Canada's 'housing bubble' deemed close to bursting

[ssiguy]

The problem with CMHC is not the 5% down because with our ridiculous housing prices that is a lot of money to save up for. The 25 year amortization period is also reasonable. The problem is the amount that people can borrow. Think about it, a $1,000,000 for your first home...…….ridiculous. The MOST it should be is $700k. That is still 10x the average family income and if you can't find a home for that price then you should lower your standards.

The problem of course is that the economy has become addicted to real estate and in places like Vancouver, completely dependent upon it. Ottawa knows this which is why we will not see any significant changes to the system lest it result in a real downturn in the market and the corresponding economic consequences.

Our real estate market, especially in BC, has become an addiction in all senses of the word. At first you WANT it as a great way to make your economy feel good but eventually you NEED more to stop you from feeling bad. Now we are dependent and the government solution is pump us up even more toxins via it's offensively lax controls on money laundering and continually higher rates of immigration.

In the end, it will have to stop but like with all addiction, the long-term benefits will be worth it but the withdrawal system will be devastating.

[whatnext]

Originally Posted by ssiguy

The problem with CMHC is not the 5% down because with our ridiculous housing prices that is a lot of money to save up for. The 25 year amortization period is also reasonable. The problem is the amount that people can borrow. Think about it, a $1,000,000 for your first home...…….ridiculous. The MOST it should be is $700k. That is still 10x the average family income and if you can't find a home for that price then you should lower your standards.

The problem of course is that the economy has become addicted to real estate and in places like Vancouver, completely dependent upon it. Ottawa knows this which is why we will not see any significant changes to the system lest it result in a real downturn in the market and the corresponding economic consequences.

Our real estate market, especially in BC, has become an addiction in all senses of the word. At first it was a great way to make your economy feel good but eventually you need more to stop it from feeling bad. Now we are dependent and the government solution is pump us up even more toxins via it's offensively lax controls on money laundering and continually higher rates of immigration.

In the end, it will have to stop but like with all addiction, the long-term benefits will be worth it but the withdrawal system will be devastating.

The problem is the BC Liberal strategy of an "ESL Economy". To replace declining forestry in the 1980-90's they decided to build a real estate bubble catering to students and housewives. It is backfiring now that we're actually developing stronger tech and film industry which is being hamstrung by ridiculous housing prices.

The government (aka CMHC)should just get out of the mortgage business. Let the banks take on the risk.

[misher]

Originally Posted by ssiguy

The problem with CMHC is not the 5% down because with our ridiculous housing prices that is a lot of money to save up for. The 25 year amortization period is also reasonable. The problem is the amount that people can borrow. Think about it, a $1,000,000 for your first home...…….ridiculous. The MOST it should be is $700k. That is still 10x the average family income and if you can't find a home for that price then you should lower your standards.

The problem of course is that the economy has become addicted to real estate and in places like Vancouver, completely dependent upon it. Ottawa knows this which is why we will not see any significant changes to the system lest it result in a real downturn in the market and the corresponding economic consequences.

Our real estate market, especially in BC, has become an addiction in all senses of the word. At first it was a great way to make your economy feel good but eventually you need more to stop it from feeling bad. Now we are dependent and the government solution is pump us up even more toxins via it's offensively lax controls on money laundering and continually higher rates of immigration.

In the end, it will have to stop but like with all addiction, the long-term benefits will be worth it but the withdrawal system will be devastating.

Tried to get a mortgage pre stress test on a 48k gross income and max I could get was about 180k. I thought it would be much more given how everyone talks about how people can get huge mortgages they can't afford. I'm not sure how people get getting these million dollar mortgages unless their incomes are ridiculously high or they have assets to secure them. As whatnext just posted over in Vancouver, Canada has strong controls on money laundering (so says the Americans) but were poor at prosecuting and convicting them (and other criminals in general).

Originally Posted by whatnext

The problem is the BC Liberal strategy of an "ESL Economy". To replace declining forestry in the 1980-90's they decided to build a real estate bubble catering to students and housewives. It is backfiring now that we're actually developing stronger tech and film industry which is being hamstrung by ridiculous housing prices.

The government (aka CMHC)should just get out of the mortgage business. Let the banks take on the risk.

If this was 2016 you could say this stuff but its been 3 years now so you can't keep blaming the last government. Plus interest rates and immigration were federal while Vancouver's development policy was muncipal/NDP. And the only reason we have a strong tech and film industry is due to high immigration. Tech firms are coming here now because Trump has blocked foreign workers and immigration so its easier to get workers into their officers here, they don't come here for the weather.

[someone123]

Originally Posted by whatnext

The problem is the BC Liberal strategy of an "ESL Economy". To replace declining forestry in the 1980-90's they decided to build a real estate bubble catering to students and housewives. It is backfiring now that we're actually developing stronger tech and film industry which is being hamstrung by ridiculous housing prices.

I think the level of harm the real estate market is causing to the BC economy is underappreciated. If Vancouver had reasonable housing prices it would have enormous draw for tech workers and therefore tech companies. The Bay Area is an absolute mess in terms of planning and infrastructure. It's full of companies that are flush with cash but struggling to grow and it's full of frustrated workers who earn $250,000 a year but have a bad standard of living.

Given how dysfunctional the US is in general there's a lot of economic opportunity that is Canada's to lose.

[misher]

Originally Posted by someone123

I think the level of harm the real estate market is causing to the BC economy is underappreciated. If Vancouver had reasonable housing prices it would have enormous draw for tech workers and therefore tech companies. The Bay Area is an absolute mess in terms of planning and infrastructure. It's full of companies that are flush with cash but struggling to grow and it's full of frustrated workers who earn $250,000 a year but have a bad standard of living.

Given how dysfunctional the US is in general there's a lot of economic opportunity that is Canada's to lose.

Name a West coast city with a booming tech economy and cheap housing prices. Attractiveness brings people and tech follows people. We act like Vancouver is unique but its very similar to Seattle and LA who have their own development and NIMBY problems.

[WarrenC12]

Originally Posted by misher

Tried to get a mortgage pre stress test on a 48k gross income and max I could get was about 180k. I thought it would be much more given how everyone talks about how people can get huge mortgages they can't afford. I'm not sure how people get getting these million dollar mortgages unless their incomes are ridiculously high or they have assets to secure them. As whatnext just posted over in Vancouver, Canada has strong controls on money laundering (so says the Americans) but were poor at prosecuting and convicting them (and other criminals in general).

SelfAwareWolves time. Perhaps you're waking up to the fact that our real estate prices are not driven by local incomes.

[misher]

Originally Posted by WarrenC12

SelfAwareWolves time. Perhaps you're waking up to the fact that our real estate prices are not driven by local incomes.

Over 80% of BC real estate is owned by the same people/families that owned it 20 years ago. Around 85k residential units a year sell (this includes new ones). There are ~2.1 million properties in BC and about 80% of them are residential. We build around 1% new residential inventory annually.

The reason prices are high isn't because of large sales, its because people cannot replace what they have for less. This goes squarely to construction costs, new developments sell for sky high prices of $1000/sqft minimum. Developer margins haven't changed and land prices are higher but not massively so. If the land prices rise 20% this only results in around 5% price increases of condos.

Its obvious foreigners are just one of many factors influencing whats been happening. Its been obvious that once you cross Boundary its suddenly cheaper for developers to build both houses and condos. This is because your suddenly dealing with Burnaby city hall instead of Vancouver. The same for when you go to Richmond.

Vancouver development has become this incredibly inefficient monster. Seriously look at our response to protesters blocking major infrastructure as an example, we do things slowly and inefficiently here and its become a nation-wide problem.

[WarrenC12]

Originally Posted by misher

Over 80% of BC real estate is owned by the same people/families that owned it 20 years ago. Around 85k units a year sell (this includes new ones).

Cool story bro. How were prices 20 years ago?

[misher]

Originally Posted by WarrenC12

Cool story bro. How were prices 20 years ago?

My point was that prices are driven by the cost to build new homes and the demand for homes. If we could reduce the first then supply would keep up with demand and we wouldn't be having as big a problem.

[whatnext]

Here's a fun story from the Vancouver forum. While not residential real estate, it indicates the level of rot that has set into Vancouver property from offshore money. And anybody who thinks the same kind of thing wasn't going on in Toronto and Montreal is naive:


‘Project Snowflake’: Fraud claim hits sale of Vancouver mountain involving troubled China investment giant CMIG, US$100m loans and a US$381,000 private jet flight from Shanghai
-The lawsuit claims a co-investor was a victim of ‘fraudulent misrepresentation’ that deprived him of a 30 per cent share of the Grouse Mountain ski resort
-He says he paid millions towards the 2017 deal in which China Minsheng Investment Group took a 40 per cent stake
Ian Young in Vancouver
Published: 6:05am, 15 Feb, 2020

A controversial deal to buy the ski mountain overlooking Vancouver that involved the cash-strapped Chinese investment giant CMIG has been hit with allegations of fraud in a lawsuit that purports to reveal details of the 2017 transaction, dubbed “Project Snowflake”.

Among other claims, it says two executives from China Minsheng Investment Group (CMIG) flew from Shanghai to Vancouver on a private jet chartered for US$381,000 to inspect the resort, in which CMIG took a 40 per cent stake.
It also depicts a complex web of transactions, supposedly involving a C$2 million (US$1.5 million) deposit paid on CMIG’s behalf but routed via the wife of a Vancouver-based co-investor.

The lawsuit’s claims are unproven. Lodged in the British Columbia Supreme Court on February 4, it seeks 30 per cent of the proceeds from the recent resale of the resort for an undisclosed amount. The original 2017 asking price for the iconic resort, whose floodlit slopes are visible across Vancouver at night, was C$200 million...

..The main target of the lawsuit is Kenny Zou, who fronted the 2017 purchase of the ski resort by CM (Canada) Asset Management and is a director of the firm. Zou, also known as Kang Yu Canning Zou, is accused of “fraudulent misrepresentation”.

Zou’s wife, Wei Dong, and various other companies of which Zou was a director, are also named as co-defendants, although CMIG is not...

..
Zou had told Canadian media in 2017 that CM (Canada) Asset Management was a “completely Canadian company through and through”, and that CMIG, although a 40 per cent shareholder, would be a “silent” investor in the running of Grouse Mountain.

But the president of CM Canada was Lawrence Liao Feng, who was also the CEO of CMIG International, the foreign investment arm of CMIG, the South China Morning Post revealed last year. Zou was CM Canada’s secretary. Both Zou and Liao were directors of the firm....

https://www.scmp.com/news/china/society/...fraud-claim-hits-sale-vancouver-mountain

[misher]

Originally Posted by whatnext

Here's a fun story from the Vancouver forum. While not residential real estate, it indicates the level of rot that has set into Vancouver property from offshore money.

Obviously you haven't read Onni's Yelp Reviews or seen how they have 20+ ongoing lawsuits against them:

his group is the De Cotiis clan and the only thing worse than how they steal from everyone is the terrible bad construction quality that approaches, and far exceeds, the illegal.

Drawings and building codes are meaningless to these crooks. I worked as a site superintendent for all of two weeks. I quit in pure disgust. EVERYBODY was getting ripped off. As a single example, a concrete slab was 'supposed' to be 6 inches thick ... it ended up being far less than 4 inches and rebar was sticking out in places. The De Cotiis pocketed over $ 120k in concrete that SHOULD HAVE been in that freakin slab. Total crooks, avoid as if your life depends on it, because it probably does.

Onni is Pinnacle, amicon, playdium and a few other Italian developers, They dont care about anyone just the bottom line. I know a few well and nobody cares, Their brand new buildings are poorly constructed and the waterproofing is done by the extremely cheap bidders. Id never buy a unit knowing it all would have to come up less than 10 years later at your expense. Youve been warned...

https://www.yelp.ca/biz/onni-group-vancouver

Everyone wants to make money and some are less scrupulous than others. You don't need to be foreign to be a —.

[misher]

A bit opposite than the "doom and gloom" scenario we like to paint Canadian real estate as.

The latest census data reveals the number of people living alone has doubled from 1.7 million in 1981 to four million in 2016.”

The ownership rate among singles has also increased to 50 percent, up from 32 percent in the ’80s, with one in five owners living in a condo apartment.

https://leaderpost.com/life/homes/downpa...wcm/fca8f25d-273a-44f2-8c8c-163e1f873382

[lio45]

Originally Posted by misher

I'm not sure how people get getting these million dollar mortgages unless their incomes are ridiculously high or they have assets to secure them.

Assets won't work. You can have millions in assets and won't get any loans if you don't have the reliable regular cash flow to still service those loans even after a safety factor gets applied.

I too am puzzled by how people manage to get such crazy mortgages.

[Innsertnamehere]

Originally Posted by lio45

Assets won't work. You can have millions in assets and won't get any loans if you don't have the reliable regular cash flow to still service those loans even after a safety factor gets applied.

I too am puzzled by how people manage to get such crazy mortgages.

To qualify for a $1,000,000 mortgage under the stress test you need a household income of about $200,000. That’s high but possible for two mid-late career full time professionals, especially in a large urban centre where most of those mortgages are.

Of course that’s for $1,000,000 “only”, which doesn’t buy you much these days. Most inner city homes that are respectable in Toronto go for at least $1,500,000 these days.

I imagine most people buying these are leveraging existing real estate assets and family money. Lots of people were leveraged going into the recently housing boom with several properties and are sitting on hundreds of thousands if not millions of “free” equity, which they can cash in and use to buy a large very expensive property for personal use.

That or people are living house poor as sh** and have second mortgages getting them higher approval rates. Or will be paying their mortgage into their 80’s.

[milomilo]

It would appear the government put in the stress test a bit too late, and I've heard that is now problematic for people. If they had put in this stress test before, house prices could not have reached their current levels, but now people have bought more than they should have but might be ok. However now they can't pass a stress test on their income to buy another house, so they can't move!

Better late than never with the stress test though.

[lio45]

Originally Posted by Innsertnamehere

I imagine most people buying these are leveraging existing real estate assets and family money. Lots of people were leveraged going into the recently housing boom with several properties and are sitting on hundreds of thousands if not millions of “free” equity, which they can cash in and use to buy a large very expensive property for personal use.

That's the thing though - you can't do that unless you have the cash flow to prove you can service that new mortgage.

I've been sitting on tons of equity for years now but I can't do anything with it* because my current unrealistically-paranoid-worst-case cash flow would need to be able to service the NEW debt WITHOUT considering what I'd use the capital for (which to me is just crazy). Banks are really too conservative for their own good, IMO.


*I did recently find a way to leverage some of it by giving liens to a good friend of mine who liquidated his entire real estate portfolio so he's sitting on a bunch of cash, which I used to fund a couple projects that would otherwise not have happened (if I only had to rely on banks). Stupid banks.

[misher]

Real estate is going to go crazy this spring unless we enter a recession. I think we can all see this. Its going to be a crazy time.

[cabotp]

Originally Posted by Innsertnamehere

To qualify for a $1,000,000 mortgage under the stress test you need a household income of about $200,000. That’s high but possible for two mid-late career full time professionals, especially in a large urban centre where most of those mortgages are.

Of course that’s for $1,000,000 “only”, which doesn’t buy you much these days. Most inner city homes that are respectable in Toronto go for at least $1,500,000 these days.

I imagine most people buying these are leveraging existing real estate assets and family money. Lots of people were leveraged going into the recently housing boom with several properties and are sitting on hundreds of thousands if not millions of “free” equity, which they can cash in and use to buy a large very expensive property for personal use.

That or people are living house poor as sh** and have second mortgages getting them higher approval rates. Or will be paying their mortgage into their 80’s.

If I had to take a wild guess. A lot of people are getting approved for the larger mortgages because they are renting out a secondary suite or a lane way house and creating a cash flow that way.

I recently went in to get pre approved to have rough idea what I might be able to afford. The one question they asked is will I be renting it out. Which made me realize they use the potential rental income as a source of income in your mortage approval.

While $1,000,000 may not get you very much in the City of Vancouver. It does get you a fairly decent house in one the the suburbs. Especially if you are willing to go out to Langley, or Maple Ridge and east.

[misher]

I feel that it needs to be pointed out that despite all the taxes and the stress test put in by the Liberals and NDP, housing in BC isn't any more affordable. All we've done is screw our luxury housing market so that we receive less tax revenue and economic benefit. I know to many thats what matters though, that we screw the rich. Not that those mansions were paying large tax dollars. I think this more than anything proves that you can't tax your way towards affordability. If we had taken a half billion dollars of the taxes we were getting and used that money towards affordable rentals besides transit, we would have done so much more to help the middle class in Vancouver. Cities have also lost billions of dollars (total) in development funding from development fees which has partially led to large rises in property taxes. The BC NDP is no where near its goal of 114,000 units of housing in 10 years having only completed 4300 in two years with 7700 in progress and 11000 in planning.

B.C.’s NDP government tamped down speculation in the housing market with a raft of new taxes during the first two years of its mandate.

Those measures have helped cut prices significantly on high-end houses. But the cost of condos and townhomes – the housing affordable to most people – has only dipped slightly, with the latest sales stats out of the Lower Mainland hinting that prices in that sector are once again on the rebound.

Meanwhile, renters in and around Vancouver, many of whom are priced out of ownership, paid an average of 4.7 per cent more on rent over the past year, which was almost double the maximum hike allowed by provincial rules that cover a landlord’s existing tenant.

The irony is that the slowing of sales activity last year led to a $475-million drop in expected revenue from the property-transfer tax, which hurts a treasury that has committed billions to increasing supply.

https://www.theglobeandmail.com/canada/b...ndp-aim-to-make-housing-more-affordable/

BC NDP improving affordability by making Vancouver less affordable.

[whatnext]

You'd be tempted to think this was the plot for the next Crazy Rich Asians movie, but no, it is an article from the South China Morning Post documenting yet another shady Vancouver real estate story. So bizarre, it is well worth reading the entire article:

The goddess: a Vancouver Valentine of love, lawsuits, mansions and millionaires
A Chinese tycoon gave Peipei Li US$13 million and bigamously wed her in Las Vegas; four weeks later, another man knelt before Li to promise love and a Ferrari
Li is now involved in a mountain of litigation with the men, but she says one tricked her into an illegal marriage and the other was a — harasser
Ian Young in Vancouver
Published: 5:30am, 14 Feb, 2020

Peipei Li was born, appropriately enough, on Valentine’s Day.
And Luhua Rao told her he loved her just days after they met in Vancouver.
Within a few months the Chinese tech tycoon was wearing an ill-fitting suit and marrying Li in a Las Vegas casino chapel, having already handed over a Tiffany diamond ring and C$17.65 million (US$13.25 million).
Never mind that he already had a wife and family in China.

Then, less than a month after the April 2016 Vegas wedding, lawyer Dongdong Huang knelt down in front of Li in a crowded Vancouver restaurant. He declared his devotion to the woman he called a goddess – by promising to buy her a Ferrari.

The white-haired advocate hoped the flamboyant vow would take his relationship with Li to a “new level”. He says he showered her and her family with gifts and cash worth about C$1.4 million, depleting most of his life’s savings...

...Court documents in a mountain of litigation involving Li depict extraordinary scenes from the courtship rituals of Vancouver’s moneyed Chinese community, against a backdrop of the city’s high-stakes real estate investment scene.

Although the financial dispute between Li and Rao remains unresolved, Li has won a series of prominent Canadian court judgments against him, with millions on the line.

But court documents obtained by the South China Morning Post now show Huang claiming he too believed he was in a romantic relationship with Li at the same time as Rao that cost him a seven-figure sum.

The documents in Huang’s case were only recently unsealed after a request by his estranged wife.

After the two lovestruck men pledged fortunes to Li and the company she set up, she shopped for Vancouver mansions worth millions of dollars, set up a real estate investment office in a downtown skyscraper and bought a Rolls-Royce Ghost costing almost C$500,000...

...Nine days later, Rao signed an agreement to transfer C$20 million to the company in exchange for 50 per cent of its shares, Li owning the other half, documents show. Li contributed C$1,000 to the enterprise, and was its sole director.

Li’s decision to settle on real estate for the business venture was hardly surprising. At the start of her romance with Rao, Vancouver was experiencing a spectacular property boom, with detached house prices up by about 50 per cent in the previous two years, fuelled by a flood of Chinese capital as the country’s rich sought safe havens around the world.

Li had had a front-row seat to the easy fortunes being made, and SunCom was involved in some of the wildest speculative deals of the time. In one set of transactions, a consortium organised by SunCom paid C$60 million for a downtown site valued at just C$16 million – before flipping it to a Chinese investor a month later for C$68 million...

https://www.scmp.com/news/china/soci...s-mansions-and