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

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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