April 23, 2015

Gravity Has Been Revealed

Business in Vancouver reports from Canada. “When more than 2,000 buyers crammed into a Surrey sales site April 18 they may have ended debate about the future of tiny condos in Metro Vancouver’s white-hot housing market. Buyers had lined up from four in the morning for a chance to buy a 316-square-foot micro-sized condo for $93,900. That single loss leader sold to an Edmonton investor minutes after the noon opening of the Evolve sales office. But, within 90 minutes, 300 of the 406 tower condos had sold, including nearly all of the 35 micro suites, at prices from around $134,000.”

“200 of the 361 condos will be micro units of around 304 square feet. These condos, which include built-in, fold-down beds that convert to a dining table, will start from $139,900, said Jon Stovell, head of acquisitions and development for Reliance. While developers tout the tiny condos as a solution for young first-time buyers, the majority of sales are to investors, Stovell confirmed. ‘Small condos can be a great investment,’ Stovell said.”

The National Post. “China’s massive Operation Skynet fraud squad is now rummaging through Vancouver’s real estate industry. Over its final decade or so, the Immigrant Investor Program drew more than 30,000 Chinese millionaires to British Columbia. Just one of the unseemly costs of Ottawa’s wheel-greasing for Beijing’s princelings is a sum that might well amount to billions of dollars in no-interest loans that should have gone to British Columbia’s provincial treasury. Instead, the money got spent on thousands of back-door keys the Canada-Quebec Accord made available with a wink and a nod to Chinese millionaires.”

“Nobody seems to even know where all these bigshot investors have gone. Surveys by the China Merchants Bank show that nearly a quarter of Mainland China’s millionaires had already emigrated by 2013, but vacancy rates in Vancouver’s posh new condo districts are perhaps 30 per cent.”

From Yale Global. “For years, the global community praised Canadian financial conservatism and the country’s success in skirting the global financial crisis. The country is today one of the world’s most vulnerable large economies, and there are three key reasons for this precarious position: First, Canadian household debt levels are extremely high by almost any measure. Second, housing prices are elevated and continue to rise, driven by both confident Canadians and foreigners. More debt accompanies these higher prices, further escalating the vulnerability. Lastly, the proverbial straw that may break the Canadian camel’s back is the recent collapse of crude oil prices.”

“Total household debt, C$1.82 trillion, now exceeds GDP, C$1.6 trillion, approximately C$1.3 trillion of which was for residential mortgages. Further, household debt is now more than 160 percent of disposable income. And then there’s the Canadian shadow-banking sector that is booming. As a result of regulatory efforts to contain the housing froth, mortgages insured by the Canadian government are no longer growing. Uninsured private mortgages are filling the void. This private uninsured mortgage market is a booming subprime industry, similar to the one that brought down US financial system in 2006-7.”

The Toronto Star. “Renters rejoice. So many new rental condos are now hitting the Toronto market that competition is mounting among landlords to keep rents in line and tenants from flocking to the newest glass-and-granite boxes in the sky. Total rental listings were up 21 per cent in the first quarter of this year alone as the number of new projects registering in the GTA skyrocketed by 42 per cent.”

“A stunning 22,500 units have been completed since last June, with thousands more on the way, many of which are likely to end up as rentals, says Urbanation. ‘We’ve seen a modest reduction in some key sectors of the rental market that have experienced rapid rent growth over the last five years,’ said Urbanation senior VP Shaun Hildebrand.”

From Metro News. “Eager renters looking for a space to call home may actually benefit from the oil bust, a market hiccup that according the the Canadian Mortgage and Housing Corporation is bringing up the vacancy rate and morphing the local rental environment. If trends continue, Calgary could be looking at a renters’ marketplace, escaping the landlords’ grip on space.”

“Darren Paddock of Rentfaster.ca, one of Calgary’s most popular rental listing pages, said they’ve seen available rentals rise over two years – from 2,300 listings in April 2013 to over 4,900 in April 2015 – and have also noticed rentals take longer to fill than in the past. The demand has waned considerably, considering the economy,’ said Paddock.”

From CBC News. “In light of a recent Economist magazine analysis that tracked Canada’s housing prices as being overvalued by 35 per cent, Hilliard MacBeth says it’s clear the world is forecasting grim tidings for Canadian real estate. ‘Our bubble is bigger,’ says MacBeth, author of When the Bubble Bursts: Surviving the Canadian Real Estate Crash, noting U.S. investment in housing topped out at six per cent of GDP before the crash. ‘At seven per cent, our exposure as a percentage of total economic activity is higher, and then we’ve got this nationwide obsession with buying homes and condos,’ he said from Edmonton.”

“CREA’s president, Pauline Aunger characterized the recent bout of low mortgage rates as ‘good news for affordability,’ but these low rates are also driving up demand and pushing up housing values, analysts say. Current promotional rates are as low as 2.74 per cent on a five-year fixed mortgage.”

“Toronto real-estate broker Barry Lebow believes a market correction now would be traumatic. ‘I’m in the business and it scares me,’ he said. ‘We’ve got a huge percentage of the population that has never seen a downturn in real estate, including a good percentage of real estate agents. When a downturn comes, it’ll be like gravity has been revealed.’”

Bits Bucket for April 23, 2015

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