Canada's 'housing bubble' deemed close to bursting

[Xelebes]

What I'm seeing:

1980: t: $75 000, v: $75,000
1982: t: $100,000 (15.5%), v: $115,000 (23.8%)
1985: t: $105,000 (1.6%), v: $125,000 (2.8%)
1989: t: $280,000 (27.8%), v: $205,000 (13.2%)
1996: t: $205,000 (-4.4%), v: $400,000 (10.0%)
2007: t: $360,000 (5.3%), v: $740,000 (5.8%)

[geotag277]

Originally Posted by Xelebes

What I'm seeing:

1980: t: $75 000, v: $75,000
1982: t: $100,000, v: $115,000
1985: t: $105,000, v: $125,000
1989: t: $280,000, v: $205,000
1996: t: $205,000, v: $400,000
2007: t: $360,000, v: $740,000

What an odd set of years to pick. Instead of cherry picking data, look at the actual trends.

[WhipperSnapper]

Lost connection

To add:


I can only provide conjecture as I doubt anyone has actually research this as it wouldn't be in their best interests. I've heard from two different insiders that each suggest 10 to 15% of new inventory is being held vacate. This may not sound significant but, trust me throwing those on the market would have significant repercussions to pricing.

Now, sure you can say these units are mostly multifamily but, one drives the other and vice versa. Afterall, few will pay $600,000 for a condo apartment when houses are going for three. A crash in condo prices will effect freehold in a negative way.

[someone123]

Are those charts corrected for overall inflation? They don't seem to be. Without that correction, the charts exaggerate the upward trend in real housing prices.

[geotag277]

Originally Posted by WhipperSnapper

Lost connection

To add:


I can only provide conjecture as I doubt anyone has actually research this as it wouldn't be in their best interests. I've heard from two different insiders that each suggest 10 to 15% of new inventory is being held vacate. This may not sound significant but, trust me throwing those on the market would have significant repercussions to pricing.

Now, sure you can say these units are mostly multifamily but, one drives the other and vice versa. Afterall, few will pay $600,000 for a condo apartment when houses are going for three. A crash in condo prices will effect freehold in a negative way.

Condos traditionally act as a leading indicator for real estate trouble generally. I don't think that would be any different for Vancouver.

Will be interesting to see what happens when that theory is actually tested with these elevated prices. By all accounts SFH have been appreciating much much faster than condos, especially around the 2003 inflection point. Here's the whole history:

[Xelebes]

Originally Posted by geotag277

What an odd set of years to pick. Instead of cherry picking data, look at the actual trends.

I am looking at the trends. It's why I picked those years.

[WhipperSnapper]

Originally Posted by geotag277

The graphs show a bubble in Toronto for 3 years. If that is the entirety of your argument, ok, have a pat on the back. Since 1980 Vancouver had SFH prices at 2x+ Toronto's values except for that blip on the radar.

What is more likely, that Vancouver's market is sustaining higher values due to it's unique constraints, or that 3 year blip is the "true" value of Toronto's market in the past 35 year history of these two markets?

You can talk bubble until you are blue in the face, after 35 years you must be pretty blue.

And continually calling people "teens" who happen to challenge your arguments is the most immature behaviour I've probably ever seen on this forum, and that is saying something. The fact that both you and mistercorporate are doing the same thing is hilariously absurd if you are both grown men.

I wasn't responding to since the 1980s. I was responding to vanman that suggested pricing was double that in Vancouver during the 1980s.


C'mon. Do you not understand boom and busts? It's not that difficult. Toronto was in the depths of a correction in the 1990s while Vancouver had already recovered from theirs. The only way for Toronto's recovery to "catch up" would have been another bust in Vancouver. Still waiting for that.

Very quick to pull up those graph. I'm just going from memory.

[lio45]

Originally Posted by Wentworth

Here is some data:



Image credit: https://vreaa.wordpress.com/2013/01/ and http://www.ratehub.ca/5-year-fixed-mortgage-rate-history

Yeah, geotag, I think the data does support my assumptions in general...

Of course, interest rates being only a factor in a bunch of factors, you obviously won't see a total correlation. Everything else being equal, though, it's crystal clear that if they get lower, people -- with the same wages as previously -- can now afford to pay more for a house on which they can afford the monthly payments, and some renters will also start to be able to afford a (modest) mortgage. Both of these effects will drive home prices up. And they work in reverse when rates rise.

And if you corrected for everything else (i.e. adjusting the property values for every factor except interest rates) I am sure you'd see a much stronger correlation between values and interest rates. But that's a lot of work, and it's not needed, we all know there's a correlation.

[geotag277]

Originally Posted by lio45

Yeah, geotag, I think the data does support my assumptions in general...

Of course, interest rates being only a factor in a bunch of factors, you obviously won't see a total correlation. Everything else being equal, though, it's crystal clear that if they get lower, people -- with the same wages as previously -- can now afford to pay more for a house on which they can afford the monthly payments, and some renters will also start to be able to afford a (modest) mortgage. Both of these effects will drive home prices up. And they work in reverse when rates rise.

And if you corrected for everything else (i.e. adjusting the property values for every factor except interest rates) I am sure you'd see a much stronger correlation between values and interest rates. But that's a lot of work, and it's not needed, we all know there's a correlation.

Again I suspect we are continuing to talk past each other. Of course low interest rates are correlated with higher real estate prices to some degree, as you said, this makes perfect sense as the limits to what people can afford grow with lower mortgage payments, they end up buying higher priced houses. This is a phenomenon going on all over Canada. I am not denying that effect exists including in single family detached housing in Vancouver.

But the fact remains that single family detached housing in Vancouver has had, since 1980, tremendous growth, including during periods of extremely high interest rates and rate increases. I will defer to my previous graph which isolates single family detached homes and shows a solid trend of appreciation since 1980. So no, I don't think interest rates are anywhere need the dominant factor in SFH Vancouver appreciation, and the graphs bear that out.

[vanman]

Originally Posted by WhipperSnapper

I wasn't responding to since the 1980s. I was responding to vanman that suggested pricing was double that in Vancouver during the 1980s.

FYI it was geotag who first suggested that.

[geotag277]

Originally Posted by vanman

FYI it was geotag who first suggested that.

And I already posted the graphs that prove it. Besides a brief Toronto "bubble" that popped in the last 80s, since 1980s Vancouver has been priced at a huge premium to Toronto. And several Vancouver "bubbles" have indeed "popped" since then. As much as we can call a 35 year trend a series of bubbles and bursting events, which is also ridiculous in it's own way. Ever since 2000 everybody wants to call any type of value appreciation a bubble and any type of value depreciation a bubble popping. It's a bit absurd.

[st7860]

http://andrewhasman.com/blog.html/33-foo...-million-on-vancouvers-west-side-4037229

"In what other city can you attract over 200 people to an Open House on a rain-soaked Saturday, for an old Lot Value house priced at almost $3 million dollars? Got to love the Vancouver real estate market. I'm not sure there really is anywhere else, but if there is, I'd love to know.

But back to our rainy Saturday Open House in the Dunbar neighbourhood. The jam-packed affair even surprised us, and just proves that Vancouver's busy market is relentless.

Our market continues to reach new heights, with 33 foot Lot Value homes now selling well above the $2 million mark. One, in fact, just sold for $2.5 million; $ 500,000 over asking price! 50 foot lots with older homes are now selling at or over $3 million. Looking at a home with a view? Prices are substantially higher yet. In Point Grey, the numbers are even loftier.

It's quite a time here in Vancouver. Home prices have reached stratospheric levels with no pull back in sight. Many of the buyers are “cash buyers" and therefore higher interest rates (when they finally arrive) will have minimal impact on them."

[ssiguy]

"Cash buyers" aka Chinese money laundering.

[lio45]

You think the average Canadian doesn't have at least $3 million in cash sitting idly in their bank account to use on an empty tear down lot...?

[geotag277]

The same situation exists in New York City. Many cash buyers. The fact is the top 1% in both Canada and the USA generally have no problem buying property with all cash. And yes, rich foreigners as well. Once property values exceed 1 million dollars the investment and cash holding portfolio of potential buyers doesn't look like the average anymore.

[lio45]

Originally Posted by geotag277

The same situation exists in New York City. Many cash buyers. The fact is the top 1% in both Canada and the USA generally have no problem buying property with all cash. And yes, rich foreigners as well. Once property values exceed 1 million dollars the investment and cash holding portfolio of potential buyers doesn't look like the average anymore.

Actually, the threshold for being in the 1% in Canada isn't yet "I have a spare 3 million in cash that I can use to buy a 50 ft Vancouver lot that currently has a structure that I need to pay to demolish on it". It's quite a bit lower than that.

I'd say it's more like the 0.1%. (Which, in the PRC, is still almost one and a half million people... merely only a small chunk of them being active in Vancouver will already have a major impact on prices.)

[geotag277]

Originally Posted by lio45

Actually, the threshold for being in the 1% in Canada isn't yet "I have a spare 3 million in cash that I can use to buy a 50 ft Vancouver lot that currently has a structure that I need to pay to demolish on it". It's quite a bit lower than that.

I'd say it's more like the 0.1%. (Which, in the PRC, is still almost one and a half million people... merely only a small chunk of them being active in Vancouver will already have a major impact on prices.)

What's your source?

http://www.statcan.gc.ca/pub/75-006-x/2015001/article/14194-eng.htm#a4

This says income earners in the top 20% (20!) average 1.3 million net worth.

Unfortunately statscan itself only isolates for 20% as the top income quintile. It's not such a stretch to think that the actual top 1% wouldn't have a problem paying cash for Vancouver single family detached housing. It would barely be a stretch for the top 20%.

[lio45]

Originally Posted by geotag277

What's your source?

My memory.

(I recall where I am versus the last numbers I saw for the 1% threshold in Canada.)

I'm surprised you can't find something as simple as "the 1% threshold" online now, though... You searched extensively?

It would barely be a stretch for the top 20%.

Fully disagree on that. It would be a HUGE stretch for people with $1.3 million net worth (most of it in the form of a currently overvalued primary residence they actually live in) to plunk down three million in cash plus demolition costs to acquire an empty Vancouver lot.

[geotag277]

Originally Posted by lio45

My memory.

(I recall where I am versus the last numbers I saw for the 1% threshold in Canada.)

I'm surprised you can't find something as simple as "the 1% threshold" online now, though... You searched extensively?




Fully disagree on that. It would be a HUGE stretch for people with $1.3 million net worth (most of it in the form of a currently overvalued primary residence they actually live in) to plunk down three million in cash plus demolition costs to acquire an empty Vancouver lot.

As far as I can tell there is no data for actual net worth of top 1% income earners. All the data points to StatCan and the 20% bracket.

Just doing some simple math top 20% income earners have 55k in income, top 1% have 200k, the relationship between income and net worth seems to 4x proportional to income and the difference between 20% and 1% earners is itself 4x, for a single earner we are already looking at likely several million in assets and certainly a reasonable percentage invested in real estate could easily swing a cash buy of 3 million.

Average detached prices in Vancouver are one million, that is what I was referring too. At the time of the data and the price of houses in Vancouver, that would equate to ~75% holdings in real estate for a portfolio. On the high side, but not out of the question and if they wanted too and could certainly afford it with a cash transaction (in retrospect, would be one of the best investments they could have made). We are talking about 20% earners too, which is a long way away from 1%. And I don't doubt 1% earners could plunk down 3 million on a house and have it be a fraction of their actual net worth, even is my math above is off by millions.

[WhipperSnapper]

Originally Posted by geotag277

And I already posted the graphs that prove it. Besides a brief Toronto "bubble" that popped in the last 80s, since 1980s Vancouver has been priced at a huge premium to Toronto. And several Vancouver "bubbles" have indeed "popped" since then. As much as we can call a 35 year trend a series of bubbles and bursting events, which is also ridiculous in it's own way. Ever since 2000 everybody wants to call any type of value appreciation a bubble and any type of value depreciation a bubble popping. It's a bit absurd.

Clearly, we have different definition of huge.

The 1980s were a wash. Since the 1990s, c sure Vancouvers real estate has exhibited about a 5 year head start on Toronto which parallels the economic conditions. There's absolutely nothing to correlate that land supply has been the defacto cause especially for the past 7 years once Canada became a new found target after existing avenues completely collapsed.

You rest on stats however, your analysis leaves a lot to be desired.