Vancouver Real Estate 'Bubble' at 30-year Peak

[misher]

Originally Posted by Vin

But then again, do people seriously think that there are many owners who are willing to part their properties at garage sale prices? Not likely. Holding onto properties for decades has been the norm in this city.

Agreed. Unless people are desperate there not selling for less than they feel it’s worth and most are in no rush. Real estate prices are inelastic unless a major economic event intervenes. Government policies on demand have little effect on lowering prices because the real estate market isn’t a business that is forced to compete short term.

We’re likely going to see reduced sales for years to come with prices barely moving. Or increased sales and prices rebounding.

All three federal parties say they plan to take action to increase sales. Banks and mortgage brokers are hurting bad. They have a big influence over politics.

Likely in less than a year we’re going to see policies to increase sales with the possible revision or removal of the stress test. Until then people have to live somewhere and Vancouver’s population is only growing. Most are predicting long term rapid price growth until 2025. Also with rents predicted to be in increasing more than inflation (on average) buying a home will begin to make more sense each year.

An added bonus, housing starts dropped in 2018, so in 5 years when its felt we will have much less supply than needed. Right now we are having all the supply built years ago come out so we are facing oversupply.

[csbvan]

Originally Posted by Vin

But then again, do people seriously think that there are many owners who are willing to part their properties at garage sale prices? Not likely. Holding onto properties for decades has been the norm in this city.

Quite a few homes and condos (particularly presales) in Vancouver over the past few years were purchased to flip, or were purchased by builders who would demolish the existing home and build a larger, "luxury home". Yes, many of those are being or will be sold at a discount in order cut the losses.

There are also people who have to sell because they are moving, or because someone has died, or due to divorce, or foreclosure. Add in presale condos, which many purchasers may choose not to complete, or may not be able to complete due to falling prices, and the impact that has on their borrowing capacity.

People don't always have the will or the luxury to sit on a property for decades...

[rofina]

I do wonder about the absorption rates of the units coming online over the next 18-24 months.

Though I suspect starts continue to decline - balancing out this equation in the next 36-48 months.

[WarrenC12]

People will start selling at whatever they can get when they start getting laid off.

As with any real estate tumble, there will always be deaths and divorces that force sales as well.

I'm not sure I'm a fan of the mortgage stress test though. It came into effect at the same time rates began to rise. Renewals at least should be exempted. If somebody is able to make their payments, they shouldn't be denied a renewal.

[svlt]

Originally Posted by csbvan

Quite a few homes and condos (particularly presales) in Vancouver over the past few years were purchased to flip, or were purchased by builders who would demolish the existing home and build a larger, "luxury home". Yes, many of those are being or will be sold at a discount in order cut the losses.

There are also people who have to sell because they are moving, or because someone has died, or due to divorce, or foreclosure. Add in presale condos, which many purchasers may choose not to complete, or may not be able to complete due to falling prices, and the impact that has on their borrowing capacity.

People don't always have the will or the luxury to sit on a property for decades...

I do suspect the people most hurt by the downturn, apart from realtors, developers and anyone making their living through the housing industry, would be middle to upper class families/owners owning an investment rental property, which through all the difficulties in getting a property rented and through seeing prices continually drop would eventually panic-sell and take what they have made (or eat a small loss). I would strongly suggest there is no appetite for recent purchasers living in their principal residences to sell and it would take an unusual set of circumstances for an owner to part with a property they're living in and endure a a significant loss on. Before I get accused, as this forum is prone to point any personal opinion as a sign of shilling or boosterism, I don't fall in this category as I purchased a condo many years ago and have lived in it since and have had no intention of selling.

It would take a cataclysmic shift in sentiment, the domestic economy and global affairs to really plunge Vancouver into a significant and decades-long downturn. I think there will be sharp price corrections across the board, but we'll see a recovery in the 2020s to today's levels. Vancouver doesn't suddenly become Haiti overnight to the global environment, it's likelier to become the next San Francisco.

[fredinno]

Originally Posted by misher

Agreed. Unless people are desperate there not selling for less than they feel it’s worth and most are in no rush. Real estate prices are inelastic unless a major economic event intervenes. Government policies on demand have little effect on lowering prices because the real estate market isn’t a business that is forced to compete short term.

We’re likely going to see reduced sales for years to come with prices barely moving. Or increased sales and prices rebounding.

All three federal parties say they plan to take action to increase sales. Banks and mortgage brokers are hurting bad. They have a big influence over politics.

Likely in less than a year we’re going to see policies to increase sales with the possible revision or removal of the stress test. Until then people have to live somewhere and Vancouver’s population is only growing. Most are predicting long term rapid price growth until 2025. Also with rents predicted to be in increasing more than inflation (on average) buying a home will begin to make more sense each year.

An added bonus, housing starts dropped in 2018, so in 5 years when its felt we will have much less supply than needed. Right now we are having all the supply built years ago come out so we are facing oversupply.

Then again, you also have to account for boomers downsizing or entering the rental market as they liquidate their assets. The upper end of the market might stay depressed for a while, at least.

[misher]

Originally Posted by fredinno

Then again, you also have to account for boomers downsizing or entering the rental market as they liquidate their assets. The upper end of the market might stay depressed for a while, at least.

When the market was strong this happened and anyone that really wanted to do it did. With prices down I suspect people can wait to put it off for a few years. They can always rent out a suite or mortgage their home if they need extra money. Hell they can rent out their unit and go rent something cheaper as I am seeing in some stratas.

But yes I suspect the lower end to remain stable and even gain value while the upper end remains depressed. The 1-2 million dollar house is likely here to stay.

[Changing City]

Here's the 5 year price trend graphic of the House Price Index with the January 2019 prices added. [source - Georgia Straight].

Everything (single family, townhouse, apartment) continues downwards, without any sign of flattening out, or plunging suddenly down.

[rofina]

Originally Posted by svlt

I do suspect the people most hurt by the downturn, apart from realtors, developers and anyone making their living through the housing industry, would be middle to upper class families/owners owning an investment rental property, which through all the difficulties in getting a property rented and through seeing prices continually drop would eventually panic-sell and take what they have made (or eat a small loss). I would strongly suggest there is no appetite for recent purchasers living in their principal residences to sell and it would take an unusual set of circumstances for an owner to part with a property they're living in and endure a a significant loss on. Before I get accused, as this forum is prone to point any personal opinion as a sign of shilling or boosterism, I don't fall in this category as I purchased a condo many years ago and have lived in it since and have had no intention of selling.

It would take a cataclysmic shift in sentiment, the domestic economy and global affairs to really plunge Vancouver into a significant and decades-long downturn. I think there will be sharp price corrections across the board, but we'll see a recovery in the 2020s to today's levels. Vancouver doesn't suddenly become Haiti overnight to the global environment, it's likelier to become the next San Francisco.

This is the most pragmatic view.

The facts are - it has gotten expensive to rent (yes I know still cheaper than buying often) in Vancouver, and its not known for being a stable rental market - lots of forced moves due to selling spec units, or renovictions, etc.

This means most owners unless absolutely devastated by months long job losses will not be panic selling simply because prices fell a bit.

Second - the local job market still seems to be strong, and in fact news would point to a rather bright future in a lot of sectors of the economy.

Film continues to thrive, tourism, tech, all growing. Not to mention the amount of synergies and spin off start ups we will get by Apple and Amazon having a significant presence in our city.

Residential builders will hurt, particularly those focused on high end SFH.

There is still a huge building backlog of existing projects that I suspect will keep many busy, and a lot of infrastructure spend coming.

That being said - prices are coming down. I just wouldn't expect a 50% haircut and a return to affordability in this City.

[whatnext]

Originally Posted by rofina

This is the most pragmatic view.

The facts are - it has gotten expensive to rent (yes I know still cheaper than buying often) in Vancouver, and its not known for being a stable rental market - lots of forced moves due to selling spec units, or renovictions, etc.

This means most owners unless absolutely devastated by months long job losses will not be panic selling simply because prices fell a bit.

Second - the local job market still seems to be strong, and in fact news would point to a rather bright future in a lot of sectors of the economy.

Film continues to thrive, tourism, tech, all growing. Not to mention the amount of synergies and spin off start ups we will get by Apple and Amazon having a significant presence in our city.

Residential builders will hurt, particularly those focused on high end SFH.

There is still a huge building backlog of existing projects that I suspect will keep many busy, and a lot of infrastructure spend coming.

That being said - prices are coming down. I just wouldn't expect a 50% haircut and a return to affordability in this City.

Let's not forget, there are a lot of rental market units in the pipe. This should help stabilize life for renters, as well as give people who choose not to buy more options. This is what we need more of. If anything the NDP and Feds should counter any downturn in condo construction by facilitating more construction of purpose-built rentals. As you point out, there's more to our economy than real estate and those sectors are doing well.

We also need to smash the thinking promoted by the real estate cartel that renting is somehow a failure. Canada's home ownership rate is now 5% above the USA and it is clear Canadians have become over-indebted to get there. Maybe it's time to start taxing capital gains when you sell your primary residence. Why should those who put their money productively into the economy through stocks get taxed, yet those who let it sit tied up in a house for decades get a tax-free windfall?

[misher]

Originally Posted by whatnext

Let's not forget, there are a lot of rental market units in the pipe. This should help stabilize life for renters, as well as give people who choose not to buy more options. This is what we need more of. If anything the NDP and Feds should counter any downturn in condo construction by facilitating more construction of purpose-built rentals. As you point out, there's more to our economy than real estate and those sectors are doing well.

We also need to smash the thinking promoted by the real estate cartel that renting is somehow a failure. Canada's home ownership rate is now 5% above the USA and it is clear Canadians have become over-indebted to get there. Maybe it's time to start taxing capital gains when you sell your primary residence. Why should those who put their money productively into the economy through stocks get taxed, yet those who let it sit tied up in a house for decades get a tax-free windfall?

If we had inflation calculated into capital gains maybe we could revise capital gains laws. If your house goes up in value from inflation then capital gains means you lose money which is just wrong. Right now the government is basically taxing you more on non primary assets the higher inflation is assuming the asset goes up by inflation.

Right now home prices have gone up a lot over 10 years but factoring in inflation this increase is less by around 50% of the original homes value.

And definitely we have tons of new units in the pipeline so it’s going to be intersting to see what happens. However we’re also going to have that pipeline constrict in 5 years as starts were down in 2018 and 2019. Maybe that’s why part of why they predict a massive rise in prices by 2025.

[Changing City]

Originally Posted by misher

And definitely we have tons of new units in the pipeline so it’s going to be intersting to see what happens. However we’re also going to have that pipeline constrict in 5 years as starts were down in 2018 and 2019. Maybe that’s why part of why they predict a massive rise in prices by 2025.

The housing numbers were released today for 2018 Housing starts in 2018. Greater Vancouver saw 23,404 starts, only slightly less than the 26,000 and 27,000 in 2016 and 2017, but more than each of the twenty years before that. So 2018 housing starts aren't down much.

It's too soon to say whether 2019 starts will be down again, although given the financial situation it's reasonable to think they might be. Nobody credible would dream of predicting how house prices will change by 2025.

Where change happened over the past year is interesting: starts in Burnaby dropped from 4,000 in 2016 and 2017 to only 2,500 last year. Surrey dropped from 5,300 in 2017 to only 3,400 last year. In the City of Vancouver the number of starts went up from 5,600 to 6,500 in 2018. The two North Vancouver municipalities (combined) saw a huge increase, from 600 in 2017 to over 2,500 in 2018.

[misher]

Originally Posted by Changing City

The housing numbers were released today for 2018 Housing starts in 2018. Greater Vancouver saw 23,404 starts, only slightly less than the 26,000 and 27,000 in 2016 and 2017, but more than each of the twenty years before that. So 2018 housing starts aren't down much.

It's too soon to say whether 2019 starts will be down again, although given the financial situation it's reasonable to think they might be. Nobody credible would dream of predicting how house prices will change by 2025.

Where change happened over the past year is interesting: starts in Burnaby dropped from 4,000 in 2016 and 2017 to only 2,500 last year. Surrey dropped from 5,300 in 2017 to only 3,400 last year. In the City of Vancouver the number of starts went up from 5,600 to 6,500 in 2018. The two North Vancouver municipalities (combined) saw a huge increase, from 600 in 2017 to over 2,500 in 2018.

It’s near the second half of 2018 when starts started dropping hard so you cant just look at 2018 as a whole. Starts also don’t actually count from when planning starts too, there is a long delay but we will see residential construction starts going down in 2019 should things stay the same.

[fredinno]

Originally Posted by Changing City

The housing numbers were released today for 2018 Housing starts in 2018. Greater Vancouver saw 23,404 starts, only slightly less than the 26,000 and 27,000 in 2016 and 2017, but more than each of the twenty years before that. So 2018 housing starts aren't down much.

It's too soon to say whether 2019 starts will be down again, although given the financial situation it's reasonable to think they might be. Nobody credible would dream of predicting how house prices will change by 2025.

Where change happened over the past year is interesting: starts in Burnaby dropped from 4,000 in 2016 and 2017 to only 2,500 last year. Surrey dropped from 5,300 in 2017 to only 3,400 last year. In the City of Vancouver the number of starts went up from 5,600 to 6,500 in 2018. The two North Vancouver municipalities (combined) saw a huge increase, from 600 in 2017 to over 2,500 in 2018.

That doesn't make any sense. Shouldn't housing starts be the opposite way around?

[misher]

Originally Posted by fredinno

That doesn't make any sense. Shouldn't housing starts be the opposite way around?

There based on expected profit margin. Just because prices are high doesn't mean developers make money, profit margin is largely independent of prices. If expected profit margin is over 10% generally projects will start. If under, you'll see a drop in starts.

Thats why I laugh when people blame realtors and developers for prices since both are focused on quantity of sales to make profits.

[fredinno]

Originally Posted by misher

There based on expected profit margin. Just because prices are high doesn't mean developers make money, profit margin is largely independent of prices. If expected profit margin is over 10% generally projects will start. If under, you'll see a drop in starts.

Thats why I laugh when people blame realtors and developers for prices since both are focused on quantity of sales to make profits.

No, I meant the location of starts. Why so many in the N. Shore?

[SpongeG]

‘High degree’ of vulnerability detected in Vancouver housing market: CMHC

Canada Mortgage and Housing Corporation says more evidence needed to move region's vulnerability to moderate

By Tyler Orton | February 7, 2019

The Metro Vancouver housing scene may be turning into a buyer’s market but the Canada Mortgage and Housing Corporation (CMHC) warns the region still shows signs of a “high degree” of vulnerability.

“Despite declining prices for properties in different segments of the resale market in recent quarters, home price growth over the past few years has significantly outpaced local income growth,” the federal Crown corporation stated in its latest housing market assessment, released February 7.

“A high degree of overall vulnerability is maintained for Vancouver, Victoria, Toronto and Hamilton with price acceleration and overvaluation being indicated.”

...

https://biv.com/article/2019/02/high-deg...B9J6SGXquvDUBNz0weytCF1bVIuzP4XB4VvSrrDk

[Changing City]

Originally Posted by misher

It’s near the second half of 2018 when starts started dropping hard so you cant just look at 2018 as a whole. Starts also don’t actually count from when planning starts too, there is a long delay but we will see residential construction starts going down in 2019 should things stay the same.

There were 12,562 housing starts in greater Vancouver in the first six months of the year, and 10,842 in the last six months. That's an odd definition of 'dropping hard'. There were over 2,000 units started in December.

[twoNeurons]

To those that are saying... people will just hold on and not sell... you're absolutely right. This is why real estate "crashes" rarely happen, particularly in Canada where it's harder to get out of a mortgage.

HOWEVER, this merely means that houses that DO go to market will stay on market for LOOOONNNNGGG time as prices slowly melt.

It's not uncommon to see a 3 year 30% increase, and an 8 year 25% melt. Of course... due to to 2% inflation / year and the high carrying costs of a depreciating property... that actually results in a considerable loss, especially when you factor in the opportunity costs.

In the end, however... the home owner claims victory for selling their house for 5% more than they paid for it... because few actually calculate the REAL costs of owning a home.

---
I have a friend who has a place that would have easily sold for $1.4 M early last year... if not more. He currently rents out the top for $2000 and the bottom for $1000. He's building a laneway home and the inspector has said that in order to get the license he has to make some renovations to the suite to legalize it.

He argues that he's making money as the house is almost paid off and his mortgage is peanuts compared to the $3000 in rental income he's getting.

Hmmm... math.

$36,000 in rental income taxable at your marginal rate nets ~$21,000... less another $6000 in taxes... and another $1000 in maintenance and incidentals... that's $14000 / year.

Assuming he can NET $1,000,000 after the mortgage ( probably more as he's had the house for about 20 years )... if he invested the $1,000,000 he'd be netting 40,000 at 4%... which is a LOW estimate... and that's taxed as capital gains... with very little hassle.
Instead he's doubling down on landlordship... and building a laneway home... more headaches if you ask me.

[Changing City]

Originally Posted by fredinno

No, I meant the location of starts. Why so many in the N. Shore?

We've lost our regular North Shore correspondent, and his photos have gone as well, but I think there were several projects that started this year around Lonsdale, and maybe Seylynn Village as well? It's only 2,500 units between both municipalities - but a lot more than last year.