The Rise of Asia Pacific Cities


Here’s an interesting post:

During the nineteenth and twentieth centuries cities in the Atlantic region flourished.  As key centers for “world trade” (or at least trade between Europe and the Americas, which to many was the world), great streets for commerce and neighbourhoods for families emerged, including highly exclusive addresses.

Many of these great Atlantic world cities still have pricey neighbourhoods whether for businesses in the form of office space costs or people.

But, if a recent Coldwell Banker survey is any indication, they are gradually being eclipsed by Asia Pacific cities.   In cities worldwide, Coldwell Banker queried the price of a 4 bedroom, 2.5 bath, 2200 sq. ft. home, the type of place that “middle management transferees” being relocated to a city might want for their families.

In North America eight of the top 10 are on the pacific coast.  Outside North America, some of the old Atlantic World, and even Mediterranean world cities remain on the list.  However two of the top five are also in the pacific world.


From that same post, they reference the Globe and Mail with the following table of “move-up” SFH prices:

North America’s 10 most expensive markets(in U.S. dollars)

  • La Jolla, Calif.: $2.12-million (U.S.)
  • Beverly Hills: $1.98-million
  • Greenwich, Conn: $1.52-million
  • Palo Alto, Calif.: $1.49-million
  • Santa Monica, Calif.: $1.46-million
  • San Francisco: $1.36-million
  • Boston: $1.34-million
  • Newport Beach, Calif: $1.3-million
  • Palos Verdes, Calif.: $1.24-million
  • Vancouver, B.C.: $1.17-million

Outside North America

  • Singapore: $1.89-million (U.S.)
  • Milan: $1.64-million
  • Florence: $1.61-million
  • Shanghai: $1.38-million
  • Bucharest: $1.37-million
  • Hamilton, Bermuda: $1.35-million
  • Rome: $1.26-million
  • Dublin: $1.13-million



Demographic Inversion


Is it different here? 

In a 2008 article from The New Republic they document a migration phenomenon in American cities and call it demographic inversion.  Essentially this is a reversal of historical patterns where now the poor are migrating to the suburbs and the wealthy are migrating back into the city core:

Chicago is gradually coming to resemble a traditional European city–Vienna or Paris in the nineteenth century, or, for that matter, Paris today. The poor and the newcomers are living on the outskirts. The people who live near the center–some of them black or Hispanic but most of them white–are those who can afford to do so.

Later on in the article, there is specific reference to Vancouver as an exceptional example of this kind of shift:

… venture just across the Canadian border to Vancouver, a city roughly the size of Washington, D.C. What makes it unusual–indeed, at this point unique in all of North America–is that roughly 20 percent of its residents live within a couple of square miles of each other in the city’s center. Downtown Vancouver is a forest of slender, green, condo skyscrapers, many of them with three-story townhouse units forming a kind of podium at the base. Each morning, there are nearly as many people commuting out of the center to jobs in the suburbs as there are commuting in. Two public elementary schools have opened in downtown Vancouver in the past few years. A large proportion of the city’s 600,000 residents, especially those with money, want to live downtown.

No American city looks like Vancouver at the moment. But quite a few are moving in this direction. Demographic inversions of one sort or another are occurring in urban pockets scattered all across America, many of them in seemingly unlikely places. Charlotte, North Carolina, is in the midst of a downtown building boom dominated by new mixed-use high-rise buildings, with office space on the bottom and condos or rental units above. Even at a moment of economic weakness, the condos are still selling briskly.

(underlines were added by me)

The article is fascinating throughout.  You can read it at:

Dare I suggest this is a paradigm shift in the death and life of great cities?  I suspect this is a partial and plausible explanation for the high prices seen in Vancouver. 

What do you all think of this?  Will this have any lasting impact on home prices and land use in the City of Vancouver?  What about the impacts on surrounding cities?

Covering Your Natural Short Position in Housing


Many bears in the housing blog space emphatically declare their intention to short the housing market.  Some have posited the viability of shorting some REIT or housing sector related equities.  The thing is, as financial journalist Felix Salmon and Carleton University’s Nick Rowe have written, we are born with a short position in housing.  Professor Rowe explains:

The rent on a house is like the dividend on a stock.  If I do not own a house, and rent one to live in, I pay rent, which is like having a short position. If I own a house and live in it, I neither pay rent nor receive rent, which is like being neither long nor short. If I own two houses, live in one and rent out the other, I receive rent, which is like having a long position.

So we are born with a short position in housing. We need shelter, and must pay rent to live somewhere.  When we buy a house to live in, we are covering that short position.

So if you’re renting, you’re already shorting the Vancouver housing market.  If you’re a bear, you don’t need to actually do anything. Just keep renting.  The same goes for all of you that sold your homes hoping to cash in later IF the market goes down.  Being long or short is just a bet.

Anyways I think this kind of thinking sheds some light on the local market.  In his article, Professor Rowe goes on to state some of the risks associated with owning:

1. My house may burn down, fall down, or in some other way stop providing me with the shelter I need. Some of those risks I can insure against; others I cannot.

2. The house may stay the same, but the type of shelter I need may change. I may need  a bigger house, a smaller house, or one in a different place. I face the risk that my old house may fall in price when I sell it, relative to the price of the new house I buy. True, but if my old and new house prices are positively correlated, I have at least partly hedged my risks, which is better than renting.

3. If I need to borrow money to buy the house, the future interest rate may be uncertain, and the risk that my mortgage payments will rise needs to be compared to the risk that my rents would rise.

4. If my house will last another 100 years, but I will only live another 40 years, I will have covered 60 years more than my short position. The future reverse-mortgage value of my house is uncertain. But if I make a bequest to my children this is not a problem. My children will have a short position in housing too. They will need somewhere to live.

The reason why the above risks are useful is that it can explain additional motivating factors to own a home in Metro Vancouver beyond mere cap rates or other like-minded metrics.   If we quantified these additional factors, you could call it an ownership premium, i.e. a justification for paying beyond what “fundamentals” call for.

Risk #4 above is particularly salient for the local market.  If you have kids, I’m sure you’ve probably wondered how your children are going to afford a place here.  As well, there are other risks (such as potential high rates of inflation, which penalizes cash holdings) that adds more weight to the hedging notion.  So logically, the ownership premium is your housing hedge.  For individuals in the right circumstances, owning is risk management.

So if housing is an absolute must and you don’t want to gamble, hedge your bets and take the plunge as many homeowners have done in the past.  However, if you’re sure of the future direction of the market, then take a short position if you think it’s going down (by renting or selling your principal residence) or going long (by purchasing additional homes beyond your principal residence).  At the end of the day, the rational foundation for prices above “fundamentals” is this ownership premium.  Ownership depends dually on the importance of housing to you as well as your tolerance of the risk of “being priced out”.

Motives To Bear In Mind


Bearish prognostications on real estate is based on reasoned and sound logical analysis.  But that’s the nature of rhetoric.  There’s little doubt that bears are intelligent creatures with the ability to create devastatingly cogent arguments against almost anything (including being a bear).

Now, there is a topic that doesn’t often surface on many Vancouver real estate blogs, and that’s the motivations of bears. Their group-think have attempted to persuade us since about 2005, beginning with the appearance of the Vancouver Housing Blog.  Given the recent strength of the market, those on the sidelines pondering the “correctness” of bear forecasts have been side-swiped!   Some have even been demanding apologies from the bears for their “malfeasance”.  I think the anomie is somewhat misplaced but if I had been a bear following word for word what the bear experts were saying, I’d be rightly pissed about hesitating these past 5 years!  I’m not saying the bears are wrong, but I’m not saying they’re right either.  It isn’t that simple.  When looking for informed analysis on the Internet, we must consider just really how valuable is someone else’s two cents.  We must look deeper at what they’re really saying.

Crouching Bear, Hidden Motives

  1. Do as I say, not as I do.  Many bears will post some economic or financial news and say the sky is falling.  Why?  Partly this is to assuage any fear and uncertainty they face.  Being a bear or a bull is inherently speculative.  So finding confirmatory news soundbites is soothing to bears and bulls alike.  But there is a deeper incentive at work here.  They want to convince enough people so that the demand would decrease and prices along with it.  But why?  Bears’ goal: to hide the fact they’re bulls wearing bear disguises!  They really want to buy, for if not, why do they bother to comment at all?
  2. Calling people names.  Here are a few: shill, realtard, specuvestor, sheeple, lemming, immigrant, criminal etc.  They want to ensure that people know that they’re the most rational and level-headed individuals around because their understanding of the mechanisms driving the Vancouver market is more sophisticated than everyone else.  But let’s call this name calling for what it really is: bullyingBears’ goal: to instill fear and discredit those who bought or those contemplating buying.  What did the bulls do to deserve this?
  3. Necessary Illusions. Many bears have claimed that an independent voice is needed to fight the one-sided news coverage.  Fair enough.  The Internet does democratize access to information.  But then how do the bears justify selectively picking out news soundbites that fit their bearish worldview?  The flip side of a one-sided bias is another one-sided bias.  That said, there is the occasional insightful debate at or Rob Chipman’s blog.  However most of the bear commentators are doing a real disservice to those trying to make the biggest decision of their lives.  Bears’ goal:  to confuse by presenting their bias as balance.  Where are the blogs that find common ground?
  4. Moral Suasion. I’ve never understood the moralizing against market participants.  Those “flippers” or “pumpers” are somehow responsible for making bears’ lives miserable.  Everyone faces tradeoffs.  Some people really value their housing and will do whatever they can to get it.  Everyone else is free to choose to do the same.  There is no conspiracy against the bears.  AND, there’s nothing wrong with being a renter!  If there’s any kind of inferiority-superiority complex at play, it’s the renter-who-wants-to-own that’s rousing the lynch mob.  Bears’ goal: to display moral superiority.
  5. Being emotional. I really hate how some commentators point to emotional sentiment as something negative.  What’s with all the mysognistic BS about their partners’ “nesting” instincts?  Antonio Damasio has shown that reason relies on both the right and left hemispheres:  the implication is that one can’t make rational decisions without emotions; the cold calculating hyper-rational investor is just a Hollywood caricature.  Is there a Dragon’s Den of Vulcans?  Have guts to use your gut.  I think this just shows how some bears are mere amateurs when it comes to decision making.  Bears’ goal: to conflate emotionality with irrationality and wrong-headedness.  (And possibly to justify chauvinism against the female gender.)
  6. Investment Savvy (or lack thereof). Often used to brand bulls who are supposedly praying for capital gains.  Take Rob Chipman’s advice:  don’t treat your principal residence like an investment.  In other words, don’t reduce your home life to a metric.  There’s more to investment returns than pure monetary considerations.  As they say, home is where the heart isBears’ goal: to make you feel shitty about having a home.

Anyways that’s all I have to say for now.  I’m sure you clever bears will trample on my horse dung.  Maybe now there is an incentive to uncover this blogs’ insidiously mysterious hidden motivations?

Invisible Hand of Income (Inequality)

First off I’d like to say that this whole blogging thing is new to me and so I’m still working out the quirks.  So bear with me.

Now a lot of  commentators say that house prices are way off fundamentals, rental incomes don’t jive with the prices.  Most of the times they are using analysis based on the tradeoff between rent and mortgage payments.  The general idea is that over the long term, a “rational” individual would choose to pay less for living in an almost identical home if given the choice between rent and a mortgage payment on that place.  Ultimately, the ability to pay for rent or mortgage payments is capped by what the incomes levels are in that market.  Many claim Vancouver’s prices are not justified by the income levels.

But this is where I think the problem lies.  According to BlockTalk, in the Dunbar area, the average income level is $122,948.  Using the CHMC mortgage calculator for how much one can afford, the numbers are:


Monthly Income Required
: $10,245
Monthly Property Taxes: $600
Monthly Heating: $100
Financing: 3.5% fixed, 5 years, 25 year term, mortgage of $516,434, monthly payments of $2,578
Downpayment: $500,000
Maximum House Price: $1,016,434*

* According to CHMC, the first rule is that your monthly housing costs should not exceed 32% of your gross monthly household income.  Housing costs include monthly mortgage payments, taxes and heating expenses.  The house in the picture above was on the market recently for $949,000

Now what if monthly income is $15,000?  Let’s see:

Monthly Income Required
: $15,000
Monthly Property Taxes: $600
Monthly Heating
: $100
: 3.5% fixed, 5 years, 25 year term, mortgage of $821,198, monthly payments of $4,100
Downpayment: $195,000
Maximum House Price: $1,016,198*

In scenario 1, you could say it was a dual income couple making $61,470 each.  In scenario 2, it could be a couple making $90,000 each.  You’ll notice that there is a very significant downpayment required.  But houses like the one above are being sold.  And the bears say that this is because of the extremely low mortgage interest rates.  This is true.  Are the buyers overextending themselves?  Well these scenarios are based on the criteria set out by the CMHC on 32% debt-to-income ratios.  Is it so hard to imagine a couple (gay or straight) making $60,000 to $90,000 each?

It’s the downpayment that’s troubling.  For both scenarios, they require a downpayment from $195,000 to a whopping $500,000.  But is this necessarily unrealistic?  These houses are being sold and this is what the market can bear. Believe me, there are houses in this area that selling for much more than $949,000.

Where does the downpayment come from?  This is probably the most mysterious part.  But it doesn’t really matter because its unobservable.  It could be from inheritance, from an asset sale, from the sale of a business, or maybe it was just saved earnings!  Is it that hard to imagine our hypothetical couple saving $50,000 to $100,000 each – maybe because they’re too busy working to spend their earnings – and then topping it off with a gift from both sides of the family towards their first purchase?  Or what if these people are just stinking rich or come from very well-off families?  Why is this so hard to believe?  Maybe bears aren’t good at empathizing with bull.

This is what I perceive to be some of the problems with the bearish point of view.

  1. Averages are mediocre – The average income figures are obscuring what’s actually happening out there.  An average houshold income level of say $75,000 doesn’t really tell you what is happening at the upper end of the distribution.  Who says that the income distribution needs to look like a bell curve?  Don’t income distributions follow power laws anyways?
  2. Rich people buy in Vancouver – One of the complaints is that income levels can’t sustain the current market.  Bears believe in fundamentals, but why can’t they believe where the market clears prices correctly?  Because ultimately they can’t believe that there are so many rich people out there.  Or they might brand these people as “greater fools”.  I personally know a few Goldman Sachs employees based out of Manhattan that recently purchased very high end condos in Kits.  A common complaint is that institutional investors are not jumping into the Vancouver market.  So why are Wall Street investment bankers making such foolhardy purchases for themselves?
  3. Self-Righteousness – Bears are complaining about high prices because they’re too high.  But too high for whom?  They don’t think the prices are worth it.  But does it compute that it might be the right price for other buyers?  How can one justify buying a $250,000 car?  Because it’s worth it to them.  Some like their caramel machiatto, others like their double-double.  Go figure.  But when bears say they can’t understand the stupidity of making a purchases that breaks the laws of the price-income ratio, they are basically saying why don’t others think like I do?  Why aren’t others as “rational” as me?
  4. Affordability Self-Selection Bias – People that congegrate on the Internet to talk about the “bubbly” prices of Vancouver real estate tend to reinforce each other’s beliefs.  Finding other people who share your opinion only reinforces… well, your opinion.  Just because there are so many bears out there doesn’t mean that they’re right.  We can ponder the “wisdom of crowds” all we want, unless of course the crowds are dead wrong.
  5. History is a Guide – Many bears believe that prices will achieve some long-run historical average.  They don’t believe in paradigm shifts away from what they perceive is a solid fact of history: the price-income ratio.  But paradigm shifts do occur.  For example, consider that property rights and capitalism are in fact complete paradigm shifts that only in the past 30 or so years the rest of the world have come to realize as the best form of organization for a country today.  It might not always bethis , but then that would be a paradigm shift for the future.  We can’t be so close-minded about possibilities when using historical data.

The bottom line is that the reason why prices are so “high” is because there is, amongst the buying public, a huge and large income inequality.  It’s that simple.  For what else could be driving the market to clear at these prices, given the hyper-connected infoglut of a world we live in?

When do the bears go extinct? (or Bears in Heaven)

Where bears go if the market corrects.

Where bears go if the market corrects.

A lot of the commenters on the popular bear blogs and discussion boards out there, such as:

feature a cast of characters that are usually harping on the same points about the impending market crash in Vancouver, month after month, year after year.

Now here’s a question: WHEN DO THE BEARS GO EXTINCT?

That is, at what point do all of these bears admit that it’s time to be a bull?  And if so, will all the bears jump over to the bull camp?  Or will there always be those who will forever remain a bear no matter how low the market goes?

Welcome to Vancouver Housing Bull!

Welcome to Vancouver Housing Bull!  Where the double entendres are free and where I’m hoping this will become the antidote to some of the more popular bear blogs out there.  And that ain’t no bull!