The Vancouver Housing Bubble Is Back, And It's (Almost) Bigger Than Ever

Tyler Durden's picture

For a while it seemed that the Vancouver housing bubble, the direct result of a relentless tidal wave of Chinese "hot money", had burst after last August the British Columbia province implemented a 15% property tax to stem the inflow of offshore funds. And indeed, in the immediate months that followed, Vancouver's housing priced tumbled from record highs.

However, it was not meant to be, and less than a year later, the Vancouver housing bubble is back, and it's (almost) bigger than ever.

Over the past few months, with many suspecting - as we did - that the housing market in Vancouver had finally normalized, attention shifted to what emerged as the next hotbed of rampant housing speculation in Canada, Toronto, where last month average selling prices surged by 33%.

As it now turns out, ignoring Vancouver, and underestimating the persistence of aggressive Chinese buyers turned out to be a mistake, because earlier today the Real Estate Board of Greater Vancouver announced in its latest monthly report that while home sales in the Vancouver housing market had predictably slowed down in April compared with a year ago, prices - which had dipped slightly in recent months- once again surged.

First the (somewhat) good news: the overall turnover in the Vancouver resi market slowed down appreciably, with property sales in the region totaling 3,553 in April 2017, a 25.7% decline compared to April 2016 when 4,781 homes sold and a 0.7% decrease from the 3,579 sales recorded in March 2017. Sales of single-family homes in April 2017 were hit the hardest, reaching 1,211, a decrease of 38.8% from the 1,979 detached sales recorded in April 2016. Meanwhile, sales of apartment, or condominium, properties reached 1,722 in April 2017, a decrease of 18.3 per cent compared to the 2,107 sales in April 2016.

Yet while sellers and buyers were less likely to agree on a closing price than just a few months ago, that does not mean that sellers were more aggressive, or that prices had declined at all. In fact quite the opposite: the benchmark price for all types of residential properties in Metro Vancouver, Canada's most expensive real estate market, was C$941,100 ($686,583.50) in April. That was up 5 percent over the past three months and 11.4 percent higher compared with a year ago.

The breakdown was even more stark by category:

  • For condominiums, the benchmark price was C$554,100 last month, a 16.6% jump over the past 12 months and 3.1% more than March.
  • The benchmark price of an attached unit was $701,800, 15.3% more than a year ago, and a 2.4% increase compared to March 2017.
  • The benchmark price for detached properties is $1,516,500, an 8.1% increase over the last 12 months and a 1.8 per cent increase compared to March 2017.

And the visual testament to just how strongly the Vancouver housing bubble has returned, and as of April has almost surpassed last year's all time highs:

In other words, all that the 15% surtax achieved was to drastically slowdown the rate of transactions (or perhaps home flipping). Meanwhile, as sellers held out to find more aggressive buyers, they were in luck as the new wave of buyers has emerged, and undeterred by the 15% premium, they have been slowly but surely lifting all available offers.

"In the condominium and townhome markets, demand has been increasing for months and supply is not keeping pace, said the board's president, Jill Oudil. "This dynamic is causing prices to increase and making multiple-offer scenarios the norm," she said in a statement.

She added that “Home buyers are looking to get into the market and they’re facing fierce competition”, and it mostly comes out of China. Or perhaps it is simply other Canadians armed with cheap money loans, rushing to fill the void, because as the following charts show, whether it is due to Chinese buyers or not, China has a very big housing problem on its hands, and explains why the recent collapse of alt-mortgage lender Home Capital Group, which accounts for just 1% of all loans in the market, has escalated all the way to the finance minister. The reason is simple: one the first domino falls, nobody knows just how far the resultant avalanche will go.

To put Canada's housing market, and bubble, in perspective, first here is a chart of total Canadian household debt. Most of this is in the form of mortgages.

Next, despite Canada's low rates, the debt service ratio of an average Canadian household is nearly 40% higher than when compared to the US.

And finally, the punchline: indexed home prices in Canada compared to the US.

In retrospect, perhaps Canada was lucky that the attempt to deflate the Vancouver housing bubble failed, had it succeeded and spread across the nation, leading to a collapse in collateral values and widespread defaults, the "mean-reversion" outcome may have been far more devastating. Which of course, is not to say that Canada's problem has been fixed, but at least for the time being, the can has been kicked once again.

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jamesmmu's picture

How to short it?

Jim Sampson's picture

Please, my penis can only get so erect!

Laowei Gweilo's picture

it's back because it's not being driven by only foreigners ...I go to open houses most weekends, and 75% of the people are 25-40 year old white couples lol

higher end housing may be mostly china but that's not a large percentage of the volume ... and a lot of the original condo buyers/developers may be chinese investors

but most of the actual price action in condos/townhouses are white canadians

depends where you go tho... downtown market is like 80% white ppl probably, and like 15% korean, 5% chinese... W Van or Van West are probably 60/40 white/Chinese.... Burnaby mostly Asian in general; Surrey mostly Indian; Richmond mostly Chinese

 

plus, almost all the mortgages are by the big 5 banks -- so whatever is happening in Ontario is a non-factor... Vancouver probably has more contagion from Seattle than Toronto lol completely different markets

Houses Depreciate's picture

Well not really.... not at all. Demand collapsed. Read the article.

 

Remember..... I can ask $50k for my used up Chevy pickup but where is the buyer at that price?

 

So it is will all depreciating assets like houses.

Laowei Gweilo's picture

huh? you mean the part where it says demand is still increasing because supply cannot keep pace?

i've been going open houses most weekends, demand may not be quite as crazy as Jan-March '16 but it certainly doesn't appear to be decline much lol and it defintely a lot busy than any time since last Sept -_-

silverer's picture

I was thinking the same thing about my Chevy pickup. But if yours is old, it's worth it. No complicated control systems. Easy repairs. No black box tracking. Cheap aftermarket parts. Do it yourself without sophisticated equipment. Thousands in savings. I'd say your Chevy truck is worth 2x what you paid, at least.

Houses Depreciate's picture

You're my buyer. Theres a fool born every minute.

Laowei Gweilo's picture

it's worth noting tho the price is a benchmark price....

and if you look at how the real estate org defines it, they factor in non tangible shit like school districts, number of schools nearby, etc. not only does the actual value they use come from an average over time, value and price are not even the only factors.

so in no way whatsoever does it represent the actual 'PRICE' (as in, what people actually paid last month)

... it's more of a 'value' based on various price, tangible, and intangible inputs -_-

anyhow, the open houses i've went to are mostly about the same price as last year... some maybe up 5-10% but other flats, maybe even a few down a bit... they're probably up 5-8% but i really doubt it they're anywhere close to being up 11% ....that said, there's not a lot of volume on the market so the 'value' most Canadians place on their condos is probably up like 20% (as in, it would take a 20% gain for them to consider selling because there is so little supply)

so it's kinda a messed up case of price vs value because there is such an intangible premium being placed on securing homes -_- (which is why you still see so many white couples at condo open houses)

thing is, even though Vancouver market may only be 10-20% Chinese, that's ENOUGH to keep prices going up cuz there is so much competition and low supply than even 1-2 Chinese for every 9-10 Canadians can still put upward pressure on price. it doesn't take a large percentage of people (e.g. 10% of the market) to inflate price competition when they have 3-5x the assets/cash, and the market is so supply constrained

that's why foreign tax is never going to work, the probably is too few places are being put on market... which is why the taxes on empty units or investments are better solutions cuz they gotta incentivize a big supply increase ... cuz as long as supply is so constrained, market could be even 5% chinese with a 25% foreign tax, they're still rich enough to inflate the competition for limited supply

evoila's picture

The only thing these charts point to is an epic collapse in China. I mean, if people are rushing to get their money out of China so fast, imagine how many billions of dollars of BS loans they must have on the books. Nobody is keeping their equity there to the extent possible.

It will be an epic collapse in China, except the sad part is that once that crack forms, China is going to dump and because they will make capital outflows all but impossible, it will crash the rest of the world too. Sheiss. 

quesnay's picture

Best line from Archer, ever.

jaxville's picture

  You would be crazy to short that market.  It is a matter of time before the whole house of cards tumbles but crap like that can take a lot longer than you can remain solvent.  There is no predicting the day that irrational exuberance will be supplanted with thoughtful due diligence.

  Best way to short it is rent and save your dough for a down when your day arrives.  Just hope it isn't your day in the barrel.

  Real estate......yikes...I'm so glad I rent.

JuliaS's picture

When sales tank, median prices often rise rapidly, since the bottom end of the sub-prime market evaporates first. High rollers are oblivous to change as they have easier access to credit, pledging equity against new loans. When the game runs its course, they loose not just one house, but all of them.

buckstopshere's picture

A 20% property tax will do what the 15% property tax could not do.

Laowei Gweilo's picture

lol the yuan has appreciated nearly 25% since the 'peak' of the market

15% or 20%, most Chinese still have greater buying power today than 2012-2014

HRClinton's picture

Those Chinese elite are eager to buy Canadian RE as a hedge and firm of money laundering. 

The Gov is complicit.

Your Good Friend's picture

The problem is its all borrowed money.

pitz's picture

Too bad there's little to no evidence of Chinese participation in either Vancouver or Toronto.  But there's lots of local speculator types trying to grab a piece with borrowed money.  Gladly lent by Canadian lenders until recently.

Richard Head's picture

^^^ Chinese money launderer

2_legs_bahhhhhd's picture

Paging his third account HousesDepreciate....they can have a three way Dutch rudder.

Houses Depreciate's picture

What's the problem my good  friend?

2_legs_bahhhhhd's picture

You three clowns have been outed....obvious as a turd on a wedding cake.

Houses Depreciate's picture

Cheer up and remember my good friend..... A housing recovery is falling prices to dramatically lower and more affordable levels by definition.

 

quesnay's picture

That is total nonsense. A housing recovery is rising prices after a crash in prices from a bubble or a recession.

I suppose for you a stock market recover is when prices fall 50% ...

Your Good Friend's picture

It's reality my good friend. Get over it and get on with your life.

quesnay's picture

You're the only one that defines 'recovery' as falling prices. Nothing to 'get over'. I'm just pointing out your idiocy.

Oh I just noticed this is a different guy. One of the many sock puppets I guess.

Your Good Friend's picture

Falling prices to dramatically lower and more affordable levels is indeed the definition of recovery.

 

Sorry my good friend.

quesnay's picture

Show me a definition that says that. A reference not made up in your head that is. ;-)

http://www.investopedia.com/terms/e/economic-recovery.asp

Your Good Friend's picture

You have the definition. You just don't like it.

quesnay's picture

I like the definition just fine. Can you read?

"The recovery that follows coincides with the expansionary phase. Common features of economic recovery and expansion include GDP growth, stock market gains, declining unemployment and higher consumer confidence."

Stock market gains means rising prices, in case you're confused.

quesnay's picture

He votes himself up to I see. ;-)  Pitz disappeared.

Dude, use multiple browsers, then you can post to all your accounts at the same time ...

Your Good Friend's picture

The truth endures irrespective of your empty wallet and paranoia.

quesnay's picture

More nonsense. I own my place outright. Thanks to the Chinese I'm worth millions, not even counting my considerable earning and savings. How about you?

Your Good Friend's picture

Nonsense. You don't have two dimes to rub together.

quesnay's picture

Think what you want, it's true regardless.

What about you "My good friend?"

Your Good Friend's picture

No need to take this mess personal. It is what it is.

quesnay's picture

Ah so your 'personal attack' on me being poor was actually projection. I see. As is your "No need to make it personal" after just doing exactly that. Your constant nonsense makes sense now. Either schizophrenic retard, or troll. I'll be kind and assume the latter.

Your Good Friend's picture

I'm sorry I hurt your feelings.

2_legs_bahhhhhd's picture

Well played guys! Some pro trolling .... golf clap

Sector Catalyst's picture

If you take a look at Pitz' comment history he voraciously defends his position on all these types of articles that it's "definitely not chinese laundering".  He has to have skin in the game to continue defending his claims with such passion.  

Likely a Chinese money launderer himself, or a real estate broker that is capitalizing on the commissions he is making, and in the process disenfranchising Canadian citizens who cannot afford to live in their own cities.

Houses Depreciate's picture

The fact remains that current sales are made using borrowed cash.

quesnay's picture

All of them? 100% borrowed cash? Proof? If not, then what percentage are cash and how does that compare historically? You said this is 'fact', so surely you know this then.

Your Good Friend's picture

And worse yet they're using heloc's to meet payment schedule.

pitz's picture

Or serial refinancing.  Since appreciation stopped in 2013, there's an awful lot of speculators who are basically resorting to lying about further appreciation.  Sales mix changes are also heavily prominent as lower-end depreciated supply is not moving.

quesnay's picture

He never provides evidence or reference to articles or anything though. He simply makes unsubstantiated assertions out of thin air. His 'defence' consists of saying "you're wrong" over and over.

Bay of Pigs's picture

Yeah, and prices peaked in 2013 according to you.

Come on pitz.....your schtick is getting stale.

Houses Depreciate's picture

Collapsing demand speaks for itself.