Real Estate

Vancouver housing bubble?

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[OP]
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Dec 3, 2004
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From Garth Turner's blog today: http://www.greaterfool.ca/
The official realtor stats out of Vancouver are awful, but fail to tell the real story. The local board says home sales crashed 40% last month (year/year). They were a fat 11% lower than the month before, and ten points below the 10-hyear average. “It’s a lukewarm start to the year,” deadpanned board boss Dan Morrison.

You bet. Fewer than 450 detached houses changed hands, a 57% crumble from the same time last year – and while sales wilt, supply surges. New listings are up 7% while total active listings have gained 14% over last year. It’s classic. Demand down and supply up. Given this dynamic, there’s no way prices can remain static, even though real estate’s notoriously sticky.

Here are the official declines: the Frankenumber for all houses, -3.6%. For detached homes it was -6.6% over the last six months (to $1,474,800)

Well, many people disagree. In fact the analysis of daily MLS stats published here earlier in the week put a lie to the official RE numbers. As you know they showed a 59% drop in solds last month, with a 14% reduction in price. The number of $3 million+ houses changing hands was 79% lower, with a current supply equal to four years of demand. Over $5 million, there’s a five-year supply. Worse, 91% of all the sales in January were for less than asking
[OP]
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Dec 3, 2004
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January is finally the month that is has become clear that the camel's back has been broken. But July was probably the straw that broke it. It just took this long to realize it. There is now the "trifecta" so to speak... listings way up, prices way down, and sales way down. In previous months, we had higher listings and lower sales, but prices were staying the same. Now, all 3. That's a deadly combination. Just focusing on Detached homes, we see:

JAN 2016
$1,812,028 Average price
2,867 listings
1096 sales

JAN 2017
$1,521,862 Average price
4,116 listings
447 sales

Those numbers are so different it's almost hard to comprehend it is the same market. In just 1 year, sales-listings ratio has gone from 38% to 11%. In other words, there's 3 times more listings on the market than last year per sale, or triple the competition. As we know, competition leads to price drops, which we are now seeing.

Outlook is not good for this year at all. The last real stable prices in Vancouver were around 2011-2013, when the average house price for a detached home hovered around 1.1 to 1.2 million. It held steady at that for almost 3 years without any significant fluctuation. But the Canadian dollar was at par then. If real estate drops back to those prices, but the canadian dollar remains around 1.3x, then it will mean that many foreign investors will be significantly underwater. At this point, I will be genuinely surprised if prices ever drop (even for a single month) into the 6 digits range. But you never know.
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Sep 8, 2007
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Way Out of GTA
adamtheman wrote: January is finally the month that is has become clear that the camel's back has been broken. But July was probably the straw that broke it. It just took this long to realize it. There is now the "trifecta" so to speak... listings way up, prices way down, and sales way down. In previous months, we had higher listings and lower sales, but prices were staying the same. Now, all 3. That's a deadly combination. Just focusing on Detached homes, we see:

JAN 2016
$1,812,028 Average price
2,867 listings
1096 sales

JAN 2017
$1,521,862 Average price
4,116 listings
447 sales

Those numbers are so different it's almost hard to comprehend it is the same market. In just 1 year, sales-listings ratio has gone from 38% to 11%. In other words, there's 3 times more listings on the market than last year per sale, or triple the competition. As we know, competition leads to price drops, which we are now seeing.

Outlook is not good for this year at all. The last real stable prices in Vancouver were around 2011-2013, when the average house price for a detached home hovered around 1.1 to 1.2 million. It held steady at that for almost 3 years without any significant fluctuation. But the Canadian dollar was at par then. If real estate drops back to those prices, but the canadian dollar remains around 1.3x, then it will mean that many foreign investors will be significantly underwater. At this point, I will be genuinely surprised if prices ever drop (even for a single month) into the 6 digits range. But you never know.
In stock trading we would call buying now out there "catching a falling knife" where just because it's down from the peak a little bit some people think they are getting a deal vs the peak. "But it was $300k more just 6 months ago so it's a deal" when the underlying fundamentals are weak and potentially weakening further.

A look at the chart tells us an avg of $1.2 mln simply takes us back to 2013-14 levels as is easily attainable if the economy continues to erode and the supply of Chinese money continues to dry up. It was only a few year ago you couldn't lose paying up in Alberta also.

So is the GTA the only remaining game for RE Bulls? I'm considering selling off some of my rentals given how much they've moved up, their after tax yield based on current market prices is rapidly declining and approaching 2-3% and hence not really worth the investment on a yield basis...can only rely on capital gains which isn't a bet I'd like to take.
"It is in times of great fear or greed that the most opportunity exists."
Deal Guru
Jan 27, 2006
12541 posts
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Vancouver, BC
cartfan123 wrote: So is the GTA the only remaining game for RE Bulls? I'm considering selling off some of my rentals given how much they've moved up, their after tax yield based on current market prices is rapidly declining and approaching 2-3% and hence not really worth the investment on a yield basis...can only rely on capital gains which isn't a bet I'd like to take.
According to some recent numbers, the GTA is starting to crest (much like Vancouver last year at this time). The Ontario government has said that there's no way they will introduce a buyers tax (I guess they are taking in a lot of developer money) but their tune might change as they get closer to their election date next year and are given a choice of loosing some campaign contributions or loosing the election. If they don't bring in a buyers tax, the market will probably slowly inch it's way forward until it gets to levels that doesn't even make sense for foreign buyers to buy.
Deal Addict
Oct 22, 2014
3262 posts
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Toronto
craftsman wrote: According to some recent numbers, the GTA is starting to crest (much like Vancouver last year at this time). The Ontario government has said that there's no way they will introduce a buyers tax (I guess they are taking in a lot of developer money) but their tune might change as they get closer to their election date next year and are given a choice of loosing some campaign contributions or loosing the election. If they don't bring in a buyers tax, the market will probably slowly inch it's way forward until it gets to levels that doesn't even make sense for foreign buyers to buy.
Very good point on the provincial government policy response to the real estate rise. What was the timeline for the BC government on installing the Foreign Buyer Tax? Was it done on the eve of their re-election? Its timeline may predict the Ontario government's response and thus the peak of GTA housing price.
[OP]
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Dec 3, 2004
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I was looking around for some good examples of how insane the Vancouver market was. To do this, I focused on townhouses that are exact same layout and I wanted to find an example that illustrated just how crazy the Vancouver market was in the 1 year before the foreign buyers tax. I found the PERFECT example. Just take a look at these 3 sales in Coquitlam, BC:

----------------------------------------

04/May/2015
24-320 DECAIRE ST COQUITLAM V3K 7C3
$548,800
3 Bed/3 Bath/1618 SqFt

21/Mar/2016
10-320 DECAIRE ST COQUITLAM V3K 7C3
$760,000
3 Bed/3 Bath/1593 SqFt

19/Apr/2016
23-320 DECAIRE ST COQUITLAM V3K 7C3
$820,000
3 Bed/3 Bath/1658 SqFt

----------------------------------------

I love this example because not only are the townhouse units (#23 and #24) side-by-side, but they are also basically identical units square footage wise. As you can see, one sold for $548k in May/2015 and the other sold for $820k in Apr/2016. The one that sold for 820k was only listed for 750k. It went 70k over asking in a bidding war. It sold for $272,000 above what the unit next to it sold for just 11 months earlier. To me, this sale perfectly describes the bubble - pure insanity. I can't imagine what kind of sucker bought this place for $820,000... for a small 3 bedroom townhouse in Coquitlam. That's nuts.

Just two months after they bought, the market basically began to collapse. It's not difficult to imagine that if they were to list it now, it may only fetch around $550,000. If they were to sell it, they would pay realtor fees and other closing costs, meaning they would easily end up losing about $300,000. If they bought it with 20% down or less, all their down payment is now wiped out and they are probably under water. This is just one example of many stupid deals made in Vancouver. As Garth Turner would call them, these are the TRUE greater fools, the ones who bought right before the collapse and paid higher than asking price because they felt pressured by the market. I feel sorry for these people in some ways, but on the other hand, you can't say they weren't warned! Toronto people better pay attention because you have even more warning signs available to you now. No, Toronto is not "different" than Vancouver - sorry to tell you.
[OP]
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Dec 3, 2004
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Elfwood wrote: Very good point on the provincial government policy response to the real estate rise. What was the timeline for the BC government on installing the Foreign Buyer Tax? Was it done on the eve of their re-election? Its timeline may predict the Ontario government's response and thus the peak of GTA housing price.
Implemented around 10 months before election date. My guess is that the Ontario government is waiting to see if Christy Clark gets re-elected. If she does, and gets elected easily, then I could see Ontario following her and implementing a foreign buyers tax.
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Oct 23, 2003
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adamtheman wrote: Implemented around 10 months before election date. My guess is that the Ontario government is waiting to see if Christy Clark gets re-elected. If she does, and gets elected easily, then I could see Ontario following her and implementing a foreign buyers tax.
Clark just un-did her foreigner tax as fo May of this year, so, flip a coin. The majority of people know she's corrupt and dislike her. Lets see if they bother going to the polls though.
Deal Guru
Jan 27, 2006
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adamtheman wrote: Implemented around 10 months before election date. My guess is that the Ontario government is waiting to see if Christy Clark gets re-elected. If she does, and gets elected easily, then I could see Ontario following her and implementing a foreign buyers tax.
Plus, given the level of financial mismanagement the Ontario government has done (even worse than the previous government), they will push it to the last minute as the real estate boom that is going on (both in building and pricing) is the only thing working now. If that slows down, you'll get developers upset (no money), workers laid off, and homeowners upset as their 'investment' starts dropping in price.
Deal Guru
Jan 27, 2006
12541 posts
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Buggy166 wrote: Clark just un-did her foreigner tax as fo May of this year, so, flip a coin. The majority of people know she's corrupt and dislike her. Lets see if they bother going to the polls though.
The foreign buyers tax was not undone. They are in the process of adding an exclusion for foreigners who will work and pay taxes in BC which is not the same as being undone. As for the size and shape of the exclusion, the law probably isn't even fully drafted yet so it's a wait and see until the next Provincial budget.

Like I said earlier -
It's too early to tell what the changes actually mean as the legislation changing the foreign buyers tax hasn't been tabled yet.

If the changes are actually to attract foreign workers who are displaced by the current situation as well as future potential policy changes in the US, then it might be a general positive to the economy as there is talk (whether or not it's true or not is another discussion) that certain firms are looking to set up larger 'branch' offices to employ those who are either directly displaced by the US policy or those who feel strongly about it to work at a 'neutral' country like Canada. This would be a relatively easy process to set up as the government can say that the Foreign buyers tax needs to be paid for upfront but an annual refund can be applied for to the maximum of the amount of Provincial Income Tax paid per year so only gainfully employed individuals who file income tax can get the rebate and the amount of the rebate will the amount of taxes they pay... so, no taxes paid, no annual refund on the buyers tax. This also encourages foreign workers to stay in the province as the longer they stay, the more of the foreign buyers tax they get back.
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Feb 29, 2008
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craftsman wrote: According to some recent numbers, the GTA is starting to crest (much like Vancouver last year at this time). The Ontario government has said that there's no way they will introduce a buyers tax (I guess they are taking in a lot of developer money) but their tune might change as they get closer to their election date next year and are given a choice of loosing some campaign contributions or loosing the election. If they don't bring in a buyers tax, the market will probably slowly inch it's way forward until it gets to levels that doesn't even make sense for foreign buyers to buy.
A tax would again be dumb because it does not solve the problem. In Toronto there simply is not enough product. A bunch of people looking for homes but not many of them are available due to many reasons and has little to do with foreign investors. These guys have no idea wtf they're doing...or maybe they do and they're just trying to appear like they're trying to help.
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Oct 23, 2003
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craftsman wrote: The foreign buyers tax was not undone. They are in the process of adding an exclusion for foreigners who will work and pay taxes in BC which is not the same as being undone. As for the size and shape of the exclusion, the law probably isn't even fully drafted yet so it's a wait and see until the next Provincial budget.

Like I said earlier -
you're not aware of the "students" with work permits and visas "working" in BC while owning 54 million, publicly known anyways, of real estate.

Companies in Vancouver are full of foreign kids on work permits. Even having one be "used" by a foreign investor for the primary purchase of a property would only cost a few grand at best, or maybe a year of tuition.

Its a loop hole.

In the mean time, across the pond:

http://www.reuters.com/article/us-china ... 5K01H?il=0
Deal Guru
Jan 27, 2006
12541 posts
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Vancouver, BC
JayLove06 wrote: A tax would again be dumb because it does not solve the problem. In Toronto there simply is not enough product. A bunch of people looking for homes but not many of them are available due to many reasons and has little to do with foreign investors. These guys have no idea wtf they're doing...or maybe they do and they're just trying to appear like they're trying to help.
That's exactly what the Vancouver real estate industry said about Vancouver - nothing to do with foreign buyers, just not enough supply as almost everything was being purchased by locals. So, it was funny how a tax targeted at a buyer that wasn't a problem or didn't exist actually caused the market to change direction.
Deal Guru
Jan 27, 2006
12541 posts
5721 upvotes
Vancouver, BC
Buggy166 wrote: you're not aware of the "students" with work permits and visas "working" in BC while owning 54 million, publicly known anyways, of real estate.

Companies in Vancouver are full of foreign kids on work permits. Even having one be "used" by a foreign investor for the primary purchase of a property would only cost a few grand at best, or maybe a year of tuition.

Its a loop hole.

In the mean time, across the pond:

http://www.reuters.com/article/us-china ... 5K01H?il=0
You didn't read my post, did you?

Besides, you can't have a loop hole in a law when the law doesn't exist. We can debate and argue about loop holes once that actual details of how the process will be implemented.
Deal Fanatic
Feb 29, 2008
9711 posts
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craftsman wrote: That's exactly what the Vancouver real estate industry said about Vancouver - nothing to do with foreign buyers, just not enough supply as almost everything was being purchased by locals. So, it was funny how a tax targeted at a buyer that wasn't a problem or didn't exist actually caused the market to change direction.
No. I hate when people compare Toronto to Vancouver. Both cities have the same problems but there are 2 completely different factors. Toronto purchasers are mostly from people that live here. Very little foreign investment. It is a different animal over here.

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