The Elusive Canadian Housing Bubble

[jk]

Re: Va Va Voom Vancouver...

the difference between what’s going on in Siam Reap, Cambodia and Ching Mai, Thailand is night and day.

what, in fact, is going on in those 2 places? just curious.

[Thailandnotes]

Re: Va Va Voom Vancouver...

In the 90's there was a handful of hotels in Siam Reap. Now there are 700 with Japanese and Korean tour groups complaining they are all pre-booked for Chinese during high season. The infrastructure and the hotels were built by the Chinese. Here's a 2010 article. It's easy to extrapolate.

http://www.washingtonpost.com/wp-dyn...112003850.html

Chinese are flocking to Chiang Mai. After the Chinese movie “Lost in Thailand” came out, a popular tourist outing was to buy a student uniform at Chiang Mai University and sneak into classes. Chinese are now allowed to drive across the border. Many signs, including road signs are now in Chinese. But foreigners cannot buy land. Chinese are partnering with Thais and signing long term property leases, but it's a drop in the bucket.

As an aside, a day doesn't go by without bad press on Chinese tourist behavior, much of it coming from the upper echelons of politics and business which, ironically are heavily made up of “Thai-Chinese,” descendants of a huge emigration here 200 years ago.

[Fiat Currency]

Re: Va Va Voom Vancouver...

See the view that got this Vancouver home to sell for $1.1M over its $7.8M asking price

Wendy McLellan, Postmedia News | March 4, 2016 2:07 PM ET


Sutton West Coast Realty

A Point Grey house with a stunning view has sold for more than $9 million — $1,172,000 over the property’s list price.

The 1928 house on Bellevue Drive was offered for sale for $7.888 million.

Realtor Bo Park said the seller received 11 offers on the property after the first open house weekend. They were all cash offers with no subjects and most were for more than $8 million.

All but one of the offers were from Chinese buyers, she said.

“It was fast. I was surprised by the number of offers and the price it sold for,” said Park, a realtor with Sutton West Coast Realty.

“It was the view. It is spectacular.”

Sutton West Coast Realty

She said the house was an estate sale and the buyer plans to rent out the place then rebuild within a couple of years.

“The house needs a lot of work — at that price it makes sense to rebuild,” Park said.

Last week, a Kitsilano house on a standard city lot sold for $735,000 more the asking price.

“I’ve been doing this for close to 25 years and I’ve never seen anything like it,” Park said.

“There is not much product out there — that’s why things are so crazy. How long will this last? I have no idea.”

At $9 million, the house is nowhere near the highest price for properties for sale in Vancouver. The most expensive current listing is for a Shaughnessy property with an asking price of almost $45 million. The heritage mansion and two estate homes on four strata lots include 17 bedrooms and 23 baths.

[ Like you can't tell who the target market for this house was with a list price of $7.888M]

[GRG55]

Re: Va Va Voom Vancouver...

See the view that got this Vancouver home to sell for $1.1M over its $7.8M asking price


A Point Grey house with a stunning view has sold for more than $9 million — $1,172,000 over the property’s list price.

The 1928 house on Bellevue Drive was offered for sale for $7.888 million.

Realtor Bo Park said the seller received 11 offers on the property after the first open house weekend. They were all cash offers with no subjects and most were for more than $8 million.

All but one of the offers were from Chinese buyers, she said.

“It was fast. I was surprised by the number of offers and the price it sold for,” said Park, a realtor with Sutton West Coast Realty.

“It was the view. It is spectacular.”

Sutton West Coast Realty

She said the house was an estate sale and the buyer plans to rent out the place then rebuild within a couple of years.

“The house needs a lot of work — at that price it makes sense to rebuild,” Park said.

Last week, a Kitsilano house on a standard city lot sold for $735,000 more the asking price.

“I’ve been doing this for close to 25 years and I’ve never seen anything like it,” Park said.

“There is not much product out there — that’s why things are so crazy. How long will this last? I have no idea.”

At $9 million, the house is nowhere near the highest price for properties for sale in Vancouver. The most expensive current listing is for a Shaughnessy property with an asking price of almost $45 million. The heritage mansion and two estate homes on four strata lots include 17 bedrooms and 23 baths.

[ Like you can't tell who the target market for this house was with a list price of $7.888M]

As I posted before, these are the ones that get all the headline attention. But these homes on the west side represent a tiny fraction of total sales in the GVRD.


LOL. Apparently the negative yield on some sovereign bonds isn't negative enough to entice some investors:

"She said the house was an estate sale and the buyer plans to rent out the place then rebuild within a couple of years."

In the meantime over in Surrey (or "Suri Lanka" as the locals now call it):

In Surrey Paul listened in amazement at the tale his realtor friend was spinning.

“He told me a house for sale here recently got so much attention that over 120 people showed up to view the property. Traffic had to be controlled so people would trickle in slowly for the viewing. The Surrey RCMP was called in to maintain order and control traffic onto the street. In Surrey? Nuts. Just nuts...

...A house is now most people’s entire financial strategy, their savings mechanism, the essence of their net worth, their retirement plan and, worse, their identity.

Real estate’s become an investible commodity everyone expects to generate windfall wealth, and at the same time is an obsession. “You rent?” is the meanest, sneary question in the land. It used to be that a professional or cool occupation was the supreme status. Now it’s an addy in the right hood, on the best street, in the hottest area.

120 mainland Chinese cash buyers? Somehow I doubt it. More likely VanCity pre-approved mortgage cab drivers and pizza franchise owners looking for that guaranteed way to get rich quick.

This thing just has to be in blow-off mode now. If that proves wrong yet again, hell I am going to form a syndicate, raise a couple of $mill and buy a 50 year old 3-bed, 1-bath split level in Burnaby and get rich too.

btw, anybody familiar with Vancouver will know that wonderful view picture was shot on one of the 6 days each year you can see the North Shore from Point Grey. Days the realtors sell tons of houses and try to convince the buyers the weather is always like this in Vancouver. My alma mater, UBC is on Point Grey, and most years during the school term we used to wonder why the damn place didn't just wash over the cliffs into the ocean.

British Columbia: Unsettled conditions persist for the next foreseeable future with up to 30 mm of rain likely through Saturday for the Lower Mainland. "An upper-level low continues to spiral off the coast of the Pacific giving no real break in sight."


Another day another storm...March 4th, 2016

March 4, 2016 1:49 PM

The next system in the parade of Pacific storms will move into Metro Vancouver mid-morning Friday.Winds will be strong for the Sunshine Coast and the coasts of Vancouver Island where...

Read Full Entry




Still more rain to come. March 3rd, 2016

March 3, 2016 12:21 PM

Update 9:00 am PSTIt's been a wet week, and there are a few more systems still to get through.Last night's rain is tapering to showers this morning for Vancouver. But...

Read Full Entry




Storm #2 arrives this evening... March 2nd, 2016

March 2, 2016 9:07 AM

Update: 8:00 am PSTVancouver's break from the rain will be short-lived today -- the next storm is right around the corner.A few lingering showers will be the story this am...

Read Full Entry




Rainfall warning today. March 1st, 2016

March 1, 2016 10:58 AM

A Pacific frontal system is pushing into the South Coast today bringing rounds of heavy rain and gusty windsA rainfall warning is in place for Metro Vancouver and Howe Sounds.

[GRG55]

Re: Va Va Voom Vancouver...

A couple of items that might provide some insight into what is going on up here in the frozen, white North - well actually, the rainy, Wet Coast.

Had an interesting conversation last week with a business colleague of mine who works in downtown Vancouver and lives in North Vancouver. Wife, two kids in high school, been in their home 15 years. Wife has been pressing him to sell their now "expensive" home and move up in same neighbourhood to a bit larger, nicer place after one of those came up for sale recently. He reaffirmed five things: 1) Couldn't afford to buy the house they are in today; 2) The few homes that come up for sale in his area are inundated with potential buyers, sell in a day and consistently go for above list; 3) He's tired of the daily cleaning up of numerous realtor flyers on his front porch - "Have family looking for home in your neighbourhood, call me if you are thinking of selling"; 4) Even more tired of realtors knocking on his door every evening and weekend with the same pitch; 5) Because his home has escalated to ridiculous levels, can afford the $ delta to move up to nicer home but cannot afford two homes at the same time, and is deathly afraid to be "out of the market" if he sells his current home first. Conclusion: Staying put.

Result of that same reaction to the current Vancouver market by thousands of others just like him? Plainly visible in the green line on the chart below (courtesy of Brian Ripley). Despite record breaking property prices all across the Lower Mainland and an absolutely crazy bidding wars market everywhere in the Fraser Valley, people who actually live and work there (and that would be overwhelmingly the majority of homeowners) are not prepared to take the risk of selling their homes and being out of the market. And that is adding to the blow off dynamics in play now.

[GRG55]

Re: Va Va Voom Vancouver...

February data is in. Vancouver resembling a Space Shuttle launch looking for a Challenger moment. Toronto lifting off. Calgary, Edmonton, Ottawa, Montreal sliding south. Weirdest property market in Canada ever.

[santafe2]

Re: Va Va Voom Vancouver...

And now the February data is in...guess what? Vancouver goin' up. Most of Canada goin' down.

http://creastats.crea.ca/natl/index.htm

[GRG55]

Re: Va Va Voom Vancouver...

And now the February data is in...guess what? Vancouver goin' up. Most of Canada goin' down.

http://creastats.crea.ca/natl/index.htm

Yep, and it eventually starts to manifest itself in interesting ways:

Millennials Flee Vancouver for More Affordable Cities

March 14, 2016 — 7:55 AM MDT

Kevin Oke had a Vancouver millennial’s dream job, working as lead designer at a video-game company whose clients included Atari and Ubisoft Entertainment SA, but he still couldn’t afford a house. So he left his native city.

“Housing in Vancouver is insane -- it was insane when I left and it’s more insane now,” said Oke, who co-founded educational-software company LlamaZoo Interactive after moving to Victoria in 2014. “If you’re trying to do the startup thing full-time, it would have been really difficult with all the expenses.”

Oke, now 33, is part of the millennial retreat from a city where housing prices have skyrocketed at a faster pace than even in San Francisco, another North American technology locus. Rising costs are putting Vancouver’s vaunted growth engine at risk as the city hemorrhages people employed in tech and new media for more affordable locales, including Victoria and Kelowna. The flight of millennials from Vancouver is similar to trends found in other cities with soaring home prices...

[ProdigyofZen]

Re: Va Va Voom Vancouver...

The Chinese are over running Vancouver: 1/3rd of all homes bought by Chinese in 2015....

“Housing in Vancouver is insane — it was insane when I left and it’s more insane now.”

That’s from 33-year-old Kevin Oke, co-founder of LlamaZoo Interactive who left Vancouver for Victoria two years ago because he couldn’t afford to buy a home in his native city even while earning a generous salary as a lead designer at a video-game company whose clients included Atari and Ubisoft Entertainment SA.
Kevin isn't the only one leaving. Vancouver added only 884 net new people age 18-24 last year according to Statistics Canada, and many observers worry the soaring cost of housing will eventually strip the city of its burgeoning tech economy.

(a representative listing from Point Grey)
We’ve spilled quite a bit of digital ink documenting the “three-alarm fire” (to quote Bank of Montreal chief economist Doug Porter) that’s burning in British Columbia’s housing market. Here, for those who missed it, are some informative posts:

• Vancouver Real Estate Goes Full-Retard; Average Home Price Now $1.8 Million
• How Vancouver Is Being Sold To The Chinese: The Illegal Dark Side Behind The Real Estate Bubble
• Meanwhile In Canada, A Real Estate Bargain Emerges…
• Calgary's Housing Market Collapses While "Three-Alarm Blaze" Burns Next Door In Vancouver

According to the Greater Vancouver Real Estate Board, residential property sales in Greater Vancouver rose 31.7% in January, 46% above the 10-year sales average for the first month of the year and the second highest January ever. The benchmark price for a detached home in Vancouver: $1,293,700. The benchmark price for an apartment: $456,600. The latest data from the Canadian Real Estate Association shows the average price of a home in Canada rose an astonishing 16% Y/Y last month to more than $500,000. Underscoring the extent to which British Columbia and Ontario are driving the market, stripping out those two provinces pulls the national average down to under $300,000.
Prices in Vancouver surged 26% in February.

So what's behind the inexorable rise? How is it possible that "fixer uppers" like the residence shown above go for $2,500,000? It's very simple. Chinese worried about continued market turmoil and a weaker RMB, are moving money out of the country. As CAD slid against USD, Chinese "investors" found Canadian real estate to be comparably priced vis-a-vis US real estate in USD terms. Wealthy Chinese funneled their dollars into the Canadian market, driving up prices. In short: capital flight from China has created a massive housing bubble in cities like Toronto and Vancouver. Throw in the fact that some of these locales - like Waterloo, Ontario - are becoming tech hubs, and you have the recipe for overheating markets.
Just how prevalent is Chinese buying, you ask? Well according to National Bank's Peter Routledge who did some "back of the envelope" calculations, fully one-third of all Vancouver real estate purchased in Vancouver last year was bought by Chinese investors.
"Chinese investors spent about C$12.7 billion ($9.6 billion) on real estate in the western Canadian city in 2015, or 33 percent of its C$38.5 billion in total sales," Bloomberg writes, citing Routledge and analysts Parham Fini and Paul Poon who "extrapolated from a Financial Times survey of 77 high-end buyers and data from the U.S. National Association of Realtors." Here's a bit more from The Globe And Mail:

Without any Canadian-specific data on foreign investors to go on, the economists came up with their estimates by extrapolating from two international surveys of realtors and buyers.

One is an annual report on the level of foreign home-buyer investment by the National Association of Realtors, based on surveys of real estate agents in the United States. It estimates that Chinese investors bought $28.6-billion (U.S.) of real estate in the U.S. housing market between March, 2014, and March, 2015, a seven-fold increase from the $4.1-billion they spent in 2009.

The second is a multiple-choice survey by the Financial Times of 77 wealthy Chinese investors who had bought real estate outside of China. Of those, 33.5 per cent said they bought homes in United States, while 11.7 per cent invested in Vancouver and 8.3 per cent in Toronto.

Combining the two surveys, the economists estimate that Chinese investors spent roughly $9-billion (Canadian) on home sales in the Greater Toronto Area last year, or 14 per cent of all total sales volume in the region.

In the Greater Vancouver Area, they estimate Chinese investors spent $12.7-billion – or 33 per cent of total sales. That figure, they say, lines up with research from B.C. urban planner Andy Yan, who found that 66 per cent of all sales of 172 detached homes in three west-side Vancouver neighbourhoods within a six-month period were to buyers with non-Anglicized Chinese names.

The economists admit their survey is somewhat unscientific, but say such attempts highlight the importance of collecting better data on the influence of foreign investment, and even immigration, on housing market affordability.

"Lacking adequate Canadian data to address this issue, we revert to data produced in other countries (primarily the United States) and derive inferences or hypotheses for Canada," Routledge explains. "The National Association of Realtors (NAR) in the U.S. produces an annual profile of international home buying activity. The NAR defines an international buyer as either (1) a non-resident foreigner, or (2) a resident foreigner – i.e., recent immigrants (in the country for less than two years) or temporary visa holders (residing in the country for at least six months)." Here's more from the note:

As illustrated in Figure 1, the NAR estimates that buyers from China invested US$28.6 billion in U.S.-domiciled residential real estate properties over the 12 months ending March 31, 2015, up from just US$4.1 billion in 2009.



We infer from this data, therefore, that the purchase volume for buyers from China in Toronto and Vancouver in 2015 must be some proportion of the U.S. figure of US$28.6 billion. The question is: what proportion?



Figure 2, we depict the results of a multiple choice survey the Financial Times solicited from 77 high net worth and affluent individuals from China (admittedly not a statistically significant sample size). Of those who had purchased residential real estate outside China, 33.5% had done so in the United States, 11.7% in Vancouver, and 8.3% in Toronto. From this survey data, one could hypothesize that for every four high net worth investors from China who purchase a U.S. residence, one purchases a residence in Toronto; and for every three high net worth investors from China who purchase a U.S. residence, one purchases a residence in Vancouver. One can then apply these ratios to the NAR’s estimate of US$28.6 billion in U.S. residential real estate investment made by buyers from China. From this, we hypothesize that, in 2015, homebuyers from China invested ~US$9.9 billion / Cdn$12.7 billion in Vancouver residential real estate (on a total 2015 residential real estate purchase volume in greater Vancouver of Cdn$38.5 billion, according to the Real Estate Board of Greater Vancouver); this amounts to 33% of total purchase volume.

Routledge and co.'s bar napkin figure is alarming to say the least and underscores the need for Canadian officials to monitor the situation more closely before foreign investors price everyone completely out of the market. "Currently it is not possible to fully understand the role of foreign homebuyers in Canada’s housing market since a comprehensive and reliable data set on the number of homes sold to foreign homebuyers does not exist," the country's 2016 budget says. Canada will devote CAD500,000 to "solving" the data collection problem:

Budget 2016 proposes to address this data gap by allocating $500,000 to Statistics Canada in 2016–17 to develop methods for gathering data on purchases of Canadian housing by foreign homebuyers. This initiative could involve collaboration with the provinces, such as British Columbia, which recently announced its intention to have homebuyers disclose whether they are citizens or permanent residents of Canada or another country.

Right. CAD500,000. That should do it. "Investing only 25.7 percent of the cost of an average price of a detached home in Vancouver is, at the very least, a touch on the low side," Routledge remarked, dryly.
It sure is. Especially considering that the need to closely monitor developments in Vancouver and other "three alarm fire" markets is only going to grow in the months and years ahead as China's hard landing continues to necessitate an ever weaker RMB to juice flagging exports. Meanwhile, the effort to stamp out overcapacity in China's industrial sector will invariably put enormous pressure on the country's banking system which is laboring under a mountainous pile of NPLs, the true size of which no one fully understands. Once the bad loan burden finally becomes too much to shoulder (which it will once the half trillion in receivables on Chinese companies' balance sheets create an intractable working capital problem), the PBoC will be forced to recap the banks at an enormous cost that, if Kyle Bass is correct, will lead to a 40% plunge in the yuan. All of that means more capital flight and more Chinese buyers for prime Canadian real estate.
With Canadians now sitting on the highest debt-to-income ratio of any G7 country and with 50% of Canadians admitting they are within $200/month of being unable to pay their bills, it wouldn't take much in the way of higher housing prices to put a severe strain on household balance sheets. And it's not exactly like Stephen Poloz can cut rates much further unless he wants cucumbers to cost CAD10 each.
But don't despair Canadian home buyers. There are bargains aplenty in Alberta...

[Polish_Silver]

Is it a bubble?

The Chinese are over running Vancouver: 1/3rd of all homes bought by Chinese in 2015....

. . .

Is it a bubble?

The housing price can reflect either:

A) The marginal cost of building a house

B) the "buying power" of the house buyers

B applies in "god is done making Vancouver" situations

The same thing was true of Silicon Valley in the 1970's and 1980's. The number of people with high incomes was growing rapidly,
so the house prices reflected that. (If the "anti development" crowd had been weaker, the effect would have been smaller)

[GRG55]

Re: Is it a bubble?

Is it a bubble?

The housing price can reflect either:

A) The marginal cost of building a house

B) the "buying power" of the house buyers

B applies in "god is done making Vancouver" situations

The same thing was true of Silicon Valley in the 1970's and 1980's. The number of people with high incomes was growing rapidly,
so the house prices reflected that. (If the "anti development" crowd had been weaker, the effect would have been smaller)
[/INDENT]

The Chinese are over running Vancouver: 1/3rd of all homes bought by Chinese in 2015....

An utterly useless piece of "analysis" that the nitwit authors should be ashamed of. Routledge makes Wall Street energy and tech analysts look good.

One-third of ALL houses in Vancouver are being bought by Chinese? That pins the BS meter.

This so called conclusion is based on 1) surveys of USA real estate agents; and 2) a poll of 77 Chinese real estate investors putting money outside of China (anywhere in the world) by a London, UK based financial newspaper. Applying that to Vancouver strains credulity and more.

This is deliberate scapegoating, knowingly ignoring the available data (while claiming this isn't any) that is identical to the behavior we are witnessing from the Trump campaign.

The Vancouver market is in a classic bubble blow off. The reasons have been well documented. Much of that is posted on this thread. If anybody in a position to do something about this (and that includes the Bank of Canada, the Federal Minister of Finance, the CMHC, and the Big Five banks) had actually acted to curb the inevitable outcome there would have been howls of protest from (non-Chinese) Vancouver region property owners expressing outrage and spitting invective towards those that destroyed their "hard-won and so deserving" tax-free principal residence capital gains.

"...Lacking adequate Canadian data to address this issue, we revert to data produced in other countries (primarily the United States) and derive inferences or hypotheses for Canada," Routledge explains..."

"...Well according to National Bank's Peter Routledge who did some "back of the envelope" calculations, fully one-third of all Vancouver real estate purchased in Vancouver last year was bought by Chinese investors..."

[jk]

Re: Is it a bubble?

1/3 of properties or 1/3 of money spent?

[santafe2]

Re: Is it a bubble?

An utterly useless piece of "analysis" that the nitwit authors should be ashamed of. Routledge makes Wall Street energy and tech analysts look good.

I was wondering how long it would be before you retrieved the Howitzers from the bunker...or in this case, the debunker....

The "it's the Chinese" discussion really seems like a red herring in any event. Let's suspend reality for a moment and assume that 1/3 of Vancouver housing or 1/3 of funds dedicated to Vancouver housing really was coming from China. Even if that were true it would only matter if Canadians were not also increasing their debt load to compete for the other 2/3.

I came across what appears to be a well researched report that would indicate that Canadians are emulating their Southern cousins from a decade earlier.

• Canadian households carrying a debt-to-disposable income mortgage of 500% or greater has climbed from 3% to 11% from 1999 to 2012, (over 20% in BC). I suspect the average is higher than that today.
• For those with a 300% ratio, that's climbed from 12% to 27%.
• This increase in debt-to-income leverage is disproportionally held by those in lower economic quintiles.
• Mortgage debt in Canada has grown almost 3X from 1999 to 2014. It's going to be difficult to pin that one on the Chinese.
• Mortgage debt has increased more than 50% faster than income over the same period.
• Mortgages of $300,000+ have grown 20X or more in the two 25-44 year old age groups.

This economic issue will play out in Canada over the next 20 years as heavily indebted young people become middle aged and find their disposable income has already been disposed of. As there was in the US, there will be a turning point where the last person is willing to take on a mortgage at yet a higher cost than the previous owner. It happened very quickly in the US where most local laws allowed people to just walk away. In Canada the fall will be protracted based on Canadian mortgage laws.

https://www.cdhowe.org/sites/default...tary_441_0.pdf

[ProdigyofZen]

Re: Is it a bubble?

An utterly useless piece of "analysis" that the nitwit authors should be ashamed of. Routledge makes Wall Street energy and tech analysts look good.

One-third of ALL houses in Vancouver are being bought by Chinese? That pins the BS meter.

This so called conclusion is based on 1) surveys of USA real estate agents; and 2) a poll of 77 Chinese real estate investors putting money outside of China (anywhere in the world) by a London, UK based financial newspaper. Applying that to Vancouver strains credulity and more.

This is deliberate scapegoating, knowingly ignoring the available data (while claiming this isn't any) that is identical to the behavior we are witnessing from the Trump campaign.

The Vancouver market is in a classic bubble blow off. The reasons have been well documented. Much of that is posted on this thread. If anybody in a position to do something about this (and that includes the Bank of Canada, the Federal Minister of Finance, the CMHC, and the Big Five banks) had actually acted to curb the inevitable outcome there would have been howls of protest from (non-Chinese) Vancouver region property owners expressing outrage and spitting invective towards those that destroyed their "hard-won and so deserving" tax-free principal residence capital gains.

"...Lacking adequate Canadian data to address this issue, we revert to data produced in other countries (primarily the United States) and derive inferences or hypotheses for Canada," Routledge explains..."

"...Well according to National Bank's Peter Routledge who did some "back of the envelope" calculations, fully one-third of all Vancouver real estate purchased in Vancouver last year was bought by Chinese investors..."

This is correct but I posted the story to show the difference between perception and reality and the result of investor bias in asset markets.

Yes, we know that 1/3rd of buyers are not Chinese but the market in Vancouver has concocted this market meme in order to sell more homes at higher prices faster.

The reality doesn't matter it only matters that the buyers in Vancouver "think" that the Chinese are buying up all the homes with cash so they better go out and mortgage their future to get any home, or maybe buy a home and flip it for a higher price in a year.

This is what makes a market driven by irrationality; stories and perception.

Exploiting the gap between perception and reality is where we make our money.

[Spartacus]

Re: Va Va Voom Vancouver...

Toronto is more sane or is it just big enough to absorb the same hysteria with much less movement?

Montreal is so much nicer to live in than TO, IMHO that differential is insane.