Larry Yatkowsky at his blog, yattermatters, 16 Jun 2011, kindly releases to us a Greater Vancouver Real Estate Board monthly survey of realtors. “The survey is restricted to members who have made at least one sale in the preceding 30-day period.” It covers 1246 sales over Jan-May 2011. Excerpts (click on tables to enlarge) -
Therefore: More than 80% of buyers are locals.
About 15% of buyers come from outside of the lower mainland (a little more than half of those from outside the country).
One third of buyers are FTBs.
70% of buyers are moving up or laterally (FTBs + similar + move-up).
20% of mortgages are high ratio.
—
Conclusion:
The speculative mania continues to be driven by local buyers, a significant portion of whom are highly leveraged. -vreaa
Really good data, VREAA, and it reinforces the conclusion that HAM is at best a bit player in the Vancouver RE saga.
I wonder how these numbers compare to previous years.
This may seem obvious but please note that within the section “How Did the Buyer Finance” – the term “All Cash” may be misleading.
A great number of buyers who are pre-approved and who may be participating in a multiple offers often do not include a financing clause. Also and to a lesser extent, a number of buyers do not include that clause when they are not in competition.
The danger is of course is that the bank’s pre-approval documents have small print that have words like – ‘advancing funds for a mortgage is conditional on a bank appraisal and approval of the property as suitable collateral for the loan.’ Bottom line – a pre-approval is not a guarantee that the buyer will get the money.
In the head long rush to purchase, this oversight in diligence might serve to explain the numbers not included here (section 5) that reveal the number of Collapsed Deals due to lack of financing.
Larry -> Thanks for the comment (and for always allowing us to use you as a source for these ‘treasures’…)
So there are fewer actual cash sales than the numbers imply?
[I'd looked at the 'All Cash' numbers and noted that they were possibly made up of 'move-down' buyers and 'investors'. But you're saying that they are largely (?) folks who are bidding with pre-approval and leaving out the financing condition clause. And that this activity is partially a function of a hot market (bidding wars, etc).]
Thanks for the info, not at all ‘obvious’.
That makes sense — I thought the all cash percentage looked surprisingly high.
@vreaa
ALL CASH is misleading for this simple reason – any offer that does not include a SUBJECT TO FINANCING clause will in strictest terms be considered an all cash offer.
Though such an offer may be put forward for the purpose of negotiation, it is highly unlikely that some amount of mortgage/loan is not in place to back up the offer when its actually time to pay the seller. I have yet to see suitcases of money brought to the negotiation table but, there is always a first time for a real ALL CASH offer.
Explaining that event to FINTRAC will be a challenge.
Interesting story, we were in my wife’s hometown in China last month and we decided to exchange $1000 CAD into RMB. Now her hometown is considered to be a small county/town, probably a 4th/5th level city in China, roughly equivalent to say Osoyoos or Merritt in BC. Except this city has like 650,000 in its city/control limits! So you wonder why Chinese people consider Vancouver to be a quint villiage/resort town rather than an actual city? This is why.
Anyways back to the story, to exchange the $1000 CAD, we have to go to the main branch of People’s Bank of China in the city, no other branch or banks can do the FX transaction. At the main branch, we had to provide ID (obviously), fill out forms, have the money checked by a machine, a bank teller examining the money and rejecting any with small wear and tears, etc. It took us a total of 30mins+ to exchange the money. Now while we were there, a couple came in with a suitcase and started taking out bricks of $100 RMB bills. When they finished taking it out, they asked the teller, you got the 20 bricks? Teller replied we haven’t started counting yet. We thought each brick was like $10K and another customer corrected us. Each brick contains 10 bundles of $100 RMB bills and each bundle is $10K! Each brick is $100K for a total of $2 million RMB. Yes, $2 million! For the first time in my life, I have seen what $2M in cash would look like. The amazing part? That couple deposited their money in about 15 mins, and no questions asked!
So in summary, it took us 30 mins+ to exchange $1000 CDN into RMB and less than 15 mins to deposit $2 million in cash in China. Crazy uhm???
http://www.sacbee.com/2011/06/17/3707872/report-chinese-officials-stole.html
Report: Chinese officials stole $120 billion
The study says the officials smuggled money into the U.S., Australia, Canada and Holland, using offshore bank accounts or investments such as real estate or collectibles.
drives a stake into the heart of every real estate bear.
Guess what? Locals can afford to buy here, and they do it with “move up” money.
High ratio at only 20% or less? I thought you bears claimed it must be much much higher. I’m surprised you posted this VREAA, it’ll scare away all your fans. lol
sorry vreaa
<20% high ratio shows that buyers are NOT highly leveraged.
Such a bullish post…what got into you? Why do you think your fans are shying away from
this thread? Try to spin any way you want, this is great news for bulls.
You seem to be quite emotionally invested in a bullish real estate market. Good luck.
woo LV bags!
I don’t think the subprime borrowers went much higher than 20% or even if it even got to 20%. Also, in previous RE crashes in the 80s and 90s, the % of high ratio borrowers were probably even lower. Frankly high % of low ratio borrowers might actually delay a RE crash rather than accelerate it as they are the least able to sell at reduced price as they have so little or no equity cushion against a lower selling price.
Vanowner -> These are not bullish numbers, they’re pretty much in line with what we’d expect.
Ask yourself this: What percentage of all properties have to be put up for sale for a RE market to crash?
Look at the data: how much of the market is first-time-buyers? A full one third. Now guess what happens if FTBs decide they can wait 6 months until prices are lower.
I don’t have the data in front of me but the interesting thing about the 2008-2009 housing recession was that the percentage of buyers who were FTBs decreased. In other words, first, sales were piss-poor; second, of those piss-poor sales a smaller percentage of them were from FTBs. So… who was buying during the recession exactly?
This is very interesting, thanks Larry for supplying the info. Question on your comment about collapsing deals due to denied financing – I’m wondering if you are seeing more of this than previous years or would you consider it unchanged? I’m also curious about multiple property buyers. The stats seem to indicate about 15% between locals and foreigners buying for “investment.” In your experience is this accurate? Any change to this number from previous years?
@terminalcitygirl
as with many things at the REBGV collecting and collating statistics to help guide people in their real estate ventures is/has not been on the top ten list. This particular survey to my knowledge is the first. In contrast the Vancouver Island Real Estate board has done this for years.
Declined finance: has this changed? A guess would say not much change – there are always people who want to buy something at too high a price that a bank won’t approve.
15% – I do know a lot of people who own more than one house but is the number accurate – this survey would say it is.
I fail to see how this data is going to help me hate party mainlanders more.
That made me laugh. Does take the wind out of the Blame the HAM bunch, doesn’t it?
and does answer the question about what happens when HAM disappears…apparently not much
Bubbles are psychological.
@Vanowner,
I could be wrong, but if I took out a conventional mortgage on a million dollar home doesn’t that imply that my mortgage could be as high as 750k? While you would say that isn’t highly leveraged, I bet that you might have trouble covering that mortgage…
Two years ago I had colleagues who encouraged me to buy in Vancouver…they said that all I had to do was buy a place with a rental suite because I could borrow more money if I could generate rental income. Some of my colleagues had already done this and admitted that they could not have afforded their homes without employing this strategy to obtain their mortgages. They further admitted that they wouldn’t be able to pay the mortgage were it not for the rental income. People buying today cannot borrow as much as they could have two years ago based on in home rental suites as the rules have changed.
Something is going to give eventually. RE does not always go up. If I had a 750K mortgage I would be very concerned.
if you had a 750K mortgage you’d be a very high income earner. I wouldn’t be be too concerned.
Like I said, until we get real numbers on how much buyers put down for detached purchase we’re all guessing. But these numbers do suggest that the worry consistently chimed by renters is exaggerated.
750k mortgages also exist for low-doc/no-doc borrowers. You can be unemployed and could still get 750k. Few weeks ago, I have posted links to lenders that do this in Vancouver.
Where is Cam Good when you need him to disprove these obviously false numbers?
Too bad, now we have a proof that stupidity is not imported but endemic in this city.
Who needs CamGood when you’ve got ‘Nem’, Bubbly!…
Ok, I hate to be the one to spoil the party… but according to the anecdote; we’re talking 1246 transactions spread across 5 months (out of an actual total of ???) and a data-set based on a voluntary, self-reporting survey.
Surely I can’t be the only one who espies the methodological problems??? Can I?
Here’s a better idea – break down the PayWall surrounding the LandRegistry’sDatabase to allow for transparent examination in real time of transaction volume and ‘other’ aspects of title transfer inc. beneficial interest/ownership across all districts/price points. You know, just like the ‘real’ markets do.
Why are stats based on self reporting bad in this case, but it’s OK when Cam Good says that 95% of all buyers are from Mainland China?
Remember, it’s the realtors who benefit the most from the HAM hysteria. It would be against their own interest to under-report the HAM factor.
“750k mortgages also exist for low-doc/no-doc borrowers. You can be unemployed and could still get 750k.”
it may be possible – but very unlikely. Where is the proof that this is happening? Show the stats
I have only anecdotes. I don’t think that it is rampant, but at the same time I don’t think it’s extremely rare.
As mentioned in my previous comment, I have posted links to lenders that do this kind of lending on this blog just a few weeks ago.
I would definitely not assume that someone with a $750k mortgage is a very high income earner. My friends with a family income of $80k/year qualified for a $600k mortgage at one of the big 5 banks. That was in fall of 2010. How much would they need to qualify for $750k? Perhaps $100k family income – is that “very high income”?
One more thing – my friends put only 5% down. The bank told them that if they can can bring 10%, they would qualify for a bigger mortgage.
“My friends with a family income of $80k/year qualified for a $600k mortgage at one of the big 5 banks. That was in fall of 2010″.
Even at a 3.35% rate a friend whose income is 125K/year cold only get 650K during the same period. This one smells
tell me what bank it is and I’ll print this off and bring it to the Manager.
Most of what you write, rusty, smells. The anecdote I wrote is about my close friends and is true.
Seems like we’ve had multiple anecdotes on this blog about people carrying that much mortgage debt on an average income. Usually because they have multiple properties.
Correct me if I’m wrong. The data provided are for all of Greater Vancouver while the largest SFH increases have been localized to specific neighbourhoods, for example, the West Side. Are there equivalent statistics for just the West Side? Or Kerrisdale, Dunbar, Point Grey? I’d be surprised if in these neighbourhoods, the percentage of buyers from outside Canada was not substantially higher.
@Rufus
“are there equivalent statistics”? – what a great idea but sadly, the answer is no.
“I’d be surprised” – you need not be, reasoned presumption by many would equal yours.
Note to all:
keep in mind please that the highest number of Realtors® who reported was 288. There are over 10,000 licensed at the REBGV. Ergo, assuming the 20% rule, a few of the few have responded thereby necessitating an acceptance that this survey as a very rough indicator and not gospel.
How many of those 10,000 have made a sale in the last 30 days? The survey only includes realtors that actually made a sale.
I have homes in the (so called) cooler areas of E. Vancouver. Neighbourhood sales suggest prices are also up 25% this past year. No evidence of foreign buyers here
The only thing I have to add is that Larry Y. is a class act.
Thank you for providing the information, insight and clarification.
The RE discussion often degenerates into a series of loonie arguments; but the information you provide is invaluable to those that want real information.
How many offshore buyers are gong to volunteer a survery especially if they don’t speak the language and/or they are laudering their dirty money?
Furthermore, if detached home prices have increased considerably over the past two years and the spread between detached and condo/townhomes has also increased, then these stats demonstrate that 80%+ of surveyed buyers are either taking on more debt or have recently won the lottery. There’s nothing bullish about these stats unless you believe that mortgage rates will continue to fall to deflationary levels. If mortgage rates are falling to deflationary levels that means eventually asset prices are declining and that includes real estate. There’s no free lunch in finance.
http://www.cnbc.com/id/43434622
@AIREDALES
For purpose of clarity – the survey did not involve consultation with the buyer. It is based strictly on the information gained by the Realtor® who was party to the transaction. The Buyer offshore or local was not privy to the questions. It was conducted online.
“My friends with a family income of $80k/year qualified for a $600k mortgage at one of the big 5 banks. That was in fall of 2010″.
bubbly,
Again, tell me what bank/branch it is and I’ll go confirm it with the bank mgr. I’ll post my entire conversation here. This is just too juicy for me not to call you to the carpet on.
you’re so righteous