The Housing Bubble

A report from CBC News in Canada. “There is no denying a wave of fear and loathing has hit Vancouver’s ebullient market in the wake of the provincial government’s tax on foreign buyers. Data collected by realtor Rob Chipman shows that not only sales but average prices seemed to be falling. The real estate board’s actual figures released Friday showed exactly that. Sales in Greater Vancouver fell in August by 23 per cent from the previous month and were down 26 per cent from August last year. The average price for a detached home plunged by almost $300,000 in a month to $1,470,265.”

“Fear may make speculators, especially those in debt over their heads, want to sell. But when markets are on the way down, potential buyers are hit by loathing, not wanting to be the ones left holding the baby as prices fall further. Leverage — buying on borrowed money — which propelled markets to new heights, goes into reverse.”

The Business News Network. “For RateSpy.com Founder Rob McLister, the biggest surprise was that ’scary’ drop in average home prices. ‘There is so much psychology driving this market. This 15 per cent foreign homebuyers’ tax is just a kick in the face,’ McLister told BNN in an interview. ‘This was not the time for this intervention.’”

“Realtor Steve Saretsky has already crunched MLS data for the month of August and he said sales of detached homes dropped 50 per cent in Richmond, Vancouver and Burnaby compared to the average number of sales in August between 2010 and 2014. He left August 2015 out of his calculation because it was an abnormally hot month.”

“Prices haven’t appeared to drop drastically since the introduction of the tax, said Saretsky, adding that he believes the levy has had more of an impact on local buyers who are waiting to see how prices are affected. ‘I actually think it took a lot of the demand on the local side out, not so much the foreign side,’ he said. ‘Nobody wants to buy in at the top of the market, so everyone is thinking this could be the thing that changes everything.’”

From CTV News. “Vancouver realtor Paul Eviston doubts the foreign buyer tax is entirely to blame for the lower sales numbers. Eviston said the market was showing ‘clear signs’ of cooling in terms of sales volume in June and May, and sellers have adjusted their expectations. ‘They’re realized we’re not in the same market we were in the spring,’ he said. ‘I think a lot of sellers have adjusted their expectations and selling prices to reflect what’s happening.’”

“He believes there was a ‘knee-jerk reaction’ after the tax introduction, but that in the long-term foreign buyers will accept the extra cost is ‘the cost of doing business in Vancouver.’ With a Vancouver market mired in uncertainty, the longtime realtor says this ‘is probably one of the best buying opportunities we’ve seen in the last 10 years.’ ‘For all the people that were complaining about affordability issues in Vancouver, take a hard look around to see what homes are listed at and remember this: The market won’t stay like this,’ he said.”

The Vancouver Sun. “For real estate consultant Ross Kay, figures like benchmark prices and year-on-year sales comparisons obscure what’s truly happening in Vancouver: the rapid deflation of an overvalued market that had been propped up by foreign buyers. Take the benchmark price, a statistic that tracks sale prices of ‘typical’ homes picked for things like age of the building, square-footage, number of rooms, and other factors. ‘Your benchmark price trails what is really going on in the market by up to eight months,’ said Kay, who is based in Ontario.”

“A better measure, he believes, is average price. According to the real estate board, the average price for detached houses in Metro peaked in January at $1.83 million, but has since fallen to $1.47 million, a drop of nearly 20 per cent. Across all housing types, average purchase prices have fallen by 26.3 per cent since the first quarter of 2016, according to Kay. ‘(It’s) the greatest single drop in Canadian history,’ he said. But, ‘I don’t like to set off panic either, because I know the damage that is done to poor old average homeowners in these cases.’”

“The real estate board also likes to talk about the ratio of sales to active listings, which is said to measure the balance of the market. That figure is calculated by comparing the total number of sales in a month by the number of listings on the Multiple Listing Service at the end of the month. For August, there had been 29.3 sales for every 100 listings on the MLS at month’s end, which the board says is a sign we’re still in a seller’s market and prices will continue to rise.”

“Kay prefers to look at the failure rate, which takes into account all of the listings available in the whole month, instead of just the listings at one point in time. Using those numbers, he calculated that 80.39 per cent of all homes on the Vancouver market last month failed to sell. ‘Only one in five was successful. In March, when your market was hot, 36.7 per cent were successful — double. That’s how much your market has collapsed,’ he said.”