Canada's 'housing bubble' deemed close to bursting

[milomilo]

Seems like there is a lot of false dichotomies in this thread. I suspect the cause of Vancouver's overheated market is a combination of reasons - Vancouver's constrained geography naturally restricted housing supply thus increasing prices, and attracted speculative buying from across the Pacific. This became self-perpetuating, and the lack of upzoning SFH neighbourhoods has only fueled the fire. The speculation is both a symptom and a cause of high prices, and I can only hope it all falls apart soon for the sake of normal Vancouverites today and in the future.

[Pinus]

Originally Posted by milomilo

Seems like there is a lot of false dichotomies in this thread. I suspect the cause of Vancouver's overheated market is a combination of reasons - Vancouver's constrained geography naturally restricted housing supply thus increasing prices, and attracted speculative buying from across the Pacific. This became self-perpetuating, and the lack of upzoning SFH neighbourhoods has only fueled the fire. The speculation is both a symptom and a cause of high prices, and I can only hope it all falls apart soon for the sake of normal Vancouverites today and in the future.

The Chinese are by and large THE most important factor of all in this travesty. They are doing the same bloody thing in Australia as they are in Canada; making it difficult for young Aussies to purchase homes in certain cities.

Bloody shame for both countries.

[Pinion]

.

[Stingray2004]

Originally Posted by logan5

I just did a semi accurate measurement (using Planimeter) of the undevelopable mountain region that is included in the Metro Vancouver's land area. That measurement came out to 500 sq miles. Subtract that from the 1100 sq miles that make up the total for Metro Vancouver, and you are left with 600 sq miles of potentially developable land. Then subtract the ALR and Burns Bog and you're left with around 400 sq miles to develop. What major city has these kinds of land constraints? Hong Kong for sure, but who else?

High growth rate/no land. How does this bubble burst?

Agree. I have previously stated on here, numerous times, that when the then 1972 BC NDP elect gov't brought in the 1973 ALR... subsequent residential building lot prices literally doubled over-night as well as non-ALR future development lands in Metro Vancouver. Have family members involved in same, from that era, who bring up the matter over and over again.

Frankly, the then 1972 BC NDP gov't went wayyyy overboard not realizing future/long-term consequences. Yes, the prime Class 1 and 2 farmlands in Richmond, Delta, and Surrey I can see. But the marginal lower class ALR lands in Langley, for example, mostly are horse hobby farms, etc. to this day. In terms of the public interest... is that the best current use of that land resource? Nada IMHO. But nothing will be removed 'cause it would be just too political.

So... another 1 million are projected to move into Metro Vancouver over the next ~40 years. And most currently residing in SFD areas are NIMBYS in terms of local densification. Don't need to be a rocket scientist to see where future real estate values will move in Metro Vancouver.

[eternallyme]

Some say GTA housing prices are going to increase exponentially thanks to new land use requirements...

http://nexthome.yp.ca/news/why-ontario-n...ousing+in+the+GTA++but+why+YOU+should+be

[hipster duck]

Originally Posted by Pinion

A crash won't help anyone. We're screwed no matter what happens.

You're right, a crash won't help. Even if home prices suddenly fell 60% - which would be the same as what prices fell in the worst hit parts of the US in 2008 like Florida - the average Vancouver SFH would still be around 1 million dollars.

Does anyone have any figures on the worst Canadian home price crash to date? I have a stat that average Toronto prices fell from $458k to $285k (in 2014 dollars) between 1989 and 1996. That's a 38% drop, but that's over 7 years.

[ssiguy]

The difference with that big drop in Toronto prices in the 1990s is completely different from what is taking place now particularly in Vancouver.

Toronto's prices fell due to the poor economy and interest rates. In other words they fell due to economic fundamentals. The Vancouver housing market no longer is any reflection of the local economy or income levels, they have become completely detached.

Before 1989 Vancouver's housing, like all of Canada's, was a reflection of supply, demand, incomes, interest rates, and population growth. Since 1989 the Hong Kong invasion began which sent prices soaring up nearly 70% in just 4 years despite a rather lackluster economy. Now it's the Mainlanders turn but HK has only 7 million people and China has 1.3 billion. Economics will no longer have ANYTHING to do with Vancouver real estate but rather politics from both Beijing and their ability to curtail the huge sums being laundered out of the country and Ottawa with it's immigration, investment regulations.
At this point, even interest rate hikes or a further tightening of CMHC rules would have little impact.

[giallo]

Originally Posted by Pinus

The Chinese are by and large THE most important factor of all in this travesty. They are doing the same bloody thing in Australia as they are in Canada; making it difficult for young Aussies to purchase homes in certain cities.

Bloody shame for both countries.

Talk to Hong Kongers if you really want to see how bad it can get. There's a whole generation there that will never be able to own an apartment.

[someone123]

Originally Posted by hipster duck

You're right, a crash won't help. Even if home prices suddenly fell 60% - which would be the same as what prices fell in the worst hit parts of the US in 2008 like Florida - the average Vancouver SFH would still be around 1 million dollars.

I don't think this type of analysis makes much sense though without some concrete evidence to establish the probabilities of different levels of decline in prices. Some people don't even believe that there is a speculative housing bubble in Vancouver and they believe a 60% drop is unlikely. Maybe some people think the $2M houses are going down to $600k? My personal feeling is that there's already a pretty strong likelihood of a speculative bubble (see story about $30M student-owned West Side mansion with mortgage), and that the prices are rapidly moving away from what locals can and would pay for housing (minus the premium they pay for what they believe is a guaranteed-to-appreciate asset; that will evaporate if and when prices start to slump for a significant period of time). Prices went up by something like 30% over the last year, and who's to say prices wouldn't already have deflated by 60% off of 2013 or 2014 prices?

A typical Vancouver household can comfortably handle a mortgage in the $400,000 range right now, before accounting for other debt they already have.

Does anyone have any figures on the worst Canadian home price crash to date? I have a stat that average Toronto prices fell from $458k to $285k (in 2014 dollars) between 1989 and 1996. That's a 38% drop, but that's over 7 years.

Vancouver has already seen a 60% real decrease in the cost of housing. It looks to me like the nominal loss from about 1981-1983 was around 30%, then there was period of little increase in nominal prices up until about 1986 or 87. This was a period of around 10% inflation per year. Another useful observation of the 80's crash here and other real estate crashes is that they often take years to unfold. Hong Kong's 1990's crash was really a five year long event. They probably shouldn't be called "crashes"; they don't tend to be sudden events.

Fort McMurray housing prices were already down by 20% as of November last year.

[whatnext]

Just when you thought Vancouver real estate shenanigans couldn't get an crazier:

A Vancouver realtor has been accused of threatening a local businessman after he denounced her for encouraging a bidding war on a house she is trying to flip for a client – in a deal he worries could lead to tax evasion.

The man says he was frightened for his life.

He reported the May 2 incident to the real estate industry regulator and Vancouver police, which are both investigating. He gave The Globe and Mail a recording of a threatening call – from a number connected to Layla Yang, a licensed realtor from Re/Max.

In the recording, a woman he said had identified herself as Ms. Yang warns him in Mandarin: “I’m telling you – people above me are from Harbin [China] gangs. Gangsters, right? You don’t fucking want to be alive.” That call was followed immediately by another, also in Mandarin, from an unidentified man, also recorded. That caller repeatedly demanded to know the businessman’s address and told him, “You have lived for too long.” The Globe had the recordings translated....
http://www.theglobeandmail.com/news/brit...cused-of-making-threats/article30024457/

[kwoldtimer]

Originally Posted by whatnext

Just when you thought Vancouver real estate shenanigans couldn't get an crazier:

A Vancouver realtor has been accused of threatening a local businessman after he denounced her for encouraging a bidding war on a house she is trying to flip for a client – in a deal he worries could lead to tax evasion.

The man says he was frightened for his life.

He reported the May 2 incident to the real estate industry regulator and Vancouver police, which are both investigating. He gave The Globe and Mail a recording of a threatening call – from a number connected to Layla Yang, a licensed realtor from Re/Max.

In the recording, a woman he said had identified herself as Ms. Yang warns him in Mandarin: “I’m telling you – people above me are from Harbin [China] gangs. Gangsters, right? You don’t fucking want to be alive.” That call was followed immediately by another, also in Mandarin, from an unidentified man, also recorded. That caller repeatedly demanded to know the businessman’s address and told him, “You have lived for too long.” The Globe had the recordings translated....
http://www.theglobeandmail.com/news/brit...cused-of-making-threats/article30024457/

I thought the reference to organized crime was interesting, whether it's factual or because someone can plausibly say so. Shenanigans indeed. All around.

[whatnext]

I've warned Torontonians before, you're getting Vancouvered. Per G&M video:
http://www.theglobeandmail.com/real-esta...5-10-properties-at-once/article30007153/

This is why construction is "booming". You get foreign investors scooping up handfuls of units, and its rounded out by locals who can no longer afford the house or semidetached they really wanted. Basically locals are getting screwed at both ends of the market.

[GreaterMontréal]

Originally Posted by whatnext

I've warned Torontonians before, you're getting Vancouvered. Per G&M video:
http://www.theglobeandmail.com/real-esta...5-10-properties-at-once/article30007153/

This is why construction is "booming". You get foreign investors scooping up handfuls of units, and its rounded out by locals who can no longer afford the house or semidetached they really wanted. Basically locals are getting screwed at both ends of the market.

hopefully, they won't find Montréal. They buy condos, mainly downtown, but that's about it.

[logan5]

Montreal has the luxury of being able to grow outwards in all directions. It has 2 x more land than Toronto, which can only spread outwards in roughly a north easterly and north westerly direction. And it has more than 4 x the land that Vancouver has, which can only grow in a south westerly direction. It makes sense that Montreal is easily the least expensive city to buy housing out of the big 3 in Canada.

This foreign investor thing is hog wash.

[Docere]

It seems to me that housing in close-in, nonaffluent areas of Vancouver - thinking of South Van or Burnaby for instance - is a lot more than in peripheral districts of Toronto. But the difference seems less dramatic in central, traditionally wealthy and gentrified/gentrifying neighborhoods.

Which makes sense - given that the GTA has a lot more land.

[csbvan]

An article in the CBC discussing how Canada's governments wont touch the housing industry because it accounts for all of the country's current economic and employment growth, and to bring it down would be as catastrophic as letting it continue:

http://www.cbc.ca/beta/news/business/crea-home-prices-foreign-buyer-economy-1.3580780

It makes you wonder how we let it get to this point.

[Berklon]

Originally Posted by csbvan

An article in the CBC discussing how Canada's governments wont touch the housing industry because it accounts for all of the country's current economic and employment growth, and to bring it down would be as catastrophic as letting it continue:

http://www.cbc.ca/beta/news/business/crea-home-prices-foreign-buyer-economy-1.3580780

The problem is that eventually the damage will be done... but the longer they wait to address it, the worse it's going to be when it happens. Continuing to keep this false economy afloat is doing horrible damage to this country.

[csbvan]

I agree. It's better to tear the bandaid off quickly. But governments like these GDP and job numbers, it's good politics. The problems will be for another government. Thus inaction seems inevitable now.

[ssiguy]

Vancouver aloud houses to be torn down wholesale which created real estate not valued by the house but by it's land value.

On the federal level, Ottawa has allowed the buying of passports for 25 years with no investment needed and they cared not where the money was coming from or how these "investors" got their money in the first place. They also brought interest rates down to basically zero and they have been there for a decade.......people who want to borrow beyond their means are practically given the money and the banks have no risk thanks to CMHC and for those odd balls who actually believe in saving for a rainy day are rewarded with no interest on there savings.

The two fastest growing economies and {particularly BC} need the real estate Ponzi scheme to continue to maintain their economic {and hence political} payoffs and the feds are loath to inhibit one of the few strong sectors of the economy.

[cornholio]

Either way its a cluster fuck and there wont be a happy ending.

I liked this read today about Ireland. In 2008 their situation was not identical to ours today, but their governments reaction to a clear real-estate bubble was the same. They became reliant on the bubble and no one wanted to risk popping it, until of course it finally popped with such force that it will take a generation to undue the real damage to that country.
Financial Post

Ireland

The crash he refers to was in 2008 when the country experienced one of the worst property crashes in the world.

Prior to 2008, prices in cities such as Dublin had been rising since the late 1990s. Then, just as now, Ireland’s economy was one of the hottest in Europe, earning it the label of Celtic Tiger. GDP growth from 1991 to 2001 averaged seven per cent, lifting Ireland from one of the poorer countries in the European Union to one of the richest by 2006.The runaway growth caused housing prices to double from 2000 to 2006. Prices continued to soar afterwards as tax incentives and poor lending regulations allowed a massive property bubble to form.

The resulting collapse hammered the Irish economy. GDP shrank to a bottom of US$220 billion in 2010, a 22-per-cent contraction from US$274 billion in 2008. The country’s GDP has yet to recover to its pre-crash levels despite its recent gains.

“Before 2006, there was speculation in the Irish housing market and that’s what caused the crash, and most of the job losses were in construction” Benson said. “But today, our growth is based on foreign direct investment and a very diversified portfolio of companies fuelling that growth.”

The ending will be the same for Canada, at some point in the future, and the current government/s are too afraid to act to lessen the eventual damage that will be done to this country.