The Housing Bubble

The Edmonton Journal reports from Canada. “The number of new, unsold homes in the Edmonton area soared more than 70 per cent over the last year, preliminary figures from Canada Mortgage and Housing Corp. show. There were about 1,800 vacant housing units in the area in March, a huge increase from 1,046 unoccupied homes the previous February. ‘Unfortunately, we live in a province driven by energy and the boom-and-bust scenario,’ said Lai Sing Louie, regional economist for the Canada Mortgage and Housing Corp. ‘We’re in a down part right now.’”

“Condos, apartments and other multi-family homes were hardest hit, with the number of units waiting to be purchased or rented more than doubling to 969, while new unsold single-family houses went up 42 per cent to 841. The ‘841 is an elevated number. You have to go back to the recession of 2009 before you get to a higher level,’ Louie said.”

From CBC News. “The number of new but ‘unabsorbed’ houses has spiked in Calgary, according to a new report by ATB Financial. Unabsorbed houses are newly-built single and semi-detached houses that don’t have a binding, non-conditional agreement in place yet for their purchase or rental. There were 27 per cent more of these properties in Calgary on the market than last year, according the report’s authors Todd Hirsch and Nick Ford.”

“A high number of new and vacant homes could have a negative effect on prices and slow the construction industry at a time when it’s already suffering, the two economists say. The trend is another indication that the downturn in the energy sector is dragging down the housing industry. Housing starts in Alberta are down 56 per cent from last year.”

The Financial Post. “Officials in Canadian cities are trying to figure out the best way to move oilfield workers from camps into permanent housing. Allan Vinni, deputy mayor of Wood Buffalo, a large municipality that includes Fort McMurray, notes, ‘We’ve got tons of condo buildings that are standing empty.’”

“During the oil boom, there were 80,000 people living in camps around Fort McMurray, flying in and out of an area where there were not enough locals to do the work. Today, Vinni said, the number is estimated at 26,000. Housing booms have similarly gone bust in Canadian oil towns such as Fort McMurray and Cold Lake, leaving behind a mix of empty condos and houses and near-empty camps in the oilfields.”

“In Cold Lake, Mayor Copeland said it is difficult to encourage oil workers to buy homes right now, given that tens of thousands have been laid off as the downturn persists. ‘The people working in the oilpatch are holding onto their money pretty tight,’ he said, ‘because they don’t know if their job is next.’”

The New York Times. “Andy Guo, an 18-year-old Chinese immigrant, loves driving his red Lamborghini Huracán. He does not love having to share the car with his twin brother, Anky. The $360,000 car was a gift last year from their father, who travels back and forth between Vancouver and China’s northern Shanxi province and made his fortune in coal, said Andy Guo, an economics major at the University of British Columbia.”

“Many wealthy Chinese are increasingly eager to stow their families — and their riches — in the West, where rule of law, clean air and good schools offer peace of mind, especially for those looking to escape scrutiny from the Communist Party and an anti-corruption campaign that has sent hundreds of the rich and powerful to jail. Residents angry about the rise of rich foreign real estate buyers and absentee owners, particularly from China, have begun protests on social media. The provincial government agreed this year to begin tracking foreign ownership of real estate in response to demands from local politicians.”

“The anger has had little effect on the gilded lives of Vancouver’s wealthy Chinese. Indeed, to the newcomers for whom money is no object, the next purchase after a house is usually a car, and then a few more. Jin Qiao, 20, moved to Vancouver from Beijing six years ago with his mother. During the week, Jin drives one of two Mercedes-Benz SUVs, which he said were better suited for the rigours of daily life. But his most prized possession is a $600,000 Lamborghini Aventador Roadster Galaxy. Jin, a lanky design major who favours Fendi clothing and gold sneakers, extolled the virtues of exotic cars and was quick to dismiss those who criticized supercar aficionados as ostentatious.”

“In Vancouver, there are lots of kids of corrupt Chinese officials. Here, they can flaunt their money. ‘There are so many rich people in Vancouver, so what’s the point of showing off?’ he said. Asked what his parents did for a living, Jin said his father was a successful businessman back in China but declined to provide details. ‘I can’t say,’ he stammered with evident discomfort.”

The Province. “In a private speech to the B.C. Real Estate Association, the province’s top financial regulator warned realtors ‘your business is dead’ if the public loses trust. Superintendent of real estate Carolyn Rogers also said she is ‘worried’ that risk conditions prevalent in B.C.’s housing market are ‘creating many other risks’ across the financial system.”

“The text of the March 31 address by Rogers was obtained by The Province. Rogers oversees a number of sectors as the chief of the Financial Institutions Commission (FICOM). What is striking in her speech to the association, whose members are regulated by the B.C. Real Estate Council, is how concerned the government is about systemic risks connected to real estate, and Rogers’s warning that the industry’s ‘privilege’ of self-regulation is in danger.”

“Rogers stressed it is false for realtors to dismiss media scrutiny by saying, ‘This is just a few bad apples.’ ‘Let me be clear — we have a problem and it’s not the media,’ Rogers said. ‘Your business rests on the public’s trust. You handle what is, for most, the single largest financial transaction they will ever make. If they don’t trust you to act in their interest, your business is dead.’”

“The speech came in the early stages of a special panel review of industry problems including widespread failures to report identities of clients, leading to money-laundering concerns, and allegations that realtors are colluding with certain clients to scam home-sellers in so-called assignment clause flipping schemes. She said she has heard numerous reasons why realtors do not report on bad actors, including fear of reprisals from colleagues or firing by bosses, but these excuses are ‘not acceptable.’”

“‘Self-regulation works when an industry holds itself to a higher standard than anyone else does,’ she said. ‘Self-regulation puts on each of you a positive obligation to report any, and all bad behaviour — anything that has the potential to harm the public — there are no exceptions.’”

“NDP MLA David Eby, a critic who says the council is not capable of self-regulation, said the message of Rogers’s speech is, ‘There can’t be a conspiracy of silence.’ Eby said, though, he understands why realtors are not confident in reporting others to the council, because it mostly seems to issue wrist slaps in punishment. ‘There are no consequences, except professional consequences,’ Eby said. ‘Someone pays a $1,000 fine and then comes back to work and makes your life miserable. So until more licences are cancelled, that is the problem.’”

“Eby said he believes the risk factors Rogers spoke of in the speech include B.C. banks that are currently issuing 50-per-cent mortgages to offshore buyers with no proof of income, which raises concerns of exposure to bad debt and money laundering.”