 
typically, him. This analyst hasn’t taken into account a mere handful of current rates 
and trends; he’s researched dozens of variables and is currently graphing sell/list 
ratios in 20 major markets across North America. This expert certainly didn’t miss 
the 2008 downturn; he’s been calling it since 2003! 

We speak of the hard-core bulls and bears who frequent a handful of websites and 
blogs devoted exclusively to B.C. real estate – and when we say “frequent” we mean 
“eat at three times a day and fall asleep in front of most nights.” They are proudly 
self-identified real estate nerds who start threads such as “I’m 30 and still living  at
home. Rent or buy?” and “Nuclear war in Korea: Good or bad for B.C. RE?” Now, the 
first impulse of most people would be to run not walk from any advice they might offer,
 but hear us out. These Cassandras and Pollyannas have thrashed out every variable 
and eventuality that could possibly affect the local market. They are to property price
trends as medieval monks are to angels on the head of a pin. Yes, it took them 
thousands of posts and millions of words to achieve such learnedness, but fortunately
there’s no need to wade through their vast oeuvre, not when we’ve done it for you. 
That’s right: in the short write-ups that follow, you’ll find their most important 
obsessions cogently summarized, along with brief referee’s notes attempting to find 
middle ground and explaining what it might mean for the other 99 per cent of humanity
 who, well, have lives.  It’s the last word on B.C. real estate, and all without a single 
quote from someone named Helmut or Bob.

Months of Inventory
Nothing correlates more closely with real estate price trends than months of inventory
(MOI): the length of time it would take to sell all current listings at the prevailing sales 
pace. At the peak of the recent boom, Vancouver’s MOI dropped to three and even 
slightly below. A year ago, when plunging sales and an increase in listings sent the 
MOI skyrocketing to more than 20, average sale prices dropped 15 per cent within 
weeks.  This year Vancouver’s MOI has returned to a balanced level in the four-to-six 
range, and prices have stabilized, even nudging up a little. In many other areas of the 
province, MOI remains high and prices continue to fall. 

BULLS contend that, with very low interest rates and a gradually improving economy, 
sales will strengthen sufficiently to prevent another big run-up in MOI.  

BEARS believe that there will soon be a flood of listings created by building completions,
distress sales and sellers attempting to beat further price drops. Meanwhile, sales will 
fall due to economic conditions and the prospect of lower prices to come, a combination
producing much higher inventory and therefore price slides. 

THE REFEREE SAYS: This could go either way. Buyers and sellers should keep an eye on 
local MOI and adjust their urgency level and price expectations accordingly.


The Asian Thing
Vancouver definitely profits from its role as Canada’s gateway to Asia, but is Asia 
recovering as quickly as current indications suggest, and if so, will this be enough to 
counter ill winds elsewhere? 

BULLS side with analysts who believe Asia will shortly replace the U.S. as the world’s 
primary economic engine, 
soon pulling the rest of us out of recession. This looks to be good for Western Canada,
which supplies so many of the commodities a re-energized Asia would need, and 
doubly good for Vancouver, which is not only a major North American transshipment 
point but a crucial entrepôt through which a lot of Asian trade is brokered. There is 
also the Asian predilection to invest spare cash in real estate, a tendency from which 
the Vancouver market has historically benefited.

BEARS point out that the supposedly crucial role of offshore investors has failed to 
play out in several studies, which generally suggest that 80 to 90 per cent of real 
estate purchasers are local. They also note that the bulk of our international trade 
continues to be with the U.S., where things aren’t likely to go so well. Finally, 
pessimists by nature, they find it hard to believe that anything, Asian or otherwise, 
can pull the local economy out of what they perceive to be a downward spiral.
 
THE REFEREE SAYS: B.C. is on a knife’s edge and it’s impossible to predict which way 
things will go, especially as the high commodity prices that would help the province 
prosper would be harmful to the fragile American economy, which it also needs to 
prosper. That said, the province has rarely run in lockstep with North American 
economic cycles. 


The Olympics
Until the spring of 2008, the accepted wisdom was that Vancouver would be immune 
to a real estate downturn till after the Games. That view proved to be wrong – or did 
it? Arguments continue over the role the Olympics might have played in real estate’s 
surprising recent resurrection.

BULLS look fondly back at Expo and its role in both easing a local recession and 
bringing Vancouver to the attention of the world. Two dozen years later, they say, 
history is already beginning to repeat itself. 

BEARS counter that Games in other cities have mostly failed to ignite real estate 
markets and sometimes even had a deleterious effect by leaving hosts with big 
deficits and higher taxes (hello Montreal). As well, the difference between our 
summers and winters is frequently pointed out, sometimes accompanied by the 
phrase “two weeks of rain.”

THE REFEREE SAYS: They’re both right, but Expo happened to co¬incide with an era 
of Asian unease, which was probably the main driver of investment here, and the 
comparison to other Olympics is likely a better fit. Still, there’s little doubt that the 
$10,000 or $20,000 many homeowners hope to make by renting out their places has 
played a role in propping up prices by keeping some homes off the market and 
prompting the purchase of others. 


Local Attributes

We can’t believe we’re saying this either, but location, location, location.
BULLS say prices in cities such as Vancouver and Victoria will always be higher than 
elsewhere in Canada (and almost anywhere in North America) because, even if space 
weren’t at a premium, the housing bundle is so rich with amenities, and, as survey 
after survey proves, the cities are such great places in which to live.

BEARS focus more on our stunted average incomes and take a distinctly darker view 
of local charms, focusing instead on incessant rain, high crime rates and growing 
income disparity. In any case, they point out, similarly blessed coastal cities such as 
Miami, San Diego and San Francisco subscribed to the same set of “it’s different here”
beliefs but experienced real estate meltdowns anyway.

THE REFEREE SAYS: Bears seem strangely blind to the desirability of B.C.’s cities and 
the role played by the sea, the mountains and the Agricultural Land Reserve in both 
enhancing the glow and ensuring that property is in short supply. Still, while it may 
genuinely be different here, average Vancouver prices could drop another 25 per cent
and still remain Canada’s highest. 


Demographics

Perhaps more important in good times than in bad, population composition, mobility 
and growth cannot be underestimated as a factor affecting B.C. real estate.

BULLS point to an imminent population of three million to four million for Greater 
Vancouver and wonder how real estate prices cannot continue to rise. Promoters of 
recreational real estate continue to believe that many in the large boomer cohort will 
migrate from places such as Alberta to areas of B.C. where they can enjoy a pleasant
lifestyle. And Canada remains committed to high levels of immigration, which means 
that continued population growth is assured, especially in the cities. 

BEARS counter that population growth in Vancouver and B.C. merely ticked along at 
long-term levels over the last few years, indicating that real estate prices have little 
correlation with population growth. Some dispute the idea that there’s a shortage of 
developable land, given that B.C.’s population density of 4.7 people per square 
kilometre is less than Alberta’s and about one-seventh of Washington state’s. Finally, 
citing market crashes in places such as Phoenix and Las Vegas, they suggest that 
demographic effects don’t support real estate if the aging/growing/migrating 
population cannot afford the price.

THE REFEREE SAYS: There’s little doubt cities such as Vancouver and Victoria will 
continue to grow and are squeezed for space, but equally little doubt that current 
prices are a stretch for most. It remains to be seen whether the local outcome will 
look more like New York City, where people deal with perpetually high prices by 
accepting a lower accommodation standard, or California, where prices have dropped
dramatically even as population growth continues. As for the recreational market, 
baby boomers may yet decide to relocate from Alberta and the Lower Mainland en 
masse, but history suggests migrating retirees are more of a trickle than a flood. 

Affordability

Long an issue in B.C. and especially Vancouver, affordability was stretched to 
implausible levels during the real estate boom. Current low interest rates combined 
with a 10 to 15 per cent price drop have barely returned it to historical local norms.

BULLS contend that Vancouver and B.C. have always been expensive markets where 
real estate always goes up, and the pain of high mortgage payments – “forced 
savings,” as proponents sometimes refer to them – will all seem worthwhile later in 
life, as home equity accumulates and household income grows. A failure to grasp this
has turned many bears into embittered permanent renters. 

BEARS argue that massive government deficits and an improving economy will 
inevitably result in escalating interest rates, creating great distress for homebuyers 
they believe are being tricked into the market by low rates. Alternatively, if rates stay
low, it will be because the economy is so sick the same buyers may face salary 
freezes or job losses. Better to rent until prices drop to more affordable levels.

THE REFEREE SAYS: Since interest rates have nowhere to go but up (unless, of course, the recession persists), buyers should be wary of the temptation to max out their mortgage, instead limiting it to an amount that would still be manageable if rates rise. They might also consider locking into a longer term at current low rates, although this will mean higher rates in the short term.


Fundamentals

Residential real estate doesn’t always lend itself to the precise mathematical scrutiny
typically applied to stocks and bonds, but investors and even homebuyers often 
consider metrics such as cost to own versus cost to rent (with, say, 20 times annual 
rent regarded as a trigger to buy) and whether a unit brings in enough revenue to 
offset some combination of mortgage, tax and maintenance costs. 

( Peter speaking personally: In my own circumstance, the above numbers bear out 
virtually bang on, both in purchase Nov 2005 and re-finance appraisal Nov 2010, 
with not insignificant benefit to property owner… in this case ME!) If you want to 
discuss just call and I will tell all.) 

BULLS point out that those who make fundamentals their first consideration have 
been shying away from real estate since 2003 or so, and property values have doubled
while they’ve been on the sidelines. They contend that considerations such as tax 
advantages, forced savings, long-term appreciation and the “ownership premium”  – 
or the pleasure of owning your own home – are as important as the numbers. 

BEARS typically cite fundamentals as the biggest objection to buying B.C. real estate, 
suggesting they would happily plunge into the market if it made even a hint of 
business sense, something that could only occur after steep price drops of up to 50 
per cent in Vancouver’s case.

THE REFEREE SAYS: It remains something of a mystery why B.C. property values are so
high when rental rates are relatively low. As long as this remains the case, the numbers
will make little sense and investors and developers will shy away from building or 
buying rental properties. On the flip side, this will keep the vacancy rate perpetually 
low, a boon to homebuyers who rely on the revenue from secondary suites to make 
their own calculations work.


The Banks

The puzzle of why Canada’s real estate downturn has been so much gentler than the 
fiery pipeline explosion south of the border can be partly explained by looking at our 
respective banking systems. Their institutions encouraged injudicious borrowing, 
foreclosed on millions of mortgagors, then, in many cases, promptly collapsed, freezing
credit markets and throwing the economy into deep recession.

BULLS take comfort in the health of our banks and their more conservative mortgage 
portfolios, which are for the most part free of subprime liabilities. Lacking a U.S.-style 
overburden of distressed property hanging above it, our real estate markets may fall or
rise, but they should do so based on factors related to economic conditions and supply
and demand, not credit availability or competition from bank foreclosures. 

THE REFEREE SAYS: Buyers and sellers can probably save most of their worries for 
other matters. Foreclosures may well rise from their current very low rate if economic 
weakness persists, but analysts and regulators are virtually unanimous in vouching for 
the health and integrity of Canadian banks.

COMMENT FROM PETER:

After 21 years selling real estate with RE/MAX in this fabulous city and climate, I think
this is one of the best comprehensive articles debating what we all think and fret 
about, Realtors giving advice and homeowners/sellers all. Demographer David Baxter,
who is rather brilliant, if you have ever seen him speak, or have a chance to - be there!
 - has much to say on future Metro Vancouver demand and micro-market 
understanding, and why, in REAL TERMS, which makes as much or more sense than 
this really good article by BC BUSINESS MAGAZINE. Google him re BC real estate and 
demographics…. Mr. Baxter is beyond brilliant in seeing it, 'getting it' and 
communicating it.

Another strong sage, I believe he has earned that apt word, is Cameron Muir, now the 
Chief Economist for the BC Real Estate Association. A very bright spot on man, for 
many years now, who communicates extremely well, demographically AND market 
based, and understanding of Buyers, Sellers,and Realtors, and able to explain in 
layman's terms, and very blunt open and honest terms what is actually going on and 
what to expect in the future, something I have been able to to with the majority of my 
clients, but not all, over the years. Obviously he is not SELLING real estate, and comes
from a more focused career path regarding economic real estate history and 
demographics.

The communication of these two men's education and ability to communicate it 
coupled with our current circumstance will definitively give you more understanding 
and confidence in our uncharted waters!

BC Business Magazine gives good solid food for thought, but remember, it was written
Sept 7th, 2009.  What is your experience? What do you think or feel? I invite your 
comments, queries or criticisms.

Sincerely,

Peter

Peter M. Colls, B.A.(Econ.) Vancouver Direct: 604.220.2269

RE/MAX Hall of Fame
Master Medallion Club - Real Estate Board of Greater Vancouver

Over $150,000,000 in past sales - Experience is key, in any/every market condition!

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