Canada's 'housing bubble' deemed close to bursting

[ssiguy]

Originally Posted by lio45

Trust me, from experience, it doesn't work like that at all.

If the one and only thing standing between a $200,000 property and a $2 million empty buildable lot zoned for a SFH is an eminently flammable old wooden shack, it's most definitely not going to suffice.

It doesn't work in a normal market like Sherbrooke, imagine how far it would be from working in a market like Van where the buyers in general are much less scrupulous and the realtors too (that Chinese realtor with leg-breaking connections, you really think she can't find someone to start a fire?)

Of course they can start a fire but you will always get people like that. For the others { even many Chinese money launderers won't go that far as they know it will be investigated which could land them in jail or put their passport at risk} they can tear down what they want as they do now. The city puts almost no restrictions on tearing down anything. It wants the tear downs to continue which is why it hasn't updated it's Heritage Buildings inventory since the 80s.

This is a city that constantly talks about density so if someone tears their house down the city can state that only a higher density unit could take it's place ie duplex/townhouse/condo. That would collapse sales from the Chinese overnight which is why it will never happen.

[casper]

Originally Posted by geotag277

Would be interesting to run some actual numbers on this. Paying rent indefinitely is of course a huge expense, but so is home ownership and maintenance. They both have significant line items under expenditures over the long term, and with the money saved from renting being invested in appreciating assets, I don't think it is so obvious that owing a home is financially the best move. Outside of the utility the investment historically hasn't been anything to write home about, versus, say, dollar cost averaging the S&P over your income earning years which would be likely to make you wealthy.

Numbers are different for everyone. So here is one example:

Save $500 per month (renting vrs owning for 25 years)
Assume a 6% interest rate
Your nest egg at the end is $344,267
At 6% per year that is $1,721.37 per month.

I am all for the free market and against the government putting in silly rules to control property investment. They don't work in that people find creative ways around them.

However, Vancouver has a serious affordability problem. What I would be in favour of is housing societies. The government has moved away from operating social housing directly instead it goes to local non-profits that develop and manage the housing. Different societies focus on different demographics of society the poor, seniors, first nations etc. Why not do the same thing targeting the middle class. Build family friendly rental accommodation managed by a non-profit that is going to control rental increases. The middle class can afford to pay reasonable rent, there may not even be a need for a subsidy just some loan guarantees to get it started.

[casper]

Originally Posted by csbvan

Most of the housing stock in Vancouver's old neighbourhoods are craftsman style homes, and most fit in well with the overgrown, leafy streets that they line. In fact quite worth preserving. They are old, established neighbourhoods that give the city it's identity, unlike tacky monster homes covered in tiles that look nothing like homes that have been built in Vancouver over the years and in fact belong on a some junky golf course outside of Vegas.

That is more on the west side of Vancouver. East Vancouver is more bungalows and Vancouver-Specials.

[csbvan]

Originally Posted by casper

That is more on the west side of Vancouver. East Vancouver is more bungalows and Vancouver-Specials.

That's more South Van. Many of the best collections of old homes are in the East: Strathcona, Mt. Pleasant, andaround Commercial/Victoria. Even around Fraser.

[CanSpice]

Originally Posted by geotag277

It stands to reason that the real estate agent selling the next door property is directly using your sale as a comp to come up with a reasonable starting price (which seems to be a bit over what you bought for last year - although not outrageously so).

The fact that you paid 40k+ over list means it was probably listed under fair market value to inspire a bidding war/silent auction to drive the price up. It is also probably fair to say that the realtor listing your neighbour's property has a different strategy in mind.

News on this came through this week.

Backstory: in December I bought a 2br townhouse in New Westminster, BC. It listed at $465k, we purchased it for $511k. A couple of weeks ago our direct neighbour put their townhouse up for sale. They listed it at $525k. geotag277 speculated that the other realtor had a different strategy than "list under market value to get a bidding war going".

We received a letter from their realtor yesterday. I don't have the exact number, but he said that the townhouse sold for over $600k and they had six solid offers.

That's about a 20% increase in about five months. For a townhouse in Metro Vancouver -- not even the city of Vancouver.

[geotag277]

Originally Posted by CanSpice

News on this came through this week.

Backstory: in December I bought a 2br townhouse in New Westminster, BC. It listed at $465k, we purchased it for $511k. A couple of weeks ago our direct neighbour put their townhouse up for sale. They listed it at $525k. geotag277 speculated that the other realtor had a different strategy than "list under market value to get a bidding war going".

We received a letter from their realtor yesterday. I don't have the exact number, but he said that the townhouse sold for over $600k and they had six solid offers.

That's about a 20% increase in about five months. For a townhouse in Metro Vancouver -- not even the city of Vancouver.

IIRC the realtor/seller you used/bought from used a silent auction sales strategy which is not the best way to drive up the price compared to an outright bidding war. Already the sales strategy used devalued your property so you could get it for under it's intrinsic value, and that lowered value was used as a comp to your neighbours property.

When property prices are increasing 10% or more per year, comps go out of date quickly and the difference between silent auctions versus outright bidding wars can be huge.

It seems a general problem with Vancouver right now is listings are way down. It's only going to get worse.

[cornholio]

Originally Posted by geotag277

IIRC the realtor/seller you used/bought from used a silent auction sales strategy which is not the best way to drive up the price compared to an outright bidding war. Already the sales strategy used devalued your property so you could get it for under it's intrinsic value, and that lowered value was used as a comp to your neighbours property.

When property prices are increasing 10% or more per year, comps go out of date quickly and the difference between silent auctions versus outright bidding wars can be huge.

It seems a general problem with Vancouver right now is listings are way down. It's only going to get worse.

Speculative bubbles always get worse. The amount of speculation in the market at this point is insane and clear to anyone involved or paying attention. None of this is unique. The demand and supply problems are artificial as a result of speculation, like in every other speculative bubble in history.

[rbt]

.

[ssiguy]

Originally Posted by casper

Numbers are different for everyone. So here is one example:

Save $500 per month (renting vrs owning for 25 years)
Assume a 6% interest rate
Your nest egg at the end is $344,267
At 6% per year that is $1,721.37 per month.

I am all for the free market and against the government putting in silly rules to control property investment. They don't work in that people find creative ways around them.

However, Vancouver has a serious affordability problem. What I would be in favour of is housing societies. The government has moved away from operating social housing directly instead it goes to local non-profits that develop and manage the housing. Different societies focus on different demographics of society the poor, seniors, first nations etc. Why not do the same thing targeting the middle class. Build family friendly rental accommodation managed by a non-profit that is going to control rental increases. The middle class can afford to pay reasonable rent, there may not even be a need for a subsidy just some loan guarantees to get it started.

You make some very good points but that doesn't get at the base of the problem of high real estate.

Vancouver is only growing at about 1%.........healthy but by no stretch of the imagine quickly. It's the inability to access real estate that is creating the rental crisis. Many of those renters in Vancouver would be buyers elsewhere in the country with their incomes. Vancouver will never be able to build enough rentals to come close to solving the problem.

There is a lot of housing in Vancouver and Vancouver, contrary to popular belief, is not a very densely populated city. The problem is that the housing that is being built are for sale not rent and in Vancouver even high income people have been thrown out of the real estate market.

Even if they go hog wild on building social housing it still will not fix the future problem Vancouver's economy will face as a direct consequence of the housing frenzy it and the province have allowed to flourish.

A prosperous economy need a well educated workforce and Vancouver's well educated are leaving the city and even fewer are moving here. Even if they can get a rental, people don't go to university for 5 years for having the honour of renting a glorified walk-in-closet. Hell, UBC is in such a pickle for profs that they actually provide subsidized rentals for new employees. Think about that for a minute........housing is so expensive that the most highly educated workers in the nation have to basically be bribed to come and live here. Of course if they get married and have kids then they will take their experience and leave........as was noted once earlier, "What do you call an ultrasound in Vancouver? An eviction notice."

UBC has already said that they will certainly have to begin cutting classes within the decade and possibly even whole programs because as their Boomer profs retire in the next decade, they literally won't have enough profs to teach the courses.

[someone123]

Originally Posted by ssiguy

Even if they go hog wild on building social housing it still will not fix the future problem Vancouver's economy will face as a direct consequence of the housing frenzy it and the province have allowed to flourish.

Social housing could solve the problem but the investment would have to be orders of magnitude greater than what has happened in recent years. I think the BC minister responsible for social housing reasonably boasted that they had built a few hundred units per year recently, in a city growing by 20,000-30,000 people per year.

There was a time after WWII when large-scale public housing developments happened in Canadian cities, and they weren't just for poor people. Actually a lot of those developments were decent-quality housing that is still desirable today. That option for one reason or another just isn't on the table though.

When it comes to Vancouver housing there is vigorous debate but it is confined to an extremely narrow range of possibilities.

[whatnext]

Originally Posted by casper

...However, Vancouver has a serious affordability problem. What I would be in favour of is housing societies. The government has moved away from operating social housing directly instead it goes to local non-profits that develop and manage the housing. Different societies focus on different demographics of society the poor, seniors, first nations etc. Why not do the same thing targeting the middle class. Build family friendly rental accommodation managed by a non-profit that is going to control rental increases. The middle class can afford to pay reasonable rent, there may not even be a need for a subsidy just some loan guarantees to get it started.

What you and the other Deniers never answer is why you think it is right for Canadians to be forced to turn to subsidized housing so that we can sell off prime homes to offshore money.

Why is that?

[MolsonExport]

As some have suggested in another thread, apparently it is Quebec's fault.

Those dastardly Frenchies.

[lio45]

But BC still greets them with a red carpet (i.e. doing nothing to prevent such people from snapping up properties, demolishing anything old, keeping properties vacant, letting properties decay, etc.), so obviously they're glad to have them move there.

At first sight it would seem everyone's happy with this setup, as I pointed in the other thread.

[lio45]

Originally Posted by casper

The assumption there is owning property is a good investment. Clearly that has been the case in Vancouver. It has not been the case in many markets in Canada or the US. A good stock portfolio can be equally as beneficial especially with TFSA and RRSP tax treatment.

Originally Posted by geotag277

Would be interesting to run some actual numbers on this. Paying rent indefinitely is of course a huge expense, but so is home ownership and maintenance. They both have significant line items under expenditures over the long term, and with the money saved from renting being invested in appreciating assets, I don't think it is so obvious that owing a home is financially the best move. Outside of the utility the investment historically hasn't been anything to write home about, versus, say, dollar cost averaging the S&P over your income earning years which would be likely to make you wealthy.

A free and clear well-located primary residence upon retirement is pretty hard to beat at first sight due to various advantages, esp. the tax exemption on the capital gains made from a primary residence.

And many places have homestead tax freezes, so by that point in your life it costs you pretty much nothing to live. Whatever you have, you can spend.
Imagine a retired renter in comparison. And rents may well rise faster than their income, or even their ability to pay.

Unless you make really bad decisions, I think owning your own place is a no brainer -- it's real estate investing with a guaranteed good tenant and 0.00% vacancy rates and no management costs.

Real estate investing is IMO a pretty balanced field of investement (they all are, in fact -- that's market forces at work) which means it's better than average when you're in a position to do stuff on the cheap and/or yourself and/or have good management and construction contacts and experience and/or have better-than-average foresight for buying in neighborhoods that are just about to undergo a major gentrification and markets that are likely to be rising over the next few years.

And when you're your own tenant, it makes it also very significantly better than average.

Just like any business whenever you can be your own, pretty major, customer.

[lio45]

Originally Posted by whatnext

What you and the other Deniers never answer is why you think it is right for Canadians to be forced to turn to subsidized housing so that we can sell off prime homes to offshore money.

Why is that?

Canadians who own these "prime homes" sure think it's right that they have the freedom to sell them...

And there's plenty of cheap Canada to turn to, no need to have to rent. As you kinda said yourself recently, if you can't stand the heat of the real estate market, get out of the Van kitchen...

BTW, we're not all "deniers". I'm far from a "denier" -- the speculative bubble is obvious -- but I'm too much of a libertarian to wish for the big nanny government to attempt to legislate (probably badly, in practice) against free market bubbles.

[Berklon]

Originally Posted by lio45

BTW, we're not all "deniers". I'm far from a "denier" -- the speculative bubble is obvious -- but I'm too much of a libertarian to wish for the big nanny government to attempt to legislate (probably badly, in practice) against free market bubbles.

I totally agree, the government shouldn't interfere at all. Which is why the CMHC should be taken down.
Let the free market take over instead of having the government create, inflate and sustain the bubble.

Can't have it both ways.

[someone123]

Originally Posted by Berklon

I totally agree, the government shouldn't interfere at all. Which is why the CMHC should be taken down.
Let the free market take over instead of having the government create, inflate and sustain the bubble.

Can't have it both ways.

A lot of the people who say that the municipality and province shouldn't do anything in Vancouver are the same ones who support zoning regulations that ban multi-unit construction on most of the land in the city. Or they support tax exemptions on capital gains for primary residences, which even though it is presented as non-interference is a distortionary shift in the tax burden to other areas.

The land title and general legal system is needed for real estate to even be a thing and this is de facto government interference. Then we've got interest rates, again government controlled.

I'm not sure the idea of avoiding "government interference" in real estate is coherent at all. There is no avoiding interference. There are just different kinds of interference available, and right now their use is slanted toward producing rising real estate prices in Vancouver, because that's the direction of the balance of political pressure.

[kwoldtimer]

I suspect that the federal government is actively rummaging through it's toolkit, looking for the pin that not too big, not too small, but just right. It should be sharpened and ready for use by this fall, I would wager.

[whatnext]

Originally Posted by lio45

Canadians who own these "prime homes" sure think it's right that they have the freedom to sell them...

And there's plenty of cheap Canada to turn to, no need to have to rent. As you kinda said yourself recently, if you can't stand the heat of the real estate market, get out of the Van kitchen...

BTW, we're not all "deniers". I'm far from a "denier" -- the speculative bubble is obvious -- but I'm too much of a libertarian to wish for the big nanny government to attempt to legislate (probably badly, in practice) against free market bubbles.

You don't have to specifically "legislate against bubbles". Governments control immigration policy, surely you're not advocating that be unregulated?

[kwoldtimer]

Originally Posted by MolsonExport

As some have suggested in another thread, apparently it is Quebec's fault.

Those dastardly Frenchies.

http://www.bing.com/videos/search?q=scar...CC26D167BD341FEBC27F&fsscr=0&FORM=VDMCNL