The Biggest Real Estate Bubble Of All Time Just Did The Impossible

One month ago, we said that "the Vancouver housing bubble Is back, and it's (almost) bigger than ever."

Fast forward to today, when we can scrap the almost part: according to the latest data from the Real Estate Board of Greater Vancouver, nearly a year after British Columbia implemented a 15% property tax targeting foreign buyers, in May the biggest real estate bubble of all time did the impossible and in a testament to the persistence of Chinese oligarchs, criminals, money launderers and pretty much anyone who is desperate to park their cash as far away as possible, after a modest drop following last summer's tax the Vancouver housing bubble has bounced right back to new all time highs, as prices of detached, attached houses and apartment all surged to new record highs.

According to the Real Estate Board, the breakdown in prices by category was as follows:

  • For condominiums, the benchmark price was C$571,300 last month, a 17.8% jump over the past 12 months and 3.1% more than April 2017.
  • The benchmark price of an attached unit was C$715,400, 13.1% more than a year ago, and a 1.9% increase compared to April 2017.
  • The benchmark price for detached properties was $1,561,000, an 3.1% increase over the last 12 months and a 2.9% increase compared to April 2017.

The only thing that did fall in May was the number of actual transactions, as residential property sales in the region totaled 4,364 in May 2017, a decrease of 8.5% from the 4,769 sales in May 2016, an all-time record.

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.

While there is little we can add to this month's update that we didn't already say a month ago, below we again put Canada's housing market, and bubble, in perspective with some of our favorite charts, first showing total Canadian household debt compared to the US. 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. This needs to commentary.

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 historic crash and collapse in collateral values and widespread defaults, the "mean-reversion" outcome would have been devastating for the Canadian banking sector. 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, courtesy of Chinese buyers who would rather park their cash in Canada than at home.

Comments

Paul Kersey BurningFuld Sat, 06/03/2017 - 17:28 Permalink

China has an unregulated $8.5 trillion shadow banking system. There's more than enough money so that the oligarchs can continue to buy enough Vancouver real estate to inflate prices years into the future. Wish they would get interested in my city. I'd be dumping my real estate holdings like there was no tomorrow. After all, these Chinese are willing to pay millions for crack shakes in B.C.

In reply to by BurningFuld

pitz strannick Sat, 06/03/2017 - 18:42 Permalink

Then Canadian sellers should be becoming less indebted.  They're not.  Hence, its not the Chinese buying, its Canadians buying, using money borrowed mostly from other Canadians.  Other Canadians who probably sold their RE, as not many other assets these days are actually saleable for significant money.  A classic speculative credit bubble.

In reply to by strannick

subversion pitz Sat, 06/03/2017 - 22:58 Permalink

Bullshit. I do business in Vancouver, Calgary and Edmonton and the Chinese are buying most of the real estate. I have watched them take over most of Vancouver (which is now called Hongcouver). The few friends I have left in real estate have told me they have taken over everywhere and only deal with Chinese realtors now.They park their money and let it rot or let 2-4 Chinese families live in it for a "fee". None of them have a real address in Canada and they have priced homes out of Canadians hands. I know many families that would love to buy, but the banks have told them they need an income of $300,000-$400,000 / year and 20% down.The real problem is the Chinese 50-cent army that trolls the internet spewing lies and calling everyone racist all while they buy up the homes and businesses in Canada. Do you know how much of Fort. Mac's oil industry is owned by China? Look it up. They didn't just buy one company....they have shares in every other company as well. Already there are many jobs that require mandarin Chinese as a spoken language and soon it will be Chinese workers only as Truedough gives them everything they ask for.

In reply to by pitz

1033eruth meditate_vigorously Sun, 06/04/2017 - 09:14 Permalink

Popped your bubble, didn't it dope?  Funny thing as a Nazi, that's the only thing you can think about - Jews.  Jews being responsible for any thing YOU don't like in the world.  Anybody that becomes successful in this world is by default, a Jew.Well, donut, its about time you realized that its a big world.  I make this comment based on my frustration of the quantity of Nazis that dwell here on ZH and attribute EVERYTHING negative, to the Jew which of course is just stupid crazy.  

In reply to by meditate_vigorously

JFK 1033eruth Sun, 06/04/2017 - 21:15 Permalink

You're giving him/her/they too much credit. Nazis, while the most morally depraved, reviled and positively inhuman organization of the 20th century, were smart. Nazis were organized. Nazis were ruthless.

This loser sits at home in a basement apartment jerking off to photos of Brad Pitt in Fight Club and collecting unemployment insurance.

It's utterly pathetic than the moderators don't have the guts to censor hateful comments here. Wake up Zero Hedge.

In reply to by 1033eruth

pitz golden kafir Sun, 06/04/2017 - 14:58 Permalink

I've never denied that people of Chinese ethnicity are a growing group in the lower Mainland.  There has been immigration, and the Canadians of Chinese ethnicity population appears to reproduce at a rate a bit faster than Canadians of European ancestry.  Although as time goes on, the rates are converging, and Chinese-ancestry Canadians will increasingly join European-ancestry Canadians in demographic decline. I personally think its wonderful that they are able to maintain some of their culture when come to Canada or live in Canada for a few generations.  Sure beats turning into trailer trash and eating at McDonalds. I don't live in BC, but I am in the GTA and GVR frequently. 

In reply to by golden kafir

Endgame Napoleon pitz Sat, 06/03/2017 - 23:10 Permalink

It is probably just the two high-earner couples who concentrate high-paying jobs in fewer households, decreasing the middle class in Western countries, but expanding the palace-buying market, not by much. Most people cannot even afford an apartment unless they have spousal income, monthiy payments from an ex spouse due to reproduction inside marriage or welfare/taxfare due to out-of-wedlock reproduction. The wages of one breadwinner from most of today's churn jobs will not cover basic bills, including housing, not without the womb-productivity rewards. But the two high-earner couples are living like an aristocracy based on power marriages.

In reply to by pitz

pitz besnook Sat, 06/03/2017 - 18:23 Permalink

Chinese got their big start in BC in the 1800s working on the CPR and even in the salmon canneries of Northern BC (if you tour them,  such as at the North Pacific Cannery at Port Edwards, you'll even see a machine called an "iron chink" which ostensibly was used to replace Chinese workers in the fish gutting process!).  Thousands gave their lives.  How they're treated as a significant ethnic community these days with longer-term ties to Canada than most living Canadians (even white Canadians) is nothing short of absolutely disgraceful.

In reply to by besnook

NewNeo Croesus Sun, 06/04/2017 - 08:12 Permalink

Spot on Sir! If people saw how much capital flight was occuring they would be more than a little concerned. Mackzie Instute had some research where 80 billion left China Dec 2015. By June 2016 the figure was around 200 billion per month.  The majority of that is going into hard assets like houses in Canada, U.S. Australia and Britan. Australia for example has property prices around 16 times the average yearly income. House prices should be around 3-4 times the average yearly income.... so you can imagine its going to be a very hard landing indeed!

In reply to by Croesus

The Real Tony IridiumRebel Sat, 06/03/2017 - 18:04 Permalink

Great real estate market in Vancouver and Toronto. Most trying to get a mortgage today go to the shadow lenders where mortgages start at seven percent. The big 5 banks today and in the future have mostly given up giving a mortgage to anyone who isn't Chinese. The end result is the Chinese will own everything and rent to the local Canadians. People will start to move to deserted wastelands in Canada to retire.

In reply to by IridiumRebel

pitz The Real Tony Sat, 06/03/2017 - 18:13 Permalink

If you dislike the Chinese, it should thrill you that they're buying (in the opinion of the brainwashed masses, but not me) at the peak of the market.  However, I personally believe Chinese are far smarter than that with their money.  We're talking about an ethnicity that has such an innane and keen sense of value that they wouldn't be caught dead overpaying for Vancouver RE.  If anything, its other ethnicities, particularly from "the subcontinent", that want to "blame China" for speculation that is really of their own origins.  "landlord families" are heavy participants in Vancouver/Toronto's RE market, gobbling up units with as much subprime credit as they can lay their hands on. Here, have a view at a line-up at a condo developer's sales office in Toronto recently.  Note the distinct lack of "Chinese" people: https://www.youtube.com/watch?v=YfmHI2lvuHY Watch that a few times, play a game of "spot the Chinaman", and you'll see exactly what I'm talking about.  Its not Chinese people, its not even people of Chinese ethnicity behind Canada's RE bubble.  There is no "Chinese" money to any meaningful extent. 

In reply to by The Real Tony

I_rikey_lice pitz Sat, 06/03/2017 - 18:31 Permalink

Pitz, you are full of shit once again. I have lived in Vancouver my whole life and the real estate bubble is 100% caused by foreign money, mainly Chinese. PS Chinese are the stupidest motherfuckers in the world when it comes to investing. If it goes up in price the Chinese will keep buying and bidding it up until it crashes. Doesn't matter if it is real estate or cryptos, they will chase every mania and bubble out there. 

In reply to by pitz

pitz I_rikey_lice Sat, 06/03/2017 - 18:33 Permalink

"stupidest motherfuckers" don't manage to create one of the most prolific export capacities in the world.  "stupidest motherfuckers" don't manage to lift themselves out squalor and build entire cities in the time that it takes typical Canadian politician dipshits to do "environmental assessments" and "aboriginal consultations" on relatively trivial projects.  Okay, you don't like "Chinese", we get it, but there's no evidence in support of your position. 

In reply to by I_rikey_lice