The Elusive Canadian Housing Bubble

[GRG55]

Re: June 2016 Canada 6-City Chart

Speechless...

[jk]

Re: June 2016 Canada 6-City Chart

i wish vancouvergoinup hadn't disappeared, so that we could prostrate ourselves and sincerely apologize. but i suppose he's relaxing on his private island right now.

[santafe2]

Re: June 2016 Canada 6-City Chart

Speechless...

Peak FOMO setting in now. All I had to type into Google was When will the van....and Google suggested when will the Vancouver housing market crash. Like I mentioned in a response earlier today, everyone knows it's going to crash but it's the rare person who can put all the correct data together and know when.

[jk]

Re: June 2016 Canada 6-City Chart

Peak FOMO setting in now. All I had to type into Google was When will the van....and Google suggested when will the Vancouver housing market crash. Like I mentioned in a response earlier today, everyone knows it's going to crash but it's the rare person who can put all the correct data together and know when.

i doubt when is predictable. if you have an unstable system some small random event will set off a cascade.

[santafe2]

Re: June 2016 Canada 6-City Chart

i doubt when is predictable. if you have an unstable system some small random event will set off a cascade.

Is it possible that all the data is out in the open but almost none of us connect the dots? Here's a few dots from the sub-prime crisis:

• May 2004 to June 2006 the Fed raises the discount rate from 2% to 6.25%
• By 2005 lending in the US was a very public joke. Everyone knew that anyone could get a loan.
• Throughout early 2007 subprime mortgage companies were imploding.
• Housing starts drop by 1/2 between January and September 2007
• Oil prices move up ~60% between January and September 2007
• On the same day the SPX peaks Jim Cramer warns "don't you dare buy a home...", (I know, even a stopped clock...)
• SPX peaks on September 28, 2007

Although it's much more regional, some of the same indicators may be available for Vancouver. Admittedly, this one is much harder to read. This looks like a blow-off top but the market survived a severe drop in oil prices and the "best recession ever". Looks like the Teflon market at this point but like any bubble, there must be tells.

One other note: GRG has always maintained that foreign buyers driving the market in Vancouver is a myth. There's finally an initial government report out stating that foreign buyers comprise 5.1% of buyers in metro Vancouver. The data collection period is short but they did look at over 10,000 transactions.

http://www.theglobeandmail.com/news/...ticle30790277/

[GRG55]

Re: June 2016 Canada 6-City Chart

Is it possible that all the data is out in the open but almost none of us connect the dots? Here's a few dots from the sub-prime crisis:

• May 2004 to June 2006 the Fed raises the discount rate from 2% to 6.25%
• By 2005 lending in the US was a very public joke. Everyone knew that anyone could get a loan.
• Throughout early 2007 subprime mortgage companies were imploding.
• Housing starts drop by 1/2 between January and September 2007
• Oil prices move up ~60% between January and September 2007
• On the same day the SPX peaks Jim Cramer warns "don't you dare buy a home...", (I know, even a stopped clock...)
• SPX peaks on September 28, 2007

Although it's much more regional, some of the same indicators may be available for Vancouver. Admittedly, this one is much harder to read. This looks like a blow-off top but the market survived a severe drop in oil prices and the "best recession ever". Looks like the Teflon market at this point but like any bubble, there must be tells.

One other note: GRG has always maintained that foreign buyers driving the market in Vancouver is a myth. There's finally an initial government report out stating that foreign buyers comprise 5.1% of buyers in metro Vancouver. The data collection period is short but they did look at over 10,000 transactions.

http://www.theglobeandmail.com/news/...ticle30790277/

An excerpt from the "Greater Fool" blog yesterday. Yaletown is the former industrial/warehouse area near False Creek, south of Granville Street in downtown Vancouver, that has been redeveloped into high density, high-rise apartments that are 'more affordable' than the tower residences in the more desirable West End, which is on the opposite side of the downtown core near English Bay. Coal Harbour and Stanley Park.

Cheap credit, lax mortgage lending standards, ridiculous tax-payer sponsored CMHC high-ratio mortgage insurance and the FIRE sector's success in completely erasing any fear of debt, combined with the ageless lure of get-rich-quick (by flipping to those "stupid Asian foreigners" who according to the real estate agent meme are clamouring to pay any price for every old shzthole up for sale in Vancouver) is what has been driving this for quite some time. Canadians doing it to themselves.

“I’m a software developer living in Vancouver and a big fan of your blog. I’ve never seen a story like this, and thought you (and your audience) may find it interesting.

Two months ago our landlord put up our apartment in Yaletown for sale and sold it in 15 minutes for $688,000 to the first buyer! I was thinking I spend more time buying $68 jeans than this dude spent buying a $688K apartment. Long story short, and the buyer forced us to move and said it is going to be used by their parents (they actually brought them to see the place).

Now I’ve been following the insanity in Vancouver for a while and had subscribed to a couple of realtors’ newsletters and receive “superb opportunities” all the time. I sometimes open them up randomly and I was shocked yesterday when I saw our previous apartment up for sale, just one month after they kicked us out! And guess what, they replaced the carpet with laminate flooring and that apparently added $111,000 (15%) of value and it is now listed for $799,900! Maybe the laminates are gold coated, who knows?

I’m going to start a dispute resolution process with BC and see if I can get them to pay me back the $150 I was charged for cleaning the carpets, since the carpets are gone! (and more…). Keep up the good work!”

Thanks for posting the stats article SF2!

Main findings include, between June 10 and June 29, 2016:
* 10,148 residential real estate transactions in B.C., totalling more than $7.6 billion.
* 337 transactions (3.3%) involved foreign nationals, worth $390 million (5.1%).
* In Metro Vancouver, there were 5,118 transactions worth nearly $5.4 billion, of which260 involved foreign nationals (5.1%), worth $351 million (6.5%)
* In the City of Vancouver, there were 1,139 transactions, totalling more than $1.6 billion. 47 of these involved foreign nationals (4.1%), worth $64 million (3.9%).

De Jong (the finance minister) broke down the numbers in four communities:
* In Metro Vancouver, foreign nationals accounted for five per cent of transactions…of which 234 transactions were by mainland Chinese buyers, followed by five by Korean, five by Taiwanese
* City of Vancouver, foreign nationals accounted for four per cent
* Richmond, foreign nationals accounted for 14 per cent
* Surrey, three per cent
* Burnaby, 11 per cent

[santafe2]

Re: June 2016 Canada 6-City Chart

Main findings include, between June 10 and June 29, 2016:
* 10,148 residential real estate transactions in B.C., totalling more than $7.6 billion.
* 337 transactions (3.3%) involved foreign nationals, worth $390 million (5.1%).
* In Metro Vancouver, there were 5,118 transactions worth nearly $5.4 billion, of which260 involved foreign nationals (5.1%), worth $351 million (6.5%)
* In the City of Vancouver, there were 1,139 transactions, totalling more than $1.6 billion. 47 of these involved foreign nationals (4.1%), worth $64 million (3.9%).

De Jong (the finance minister) broke down the numbers in four communities:
* In Metro Vancouver, foreign nationals accounted for five per cent of transactions…of which 234 transactions were by mainland Chinese buyers, followed by five by Korean, five by Taiwanese
* City of Vancouver, foreign nationals accounted for four per cent
* Richmond, foreign nationals accounted for 14 per cent
* Surrey, three per cent
* Burnaby, 11 per cent

I realized after I'd posted that I'd missed breaking down "foreign buyers" as many of them come from the US. Chinese buyers as you broke out above are only 2.3% of aggregate. Now that we cannot speculate about foreign cash buyers driving the market, we should focus on who the Canadian buyers are, debt to income ratios, etc. None of this will matter while the market continues to move up but once it peaks several stress fractures will begin to make themselves evident.

[GRG55]

Re: June 2016 Canada 6-City Chart

I realized after I'd posted that I'd missed breaking down "foreign buyers" as many of them come from the US. Chinese buyers as you broke out above are only 2.3% of aggregate. Now that we cannot speculate about foreign cash buyers driving the market, we should focus on who the Canadian buyers are, debt to income ratios, etc. None of this will matter while the market continues to move up but once it peaks several stress fractures will begin to make themselves evident.

The infection appears to be spreading:

Get out

...Young Ned wrote me yesterday from Calgary. His words pose a fitting conclusion to this post which has a two-word message.

“I know an old couple currently living in Calgary. They’ve been close family friends forever, and as they’re financially responsible, almost-retired folks I enjoy chatting with them about personal finances. This Christmas they visited family in Vancouver and ended up extending their stay an extra 2 weeks without explanation. When they were finally home, they happily announced that they had bought a condo in North Van to avoid being priced out of the market. The realtor even told them about how easy it was to commute from this location to downtown via water taxi. They should have no trouble selling that kind of rad lifestyle to any one of the desperate young professionals renting in the city, the realtor said.

“This couple didn’t go to Vancouver with any intention to buy. There is only a slim chance they will retire in Van. They’ve taken a chunk out of their retirement savings and added a mortgage, and they genuinely can’t explain why they did it. I stopped short of calling them “part of the damn problem” because I value their friendship more than I value being a petulant ass… but some people are going to get hurt in this market. It’s not just a rat race anymore, it’s a race where the course is sprinkled with rat poison…”

[Polish_Silver]

who to hire

The infection appears to be spreading:

Get out

that they had bought a condo in North Van to avoid being priced out of the market. The realtor even told them about how easy it was to commute from this location to downtown via water taxi.

Hire the Realtor!

[akkibaba]

Re: who to hire

Hire the Realtor!

Chinese Media Is Now Warning Canada’s Housing Crash Will Be Worse Than The US

https://betterdwelling.com/city/vancouver/chinese-media-now-warning-canadas-housing-crash-will-worse-us/

What goes up must come down. Where have we seen and heard this before? Oh Wait!
Worse Than The 2008 US Crash

Hexun, China’s largest finance portal, recently published an article pointing to Canada’s debt fueled economy. They noted that Canadians have the largest debt-to-income ratio of any G7 country, with the average spending 165% of their salary. To contrast, at the height of the US housing crisis in 2008, Americans carried what was then considered an outlandish 147% debt-to-income ratio – 17 points lower than where we currently sit. Canada’s total household debt reached $1.892 trillion dollars, with $1.234 trillion dollars of that as mortgage debt – roughly 65% more than we make per year. To put that 1.82 trillion dollars into perspective, we could have run the US government for 8 months with that amount of money.

[santafe2]

Re: who to hire

Chinese Media Is Now Warning Canada’s Housing Crash Will Be Worse Than The US

Scientists have a phrase for an idea so off base that it's not worth criticizing....not even wrong. Canada's housing cost issue is several orders of magnitude less harming to the world economy than the one the US created in the early 2000s. If you're a recent Canadian home owner in one of the two or three hot markets it will most likely be awful but nothing in Canada will approach Las Vegas 2009 and Canada has not repackaged their economic issue as an investment for the ROW.

[Slimprofits]

Re: who to hire

http://theprovince.com/business/real...l-estate-deals

[Slimprofits]

Re: who to hire

http://theprovince.com/business/real...l-estate-deals

https://www.thestar.com/business/201...gn-buyers.html

[GRG55]

Re: who to hire

The market is already showing early signs of a developing 'buyer's strike', the first indicator that it is going to roll over. Trust government to arrive late, and meddle in a completely ineffective way.

B.C. government approves plan for Vancouver to tax people who leave residential property vacant

July 11, 2016 | Last Updated: Jul 12 11:11 AM ET

The fastest growing occupation in Vancouver could end up being house sitter.

The provincial government announced Monday that it is going ahead with plans that would allow the city to tax owners of vacant property — a tax pushed for and endorsed by Vancouver’s mayor.

Mike de Jong, British Columbia’s finance minister, said at a press conference that the legislature will reconvene July 25 to create direct legislative authority that would allow Vancouver to move ahead with its new tax as early as 2017...

B.C. slaps 15% additional tax on foreign nationals buying property in Metro Vancouver

July 25, 2016 5:52 PM ET

Foreign buyers will pay an extra 15 per cent in property tax fees on residential real estate in Metro Vancouver, a move British Columbia announced Monday to cool the country’s hottest market.

“The data we started collecting earlier this summer is showing that foreign nationals invested more than $1 billion into B.C. property between June 10 and July 14, more than 86 per cent of it in the Lower Mainland,” said Finance Minister Michael de Jong. “While investment from outside Canada is only one factor driving price increases, it represents an additional source of pressure on a market struggling to build enough new homes to keep up. This additional tax on foreign purchases will help manage foreign demand while new homes are built to meet local needs.”

An average single-detached home in Metro Vancouver now sells for $1.56 million.

Some who follow real estate in the province, where existing home prices in its largest city rose about 36 per cent in June from a year earlier, questioned whether the punitive tax will have any impact on property prices in the single-detached home market it targets...

[dcarrigg]

Re: who to hire

The market is already showing early signs of a developing 'buyer's strike', the first indicator that it is going to roll over. Trust government to arrive late, and meddle in a completely ineffective way.

B.C. government approves plan for Vancouver to tax people who leave residential property vacant

Not for nothing, GRG55, but we're running into similar, if smaller scale problems in my little coastal community on the other coast south of the hat. My town is 24% vacant with rents increasing an average of 18% y/y. My neighboring towns are each over 30% vacant. Vacant is defined as not rented out or occupied for at least half the year, fwiw. These are literally towns of 15, 20, 30, 40,000 people where over 30% of the housing just sits empty, used as somebody else's investment.

Anyways, up the way 2 towns, they instituted a new rule at town meeting: Double the mil rate on property tax for anyone owning a place that wasn't at least rented out for half the year. It wasn't a panacea. But their vacancy rate went from 28% to 14% in one year, their homeless numbers dropped from marginal to zero, the town budget sured up substantially, and rents stopped increasing for the first time in a decade, although they didn't decrease. We'll see what happens next year. We're pushing the same policy here now.

Long story short, I don't think it's a bad idea to tax vacant residential property. It's supposed to be used for housing. Not as a store of value like gold in fort knox. Our whole commercial downtown was dying because even though more housing units were being built, fewer year round residents were living here every year as wealthy foreigners and more often New Yorkers just bought up homes speculating on appreciation and used them only for one week vacations, not even bothering to do the work to rent them out for rental income, despite the demand.

Especially here, we're a very old town. The buildings in the center are from the 1700s. Most in town are from the 1800s. There's not a whole lot of empty space to expand into. The town will literally die if every home is purchased just to be vacant but pretty as a New England post card. There has to be some way to fight back and incentivize people who actually intend to live in these places to own them. Otherwise, every small business around dies and my town becomes a periodically occupied museum rather than a place where real people live, work, grow up, and die.