Real Estate

Vancouver housing bubble?

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Deal Addict
Apr 10, 2011
1287 posts
769 upvotes
Vancouver
craftsman wrote:
Oct 24th, 2018 1:43 pm
3. Inquiries is different than actual purchases.
So true. I've inquired about tons of things for curiosity's sake. Vancouver's real estate market news is frequently in the news around the world.

A real estate agent friend mentioned that newcomers and 'investors' from the PRC are hugely competitive. In the past, they've wanted that property at any price -- like an RFD deal: "Get it fast before someone else gets it, then consider the consequences later."

I wonder if that will work in reverse in a down-trending market: "Better sell now at these prices, before it goes down another 10-30% next year."
Deal Guru
Jan 27, 2006
11324 posts
4623 upvotes
Vancouver, BC
RxMills wrote:
Oct 26th, 2018 2:15 pm
So true. I've inquired about tons of things for curiosity's sake. Vancouver's real estate market news is frequently in the news around the world.

A real estate agent friend mentioned that newcomers and 'investors' from the PRC are hugely competitive. In the past, they've wanted that property at any price -- like an RFD deal: "Get it fast before someone else gets it, then consider the consequences later."

I wonder if that will work in reverse in a down-trending market: "Better sell now at these prices, before it goes down another 10-30% next year."
Yep.... Those inquiries could be from those already holding Vancouver properties and are looking for comps to see what's the status of their 'investment'. Or they might be from comparison shoppers who are looking to buy but not necessarily buy in Vancouver and wanted to see a comparison between us and Montreal or Calgary.
Deal Addict
Apr 10, 2011
1287 posts
769 upvotes
Vancouver
Serious real estate declines coming 2019/2020 say economists.

Property owners have generally ignored small rising interest rates for 2 reasons : They're small increments and they've locked in for 3-5 years (starting perhaps 1-3 years ago).

When they eventually renew, the new interest rate won't be 1/4 point higher, it'll be many 1/4 point increases combined.

The market is already down from 2016, thanks to perceived peak prices, rising ownership costs, empty home taxes, new stress-test rules, foreign buyer taxes, etc.

After mid/late 2019, the downtrending market is perceived to accelerate.

Buying opportunity?
Not unless you're big on cash holdings. Those new mortgage rates and carrying costs are going to impact what people will be able to buy then. Plus, when do you buy in? In a falling market, it doesn't take long to be "under water".

For new buyers, the new mortgage payment stress test, to be based on the much higher interest rate in late 2019+, will be significantly greater.

.
Last edited by RxMills on Oct 27th, 2018 12:10 pm, edited 2 times in total.
Deal Fanatic
Oct 7, 2007
5096 posts
1777 upvotes
Personally, I think real estate has developed somewhat of a bitter taste in Vancouver. Owning a home on land has almost become "taboo" to certain special interest groups in Vancouver who appear to be secretly working for developers and shaming those who own homes (even modest ones) and the quantity and level of taxation while much needed is beyond the imagination. Hopefully, these taxes will be able to make life more affordable for locals, regardless of whether they own their own home, rent or want to get in the market without paying extortion-level pricing.
Deal Addict
Dec 27, 2006
1944 posts
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Vocal academic isn’t just an observer of Vancouver’s real estate industry – he’s part of it
Tsur Somerville’s institution has been sponsored by developers, and he’s done no peer-reviewed research into the city’s extreme unaffordability

Ian YoungTuesday, 23 Feb 2016, 11:49AM
Tsur Somerville says worrying about the impact of Chinese money on Vancouver's housing market "seems to be this decade’s version of the ‘Yellow Peril’." Photo: Global TV
Anyone hoping to get a handle on the mechanisms driving Vancouver’s eye-popping real estate market and the impact of Chinese money soon runs into the same problem: An apparent lack of data.

Data DOES exist (more on this later), but the supposed void has been filled with the opinions of a range of experts. And no pundit has been more enthusiastic than Dr Tsur Somerville, director of the UBC Centre for Urban Economics and Real Estate.

For years, Somerville, armed with a PhD in economics from Harvard, has been a driving force behind some key notions: That there is nothing terribly abnormal or bubbly about prices in Vancouver (where the average price of a detached house is about C$1.4million); that affordability is best addressed on the supply side with more development, and not by addressing demand; and that worrying about the impact of Chinese money is racist.

“This seems to be this decade’s version of the ‘Yellow Peril’,” he told a March 2013 forum on foreign investment, according to an account in The Tyee.

He added: “There's a long history on the West Coast of North America of worrying about some problem - whether it's low wages, venereal disease, the plague, whatever you want - and blaming it on the Chinese.”

WATCH: Vancouver’s unaffordability ranking 'unfair', says Somerville (2014)

Then in August last year, Somerville opined in the Globe And Mail that “the case of wealthy immigrants [in Vancouver] is not a housing problem, but a challenge to our perceptions”, and that “this leads to xenophobia, stereotyping and racist language more like that used in the early 20th century than we would like to characterize Canada’s 21st century”. Is this a reference to Canada’s racist head tax on Chinese immigrants? The rise of fascism? Whatever it is, it sounds frightening.

Somerville’s musings have sometimes veered into fantastical territory. In September 2013, at yet another panel discussion on affordability (this time hosted by his own Centre for Urban Economics), he tried pushing the notion that housing unaffordability in Vancouver wasn’t even about housing – it was about wages. “The idea that affordability has suddenly worsened is not new. It’s been around since the 1980s,” said Somerville, according to an uncritical account by the Real Estate Board of Greater Vancouver. “But rather than it being a housing issue, it’s more of an income issue,” he said, citing higher median incomes in places like Regina and Saskatoon.

(It’s true: Vancouver’s wages are very low. But to suggest the city’s globally remarkable unaffordability is mainly a function of low wages defies logic. Boost Vancouver’s median income by the hefty 28 per cent to match Regina’s or the 23 per cent to match Saskatoon’s, and it would scarcely matter: Vancouver would remain one of the most unaffordable cities in the world, and the most unaffordable in Canada by a huge margin)

Somerville’s preferred affordability solutions? More development. Cut lots in half to build more homes. Density. But whatever you do, don’t try to reduce demand or the flow of foreign money into Vancouver.

There are plenty who have embraced Somerville’s various positions – in October, Vancouver Sun columnist Pete McMartin hailed him “the only honest voice” in the debate and said Somerville should run for mayor. As for contrarians who looked for possible solutions in immigration policy, McMartin likened them to swastika-tattooed xenophobes.

Somerville’s colleagues at the UBC Sauder School of Business have also lined up in support. According to the REBGV’s account of the Centre for Urban Economics’ panel discussion, Dr Michael Goldberg, dean emeritus at Sauder, pondered whether Vancouver was actually unaffordable at all. “Remember that half of all sales are below the median price,” he offered. As for the impact of foreign money: “Foreign ownership is not a problem, it’s a solution,” said Goldberg.

Sponsorship and research

Now to the crux of the matter. While Somerville is enthusiastically cited - more than 100 times in the Vancouver Sun alone in the past five years - little if any mention is made of an important fact: His Centre for Urban Economics is sponsored by the real estate industry. And his job is to prepare people to join that industry.

The centre’s sponsors have included the developers Grosvenor, Henderson Development, and the Vancouver chapter of the Commercial Real Estate Development Association (all currently listed on the centre’s website), as well as Polygon Homes, the Canadian Home Builders’ Association and the Greater Vancouver Home Builders’ Association (listed as sponsors as recently as 2012, along with Grosvenor).


The Centre for Urban Economics' currently listed sponsors: Grosvenor, Henderson Development, and the Commercial Real Estate Development Association.
And despite impressive credentials, Somerville hasn’t conducted a single piece of peer-reviewed research on what might be responsible for Vancouver’s outrageous unaffordability. He hasn’t recently done much peer-reviewed work at all: In the past decade, his entire peer-reviewed output amounts to three journal articles.

He’s been plenty busy though, teaching courses on real estate development, setting up student internships in the industry, and generally churning out new generations of real estate professionals. He is said to be an excellent and caring teacher, who helps students find jobs when they leave him.

He’s also delivered dozens of presentations, unhindered by the need for peer review. Here’s a sample of the titles: “Bubbles”, “Immigration and Real Estate”, “The Effect of Foreign Investment on Vancouver’s Housing Market”, and “Maybe the sky doesn’t have to fall”.

I began looking into Somerville’s relationship with the real estate industry back in early November last year, asking him for an interview about his research history, the centre’s sponsors and any personal funding he might have received from the sector (not to suggest corruption, but merely to establish whether any financial relationship existed).

He immediately sprang into action, albeit in an unexpected fashion: He fired off an email to my boss, asking for confirmation of my “claims” to be the South China Morning Post’s Vancouver correspondent and its former international editor, asking whether my employment terms were full-time or freelance, and even pondering whether someone with my purported background would be better employed in “London, Beijing or Washington” instead of Vancouver.


The Centre of Urban Economics' sponsors as listed in 2012: Grosvenor, Polygon Homes, the Canadian Home Builders’ Association and the Greater Vancouver Home Builders’ Association.
Eventually, he agreed to an interview, postponed it, then said he would prefer to submit answers in writing instead. A week later, I got a response in which he declined to answer questions about the centre’s sponsors, or to describe any other funding he might have received from the property industry. “All of my work is in compliance with UBC Policy #97 on conflict of interest,” he said in his November 26 email. If I wanted details on the centre’s sponsors, I’d have to wait for the results of a Freedom of Information (FOI) search lodged on my behalf by UBC’s Access and Privacy Office.

As for his credentials, Somerville cited his publication of 18 peer-reviewed pieces on a range of subjects going back to 1987, although none speak directly to Vancouver’s current affordability situation. He also listed an extensive range of non-peer-reviewed articles and publications.

“From over twenty years of research in housing and real estate markets, training in urban, real estate, and housing economics, careful observation of the local real estate market, and analysis of this market for interest, research, teaching, presentations, and in answer to queries from the media I believe that I have a perspective on conditions and issues in the local housing and real estate market, including affordability, that is grounded in expertise,” he said.

When the FOI response finally came on February 19, it wasn’t exactly illuminating. In seeking a list of the centre’s sponsors and their contributions, “we requested records from the Centre for Urban Economics and Real Estate,” said Courtney Waverick of the Office of the University Counsel. “The available records did not contain the information you requested.”

Waverick directed me instead to Brad Gamble, Sauder’s assistant dean, marketing and communications.

Gamble was prompt and quite helpful. He provided a table showing that the centre’s currently listed sponsors (Henderson, Grosvenor and the Commercial Real Estate Development Association) have provided C$33,200 since 2010. Gamble said outside sources provided 15.5 per cent of the centre’s funding, coming to C$10,216 in the most recent fiscal year. But it’s unclear who provided this since no funds were listed as coming from the aforementioned trio in 2014.

“There is no connection between Professor Tsur Somerville’s remuneration and any external sponsorship,” Gamble said, regarding Somerville’s salary of C$243,198. “Professor Somerville is a tenured professor at the Sauder School of Business, whose salary is paid entirely by the university.”

Gamble said Somerville “is not required to secure sponsors or do fundraising for the centre”. “However, in the past, to expand and improve the activities of the centre, he has reached out to external parties to help fund initiatives such as conferences and student case competitions,” he said. “There are no overarching conditions for sponsorship agreements for the centre.”

I asked Gamble last week about the other sponsors listed by the centre’s website in 2012. As of Wednesday, he had not responded.

A patina of academic impartiality

These levels of funding do not seem extraordinary - although I remain curious about the centre’s previously listed sponsors and whatever other funding Somerville may or may not have received. This kind of relationship between a professional school and its corporate benefactors would not be so problematic, were it not for Somerville’s frequent efforts to influence the debate surrounding housing affordability without the benefit of peer-reviewed research. It’s a discussion of major concern to his centre’s financial backers as well as his students and their employment prospects. And it’s being conducted with a patina of academic impartiality.

Somerville may not have conducted peer-reviewed research on what drives Vancouver’s prices, but others have. Notable has been UBC’s Dr David Ley, holder of the Canadian Research Chair in Geography, whose 2010 book Millionaire Migrants provides extensive peer-reviewed data that shows an “unusually decisive” correlation between immigration and house prices in Vancouver. In case you were wondering: Ley says he receives no funding from the real estate industry. And I doubt he receives many invitations to speak before the industry either.

As for non-peer-reviewed data, Landcor, the Vancouver property industry’s number-cruncher of choice, found in 2011 that 74 per cent of luxury home purchases in Vancouver’s Westside and Richmond in the previous year were made by mainland Chinese buyers. And the buying continues apace.

The academic wing of the real estate industry

Since I started asking questions about the Centre for Urban Economics’ links to the real estate industry, Somerville seems to have wavered on the role of foreign money in Vancouver’s market. “It certainly appears to be the case” that foreign money has been at play, especially the city’s west side, he reportedly told the Vancouver Sun on December 4.

But this comes after years of Somerville tarring those who fretted over the impact of Chinese money as ill-informed and possibly racist. His recent remarks are merely a case of shutting the stable door after the dragon has well and truly bolted.

Somerville, of course, remains entitled to his opinions and he’s entitled to share them, whatever they may be. But anyone considering their value would do well to recognise the Centre for Urban Economics for what it is: The academic wing of Vancouver’s real estate industry. And Dr Somerville isn’t merely an observer of that industry. He’s a part of it.

*

The Hongcouver blog is devoted to the hybrid culture of its namesake cities: Hong Kong and Vancouver. All story ideas and comments are welcome. Connect with me by email ian.young@scmp.com or on Twitter, @ianjamesyoung70.

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Deal Guru
Jan 27, 2006
11324 posts
4623 upvotes
Vancouver, BC
RxMills wrote:
Oct 27th, 2018 12:04 pm
Serious real estate declines coming 2019/2020 say economists.

Property owners have generally ignored small rising interest rates for 2 reasons : They're small increments and they've locked in for 3-5 years (starting perhaps 1-3 years ago).

When they eventually renew, the new interest rate won't be 1/4 point higher, it'll be many 1/4 point increases combined.

The market is already down from 2016, thanks to perceived peak prices, rising ownership costs, empty home taxes, new stress-test rules, foreign buyer taxes, etc.

After mid/late 2019, the downtrending market is perceived to accelerate.

Buying opportunity?
Not unless you're big on cash holdings. Those new mortgage rates and carrying costs are going to impact what people will be able to buy then. Plus, when do you buy in? In a falling market, it doesn't take long to be "under water".

For new buyers, the new mortgage payment stress test, to be based on the much higher interest rate in late 2019+, will be significantly greater.

.
That's typically actually. Most homes are purchased with mortgages and the affordability of the mortgage payment will typically control the home price (ie. a buyer can only afford $X per month which will buy $Y home with Z% rate. As Z% goes up, $X will go up unless the home $Y goes down).
Deal Guru
Jan 27, 2006
11324 posts
4623 upvotes
Vancouver, BC
choclover wrote:
Oct 27th, 2018 12:05 pm
Personally, I think real estate has developed somewhat of a bitter taste in Vancouver. Owning a home on land has almost become "taboo" to certain special interest groups in Vancouver who appear to be secretly working for developers and shaming those who own homes (even modest ones) and the quantity and level of taxation while much needed is beyond the imagination. Hopefully, these taxes will be able to make life more affordable for locals, regardless of whether they own their own home, rent or want to get in the market without paying extortion-level pricing.
It's not the taxes that are really driving down the price but the fact that Vancouver's attractiveness as a real estate holding is going down. Some of that is due what you are saying above, some of that is due to there's no money to be made as the prices aren't appreciating, and some of that is due to non-Vancouverites moving on to the next 'it' city.
Deal Guru
Jan 27, 2006
11324 posts
4623 upvotes
Vancouver, BC
Here's a great example of where portions of the single detached market is right now: 7818 MAIN STREET. The house (yes, house) is listed for $748,000 and according to the pictures, it's in good shape of the age of the home and it's on a corner lot!

According to Zealty.ca, that house has a 2018 assessed value of (drum roll please....) $1,579,500! In other words, that house is now on the market for less than half of the assessed value for 2018. Zealty also reports that it's been on the market for 61 days.
Member
Jul 26, 2015
205 posts
124 upvotes
Vancouver, BC
craftsman wrote:
Oct 28th, 2018 2:55 am
Here's a great example of where portions of the single detached market is right now: 7818 MAIN STREET. The house (yes, house) is listed for $748,000 and according to the pictures, it's in good shape of the age of the home and it's on a corner lot!

According to Zealty.ca, that house has a 2018 assessed value of (drum roll please....) $1,579,500! In other words, that house is now on the market for less than half of the assessed value for 2018. Zealty also reports that it's been on the market for 61 days.
Read carefully. According to the ad they sell 50% of the undivided interest in the property, it is built out as a duplex, but the undivided interest means that you buy 50% of the whole property (not one of the 2 duplex units) and someone else will own 50% of the whole property since it’s likely just one title for both sides of the duplex. Its a can of worms legally speaking. It kind of comes with a co-owner/roommate :))) It’s also on a major arterial road and on a T-junction, which is a deal breaker for a lot of buyers in Vancouver. Half the house for half of the assessed value is not a good deal.
Deal Guru
Jan 27, 2006
11324 posts
4623 upvotes
Vancouver, BC
Sam286 wrote:
Oct 28th, 2018 4:57 am
Read carefully. According to the ad they sell 50% of the undivided interest in the property, it is built out as a duplex, but the undivided interest means that you buy 50% of the whole property (not one of the 2 duplex units) and someone else will own 50% of the whole property since it’s likely just one title for both sides of the duplex. Its a can of worms legally speaking. It kind of comes with a co-owner/roommate :))) It’s also on a major arterial road and on a T-junction, which is a deal breaker for a lot of buyers in Vancouver. Half the house for half of the assessed value is not a good deal.
Yes BUT if you go back two years, they would have put this 'property' up for sale at way more than the assessed value (rather than below the assessed value) and it would have sold within 30 days on the market. Heck, I would bet that a developer would have offered to buy the whole property for approx $2,000,000 to $2,500,000 in order to build a real duplex and sell each duplex for $2,500,000!

As for being on a major arterial road, it wasn't a 'deal breaker' for most buyers not too long ago. The ONLY reason that they may be perceived as a 'deal breaker' now is because the market is dropping. As for the T-junction, being on the side of 'T' and not at the top of the 'T' has never really been a 'deal breaker' for most. If anything, being on the side of a 'T' helps to deaden traffic as there is no through road.
Newbie
Feb 29, 2012
40 posts
5 upvotes
VANCOUVER
craftsman wrote:
Oct 28th, 2018 1:19 pm
Yes BUT if you go back two years, they would have put this 'property' up for sale at way more than the assessed value (rather than below the assessed value) and it would have sold within 30 days on the market. Heck, I would bet that a developer would have offered to buy the whole property for approx $2,000,000 to $2,500,000 in order to build a real duplex and sell each duplex for $2,500,000!

As for being on a major arterial road, it wasn't a 'deal breaker' for most buyers not too long ago. The ONLY reason that they may be perceived as a 'deal breaker' now is because the market is dropping. As for the T-junction, being on the side of 'T' and not at the top of the 'T' has never really been a 'deal breaker' for most. If anything, being on the side of a 'T' helps to deaden traffic as there is no through road.
wtf are you smoking? this is on main street. the duplex will go for max of $1.5M even at the height of the market. At most this property (assuming both sides are selling together almost like an assembly) would have been worth $1.7M... (edit: 850K each)
This half duplex is not even worth $700k, this is not an example of the market crashing... if you want to make that case, there are way better examples out there.
Deal Guru
Jan 27, 2006
11324 posts
4623 upvotes
Vancouver, BC
virgozero wrote:
Oct 28th, 2018 3:46 pm
wtf are you smoking? this is on main street. the duplex will go for max of $1.5M even at the height of the market. At most this property (assuming both sides are selling together almost like an assembly) would have been worth $1.7M... (edit: 850K each)
This half duplex is not even worth $700k, this is not an example of the market crashing... if you want to make that case, there are way better examples out there.
I'll see your rant and raise you the following listing that even now duplexes are listed for WAY more than what you think you are talking about (and it's in the same neighbourhood on Main Street) - 7649-7665 MAIN STREET - two blocks away from the first property and it's listed for $3,400,000 for both sides so that's $1.7 million right now. The first property is a corner lot while the second is jammed in between two properties (one house and one church).
Member
Jul 26, 2015
205 posts
124 upvotes
Vancouver, BC
craftsman wrote:
Oct 28th, 2018 1:19 pm

As for being on a major arterial road, it wasn't a 'deal breaker' for most buyers not too long ago. The ONLY reason that they may be perceived as a 'deal breaker' now is because the market is dropping. As for the T-junction, being on the side of 'T' and not at the top of the 'T' has never really been a 'deal breaker' for most. If anything, being on the side of a 'T' helps to deaden traffic as there is no through road.
It’s on the top of T from across the street. You are looking at a different T :)
Member
Jul 26, 2015
205 posts
124 upvotes
Vancouver, BC
By the way, when someone is selling 50% of undivided interest normally it means some sort of an ugly situation. Two or more people own the property. One wants to sell, but another one doesn’t. It may be a divorce, a partnership gone wrong, one partner trying to buy out another one for cheap therefore the other one tries to list his share etc.. So no way the second partner will sell his or her 50% share for the same price. Likely will not sell at all. They already have an edge over the one who is trying to sell, they don’t need to negotiate or be reasonable. Imagine such a roommate...
Deal Guru
Jan 27, 2006
11324 posts
4623 upvotes
Vancouver, BC
Sam286 wrote:
Oct 28th, 2018 5:00 pm
It’s on the top of T from across the street. You are looking at a different T :)
It's not on the top side of the 'T'. The traditional really 'bad' part of the 'T' is right at the end of the 'I' part where it hits the middle of the top bar as all of the energy is channelled upward through the 'I' towards that junction as that small part of the top bar will face all of that energy. The houses on the side of the junction are normally not considered bad but the house that is directly in the path of the 'I' is considered bad.

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