Canada's 'housing bubble' deemed close to bursting

[milomilo]

Originally Posted by lio45

Betting anything this $4.19 million buyer turns out to be Chinese...

That's one major difference with New York and London.

Actually there are similar complaints of foreign buyers in London. There are lots of fancy new towers going up now, but with prices that make Vancouver condos look cheap, and apparently these are mostly sold 'off plan' to investors who will never set foot in them. The new Battersea Power Station development is one of the most prominent examples.

I can't say I know an answer, but something needs to be done. Unfortunately in all these cities the political will is non existent. I'm just glad I'm in a city that hasn't got itself in the situation.

[someone123]

Originally Posted by Drybrain

I wonder if/when a crash of some kind does occur, what effect it will have on Canadian properties generally. Toronto and Vancouver have such an inflating effect on the whole housing market in Canada--if these two markets undergo a major correction, will their be a contagion effect across the country? How much should property owners in other cities be concerned, I wonder?

Have rising prices in Vancouver and Toronto really spilled over much into other parts of Canada? There seems to be little correlation across markets; Toronto and Vancouver shot up during the past year and most others are roughly flat or falling. Part of the difference may be that many other cities have very elastic housing supplies; if more people want to move to Edmonton or Halifax there is plenty of land available to be developed with a relatively low environmental impact. That is a good argument for having more economic development in those cities but instead everybody's doubling down on the same hyperinflated cities.

One thing that I have noticed in Halifax at least is that luxury type properties have shot way up. These are the homes around the Northwest Arm and south of the city that are now selling for $3-5M, often to buyers from outside the city (actually a number of buyers of high-end places have been from Calgary). Is this a bubble that is primed and ready to burst? I'm not sure. It's such a small part of the housing market that it doesn't seem like it matters much though. I don't think prices in Toronto have had much of an impact on what it costs to buy more middle class properties like a 50's bungalow or townhouse in Fairview or North End Halifax. The thing about Vancouver is that even run of the mill properties are super expensive and everybody is impacted more significantly.

What I would be concerned about is the impact on the economy, investments, and retirement. Real estate worked out for the current generation of seniors and a lot of people are still banking on paying for their retirement by selling their house. There are lots of people in their 40's with mortgages who, if the housing market crashes, will not have enough money saved for a middle class retirement. In cities like Vancouver there are also a lot of people who earn their living from real estate.

[giallo]

If it pops, please pop soon.

Has Vancouver or Toronto ever seen these kinds of prices (relative to the inflation)? I'm pretty sure it's unprecedented. What kind of fallout are we looking at here? How many locals bought way above their pay grade? This is going to be interesting/depressing to watch when it implodes.

[gentlepuppies]

Right now, condos in downtown Toronto are averaging $600-$750 per square foot... what do you think the post-crash psf prices might be? What do you think would be reasonable? $400psf? (roughly 3% annual inflation since ~1996) Maybe 5% inflation for house prices, since land is increasingly scarce?

[Pinion]

.

[casper]

Originally Posted by Pinion

My wife works for a Vancouver notary and says even the people that have been doing it for decades have never seen anything like right now. You can't even buy with subjects or an inspection anymore, people are using every last cent just to get in and not thinking about it ever going down. If interest rates go up one percent the whole town will fall apart.

The same thing is happening in Victoria. It is spilling over.

[cornholio]

It definitely spilled over. Fraser Valley and Sunshine Coast set all time monthly sale records in March. Sunshine Coast specifically has had a huge jump in prices as well (which I know for a fact as I have access to the data for the area), and none of it makes sense. A year ago you could not sell a property there. Listing for years before selling was the norm until last year. There were people under water over there since 2007 when prices there plateaued and collapsed. The whole place is hardly growing (few hundred people per year for the entire Sunshine Coast) as it has no jobs and poor connections to the rest of the mainland (not that its a bad place). But there are people speculating because they don't understand this reality and its all they can afford and other people trying to actually make a go of it with out realizing that the commute wont work long term. The same thing that happened in 2007 on Sunshine Coast will happen again at some point in the very near future. People will be stuck with properties they wont be able to sell and in areas they don't want to (or realize they cant) actually live in.

[Drybrain]

Originally Posted by someone123

Have rising prices in Vancouver and Toronto really spilled over much into other parts of Canada? There seems to be little correlation across markets; Toronto and Vancouver shot up during the past year and most others are roughly flat or falling. Part of the difference may be that many other cities have very elastic housing supplies; if more people want to move to Edmonton or Halifax there is plenty of land available to be developed with a relatively low environmental impact. That is a good argument for having more economic development in those cities but instead everybody's doubling down on the same hyperinflated cities.

The market here in Halifax seems pretty reasonable. A large segment of the population here are convinced prices the cost of living is insanely high, but average home prices are way lower than in most other major cities, and price growth is very modest.

Nonetheless, I wonder about what happens if a price crash occurs in the country's largest markets. Rationally speaking, non-inflated markets like Halifax should be unaffected. But markets (being comprised of people, after all) have a way of responding emotionally rather than logically...

[lio45]

Originally Posted by Drybrain

The market here in Halifax seems pretty reasonable. A large segment of the population here are convinced prices the cost of living is insanely high, but average home prices are way lower than in most other major cities, and price growth is very modest.

Nonetheless, I wonder about what happens if a price crash occurs in the country's largest markets. Rationally speaking, non-inflated markets like Halifax should be unaffected. But markets (being comprised of people, after all) have a way of responding emotionally rather than logically...

It totally depends on what triggers it.

If it's the PRC managing to start to enforce better their own laws supposed to prevent large volumes of cash from leaving the country, Halifax should be nearly unaffected while Vancouver crashes.

If it's global interest rates rising noticeably, Halifax will be very affected, just like everywhere in the country, including smaller cities like Sherbrooke (which is why I personally am doing my best to try and keep an eye on interest rates forecasts and trends).

As I pointed out recently in this thread, an ordinary Winnipeg bungalow that was worth $100,000 is now, for essentially the same mortgage-servicing-costs-to-Winnipeg-wages ratio as 15 years ago, being paid $250,000.

In "normal" markets, I don't expect this ratio to vary much over time in both directions -- the unescapable logic behind it being that Winnipeggers can afford what they can afford -- so it follows that property prices are pretty directly linked to interest rates.

[kwoldtimer]

And as long as you've got decent equity and can afford higher mortgage payments, it really doesn't make much difference unless you unexpectedly need to sell the house.

[whatnext]

Originally Posted by milomilo

Actually there are similar complaints of foreign buyers in London. There are lots of fancy new towers going up now, but with prices that make Vancouver condos look cheap, and apparently these are mostly sold 'off plan' to investors who will never set foot in them. The new Battersea Power Station development is one of the most prominent examples.

I can't say I know an answer, but something needs to be done. Unfortunately in all these cities the political will is non existent. I'm just glad I'm in a city that hasn't got itself in the situation.

And the one thing in common in all areas is the buyers are usually from 🞵🞵🞵🞵 countries with authoritarian governments and abysmal human rights records! China, Russia, the Middle East oil states. It's like rewarding them for bad behaviour!

[lio45]

Originally Posted by kwoldtimer

And as long as you've got decent equity and can afford higher mortgage payments, it really doesn't make much difference unless you unexpectedly need to sell the house.

Actually, even if you have nearly no equity (and would therefore quickly become "upside down" on your loan) you'll still be fine at least for the duration of your current mortgage if you're a typical household (probably something like locked for 5 years) which would spread the problem over at least a few years for the population in general.

On the other hand, I'm not sure I agree with you that it makes no difference -- it is guaranteed to make a big difference in one's retirement plans.

Sure, it's "only" a paper gain / paper loss, but those are actually still very "real".

[kwoldtimer]

Originally Posted by lio45

Actually, even if you have nearly no equity (and would therefore quickly become "upside down" on your loan) you'll still be fine at least for the duration of your current mortgage if you're a typical household (probably something like locked for 5 years) which would spread the problem over at least a few years for the population in general.

On the other hand, I'm not sure I agree with you that it makes no difference -- it is guaranteed to make a big difference in one's retirement plans.

Sure, it's "only" a paper gain / paper loss, but those are actually still very "real".

Yes, you are correct. And also correct re retirement plans - I should perhaps have said "short to mid-term".

[giallo]

Just another day in Vancouver. This city is going to.....I don't even know how to finish the thought without getting super depressed.



Stampede: the inside story of Vancouver’s wildest property deal, gone in 7,200 seconds
An SCMP investigation reveals the obscure transactions behind a commercial real estate frenzy, including a two-hour stampede by investors desperate to pay C$60m for a site valued at C$16m. Then, a month after taking ownership, they resold it for C$68m

The Hongcouver
by Ian Young

The prominent Vancouver property developers behind Wall Financial Corporation had spent C$16.8 million (HK$102 million) to buy two ageing walk-up apartment blocks on adjacent lots on Nelson Street in 2013. They had big plans for the downtown site: a glittering 60-storey residential skyscraper, taking advantage of the location within the city’s West End Community Plan, where a building could rise 168 metres tall under new zoning. The project was dubbed “Nelson on the Park” and the Walls turned to favourite designer Chris Doray to come up with what they hoped would be a new Vancouver landmark.

But now a consortium of investors was proposing something even more remarkable. They would pay the Walls C$60million for the site alone, which had just been valued at C$15.6 million by BC Assessment. The huge profit was impossible to resist, and the sale was completed in late January.

Doray, a 25-year veteran of the Vancouver development scene whose design has now been shelved, said he was “astonished” by the transaction, which he said set a new benchmark for commercial real estate in the city.
“The price on this block of land has now thrown everybody in the industry out of whack,” said Doray. “The property is worth, what, C$20 million, and somebody pays C$60million? One wonders what’s going on. Is this New York? Is this Hong Kong?”

The scale of the purchase, orchestrated by Sun Commercial Real Estate (Suncom) - a firm that specialises in pooling wealthy investors from Vancouver’s Chinese immigrant community - was exceptional enough. But an investigation by the South China Morning Post now reveals the strange and frantic backdrop to the transaction - including a two-hour stampede by Suncom’s investors, desperate for a slice of the deal. It is a transaction that also sheds light on the rush of Chinese money fueling Vancouver’s soaring real estate market.




Read the full article here.

http://www.scmp.com/comment/blogs/articl...utm_campaign=SCMPSocialNewsfeed#comments

[MolsonExport]

wikipedia

[esquire]

I have to admit it's hard not to be a little envious at the fortunes being made very quickly in Vancouver. At the end of the day there is going to be a lot of carnage, but for now, it is just an out and out gold rush.

[lio45]

Originally Posted by esquire

I have to admit it's hard not to be a little envious at the fortunes being made very quickly in Vancouver. At the end of the day there is going to be a lot of carnage, but for now, it is just an out and out gold rush.

It's easy (if you already have enough money to at least jump in -- unless you just choose to participate in a Van REIT doing that kind of flipping, I suppose) but at the same time it's also quite risky.

[whatnext]

Originally Posted by esquire

I have to admit it's hard not to be a little envious at the fortunes being made very quickly in Vancouver. At the end of the day there is going to be a lot of carnage, but for now, it is just an out and out gold rush.

I'm selfish but I hope it ends soon, and badly for those playing the market.

The provincial and federal governments have been extremely negligent in letting it get this far. Rather than protect local buyers they are sacrificing them on the altar of making a quick buck. Christy Clark & Co actually came out with programs encouraging people to buy, the last thing you should be encouraging in a bubble market.

[Drybrain]

Originally Posted by whatnext

I'm selfish but I hope it ends soon, and badly for those playing the market.

The provincial and federal governments have been extremely negligent in letting it get this far. Rather than protect local buyers they are sacrificing them on the altar of making a quick buck. Christy Clark & Co actually came out with programs encouraging people to buy, the last thing you should be encouraging in a bubble market.

Well, in a way I can understand that since the province is in a pretty good fiscal situation right now, and to a significant degree that's due to the housing market.

But yeah, the longer it persists this way the worse it'll be in the event of a downturn, which is inevitable. The province should really be trying to figure out a slow climb-down that will mitigate the damage should a reversal in the market be sudden and dramatic.

But you know, election cycles.

[whatnext]

Look out Montreal, the real estate locusts are coming for you! Having picked Vancouver and Toronto clean of affordable housing and jacking up prices:

http://www.cjad.com/cjad-news-community/...ors-from-china-snapping-up-condos-report