Real Estate

Vancouver housing bubble?

  • Last Updated:
  • May 19th, 2019 12:20 am
Tags:
None
Deal Guru
Jan 27, 2006
10453 posts
4125 upvotes
Vancouver, BC
RxMills wrote:
Mar 21st, 2019 6:09 pm
Vancouver's home prices are driven by...

(1) supply and demand

(2) market interventions (empty home tax, mortgage stress tests, China liquidity, etc. etc.)

(3) other social forces (immigration, interest in Vancouver and Canada, etc.)

(4) the economy (Canada's debt, dollar, gdp, jobs, etc.)

I think the unpredictable #4 is going to get very interesting.

Canada's debt rating is sliding down. The dollar is sliding because the feds can't and won't raise interest rates. At some point, they'll have to as inflation will go crazy. Much of what we buy is in US Dollars (the Chinese currency is pegged to the USD). Car parts, price of oil, fruits and vegetables, and those few items that are Made in China.

If the economy takes a further hit (slowdown, recession, job losses), expect a much larger correction to the Vancouver housing market.

It's not here yet so most of this little correction is a result of #1 and #2. #4's arrival time is unpredictable... 6-months? 2-years?

Another result of #4 is that people don't rush in to buy homes at reduced prices in that situation.

Remember, interest rates will be forced higher to prop up the CDN dollar and employment income becomes a little shaky due to layoffs etc. It's been a while since that happened so it's coming. A 72c dollar would start it and a sub-70c dollar will get rates really moving.


https://mobile.reuters.com/article/amp/idUSL1N2181FV
Canadian recessions are typically driven by the US with all things being equal - ie if the US goes into recession, then Canada goes. However, that's not to say that we can't have a regional recession (ie just in one province) like they have had in Alberta for the past few years. Currently, the big economic drivers in BC according to employment numbers are - Health Care and Social Assistance (ie Government jobs), Retail, Construction, and Professional Services. Health Care and Social Assistance jobs aren't going anywhere especially with an NDP Government and I would say that they are increasing. Retail and Professional Services are really dependent on other sectors in the economy as they are really consuming jobs (ie people who have the money go and consume goods and services). Construction is the big question mark as they supply a large number of those consumers for retail and professional services. If the construction jobs start dropping, I can see that they will have a knock-on effect on retail and professional services.
Deal Addict
Oct 7, 2007
4548 posts
1464 upvotes
craftsman wrote:
Mar 22nd, 2019 1:31 am
Canadian recessions are typically driven by the US with all things being equal - ie if the US goes into recession, then Canada goes. However, that's not to say that we can't have a regional recession (ie just in one province) like they have had in Alberta for the past few years. Currently, the big economic drivers in BC according to employment numbers are - Health Care and Social Assistance (ie Government jobs), Retail, Construction, and Professional Services. Health Care and Social Assistance jobs aren't going anywhere especially with an NDP Government and I would say that they are increasing. Retail and Professional Services are really dependent on other sectors in the economy as they are really consuming jobs (ie people who have the money go and consume goods and services). Construction is the big question mark as they supply a large number of those consumers for retail and professional services. If the construction jobs start dropping, I can see that they will have a knock-on effect on retail and professional services.
Seems like construction is not at the same pace it used to be in Vancouver. The activity seems to be slowing down and I have been running into people here and there that are saying that they used to be in construction but are no longer working. Perhaps these are outliers or perhaps they are a sign of what is yet to come. However, one interesting observation continues. When driving around at dusk, most newly occupied towers have only 10-15% of units with their lights on. I suspect a lot of empty homes out there. Also, what is up with the 250,000 homes in BC that haven't yet completed their spec tax declaration? Are those who haven't completed the ones who own the empty condos?
Deal Addict
Dec 4, 2016
1043 posts
401 upvotes
choclover wrote:
Mar 22nd, 2019 10:35 am
Seems like construction is not at the same pace it used to be in Vancouver. The activity seems to be slowing down and I have been running into people here and there that are saying that they used to be in construction but are no longer working. Perhaps these are outliers or perhaps they are a sign of what is yet to come. However, one interesting observation continues. When driving around at dusk, most newly occupied towers have only 10-15% of units with their lights on. I suspect a lot of empty homes out there. Also, what is up with the 250,000 homes in BC that haven't yet completed their spec tax declaration? Are those who haven't completed the ones who own the empty condos?
Construction should be taking a breather. Pay for construction trades has been sky high for the past few years, and it would be healthy for developers to put some projects on hold and let constructions costs return to a sane level. Eventually these people will return to their old jobs, perhaps at a lower pay level, if they don't have established family roots outside BC.
Deal Addict
Jan 23, 2016
1032 posts
251 upvotes
Kitchener, ON
BlueSolstice wrote:
Mar 22nd, 2019 11:19 am
Construction should be taking a breather. Pay for construction trades has been sky high for the past few years, and it would be healthy for developers to put some projects on hold and let constructions costs return to a sane level. Eventually these people will return to their old jobs, perhaps at a lower pay level, if they don't have established family roots outside BC.
Lol what?
Deal Guru
Jan 27, 2006
10453 posts
4125 upvotes
Vancouver, BC
choclover wrote:
Mar 22nd, 2019 10:35 am
Seems like construction is not at the same pace it used to be in Vancouver. The activity seems to be slowing down and I have been running into people here and there that are saying that they used to be in construction but are no longer working. Perhaps these are outliers or perhaps they are a sign of what is yet to come. However, one interesting observation continues. When driving around at dusk, most newly occupied towers have only 10-15% of units with their lights on. I suspect a lot of empty homes out there. Also, what is up with the 250,000 homes in BC that haven't yet completed their spec tax declaration? Are those who haven't completed the ones who own the empty condos?
Empty towers are not new... people have been putting forward that observation for the past few years.
Deal Addict
User avatar
Dec 14, 2007
2982 posts
1398 upvotes
ekcivichb wrote:
Dec 17th, 2015 11:26 am
The bubble will never burst...we might see decreases of 10-15% in a few years..but pop? LOL...keep on dreaming
Real estate bubbles NEVER really pop... they deflate. 10-15% decrease over a few years is a big deal when you have an asset that has considerable costs... a 4% annual drop over 5 years doesn't sound like a lot, does it? most people would say that isn't a bubble popping... but that's a cumulative 18.5% over that period....
  • Add in ~ 2.5% lost to property tax. if it's a condo...
  • Condo fees on a $400k unit might be about $400 / month... another 1.2% annually ( 6% total ).
  • Let's say you have very low maintenance costs or you do all the work yourself... $100 / month on a $400k place. another ¼% x 5 %
  • Add in another ¼% for insurance.
  • Selling costs you 4–5%... let's say 4%.
So... totally it all up... that 4% annual drop actually costed you
18.5 % cumulative drop
6% in condo fees
2.5% in insurance and maintenance
2.5% in property tax

That's a REAL drop of almost ~30% over 5 years if you solidify your losses and sell... on paper a drop from 400,000 to 320,000 over 5 years is a much bigger loss.
Yes, I get it that people generally just wait out the market... but that's another 3–4 years of carrying costs. Most people would say...

I bought this condo 10 years ago for 250,000... so even if I sell at 320,000, I'm still making $70,000 dollars... not even thinking about the money that it costed over those 10 years. If you RENTED a condo out... you paid tax at your marginal rate on that income.

THIS is why Real estate HAS to go up reliably every year to break even. Homes have high carrying costs.
I'd love to write history... in advance.
AMEX Biz Plat 75K AGAIN! | Plat 60K | Biz Gold 40K | Gold 25K | SPG 20K
Deal Addict
Apr 10, 2011
1173 posts
629 upvotes
Vancouver
choclover wrote:
Mar 22nd, 2019 10:35 am

Seems like construction is not at the same pace it used to be in Vancouver. The activity seems to be slowing down and I have been running into people here and there that are saying that they used to be in construction but are no longer working.

Perhaps these are outliers or perhaps they are a sign of what is yet to come. However, one interesting observation continues.

When driving around at dusk, most newly occupied towers have only 10-15% of units with their lights on. I suspect a lot of empty homes out there.
I'm finding the exact same observations.

Now till June, there's been a significant number of sellers that are going to re-list. There are also developers and marketing agencies who are having to give additional incentives to secure current and future inventories move.

Nov'2019 is going to be interesting for Canada, politically speaking, and it's impact on the economy.

Nov'2020 is going to be also very interesting for the world economy. If Trump loses, I would expect a severe stock market correction.

Trump lowered corporate taxes significantly which allowed corporate profits to inflate significantly. So stock prices surged, or at least had substantial price support.

If the Democrats return to the white house, there will be vast immediate reversal. It will happen rapidly as the Dems also run Congress. It may even happen before that if the polls show a significant gap.

Along with that corrective adjustment, if the general economy enters a recession, it'll be the 'perfect storm' (reduced profits + increased taxes = job layoffs = loan payment defaults).

Vancouver Real Estate has slowed while the region has been on an economic 'high'.

The 2nd phase of the real estate market adjustment hasn't arrived yet, but it's coming in 6-18 mo.
Deal Addict
Aug 21, 2007
4433 posts
363 upvotes
atomiton wrote:
Mar 22nd, 2019 2:28 pm
Real estate bubbles NEVER really pop... they deflate. 10-15% decrease over a few years is a big deal when you have an asset that has considerable costs... a 4% annual drop over 5 years doesn't sound like a lot, does it? most people would say that isn't a bubble popping... but that's a cumulative 18.5% over that period....
  • Add in ~ 2.5% lost to property tax. if it's a condo...
  • Condo fees on a $400k unit might be about $400 / month... another 1.2% annually ( 6% total ).
  • Let's say you have very low maintenance costs or you do all the work yourself... $100 / month on a $400k place. another ¼% x 5 %
  • Add in another ¼% for insurance.
  • Selling costs you 4–5%... let's say 4%.
So... totally it all up... that 4% annual drop actually costed you
18.5 % cumulative drop
6% in condo fees
2.5% in insurance and maintenance
2.5% in property tax

That's a REAL drop of almost ~30% over 5 years if you solidify your losses and sell... on paper a drop from 400,000 to 320,000 over 5 years is a much bigger loss.
Yes, I get it that people generally just wait out the market... but that's another 3–4 years of carrying costs. Most people would say...

I bought this condo 10 years ago for 250,000... so even if I sell at 320,000, I'm still making $70,000 dollars... not even thinking about the money that it costed over those 10 years. If you RENTED a condo out... you paid tax at your marginal rate on that income.

THIS is why Real estate HAS to go up reliably every year to break even. Homes have high carrying costs.
This is so true. I say the vast majority of people bury their heads in the sand and the response to your cogency is "well i have to live somewhere". you can not rationalize with canadians about whether home ownership is a sound investment or not since almost all of the people have no idea what their houses actually cost when you factor even property tax and mortgage interest alone (let alone all the other many numbers of costs down to the grass seed each spring). ...LITERALLY, ALMOST ALL CANADIANS HAVE NO IDEA. NONE!
Deal Addict
Jan 17, 2006
1521 posts
1368 upvotes
Toronto
atomiton wrote:
Mar 22nd, 2019 2:28 pm
Real estate bubbles NEVER really pop... they deflate. 10-15% decrease over a few years is a big deal when you have an asset that has considerable costs... a 4% annual drop over 5 years doesn't sound like a lot, does it? most people would say that isn't a bubble popping... but that's a cumulative 18.5% over that period....
  • Add in ~ 2.5% lost to property tax. if it's a condo...
  • Condo fees on a $400k unit might be about $400 / month... another 1.2% annually ( 6% total ).
  • Let's say you have very low maintenance costs or you do all the work yourself... $100 / month on a $400k place. another ¼% x 5 %
  • Add in another ¼% for insurance.
  • Selling costs you 4–5%... let's say 4%.
So... totally it all up... that 4% annual drop actually costed you
18.5 % cumulative drop
6% in condo fees
2.5% in insurance and maintenance
2.5% in property tax

That's a REAL drop of almost ~30% over 5 years if you solidify your losses and sell... on paper a drop from 400,000 to 320,000 over 5 years is a much bigger loss.
Yes, I get it that people generally just wait out the market... but that's another 3–4 years of carrying costs. Most people would say...

I bought this condo 10 years ago for 250,000... so even if I sell at 320,000, I'm still making $70,000 dollars... not even thinking about the money that it costed over those 10 years. If you RENTED a condo out... you paid tax at your marginal rate on that income.

THIS is why Real estate HAS to go up reliably every year to break even. Homes have high carrying costs.
Yeah, renting with rent now at historical high and only will go up with time is much better option financially, right?
Newbie
Mar 13, 2010
40 posts
15 upvotes
mkjr wrote:
Mar 25th, 2019 12:33 pm
This is so true. I say the vast majority of people bury their heads in the sand and the response to your cogency is "well i have to live somewhere". you can not rationalize with canadians about whether home ownership is a sound investment or not since almost all of the people have no idea what their houses actually cost when you factor even property tax and mortgage interest alone (let alone all the other many numbers of costs down to the grass seed each spring). ...LITERALLY, ALMOST ALL CANADIANS HAVE NO IDEA. NONE!
You have to look further ahead. It can't be underestimated the value of having a paid off roof over your head by the time of retirement. In your old age, having comfort and one less thing to worry about can be more important than whether in the long run it cost more to buy or rent, as no one has a crystal ball for timing the housing market just like timing any investments.
Deal Addict
Aug 21, 2007
4433 posts
363 upvotes
skykisser wrote:
Mar 25th, 2019 3:08 pm
You have to look further ahead. It can't be underestimated the value of having a paid off roof over your head by the time of retirement. In your old age, having comfort and one less thing to worry about can be more important than whether in the long run it cost more to buy or rent, as no one has a crystal ball for timing the housing market just like timing any investments.
This is another one of the responses that lacks any investigation into the alternatives to have data support their decision. I give up trying to rationalize with the irrational Canadian home owners.
Deal Addict
Aug 21, 2007
4433 posts
363 upvotes
ilim wrote:
Mar 25th, 2019 1:15 pm
Yeah, renting with rent now at historical high and only will go up with time is much better option financially, right?
yet another irrational response.
Deal Fanatic
May 1, 2012
8207 posts
5495 upvotes
Markham
I see a lot of priced out jelly going about in here.
Deal Addict
User avatar
Dec 14, 2007
2982 posts
1398 upvotes
ilim wrote:
Mar 25th, 2019 1:15 pm
Yeah, renting with rent now at historical high and only will go up with time is much better option financially, right?
The price of cauliflower and tomatoes and milk also goes up. Condo fees go up. The price of maintaining a house also goes up. the cost of renovating a home also goes up. Of course rent goes up. It more or less tracks inflation or local job wages though, in most cities.

I'm not saying renting a home is always the best idea. I personally do not rent. However, I'm just commenting on the misconception that buying houses always make money and renting is like tossing your money down the drain. Like anything, it depends. Right now, I think you could probably strike a few deals. If you turn your house into a business a house can earn you money.

People very rarely actually consider the true cost of ownership. Just the other day, I had a family member who said they wish they had the flexibility to move closer in to town... I said it's too bad the market has kind of tanked.

The response: "Well, we could still sell now, we'd still be making $50,000 more than they paid... I asked if they factored in opportunity cost (~$2000/monthly they'd be earning with some very modest safe investments), real estate costs (mortgage is paid off), condo fees.

The predictable response: "That sounds risky"

My response: "If you invest in just one asset class, it is... like for example, real estate"

The thing is... houses are easy to understand. There's very little effort to understanding them. You don't need to be a genius... and there are armies of (realtors) who will gladly take your money to help you out with the buying and selling of them. Banks love them, because they're either CMHC-backed or equity-backed, and they're a real physical unmoving asset. Usually the harder something is to understand, the more opportunity there is to earn money. If it were easy, everyone would be doing it. So, I don't begrudge people who make these specious claims about real estate.
I'd love to write history... in advance.
AMEX Biz Plat 75K AGAIN! | Plat 60K | Biz Gold 40K | Gold 25K | SPG 20K
Deal Addict
User avatar
Dec 14, 2007
2982 posts
1398 upvotes
skykisser wrote:
Mar 25th, 2019 3:08 pm
You have to look further ahead. It can't be underestimated the value of having a paid off roof over your head by the time of retirement. In your old age, having comfort and one less thing to worry about can be more important than whether in the long run it cost more to buy or rent, as no one has a crystal ball for timing the housing market just like timing any investments.
I agree that having a place over your head has value in retirement. And totally agree about timing the market. That's why I just say buy if you can afford but buy based on location not features or newness etc. Real estate does fluctuate, but it fluctuates slowly enough that many large dips are hidden by inflation.

The one trap I DO see though is someone holding on to an old house out of sentimentality, instead of selling, downsizing... and spending half your time in a better climate over the winter.
I'd love to write history... in advance.
AMEX Biz Plat 75K AGAIN! | Plat 60K | Biz Gold 40K | Gold 25K | SPG 20K

Top

Thread Information

There is currently 1 user viewing this thread. (0 members and 1 guest)