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Vancouver housing bubble?

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Apr 27, 2015
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Excellent read regarding the housing situation in Vancouver right now.


http://vancouversun.com/news/local-news ... introduced

The Multiple Listing Service data obtained by Postmedia News and anecdotal information from 10 real estate agents suggests that the region’s previously ultrahot market for single-family houses has frozen solid. Some luxury homeowners have already slashed their asking prices in order to quickly escape dangerous market conditions.

“The detached market has just fallen off,” said realtor Steve Saretsky. “It’s crazy. It’s actually scary. The week the tax was announced, it went dead across the board.”

And in an indication of just how powerful a force offshore buying had become in the Lower Mainland, MLS figures shows that the high-priced areas with the highest percentages of foreign buyers — according to government statistics and real estate agents — are now suffering the steepest drop-offs.

“The offshore tax just put on the brakes,” said realtor Nirma Desai, who sells homes in south Surrey. “The offshore buyers became a huge portion of the market. They were the driving force.”

Some examples of key markets for offshore buyers:

• Richmond. From Aug. 1 to 15 last year, Richmond had 89 detached sales. For the same period this month, 12 homes were sold.

• West Vancouver: Last year, 59 detached homes were sold during the first half of August. This year, nine.

• Vancouver’s west side: 72 detached homes were sold in the first half of August 2015, but only 15 this year.

And realtors said they expect the second half of August to be even slower, as foreign buyers rushed into the market in late July and the first day of August to beat the introduction of the 15-per-cent tax.

Meanwhile, with Metro Vancouver buyers now demanding discounts in a slowing market and offshore buyers either leaving or making lowball bids, some realtors say they are advising clients to cancel listings and come back in September, a month which usually has brisk sales.

“I’m telling all my clients, if we’re going to do anything, let’s come back in September,” Desai said. “I think the offshore buyers are being savvy right now, and playing a waiting game.”

Desai says she’s cautiously optimistic sales will bounce back in September after the shock of the new tax wears off.

Steve Saretsky says this optimistic view is held by many realtors.

“I might be the only one willing to accept that it might be a crash,” he said. “But I think a lot of realtors have the conception that it will pick back up in September.”

Saretsky says he worries that all the inventory pulled from the market in August “because nothing is selling” could pile onto September’s normal housing supply and skew the market even further in favour of buyers.

Prices rose in Metro Vancouver by 30 per cent in the past year. But Saretsky notes that in Tsawwassen, where his mother is a prominent realtor, veteran realtors say that surreal price rises of 48 per cent last year were driven mainly by buyers with links to Mainland China. Over the past 60 days, the only successful sellers in Tsawwassen were ones that dropped their prices sharply, Saretsky’s MLS data shows, sometimes by over $300,000.

He says that if September also experienced steep sales drops across Metro, more realtors would be convinced a serious correction was underway.

Brent Eilers, a veteran West Vancouver realtor, says that based on reported sales across Metro Vancouver he can already predict that the average prices of detached homes for August will be down between 15 to 25 per cent. Those figures roughly agree with the “real-time” average prices for August 2016 posted online by a national real estate firm, Zolo.

Eilers cautions though, that it is “a bit unfair” to judge the market on a 30-day period.

Regardless, choosing his words carefully, Eilers repeatedly said that he is advising his sellers — many of whom are downsizing baby boomers — to sell sooner, rather than risk being caught in a severe correction.

“The tax grossly expanded a shutdown in the market that was already happening,” he said.

Eilers draws on 35 years of market history and four different corrections to advise his clients of a range of possibilities.

In 1980, mortgage interest rates rose as high as 21 per cent, dropping prices from 40 to 60 per cent over six months in a gut-wrenching correction that took years to recover from, Eilers says. In the next three corrections, including 2009, prices dropped about 10 to 25 per cent and recovered within about 18 months to new highs.

The similarity in all cases, he says “is the urgency or fear drifts from the buyers to the sellers overnight, and prices always follow several months after the slowing in sales. That is why it’s so dangerous.”

Even though interest rates are unlikely to rise this time, Eilers fears that banks will not extend loans to local buyers with relatively low incomes if rich offshore buyers who have driven the market suddenly disappear due to the tax.

“The structure of the current market suggests it could go” to a 1980-type correction, Eilers says. “What I see suggests that this correction could be more significant than ones in the recent past.”

Danny Evans, a Langley-based realtor, says in some areas he has seen sales drop by 95 per cent in August and buyers are only making lowball bids.

In one case, a Vancouver property he listed had received offers of $2.3 million and $2.45 million. “The day after the tax was announced, the offer was for $1.7 million,” Evans said.

Evans said he is optimistic sales will bounce back in September because he believes offshore buyers will find ways around the new tax. He said he has already seen that happen in one sale that he feared could collapse after the tax.

“I’m sure there is a lot of people that will no longer go on title, but there still will be money coming in from China,” he said. “It all now will be under the table, and there will be side deals for the people that are going on the title (as owners).”

Meanwhile, lower-priced Metro Vancouver homes, including condos and townhouses, are still selling in a slowing market, realtors say.

Stephanie and Corey Goudriaan, a couple in their early 30s, say they were happy to sell their Surrey condo in early August at a slight profit.

Stephanie Goudriaan says the couple is living with her parents while they consider whether to dive back into the market for a townhouse, or rent while hoping for a market drop.

“We are confused to be honest,” she said. “It’s a crazy market. After being in for six years, it feels like to stay out is a gamble, and not to get back in is a gamble.”

UBC real estate economist Tsur Somerville says he believes that the offshore buyer tax slowed sales, but he would caution against reading too much into August statistics.

“It was a dramatic intervention,” Somerville said. “Part of that could be the foreign buyers (exiting the market) but more critically I think it is people saying ‘I don’t know where this is going, let me wait it out.’ So that would cause a drying up in market liquidity in August.”
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Jan 27, 2015
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streits wrote: Excellent read regarding the housing situation in Vancouver right now.


http://vancouversun.com/news/local-news ... introduced

The Multiple Listing Service data obtained by Postmedia News and anecdotal information from 10 real estate agents suggests that the region’s previously ultrahot market for single-family houses has frozen solid. Some luxury homeowners have already slashed their asking prices in order to quickly escape dangerous market conditions.

“The detached market has just fallen off,” said realtor Steve Saretsky. “It’s crazy. It’s actually scary. The week the tax was announced, it went dead across the board.”

And in an indication of just how powerful a force offshore buying had become in the Lower Mainland, MLS figures shows that the high-priced areas with the highest percentages of foreign buyers — according to government statistics and real estate agents — are now suffering the steepest drop-offs.

“The offshore tax just put on the brakes,” said realtor Nirma Desai, who sells homes in south Surrey. “The offshore buyers became a huge portion of the market. They were the driving force.”

Some examples of key markets for offshore buyers:

• Richmond. From Aug. 1 to 15 last year, Richmond had 89 detached sales. For the same period this month, 12 homes were sold.

• West Vancouver: Last year, 59 detached homes were sold during the first half of August. This year, nine.

• Vancouver’s west side: 72 detached homes were sold in the first half of August 2015, but only 15 this year.

And realtors said they expect the second half of August to be even slower, as foreign buyers rushed into the market in late July and the first day of August to beat the introduction of the 15-per-cent tax.

Meanwhile, with Metro Vancouver buyers now demanding discounts in a slowing market and offshore buyers either leaving or making lowball bids, some realtors say they are advising clients to cancel listings and come back in September, a month which usually has brisk sales.

“I’m telling all my clients, if we’re going to do anything, let’s come back in September,” Desai said. “I think the offshore buyers are being savvy right now, and playing a waiting game.”

Desai says she’s cautiously optimistic sales will bounce back in September after the shock of the new tax wears off.

Steve Saretsky says this optimistic view is held by many realtors.

“I might be the only one willing to accept that it might be a crash,” he said. “But I think a lot of realtors have the conception that it will pick back up in September.”

Saretsky says he worries that all the inventory pulled from the market in August “because nothing is selling” could pile onto September’s normal housing supply and skew the market even further in favour of buyers.

Prices rose in Metro Vancouver by 30 per cent in the past year. But Saretsky notes that in Tsawwassen, where his mother is a prominent realtor, veteran realtors say that surreal price rises of 48 per cent last year were driven mainly by buyers with links to Mainland China. Over the past 60 days, the only successful sellers in Tsawwassen were ones that dropped their prices sharply, Saretsky’s MLS data shows, sometimes by over $300,000.

He says that if September also experienced steep sales drops across Metro, more realtors would be convinced a serious correction was underway.

Brent Eilers, a veteran West Vancouver realtor, says that based on reported sales across Metro Vancouver he can already predict that the average prices of detached homes for August will be down between 15 to 25 per cent. Those figures roughly agree with the “real-time” average prices for August 2016 posted online by a national real estate firm, Zolo.

Eilers cautions though, that it is “a bit unfair” to judge the market on a 30-day period.

Regardless, choosing his words carefully, Eilers repeatedly said that he is advising his sellers — many of whom are downsizing baby boomers — to sell sooner, rather than risk being caught in a severe correction.

“The tax grossly expanded a shutdown in the market that was already happening,” he said.

Eilers draws on 35 years of market history and four different corrections to advise his clients of a range of possibilities.

In 1980, mortgage interest rates rose as high as 21 per cent, dropping prices from 40 to 60 per cent over six months in a gut-wrenching correction that took years to recover from, Eilers says. In the next three corrections, including 2009, prices dropped about 10 to 25 per cent and recovered within about 18 months to new highs.

The similarity in all cases, he says “is the urgency or fear drifts from the buyers to the sellers overnight, and prices always follow several months after the slowing in sales. That is why it’s so dangerous.”

Even though interest rates are unlikely to rise this time, Eilers fears that banks will not extend loans to local buyers with relatively low incomes if rich offshore buyers who have driven the market suddenly disappear due to the tax.

“The structure of the current market suggests it could go” to a 1980-type correction, Eilers says. “What I see suggests that this correction could be more significant than ones in the recent past.”

Danny Evans, a Langley-based realtor, says in some areas he has seen sales drop by 95 per cent in August and buyers are only making lowball bids.

In one case, a Vancouver property he listed had received offers of $2.3 million and $2.45 million. “The day after the tax was announced, the offer was for $1.7 million,” Evans said.

Evans said he is optimistic sales will bounce back in September because he believes offshore buyers will find ways around the new tax. He said he has already seen that happen in one sale that he feared could collapse after the tax.

“I’m sure there is a lot of people that will no longer go on title, but there still will be money coming in from China,” he said. “It all now will be under the table, and there will be side deals for the people that are going on the title (as owners).”

Meanwhile, lower-priced Metro Vancouver homes, including condos and townhouses, are still selling in a slowing market, realtors say.

Stephanie and Corey Goudriaan, a couple in their early 30s, say they were happy to sell their Surrey condo in early August at a slight profit.

Stephanie Goudriaan says the couple is living with her parents while they consider whether to dive back into the market for a townhouse, or rent while hoping for a market drop.

“We are confused to be honest,” she said. “It’s a crazy market. After being in for six years, it feels like to stay out is a gamble, and not to get back in is a gamble.”

UBC real estate economist Tsur Somerville says he believes that the offshore buyer tax slowed sales, but he would caution against reading too much into August statistics.

“It was a dramatic intervention,” Somerville said. “Part of that could be the foreign buyers (exiting the market) but more critically I think it is people saying ‘I don’t know where this is going, let me wait it out.’ So that would cause a drying up in market liquidity in August.”
Another clueless realtor and a facts-don't-matter writer. The actual # of foreign buyers was way less than 10% and the reason the market has become solid is because of local buyers, not because of any Chinaman. LOL.

Funny read, though.
Member
Apr 27, 2015
441 posts
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FinancialFreedom wrote: Another clueless realtor and a facts-don't-matter writer. The actual # of foreign buyers was way less than 10% and the reason the market has become solid is because of local buyers, not because of any Chinaman. LOL.

Funny read, though.
Actually the key areas for foreign buyers the article was referencing, such as Richmond for example, was much higher at 18% foreign buyers.

http://www.cbc.ca/news/canada/british-c ... -1.3695439
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Aug 15, 2013
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FinancialFreedom wrote: the reason the market has become solid is because of local buyers, not because of any Chinaman. LOL.
Mind explaining how the locals with a median household income of around $70k, are buying houses with a price tag of $1.4Mn (benchmark price)
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Jan 20, 2016
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dundeal wrote:
FinancialFreedom wrote: the reason the market has become solid is because of local buyers, not because of any Chinaman. LOL.
Mind explaining how the locals with a median household income of around $70k, are buying houses with a price tag of $1.4Mn (benchmark price)
Using existing property as downpayment. Let say they had 500k home 5y ago with 400k mgtg, now if this home is priced 1.2M and they have 300k mgtg, they can topup 200k and buy 1.4M (theoretically 500k on 30y will be just 32% from year income so they could qualify on it and even it will be equity left for HELOC, lol)

For first time home buyers it's quite impossible to take it without help of bank of mam&dad (which also a factor reported). But for upsizing or moreover downsizing buyers it's not a showstopper.
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dundeal wrote:
FinancialFreedom wrote: the reason the market has become solid is because of local buyers, not because of any Chinaman. LOL.
Mind explaining how the locals with a median household income of around $70k, are buying houses with a price tag of $1.4Mn (benchmark price)
Because the banks are giving away money, and assume no risk in doing so. Also remember, that most 1.4M $ houses have 3 income-generating suites available. 1 legal suite, 1 laneway home, 1 illegal suite. $1200 for each suite ( typical ) and $1800 for the laneway. $4200 / month in ( taxable ) income. That would go a long way to offsetting a $1M mortgage, even if you only had $400k to put down in equity from another home.

Yes, it means you're forced to be a landlord and have the stress of keeping 3 suites rented out, but hey... that's the cost of ownership... instead of properly densifying a neighbourhood by disallowing pseudo apartments and forcing developers to rezone and do it properly by building a multi-unit building, townhouses, rowhouses, or duplexes, we decided ( stupidly ) that it would be better to force any family that wants a SFH to become an amateur landlord.
I'd love to write history... in advance.
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asa1973 wrote:
dundeal wrote:
FinancialFreedom wrote: the reason the market has become solid is because of local buyers, not because of any Chinaman. LOL.
Mind explaining how the locals with a median household income of around $70k, are buying houses with a price tag of $1.4Mn (benchmark price)
Using existing property as downpayment. Let say they had 500k home 5y ago with 400k mgtg, now if this home is priced 1.2M and they have 300k mgtg, they can topup 200k and buy 1.4M (theoretically 500k on 30y will be just 32% from year income so they could qualify on it and even it will be equity left for HELOC, lol)

For first time home buyers it's quite impossible to take it without help of bank of mam&dad (which also a factor reported). But for upsizing or moreover downsizing buyers it's not a showstopper.
This bit has been discussed earlier in this thread. The problem with this idea of a small upgrade is that most people won't want to do it (unless they are moving from the Vancouver to South Surrey) as the 'upgrade' may not be a true upgrade in a rapidly appreciating environment like Vancouver is/was.

Let's take your example and say the owners do the typical thing of selling first and buying afterwards. They put their house on the market for $1.2 million and finally settle for an over asking price of $1.30 million with a closing date of 90 days... so they have 90 days to close on another property and move out. So they start shopping with an extra $100,000 in their budget and start looking for a $1.4 million home. With the rapid price inflation, that $1.4 million dollar home might be actually $1.5 million by the time they find it... then the bidding war starts and it goes for over asking at $1.6 million but they didn't get it as someone outbid them. Can't happen? Happens all of the time in a rapidly increasing market. So, they find another house in their budget and bid... meanwhile the clock is ticking on the 90 days as well the price of housing is increasing while their budget stays the same. So, at the end of the day, the owners might win one but may end up with a house that was valued only slightly higher than when they started due to price appreciation as well as bad luck in a bidding war... Very few people want to go through that much trouble with so little gain; hence, the low inventory numbers as people don't want to sell as they have a fear of not being able to get the replacement property they want at a price they can afford.
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Nobody prevents to buy first and sell later, most ppl do exactly in this way especially in growing market. In such way they can buy 1.2M house and later sell their for inflated 1.4M and become mortgage free :)

The question was how it's possible to buy house 20x income. The answer it's possible with leverage of existing property. Details of implementation could be different.

P.s. our friends bought 900k house being able to handle only 400k mortgage just because they sold a previous house with 200k mortgage on it for 700k and refinance the difference. Now they are paper half-millionaires from having only 50k 6 years ago :) (bought first house for 350k with 300k mortgage)
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asa1973 wrote: Nobody prevents to buy first and sell later, most ppl do exactly in this way especially in growing market. In such way they can buy 1.2M house and later sell their for inflated 1.4M and become mortgage free :)
That's right that nothing is stopping people from buying first and then selling except for the fear that they will be stuck with two houses if they can't sell and close on time as most houses these days are brought and sold without any subjects... Irrational fear? maybe. But if you ask most home owners, it's a legitimate fear.
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“I’m telling all my clients, if we’re going to do anything, let’s come back in September,” Desai said. “I think the offshore buyers are being savvy right now, and playing a waiting game.”

Desai says she’s cautiously optimistic sales will bounce back in September after the shock of the new tax wears off.
Bounce back? This realtor is in for a huge shock.

Wait until September? Hahaha. Yes because September is a great time to sell a house. This is only going to get worse.

But we really won't know anything until next year in Spring.
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I heard the US is going to raise interest rate soon. If we value our Canadian dollars, we will follow suit.
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atomiton wrote: Also remember, that most 1.4M $ houses have 3 income-generating suites available. 1 legal suite, 1 laneway home, 1 illegal suite. $1200 for each suite ( typical ) and $1800 for the laneway. $4200 / month in ( taxable ) income. That would go a long way to offsetting a $1M mortgage, even if you only had $400k to put down in equity from another home.

Yes, it means you're forced to be a landlord and have the stress of keeping 3 suites rented out, but hey... that's the cost of ownership...
Yes, welcome to beautiful Vancouver... where the "cost of ownership" is being a landlord just to pay the mortgage. Sounds fun. Work all day then come home and be a landlord, and have 5-10 people living on your property with you and inside your home.
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craftsman wrote:
asa1973 wrote: Nobody prevents to buy first and sell later, most ppl do exactly in this way especially in growing market. In such way they can buy 1.2M house and later sell their for inflated 1.4M and become mortgage free :)
That's right that nothing is stopping people from buying first and then selling except for the fear that they will be stuck with two houses if they can't sell and close on time as most houses these days are brought and sold without any subjects... Irrational fear? maybe. But if you ask most home owners, it's a legitimate fear.
When I bought my townhouse 6y ago and for now, the average DOM for TH and low-price houses is about ONE day, and multiple offers usually. If priced to market and no "gems". So for almost every homeowners I know, there is NO fear to not to sell, it's a fear not to find what do you want.

What differentiate REAL homeowner from flipper - flipper will sell once he will think it's most profitable, then yes it could be hard to buy for same price. However most NORMAL people FIRST found where to live next and buy it, and only after that sell their home. And as I said, for GVR (at least till August ;) ) and GTA "sellers" markets there is hardly a problem to sell fast . For flat markets like Ottawa or declining, yes, this could be an issue.
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Vancouver has nowhere to go but down from here - and it is YEARS overdue.
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dundeal wrote:
FinancialFreedom wrote: the reason the market has become solid is because of local buyers, not because of any Chinaman. LOL.
Mind explaining how the locals with a median household income of around $70k, are buying houses with a price tag of $1.4Mn (benchmark price)
Smarter posters have already mentioned how the locals are `affording`these homes. In simple language, it is about the fear of missing out.
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FinancialFreedom wrote:
dundeal wrote:
FinancialFreedom wrote: the reason the market has become solid is because of local buyers, not because of any Chinaman. LOL.
Mind explaining how the locals with a median household income of around $70k, are buying houses with a price tag of $1.4Mn (benchmark price)
Smarter posters have already mentioned how the locals are `affording`these homes. In simple language, it is about the fear of missing out.
Fear doesn't make you able to afford that type of mortgage on that low of an income.
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FinancialFreedom wrote:
dundeal wrote:
FinancialFreedom wrote: the reason the market has become solid is because of local buyers, not because of any Chinaman. LOL.
Mind explaining how the locals with a median household income of around $70k, are buying houses with a price tag of $1.4Mn (benchmark price)


Smarter posters have already mentioned how the locals are `affording`these homes. In simple language, it is about the fear of missing out.
Help from family/inheritance is also driving the buying.

It really boils down to who bought early enough. The $1.4M vs $70k of median income comparison is valid only for first-time buyers (and I use "only" not because I do not think first-time buyers do not matter). If someone makes $70k but was able to get in around 2005 for about $400k, that person is in a lot better shape and the 20X ratio is irrelevant to that person.
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asa1973 wrote: However most NORMAL people FIRST found where to live next and buy it, and only after that sell their home. And as I said, for GVR (at least till August ;) ) and GTA "sellers" markets there is hardly a problem to sell fast .
That's only in markets were you can put a subject in place - ie. I'll buy your house subject to getting financing (like selling the existing home). If you can't put any subjects down (like in the market prior to August), then you are gambling with timing. If it works out, great! If not, you suddenly have two houses rather than one!
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Chickinvic wrote:
FinancialFreedom wrote:
dundeal wrote:

Mind explaining how the locals with a median household income of around $70k, are buying houses with a price tag of $1.4Mn (benchmark price)
Smarter posters have already mentioned how the locals are `affording`these homes. In simple language, it is about the fear of missing out.
Fear doesn't make you able to afford that type of mortgage on that low of an income.
Not everyone is buying $1.4M homes as not everyone can afford it. I know of so many families who are stretched out thin so that they can just get in. These families have homes & townhomes costing between $700K and $1.7M.
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FinancialFreedom wrote:
Chickinvic wrote:
FinancialFreedom wrote:

Smarter posters have already mentioned how the locals are `affording`these homes. In simple language, it is about the fear of missing out.
Fear doesn't make you able to afford that type of mortgage on that low of an income.
Not everyone is buying $1.4M homes as not everyone can afford it. I know of so many families who are stretched out thin so that they can just get in. These families have homes & townhomes costing between $700K and $1.7M.
The people buying these >$1m homes are hardly first time home buyers... These people are those that have an existing condo/townhome with equity in it. They're selling at high prices and taking on larger mortgages.

No family with $70k annual is buying anything that has to carry a $1m mortgage.

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