Construction Grinds to a Halt in Vancouver

The housing slump is hitting Canada big time, starting as it often does with Cracks appearing in condo land.

The Ritz-Carlton hotel and condos is among the richest development to begin construction in Vancouver, a $2,500-per-square foot, 58-storey ultra-luxury tower with an eye-catching 45-degree twist designed by Arthur Erickson.

But that $500-million design is currently little more than a half-completed hole in the ground - the most glittering symbol of the troubled times that have humbled real estate development in Vancouver, a city that spent the last half-decade treating new condos like an evergreen money tree.

Credit turmoil, construction costs and the threat of a recession have left several towers stranded, unfinished and searching for either new designs or new money, while some developers are now threatening to sue buyers who are walking away from huge cash deposits, unwilling to commit to condos they pre-bought.

Signs of weakness are becoming increasingly obvious. As recently as August, Merril Lynch calculated that Vancouver - as has Toronto - had more multi-unit buildings under construction "than in all other Canadian cities combined a decade ago."

In the Vancouver suburb of Surrey, workers have abandoned a set of unfinished towers that stand at 21 and 25 storeys tall after the developer, who had secured some of his funding through Lehman Brothers, ran out of cash. (Work will resume if a new developer can be found to pay the $100-million in remaining costs; 560 of the towers' 690 units have been pre-sold.) In North Vancouver, work has stopped on two high-rises - one with seven storeys built, one still at the foundation stage - as the developer waits for a finalized subdivision plan. That work is expected to resume. One developer said a half-dozen other towers are vulnerable.

In the first nine months of 2007, the city of Vancouver issued building permits for 3,842 dwelling units. This year, it is down to 1,476. The Real Estate Board of Vancouver reported September sales were down 42.9% from last year, while listings were up 28.8%.

"I've never seen anything so deep, so fast," said Eric Carlson, the CEO of Anthem Properties Corp. "I used to be a know-it-all. Now, I'm pretty humble."

It's Different Here

I remain amazed at how many people in Canada watched the bubble bust in city after city after city in the US, yet remain steadfast "It's different in Vancouver." Hank Jasper, general manager of Millennium thinks pre-sales will become sales, and that "long waiting lists are already in place".

I don't believe it. If there were long waiting lists of genuine buyers, Jasper would have to be crazy to not close deals now at whatever prices he could get. I am willing to bet right now those Millennium pre-sales and waiting list numbers are wishful thinking at best and a complete fabrication of the facts at worst.

Fantasy Land B.C.

Denial runs deep in Fantasy Land. Compare the following realistic headline with the body of the article: B.C. housing sales will plunge 28 per cent.

Expect British Columbia real estate sales to have fallen substantially by the end of this year, but stage a modest recovery in 2009, according to the latest forecast of the B.C. Real Estate Association (BCREA).

Helmut Pastrick, chief economist for Central 1 Credit Union, said that while his own forecast does not agree with the BCREA on the exact numbers, he does agree that B.C.'s economy won't go into recession, and consumers will get a bit of their wind back at some point in 2009.

Quick Recovery Nonsense

Once again we are hearing the same kind of nonsense from BC real estate agents that we heard in the US: This is just a short temporary blip and a modest recovery is coming soon.

US Comparison

In California, the C.A.R. is reporting Median Home Prices Down 47% From Peak and the Case-Shiller 10-City Composite is down 22% from the peak. Given that the bubble in Vancouver is at least as big as the ones in Phoenix, Las Vegas, Miami, or San Diego one should expect a correction at least as big.

Those cities are down a minimum of 32.8% from the peak and still falling. The bottom is likely another 4 years away given we are just now entering the teeth of a consumer led recession with unemployment poised to soar from 6.1% to 8% or higher in 2009 and higher still in 2010.

The US housing bubble burst in the summer of 2005 and we are headed into the 4th year of slump with no end in sight. Fundamentally, there is every reason for Vancouver to follow suit. Condo prices in Vancouver are going to crash just as they did in Florida, Nevada, and California. Home prices will fare better than condos but home prices too will crash.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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