Real Estate

Vancouver housing bubble?

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  • Mar 26th, 2024 5:10 pm
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Member
Sep 15, 2011
213 posts
45 upvotes
What I don't understand is the mind set that these rates will stay the same for the next 10, 15 or even 25 years when these mortgages would mature and be paid off. Very few are making the kind of salary to be able to afford 1 million dollar mortgages if interest rates were to go above 5% or more.
Deal Addict
Jun 11, 2005
2823 posts
459 upvotes
JustAPilot wrote: What I don't understand is the mind set that these rates will stay the same for the next 10, 15 or even 25 years when these mortgages would mature and be paid off. Very few are making the kind of salary to be able to afford 1 million dollar mortgages if interest rates were to go above 5% or more.
Everyone is entitled to a view on interest rates.

FWIW, interest rates staying the same is not a completely unfounded view. The 2008/09 financial crisis has resulted in uneven growth across many parts of the world, and it would be very difficult to get synchronized growth that can result in interest rate increases on a uniform basis. In addition, the US is the only country where a major economic powerhouse is in a position to raise rates, and a high USD is deflationary for many parts of the world.

Something like US$12 trillion of government bonds are now yielding negative rates, and we are truly in unprecedented times. Interest rates, currently, seem to be heading lower rather than higher.
Deal Expert
Jan 27, 2006
21844 posts
15620 upvotes
Vancouver, BC
JustAPilot wrote: What I don't understand is the mind set that these rates will stay the same for the next 10, 15 or even 25 years when these mortgages would mature and be paid off. Very few are making the kind of salary to be able to afford 1 million dollar mortgages if interest rates were to go above 5% or more.
Forget about interest rate moves... even if the interest rate stays the same and the 'normal' calculations of how much 'house' you can afford stays in place, very few of us (considering the average household income is just under $50,000 per year and the vast majority earn under $100,000) can afford a million dollar mortgage for any long length of time.
Newbie
Oct 24, 2013
17 posts
1 upvote
East York, ON
JustAPilot wrote: What I don't understand is the mind set that these rates will stay the same for the next 10, 15 or even 25 years when these mortgages would mature and be paid off. Very few are making the kind of salary to be able to afford 1 million dollar mortgages if interest rates were to go above 5% or more.
You're neglecting inflation. When rates go up to 5% inflation will be higher, and the CAD will lose value at a faster pace. So 1 million dollars won't be as much. In addition to this when people negotiate their renewal they can extend the amortization period. They will also have less than 1 million to pay off, since they would have bought 5 years prior and at the current rate of housing price increase they would probably have quite a bit of equity in the house.

That's not to say it can't crash. But, in our current environment (high inflation with low interest rates; government telling us inflation is low and trying to create more) buying hard assets is not a bad idea (historically). It's currently just as likely that the money will be worth nothing in 5 years, as it is that the house will be worth 50% less. The only hiccup currently is wages, but since Canada has 70% home ownership it would stand to reason that this will only impact 30% of the population. We will need to give them free money from the government to make everything balance, but the home owners will still come out ahead, so it's okay.

Right now we need deficit spending and tax reductions to keep the game going and make sure Canada comes out ahead at the end of all this. When your house gets too expensive I would suggest borrowing against it and diversifying (buy land somewhere else, some gold/silver, some equities, and hold some cash). Wealth transfer coming up. Then once we've all bought a house or two or three, let the immigration start back up and we can rent to the new Canadians and let them go to work lol.
Banned
User avatar
May 15, 2016
7020 posts
2490 upvotes
What's the housing market like in Edmonton? I want to move to Victoria but my bf wants to stay. :/
Deal Addict
User avatar
Aug 7, 2007
4795 posts
3847 upvotes
GTA
noodles wrote: 15% Property Transfer Tax for foreign buyers.

http://www.cbc.ca/news/canada/british-c ... -1.3694167
On one side, that's great that they are finally trying to cool down the amount of foreign money coming in now.
On the other side, will this stop the Chinese or will this drive home prices even higher?

Also, will they now be looking at other locations now? Toronto could be next.
Deal Addict
Nov 26, 2005
3214 posts
387 upvotes
Vancouver
ADRiiAN` wrote: On one side, that's great that they are finally trying to cool down the amount of foreign money coming in now.
On the other side, will this stop the Chinese or will this drive home prices even higher?

Also, will they now be looking at other locations now? Toronto could be next.
most likely the main flow will go to toronto, some flow to victoria. extra 15% tax does add more risk to buy new higher end properties in matro vancouver for foreigner.

from now until it becoming effective next week, buyers will rush to buy, sellers will rush to sell...
Deal Fanatic
User avatar
Mar 20, 2009
8862 posts
2693 upvotes
Vancouver
And I'm sure there won't be any fraudulent activity like using proxy buyers to avoid the 15% tax... :rolleyes:

The government solution to everything: let's add another tax!
Deal Guru
Feb 9, 2009
12381 posts
11307 upvotes
JamesA1 wrote: And I'm sure there won't be any fraudulent activity like using proxy buyers to avoid the 15% tax... :rolleyes:

The government solution to everything: let's add another tax!
This is a tax that justifiable... foreigners who want to park their cash here need to pay a premium.

Im sure Toronto will introduce one soon... they almost have too since some of that money may come here.
Deal Expert
Jan 27, 2006
21844 posts
15620 upvotes
Vancouver, BC
JamesA1 wrote: And I'm sure there won't be any fraudulent activity like using proxy buyers to avoid the 15% tax... :rolleyes:

The government solution to everything: let's add another tax!
Arguably, they are using proxy buyers now but generally not to avoid our taxes but to avoid their local laws (like the Chinese one on outflows of funds)!

At the end of the day according to the current process (which probably doesn't account for foreign proxy buyers), 7% of the purchases are foreign for that 3 weeks in June - I suspect that it's higher but let's use that number for argument sakes. What that number doesn't show is how many transactions were affected by foreign buyers - ie. the ones that they were the loosing bidder on but the local buyer was forced to pay more. I suspect that even if the 7% number is completely accurate, the number of transactions affected is a much larger number! How much larger we don't know but I would not be surprised if it's in the 20 to 30% range.
Deal Expert
Jan 27, 2006
21844 posts
15620 upvotes
Vancouver, BC
Sanyo wrote: This is a tax that justifiable... foreigners who want to park their cash here need to pay a premium.

Im sure Toronto will introduce one soon... they almost have too since some of that money may come here.
Ontario will probably introduce one but not necessarily to slow the transfers down but as another source of income!
Deal Addict
User avatar
Dec 14, 2007
3105 posts
1530 upvotes
The most important thing is perception. If people PERCEIVE that foreigners aren't buying houses with gusto, then they won't be able to justify the prices...

Remember, the REAL number of foreigners buying regular joe properties in Coquitlam, East Van, and Surrey is very small. The PERCEPTION is that China's buying up everything. The reality is that they're not.

If perception is altered, the locals ( who are the REAL people responsible for the run-up ) will stop bidding and start waiting. Sellers who need to sell will be faced with a glut in the market.

If 95% of the market is local, how do we allow 5% to control the price?

In a place recently sold by someone I know, there was 1 born-in-Canada Chinese family ( I'm sure the neighbours thought they were from Beijing, though )
In a relative's house, they sold the place to a White Single guy. A trucker.

It's all about perception, and ANY chance people get to point the blame outward instead of inward, they will take it.
Deal Addict
Nov 26, 2005
3214 posts
387 upvotes
Vancouver
atomiton wrote:
If 95% of the market is local, how do we allow 5% to control the price?
best guess is that housing is just like oil price very elastic in economist term. A small % deficit of oil supply-demand balance push it up to $150 from $50 and a 3% supply surplus crash price to 1/3 from peak.

5% in RE may seem low, but could be big if it is very elastic. Plus bidding war generates snowball effect on psychology of buyers.
Deal Expert
Oct 7, 2010
15536 posts
5790 upvotes
JamesA1 wrote: And I'm sure there won't be any fraudulent activity like using proxy buyers to avoid the 15% tax... :rolleyes:

The government solution to everything: let's add another tax!
Just as well add another 5% on top of the 15% to pay for investigators to find the proxies.
Member
Mar 9, 2009
448 posts
189 upvotes
Toronto
For those saying just use proxies. The CRA is going to tear them a new *******. "So can you please explain again, how on a $60,000 income you bought a $4,000,000 house in cash?". It's game over, everyone knows it, the ones who don't are in denial. Liberals have their eyes on the upcoming election, and came out swinging today.

There is going to be so much pain when this house of cards comes crashing down.
Deal Addict
Aug 31, 2014
1505 posts
564 upvotes
YVR, BC
atomiton wrote: The most important thing is perception. If people PERCEIVE that foreigners aren't buying houses with gusto, then they won't be able to justify the prices...

Remember, the REAL number of foreigners buying regular joe properties in Coquitlam, East Van, and Surrey is very small. The PERCEPTION is that China's buying up everything. The reality is that they're not.

If perception is altered, the locals ( who are the REAL people responsible for the run-up ) will stop bidding and start waiting. Sellers who need to sell will be faced with a glut in the market.

If 95% of the market is local, how do we allow 5% to control the price?

In a place recently sold by someone I know, there was 1 born-in-Canada Chinese family ( I'm sure the neighbours thought they were from Beijing, though )
In a relative's house, they sold the place to a White Single guy. A trucker.

It's all about perception, and ANY chance people get to point the blame outward instead of inward, they will take it.
yeah no - the latest numbers had foreign money at 1 billion in 1 month and 86% in the Metro Vancouver area......just a few months ago there was no problem and everyone was racist?

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