The Housing Bubble

A report from the Toronto Star in Canada. “The dip in Toronto’s housing market means there’s a different dynamic at play between sellers and buyers this year. An analysis by Zoocasa shows more neighbourhoods have become buyer’s markets — areas where there is enough competition among sellers that buyers have more choice and more room for negotiation — conditions that simply weren’t on the table in heated January 2017. Sales and prices have softened somewhat for detached and semi-detached houses and there’s slightly less demand for some of the hot east-end neighbourhoods. Penelope Graham, managing editor with Zoocasa, said the new mortgage stress test rules that took effect Jan. 1 and the lingering chill of the Ontario government’s Fair Housing Plan in April have reduced the pool of house buyers.”

“‘The areas where we’re really seeing an increase in balanced conditions were ones that were really dependent on detached sales — detached and single-family homes make up the majority of housing types in these areas that have seen the greatest change,’ she said.”

From Mortgage Broker News. “Calgary’s real estate market is flat with an overabundance of condos still listed and buyers having trouble securing mortgages. Croft Axsen, owner of DLC Jencor Mortgage Corporation, says refinances, in particular, have become difficult to obtain. ‘Refinances are not insurable, so all of the monolines are out of that market and there’s less competition because of government interference in the marketplace,’ said Axsen. ‘It’s a significantly smaller market than it used to be, which I assume is the government’s purpose, but I’m not sure restricting liquidity in Calgary is necessary at this time, but I understand their concerns about Vancouver and Toronto. Unfortunately, they want to use a sledgehammer instead of a needlepoint to fix what they’re concerned about.’”

“He has noticed an uptick in people forced to sell their homes because of an inability to get refinanced, as well as ‘move-up’ buyers with children on the way being stuck in their insufficiently-sized condos. ‘For many of them they don’t understand, because they’ve been able to get mortgages their entire lives, but now they’re being told they can’t.’”

“Gone are the days when seemingly everybody bought a new home every three to five years. Now move-up buyers are stuck in their condos, and with condos planned before the economy crashed coming to market, there’s too much supply. Julie Jeffery, a broker with DLC Elevation Mortgage, says realtor and consumer confidence is low. ‘They’re really, really nervous,’ she said. ‘They list to sell, but are unable to sell,’ said Jeffery.”

From the Calgary Herald. “In Canada Mortgage and Housing Corp.’s Housing Market Assessment for the first quarter of 2018, the Calgary census metropolitan area was one of four markets to earn a moderate degree of vulnerability. The other three were Edmonton, Saskatoon, and Regina. When it comes to rating overbuilding, two factors CMHC looks at include apartment rental vacancy rates and inventory.”

“‘Although it has come down over the previous year, it’s still fairly elevated, well above historical averages,’ says Richard Cho, principal of market analysis for CMHC in the prairie region, on vacancy rates in the Calgary area. For inventory, CMHC reviews numbers on both the single-family and multi-family ends of the market, but Cho adds ‘really, it’s the multi-family segment where we’re seeing high inventory levels, which is contributing to the evaluation around overbuilding.’”

From Metro News. “Alberta’s economic downturn has spurred thousands of workers to leave the oil patch. For the second year in a row, the Wood Buffalo-Cold Lake economic region posted the largest decrease in population in the country, according to Statistics Canada. For years, Fort McMurray saw skyrocketing home prices because the growth was unsustainable. ‘We are seeing more houses moved in the market, more homes are selling,’ said Fort McMurray Chamber of Commerce Executive Director Alexis Foster. ‘But the sale prices are going down … it’s sort of a double-edged sword.’”

“The situation is similar in Cold Lake, which is also heavily dependent on the oil patch, said Mayor Craig Copeland. Housing starts have ‘flattened’ since 2014, down 30 per cent for the third year in a row, he said. Hotels have been quiet, charities have been affected and housing prices are dropping rapidly. ‘In some cases houses have dropped over $100,000 in their value,’ Copeland said.”

From Reuters. “British Columbia moved on Tuesday to crack down on real estate speculators, expanding its foreign buyer tax and introducing a new speculation tax, as part of a wide-ranging strategy to cool housing prices in Canada’s most expensive real estate market. The left-leaning New Democratic (NDP) government, under pressure to address skyrocketing home prices and soaring rents, particularly in the Vancouver area, unveiled a 30-point housing plan as part of its first full budget.”

“The province also moved to clamp down on condo presale flipping - where units are bought and sold many times before construction completes - and to close loopholes allowing foreign buyers to invest through numbered companies and local proxies. In measures sure to appeal to frustrated voters, the province pledged to end tax breaks for mansions on protected farmland.”

From Bloomberg. “‘B.C.’s real estate market should not be used as a stock market. It should be used to provide safe and secure homes,’ said British Columbia Finance Minister Carole James. ‘That’s why we’re cracking down on speculators who distort our market.’ The levy, she said, will also capture ’satellite families’ — a term with Chinese origins to describe those families where the breadwinner remains in the home country while the children and spouse reside abroad to take advantage of educational and employment opportunities.”

“The foreign buyers’ tax will also be extended beyond the Vancouver region to properties in Victoria and other parts of the province. Taxes on the province’s most expensive properties will also rise — homes worth more than $3 million will pay a 5 per cent property transfer tax when sold, up from 3 per cent.”

From Casino Reports. “Casinos are often used by criminals as a front for money laundering crime. Money laundering and other corrupt activities have been the scourge that needs to be tackled by governments. Last year, a suppressed casino report unveiled suspicious cash transactions washing through casinos in the lower mainland in Canada. An RCMP investigation into underground banking and alleged laundering of drug cash in B.C. casinos unveiled an intricate terrorist financing system.”

“A Globe and Mail investigation has found out that 17 local residents are investing millions of dollars in Vancouver-area real estate in private lending and mortgages. The money is allegedly obtained illegally. The lenders, then, are repaid with wads of clean cash. In 2016, three of the lenders were caught red-handed, carrying fentanyl worth C$600,000 in cash.”

“The three lenders alone registered more than $20-million in mortgages and other debts against multimillion-dollar homes in recent years. The Globe and Mail found out that a total of 17 such lenders are involved in the scheme. They claimed a stake worth C$47 million. In addition to that, the lenders were found to have interest in 45 Vancouver-area properties in recent years.”

From Toronto Metro. “B.C.’s Attorney-General has pledged to crack down after an explosive investigation in the Globe and Mail uncovered what Vancouver journalist Kathy Tomlinson called Vancouver real estate’s ‘latest dirty little secret’: ’shady money’ from B.C. drug traffickers — funneled through property transaction loans and repaid to fentanyl suppliers in China. The exposé by Tomlinson and Xiao Xu showed that some profits of the deadly fentanyl epidemic — which killed a record 1,422 British Columbians last year, 43 per cent above 2016 — are being laundered through the province’s skyrocketing real estate market.”

“Over roughly the same period, as opioid deaths began to jump in late 2014, property values also soared, pricing many locals out of the housing market. University of Windsor law professor Bill Bogart refered to the realty-drug connections as an example of ‘narconomics and its tentacles.’”

“Richmond city coun. Harold Steves said he’s not at all surprised by the disturbing revelations about money laundering in the real estate market in his city. ‘We heard rumours for years that drug money was involved in some of Richmond’s big houses, and of other unsavory uses in the (Agricultural Land Reserve),’ he tweeted Friday night. ‘Now we know it is true.’”

From Macleans. “It’s a start, at least. And on the surface, it looks surprisingly bold. But it remains to be seen whether the 30-point housing plan British Columbia Premier John Horgan’s government unveiled Tuesday will begin to expunge the pathologies that have turned Metro Vancouver’s real estate market into an international housing affordability basket case and a global playground for white-collar criminals and fentanyl tycoons.”

“What is certain—and it has come as a delight to many West coast housing activists—is that after more than a decade of willful neglect by provincial and municipal politicians, and out of a political culture of persistent denial, indifference, self-dealing and outright corruption, there appears to be a government in Victoria that is giving the province’s distorted, overheated and out-of-control real estate business some long overdue attention.”

“‘I’m not happy, but I’m not sad, either,’ said Andy Yan, the director of Simon Fraser University’s City Program whose data analysis and public advocacy helped to shame Victoria into acting. ‘This will not make Vancouver affordable. But this is a nightmare we’re coming out of. It’s going to take more than one provincial budget to unwind the machine.’”

“Vancouver’s rental vacancy rate has fallen below one per cent. At least 20,000 Vancouver homes are vacant, and nearly 25,000 Vancouver households are declaring a taxable household income that is less than their outlay in property taxes, utilities and mortgage payments. Transparency International estimates that perhaps half of Vancouver’s high-end residences are now owned by shell companies or trusts.”

From Vice Money. “British Columbia’s move to increase the tax levied on foreign buyers of Vancouver property has been cast as ‘political’ by some housing experts, who argue that the new NDP government simply succumbed to pressure from a population that to a large extent, is blaming sky-high home prices on the influx of foreign money. ‘It was obviously a political move,’ Vancouver realtor Steve Saretsky told VICE Money. ‘They picked up a hot potato from the B.C. Liberal government that had done nothing about house prices for so long so they were under immense pressure to get real estate in order.’”

“‘I think the government was responding to the sentiment that foreign buyers are making money off the gain in real estate prices, and they aren’t paying any taxes on those gains,’ Hilliard MacBeth, author of When the Bubble Bursts: Surviving the Canadian Real Estate Crash told VICE Money. ‘I think the speculation days are now over in Vancouver. The whole climate is going to change.’”

“Regardless of the extent to which foreign money is driving Canadian real estate, housing experts like Saretsky warn that none of this might end well. ‘I don’t see a happy ending here. Somebody’s going to get hurt and it’s most likely the hardworking family that made enough money to afford property.’”