Housing Bust 2016

Leveraging, renting vs owning, making an investment or buying a home?
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Beezy
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Housing Bust 2016

Post by Beezy »

While I happily rent and invest in my couch potato, some interesting things have happened over the last 12 months.

- 1 year ago $1 USD = $1.16 CDN, today $1 USD = $1.39 (~ 20% loss of value)
- The U.S. Federal Reserve raised interest rates 0.25% for the first time in a decade, with more to follow
- Oil is now ~$37 / barrel
- We have a newly elected government who wants to run a deficit, cut the TFSA limits and try to tax the wealthy more
- Staggering household debt numbers have continued to rise
- The CMHC has changed down payment rules

Is the perfect storm brewing?

Could 2016 be the year when the show comes to an end?
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Re: Housing Bust 2016

Post by AltaRed »

Hard to know. Canadians seem hell bent on owning their nest whether it makes sense or not.
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Re: Housing Bust 2016

Post by poedin »

The longer this continues (outsized personal debt levels and housing prices outpacing inflation) the harder the fall (reversion to historical levels).
And lots of other surprises along the way...
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Re: Housing Bust

Post by Just a Guy »

The one thing to remember about real estate is that it's usually a trailing indicator. So, interest rates will rise first, or oils will drop, jobs are lost, etc. but real estate doesn't collapse the next day...it usually takes a few years since mortgages don't renew right away, people cut spending, etc.

There are certainly a lot more houses on the market today than there has been in the past few years, but not many actually selling. People are asking fairly high prices (read as the former market value), but haven't hit the "desperation to sell" phase yet.
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Re: Housing Bust

Post by jokerit »

Just a Guy wrote: There are certainly a lot more houses on the market today than there has been in the past few years, but not many actually selling. People are asking fairly high prices (read as the former market value), but haven't hit the "desperation to sell" phase yet.
Definitely I see that we're in that phase. Sales numbers from Alberta are terrible, but prices are sticky. It will take some time before the rubber meets the road, so to speak.
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Re: Housing Bust 2016

Post by CROCKD »

In Vancouver it's not a bust but an ever expanding bubble.
A crisis in Vancouver: The lifeblood of the city is leaving
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Re: Housing Bust 2016

Post by Just a Guy »

The market can remain irrational longer than you can remain solvent. It can also change direction in an instant.
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Re: Housing Bust 2016

Post by nisser »

CROCKD wrote:In Vancouver it's not a bust but an ever expanding bubble.
A crisis in Vancouver: The lifeblood of the city is leaving
I continue to be amazed at how people deny the foreign money influence in Vancouver real estate. Where else is this magical money coming from? The people that work and live in Vancouver simply can't afford it.
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Re: Housing Bust 2016

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nisser wrote:I continue to be amazed at how people deny the foreign money influence in Vancouver real estate.
If you've got any proof, I'm certainly open to changing my opinion.
nisser wrote:Where else is this magical money coming from? The people that work and live in Vancouver simply can't afford it.
They're borrowing it, of course. From the bank, from their parents, from their RRSPs, from wherever they can get it. Also, a huge number of homeowners have rental suites to help cover the mortgage payment.

Also, they're selling them to each other. Someone who owns their $1.3MM house free-and-clear (who maybe only paid $600k for it when they bought it in 1992) wants to relocate, so they sell their house and buy another house for $1.3MM. The person they sold their house to is in a similar situation, having sold their own $1.5MM home to buy a $1.3MM one. They're all just trading with each other, very few of them actually have the $1.5MM cash-in-hand to buy their houses outright. But if they're only moving up or down a little in location/size, they're only taking on a couple hundred thousand in additional debt, even though the house they're buying might be well over a million dollars.
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Re: Housing Bust 2016

Post by Flaccidsteele »

nisser wrote:I continue to be amazed at how people deny the foreign money influence in Vancouver real estate.
It's not really amazing. There's no data to support the hypothesis. I would love to believe that foreign money is having a large impact on Vancouver real estate, but I've yet to see any one provide anything other than an opinion or anecdote. Individuals who have a dog in this fight should just put up their data and put this discussion to rest.
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Re: Housing Bust 2016

Post by Insomniac »

Foreign ownership of condos...

http://www.cmhc-schl.gc.ca/odpub/esub/6 ... 15_M12.pdf

Note that some of the "foreign owners" are Canadians living abroad.
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Re: Housing Bust 2016

Post by newguy »

http://news.nationalpost.com/news/canad ... ina-buyers
The dominant influence of Chinese investors in Vancouver has finally been proven with comprehensive data.
...
Of 32 homes sold for more than $4 million, 94 per cent of owners were ethnic Chinese and the rest were corporations.
Don't forget a bunch of them are left empty. They're supposed to try and count them soon.

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Re: Housing Bust 2016

Post by Just a Guy »

Try this to explain how foreign money is raising prices in Vancouver...

http://www.theglobeandmail.com/news/inv ... e28634868/
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Re: Housing Bust 2016

Post by ig17 »

Flaccidsteele wrote:There's no data to support the hypothesis.
Do you have any data to disprove the hypothesis?

Do you have any alternative explanations for the insane house prices in Vancouver?

Do you have any data to support your alternative explanations?
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Re: Housing Bust 2016

Post by Flaccidsteele »

newguy wrote:
The dominant influence of Chinese investors in Vancouver has finally been proven with comprehensive data.
...
Of 32 homes sold for more than $4 million, 94 per cent of owners were ethnic Chinese and the rest were corporations.
Thanks for posting the analysis, but I don't understand how the article states the data as "comprehensive".

Are we suggesting that "proof" of foreign ownership is defined as 172 single family home sale transactions where 82% required mortgages by Canadian banks and 2/3 of purchasers had "non-anglicized Chinese names"?*

If that's the proof we're going by, then I'm ok with that. As long as we agree that this is the standard that we're using.

From what I can tell, the newspaper article is sensationalizing the otherwise mundane slideshow by using terms such as "comprehensive data" and "finally proven" and "Mainland China buyer". The study didn't use any of those terms.
Just a Guy wrote:Try this to explain how foreign money is raising prices in Vancouver...

http://www.theglobeandmail.com/news/inv ... e28634868/
The article appears to be a story about real estate contract assignments. It happened a lot in the late 80s. It's just house flipping on steroids. What is the connection to a proof of foreign ownership?
ig17 wrote:Do you have any data to disprove the hypothesis?
Sure. The CMHC data appears just as robust as the slideshow covering 172 transactions where 82% required mortgages by Canadian banks and 2/3 of purchasers had "non-anglicized Chinese names".

Even the CMHC states that there is "a lack of accurate and reliable data" that "makes it difficult to determine if or how foreign ownership may be affecting housing markets".

How are people getting their data to make a conclusive call on foreign ownership?
ig17 wrote:Do you have any alternative explanations for the insane house prices in Vancouver?
Sure. Cheap credit.

In the face of no data, all explanations should hold equal weight. Right?
ig17 wrote:Do you have any data to support your alternative explanations?
No because nobody has any data (which is my point). And the answer to the question of foreign ownership, in the face of no data is "inconclusive".

Do we agree that on the issue of foreign ownership that the result is "inconclusive" then?

*How did the Post article determine that the buyers were from "Mainland China"? CRA tax forms? Passport copies? Something else? The Post author didn't mention their methodology and the slideshow didn't use the term "Mainland China buyers".
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Re: Housing Bust 2016

Post by nisser »

CMHC doesn't even get involved if rich china man pays in cash so I'm not surprised they're not in the statistics.
I don't have proof but neither does anyone else to the contrary. But what I do know is that the median and average house is unaffordable with the median or average salary of someone living in Vancouver. The prices are double that of Calgary and the salary's are substantially lower than that of Calgary. And even in Calgary people often complain of exorbitant high prices.

The parents are probably helping with the downpayments but the average salary can't sustain the average mortgage payment (i.e. ~5500).
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Re: Housing Bust 2016

Post by newguy »

Flaccidsteele wrote:And the answer to the question of foreign ownership
The question is foreign buyers, not ownership. The prices are driven by buyers. Only a small percentage of homes sell every year.

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Re: Housing Bust 2016

Post by AltaRed »

newguy wrote: The question is foreign buyers, not ownership. The prices are driven by buyers. Only a small percentage of homes sell every year.
It is amazing how media reporting and analysts get this so wrong. Even realtors cannot seem to articulate that.
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Re: Housing Bust 2016

Post by kcowan »

AltaRed wrote:It is amazing how media reporting and analysts get this so wrong. Even realtors cannot seem to articulate that.
Same as in the markets where there is no attempt to measure trading volume against valuation.
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Re: Housing Bust 2016

Post by Flaccidsteele »

AltaRed wrote:
newguy wrote: The question is foreign buyers, not ownership. The prices are driven by buyers. Only a small percentage of homes sell every year.
It is amazing how media reporting and analysts get this so wrong. Even realtors cannot seem to articulate that.
If the question is foreign buyers, not ownership, then someone needs to let the Post writer know that the title of his article says "Mainland China buyers" and that the "comprehensive data" that he's using as "proof" is a slideshow that focuses on "Ownership Patterns". Specifically 172 transactions in 3 neighbourhoods where 82% required mortgages by Canadian banks and 2/3 of purchasers had "non-anglicized Chinese names" (which kinda makes it sound like Canadian banks did most of the "buying").

Where's the "comprehensive data" that shows "proof" of foreign buying from "Mainland China"?

Where can I find this data?
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Re: Housing Bust 2016

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nisser wrote:The parents are probably helping with the downpayments but the average salary can't sustain the average mortgage payment (i.e. ~5500).
The average mortgage payment isn't anywhere near that. As kombat pointed out, most buyers of million dollar + properties already own.

Suppose a first timer buys a $500K condo with a $300K mortgage (payments about $1500/month) and parental help of $200K. That supports existing owners to move up the ladder. Which enables more parents who bought houses decades ago and have paid them off to borrow even more money and help their children buy at the entry level at even higher prices. And so on.
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Re: Housing Bust 2016

Post by nisser »

patriot1 wrote:
nisser wrote:The parents are probably helping with the downpayments but the average salary can't sustain the average mortgage payment (i.e. ~5500).
The average mortgage payment isn't anywhere near that. As kombat pointed out, most buyers of million dollar + properties already own.

Suppose a first timer buys a $500K condo with a $300K mortgage (payments about $1500/month) and parental help of $200K. That supports existing owners to move up the ladder. Which enables more parents who bought houses decades ago and have paid them off to borrow even more money and help their children buy at the entry level at even higher prices. And so on.
You made several assumptions there, the second of which is grossly unrealistic:

1. That "most" buyers of million dollar+ properties already own
2. That a first time buyer gets parental help of 200,000$.

Where is your proof? What parents [In Vancouver] actually have and are willing to throw 200k at their children? I'm not sure why people are so adamant at assuming the above assumptions are totally reasonable. If you haven't seen the movie "The big Short" focusing on the 2007/8 collapse of the housing bubble in the States, go see it. And the parallels between then and Vancouver/Toronto with the yearly 20% yoy increases are unmistakable.
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Re: Housing Bust 2016

Post by patriot1 »

I'm not claiming that every first time buyer is getting $200K. I'm explaining how first timers can buy at prices apparently inconsistent with their incomes.
More than a quarter of first-time buyers in Canada got a gift or a loan from their families, a number that rises to 35 per cent in Toronto and 40 per cent in Vancouver.

While Vancouver is home to Canada’s most heated and expensive housing market, buyers in Toronto paid the most for their homes ($425,000 compared with $420,000 in Vancouver), put down the largest down payments ($90,000, compared with $75,000 in Vancouver) and took out the biggest mortgages.

That’s largely because buyers in Vancouver have been shut out of the market for detached houses... Nearly half of Vancouver buyers bought condos
http://www.theglobeandmail.com/report-o ... e23814335/

Consider that first time buyers are a fraction of total buyers and half of them buy condos, and it's clear that first time buyers can account for only a fraction of detached house sales, i.e. million dollar + sales.
The Society of Notaries Public of BC conducted an internal online survey of members on key real estate topics in November 2015 and found that more than half of Notaries’ first-time home buyer clients are typically getting help with their down payment from parents.
http://www.notaries.bc.ca/resources/sho ... emId=18300
Chris Catliff, CEO of BlueShore Financial in North Vancouver, said his credit union has seen an increase in the number of parents who want to use the equity in their homes to help their children buy into a detached-home neighbourhood.

According to Catliff, the trend is linked to an increase in wealthy immigrant buyers who are buying homes as an investment, which has helped push prices up. Meanwhile, homeowners over the age of 55 who purchased homes in the 1970s or ’80s have seen a steep rise in their home equity.
https://www.biv.com/article/2015/3/vanc ... om-and-da/

I find the logic in that last paragraph intriguing.
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Re: Housing Bust 2016

Post by nisser »

I don't disagree that most time first-time buyers get help from parents. I myself got help from my parents as a first time buyer to the tune of $15,000. I'm disagreeing with the notion that parents are liberally throwing $200,000 to their kids. It's absurd. Most are getting help just to meet the 5% downpayment which still leaves you with a 450k mortgage at best.

That last article has vested interest in making that accounting trick more prevalent. Some people surely borrow on their parents' house equity but even than, that 1.3 Million house with a 325k downpayment is still a mortgage of almost million. It just doesn't add up unless you add funds from an outside source.
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Re: Housing Bust 2016

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