The Housing Bubble

A report from Better Dwelling on Canada. “Global real estate markets are breaking a sweat, and Vancouver should be no exception. Those same foreign buyers that sent property values soaring around the world are now a little short on foreign currency. New regulations now prohibit the exchange of yuan for real estate, making it tricky to get currency into foreign markets. Without that sweet yuan converted, Chinese buyers won’t be able to continue driving prices, and could have trouble paying for existing property. Some quick back of the napkin math explains how Vancouver real estate is in for a ride. Foreign buyers provide a 30% downpayment, which at the average would leave CA$708,000 (US$542,757) on a mortgage. At 4% with a 30 year amortization, you’re looking at CA$3,369/month (US$2,582) before taxes, maintenance, and insurance. That’s CA$40,428/year (US$30,975), also known in China as 13,000 yuan too many to not be reported by your financial institution.”

“So unless someone is working on an Uber for money laundering, Vancouver’s going to see a fire sale. Still skeptical this will impact Vancouver real estate? There’s currently 1,777 listings in the Greater Vancouver Region for sale. January saw 179 price reductions, roughly 1 in 10 in properties. Although I’m sure somewhere a Realtor is saying it’s a Chinese New Year sale.”

From Bloomberg. “This time last year, Vancouver was one of world’s hottest housing markets as buyers turned up throughout the winter for bidding wars and sales reached an all-time high. Today, the Real Estate Board of Greater Vancouver reported transactions in Metro Vancouver plunged 40 percent in January over a year earlier as both buyers and sellers hover on the sidelines. That’s the seventh straight month of declines, according to data compiled by Bloomberg. The ratio of sales to listings — used by the industry as a harbinger of prices — is also at a two-year low, according to the board.”

The Globe and Mail. “The Vancouver region’s real estate market could be headed for its first year of price declines since 2012 as home sales extend their slide. Amid falling home sales, prices are sagging. The benchmark price for various housing types slipped last month to $896,000, down 3.7 per cent since July, but still up 15.6 per cent from January, 2016. The benchmark price is an industry representation of a typical property.”

“Since last July, the benchmark price for detached houses sold in Greater Vancouver has dropped 6.6 per cent to $1.47-million. Fewer luxury mansions are selling, dragging down average prices. The average price for detached properties sold in the region tumbled to $1.5-million last month, a 17.8-per-cent decrease from the record high of $1.83-million in January, 2016. In Surrey, which is part of the Fraser Valley board’s territory, the price for detached homes sold averaged $958,539 last month, down 5.7 per cent compared with December.”

From CTV News Calgary. “The Canada Mortgage and Housing Corporation says the price of homes in Calgary is balancing out and isn’t as artificially inflated as they were in years past. CMHC is concerned, however, about the vacancy rate in the rental market, specifically in larger apartment buildings. In a new report, it says that overbuilding in Calgary has led to a glut in apartments sitting empty. Officials say that most of the vacancies are in large developments that were constructed in the last boom.”

“‘A couple of years ago, inventories of apartments were quite low and the economy was doing quite well and we had quite strong demand for housing but when the price declined, it was a pretty quick shift in economic activity and some of these projects are fairly large and as they kept going they couldn’t really stop right away,’ said Richard Cho, a CMHC market analyst.”

The Chronicle Herald. “Office towers rising out of the ground could soon become a rare sight in Halifax’s central business district as vacancy rates soar and rents sag, says a manager with the real estate consulting firm of Turner Drake & Partners. ‘It’s unlikely we will see a lot of large office projects come on-stream in Halifax in the next few years,’ said Alexandra Baird Allen, Turner Drake’s manager of economic intelligence, in an interview. ‘We could be (looking at decades) without any office construction.’”

“She compared the recent boom in office construction and likely future slowdown to another boom and bust. ‘After the financial crash of the 1980s, that’s what we saw,’ she said.”

“Things aren’t looking too great for buildings offering top-quality space in the downtown core either. Turner Drake reports a staggering vacancy rate of 27.6 per cent in premium, Class A office buildings. With this overcapacity in the office market and downward pressure on lease rates, Baird Allen predicts much of the low-end space will simply disappear. ‘The Class C space will fall off the bottom . . . A lot of it has been repurposed into apartments and condos,’ she said.”

The Waterloo Region Record. “A new report says too many student apartment buildings are sprouting near Waterloo’s two university campuses. The oversupply of student beds, currently estimated at more than 5,000, is expected to increase while the universities struggle to maintain enrolment. This imbalance will likely have consequences, says the report from the Canada Mortgage and Housing Corp.”

“Landlords may have to resort to incentives to rent older buildings. Other units could be taken off the market as students choose new buildings with more amenities that are closer to campuses. This could reduce the number of basement apartments, small apartment buildings, houses or rental condominiums. ‘There’s going to be some carnage up there. It amazes us how some of these things are getting financed or built,’ said developer Craig Beattie, whose firm, Perimeter Development, has stayed out of the student housing market.”

“Beattie worries about small investors who may not make the money they expect after buying a condominium to rent to students. The report from the federal agency compares supply and demand for student housing in six Ontario cities. It focuses on Waterloo where 30,000 students need off-campus housing. It found that between 2010 and 2015, enrollment surged by 3,200 students at Wilfrid Laurier University and the University of Waterloo. Student housing surged by 8,500 beds over this same period, with a further 3,200 beds recently completed or under construction.”

“‘In Waterloo, supply has already exceeded demand,’ the report states. The imbalance could worsen as the university-age population declines until 2022, a demographic trend that’s putting pressure on enrolment. There’s an upside for students: more choice as landlords compete. ‘We understand that our students have more choice in where they live than any other city or town,’ said Glen Weppler, UW’s director of housing.”