Vancouver Real Estate 'Bubble' at 30-year Peak

[whatnext]

Fraser Valley condo sales hit the skids:

Fraser Valley Condo Prices Slide 7.7% since June

Back in February 2018 I penned a post titled “Vancouver’s Suburbs Hitting Peak Bidding Wars.” Condo inventory had plummeted, hitting a decade low and the number of condos being sold above the asking price reached a staggering 53%. The MLS benchmark price had recorded an eye watering year-over-year gain of 47%. It seemed nothing could stop the compelling story of ever rising prices in Vancouver’s growing suburban market.

What a difference 10 months can make. Since then the Fraser Valley condo market has come to a screeching halt. The sales to actives ratio has plummeted from 80% in February down to just 18% in December. The lowest reading for the month since December 2014.

The number of condo sales tumbled 44% year-over-year in December, and 50% when looking at just re-sale units (excludes pre-sales). While this drop may be perceived as over dramatic considering it’s coming off a record 2017, this sudden change in direction is akin to the Titanic pulling a sharp U-Turn.

This has allowed inventory levels to spike, with re-sale inventory rising 242% from last December. This marked the highest total for the month since December 2015...
https://vancitycondoguide.com/fraser...-7-since-june/

[fredinno]

Something tells me this isn't going to be a 'controlled landing', and more a crash. People have a tendency to panic when tons of money is involved.


Though, I'm just an idiot on the internet.

[whatnext]

Originally Posted by fredinno

Something tells me this isn't going to be a 'controlled landing', and more a crash. People have a tendency to panic when tons of money is involved.

Though, I'm just an idiot on the internet.

Greater Vancouver detached has erased two years of price gains so far. If you look at the graph in the article below you can see the take-off point of a true bubble in January 2015 when detached benchmark crossed $1 million. It wouldn't be unreasonable to assume prices will retrace those steps downward to a shade above $1 mil to create a smooth long term average.

https://betterdwelling.com/city/vanc...f-price-gains/

[Changing City]

Originally Posted by whatnext

Greater Vancouver detached has erased two years of price gains so far. If you look at the graph in the article below you can see the take-off point of a true bubble in January 2015 when detached benchmark crossed $1 million. It wouldn't be unreasonable to assume prices will retrace those steps downward to a shade above $1 mil to create a smooth long term average.

https://betterdwelling.com/city/vanc...f-price-gains/

That's a helpful graph to illustrate how significant, and relatively recent, the house price appreciation above the norm (the bubble) has been. I think that a trend line run over the data from 2005 to 2015 would put the 2019 price above $1.1million - maybe $1.2m. That's still a way to go down from the $1.48 million we saw at the end of 2018.

[Changing City]

The Real Estate Board (REBGV) have released the year end data on the housing market. Not this is for resales on MLS - not new housing offered for sale by developers. REBGV statistics do not include the Fraser Valley - so Surrey data are not included here.

Sales were the lowest annual total since 2000.

"sales of detached, attached and apartment properties reached 24,619 on the Multiple Listing Service® (MLS®) in 2018, a 31.6 per cent decrease from the 35,993 sales recorded in 2017, and a 38.4 per cent decrease compared to the 39,943 residential sales in 2016."

Low sales have not increased the stock of unsold homes; inventory is also down

"Home listings in Metro Vancouver reached 53,614 in 2018. This is a 1.9 per cent decrease compared to 54,655 homes listed in 2017 and a 6.9 per cent decrease compared to the 57,596 homes listed in 2016."

Prices are falling, but not dramatically on a year on year basis.

"The MLS® HPI composite benchmark price for all residential homes in Metro Vancouver ends the year at $1,032,400. This is a 2.7 per cent decrease compared to December 2017."

Different housing types have seen different price change. Year on year, apartment prices are still slightly higher than a year earlier. (That's partly because they were still rising in early 2018, and then dropped in the summer, and have continued to fall since then).

"The benchmark price of detached homes in the region declined 7.8 per cent over the last 12 months and 7.3 per cent since June 2018. Apartment homes increased 0.6 per cent over the last 12 months and have declined 6.4 per cent since June 2018. The benchmark price for townhomes in Metro Vancouver have increased 1.3 per cent since December 2017 and have decreased 5.3 per cent over the last six months."

Obviously there's considerable variation between locations and housing types - these are averages across Greater Vancouver. Steve Saretsky publishes a much more detailed analysis. For example:

"City of Vancouver Detached Home Prices Drop 10% in December. Detached sales fell 38% year-over-year in December. It was the fewest December sales in recent history, with MLS data dating back to 1992."

"As with all housing markets, price discovery becomes very difficult in a down market. Part of this reason is because there is no one price metric that you can look at to determine how much prices have fallen. The official MLS benchmark now shows prices have declined 10% from last year. However in certain pockets and at certain price points some detached homes are down as much as 25%."

"Vancouver condo sales fell to a 10 year low in December with sales plunging 47.5% year-over-year, the sharpest annual decline since 2008. Unlike the detached housing market, price declines in the condo market are easier to quantify. Although once again price declines will vary depending on the metric used. Both the average and the median sales price declined on a year-over-year basis in December. Since prices peaked at the start of 2018 it is a fair assumption to suggest condo prices have dipped about 10%, even across entry-level one-bedroom units. It is important to remember that prices are seasonal with home prices typically decelerating in the winter months. However this should not be used to discount the significant deceleration in condo prices. The average price per square foot for resale condos now shows a 4.5% decline from December 2017."

[Changing City]

Here are the Fraser Valley real estate board numbers for the past year.

As in Greater Vancouver, the number of sales fell significantly.

"The Board’s Multiple Listing Service® (MLS®) processed 15,586 sales in 2018, a 30.2 per cent decrease compared to 2017’s 22,338 sales and the lowest total sales for the Fraser Valley since 2013. The total dollar volume of MLS® transactions for the year was $11.8 billion, dropping from $15.7 billion sold during the year prior."

Apartment sales were down 30.5% year on year, and townhomes 25.6%. Total new listings were down 1.8% from 2017 with 32,058 homes listed for sale in 2018. Total sales, and listings were lower in 2017 than they had been in 2016, so have been trending down for two years.

Prices for single family homes, year on year, were down, but far less that in Greater Vancouver. Townhomes and apartment prices were higher than a year before, although similarly to Vancouver, they have been falling in recent months, but not as much as they increased at the start of the year, so still showing a year on year increase.

"Single Family Detached: At $965,300, the Benchmark price for a single family detached home in the Fraser Valley decreased 1.5 per cent compared to December 2017. At $531,900, the Benchmark price for a townhome in the Fraser Valley in the Fraser Valley increased 3.7 per cent compared to December 2017. At $418,300, the Benchmark price for apartments/condos in the Fraser Valley increased 7.6 per cent compared to December 2017."

[djmk]

Property transfer tax is a major source of revenue for the province. Less transactions with lower amounts. I wonder what that will do to the budget

[whatnext]

Originally Posted by djmk

Property transfer tax is a major source of revenue for the province. Less transactions with lower amounts. I wonder what that will do to the budget

Sellers need to get realistic about their asking prices. It's not 2017.

[misher]

Originally Posted by whatnext

Sellers need to get realistic about their asking prices. It's not 2017.

If people can’t get the price there looking for they just won’t sell unless it’s an emergency.

Just like if your iPhone is suddenly worth less, you will just keep it instead of switching phones. But if the price for selling your phone was high, you might consider it.

Originally Posted by djmk

Property transfer tax is a major source of revenue for the province. Less transactions with lower amounts. I wonder what that will do to the budget

Yes they predicted that the real estate market would go up in the budget. NDP should take action but I’m not sure they will. There’s predicting big tax gains from the new speculation and school taxes as those take a % of housing values which are huge. Honestly if housing prices actually go down accompanied by low sales then the NDP budget will be in the shitter. It’s scary when if houses are assessed at 10% less tax revenues go down more than 10% (as the decrease would move people under the school tax). Tying your budget to a volatile market your actively trying to kill is not a good business plan.

[fredinno]

Originally Posted by misher

If people can’t get the price there looking for they just won’t sell unless it’s an emergency.

Just like if your iPhone is suddenly worth less, you will just keep it instead of switching phones. But if the price for selling your phone was high, you might consider it.



Yes they predicted that the real estate market would go up in the budget. NDP should take action but I’m not sure they will. There’s predicting big tax gains from the new speculation and school taxes as those take a % of housing values which are huge. Honestly if housing prices actually go down accompanied by low sales then the NDP budget will be in the shitter. It’s scary when if houses are assessed at 10% less tax revenues go down more than 10% (as the decrease would move people under the school tax). Tying your budget to a volatile market your actively trying to kill is not a good business plan.

If your primary goal was to ride the high prices, you're going to want to sell ASAP. The people that aren't going to are the people in their primary homes.

That's the reason condos and townhomes are holding stable, while Detached and Luxury are falling off a cliff. The most speculated going down first, followed by the indebted/underwater, followed by the prime market.




It's the NDP...

[whatnext]

Originally Posted by misher

If people can’t get the price there looking for they just won’t sell unless it’s an emergency.

Just like if your iPhone is suddenly worth less, you will just keep it instead of switching phones. But if the price for selling your phone was high, you might consider it.

Yes they predicted that the real estate market would go up in the budget. NDP should take action but I’m not sure they will. There’s predicting big tax gains from the new speculation and school taxes as those take a % of housing values which are huge. Honestly if housing prices actually go down accompanied by low sales then the NDP budget will be in the shitter. It’s scary when if houses are assessed at 10% less tax revenues go down more than 10% (as the decrease would move people under the school tax). Tying your budget to a volatile market your actively trying to kill is not a good business plan.

As I've said before, anybody who thinks the market will just snapback to it's 2008-2016 performance if the speculation tax/foreign buyers tax etc is lifted is deluding themselves.

The mountains of debt China has used to fuel growth are starting to come back to haunt it. There won't be an influx of buyers lookign for that $3 million Vancouver bungalow.

China’s Growth Machine No Longer Looks Unstoppable
The debt-powered stimulus the country used to steer through the Great Recession is starting to look like a drag.

China’s economy is slowing. The downturn may be the result of recent events — the trade war with the U.S., or retrenchment in China’s real estate and infrastructure sectors. But it may also be the latest manifestation of a trend that began a decade ago. And it may signal that China’s entire system of authoritarian state capitalism is less effective than many had believed.

But China’s woes go far beyond the current business cycle. After the financial crisis, China’s total factor productivity growth — a measure of how fast an economy increases the efficiency with which it uses labor and capital — suddenly began to fall, and has stayed low ever since..

...More ominously, there’s mounting evidence that China’s shift to a construction-based growth model has acted to slow productivity growth, by diverting resources and investment into inefficient industries and companies.

When the financial crisis hit in 2008, China responded by increasing lending. The country’s big banks are all state-owned, and they lend when the government tells them to. In addition, the government uses several kinds of credit policy, especially reserve requirements, to control the activities of the banking system. Starting in about 2012, lending shifted from big banks to shadow banks, especially so-called wealth management products and entrusted loans — lending vehicles set up to offer savers high returns, but also more susceptible to collapse than conventional banks. Thanks to these shadow banks, the lending-based stimulus of 2008-’10 has essentially continued forever...
China may have shifted to a model of capital-intensive growth based on domestic demand, easy financing, and large construction projects by state-owned and locally well-connected companies. And that, in turn — as Bai et al. suggest — may be a big reason for the productivity slowdown.

That should worry China’s leaders. As writer Joe Studwell chronicles in his book “How Asia Works,” East Asian economies like those of Taiwan and South Korea have managed to reach rich country levels in large part by relentlessly pushing into global markets dominated by high-value goods. In the early and mid-2000s it looked as if China was following the same path. But the stimulus that ensured economic stability in the midst of global turmoil may have bumped it off of the escalator to prosperity. The country now faces the disturbing specter of being stuck in the so-called middle-income trap...

https://www.bloomberg.com/opinion/ar...reat-recession

[misher]

Originally Posted by whatnext

As I've said before, anybody who thinks the market will just snapback to it's 2008-2016 performance if the speculation tax/foreign buyers tax etc is lifted is deluding themselves.

The mountains of debt China has used to fuel growth are starting to come back to haunt it. There won't be an influx of buyers lookign for that $3 million Vancouver bungalow.

China’s Growth Machine No Longer Looks Unstoppable
The debt-powered stimulus the country used to steer through the Great Recession is starting to look like a drag.

China’s economy is slowing. The downturn may be the result of recent events — the trade war with the U.S., or retrenchment in China’s real estate and infrastructure sectors. But it may also be the latest manifestation of a trend that began a decade ago. And it may signal that China’s entire system of authoritarian state capitalism is less effective than many had believed.

But China’s woes go far beyond the current business cycle. After the financial crisis, China’s total factor productivity growth — a measure of how fast an economy increases the efficiency with which it uses labor and capital — suddenly began to fall, and has stayed low ever since..

...More ominously, there’s mounting evidence that China’s shift to a construction-based growth model has acted to slow productivity growth, by diverting resources and investment into inefficient industries and companies.

When the financial crisis hit in 2008, China responded by increasing lending. The country’s big banks are all state-owned, and they lend when the government tells them to. In addition, the government uses several kinds of credit policy, especially reserve requirements, to control the activities of the banking system. Starting in about 2012, lending shifted from big banks to shadow banks, especially so-called wealth management products and entrusted loans — lending vehicles set up to offer savers high returns, but also more susceptible to collapse than conventional banks. Thanks to these shadow banks, the lending-based stimulus of 2008-’10 has essentially continued forever...
China may have shifted to a model of capital-intensive growth based on domestic demand, easy financing, and large construction projects by state-owned and locally well-connected companies. And that, in turn — as Bai et al. suggest — may be a big reason for the productivity slowdown.

That should worry China’s leaders. As writer Joe Studwell chronicles in his book “How Asia Works,” East Asian economies like those of Taiwan and South Korea have managed to reach rich country levels in large part by relentlessly pushing into global markets dominated by high-value goods. In the early and mid-2000s it looked as if China was following the same path. But the stimulus that ensured economic stability in the midst of global turmoil may have bumped it off of the escalator to prosperity. The country now faces the disturbing specter of being stuck in the so-called middle-income trap...

https://www.bloomberg.com/opinion/ar...reat-recession

The thing is the foreign buyers tax didn’t do much to hurt prices in Vancouver or Toronto. So no one thinks that the China crackdown will have a large effect on Vancouver.

[Sheba]

Canadian Wealth To Fall From Highest In G7 To Among Lowest: Forecast

Canadians enjoy the highest level of wealth of any people among the G7 countries, but our "unsustainable" way of growing the economy means we're burning through that wealth, and setting ourselves up for harder times ahead.

That's the conclusion of a research paper from the International Institute for Sustainable Development, which pointed to "the depletion of many of Canada's natural resources" as a major source of the problem, along with the increasing flow of money into the housing market instead of other parts of the economy.

...

Part of the reason why Canada's wealth is stagnating is that Canadians are shifting ever more of their money to housing, which — other than providing shelter — is not a very productive part of the economy.

As wealth flows into houses, it fails to flow into financial markets, which helps explain why the Toronto Stock Exchange has seen among the worst returns of any major stock market in recent years.

This trend is "inflating house prices and leaving the rest of the economy reliant on foreign lenders for nearly three quarters of investment flows after 2012," the report noted.

Canada's business investment is increasingly concentrated in just two areas, housing and oil.

"We're putting a lot of eggs into a few economic baskets, and if those baskets go south we could find ourselves in trouble more quickly than we think," said Robert Smith, an Ottawa-based associate with IISD and the lead author of the study.

Smith warned that all of Canada's economy could eventually look similar to Alberta's, where a small number of industries dominate and the local economy swings wildly with the conditions in those industries.

...

[osirisboy]

What does this have to do with a 30 year bubble

[whatnext]

Originally Posted by osirisboy

What does this have to do with a 30 year bubble

Huh? Money was poured into real estate when it should have been deployed elsewhere to create a more diversified economy. Some of the recent stats on HELOCs are totally scary:

A quarter of Canadians with home equity lines of credit are paying only the interest on their loans: survey

Just over one quarter of Canadians with home equity lines of credit are paying only the interest portion of the loan, a government survey found.

Additionally, almost three in 10 respondents use such lines of credit at least some of the time to make payments on other debt, according to an online poll by the Financial Consumer Agency of Canada released Tuesday...

https://business.financialpost.com/p...r-loans-survey

[fredinno]

TBH, sometimes you need a forest fire. Considering RE costs and debt levels, that seems likely.

If the Great Recession in any indicator of what's to come...

[WarrenC12]

Originally Posted by fredinno

TBH, sometimes you need a forest fire. Considering RE costs and debt levels, that seems likely.

If the Great Recession in any indicator of what's to come...

It isn't. Some people in over their heads will take a bath to be sure.

[osirisboy]

Prices barely fell at all during the Great Recession

[WarrenC12]

Originally Posted by osirisboy

Prices barely fell at all during the Great Recession

I think he was referring to the US.

[rofina]

Originally Posted by WarrenC12

It isn't. Some people in over their heads will take a bath to be sure.

I think those expecting a systemic collapse in Canada and Vancouver are off base.

We are correcting, and I think we will continue to correct as inventory rises and is subsequently cleared at lower prices.

Presale buyers/speculators will likely take a hit over the next couple of years.

Anyone who is comfortably paying for a home, and can afford to do so over the next 5 years will be just fine.

I would not be surprised if this is like the late 90's bust after the Hong Kong buying panic was over. Few down years and a real reduction of around 20%. Nominal likely less.

I know most bearish commentators don't want to admit it but Vancouver/BC has a lot of positive going for it over the next decade.

Another office boom cycle will take off in 2020-2021. We have major global players taking real interest in the City, Apple, Amazon, Mastercard, etc.

We have homegrown success, Lulu, Goldcorp, Elasticpath, Aritzia, Article, Hootsuite, etc.

We have film, we have infrastructure, we have real estate.

This is what a real diversified modern economy looks like.

Are we San Francisco? No - not yet. But we sure as heck have changed by miles from the sleepy logging town of the 90's.

Point being - we are quite strong locally, and its a big positive for those taking and paying mortgages and leads me to believe that while prices will absolutely go down over the next 24 months, were not in for Miami 2.0.