Chinese Investors Driving Up Metro Housing Prices

[GMasterAres]

Originally Posted by Pinion

Only if they sell when they shouldn't be selling.

That's incorrect. If you purchase a house at (a) value and it plunges below (a) value, you are ok only if your the difference between the new value and your (b) remaining mortgage is equal to or greater than your down payment such that your equity hasn't dropped. If the new value plunges below (b) your remaining mortgage OR it reduces enough that your equity is less than when you first got your mortgage, then the banks get jittery and if you are at the stage of renewing your mortgage, the banks can (and almost certainly WILL) require you to top up your equity before they allow you to renew.

So example simplistic scenario:

1. Buy a house for $100,000
2. Put 10% down
3. Mortgage is for $90,000 + mortgage insurance so say $93,000 give or take
4. Pay your mortgage on time for the next 5 years
5. At the end your mortgage will be down to about $80,000

Now say your house value dropped by 15%, so now it is worth $85,000. You now only have $5,000 in equity and that is ~6% of the value, but your original mortgage was for 10% down. This means you are in the hole $3,500.

So when you go to renew your mortgage, the bank will likely ask you to give them $3,500 in cash before you can renew. If you can't, then you're on the quick road to foreclosure or needing to walk away from the mortgage.

Now this may not seem like much but up all the above numbers by 10 times to get that closer to what real detached homes cost in Metro Vancouver.

So the house is now purchased for $1 million and it drops by 15%, so the value is now $850,000 and you owe $800,000. That $3,500 in cash after 5 years becomes $35,000 in cash you owe the bank out of pocket at mortgage renewal. Unless you're wealthy of have no other debts, I challenge most people to come up with $35,000 in a matter of a few weeks.

Obviously if you have been a house for a longer time or aren't too overly in debt as a whole, you likely won't be in such a situation. Also if you are mid-term and you can see the writing on the wall, you should start saving to have cash reserves come mortgage renewal. But that's not going to be the case for a significant portion of the overall population.

What the above leads to is people not being able to qualify to renew their mortgage and ultimately foreclosing which is what happened down in the US in places like Phoenix. It starts to feed on itself because banks foreclose very quickly and then try to recoup as much money as they can which typically results in them selling their foreclosed properties for even less than the new appraised value further driving housing prices down.

Thus a market crash. Is a Phoenix scale crash possible in metro Vancouver? I doubt it because CMHC and bank regulations has meant we don't have crazy 35 year loans with 0% down payments, or people qualifying for mortgages with 60% debt loads or greater. But a well measured correction is certainly possible.

So people shouldn't think it is as simple as "just keep paying your mortgage and you're AOK." For some a sizable market correction will land them out of their homes and looking for rental housing in a market with near 0 rental vacancies...

[twoNeurons]

Yep, OSFI got rid of 40-year amortizations ( after 2008 ) and then 30-year amortizations ( in 2012 ). IN 2014, more rules were also added to ensure a down payment was not with borrowed money. I can't remember when the refinance rules were put in place, but basically... the banks are indeed required to re-qualify you when you refinance and like jhausner said, there is a minimum. If the value of your home falls below its current assessed value you can not get a mortgage for that amount. It's tied to assessed value, not to current amount you owe.

Add to all this that there is a definite speculative vibe. At the peak of the US market, you had baristas in Starbucks owning 1 or 2 investment condos. They'd buy the pre-sale condo and reassign it before taking possession. I have co-workers with low-paying jobs and 2/3 condos. Initial DP was from the bank of mom, and 1 property is under construction and will be complete in 2018.

He will either be in the red renting it out or need to sell it. And there are time when a person is obliged to sell. Divorce, kids, job, etc.

[WarrenC12]

I just went through the process of purchasing (including financing) for real estate for the 2nd time in my life. First time was around 2000.

I am far more stable financially, and putting a large down payment into this purchase, whereas I was scraping 5% the first time around.

The number of hoops I've had to jump through is almost ridiculous, both on the down payment side (source of funds), and the lender side (digging deep into all aspects of my financial status).

I was very surprised. And this is for a mortgage that in the end is very manageable for our household, at little to no risk to the lender (since my equity in the property is such that they will never lose out if forced to foreclose on me).

[whatnext]

Originally Posted by jhausner

....Thus a market crash. Is a Phoenix scale crash possible in metro Vancouver? I doubt it because CMHC and bank regulations has meant we don't have crazy 35 year loans with 0% down payments, or people qualifying for mortgages with 60% debt loads or greater. But a well measured correction is certainly possible.

So people shouldn't think it is as simple as "just keep paying your mortgage and you're AOK." For some a sizable market correction will land them out of their homes and looking for rental housing in a market with near 0 rental vacancies...

Garth Turner (and Capital Economics) thinks we shouldn't be so smug about sensible Canadian lending practises:

"....As detailed here in recent months, borrowers in Toronto and Vancouver have been snorfling mortgage money as never before, convinced they can borrow endless amounts because (of course) real estate always goes up. Four in 10 mortgages in Toronto are carried by people with debt equal to 450% or more of their incomes, with a third of Vancouver homeowners in the same leaky boat.

But it gets worse.

Says the firm: “We’re reliably informed that the mortgages in Toronto now stretch to 600% of combined gross income. So two people both earning $100,000 gross can borrow $1,200,000..."
http://www.greaterfool.ca/page/3/

IMHO he underplays foreign investment as the match that set the fire, but the end result is the same.

[WarrenC12]

Garth Turner is the same idiot who called a housing bubble in 1999 and predicted the Dow would hit 30,000 at the same time.

[Alex Mackinnon]

Originally Posted by WarrenC12

Garth Turner is the same idiot who called a housing bubble in 1999 and predicted the Dow would hit 30,000 at the same time.

He's also generally credited with creating the TFSA, which is a pretty great tool in my opinion.

[WarrenC12]

Originally Posted by Alex Mackinnon

He's also generally credited with creating the TFSA, which is a pretty great tool in my opinion.

I like the TFSA, I mean who doesn't? Tax free income!

The long term impact on federal government revenue is pretty unknown though.

As for creating, it's basically a copy of Roth IRA plans in the US, he didn't invent the wheel here.

[whatnext]

Originally Posted by WarrenC12

Garth Turner is the same idiot who called a housing bubble in 1999 and predicted the Dow would hit 30,000 at the same time.

Perhaps, but here he is basically quoting Capital Economics, so I'd put more store in it. If those numbers are correct it's quite worrisome and Canadian lending hasn't been as prudent as everyone has been led to believe.

[s211]

I was in the market about 4-5 years ago and the pre-qualification mortgage amount I got from my lender was insanely high, based solely on my gross income (which isn't exactly rock star money). When they told me the number, the magnitude of which has escaped my memory now, I almost fell off my chair laughing. For the life of me, I couldn't figure out how they'd have thought I could afford something far beyond my earning means, i.e. being able to support a mortgage in addition to my usual monthly living expenses. I didn't even need to get mortgage insurance to qualify for the amount they were prepared to lend me.

Believe it. When most mortgages are government-insured, it's no wonder lenders lose a grip on what would seem reality to the rest of us.

[Pinion]

Yeah I was approved for at least 200% more than I could afford with a full time working wife and no kids. That was in 2005. It was enough for a townhouse back then, now you couldn't even get a two bedroom condo outside of Whalley.

[cornholio]

Originally Posted by Pinion

Yeah I was approved for at least 200% more than I could afford with a full time working wife and no kids. That was in 2005. It was enough for a townhouse back then, now you couldn't even get a two bedroom condo outside of Whalley.

You should have taken it and then lied about your income, got some offshore fraudulent documents saying you have assets that you really don't and doubled or tripled down. Went into maximum debt and as the equity increased continued to take on more debt and buy more properties and hold on to them by any means possible. Last spring you could have sold everything and been a multi millionaire. The only risks in all of this were bankruptcy and leaving the country back to your motherland to start over with what ever you managed to hide from the banks. Its not like that's a death sentence...Could of been very rich. A bit of fraud in 2005 and riding the equity wave and you could have had 5 to 10 to 20 to 30 million today.

[Pinion]

Originally Posted by cornholio

You should have taken it and then lied about your income, got some offshore fraudulent documents saying you have assets that you really don't and doubled or tripled down. Went into maximum debt and as the equity increased continued to take on more debt and buy more properties and hold on to them by any means possible. Last spring you could have sold everything and been a multi millionaire. The only risks in all of this were bankruptcy and leaving the country back to your motherland to start over with what ever you managed to hide from the banks. Its not like that's a death sentence...Could of been very rich. A bit of fraud in 2005 and riding the equity wave and you could have had 5 to 10 to 20 to 30 million today.

I know. Hindsight is 20/20.

[whatnext]

I'm continually impressed with the way the Globe & Mail has been reporting into the housing issues in Vancouver. From the rising costs of homes, to the effect on renters and businesses, it has been a real reminder of why we need a strong, free press and not just a bunch of web-based echo chambers.

Particularly worth a read is their piece on the experiences of new immigrants from China and their experiences in Vancouver. It is well worth a read:




[/I].....These recent t they are among more than a dozen people – contacted through Café 1029, WeChat groups, school-parent or university-graduate groups – who agreed to be interviewed at length by The Globe and Mail in the past four months, answering questions about their new lives in Vancouver, their reasons for coming here, their finances, and their thoughts about their new home, because they wanted to give a more accurate picture of the city’s newest Chinese community.

They do not represent all mainland Chinese immigrants, many of whom do everything from running convenience stores to maintaining aircraft engines to working with social-service groups. They represent the moderately wealthy business and professional class, the group generating the most conjecture.

Nothing in the current debate – the angst over real-estate prices, hostility from their ethnic cousins in Vancouver, tales of corrupt Communist Party officials throwing money around – surprises them.

Some of the same turmoil is playing out in China. Housing prices are skyrocketing in the largest cities. Real-estate investment and speculation have become part of the fabric of the new wealthy class, with prices rising not just in Shanghai, Guangzhou and Beijing, but resort-style cities like Kunming, set in the mountains and valued for beauty and clean air.

“The [media] coverage here, it’s quite natural,” said Lao Wu, a former Beijing businessman from Shandong province who now sports a casual look with track pants and a T-shirt during coffee and breakfast at the IHOP in Lougheed Town Centre. “In the big cities in China, you have people from other provinces with cash coming in.” ...[/I]
http://www.theglobeandmail.com/real-...ticle31212036/

[whatnext]

Richmond realtor sues former employer for $250k:

A Realtor from Richmond is suing her former company, claiming she is owed nearly a quarter of a million dollars in commission for presale and completed deals she worked on before she left the agency.

Morning Yu was hired by New Coast Realty in 2013.

She alleges things took an ugly turn soon after she started when the owner, Ze Yu Wu, encouraged her to take part in a practice known as shadow flipping, which has since been banned by the provincial government.

Yu claims she was pressured to encourage people to sell their homes at low prices to her friends, relatives or neighbours, who would act as buyers.

Once the home was sold, it would be relisted at a higher price, allowing the company to double up on its commission.

Yu alleges when she told her boss she wouldn't shadow flip because it's unethical, the company stopped giving her referrals.

She says that forced her to quit late last year and claims the company owes her more than $240,000 in outstanding commissions....

http://www.cbc.ca/news/canada/britis...ping-1.3726886

It boggles my mind that I still listings with New Coast.

[ssiguy]

This is not a minor correction but a major collapse, It had to happen as prices and price increases have become completely detached from the local economy.

Often housing collapses can wipe up to 10 years off the market price and for Vancouver, especially SFH, that would be devastating. For the terminal house flippers and Chinese money launderers I couldn't care less if they lose their shirt.....the more the better. What really bothers me is the average Vancouverite who bought in the last 2 or 3 years at prices he/she really couldn't afford but had no option. The price they paid was no doubt ridiculous but if they wanted/needed a home then they were forced to take on more debt than they wanted.

Your average Vancouverite who bought in the last 3 or 4 years could find themselves underwater yet having to pay a crippling mortgage on a home {especially SFH} that is worth less than when it was bought. These are the people I feel bad for and they wouldn't be in this position if BC, feds, Vancouver had taken action years ago before this mania started but they were too busy getting rich themselves by their skyrocketing home values and loving the cash it was bringing to government coffers just waiting to be released before the next election to care about this "average" Vancouverite.

They wanted money for themselves and their government coffers and damn the consequences. The fact that it has pushed thousands out of the city, caused the young to flee, saddled people with huge mortgages, hurt regular businesses by inhibiting their ability to expand due to high real estate costs and an inability to get and/or keep skilled labour, led to ghost neighbourhoods, and a rise in homelessness and people living in inadequate housing was completely irrelevant. Their answer was simple, if you don't like the new reality then leave, regardless whether you have lived here all your life.

When you treat housing, a basic need and human right, as nothing more than a commodity to be traded and sold to the highest bidder regardless of the consequences, then you have also commodified the people who live in those homes and that is very sad.

[Jebby]

Originally Posted by ssiguy

What really bothers me is the average Vancouverite who bought in the last 2 or 3 years at prices he/she really couldn't afford but had no option. The price they paid was no doubt ridiculous but if they wanted/needed a home then they were forced to take on more debt than they wanted.

No one was forced to buy anything. No one put a gun to anyone's head and forced them to take on more debt that they can repay. And of course they had another option, they could have continued to rent or bought elsewhere.

[logan5]

Since 99% of Vancouver locals can't afford a million dollar mortgage, that leaves a very small percentage of locals who are affected. Right?

[Caliplanner1]

Originally Posted by Jebby

No one was forced to buy anything. No one put a gun to anyone's head and forced them to take on more debt that they can repay. And of course they had another option, they could have continued to rent or bought elsewhere.

Jebby, not only is renting not cheap as an alternative (considering that renters are actually throwing away potential equity monies to the tune of thousands of dollars each month) but a lot of rental properties are under pressure as owners convert them in to high priced condos etc..

[Pinion]

Originally Posted by Jebby

No one was forced to buy anything. No one put a gun to anyone's head and forced them to take on more debt that they can repay. And of course they had another option, they could have continued to rent or bought elsewhere.

Rent is skyrocketing due to Airbnb now. Where do you suggest Canadians who are too poor to continue living in their home town go? Calgary used to be the answer, but now it's in a huge recession. Victoria has no jobs outside of government. Toronto is no relief financially. Montreal isn't great economically and isn't welcoming to non-French speakers. The only towns that are more affordable are miserable frozen shit holes with very few jobs.

[ryanmaccdn]

Originally Posted by Pinion

Rent is skyrocketing due to Airbnb now. Where do you suggest Canadians who are too poor to continue living in their home town go? Calgary used to be the answer, but now it's in a huge recession. Victoria has no jobs outside of government. Toronto is no relief financially. Montreal isn't great economically and isn't welcoming to non-French speakers. The only towns that are more affordable are miserable frozen shit holes with very few jobs.

"miserable frozen shit holes with very few jobs" that's like 95% of this country.... then why stay in Canada?

Also the AirBnb thing is such a shitty excuse for lack of rentals... solution ditch the ALR and build some density and problem solved.