Nobody saw this coming?

Publicity still for "The Zone"

In the early days of Condohype — which I’ve now renamed with a capital “c” as a sign of blogger puberty — every post was a dissection of a condo ad. In the marketing I found clues of a meltdown in the making.  I put it under the microscope to make it easier to see, and for the possibility of a few laughs.

The ads are more or less gone, a victim of a real estate market bust that “nobody saw coming.” Across the League of Extraordinary Economic Gentlemen — in the world of “experts,” sadly, it’s mostly men — almost all opined the market was headed for the heavens.

The experts were wrong. This we know. But the problem isn’t so much that they were wrong, but that they had no basis upon which to be right.  The chorus of opinion that prices would keep rising was informed by the chorus of opinion that prices would keep rising.  It was a feedback loop.

Today, the key message of the elite is that “no one” predicted the Vancouver real estate collapse.  Some quotes, all from the last seven days:

  • “No one would have imagined the market would have changed as drastically as it did.” –Chris Evans, Executive Vice-President, Onni Group of Companies
  • “No one was able to predict the unprecedented real estate market meltdown…” –Peter Ladner, Former NPA Mayoral Candidate
  • “Everyone thought that in three years, prices would be up. Absolutely. We knew there might be a dip, but nothing like this.”  –Austin Gangur, North Vancouver Realtor

The quotes are laughable but also scary.  They remind us of how potent the hype ideology is.  It’s not for lack of prediction that we find ourselves in this mess; many sounded the alarm bells of the crash.  In 2005, the world’s leading real estate academic declared Vancouver “the most bubbly city in the world.”

So what is it?  The problem is psychological.  No matter how convincing the evidence, people will not waiver in their conviction.  They want to believe, maybe even need to believe, that their one “investment” condo is worth more than the GDP of Spain.   Real estate is Vancouver’s religion.  You do not question God.

42 Responses to “Nobody saw this coming?”

  1. The Urban Dweller Says:

    If Real estate is our religion, does that make Beasley our God and Rennie one of his apostles?

  2. patriotz Says:

    Note that it was the “ivory tower”, i.e. disinterested academics such as Shiller and Krugman who were right about the bubble, and those at the industry-funded “joint institutes” and business schools who were so very wrong.

    Right Tsur?

  3. anon Says:

    Not to mention all the bear blogs. No, these “geniuses” claiming “No one saw this coming” and “No one could have seen this coming” are talking about themselves, the mouse in their pocket, and the face they see in the mirror each morning.

    Despite all the evidence to the contrary, they still think there’s strength in numbers… even if the “no ones” they’re talking about never existed except in their own minds.

  4. The Urban Dweller Says:

    At the end of the day they are there to sell units and if they were to tell prospective buyers that prices will decline next year or whenever that means people (stupid people) would not stop into the market at its peak. Is this practice wrong and misleading? You bet but they are salesmen plain and simple and it is up to the individual to do its due diligence when making a purchase of this magnitude.

  5. jesse Says:

    The most egregious argument, made by the likes of Greg Mankiw in the US, is that there will always be people who were right because there are so many varying opinions. One is bound to be right, given enough variance. Watch for the same excuses amongst local boffins as well. It comes down to them arguing others’ opinions are but a combination of a random walk and a stopped watch. Their opinions, of course, are immune from such characterisations.

    Will you ever see a mea culpa from these guys? Unlikely. There is too much at stake for their finances and reputations for them to discredit themselves. This is not some Shakespearian play where the incompetent and malicious are shown to the public for who they are. Reality is far more unsatisfying, though Greenspan’s testimony before Congress was close.

  6. VanCityGuy Says:

    eal estate is Vancouver’s religion. You do not question God.

  7. VanCityGuy Says:

    I absolutely love that line – sorry for the double comment

  8. patriotz Says:

    This is part and parcel of the neocon assault on critical thinking about any of their projects from the Iraq War to the housing bubble.

    Yep. Long ago I (Krugman) said that if Bush declared that the earth is flat, the headlines would read “Views differ on shape of Earth.” What’s sad is that fact-checking is a real service news media can perform for the public; horse-race analysis is nothing but entertainment, and the people aren’t even beautiful.

    http://krugman.blogs.nytimes.com/2007/06/19/character-assassination/?pagemode=print

  9. Carioca Canuck Says:

    A quick review of history and some mathematics would have told anyone who “wanted” to see it, that the bubble was coming and the bursting would be disasterous.

    Problem is, you can’t sell advertising (or condos) by telling people that their bubble is going to burst……..

  10. blueskies Says:

    they said he could walk on water!

    turns out to be painted concrete…..

    the blogger was right.

  11. househuntvictoria Says:

    Beautiful. If you needed any further reason not to buy Vancouver property, you just got it: increased taxes with no say on whether you wanted them or not.

  12. Chilled Says:

    Who would believe a Yale educated economist over a Vancouver hypster anyway? Try to remember that a ‘higher education’ in Vancouver is all to often considered a piece of paper from Camosan College or some privately run design institution. Like house hunt suggested, soon the property taxes in Vancouver will exceed the mortgage payment for those entering the market next year and onward.

  13. Mac Iceland Says:

    @Patriotz:

    Krugman is an inflationist who supports the very economic policies that produced the real estate bubble. And when he at last did say boo about it – long after wave after wave of rational economic forecasters had already warned — he used it as a reason to bash capitalist “greed”, and call for more worthless regulations.

  14. Mac Iceland Says:

    In the final analysis, why not just sit back and enjoy the suffering of those in WEST VANCOUVER?
    Wrapped up in the “average” percentage decline for all of the Lower Mainland, are the ABOVE average losses of those idiots in West Van who can’t afford to be there, and of whom many are now headed straight for insolvency. It may be bad for a great many on average; however, some will suffer deservedly more than others.

  15. patriotz Says:

    See what I mean? Neocons, who are wrong about everything, can’t stand anyone else being right about anything.

    FYI Krugman started calling the US housing bubble in early 2005, the same time as Shiller and most other critics. I am not trying to give credit to Krugman for being particularly prescient, just for being willing to face reality when the neocons were denying it, as they always do.

  16. anon Says:

    VanCityGuy… re: real estate being God:

    As Shakespeare said and Job ALMOST said: “The Lord giveth, and the Lord taketh away…”

  17. patriotz Says:

    Beautiful. If you needed any further reason not to buy Vancouver property, you just got it: increased taxes with no say on whether you wanted them or not.

    Actually Vancouver taxpayers did get a say, in February 2003. I voted “no” precisely because the Olympics represent a blank check on the taxpayers’ account. People have gotten exactly what they voted for.

    People who voted “yes” did so of course because they though they would be getting a piece of the upside without any risks on the downside, and I have no respect for people who expect to get something for nothing.

    But that’s what this whole RE bubble was about, wasn’t it – expecting to get something for nothing. So the Olympic debacle is just the grand finale.

    The Olympics costs to be assumed by CoV proper do not represent a significant % of real estate valuation in the city, and thus will not impact RE values on a fundamental basis. They may however impact buyer perceptions, and thus result in CoV being better value than the suburbs on a market price basis for some time. That’s not to say that RE anywhere in the region will be good value for a couple of years, though.

  18. travelite Says:

    A mirror of Vancouver’s market?:

    http://www.theaustralian.news.com.au/story/0,25197,24930186-12332,00.html

    “The contraction of Australia’s third-biggest export industry, education, has the potential to cost jobs within the sector and hurt the housing market.

    As universities brace for the fall-off, there is growing concern it will trigger a slump in unit sales as the parents of overseas students stop buying apartments for their children.

  19. tweber833 Says:

    How on earth did no one see this coming? I’m no expert and I’ve been predicting this meltdown for the last year!

  20. buff_butler Says:

    “How on earth did no one see this coming?”

    I think its the medias way of shaking off any blame…

  21. dingus Says:

    “I think its the medias way of shaking off any blame…”

    Funny how the tide has turned on that front. Highly amusing to see columnists falling over themselves to show their anti-Olympic chops. Pete McMartin’s column on Saturday, for example, needlessly embarasses Gary Mason with some juicy old quotes from Mason about his voting for the Olympics “with his heart”. Way to start the p*ssing match, Pete.

    And Vaughn Palmer’s column lambastes Vision for politicizing the Millenium debacle when there was “full disclosure” in a footnote to the City’s audited financial statements last year. So Vaughn, my question is, why did nobody in the media pick up on this? Did none of your intrepid reporters on the city beat receive a tip to look at the financial statements? If no, why not? Surely a decent reporter would have had some contact who would have mentioned something this significant. And if so, then why did it not get reported until now?

    Plenty o’ blamestorming going on, no mea culpas forthcoming. I love Vancouver media.

  22. Dale Says:

    Real estate is a market and it goes up and down. I’m much more impressed by those who were in it, made money, and got out in time.

    Sitting on the sidelines waiting for the market to fail is pretty easy. I’m sure someone is starting a blog tonight predicting that prices will go back up. Guess what? (Eventually) they’ll be right.

    Vancouver is a small city in a big world, I don’t think the bad real estate market is exactly a Vancouver phenomenon. Does anyone know somewhere that the real estate market (or any market) is taking off right now? The world economy sucks. Maybe the mentality that believed our market would never go down helped it along, but it isn’t any more wrong than the mentality that it will never go up again.

    The market here is horrible, it’s going to get worse, but if the subprime disaster hadn’t happened in the states, I’ve got a feeling there wouldn’t be as many high-fives and “I told you so’s” around this site right now. Probably just a lot more funny commentary on bad advertising.

    Once the market turns around, and it will, the watchers can sit back on the sidelines, bash, and wait to be right again.

    And “neocons”? Was it Bob Rennie or Dick Cheney and Karl Rove convincing a bunch of yuppies to move to the Downtown Eastside? If I find out Haliburton is supplying the German appliances, everything will finally make sense.

  23. macchiato Says:

    “but if the subprime disaster hadn’t happened in the states, I’ve got a feeling there wouldn’t be as many high-fives and “I told you so’s” around this site right now. ”

    That’s implying that blog bears didn’t consider the subprime disaster in their assessments. I know many bear bloggers that did consider this as a contributing factor, before the US market imploded, 2005-ish it was pretty much factored in by many on Vancouver Housing Blog.

  24. anon Says:

    GOOD NEWS about the Olympics! Vancouver won’t be able to get them again for what, 100 years?

  25. dingus Says:

    Dale.

    1. The “bears” haven’t simply been saying RE will go down based on a hunch or wishful thinking (aka the “stopped clock” cliche). They’ve been saying it’s unaffordable and the price run-up is unsustainable based on actual reasons and analysis. Cap rates, price/rent, price/income, increasing supply, increased ownership rates, low net migration, diminishing pool of buyers etc etc. It’s not just the guessing game you seem to think it is. Which is why “bears” are mystified at the seemingly naive statements coming from folks who should know better.

    Now, if someone wants to say that Vancouver RE is fundamentally undervalued, fine. Presumably, they would be able to say why (and not just because we have mountains, or because markets both go up and down). It’s hard to see any good reasons to expect the markets to return to price increases any time in the near future. If you have any, pass ’em along.

    2. The reason we are participating in the global downturn is that we participated on the way up. Easy come easy go. And, as above, I don’t know there’s a “mentality” that prices will never go up again. However, it is difficult to see fundamentals justifying last year’s valuations for a long, long time, if ever. But again, it’s not just an article of faith, as you seem to suggest.

    3. Subprime didn’t cause the meltdown. Lack of affordability did. Subprime was just a symptom. If you are past the point of fundamentals justifying prices (as many markets, including us, have been), once the positive feedback loops of ever increasing high prices stop, then lookout below. And this is where we are now. Wile E. Coyote has left the cliff, ladies and gentlemen.

  26. jesse Says:

    “That’s implying that blog bears didn’t consider the subprime disaster in their assessments.”

    Absolutely right. The argument is that if subprime didn’t blow up, then prices wouldn’t be dropping. Well, yes, but guess what? Subprime did blow up because it HAD to blow up. And guess what else? Subprime was the thin edge of the wedge of a systematic credit problem. To think that Vancouver is immune to significant price drops because there was no “subprime” is missing that, maybe, “subprime” wasn’t the root cause of rising prices in the first place.

  27. VancityAllie Says:

    The reverse hype is working too. Just within the past couple weeks I’ve heard friends, people on the street, and family talking about how they want to buy within the next year now that prices are at “rock bottom.”

    I think they’re all in for a surprise. And it’s a shame that the hype machine is still churning.

  28. Dale Says:

    I meant that Vancouver was bound to go down, but that if the US problems this fall hadn’t happened (yet), Vancouver wouldn’t have gone down (yet).

    The overall economy got hit, and it’s not really accurate to blame a couple condo hypsters because Vancouver has gone down (along with everything else).

    Vancouver isn’t immune, but it isn’t unique either. If the world economy was chugging along happily and our little corner was the only place to fail, that thinking would hold water.

    There are a lot of people with a lot more bad forecasting to account for than a couple “experts” and salespeople from Vancouver.

    I’m not familiar with what the Vancouver Housing Blog was saying in 2005, but were there predictions of a world financial collapse, or just lower prices in Yaletown because “prices are too high”?

    Either way, if they did take the global situation into account, they were right.

    I don’t think subprime was a direct cause, but the worldwide uncertainty that came with it definitely is. Do you think people aren’t buying right now because they’ve examined the fundamentals of the economy, considered the “contributing factors”, and made a calculated judgement, or because Ozzie was on the noon news last week telling them to hold off for 6 months?

    The market moves on confidence and I think people would rather have it than not. People aspire to own things they can’t (shouldn’t) afford and as soon as the masses get that feeling that everything is going to be ok again, we’ll be here laughing about Polygon’s new “Beverly Hills” project on the Sumas Prairie.

    I think that Vancouver’s recovery will be sooner than most, but it isn’t imminent. There will be lots more innovative marketing plans (aka lower prices) before it does.

    Don’t question God.

  29. Urban Dweller Says:

    I agree with you Dale, right now it seems like everyone predicted this massive decline. Guess what, any dumbass could’ve predicted that. It doesn’t take a genius to realize that markets go up and down, Vancouvers RE market isn’t immune from.

    Patriotz, “People who voted “yes” did so of course because they though they would be getting a piece of the upside without any risks on the downside, and I have no respect for people who expect to get something for nothing.”
    – I sure made of like a bandit, thanks to the Olympics 🙂 Of course most Vancouverites weren’t qualified to realize that what goes up must come down.

    All this negative hype is no different that the hype that existed 2 years ago. It looks like there are a lot of people with money tied up in condos or people that are pissed because they didn’t make any money during the last boom. Don’t worry there is always next time 😉

  30. jesse Says:

    “I meant that Vancouver was bound to go down, but that if the US problems this fall hadn’t happened (yet), Vancouver wouldn’t have gone down (yet).”

    Of course but if things were different they wouldn’t be the same. I don’t know what your point is, other than Vancouver is prone to the same financial forces that govern the rest of the world and that if the bubble hadn’t burst we couldn’t claim that the bubble hadn’t burst.

    “The market moves on confidence and I think people would rather have it than not.”

    Dale, to say that prices will go up because people are generally “confident” is questionable. Confidence due to speculation is different from confidence due to — I don’t know — rising real incomes. The two should not be confused as incomes will invariably set property prices, not “confidence” prices will go up in the long run unless there is an endless pool of greater fools. Real rents in Vancouver have been flat for most of a generation. If Vancouver could somehow maintain a situation where rents will never support prices, it would be truly unique in the world.

  31. john Says:

    Honestly it couldn’t have happened to a better group of people. Actually, it would have been better had it been cheronto but Vancouver’s good enough. I love watching it burn.

  32. Van-zee Says:

    The real issue has little to do with correct predictions and forcasting and has to do with a massive miss handling of risk. Check out this small video of the author of “the black swan” on the BBC. While it’s not about granite counter tops it’s still has an interesting message.

  33. anon Says:

    Vancouver started going down the second “The X-files” left for L.A.

    That right! It’s all David Duchovny’s fault!!! See what he did to L.A.?

    (ducking)

  34. Dale Says:

    My point is that a lot of people are claiming great insight about the collapse they predicted. They may have been right, but for the wrong reasons. It took more than some mass realization that real income hasn’t risen locally, it took a worldwide financial disaster.

    It’s like predicting that a condo project is going to leak because of shoddy workmanship and then walking around like Nostradamus after it gets hit by a tidal wave and tsunami.

    The most solid foundations have been shaken by the events of the past four months. Somewhere in the world must have those strong fundamentals you mention, where are property values going up (or holding) in this climate?

    I think consumer confidence is the biggest factor, speculative or not. If my real income goes up, but I think we’re in for a world of hurt, am I going to buy into it or curl up in the fetal position and wait till I feel better? Conversely if my income is flat, but I’m confident in the economy, liked the Province headline this morning, and thought my horoscope sounded pretty good, I’ll buy. It’s human nature, and it can be contagious.

    I don’t believe the market has hit it’s lows, I don’t believe the hype (or the excuses, or the justifications), but I believe in a market that will go up just as surely as its gone/going down.

    The trick is to figure out how to profit from it – being right for the sake of being right might feel good, but it doesn’t seem like it would pay the bills.

  35. dingus Says:

    Dale, I think you have the wrong end of the stick. I don’t get what you are saying about the “wrong reasons”. Are you saying that Vancouver prices would have been sustainable but for the global financial disaster?

    The worldwide financial disaster didn’t cause Vancouver’s collapsing real estate prices, though they sure as sh*t sealed its fate. The causes are purely home grown. Sure, easy money and mass psychosis created the local bubble, but it collapsed under its own weight. Note that the peak was hit in May, while politicians and economists were bravely intoning that Canada’s economy was a friggin rock, and the financial crisis didn’t happen until the fall. Local incomes cannot support current prices. Full stop. There just isn’t enough money being earned to have prices this high.

    My point about fundamentals aren’t that they are simply metrics that market participants should take heed of. My point is that they will eventually assert themselves. You seem to be saying that Vancouverites can leap off tall buildings and soar forever and ignore that pesky gravity. However, because some people have plummeted to their deaths in other cities, Vancouverites have lost their confidence and their ability to fly. But someday soon, we will forget those other poor souls and regain the faith we need to ignore gravity once again. Ignoring gravity is a temporary condition that corrects itself.

    And it’s not about being right. It’s about a healthy skepticism that ensures not being spectacularly wrong in a life-blighting sort of way. I’m sorry our local politicians haven’t picked up the knack.

  36. patriotz Says:

    My point is that a lot of people are claiming great insight about the collapse they predicted. They may have been right, but for the wrong reasons.

    No, they were right for exactly the right reason – the prices were too damned high. Period,

    FYI, the Vancouver market started declining in May 2008, months before the crisis of last fall. Alberta prices started falling in July 2007, at the very same time that oil prices were starting their biggest increase ever. Why did San Diego start declining in fall 2005, when the RE market and financial system were apparently in fine shape?

    It was the same reason everywhere – the prices were too damned high. The ratio of prices to rents and incomes matters.

  37. CJ Says:

    So I’m driving through the fog this morning and the traffic is #$%*@. I turn on the AM radio to find out what’s happening on the roads and if there’s anything I can do. I click onto CKNW. An irate caller is complaining about the Olympic Village. Norman Spector answers him with, verbatim quote, “No one saw this coming.” I LOL and click on.

  38. NascentBomb Says:

    But CondoMania has already returned! Right guys? Guys?

    http://www.cbc.ca/canada/british-columbia/story/2009/01/20/bc-condo-mania-onni-richmond.html

  39. dingus Says:

    I think these people are a completely different species from me. That’s the only explanation.

  40. aetakeo Says:

    Dale – Calculated Risk, among other major American financial blogs (including The Motley Fool) predicted that there would be a major financial shakeup, and it’s not JUST about subprime. That’s media shorthand. When an asset class so vital to the underpinning of the capitalist system gets inflated like this, without respect to the fundamentals, it throws the whole machine out of whack.

    And “being too expensive” really does come into play. I’ve been reading about this since about 2005, and will lay down a vast oversimplification that’s been this steady beat on “the bear blogs”: when the vast working and lower-middle classes are paying more of their money to housing and/or credit service, they have less money to spend on other stuff. Credit can only keep ahead of that so long. When savings rates go negative and you’re spending in aggregate more than you earn, well – either money’s going to fall from the sky (and not devalue!) or people will in aggregate be spending less than they earn into the retail economy. Which is a contraction.

    Vancouver is just a perfect example of this. We have more rich people so our average income is high, but our median income is kinda sucky, actually. We’re just not that rich, here, but we were living like it.

    Now, hey. If people were using credit to finance stuff that would create new economic growth in the future, that’d be different. Buying a vacation or car only adds to the economic pie NOW, though, not tomorrow. The point was mainly that the money was going to NOW stuff, or to the speculation in a particular asset class – housing.

    So your question strikes me as sort of trying to draw boundaries that aren’t. The illness that took out the global financial system is the illness we have and had; we just caught it a little later, and it took us out a little later. But Mish, Shiller, and others pointed to us as examples of a city experiencing severe symptoms of the illness. It would have shifted the financial landscape here eventually, even without global meltdown: StatsCan 2006 showed we have a high average wage (3% more families in the highest bracket) but our median wages are not stellar when compared to the rest of Canada. We’re in the lower half.

  41. the vancouver housing market is crashing and taking the bubble blogs down with it | Vancouver Condo Info Says:

    […] in the media these days from local developers and politicians with variations on the theme ‘nobody saw the Vancouver housing bust coming‘.  This is surprising when you consider how many blogs we have out there dedicated to the […]

  42. WannaBuy Says:

    I am in a position to buy as of right now, but I will wait. I have a home worth $500,000 with hardly any mortgage. I will buy not as a speculator but as someone who wants an apartment for my family in the city. What pisses me off is that speculators have generated this mess of inflating prices by trying to create profit out of thin air by buying and flipping–now people will pay the price. If everyone bought to live and not falsely prosper then Vancouver would be more liveable and affordable for everyone. Prices need to come down, bottom line. The great rela estate ride was like the tech bubble–people will never make that kind of money on real estate or tech stocks again.

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