Olympic Sized Depression Hitting Vancouver

Western Canada had a lot going for it during the recent credit boom. Not only were debt spigots open wide like nearly everywhere else in the world, pushing up asset prices along with them. But the provinces of BC, Alberta and Saskatchewan all had their own commodity booms at the same time, further fueling the demand for housing. In BC the mining (and to lesser extend forestry) industries underpinned a robust economy. In Alberta, the rising price of oil made previously uneconomical tar sands projects profitable. And in Saskatchewan, skyrocketing fertilizer, grain and uranium prices created their own boom in major cities.

More so than anywhere else, the boom story in Western Canada felt legitimate. So even if the rest of the world were to undergo a contraction of sorts, this region would be supported by it's "strong fundamentals." This relative feeling of safety provided the boom mentality even more fuel than elsewhere. Unemployment got as low as 3-4% in some areas, redefining what most economists thought was "full employment."

But Vancouver had yet one more factor providing wind at it's back. They had "won" the right to co-host the 2010 Winter Olympics with Whistler (a nearby ski resort town). The resulting inflow of foreign investment was going to put the city "on the map" in terms of major cosmopolitan international cities. Tokyo, London, New York, Milan, Vancouver. Yes. It was ordained. The International Olympic Committee had declared it so. The provincial government even began an advertising campaign with the slogan "The Best Place On Earth." Old license plates bearing "Beautiful British Columbia" are now exchangeable for new ones with the olympic logo and the new slogan - for a fee of course. All of this is symbolic of a peak atmosphere of social mood. People were made to feel extremely lucky just to be part of such a place. As such, property values needed to reflect this newfound prestige. And of course, "there is only so much land."

Or so went the story.

Unfortunately, Vancouver residents have been shocked to learn over the last few months that gravity does indeed apply to them also. Sure as the sun rises, boom has turned to bust. And perhaps nowhere in the world has it manifested so spectacularly as in Vancouver. Where social mood was highest; it has furthest to fall. Here are the recent happenings:

BC Legislature to be Recalled for Special Session

The B.C. Legislature will be recalled for a special session to deal with Vancouver's request for permission to borrow more than $450-million to complete the troubled Olympic Village project.

Without legislative action, the city would have to hold a referendum to approve the borrowing - an option Mayor Gregor Robertson said would cause costly delays in dealing with the situation.

"They need a tool right now that they don't have without a legislative amendment," the Premier [Campbell] said.

"We will bring that in as soon as it's drafted. We'll bring it in. We'll take it to the House, and hopefully it will pass as quickly as possible."

Mr. Campbell said he hopes members will get beyond "traditional politics" in order to deal with the matter.

Vancouver's Credit Placed On Watch Due to Olympic Village Project

An independent credit rating agency has placed Vancouver on a credit watch and may even downgrade the city's AA+ rating as a result of potential debt coming from the beleaguered Olympic Athletes Village project.

Standard & Poor's on Tuesday issued a bulletin about the city's finances, saying the impact on the city's debt could be significant if it borrows money to fund the remaining construction of the village.

"We believe that there's going to be an event in the next three months that will have a negative impact on the city's credit profile," Stephen Ogilvie, an analyst with the agency, told CBC News.

Nortel Woes Could Hurt Olympic Sponsorship

Nortel Networks was already financially flailing when it signed on as sponsor of the 2006 Winter Olympics in Torino, Italy.

It was laying off workers in 2007 when it became a major sponsor for the 2010 Games in Vancouver and struggling to stay afloat when its deal with the 2012 Summer Olympics in London was announced last July.

Now that the company has filed for bankruptcy protection from its creditors, Nortel's sponsorships at the next two Olympics could be in jeopardy.

Only through incredible incompetence or incredible arrogance could a struggling company think it is a good idea to spend millions on sponsoring a circus every few years.

The olympics in Vancouver-Whistler are turning out to be an unmitigated disaster. All of the planning going into the preparations assumed that economic expansion was a given. There was no contingency for a worldwide business slowdown. Surely, the economists they had hired assured them that no such thing had any statistical probability of occurring, and therefore wasn't worth planning for. This arrogance was prevalent regardless of numerous olympic experiences gone awry over the decades (the Montreal 1976 summer games had debts only repaid 30 years later, in 2006).

I'm guessing the attendance figures the olympic committee have assumed will also turn out to be wildly optimistic and revenue for the games and small businesses alike will turn out to be far lower than expected.

I'll give my readers two guesses as to who will be paying for this financial disaster, but you'll likely only need one.

Elsewhere, the global credit unwind and commodity collapse have real estate prices reeling in Vancouver. Vancouver is the former home of the TSX-Venture Exchange. It is the largest collection of junior mining exploration and development companies. Most of those companies are still based in Vancouver. During the commodity boom, these companies absolutely exploded in value. Very few of them actually made any money. But the prospect of finding a huge resource deposit was enough to give many of those companies significant value. Now, with commodity prices 70% lower and credit markets basically closed, many of these companies are gravitating toward zero. Cash in the bank is disappearing fast and without financing, they are essentially holding companies for mining permits that have little hope of ever being used. The wealth lost in the collapse of these shares has been exceptional, especially when you consider much of it is contained to one city.



During the boom, company executives, investor relations representatives, even secretaries were paid modest salaries plus stock options. The tremendous wealth effect this had was a contributor to Vancouver's housing boom. Now it too has all but disappeared.

In only 8 months, home prices have fallen 19%. And the massive amount of speculative supply that was bought in anticipation of flipping it post-olympics is awaiting the market for the spring. This has all the ingredients for a spectacular crash of epic proportions. Already, wise property developers are trying to front-run the market.

On Sale: $350M of Real Estate in Lower Mainland

A Vancouver real estate developer is making an unprecedented move to offer a liquidation sale of $350 million worth of its condominiums throughout the Lower Mainland.

The marketing strategy by Onni Group of Companies is aimed at selling off hundreds of condos in its inventory.

About 375 unsold condominiums in cities such as Richmond and New Westminster will be offered at 20 to 40 per cent off, a real estate insider told CBC News.

Only time will tell whether those discounts will be sufficient to draw enough buyers. Judging by the absolute collapse in social mood, I don't know where the buyers are going to come from. Nearly everyone who could come close to affording a condo (and many who couldn't, to be sure) already bought one in the fright campaign of run-away prices. "If you don't buy now, you'll never be able to afford one," was common advice.



Prices of nearly everything got so out of control, that there is no telling where the bottom is on this market. The chart above traces out some very clean Elliott Wave patterns, which would suggest prices are heading all the way back to their "Wave 4" trough of '98. That would be a 50% decline from the peak - surely even more for condos in super-speculative areas (the Olympic Village, for example). How will the forthcoming property tax hikes affect prices? Will the inevitable post-games service cuts by the city make Vancouver an undesirable place to live in the future?

We are once again confronted by a region that thought, "It's different here." It wasn't. It never is. Speculative booms precede busts, just as inhaling precedes exhaling.