The Housing Bubble

The Business News Network reports from Canada. “There’s a good chance Vancouver’s hot housing market has hit its peak, following a similar pattern to that of crashes in oil, gold prices and the dot-com bubble, according to LePoidevin Group’s senior vice-president and portfolio manager. David LePoidevin told BNN that Vancouver’s runaway housing prices echo the last, big ‘bubbly’ moves seen before other price crashes. ‘The last move in any market that gets bubbly is the biggest,’ he said. ‘Look at oil going to $147 in the last few years before it crashed … at the Nasdaq, where yours truly started selling short tech shares in January 2000 when the Nasdaq was at 4,000. By April it was at 5,000 – it had gained 25 per cent in four months.’”

“When prices level off, that’s when danger really begins to set in for investors, LePoidevin said. He warns that one of the main drivers of Vancouver’s run-up in housing prices – foreign capital flows – could be slowing, as China looks to ramp up efforts to halt capital outflows and Ottawa makes its own assessments. ‘We’re starting to see something you haven’t seen in a long time when you’re driving around Vancouver: ‘For Sale’ signs,’ LePoidevin said. ‘The market was once so hot, the sold sign would go up before the ‘For Sale’ sign.’”

From The Province. “While the benchmark price for typical single-family homes rose to $1.56 million, according to the Real Estate Board of Greater Vancouver, the number of sales of those houses dropped by about 19 per cent. In east Vancouver, detached home sales declined by 26 per cent, and on the west side, by 36 per cent. Those declines come even as the number of listings rose. In the first six months of 2015, there were 72 sales for every 100 listings in east Vancouver. A year later, that dropped to 59 sales for every 100 listings. Similar changes were experienced in Burnaby, Richmond, South Delta and New Westminster.”

“There’s no hint in the numbers of prices cooling off so far, but there is scattered anecdotal evidence of homeowners dropping their asking price after they fail to get the desired offers. Ian Tang of Oakwyn Realty noted that in one extreme example, the list price of an east Vancouver home was recently cut by about $400,000. ‘There are other instances where properties have been up for $1.2 million or $1.3 million, which seems reasonable in comparison to what’s been happening, but then they drop it (by) $100,000,’ he said.”

From Global News. “Cameron Muir, the chief economist for the B.C. Real Estate Association, the professional association for B.C. realtors, is one of few who deny there is anything unusual about Vancouver’s scorching market. When asked about a bubble, Muir laughed the label off. ‘A bubble is where prices grow at an unsustainable rate for a long period of time, where you end up seeing rampant speculation in the market place,’ he added. ‘This current market cycle has been rather short to be calling it a housing bubble. One year of pretty strong price growth in the market is not enough evidence to suggest there is a bubble.’”

“In fact, Vancouver’s detached home market has been growing at a steady rate since 2002, aside from a short hiatus around the 2008 recession. The benchmark price for these properties increased 290 per cent from 2002 to 2016. The previous 14-year period (1988 to 2002) saw an increase of 122 per cent.”

“‘Just because you see the sales-to-active listings ratio edging lower, that’s no indication of any kind of bubble bursting. In fact, I don’t think there’s any economist around that’s telling you there is a housing bubble in Vancouver,’ said Muir.”

From News 1130. “If you want to know the real cause of skyrocketing home prices, looking at foreign buyer stats isn’t the answer, according to a local realtor. This comes a day after the province shared numbers indicating foreign buyers made up five percent of Metro Vancouver buyers during a 19-day stretch in June. The number shared for that three-week period by the province’s own admission doesn’t tell the whole story.”

“‘The numbers are probably accurate,’ says Keith Roy with Re/Max Select. ‘There’s probably a low percentage of foreign nationals who are actually buying homes in Vancouver. The issue is where the money is coming from. As an active realtor in Vancouver, what I’m seeing on the West Side and throughout the Lower Mainland right now, is a lot of that money is coming from China. There’s a lot of deals that I’m doing, where the buyer is saying, ‘oh, I need another week for financing,’ or ‘can we move completion because the money hasn’t come in from where the money’s coming from.’ It’s not necessarily about foreign individuals owning properties in Vancouver. The real issue is foreign money that’s driving the whole process.’”

The Guardian. “Over the past year, the price of a single family house in Vancouver increased by an incredible 30%, to an average of $1.4m. It’s just the latest, most dramatic jump in an already dramatic long-term trend that has turned the beautiful but unassuming Canadian city into one of the world’s least affordable, with a housing price-to-income ratio of 10.8. That’s third after Hong Kong and Sydney, and well ahead of London, which ranks eighth at 8.5.”

“Driving the rise is an unprecedented flood of foreign capital, mainly from China. ‘What you have is a huge pool of very wealthy people who want to hedge against uncertainty back home,’ says Thomas Davidoff, a real estate economist at the University of British Columbia (UBC). ‘Combine anxious money – a lot of it – with a beautiful gateway city that has limited space to build, low property taxes, lax regulation on capital flows, and wealth-friendly immigration programmes, and you get a market like this one.’”

“Compounding the frustration is the fact that, according to experts, a major portion of the money flooding into the market is hot. Officially, the Chinese government limits the amount of money individuals can take out of the country per year to US$50,000. And yet, hiding behind an absence of good data, government officials have mostly refused even to admit that foreign capital is making it impossible to buy a house in Vancouver – let alone act to level the playing field, for instance via a progressive property tax.”

“‘I find it astonishing that Hong Kong, Singapore, Sydney, and London all have had right-wing, market-friendly governments which have intervened quite aggressively in trying to address unaffordability, yet nothing has happened here,’ says David Ley, a UBC geography professor and wealth migration expert.”

The Georgia Straight. “Justin Fung: An open letter to those who play the race card in the Vancouver housing affordability debate. As one of the resident Chinese-Canadians on the HALT (Housing Action for Local Taxpayers) team, I was particularly frustrated to see this misleading headline on the front page of the Vancouver Sun ‘Is Racism Part of the Issue? Of course it is.’”

“Every time we make progress on trying to address housing affordability, we end up getting sidetracked and pulled back to square one with cries of racism. We’ve already seen Gregor Robertson and Bob Rennie do it once, calling out academically peer-reviewed research done by Andy Yan as being ‘racist.’ Now it is Pete McMartin of the Vancouver Sun and Charlie Smith of the Georgia Straight just days after Mike De Jong’s foreign ownership ‘data’ got debunked as being completely irrelevant.”

“If anything, it’s the Pete McMartins and Bob Rennies of the world who would take advantage of our Canadian politeness and welcoming nature toward people of all races to suggest that racism is what fuels the Vancouver housing affordability discussion. Sure, actual racism does exist and I’ll be the first one to call it out when I see it, but the vast majority of Canadians who want a fair shot at an affordable roof over their heads simply don’t have a racist bone in their bodies.”

“It’s never been about the Chinese people as a race, but the fact that money is flowing out of China and finding its way into Vancouver real estate. The fire hose of foreign capital finding its way into the Vancouver real estate market is the real problem, pricing out anyone making a living locally. It lines the pockets of a select few in this town (namely property developers and realtors) while doing little for the vast majority of us struggling to pay rent and make ends meet or trying to get into the housing market.”

“This isn’t about how world-class this city is, it’s empty monster houses, the Ultra Rich Asian Girls of Vancouver, money laundering, immigration fraud, New Coast Realty, shadow flipping, or UBC students with $31-million Point Grey mansions. Sure, these are all interesting issues in their own right, but at the very core of the matter is the simple fact that Vancouver’s housing prices are entirely out of the reach of someone earning an income locally in the city.”

“It has everything to do with the corrupt and complicit politicians who serve the corrupt needs of a B.C. real estate industry whose continued success depends entirely on us turning a blind eye to the obvious problem. This corruption seeps into the media—newspapers and TV stations whose operating costs are paid for by advertising that is increasingly dependent on the real estate industry. Perhaps it’s no wonder that certain members of the media have a vested interest in seeing the race card getting played yet again.”

“It’s almost as if those who would stand to lose the most in addressing the problem are the same ones crying racist. Let’s stop talking about racism in Vancouver real estate. It’s distracting us from getting to solutions to making housing affordable for those of us who call this city home. It’s time we cut through the bullshit and hold our elected political leaders accountable for the mess they refuse to clean up.”