*VANCOUVER BUBBLE* The road to a 50% housing crash (w/ monthly stats)

[danibelo]

I found another aspect of the problem here:
http://worthwhile.typepad.com/worthw...-mortgage.html
'What has happened in Canada over the past 30 or 40 years is that families have been able to increase their income by having more earners... female labour force participation is driven, in part, by the need to pay the mortgage. But now that the majority of women in the home-buying age bracket are in paid employment, there isn't a lot of room for further growth along these lines.'
One additional pillar, supporting the unrealistically high growth of RE prices, falls apart.

[JK400]

This thread is sinking into the archives. I would like to nominate this thread to be permanently stickied to the top of the personal finance forum here, considering the amount of time Adam has invested to bring us the info, the pledges he has made to keep updating us with monthly (and even daily) stats, the nature of the thread, quality of the information etc.

How do I nominate this thread for a sticky? Also I encourage others to nominate it as well. Great thread here.

[SuSHi]

5,583,064 = Greater Toronto (http://en.wikipedia.org/wiki/Greater_Toronto_Area)
5,285,242 = Madrid Metropolitan Area (http://en.wikipedia.org/wiki/Madrid_metropolitan_area)
2,313,328 = Metro Vancouver (http://en.wikipedia.org/wiki/Metro_Vancouver)
1,801,040 = Greater Dublin (http://en.wikipedia.org/wiki/Greater_Dublin_Area)

was referring to the city specifically, when we get into greater and metro areas the lines get very fuzzy

Population (2011 Census)[1]
• City 603,502 (8th)
• Density 5,249/km2 (13,590/sq mi)
• Metro 2,313,328 (3rd)
• Demonym Vancouverite

[adamtheman]

This thread is sinking into the archives. I would like to nominate this thread to be permanently stickied to the top of the personal finance forum here, considering the amount of time Adam has invested to bring us the info, the pledges he has made to keep updating us with monthly (and even daily) stats, the nature of the thread, quality of the information etc.

How do I nominate this thread for a sticky? Also I encourage others to nominate it as well. Great thread here.

hey jk400. No worries about this thread sinking into the archives. Just busy this past weekend and it was a long weekend in BC (Monday was a stat). No need to make this a sticky, I'll be posting here steadily for the next several years or so... gotta chronicle the "Great Vancouver Housing Crash" for future generations!

[adamtheman]

was referring to the city specifically, when we get into greater and metro areas the lines get very fuzzy

Well the stats in here are for the Metro Vancouver area (minus Surrey/Langley). So maybe around 1.6-1.7 million people. That's the area that the REBGV covers. And the entire thing is in one huge bubble...

[adamtheman]

Garth Turner coming to Vancouver on August 20th. He is sold out though! Looks like over 1,000 people signed up to see him... guess he is a popular guy. Here part of his latest blog entry, which continues to beat up condos in Toronto: http://www.greaterfool.ca/

So we have more texture on the devastating Toronto condo sales numbers the world first read about here a week ago. As I told you, deals for new units have plunged 50%. There are now 18,123 unsold, newly-built condos with never-peed-in designer washrooms sitting vacant. Several high profile projects have been shelved, but the orgy of building continues as witnessed by the latest building permit stats.

This means the landing will be rock hard. “We have hit the peak and we are on the down side of the roller coaster,” says the president of property tracking company Urbanation. You bet. Hang on. There are 196 condo projects currently in play, containing just under 53,000 units. And despite this obvious oversupply rushing to market, prices have yet to cave in any significant way.

What does this mean? An even harder landing. Builders have created product so expensive (averaging $600 a foot downtown) that investors can never rent out condos and have positive cash flow. Therefore the only possible reason to buy is a good chance at capital appreciation. And now that, too, is off the table.

Just a year ago speckers were still able to count on price gains of up to 20% from pre-sale to the moment they flipped the assignment. In contrast, prices have fallen about 11% since the winter, with more to come. Much, much more.

As bank economist Derek Holt was saying this week, “This is the market going through a correction that I think is needed to hopefully avoid what would have been an even worse outcome.” But he’s a banker. He’s paid to be a dweeb. (In fairness, Derek is one of the better ones, and I always enjoyed visiting his spotless, sad little cubicle.)

Let’s also point out that none of the stats we are hearing from the Toronto condo crash-landing or the VanCity melt reflect the recent effort of F and the federal peckerettes. It’s been less than a month since the 30-year amortization was offed, and typically it takes five times that long for mortgage changes to show up in sales numbers. Yet to come is the demise of the cash-back mortgage, depriving all those horny little couples with no money the ability to buy a condo with nothing down. And coming by Thanksgiving will be more restrictions on both borrowers and appraisals.

Meanwhile, what’s happening out in the world of financial assets (since realtors always like to scare people into buying houses by whispering the word ‘stocks’)? Well, the S&P index is flirting with a five-year high. Over 70% of all companies reporting profits have just trumped analysts’ expectations. The European Central Bank is going all Rambo, doing ‘whatever it takes’ to rescue the Euro. Nobody sane now expects the US to enter recession. Bond prices are starting to thaw and yields swell. Gold’s dead.

How obvious does this have to be? Over the next five years residential real estate will be a horrible investment choice. Expect falling capital values, elusive cash flow, rising property taxes and negative sentiment. In contrast, financial assets are filled with potential, based on sustained earnings, record heaps of corporate cash ($256 billion in Canada alone), rising dividends, protracted US growth, slapped-around Europeans and a torrent of money coming out of cash and houses and into markets when all this becomes obvious.

This is spot on, and anyone thinking of purchasing a home in Vancouver or Toronto right now would be well advised to listen to him. As he mentions, we have yet to see the effects of the fed's actions really come into play. This will be a very cold winter for real estate. The market sentiment has changed significantly and nobody is talking about hot real estate anymore. It will take a spark to reignite the Vancouver market just like it did in 2008, but this time Vancouver is all out of matches.

[GonePostal]

Garth Turner coming to Vancouver on August 20th. He is sold out though! Looks like over 1,000 people signed up to see him... guess he is a popular guy. Here part of his latest blog entry, which continues to beat up condos in Toronto: http://www.greaterfool.ca/



This is spot on, and anyone thinking of purchasing a home in Vancouver or Toronto right now would be well advised to listen to him. As he mentions, we have yet to see the effects of the fed's actions really come into play. This will be a very cold winter for real estate. The market sentiment has changed significantly and nobody is talking about hot real estate anymore. It will take a spark to reignite the Vancouver market just like it did in 2008, but this time Vancouver is all out of matches.

So in 6 years real estate will be a good investment? Garth Turner is nothing but a shill. It's funny that his blog is called the greater fool as most of followers don't realize they are the fools. They are the ones that are paying his bills and making him rich.

[JK400]

hey jk400. No worries about this thread sinking into the archives. Just busy this past weekend and it was a long weekend in BC (Monday was a stat). No need to make this a sticky, I'll be posting here steadily for the next several years or so... gotta chronicle the "Great Vancouver Housing Crash" for future generations!

Thanks, that's pretty reassuring. It makes me sick seeing so many people these days who don't think about the welfare of the younger generations. Glad to see we still have some humanitarians out there, keep up the great work.

[adamtheman]

So in 6 years real estate will be a good investment? Garth Turner is nothing but a shill. It's funny that his blog is called the greater fool as most of followers don't realize they are the fools. They are the ones that are paying his bills and making him rich.

If Garth Turner is a shill for holding a free seminar, then what does that make the folks at REIN, who hold paid seminars? And if Garth Turner's followers are fools, then what does that make you for following the folks at REIN?

[adamtheman]

This was on the globe and mail today. It is making the rounds pretty quick, lots of comments:

Canadian house prices to slip, then likely stagnate for years

15% price drops? No growth? Higher interest rates? Possible 8 to 9 year recovery? Demand is exhausted? Risks of home ownership increasing?

Not good news for the Canadian housing market.

House prices to stagnate
Economists are arriving at something of a consensus where Canada's housing market is concerned, projecting a drop in prices of 10 per cent to 15 per cent over the next few years, and notably in Toronto and Vancouver.

And while they're not expecting a U.S.-style meltdown, they are warning about the risks to the real estate market. And going forward, the market will largely stagnate.

"Even beyond mid-decade, Canada’s housing sector faces the likelihood of a prolonged period of relatively modest sales and price gains," economists Aron Gampel, Adrienne Warren and Mary Webb of Bank of Nova Scotia said today.

"Historically, long cycles of rising home prices have been followed by extended periods of persistent softness, allowing affordability to be gradually restored and generating renewed pent-up demand," they said in a new report.

"The downturns that followed Canada’s major housing booms of the 1970s and 1980s - defined by having flat or negative real price growth - lasted eight and nine years, respectively."

The Scotiabank economists project a cumulative 10-per-cent drop in house prices over the next two to three years. Toronto-Dominion Bank, in turn, forecast recently that average prices will likely slip by between 10 per cent to 15 per cent over the next two years.

The federal government, of course, has moved several times to cool things down, most recently last month.

And already, Toronto's condo market has started to cool, while Vancouver's overheated market is also slowing.

Separately, Central 1 Credit Union said today it believes that Vancouver prices will decline modestly. Across British Columbia, prices will slip and then rise "slightly" in 2013 and 2014, it forecast.

"Unless there is another recession with large scale job losses in the province, which we do not expect, house prices will temporarily decline by about 5 per cent," said Central 1 economist Bryan Yu.

Looking forward where the national market is concerned, demand is now "effectively exhausted" after the long real estate boom, the Scotiabank economists said, and home ownership levels are now at a record.

"Canada’s housing market is expected to avoid the sharp downturn witnessed in the United States and Europe," they said.

"However, the downside risks to domestic housing activity are increasing. The full impact of the slowdown may not become fully visible until mid-decade. Affordability will be increasingly strained for existing and potential homeowners when mortgage rates eventually drift up. Historically low interest rates are currently maintaining affordability in the face of record home prices and rising home operating costs."

[Mark77]

This was on the globe and mail today. It is making the rounds pretty quick, lots of comments:

Canadian house prices to slip, then likely stagnate for years

15% price drops? No growth? Higher interest rates? Possible 8 to 9 year recovery? Demand is exhausted? Risks of home ownership increasing?

Only a 15% drop? Sounds delusional. Like the folks who bought Nortel at $100, thinking that it could 'only' drop to maybe $85 despite massive overcapacity developing in the industry and the demand side falling apart.

That BC Credit Union economist is kind of hilarious; only a 5% drop? What's he smoking? Mark77 thinks that BC's credit unions in particular are swimming rather naked, with lower use of CMHC insurance than the federally chartered banks. They also can't be shorted, so there's no market-based price discovery, and lots of stupid little old ladies put serious amounts of cash into credit unions.

[adamtheman]

I went through the always entertaining and sometimes insightful comments on the above Globe and Mail article, and filtered out some of the better comments to share with everyone:

(My favorite comment)
It's very simple, people. The same forces that bid up the market (demographic life-cycle psychographic behavioural patterns in the market) are now conspiring to let the air out of an over-bought housing market.

The Baby Boomer cohort is the single largest demographic cohort in recorded human history. This is the same cohort that also bid up the market value of stocks like Chrysler (the 'Mini Van' in 1984 which carried their kids to and from soccer and hockey games), McDonalds and Disney (where they took their kids) and Sears, Home Depot, and Canadian Tire (where they shopped to fill their homes).

Unfortunately, the Baby Boomers are now set to retire (by 2018 the number of people over the age of 65 will more than double - that's never happened in recorded history). They are all looking to get out of their over-sized, two storey houses (no one wants to climb stairs with a bad hip) and into condos (hence the concurrent problem in the condo market), rental properties, or (for the affluent) make their lake retreat their principal residence.

The Gen Xers (those born after the Baby Boomers) and Gen Y's (born from the late 70s to early 2000s) are either laden with high debt levels (from their mass consumerism, divorce, child support, student debt etc) or are under-employed, and therefore (yes, even during this unprecedented low interest rate environment) are not in a position to buy the over-supply of houses currently and about to hit the market.

In short, its what Economists call the 'Law of Supply and Demand' - too many sellers at once and too few buyers translates into a reduction in average price.

If even the real estate economist folks "are arriving at something of a concensus where Canada's overall housing market is concerned, projecting a drop in prices of 10 per cent to 15 per cent over the next few years"...

... then yikes...

... you can probably count on a drop of well over 25 percent in places like Toronto's condominium glut-fest and Vancouver's multimillion-dollar tiny-bungalow jungle.

What were people thinking? Were they thinking that Canadian cities are so-o-o-o special that a big downturn cannot happen here?

My prediction is that it will soon be a worse challenge for dog-walkers out there, what with all the tangling of leashes in real estate "for sale" signs plastered up and down the streets by scared, herd-menatality sellers ...

I would disagree. Canadians are tapped out, absolutely buried under a mountain of debt. The 30% of TAKE HOME pay that financial managers and economists have forever recommended as the maximum you should spend on all housing expenses inclusive of mortgage, taxes, utilities, and upkeep is now but a distant memory. Canadians aren't saving anymore, aren't putting anything toward retirement, and aren't investing in the overall economy. This is a disastrous situation. Unless Canada wants to be a society where the vast majority of people either can't afford to buy their own or enslave themselves to never ending debt, a correction must happen.

The fact of the matter is that because Canadians are so close to the edge financially, most now reporting that if even one paycheque was delayed by even a week, they would encounter serious financial difficulty, the average buyer is but one personal or economic shakeup from catastrophe. This was the case in the states, and when the house of cards got bumped, it all came tumbling down. In Canada, the average citizen is in greater debt than the US buyer before that crash, has less take home pay, pays higher taxes, and has a higher home purchase price. How something so fragile could refrain from shattering, I don't know.

A real-estate market down-turn or long stagnation was clearly to be expected. This is a no-brainer.

The risk is that if people need to sell in the next few years, they may not be able to do so without dropping their asking prices significantly. It could get ugly if the job market tanks and many people are forced to sell because they can't afford their mortgage payments.

"Canadian house prices to slip, then likely stagnate for years"

Nonsense. Once they start to slip, the maggot speculators will head for the exit and prices will crash, just like in the US. Expect there to be lots of bad debt from this. We'll then have to bail out the banks.

There are a lot of speculators holding corps with more debt than the book value of their "assets". They have obviously used the appreciation to borrow and cover their bets and take their profits in advance. These corps will be useless shells when the price of houses drops by at least half - to rates that at least 30% of Canadians can really afford.

Don't forget that in the past 40 years, housing prices have increased 30 to 40 fold in Canada while incomes have increased about 6 fold - and stagnated in real terms.

This is why the wealthy no longer invest anymore and only speculate.

So in other words - this has happened before!! OMG, why didn't we know that!!!

Well we did (except for reporters because everything apparently is news to them). Anyone who has owned a house for 25 to 30 years know these cycles and it is only fools who see their home as an asset!

I've only owned homes for 30 years and the market is always changing - 10 years ago it was flat as a pancake, but in the last 5 years it has been hot, hot, hot!! But that didn't mean I went out and used my home as an ATM!

The reality is that, just as in the U.S., about 30% of Canada's economy is connected to the housing sector. Unlike cars, clothes, or electronics, houses don't wear out--unless the population is constantly (and unsustainably) increases, usually via mass immigration, the market is eventually saturated. And developers and mostly foreign (Chinese, etc.) investors have build far too many condos and other high-density properties, often with the connivance of Urbanist local politicians. These are not popular with actual residents. This has resulted in such a glut of high-density inventory that condo vacancy rates run 50%, or higher in many complexes.

The Federal Government axed the Investor visas, which was a positive first step. But Provincial and local governments have to reign in the real estate and development sector, which has become a financially and environmentally unsustainable monster, jeopardizing the economy and decimating productive agricultural land with urban sprawl.

[PF4RedFlag]

If Garth Turner is a shill for holding a free seminar, then what does that make the folks at REIN, who hold paid seminars? And if Garth Turner's followers are fools, then what does that make you for following the folks at REIN?

Well he actually might be one since he fails to explain why the stock market is more reliable than the housing market
I asked him to explain what happened to the markets to make him believe that stocks are good invesment.
He just replied saying that the stocks appreciated constantly for the last 5 years
So did the houses, what was his point???

However if the problems that the economies around the world are not structural but functional I can't see why they could not be fixed later
And if they have been fixed recently (Europe's plan to get out the mess: printing money probably) then something is wrong here.
My impression (just common sense) is that they are (again) avoiding or postponing to deal with the problems.

So yeah, trying to sell you financial investments of any sort (if you have the money) is as wrong as buying a house right now.
In relation to Stocks or Houses the money is appreciating actually (my opinion)
Euro will probably depreciate (inflation by printing money) so that works for the saver in other currencies too.

[Motoss]

Ha ha....

Metro home prices will slip, not plunge: Central 1 Credit Union


http://www.vancouversun.com/business...#ixzz230nohrqa

[GonePostal]

If Garth Turner is a shill for holding a free seminar, then what does that make the folks at REIN, who hold paid seminars? And if Garth Turner's followers are fools, then what does that make you for following the folks at REIN?

Perfect example of why Garth's followers are the ones getting fleeced. He holds "free seminars" while he hocks his wares. He makes his main source of income via selling content to his followers.

REIN on the other hand is a for pay membership. They make money on the membership dues and that is fully disclosed up front. Also they will never sell you a piece of real estate or any investment in general. Don't like the idea for paying for a membership? Don't have to pay and dont' have to join.

Just think to yourself for a second, why is he holding a "free" seminar? Definitely not out of the goodness of his heart. To me providing something "free" only to us it as a vehicles for sales is less desirable then to ask people to pay upfront. Most questionable seminars are free:

- time shares
- investment schemes
- real estate investments

It's not that I even necessarily disagree with Garth Turner's view points. It's just that most of the garbage he spews is calculated and has ulterior motives.