The Housing Bubble

A report from Western Investor in Canada. “A sustained attack on buyer demand in Vancouver’s detached housing market has decimated sales and is leading to ‘unbelievable’ price reductions. If government plans were to crush sales in the city’s premiere residential market it has been spectacularly successful, according to recent real estate data and frontline agents. ‘Detached house sales on Vancouver’s west side are down 70 per cent in the first three months of this year as compared to 2016,’ said Brent Eilers of Re/Max Masters Realty of West Vancouver. ‘As Don Meredith from Monday Night Football used to say ‘turn out the lights, the party is over,’ Eilers said.”

“The party ended early, he said, for high-end builders and investors, with sale prices for Vancouver detached houses priced at $5 million or more down 15 per cent to 18 per cent this year compared to 2017. He, and other agents, say the crunch will come this spring with the traditional flood of listing onto the market as the first-quarter statistics are released. ‘It will be hard to hide what is really happening,’ Eilers said.”

“Eilers said the federal government stress test and higher mortgage rates have frozen first-time buyers out of the market, while B.C.’s foreign buyer tax, school tax and speculation tax have driven away foreign buyers. ‘So, unlike in other downturns, we don’t have fresh money coming into the market. Eilers provided examples of expensive Vancouver houses that have seen dramatic price reductions, including a South Granville house that was listed for $11.9 million October 2017 and sold in February for $9.9 million; and a Shaughnessy house, listed last fall for just under $12 million that sold last month for $8.4 million.”

“The lower end is also being affected, agents say. ‘We are seeing unbelievable price drops,’ said David Richardson, a veteran agent with Re/Max Crest Westside. He estimated some Kitsilano detached house sellers listing in the $2 to $3 million range have taken a 20% to 25 per cent haircut on recent prices compared to two years ago.”

“Across Vancouver, it now takes an average of 50 days for a detached house to sell, more than twice as long as two years ago before the government intervention and higher taxes began. Some Vancouver detached house sellers, Eilers suggested, will be forced to bite the bullet. ‘You cannot be down catastrophically in sales and not eventually have an affect on prices,’ Eilers said.”

From Bloomberg on Canada. “The high-end of Toronto’s housing market is bearing the brunt of declines from last year’s dizzying growth, with prices falling and unit sales slumping by almost half. Sales of detached homes in and around Canada’s biggest city fell 46 per cent in March from the same month a year ago, while the average price fell 17 per cent to $1.01 million, according to the Toronto Real Estate Board. That dragged down the average selling prices for all housing types by 14 per cent from a year earlier to $784,558, the biggest drop since 1991.”

“Sales for the market as a whole, including condos, townhouses, and semi-detached homes, fell 40 per cent to 7,228 units in March from a year ago but were up from February. That’s the lowest sales figure for March since 2009. Canada’s biggest housing market has been adjusting to new rules that make it harder for buyers to qualify for a mortgage, curbs on foreign purchases and rising interest rates. Federal and provincial governments have been gradually tightening market conditions to tame prices that skyrocketed last year.”

“‘Right now, when we are comparing home prices, we are comparing two starkly different periods of time: last year, when we had less than a month of inventory versus this year with inventory levels ranging between two and three months,’ Jason Mercer, director of market analysis, said in the report. ‘It makes sense that we haven’t seen prices climb back to last year’s peak.’”

From the Vancouver Sun in Canada. “China says the former chairman of Beijing-based Anbang Insurance Group defrauded mom-and-pop retail investors of more than US$10 billion and the company used that money to buy trophy assets overseas, including prime office towers in downtown Vancouver and a major B.C. seniors’ care company. The allegation puts these B.C. deals, which each exceeded $1 billion, into the world of what is emerging as one of China’s biggest financial crime trials.”

“Since a 2015 exposé in The New York Times about ‘hidden global wealth’ pouring into Manhattan’s most elite condo buildings, there has been some attention on a ‘growing proportion’ of wealthy foreigners, who have been the subject of government inquiries in their home countries for cases involving white-collar housing or environmental violations and financial fraud, buying assets in North America with few questions asked. Alesia Nahirny, executive director of Transparency International Canada, says it’s a problem if Anbang has been diverting funds into deals in Canada that it raised by aggressively promoting risky wealth-management products to unsophisticated investors in China.”

“‘(Money from) practices that happen elsewhere is coming to us. We are connected to it. If we are not putting the proper measures in place, we are complicit,’ says Nahirny.”

“‘It’s so interesting,’ says Christine Duhaime, a Vancouver-based lawyer. ‘Goodness knows what it means for the Vancouver assets other than there will be a fire sale to get rid of them.’”

From News.com.au in Australia. “Sydney’s median home price fell by just 0.3 per cent for the month, half the rate of decline over February and a third as large as the 0.9 per cent falls recorded over January and December. It means a typical Sydney home now costs about $860,000 — down from just over $900,000 last year. CoreLogic head of research Tim Lawless said the stronger March activity suggested the market’s current slump would not last much longer. ‘If current trends continue we could see a return to growth in only a few months,’ Mr Lawless said.”

“A return to the boom-like conditions Sydney experienced over 2016 would be highly unlikely, Mr Lawless added, describing the bounce back as ‘only modest.’ SQM Research director Louis Christopher agreed that investors were likely to re-enter the market. Investors accounted for nearly 60 per cent of the Sydney properties purchased over 2016 and were one of the main drivers of the earlier boom in prices, he added.”

From the Gatton Star in Australia. “Sitting at the southern tip of the Great Barrier Reef, and famed for being one of the nation’s industrial powerhouses, is the central Queensland city of Gladstone. By the 21st century, the decision to build a liquefied natural gas plant was made - encouraging thousands of construction workers to fly into the already prosperous town in an attempt to score a piece of the plant pie. It landed Gladstone on every property investor’s wishlist and young families saw the booming town as an opportunity to finally buy a piece of affordable real estate they could eventually profit from.”

“But by 2012, the LNG plant was built, the construction workers were getting laid off and the city started to experience a severe downturn. Six years later and things are no better. In the last December quarter, more than 80 per cent of Gladstone homes sold at a loss, according to new data released by CoreLogic. That rate is the highest in Queensland and second highest in Australia, based on the average home price more than halving in the past five years.”

“Most of the places in the top 20 are linked to the mining resources sector in Queensland and Western Australia. Pegs Creek in Western Australia is the only suburb to beat West Gladstone, with 92.3 per cent of its properties selling at a loss. In January 2013, houses in the centre of Gladstone were selling for an average of $595,000 but by January 2017, the average was down to $330,000.”

“In 2012, when the city was still on a construction high, Kerry Connor said working as a real estate agent was exciting. ‘People came from all over the world to try and buy a Gladstone property. We’d advertise and in a few days, the property would be sold. It was the most amazing time to be a real estate agent and it was mad - everything was happening very, very fast. We had a lot of people coming to town for employment, investors were purchasing, retired people were moving on from Gladstone to something further south with plenty of money in their pockets,’ Ms Connor said.”

“The rents were driven sky high, attracting more investors and encouraging more housing to be built. ‘When the construction was completed and the workforce was dramatically reduced, there was this big downturn. The first thing to change was the rental market because the properties weren’t yielding good return for landlords anymore. Rental prices tumbled so then property prices tumbled as a direct result,’ Ms Connor said.”

“Gladstone is also one of the top 10 postcodes in Australia for people behind on their mortgage payments, according to S&P Global Data. Ms Connor confirmed this figure, admitting most of Gladstone real estate’s sales are repossessed homes - most of which were bought by investors in the 2011-2012 boom. ‘A very high percentage of sales in Gladstone are repossessions. It’s quite scary actually,’ she said.”

“Of their last 20 sales, 12 of them had been mortgage or repossession sales. she added. Real estate agents across the city thought things were looking up recently but Ms Connor said from early February onwards, repossession sales have risen - a figure that isn’t helping housing prices rise. ‘That trend is across all real estate agents here,’ she said. ‘Those properties are being sold at auctions and the prices they go for direct the market. It makes it very hard for locals to sell their properties because everything is down.’”