Hard Earned Home Savings? Hardly.

image care of long-time reader and very occasional contributor ‘westsidefrank’

A tip for home-owners contesting proposed new taxes: Make almost any argument you want, but do not claim that any profits that you have accrued by virtue of owning Vancouver RE are ‘Hard Earned’. This insults people who work hard, and at the same time insults anybody with a modicum of intelligence. Hundreds of thousands, sometimes millions, tax free? As Bing Thom the architect once said “I have done pretty well in my business, but I made more money from sitting on my Vancouver property than I made by working an entire lifetime. That tells you something.”
[BTW, it looks like somebody has graffitied onto that sign, under the “Angry?” question, something along the lines of: “Yeah, because I can’t afford to live in a mansion like you!”]
– vreaa

“You know your real estate is in bad shape when there is a game app that displays Vancouver’s Science World and teaches you how to be a money hungry real estate developer.”

“You know your real estate is in bad shape when there is a game app that displays Science World and teaches you how to be a money hungry real estate developer: #vanRe #vanpoli”
– tweet from Brette A. Mullins @BretteMullins 3:27 PM – 18 May 2018

“It’s sinking in that Vancouver is sinking” – “Westside prices have fallen 17% from 2016 & 11% this year; sales volumes down by 80%; 3 years worth of >$3 Million inventory”

First, a Toronto Story: “The home sold for 25 per cent less than what John had paid just five months earlier, a loss of $500,000”
“The house in Toronto was the type of property highly coveted by those in the city: fully detached on a sprawling lot, recently renovated and adorned with granite countertops, hardwood floors and a solarium. John, who asked that his name not be used for reasons that will become obvious, knew he had to make an offer. He figured he could rent it out, and if the payments didn’t cover the mortgage costs, no matter. Back in early 2017, home prices in Toronto were on an unstoppable tear, surging double-digits every month. The house would surely be worth more in no time. The home was on the market for only a few days when John’s offer was accepted. He bid nearly $1.9 million, about $360,000 more than the list price. Then everything fell apart.
John, a real estate agent, thought he had financing lined up. But the bank declined to lend him the money. John had recently formed his own brokerage, and the bank was treating self-employed individuals with far more caution in an overheated market. He consulted two lawyers, who told him that if he walked away from the deal, he could be sued. John decided he had no choice but to take a mortgage from a private lender that carried a hefty 12 per cent interest rate. He knew there was no way he could afford the payments and listed the property as soon as he took ownership.
But there was another problem. During the closing period, the Ontario government introduced the Fair Housing Plan, which included a 15 per cent tax on non-resident buyers. The plan released the air from the housing market, and prices took a nosedive. John’s investment property sat on the market for 27 agonizing days before a buyer could be found. The home sold for 25 per cent less than what John had paid just five months earlier, leading to hundreds of thousands of dollars in losses [ballpark $500,000 -ed.]. “I was so greedy,” he says now. “I will not play the game like that again.” Painful as it was, he looks back at the debacle as a learning experience. He even purchased some books about real estate investment on Amazon to learn how to do it properly.
John’s tale of misfortune isn’t exactly unique. Hundreds of Greater Toronto Area residents were caught when the housing market took an abrupt dive last year after a long run of booming activity. Home sales plummeted 32 per cent from the peak, and prices cratered by 10 to more than 30 per cent in the suburbs, depending on the municipality.”
– image and excerpt from ‘The people who bought at the peak of Toronto’s real estate bubble, and then lost hundreds of thousands within months’, Joe Castaldo, Maclean’s, 4 May 2018 [hat-tip El Ninja]

Second, some Vancouver market facts from Garth Turner: “On the Westside prices have fallen 17% from 2016 and 11% this year while sales volumes have evaporated 80%”
“Detached home sales are crashing hard. What everyone wanted two years ago sits idle and unloved. Transactions are down by a third to the lowest level ever for an April.
In West Van sales are off by half. Incredible. Only 30-odd deals. Another spring record. Sales in Richmond have been sliced almost 60%.
Over six thousand listings materialized across the province in a single day. The meme is spreading. This ship’s going down.
Overall, sales are reduced an astonishing 62% from 2016. The lowest number in 30 years.
The average sale price has declined 6% from last year, 8% from 2017 – and this is just the start.
Two Aprils ago $3.5 billion was spent on housing in Vancouver. This April that fell to $1.35 billion. That’s $2 billion less spent in a single month. If you think there will not be economic implications, you’re wrong.
On the Westside prices have fallen 17% from 2016 and 11% this year while sales volumes have evaporated 80%. There is three years’ worth of inventory for houses valued at $3 million or more – the ones the NDP has targeted for a special punitive tax.
Over 90% of the houses now selling are going for less than asking. Two years ago, almost all were over ask. In April there were as many price reductions on detached houses as there were sales. Yes, it’s sinking in, that Van is sinking.”
– excerpt from ‘The big shed’, Garth Turner, 2 May 2018 [hat-tip El Ninja]

If a serious market correction were to commence, this is pretty much what it would look like. The beginning of a lengthy, drawn out correction process… Watch as wave after wave of ‘Johns’ sell at lower and lower prices. It’ll take years to play out.
Ultimate target: The return of Vancouver RE prices to those determined by the utility of property in our economy.
– vreaa

The Carrion Have The Carcass – “I’ve lived in Vancouver since 1968; my wife was born here; we are about to leave; this town has priced us out. All that is left are the investors and the very rich visitors.”

“I have lived in Vancouver since 1968 and my wife was born here, as was her mother, and now we are about to leave because this town, and I call it a town, because it not a real city, has priced us out. The things that made Vancouver great have been hollowed out, sold off or torn away and unfortunately all that is left are the investors and the very rich visitors. The carrion have the carcass.”
Johnny Lee, at VREAA, 22 April 2018 [image from The Vancouver Sun]

All Time High, And Climbing… $251 Billion Personal Debt Borrowed Against Canadian Homes

Canadian real estate related debt tapering? That would be ridiculous! Filings obtained from the Office of the Superintendent of Financial Institutions (OSFI) show, after a brief decline in January, the balance of loans secured by residential real estate hit a new high in February. More interesting is the segment of loans being used for personal consumption, is growing at the fastest pace in years…
Loans secured by real estate hit a new all-time high in February. The total balance of loans secured with real estate racked up to $283.65 billion, up 0.77% from the month before. This represents a 7.79% increase compared to the same month last year. It almost looked like Canadians were reeling that debt in January, with a tiny decline. Instead it made a monster move, more than making up the ground lost the month before…
The total of loans secured with residential real estate for non-business purposes spiked in February. The outstanding balance reached $251.64 billion, a 0.77% increase from the month before. This represented a 6.83% climb compared to the same month last year. This brings the total to an all-time high. … The annual rate of 6.83% is the fastest rate of growth since… well, since banks started reporting these numbers on their balance sheets. Apparently higher rates aren’t slowing borrowers down.
– chart and text from ‘Congrats! Canadians Just Set A New Record For Borrowing Against Their Homes’, Daniel Wong, Better Dwelling, 18 April 2018

When Canadian RE goes down, it will have weights around its ankles. -ed.

“I asked a group of young people how many of them thought they’d be in Vancouver in two years, and 17 out of 18 said that they would be moving.” – Mayoral Candidate Shauna Sylvester

“I was in a session the other day with a group of young people, and I asked them how many of them thought they’d be in Vancouver in two years, and 17 out of 18 said that they would be moving. They were tired of being evicted, they couldn’t find affordable housing. My daughter, Rowan, who is 23, can’t live in Vancouver because she can’t find an affordable rental.” [Goes on to discuss her ideas about housing policy]
Shauna Sylvester, Independent candidate for Mayor of Vancouver, from interview posted on youtube, Vancouver Sun, 5 Apr 2018

Off-The-Charts Unaffordable – Greater Vancouver Price-To-Income Ratio 28 (average home price: $1,071,800, median one-person income: $38,164)

A recent report from Zoocasa shows that even the least expensive cities in the country can require a major financial commitment for solo buyers. Experts say individuals shouldn’t be spending more than three times their annual income on a home. But according to Zoocasa’s report, the average buyer would have little choice but to break that rule.

“Overall, even in the least housing expensive markets, home ownership is a significant expense for single people in Canada,” Zoocasa CEO Lauren Haw said. “Our report found that a single homebuyer would need to spend a minimum of four times their annual income to be able to afford a home on in their own.”

“Though we expected to see Vancouver and Toronto up at the top of the most unaffordable regions list, we were surprised to see just how high the price-to-income ratio was in these cities,” said Haw. “This demonstrates that home ownership in Canada’s major urban areas on a single income would be very difficult, if not impossible by measures of affordability.”

BNN, 30 Mar 2018

Keep in mind that a ratio of 5 (yes, five) is historically seen as ‘severely unaffordable’. – ed.