Vancouver Housing Market Implodes: Average Home Price Plunges 20% In 1 Month - "The Market Is Devastated"

Tyler Durden's picture

Three weeks ago, when we looked at the long-overdue sudden change in the Vancouver housing market, long a receptacle for Chinese hot and laundered money, we found that as a result of the implementation of the 15% property tax implemented by British Columbia (something we recommended over a month earlier), that the Vancouver housing bubble has burst.

We concluded this based on anecdotal evidence by local real estate professionals: "As a new dawn breaks in Metro Vancouver’s real estate market, realty companies and real estate boards are reporting the first anecdotes of deals falling through as foreign buyers forfeited deposits on binding deals rather than pay the new tax. Worse, if only for the unprecedented local housing bubble, and certainly better for potential local homeowners who were locked out from the massively overpriced market, they report evidence of local buyers withdrawing offers in expectation that the market will soften."

Less than a month later, there is also hard evidence to confirm this assessment. According to Global News, evidence from realtors and MLS data is showing the Vancouver real estate market is in the midst of a major slow down, with prices dropping and sales plummeting. 

While August is typically one of the slowest months for real estate transactions, MLS sales data from the first two weeks of the month shows what many have been hoping for during the last few years of escalating prices. According to realtor Brent Eilers, using MLS listing data, there were only three home sales in West Vancouver between Aug. 1 and 14 this year, compared to 52 during the same period last year. That’s a decrease of 94%.

Global News obtained MLS sales data from several key Metro Vancouver markets and found the number of homes sold during the first two weeks of August in Greater Vancouver dropped by 85% on average. Richmond experienced a 96% drop in the number of sales and Burnaby North fell by 95%. Vancouver’s West Side, West Vancouver, and Coquitlam also took major hits.

It appears that the Vancouver housing market has slammed shut.

Which is hardly a surprise: virtually everyone saw it coming, the only question was when. Eilers says he’s been warning of a real estate slow-down for at least a year due to the region’s unsustainable and unsupportable prices. West Vancouver, where he does a large part of his business, had a benchmark detached home price of almost $3.4 million in July according to the Real Estate Board of Greater Vancouver.

The market in West Van is up 450 per cent since 2001. So is everyone making 600 per cent more income than they were so they can pay their taxes and buy their houses? Of course not. So how is this inflation been financed? By off-shore money and record debt.” Precisely what we said at the start of the year when we first heard horror stories about Chinese buyers paying cash, sight unseen, for any and every local luxury, and not so luxury home.

It appears that it is not just the 15% luxury tax implemented on on July 25 that has burst the bubble: according to Eilers sales were dropping even before the tax. According to the data, July was another slow month in West Vancouver with only 44 sales, down from 80 in 2015. June saw 74 sales, also down from 102 the year before.

The pattern has left the market “devastated”, Eilers adds.

While it may be too early to make a definitive conclusion, after all while earlier this month, the REBGV released its statistics for the month of July, saying the data showed the market had slowed down to “normal levels”, there was still no official August data available, and thus no actual indication of the slowdown. Fortunately for buyers, real-time data proves otherwise.

Zolo, a Canadian real estate brokerage, keeps track of MLS home sales in real-time and reports prices as an average rather than the “benchmark price” used by the REBGV. It currently shows a major correction underway in most Metro Vancouver markets. According to the website, the City of Vancouver currently has an average home price of $1.1 million, down 20.7% over the last 28 days and down 24.5% over the last three months. The average detached home is $2.6 million, down 7% compared to three months ago. 

Still, it may be too early to call the time of death of the market. “It’s only slowing down at the top where there is uncertainty,” Zolo CEO Barry Allen said. And that uncertainty is “diabolically dangerous”, according to Eilers, who has sold real estate during four different correction periods in Vancouver. “When the market changes, it typically changes over night or within a couple of weeks, but it often takes two to three months for everybody to figure it out. That’s why it can be so scary,” he said.

According to the realtor, often sellers have their houses appraised months before they put them on the market, meaning in the climate we are currently witnessing, sellers are expecting to list their homes at record-high prices, even though the number of sales and listings indicate prices should be lowering.

 

“Typically what happens when the market starts to flip is all the buyers go into hibernation and all the listings come on. What are the odds on getting that seller to price his home at a fraction of where the market is now? It’s zero,” Eilers said.

 

What causes prices to lower is “urgency, anxiety, and fear,” according Eilers. He says a climate of financial overexposure, a treadmill of buying and selling and flipping homes, owning multiple properties, and buying before selling will test how long sellers can hold on without selling in desperation.

If the bubble has indeed burst, things are about to get very ugly. Eilers says that in the 1980 housing crash, prices dropped by 40 to 60% within a year and took six years to recover. “So your $2 million house became $800,000 in five months. There’s a lot of economists and a lot of wise people that believe that our financial structure is much closer to that structure from a corrections’ point of view,” Eilers explained.

One thing, however, appears certain: the foreign money influx has stopped. Zolo’s CEO says the foreign buyer tax has certainly stopped speculative buyers. This has caused many other buyers to take on a “wait and see” approach, which has essentially frozen the market.

News of the foreign buyer tax has spread to China, where Chinese real estate website Juwai now promotes other Canadian cities as foreign capital destinations. The website used to promote Vancouver as one of the best places for wealthy Chinese to invest, but has now switched to publicizing Calgary and Alberta due to the tax.

Which means that while one bubble is bursting, another is about to start, even if it is smack in the middle of Canada's bleeding oil patch.

That said, this is good news for ordinary Vancouver residents. NDP MLA David Eby says the tax has caused a lot of people to hit the pause button on buying homes, but all those people might come back into the market in September. Despite his reservations on how the tax was implemented – he would have preferred an incrementally-increasing tax – he says a market slow down is good news.  

“A lot of people have said to me quietly that they hope there is a substantial housing crash.”

Well, it appears they got what they wanted. Now the only question is what happens once Vancouver "corrects" by 30%, 40% or more - will the Chinese buyers stay away permanently or, like a good S&P500 algos, simply BTFD. We will have the answer in a few months.

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CHoward's picture

Looking at the BIG PICTURE (as they like to say) this is no big deal.  No one really likes living in Vancouver to begin with - or anyplace in Canada year round.  So now that the market is declining that just tells me that those buyers will just move on to someplace else - maybe with a nicer year round climate which is a huge bonus. 

froze25's picture

My father told me that it used to be a home cost about 1-2x your years salary,  I think we have a long way to go down from here, Canada,  US, world wide.

Sam Clemons's picture

Interest rates weren't set by printing money back then.

Vampyroteuthis infernalis's picture

It is sad a huge tax is required to bust this bubble. Would not ropes around central banker's necks next to trees be much simpler?

BeanusCountus's picture

The ropes might come when rates go higher and folks see another 30% drop in the value of their dream home.

philipat's picture

Strange, I thought London would burst first, especially after Brexit. The difference I suppose being that London will launder anyone's money, not just Chinese?

new game's picture

and will this tax ever go away? lol, ya right...fuckers...

SafelyGraze's picture

Vancouver Housing Market Implodes

bullish!

atomp's picture

Down to only one point one million!?! BARGAIN!

American Psycho's picture

Let's hope DB has big Vancouver exposure. 

Laowei Gweilo's picture

exactly... most Chinese I've spoken too have no intention of leaving the market; they're just leaving for Canadians to go underwater on their mortgages and buy up the post-crash fire sale.

 

two summers from now, detached housing in VAN wil be up to 1.5m and the percentage of foreign ownership will be even higher.

 

this will raise good tax revenue though to subsidize low income housing and hopefully invest in bringing more TECH here since that's essentialy the only sector that will bring up the median salary in VAN (which is the real problem more than housing prices by themselves since VAN is still cheaper than a lot of global cities where jobs pay much better).

Houses Depreciate's picture

I have a good many acquantances who are chinese nationals here in Vancouver. Not one of the is a full time resident and all of them are levered to their necks.

U4 eee aaa's picture

Haven't you been crowing on these boards that there was not significant foreign investment? amazing how fast your story changes in the face of evidence

artichoke's picture

Why is Vancouver worth so much more than NYC suburbs -- which are around a vastly more important city?  Chinese know about NYC too.  The Vancouver price levels are not sustainable.

jcaz's picture

"Strange, I thought London would burst first, especially after Brexit. The difference I suppose being that London will launder anyone's money, not just Chinese?"

And we have a WINNER!

The Kongers just love when they lose principal-  realtors up there are gonna hate life soon.

Dr. Spin's picture

Yes, yes, and I feel really bad for the REALTURDS...

;-D 

U4 eee aaa's picture

The realtors, who said there was no foreign investment, are already about to revolt

http://vancouversun.com/news/local-news/fraser-valley-real-estate-board-...

artichoke's picture

They could ease the pain for their clients by kicking a share of their overly large commissions.

old naughty's picture

it takes two to tango, no?

either this will go down a lot moar when money needed to return (sellers not happy)...

or bid up moar when moar outflow come in (owners happy), despite tax...

the banks had set up easy network and they'd continue until collapse, it's the 'blood' flow to the ego mind!

Déjà view's picture

-20% + 15% tax = -5% discount for hot money...in 3 weeks...hmmm...

 

Guru1294's picture

Thats some rachet math but yea i get your point

Bunga Bunga's picture

It's  more like the idiot investor is down 35% when bought a month ago. LMFAO.

Infocat's picture

It´s impossible to tell where the bubble will pop first but vancouver has a new 15% extra tax on home sales to kill chinese speculators, thats why the bubble is popping there first: http://www.truthjustice.net/economy/housing-bubble-2-0-are-you-ready-for...

Antifaschistische's picture

calling Captain Obvious.....a drop from 54 sales to 3 sales means the prices are STILL WAY WAY WAY WAY too high.

That 30% is right around the corner.

PT's picture

Well it's a start.  We'll need the house prices to drop by 97% so the locals can afford to buy them again.

greenskeeper carl's picture

"The ropes might come when rates go higher"

 

Ha. Not happening, my friend. Rates go higher, this entire ediface comes crashing down. While it is certainly possible the fed makes another tiny 25 basis point increase this year(I personally doubt it, but its possible) rates are going down, not up. What do you think mortgage rates will be when the 10 year is down to zero, or a tad negative?

BeanusCountus's picture

Hard for me to even imagine, but then again I couldn't have dreamed up where we are today. Good point on the whole system mess they won't allow, if they can stay in control. That "if" is starting to look a little shaky.

U4 eee aaa's picture

for those new to this, Japan is the model

Dubaibanker's picture

I believe there are 2 major reasons combined that have led to the start of a beautiful implosion in Vancouver, literally days after the freefall started in another beautiful city named London!

And months after free fall started in HK, Singapore and Sydney.....and a year or so after it began in Calgary and Dubai.

1. Of course the 15% foreigner tax which I believe should have started a year or two ago but better late than never.

2. Second, is also a forceful reason that has shocked the entire Chinese Canadian community across the entire nation.

The first ever court order (from China) enforced in another country (Canada) while chasing ...(Pokemons...oops....sorry......couldn't resist...lol) ......fraudulent money!

Now we all know that Canada is a leading money laundering nation! Congratulations for wining the gold and for beating that tiny Switzerland! :) Because even Switzerland could not achieve that court order!

 

Chinese bank claims fugitive bought luxury B.C. real estate
Fundies's picture

There is no property price fall in Sydney....prices keep going UP........its perverse.

Houses Depreciate's picture

Prices are down 14% YoY in Sidney. 

Are you drinking DownIsUp again?

Fundies's picture

Are you talking about Sydney Australia ? because prices keep on going up.

Houses Depreciate's picture

Incorrect. Prices are down year over year.

NEOCON1's picture

Ropes?  Too quick!  Gas and railroad flares,

Son of Loki's picture

These handful of markets are set to correc tbig time in some way unless the Fed hands free money to the banks again so they don't foreclose by the millions and the shadown inventory will swell to maybe 30,000,000 from the present 8 million or so.

 

I am seeing lots of houses pop up on the market where my brother lives in a very nice neighborhood in one of the energy cities---Houston. Two years ago you had to wait 6 months for a house in that area and now there's over 24 in his immediate vicinity. Prices are way too high also considering Barry and his Saudi buddies blasted the energy sector and STEM grads are a dime a dozen [so to speak]. Reminds me of Las Vegas during their crash in 2008-2009 with a few For Sale signs within eye distance where ever you drive.

Kirk2NCC1701's picture

Depends. If hot offshore money is still looking for a home, it simply means that other markets will get hotter -- cascade down, like a pyramid of champagne glasses, when the top one overflows.

In that case, expect the Seattle and Portland markets to keep going.

Déjà view's picture

Wise to keep track of presence for tax purposes...otherwise worldwide income is subject to U.S. taxes. I presume those cunning Chinese know that...

Substantial Presence Test

You will be considered a United States resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States (U.S.) on at least:

  1. 31 days during the current year, and
  2. 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
U4 eee aaa's picture

rumors are they moved east in Canada to Calgary etc.

mmanvil74's picture

That was true when mortgage rates were 7-12%, but when they're 2-3% the math changes. It changes for the better for some ppl (the haves) but for the worse for many others (the have nots). Thus the widening divide between rich and poor. How come no one in mainstream media remarks on how low interest rates have caused wealth disparity?

mygameon's picture

Mmanvil, sorry to disagree but debt to income doesn't include interest when looking at credit worthiness. I maintain that no one other than a debt slave should ever spend more than 0.75 of TAKE HOME PAY on any house. It has serv d me and the misses and our kids exceedingly well. Has allowed us to own several properties over time that we still own. Ignoring taxes of cours

NihilistZero's picture

Interest matters because before even the lowest sheep on the income ladder could save for a few years and let his down-payment override his lack of income.  Live like a pauper and save 50k and you could buy above your pay grade. Damn near impossible now as RE values rose faster than you can save thanks to QE.

Blankenstein's picture

That's not the problem.  It is the loose lending standards and the government backstop of most of the loans.  The government has become the largest subprime lender.

  The house prices went up as interest rates dropped and kept rising until they reached the point where the monthy payment reached the maximum that the bank would allow for the buyers income.  And that amount is much more generous than it used to be since the government backs most of the loans.

The lending standards used to be much tighter and you had to actually have a downpayment.  All the easy loans and no down paymet loans push the house prices into the stratosphere. 

Fiat Currency's picture

Median family income in Vancouver is $76K ... So $1,100,000/$76,000 = 14.5 times family income !!

No thanks.

Hopeless for Change's picture

And, if I read that correctly, a 15% tax means you'll re-buy your own house from the government every 6 3/4 years.

EDIT: I did not. I thought "property tax" meant recurring yearly, but saw it referred to as a "luxury tax"

new game's picture

15 must be the magic number. minimum wage and all. yea ,winning for the little guy! s/

ten year heading for 1.0 percent will keep the bubble inflating. 30 year at 3, 5:1 arms at 2.25-2.5.

yea baby, get your million dollar slab home for the low, low payment of 10 minimum wage earners packed in like sardines with ten hondas and toyotas parked out front. winning, usa style...

Antifaschistische's picture

I was in a city in south western China (Guiyang)....average family income $3,000, average new "home" (apartment/condo) price $120,000.

40X baby!!!  (please excuse my rounding of numbers)

Bunga Bunga's picture

Chinese are completely nuts. Their economic reasoning got flushed down the toilet, if they ever had it.  That the China Ponzi will crash very hard is just a question of time.