Gorillas in the myths

What is it with the local media and real estate myths?  A little less than a year ago — actually, it was at the peak of the market — the Sun took on 15 myths in a front-page article that drew hundreds of complaints for its bullishness.  Last week, The Tyee came up with five myths of its own. Like the Sun story, The Tyee is coming under heavy blogger fire.

When I first read the new article, I had to take a long bath.  Progressive media gone wrong sends me right to the tub.  The Tyee piece has a good heart but it doesn’t make much sense.  It’s strange because outside of the local real estate blogs, The Tyee seems to have the best grasp of the real estate issue.  It hurts to say but they blew it on this one.  Among their head-scratcher assertions:

1.) Supply and demand doesn’t function in the B.C. housing market.

2.) Landlords will raise rents to match ownership costs so they can break even.

3.) A drop in housing prices will drive down family incomes and widen the affordability gap.

Supply-and-demand markets may not achieve desired social outcomes but it cannot be said they don’t function.  By their nature, they function.  If we look at the market in Metro Vancouver, prices are declining rapidly as a result of falling demand and growing supply.

Similar principles apply to the rental market.  It’s not possible for landlords to raise rents to anything higher than what renters are willing to pay.  A rental priced too high is a rental without a tenant.  For proof, see this.

The relationship between local incomes and housing prices is relevant.  But in a market driven by speculation, housing prices are divorced from incomes until the bubble bursts and settles.  Just as average incomes didn’t double on the way up, they won’t divide by two on the way down.

This is my take.  Am I missing something?  Please read the article and post your comments.  If you have to take a bath first, I’ll understand.

17 Responses to “Gorillas in the myths”

  1. dingus Says:

    I am with you in my abject bafflement over this article. There was a previous piece to this that focused on the income side of the equation, and how to bridge the gap between local incomes, that needed to be 85% higher in order to afford local housing, and housing prices, which, as everyone knows, don’t go down.

    I couldn’t finish it because I couldn’t make heads or tails out of what the author seemed to be on about. Lotsa stuff that should happen. Nice ideas about nice (unrealistic) things. No mechanism for making it happen. All premised on the idea that supply and demand obviously can’t do the job. Bizarre and distressingly sophmoric.

  2. Downturn Living Says:

    Reading both of the author’s articles the “myths” and “crazy costing”, it’s clear he’s speaking from an emotional place. His dispelling the myths and solutions make no economic sense and ignores larger pieces of the picture, much too big to reconcile from a myopic view when in a convenient bubble.

    I imagine those articles were a response to the recent report that Vancouver is the 4th most unaffordable city in the world.

    It’s understandable many will be out of practice when it comes to understanding the effects of retrenchment. Growth is all people have known for the past decade and many will be out of practice. You have to allow some time to those just waking up rubbing the crud out of the corners of their eyes.

    He digs himself deeper in the comments that follow and goes on to suggest we’ll be resuming 2008 peak levels in 2013.

    He doesn’t explain it but that presumes:

    – foreigner investors have all returned, that is, after they successfully flipped their US properties they picked up in the past year for a steal.

    – oil is back to $80+ a barrel and For McMurray oil worker babes are back here buying their downtime getaway homes.

    – business as usual with China.

    – because he says so.

    Yes, it certainly is different here.

  3. mfp Says:

    The following criticism is not leveled at Mr Paulson only, but at all journalists in BC reporting on the housing crisis…

    The problem with journalism about the housing market and the correction is that there is no impartial journalist in BC. Since most established middle class adults own property, it’s ridiculous to ask members of this group to write articles about the event that is the single biggest threat to their ability to stay in the middle class.

    What Mr Paulson should have written about is “Why I’m so terrified of a 50% or more devaluation of my home… How many are afraid for their fixed-income retirement after their home is repossessed…”

  4. CareySaysUms Says:

    Can anyone at the Tyee actually write? And, if they can, is there anyone there that knows how to edit, proof or, at the very least, speak English?!?!

    Look at the article. I mean really look at it. See? Yes. That’s not journalism. That’s just more slave labour contributing to the slushpile. More hype.

  5. doug r Says:

    That 85% rise in incomes isn’t too far off. There’s a reason the Chairman of the US Federal Reserve is nicknamed “Helicopter Ben“.
    I think the “plan” is to inflate everything else while house prices stay static-it’s so crazy, it just might work?

  6. The Urban Dweller Says:

    I need to take a long cold shower after reading that.

  7. tsusiat Says:

    I know its not much consolation, but does anybody actually read the Tyee? I mean, in enough numbers for an article like that too make a difference? Maybe the real agenda is to grab the attention of the bloggers, who will redirect attention to the Tyee. I mean, the globe and mail is now quoting bloggers on the bubble, maybe the Tyee wants to get quoted in the globe and mail when the bloggers all train their sites on the Tyee?

  8. ella Says:

    Some journalists’ idea of filing a story is to list talking points from two sides of an argument. This was sort of the same thing, except it listed refutations to each side’s talking points. There was almost no real analysis, and very few concrete facts or figures. It sounded like the transcript of a conversation at a dinner party.

    The strangest assertion in the article, to me, was that workers who were laid off construction jobs (as real estate contracts) would stick around to pay the higher rents from all the underwater landlords who would have to “seek” higher returns to justify their investment. Interesting model where unemployed people don’t move to find jobs, but instead stay and pay high rent with…what money again? By the way, the “higher rents” boogyman is the primary new talking point to come out of our local realtor association.

    The Tyee gave me a headache on ths.

  9. condohype Says:

    FYI, contact information is not permitted to be posted in comments. This is my fault because I haven’t gotten around to writing an etiquette page. My apologies.

    I like the discussion. Keep it up.

  10. Will Says:

    I read the Tyee from time to time. This piece was definitely not one of their finest. It got beaten up their. Beaten up here. Beaten up everywhere. And that’s not because the basic premise of the article is wrong (we all know that housing prices are still way out of line with local incomes and abilities) but that the method to correct the issue clearly displays a complete and utter lack of economic fundamentals.

    What I don’t get is all these market interferences that so many want to impose, be it Mortgage bailouts in the US or forced rentals in Coal Harbour. The market will take care of itself just fine. It went up for 7 years and has come down for 1. Can’t people just have a bit of patience? And in that time, maybe start saving, truly and purposefully socking away, your downpayment?

  11. sluggo Says:

    Based on the recent spurt in activity, could it possible that these shills are able to convince the most vulnerable of greater fools? With US markets having so clearly charted our course, and with the increasing devastation of our economy, who in their right mind could possibly think that we’re anywhere near the bottom?

    Pity those poor suckers who have to remortgage in a couple of years when it’s time to re-pay all that government debt.

  12. HHV Says:

    Monte only gives us further proof that the divide on where the market is headed or how it got to where it is today has nothing to do with political spectrum and everything to do with having drunk from the fountain and accepting the emotional argument for being an owner.

    Shortly after Sarbanes/Oxley, market commentators were required to disclose whether they owned any of the assets they discussed. I look forward to the cries from the people after this bust has exhausted itself to require real estate commentators to disclose if they own property in the places they comment on.

    For the record, I rent. And I’m damn proud of that right now.

  13. jesse Says:

    Read the comments section too. Monte is “dismayed” that some posters are hoping for massive price drops, as if high housing prices are in the best interest of working families. Quite the opposite. The only families to be hurt by this are the ones who took on too much debt. The ones living simply and within their means should be rewarded, not outcast.

  14. anon Says:

    My… they must have some KILLER acid up there in BC…

  15. islander Says:

    doug r Says: “That 85% rise in incomes isn’t too far off. There’s a reason the Chairman of the US Federal Reserve is nicknamed “Helicopter Ben“.
    I think the “plan” is to inflate everything else while house prices stay static-it’s so crazy, it just might work?”

    That’s what happened in the 70s, so it’s possible they might try it again. The trap door in that plan is that 70s America had few industrial competitors and strong unions. Labour has no leverage to ask for higher wages.

    More likely is that all the stimulus will show up in price inflation, swamping savers and overwhelming the entire working middle class.

    Next step: revolution.

  16. vomitingdog Says:

    Can anyone speak with authority on rental units in Vancouver? If the author is using the stats that reflect only the bachelor apts and cheaper 1-beds, he might be correct in saying that rental prices won’t come down.

    However, over here in South Granville, in over-priced 2-bed apartment land, we are 2 to a floor on 3 floors and the other 9 floors are empty. Every second apartment building has a for rent sign and that is a first in the 15 years I’ve lived here.

    Plus there are 2 newish 12-story condo buildings that have empty units that go un-rented week after week on craigslist. (So much for landlords raising their rents to meet their mortgage payments.) And two more buildings to come… Spruce and Musee. Walk by CoCo one evening and look up at the 4 units with people living in them to re-assure yourself that this guy is blowing hot air.

  17. VancityAllie Says:

    As someone who is moving today into a new rental apartment, I can tell you that condohype speaks the truth, as usual. Rent prices are not going up. Rentals are vacant these days. I’ve spent the past week looking at a number of different apartments. People want over $2500 for crappy old 1 or 2 bedrooms in South Granville. It’s crazy!

    And they are staying vacant.

    The few apartments I did see that were priced reasonably considering the market actually had people filling out applications.

    Word to the wise… if you are renting out your condo, you’re going to have to bite the bullet and just lower your rent. The couple hundred dollars less each month will make up for you not having any tenants for months.

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