December 3, 2016

The Housing Bubble Playing Out

A report from Bloomberg on Canada. “Vancouver home sales plunged 37 percent in November from a year earlier, extending the slowdown in Canada’s most expensive property market for the fifth straight month. Sales have been falling year-on-year since July, with buyers sitting out as the price of a typical home skyrocketed to more than 12 times the median household income of residents in Vancouver. It topped a list of global cities identified by UBS Group AG as most at risk of a housing bubble. Further policy measures aimed at cooling the market contributed to the slowdown, including a 15 percent tax on foreign buyers imposed by British Columbia’s provincial government in August, tighter federal mortgage insurance eligibility requirements in October, and plans by the city to start taxing vacant homes next year.”

The Vancouver Sun. “Following a year of double-digit increases, the B.C. Real Estate Association is predicting average home sales prices will drop by as much as 8.7 per cent next year in the Vancouver area and across B.C. ‘We have to consider the source,’ said Andrey Pavlov, a professor of finance at the Simon Fraser University’s Beedie School of Business. ‘This is basically an industry group, and they have incentives to paint the real estate market in the best terms possible. With this in mind, if they’re forecasting a decline, then in my view things are probably pretty bad.’”

The Richmond News. “Realtor Steve Saretsky’s observed a lot of changes in Richmond when he comes back to visit the few friends and family members who remain. Among the many observations Saretsky has made, one in particular warranted further investigation using his professional acumen — that of seemingly empty condos and houses. Driving into Richmond, it appeared to Saretsky as though many of the units in the new 12-or-so-storey apartment towers were unoccupied.”

“Between January and October of this year he found that 46 per cent of condo sales were sold as vacant. ‘Many times it can make a sale easier. But still, 46 per cent?’ exclaimed Saretsky, who has dubbed Richmond the ‘Ghost City.’”

“Saretsky considers the prevalence of foreign investors and speculators in Richmond is likely the key contributor to the empty-home phenomenon — one that has taken hold in numerous ‘global’ cities around the world, as well as China itself as investors pump trillions of dollars into real estate to shelter their money. ‘Never has there been more evidence stacking up and showing the impacts of foreign capital coming in and distorting the real estate market. Richmond is the prime example,’ noted Saretsky.”

From Better Dwelling. “Vancouver real estate is a unique market. Where else in the world would you find smurfing, money laundering, abandoned mansions, and now the arson of vacant multi-million dollar homes. Since the announcement of the vacant home tax, officials suspect more than $60 million in property has been set ablaze in what authorities are calling ’suspicious.’ Year to date, we’ve identified 29 fires at vacant homes, a 480% increase from the year before. The total value of the places in question have an assessment value of over $100 million, and almost all were scheduled for redevelopment or have been vacant for years.”

“One person has been arrested in connection with the fire of a $20 million place on Drummond Ave. Details of the arrest sound like they knew what they were doing, intentionally placing holes in the walls so fire would consume the home faster. Police say at this time, they have no evidence that the person is connected to any other fire.”

The Globe and Mail. “Part-time work is fuelling Canada’s job growth this year, a discouraging trend for a country still desperately trying to recover from the oil slump. Alberta has been responsible for most of the full-time job losses. In the 12 months to November, the province eliminated a staggering 74,000 full-time positions. ‘We are going to find out how much of what was going on in B.C. was really just linked to what was going on in the housing market,’ said David Watt, chief economist with HSBC Bank Canada. ‘If the housing market comes off the boil and it looks like it has, the job market is going to come off the boil. We will see if there was underlying economic vigour or just the housing bubble playing out.’”

The Estevan Mercury. “Not long ago, Estevan was home to one of the hottest rental property markets in the country. The rental vacancy rate often hovered at or around zero, and the cost for rent each month was among the highest in Canada. But that trend has reversed in recent years, thanks to new rental properties that were constructed in 2013 and 2014, an influx of condominium properties for purchase in the city, and the economic slowdown that stemmed from a lower price of oil. The Canada Mortgage and Housing Corporation showed that Estevan’s vacancy rate was at 27.6 per cent in October, up from 20.8 per cent a year earlier. It was the highest vacancy rate in the province among 10 cities ranked by CMHC.”

“Lloydminster (25.4 per cent) and Weyburn (20.2 per cent) were second and third, respectively. ‘The economic base for all three centres relies on the energy sector,’ CMHC stated in its report. ‘With energy prices remaining supressed, economic activity has been curtailed sharply, leading to a significant reduction in rental demand.’”

The Calgary Herald. “Local home sales slipped in November following two months of improved year-over-year activity, the Calgary Real Estate Board reported. Detached home prices dropped to $498,300, the first time since early 2014 that it’s been below $500,000. ‘These monthly figures aren’t a big surprise given the dynamics of our market right now,’ said CREB president Cliff Stevenson. ‘We’ve seen pockets of sales activity in certain areas, but also lots of months where the expectations between buyers and sellers just aren’t matching up. November was one of those months.’”

The Real Estate News EXchange. “While David Campbell has worked in Calgary commercial real estate for more than 25 years, the broker/owner of D.C. & Associates Realty became involved with a new specialization in 2010: judicial sales. ‘The judicial sale process is set up to allow lenders to get paid on debt that has fallen into arrears,’ said Campbell. ‘It provides protection to the property owner insofar as the property is not owned by the bank like a foreclosure. The property is placed on the open market at a price that is set by the court.’”

“It’s not surprising that there’s been an increase in judicial sales in Calgary and Alberta over the past two years as a result of the province’s slowing economy due to a drop in oil and gas prices. Campbell is somewhat worried that there will be a rise in residential judicial sales, as people who’ve been laid off from the oil patch begin to run out of their savings. ‘The best advice I can offer those sellers would be that they should be realistic about the value of their home. An overpriced property with an owner who has unrealistic expectations causes more problems to the seller than they often think.’”