Canada's 'housing bubble' deemed close to bursting

[lio45]

I think Quebec real estate has been somewhat overpriced for a few years now, even though it's nothing compared to Vancouver or Toronto.

I am absolutely convinced prices throughout the province will "correct" themselves as interest rates go back to more historically normal levels.

But yes, I agree with you in the sense that if I was forced to buy and hold property in one of Canada's big three cities I'd certainly pick Montreal...

[ssiguy]

If you are outside of BC and especially Vancouver you must realize that the views of most Vancouverites on this forum truly represent the overarching mentality of most Vancouverites.

Vancouver use to be the place to go to live the laid back lifestlye, find inner peace, join Greenpeace, and flee the " keep up with the Jones" rat race. Those days are long since gone. In fact Vancouver has morphoped into Canada´s most money hungry city and it lives and breathes this by real estate. The wholesale destruction of huge swaths of the city and entire neighbourhoods exemplifies how Vancouverites are more than willing to fead on the hot money and the history and culture of the city be damned. At most parties the conversation invariably turns to real estate. Getting a date at a party is hard but getting a real esate card is a given.

Huge areas of the Westside have seen housing destruction and then new ones......which no one lives in. This in a city with a huge homeless problem and the largest gap between the rich and the poor in the country.

If you question this line of thought then you are a racist...conversation over. Intelligent discourse on poverty and housing is not allowed in Vancouver as it will offend developers and politicians so the race card is always brought out to stymie any conversation. Vancouverites are rightfully both proud of their city but also curiously insecure about it.

They hate Toronto and Montreal though few have been to either but get even more upset when ignored by the two. In this vein they have taken a certain pride in their city´s obscene real estate prices but constantly spewing that they are high because "everyone wants to live here" in a tone that infers that everywhere else is substandard. Seems ridiculous but remember this is tyhe province that had "Best Place on Earth" as it´s official motto and on it´s liscense plates.

Vancouverites and their politicians and business people know that Vancouver has gotten itself into a trap. Where once it´s high real estate was a reflection of a strong economy it has now become the backbone of it. It desperately needs the real estate boom to continue unabated as the economy now relies on it.

[st7860]

The views on this architecture and transit related forum do not reflect the view of most people in Vancouver. Here you'll find people that support taxation for transit, and people that think the transit authority sucks, others say houses are expensive and want to move to a rural place, and yet other who say its a free market.

Vancouver real estate isnt an obscenity. For some foreigners Canadian real estate is considered inexpensive. Yet to others its considered "damn, Vancouver appreciates too slowly" compared to what they are used to. Many people say nightlife shuts down too early, and its a boring relaxed place, which indeed Vancouver is.

There isn't a huge homeless problem in Vancouver. However there is a lack of support for the challenged. Its normal for people to dislike cities in Eastern Canada-- Its common knowledge that air conditioning isn't a luxury in Toronto or Montreal.

Australia is known as the place to go for people that prefer a blazingly hot climate, or couldn't get into Canada. For a certain subculture that prefers being around only English speaking people, they prefer to go to Calgary or Toronto, but for others, Vancouver is a higher priority for them. Its mostly true that other places are substandard.

On facebook and other social networks there are a lot of racial undertones as well.

For those not in Vancouver, here's something you might not know. There were municipal elections in Vancouver last November, and the same poltical party was easily re-elected.

[Denscity]

Originally Posted by ssiguy

If you are outside of BC and especially Vancouver you must realize that the views of most Vancouverites on this forum truly represent the overarching mentality of most Vancouverites.

Vancouver use to be the place to go to live the laid back lifestlye, find inner peace, join Greenpeace, and flee the " keep up with the Jones" rat race. Those days are long since gone. In fact Vancouver has morphoped into Canada´s most money hungry city and it lives and breathes this by real estate. The wholesale destruction of huge swaths of the city and entire neighbourhoods exemplifies how Vancouverites are more than willing to fead on the hot money and the history and culture of the city be damned. At most parties the conversation invariably turns to real estate. Getting a date at a party is hard but getting a real esate card is a given.

Huge areas of the Westside have seen housing destruction and then new ones......which no one lives in. This in a city with a huge homeless problem and the largest gap between the rich and the poor in the country.

If you question this line of thought then you are a racist...conversation over. Intelligent discourse on poverty and housing is not allowed in Vancouver as it will offend developers and politicians so the race card is always brought out to stymie any conversation. Vancouverites are rightfully both proud of their city but also curiously insecure about it.

They hate Toronto and Montreal though few have been to either but get even more upset when ignored by the two. In this vein they have taken a certain pride in their city´s obscene real estate prices but constantly spewing that they are high because "everyone wants to live here" in a tone that infers that everywhere else is substandard. Seems ridiculous but remember this is tyhe province that had "Best Place on Earth" as it´s official motto and on it´s liscense plates.

Vancouverites and their politicians and business people know that Vancouver has gotten itself into a trap. Where once it´s high real estate was a reflection of a strong economy it has now become the backbone of it. It desperately needs the real estate boom to continue unabated as the economy now relies on it.

Tell the guy with the machine gun pointed at your head I'll pay him anything he wants to get you out of White Rock and home to Ontario.

[lio45]

Originally Posted by ssiguy

... but constantly spewing that they are high because "everyone wants to live here"

If everyone wants to live there, then why are rents so low?

https://www.rentjungle.com/average-rent-in-vancouver-bc-rent-trends

https://www.rentjungle.com/average-rent-in-san-francisco-rent-trends

[casper]

Originally Posted by lio45

If everyone wants to live there, then why are rents so low?

https://www.rentjungle.com/average-rent-in-vancouver-bc-rent-trends

https://www.rentjungle.com/average-rent-in-san-francisco-rent-trends

Interesting stats on how flat the rent in Vancouver has been. There has been a lot of social housing built in the city. I wonder if that is has had a downward pressure on rent.

[someone123]

Originally Posted by lio45

If everyone wants to live there, then why are rents so low?

I just checked the assessed value of the house I lived in a couple years ago: $1.9M.

The price to rent the main floor? $1,600 a month. The entire house might have been $3,500 a month if we want to be really generous (for the 1/2 sized upstairs and basement suite). It's in a fairly nice but not exceptional neighbourhood. It's a bit of a dump.

In other news, I was talking to friends today about people who have normal jobs with a combined household income of maybe $150-200k a year who are stretching to buy mediocre $1M houses right now. Insane.

A lot of people are setting themselves up for horrible pain if anything happens to housing values and/or interest rates. It is a bit of a house of cards because expected returns are built into the housing prices here; people think that if you can just get into the market you can flip your house for a profit a few years later, even after transaction costs are accounted for. Is that really going to happen if you buy into low-end neighbourhoods at $1M though?

[st7860]

Originally Posted by someone123

I just checked the assessed value of the house I lived in a couple years ago: $1.9M.

The price to rent the main floor? $1,600 a month. The entire house might have been $3,500 a month if we want to be really generous (for the 1/2 sized upstairs and basement suite). It's in a fairly nice but not exceptional neighbourhood. It's a bit of a dump.

In other news, I was talking to friends today about people who have normal jobs with a combined household income of maybe $150-200k a year who are stretching to buy mediocre $1M houses right now. Insane.

A lot of people are setting themselves up for horrible pain if anything happens to housing values and/or interest rates. It is a bit of a house of cards because expected returns are built into the housing prices here; people think that if you can just get into the market you can flip your house for a profit a few years later, even after transaction costs are accounted for. Is that really going to happen if you buy into low-end neighbourhoods at $1M though?

If those 1m lots are big enough, they will be authorized for a coach house. That could explain why people can profit in a relatively small amount of time.

[someone123]

Originally Posted by st7860

If those 1m lots are big enough, they will be authorized for a coach house. That could explain why people can profit in a relatively small amount of time.

True. So you can pay another $300,000 or so (on average) and then rent that out for perhaps $2,000 a month (some are up to the $2,500-3,000 range around Point Grey, etc., but I expect that they cost more to build). In exchange, you or your primary tenant give up the use of a large portion of that lot that was most of the $1.89M you paid for. Presumably that would negatively impact the rental rate of the primary house, but we can ignore that.

This changes the overall picture to $2.2M at $5,500 per month. The ratio goes from 1/540 to 1/400. That is excluding other costs like property tax, which will run you about $8,000/year in this case.

I still think the numbers only make sense if, as a landlord, you are expecting that prices will rise in the future and make up the bulk of your return when you finally kick out your tenants and sell your $3M house to some definitely-not-foreign-investor everyday local Joe type who has carefully saved up his pennies while working as a plumber for the past 372 years.

This dynamic of relatively low rents and high sticker prices that only make sense if you expect hugely appreciating property values is, I think, a strong piece of evidence suggesting that there might be a housing bubble in Vancouver.

[lio45]

Originally Posted by someone123

This changes the overall picture to $2.2M at $5,500 per month. The ratio goes from 1/540 to 1/400. That is excluding other costs like property tax, which will run you about $8,000/year in this case.

I still think the numbers only make sense if, as a landlord, you are expecting that prices will rise in the future and make up the bulk of your return when you finally kick out your tenants and sell your $3M house to some definitely-not-foreign-investor everyday local Joe type who has carefully saved up his pennies while working as a plumber for the past 372 years.

This dynamic of relatively low rents and high sticker prices that only make sense if you expect hugely appreciating property values is, I think, a strong piece of evidence suggesting that there might be a housing bubble in Vancouver.

Exactly. With cap rates actually LOWER than interest rates on multifamily investment properties, basically the only way to profit from those is to have a sucker, at some point in the future, overpay even more than you did.

How long will that house of cards go on? No one knows.

[TorontoDrew]

Originally Posted by lio45

Spare a life, and just move to Montreal...

It would be more fun to kill. .....Only kidding. Montreal is one of my favorite cities and I make an effort to visit at least twice a year now. I just booked a long weekend in May business class VIA is so cheap. If I can do more freelance and start working from home more I will for sure move to Montreal. I have a ton of friends that have gone their to work in the gaming industry.

When it boils down to it there is no crash here (Canada). A soft landing has been talked about for over a decade now so it's finally happening some places. It's nothing like the U.S or Europe went through. In a year or two it will stabilize again. As for Toronto and Vancouver, the only way things will really slow down is if for some reason people stop moving to these two cities from other nations.

On a side note, Hamilton is more on my radars these days, ya it's run down but it's also super cool, kind of like Buffalo meets Portland. I'd move there and commute if there was a faster way then GO in the morning. Houses are half the price if not more then in T.O and it's only a 40 min commute in good traffic.

[casper]

Originally Posted by someone123

True. So you can pay another $300,000 or so (on average) and then rent that out for perhaps $2,000 a month (some are up to the $2,500-3,000 range around Point Grey, etc., but I expect that they cost more to build). In exchange, you or your primary tenant give up the use of a large portion of that lot that was most of the $1.89M you paid for. Presumably that would negatively impact the rental rate of the primary house, but we can ignore that.

This changes the overall picture to $2.2M at $5,500 per month. The ratio goes from 1/540 to 1/400. That is excluding other costs like property tax, which will run you about $8,000/year in this case.

I still think the numbers only make sense if, as a landlord, you are expecting that prices will rise in the future and make up the bulk of your return when you finally kick out your tenants and sell your $3M house to some definitely-not-foreign-investor everyday local Joe type who has carefully saved up his pennies while working as a plumber for the past 372 years.

This dynamic of relatively low rents and high sticker prices that only make sense if you expect hugely appreciating property values is, I think, a strong piece of evidence suggesting that there might be a housing bubble in Vancouver.

Honestly, you should expect the property value to go up at a faster rate that inflation. The number of single family residential lots in Vancouver is going down every year. Each year a few more are replaced by apartment buildings (condos). You have increasing demand and decreasing supply.

You also have an adjustment to the expectation. On an average salary in Vancouver you should expect to be able to buy a condo, not a single family house. On a double income you might be able to afford a house. As you move into the suburbs things become more affordable however due to geography it becomes harder to make outlying suburbs work.

[vanman]

Originally Posted by lio45

If everyone wants to live there, then why are rents so low?

https://www.rentjungle.com/average-rent-in-vancouver-bc-rent-trends

https://www.rentjungle.com/average-rent-in-san-francisco-rent-trends

If Vancouver isn't so desirable than tell me why the rental vacancy rate is the lowest in Canada?

Barbara Yaffe: Tight Vancouver rental market drives high demand from buyers of apartment blocks
Buyers tend to be local as sticker shock keeps foreign and most national buyers out of the Vancouver market
By Barbara Yaffe, Vancouver Sun columnist March 16, 2015


Read more: http://www.vancouversun.com/business/com...story.html?__lsa=e973-a63b#ixzz3WT2odyb6


VANCOUVER —Vancouver-area apartment buildings are in high demand, in a rental market with the lowest vacancy rate and highest rents in Canada.

Just as detached houses and condos in the city are fetching the highest prices nationally, so too the “price per door” for multi-family buildings is highest here, in the neighbourhood of $230,000 a unit.

That compares to $171,000 a unit in Calgary and $160,000 in Toronto, according to a new report from Colliers International.

For those interested in saving up for a complex of five or more units — and just imagine the fun to be had on the first of every month, collecting those rent cheques — Colliers puts the average price of a Vancouver-area building at $4.8 million.

And the average rent in Vancouver is about $1,200.

The city’s vacancy rate is a rock bottom one per cent, making Vancouver by far the tightest rental market in Canada, and tighter than a year earlier when it was 1.7 per cent. Montreal and Halifax have vacancy rates nearing four per cent wile Toronto has a vacancy rate of 1.6 per cent.

“The multi-family asset class remains the most stable asset in major Canadian cities,” says the Colliers International’s Multi Family Report for 2014. It cites “significant demand for good quality assets across Canada,” and predicts continued strong demand through 2015.

Colliers counted 92 Vancouver sales in 2014 in the multi-family category.

That number is challenged by Vancouver-based Realtors David and Mark Goodman, who sold two dozen apartment buildings last year and meticulously research the market for their pithy newsletter The Goodman Report.

The father-son team at HQ Commercial count 123 buildings sold last year, up from 94 in 2013. The 2014 sales were valued at $800 million — a record high for Vancouver.

Mark Goodman describes Vancouver’s apartment market as “unrelenting, fuelled by low vacancy and interest rates, a low Canadian dollar and government stability.”

Oliver Tighe, director of valuation and advisory services for Colliers, agrees that demand is significant.

And supply is a challenge because, explains Tighe, “owners of high quality buildings in Vancouver don’t want to get rid of such an attractive asset.”

Demographic trends elsewhere appear to be pointing to the likelihood of multi-family buildings becoming an even more coveted investment in future as a growing number of Vancouver residents may find themselves forced to rent.

London’s Daily Mail reported last week that just 31 per cent of Britons under-35 owned their homes in 2013, compared to 60 per cent in 1991. Like Vancouver, London has experienced huge price increases for residential real estate, partly due to interest from offshore buyers.

So, who exactly is buying Vancouver’s apartment buildings?

Colliers reports, “an emerging trend in Canada is the shift of ownership from private to national owners.”

That may be the case nationally but not in Vancouver, says David Goodman, asserting the market here is local rather than national or international.

“There is little evidence here of offshore activity.”

He recalled one case, in the last couple of years, of a woman from China who had been given $100 million by her father to purchase several buildings in the city.

Most buyers are “familiar faces” — locals, making their purchases under corporate auspices.

Bidding wars are infrequent because the buyers know exactly what a given property is worth.

“There are 40 to 50 knowledgeable buyers in Vancouver with deep pockets who are building large portfolios.”

A few pension funds from elsewhere in Canada have invested, says David Goodman, while “buyers from Zurich or Toronto or Seattle can’t relate to our prices, and don’t have the patience to wait for their investments to pay off.”

In the past 10 years, owners of Vancouver-area apartment buildings have typically seen the price of their asset increase by 150 per cent.

“An investment in Vancouver is low risk,” says Mark Goodman, ”and offers slow and steady growth.”

Read more: http://www.vancouversun.com/business/com...story.html?__lsa=e973-a63b#ixzz3WT1HBrnz

[st7860]

Yes exactly. There aren't enough rental buildings being built in Vancouver, and vacancies in official buildings are low. However, if you're willing to live in someones ground floor suite, thats not too hard to find.

[GreaterMontréal]

1.7% , perhaps because the rental market is small and limited.

[vanman]

Sound logic.

[GreaterMontréal]

Originally Posted by vanman

Sound logic.

if you had a larger rental market, you wouldn't have a 1.7% vacancy rate.

more than half of new housing should be rental units.

[lio45]

Originally Posted by vanman

If Vancouver isn't so desirable than tell me why the rental vacancy rate is the lowest in Canada?

Because with the rents being so low compared to the current out-of-whack property prices you'd have to be nuts to do either of the following: 1) keep your 2.5%-cap-rate building as rental units instead of selling them as condos now or 2) build a new rental building on your lot (instead of a new condo building to sell them ASAP).

Market rate rents in desirable places (Manhattan, San Francisco, London, Tokyo, etc.) are always expensive. How come they're that low in Vancouver?

The only answer I can find to that question: they're not low, they're in fact normal, for such a not-that-desirable place, and it's the property prices that are currenty insane compared to all other factors (wages, rents, cost of food, etc.)

If you have another answer to suggest you're welcome...

[lio45]

Originally Posted by casper

Honestly, you should expect the property value to go up at a faster rate that inflation. The number of single family residential lots in Vancouver is going down every year. Each year a few more are replaced by apartment buildings (condos). You have increasing demand and decreasing supply.

Why are we so sure that there will be always be "increasing demand" for ever-pricier SFHs? They can't keep increasing in price at a much faster rate than inflation forever, there's a mathematical impossibility there.

[big T]

I think some of the confusion above stems from differing definitions of "desirable".

Vancouver is a highly desirable place to live in the sense of "I wish I lived there". A beautiful setting, sunsets over the ocean, etc. it is a very nice place.

It is, however, not so desirable in the economic sense. I make about twice as much with half the living expenses here in Montreal. Big part of the decision to move back.

When people cannot be lured with the prospect of high paying jobs, rents are prevented from soaring to Manhattan levels.