Real Estate

Vancouver housing bubble?

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Deal Addict
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fisher44 wrote:
May 26th, 2016 3:36 pm
i haven't been to vancouver in over a year, but i'm curious if anti-immigrant/foreigner sentiment is on the rise?
Overall, I would say it's down from a decade or two ago.

Who else is buying a dozen macaroons in downtown for $50?
One quarter of Tesla Model S sales in Canada are from Vancouver.
Trades, apprentice, and tech grads from BCIT can tell you immediately where their source of growth is coming from.

Most of the negative sentiment comes from people who haven't adapted to the real estate-driven economy or haven't found a way to take advantage of the associated opportunities.
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cartfan123 wrote:
May 27th, 2016 7:19 am
Well they are taking the brunt of the blame for skyrocketing prices. But those same people who are blaming them don't want to put the blame where it squarely should lie - low interest rates and easy credit. That's because they want the low rates so they can buy a house themselves or like the interest savings they are currently benefiting themselves from.


If it was a few years ago, then I would agree. But if you look at the simple economics of how large of a mortgage someone can afford and how much a house cost, then you'll soon realize that your statement no longer applies.

Example -

The average selling price for a detached single family home in Vancouver is 1.8 million dollars. Given that a buyer will need at least a 10% down payment for the home, they will need $180,000 of after tax dollars and a $1,620,000 mortgage.
Using BMO's mortgage calculator (default settings) - 5 year term, Monthly payments, and 2.5% - means that the buyer would have a $7,248.99 monthly payment or $86,987.88 annually of after tax income.
Using BMO's affordability calculator, a buyer would need $350,000 of annual income to be able to afford the mortgage! That doesn't include any taxes, fees, maintenance cost for the home either.
Now if you look at the average family income is $50,000 per year, the affordability isn't there even with cheap rates and easy money. Even if you move up the salary scale to urban professionals earning $200,000 per family (4x the national average), the buyer can't afford it.

cartfan123 wrote:
May 27th, 2016 7:19 am
In Ontario for example Asian money doesn't explain why cities well out of the GTA are experiencing bidding wars.
It's the knock-on effect - many of the people who sold their home in the GTA are moving out of the GTA and pocketing the extra money. Or the people who can't afford a property in the GTA and can commute or work remotely are moving further out there.
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craftsman wrote:
May 27th, 2016 1:41 pm
If it was a few years ago, then I would agree. But if you look at the simple economics of how large of a mortgage someone can afford and how much a house cost, then you'll soon realize that your statement no longer applies.

Example -

The average selling price for a detached single family home in Vancouver is 1.8 million dollars. Given that a buyer will need at least a 10% down payment for the home, they will need $180,000 of after tax dollars and a $1,620,000 mortgage.
Using BMO's mortgage calculator (default settings) - 5 year term, Monthly payments, and 2.5% - means that the buyer would have a $7,248.99 monthly payment or $86,987.88 annually of after tax income.
Using BMO's affordability calculator, a buyer would need $350,000 of annual income to be able to afford the mortgage! That doesn't include any taxes, fees, maintenance cost for the home either.
Now if you look at the average family income is $50,000 per year, the affordability isn't there even with cheap rates and easy money. Even if you move up the salary scale to urban professionals earning $200,000 per family (4x the national average), the buyer can't afford it.




It's the knock-on effect - many of the people who sold their home in the GTA are moving out of the GTA and pocketing the extra money. Or the people who can't afford a property in the GTA and can commute or work remotely are moving further out there.
I go back to low rates. If many Chinese, US or Canadian investors could buy a US GIC or a t-Bill paying 5-6% a year risk free in the worlds reserve currency we would not being seeing this insanity, those instruments would be returning enough yield that it would not be flowing elsewhere. There's just so little investable opportunities that are seen as low risk that ones that are seen as low risk (in this case GVR and GTA real estate) that the bubble is being blown sky high. I'm in the same boat and bought two borderline GTA rental properties last year as the yields on 5 year GICs had just fallen too low to generate any real return. With the rental properties I'm generating just enough real return that I'm ok with it...mind you these aren't passive investments...there's work to do on rentals vs GICs.

If Asians flush with cash saw other investable opportunities they'd go there. But the global policies of NIRP and ZIRP are causing this. Canadians have a brutally myopic view of the causes and think it's just simply them pesky Asians pushing up GVR and GTA. When NIRP and ZIRP are causing RE bubbles across the developed world. The end game isn't pretty...but there hasn't been one govt willing to normalize rates to be congruent with proper risk premium setting. I think you are looking at the effect instead of studying the cause.
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craftsman wrote:
May 27th, 2016 1:41 pm
If it was a few years ago, then I would agree. But if you look at the simple economics of how large of a mortgage someone can afford and how much a house cost, then you'll soon realize that your statement no longer applies.

Example -

The average selling price for a detached single family home in Vancouver is 1.8 million dollars. Given that a buyer will need at least a 10% down payment for the home, they will need $180,000 of after tax dollars and a $1,620,000 mortgage.
Using BMO's mortgage calculator (default settings) - 5 year term, Monthly payments, and 2.5% - means that the buyer would have a $7,248.99 monthly payment or $86,987.88 annually of after tax income.
Using BMO's affordability calculator, a buyer would need $350,000 of annual income to be able to afford the mortgage! That doesn't include any taxes, fees, maintenance cost for the home either.
Now if you look at the average family income is $50,000 per year, the affordability isn't there even with cheap rates and easy money. Even if you move up the salary scale to urban professionals earning $200,000 per family (4x the national average), the buyer can't afford it.




It's the knock-on effect - many of the people who sold their home in the GTA are moving out of the GTA and pocketing the extra money. Or the people who can't afford a property in the GTA and can commute or work remotely are moving further out there.
I think the down payment requirement is at least 20% once the price is beyond $1M, unless you go with a subprime lender.

In any event, we cannot point to any one single factor. it is a combination of all the usually mentioned things, foreign $, interest rates, etc.
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cartfan123 wrote:
May 27th, 2016 3:09 pm
I go back to low rates. If many Chinese, US or Canadian investors could buy a US GIC or a t-Bill paying 5-6% a year risk free in the worlds reserve currency we would not being seeing this insanity, those instruments would be returning enough yield that it would not be flowing elsewhere. There's just so little investable opportunities that are seen as low risk that ones that are seen as low risk (in this case GVR and GTA real estate) that the bubble is being blown sky high. I'm in the same boat and bought two borderline GTA rental properties last year as the yields on 5 year GICs had just fallen too low to generate any real return. With the rental properties I'm generating just enough real return that I'm ok with it...mind you these aren't passive investments...there's work to do on rentals vs GICs.

If Asians flush with cash saw other investable opportunities they'd go there. But the global policies of NIRP and ZIRP are causing this. Canadians have a brutally myopic view of the causes and think it's just simply them pesky Asians pushing up GVR and GTA. When NIRP and ZIRP are causing RE bubbles across the developed world. The end game isn't pretty...but there hasn't been one govt willing to normalize rates to be congruent with proper risk premium setting. I think you are looking at the effect instead of studying the cause.
Low interest rates have less to do with it than you think.

If you look at the year over year returns in the real estate market in the past 4 years (forget about the long term stuff), the returns amount to anywhere from 15% to 25% per year (based on the average selling price of a single detached home). At that level of return, it wouldn't matter if T-bills or GICs were paying 7% - 8% returns as most view real estate (and mistakenly so) as a relatively safe investment. The rates of return are just too high for people to look else where at this point in time. Heck, some houses are left vacant in Vancouver (not rented out) because it's not worth the trouble for a few extra percent when it comes to sales.

As for money being mobile, absolutely - that's how it got here! Will it move at the first sign of trouble? Yes.
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mudd_stuffin wrote:
May 27th, 2016 6:49 pm
I think the down payment requirement is at least 20% once the price is beyond $1M, unless you go with a subprime lender.

In any event, we cannot point to any one single factor. it is a combination of all the usually mentioned things, foreign $, interest rates, etc.
10% or 20% won't make much of a difference in the marketplace these days especially in Vancouver if you consider how much it would take for someone to even service the mortgage. But to modify the example above, a $360,000 down payment would require a monthly payment of $6,443.54 per month or an annual payment of $77,322.48 in after tax dollars. A buyer would need a household income of just $300,000 per year...
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craftsman wrote:
May 27th, 2016 7:18 pm
10% or 20% won't make much of a difference in the marketplace these days especially in Vancouver if you consider how much it would take for someone to even service the mortgage. But to modify the example above, a $360,000 down payment would require a monthly payment of $6,443.54 per month or an annual payment of $77,322.48 in after tax dollars. A buyer would need a household income of just $300,000 per year...
I know, I was just pointing out a 10% down pmt illustration is not realistic. To save another $180k down payment, the household income needs to be much higher than $300k IMO. I did not mention the additional 10% down pmt for purposes of illustrating a lower monthly mortgage amount.
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is there really a bubble? vancouver houses are CHEAP! try buying a house in SF, Tokyo, NYC, London.
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cartfan123 wrote:
May 27th, 2016 7:19 am
Well they are taking the brunt of the blame for skyrocketing prices. But those same people who are blaming them don't want to put the blame where it squarely should lie - low interest rates and easy credit. That's because they want the low rates so they can buy a house themselves or like the interest savings they are currently benefiting themselves from. In Ontario for example Asian money doesn't explain why cities well out of the GTA are experiencing bidding wars.
+1 .....
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adamtheman wrote:
Jun 17th, 2016 4:46 pm
Numbers on front page updated.

And Justin Trudeau is in Vancouver to talk about how to make things more affordable for local residents.

About 10 years too late there....

http://bc.ctvnews.ca/feds-have-tools-to ... -1.2950196
Would like to see what tools. If it is something like "increase GVA down payment to 20% minimum", then good luck.

Demand is global, and it will simply smirk at local debt-targeted regulations. Taxing foreign investment flows could slow things a bit, but again would have to be focused on GVA.

You have to solve the supply side issue. There is a building height limit in GVA, which is partly to blame. Land availability is partly to blame. Not something you can solve with their 'tools'.
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intr3peed wrote:
Jun 17th, 2016 4:56 pm
Would like to see what tools. If it is something like "increase GVA down payment to 20% minimum", then good luck.

Demand is global, and it will simply smirk at local debt-targeted regulations. Taxing foreign investment flows could slow things a bit, but again would have to be focused on GVA.
Agreed but at least this time even the politicians are throwing around the term 'foreign' money and understanding that this is not a locally caused issue.
intr3peed wrote:
Jun 17th, 2016 4:56 pm
You have to solve the supply side issue. There is a building height limit in GVA, which is partly to blame. Land availability is partly to blame. Not something you can solve with their 'tools'.
Supply wasn't an issue before the foreign demand spiked... and I would think that supply won't be an issue afterwards. I saw one report the other day that the inflows of people didn't match the level of 'demand' being shown - ie. people aren't moving here, they are just buying as an investment or a flip without ever occupying the property. So, if you pump of supply and the demand falls, the market will crash hard especially with all of the condo developments currently slated to finish up in the next 5 years. If you just take Brentwood (1,400 condos in phase 1, 2 and 3 with another 2,800 more to go), Metrotown, and Oakridge (600 housing units), you are looking at thousands of more units even without considering smaller developments (ie one or two tower developments).
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craftsman wrote:
Jun 17th, 2016 8:48 pm
Supply wasn't an issue before the foreign demand spiked... and I would think that supply won't be an issue afterwards. I saw one report the other day that the inflows of people didn't match the level of 'demand' being shown - ie. people aren't moving here, they are just buying as an investment or a flip without ever occupying the property. So, if you pump of supply and the demand falls, the market will crash hard especially with all of the condo developments currently slated to finish up in the next 5 years. If you just take Brentwood (1,400 condos in phase 1, 2 and 3 with another 2,800 more to go), Metrotown, and Oakridge (600 housing units), you are looking at thousands of more units even without considering smaller developments (ie one or two tower developments).
Yes, but no one is complaining about the condo market prices. There is plenty of supply in that market in pretty much all over Canada. It's the SFH category that is making the headlines everywhere. And there's a real supply issue in that category. Look at how far up the Grouse Mountain those house are being built. There are both natural and regulatory barriers to land in the GVA (and GTA). No market in the world, with or without the foreign investors, has risen as much without the supply-side constraints.
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intr3peed wrote:
Jun 17th, 2016 11:07 pm
Yes, but no one is complaining about the condo market prices. There is plenty of supply in that market in pretty much all over Canada. It's the SFH category that is making the headlines everywhere. And there's a real supply issue in that category. Look at how far up the Grouse Mountain those house are being built. There are both natural and regulatory barriers to land in the GVA (and GTA). No market in the world, with or without the foreign investors, has risen as much without the supply-side constraints.
Condo prices are linked to SFR for a normal market and in many price points were interchangeable - ie a larger newer condo would be in the similar price point of an entry level older residential OR a better located condo versus a SFR in a closer suburb. In addition, with the interchangeability, new condo supply would typically pull buyers from SFR market and putting some control over the SFR price. It's only been recently (ie last 5 to 7 years) that those price points have been disconnected.

Supply has been talked about ever since real estate agents have been selling homes. Statements like "Buy Land, they're not making any more", "We have more buyers than we have homes available", "The best time to buy a home is always five years ago", "landlords grow rich in their sleep without working, risking or economising", "Everyone wants a piece of land. It's the only sure investment. It can never depreciate like a car, or a washing machine. Land will only double it's value in ten years" have been around for decades and some of them for hundreds of years - the first quote was from Mark Twain in the 1800's.

Any market for any product that has 'unnatural' increasing demand side forces can't possibly be fixed with normal natural supply side increases - ie. exponential versus linear - the supply just gets overwhelmed. The 'unnatural' demand will always drive up prices until the demand stops - homes can't be built at the rate that is needed to address supply and infrastructure for those homes cannot be put in place at the rate that it's needed to address supply.

Many of those neighbourhoods up Grouse have been there for decades... way before the last round of price increases and probably before the last crazy housing market.
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craftsman wrote:
Jun 18th, 2016 12:49 am
Condo prices are linked to SFR for a normal market and in many price points were interchangeable - ie a larger newer condo would be in the similar price point of an entry level older residential OR a better located condo versus a SFR in a closer suburb. In addition, with the interchangeability, new condo supply would typically pull buyers from SFR market and putting some control over the SFR price. It's only been recently (ie last 5 to 7 years) that those price points have been disconnected.

Supply has been talked about ever since real estate agents have been selling homes. Statements like "Buy Land, they're not making any more", "We have more buyers than we have homes available", "The best time to buy a home is always five years ago", "landlords grow rich in their sleep without working, risking or economising", "Everyone wants a piece of land. It's the only sure investment. It can never depreciate like a car, or a washing machine. Land will only double it's value in ten years" have been around for decades and some of them for hundreds of years - the first quote was from Mark Twain in the 1800's.

Any market for any product that has 'unnatural' increasing demand side forces can't possibly be fixed with normal natural supply side increases - ie. exponential versus linear - the supply just gets overwhelmed. The 'unnatural' demand will always drive up prices until the demand stops - homes can't be built at the rate that is needed to address supply and infrastructure for those homes cannot be put in place at the rate that it's needed to address supply.

Many of those neighbourhoods up Grouse have been there for decades... way before the last round of price increases and probably before the last crazy housing market.
Really the same curve either way. Demand can be met with more supply if you have the land. Compare the price differential in GTA pre- and post- the Greenbelt laws. Investment flows don't just randomly go into any real estate market. The quotes you provide are precisely why investors chase land values. Check out the price differences between the Bay Area and LA county. NYC vs Chicago. Any prairie city vs a city nature-constrained by ocean, mountains, etc. HK. Mumbai. Singapore.

The condo market tip-toed with the SFH market when there weren't SFH constraints in the picture. All those condo families then bore their own kids, and BANG, everyone wanted a backyard/piece of land. Add the investment flows and you have the current 'crisis'. How many new SFH properties have been added to the supply in the last 10 years vs. new families? Those on the north shore slopes used to be below the snow line until about 2005. I know of at least 3 families who got theirs in that time frame as new builds - 1 below and 2 above the snow line.

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