“Canada has the Most Overvalued Housing Market in World”

canada-housing-bubble

“In every inflating bubble, there’s usually two camps. The first group points out various metrics suggesting something is inherently unsustainable, while the second reiterates that this time, it is different.  …

On one side of the ring, we have The Economist, that came out last week saying Canada has the most overvalued housing market in the world. After crunching the data in housing markets in 26 nations, The Economist has determined that Canada’s property market is the most overvalued in terms of rent prices (+89%), and the third most overvalued in terms of incomes (+35%). They have mentioned in the past that the market has looked bubbly for some time, but finally Canada is officially at the top of their list. …

Just over a month ago, the IMF sounded a fresh alarm on Canada’s housing market by saying that household debt is well above that of other countries. Meanwhile, seven in ten mortgage lenders in Canada have expressed “concerns” that the real estate sector is in a bubble that could burst at any time. Deutsch Bank estimates the market is 63% overvalued and readily offers seven reasons why Canada is in trouble. Even hedge funds are starting to find ways to short the market in anticipation of an upcoming collapse. …

On the opposing side of the ring, who will contend that the Canadian housing market is just different this time? Hint: look to the banks and government.

Stephen Harper, Canada’s Prime Minister, has tried to dispel fears. He recently told a business audience in New York that he didn’t anticipate any housing crisis in Canada.

Just this week, the Bank of Canada also tried its best to deflate housing bubble fears. “We don’t believe we’re in a bubble,” says Stephen Poloz, the Bank’s Governor. “Our housing construction has stayed very much in line with our estimates of demographic demand.”

Poloz suggested that housing costs do not necessarily have to contract to match the incomes of Canadians. Instead, he expects growth in the economy to raise wages and make housing more affordable.

Strangely enough, by the Bank of Canada’s own estimate, the housing market is overvalued by as much as 30%. It is hard for housing to become more affordable when prices are rising in double digits in a year. Combine this with the fact that household debt rates keep setting new records, and one side of the fight might get tilted sooner than later.”

– from Jeff Desjardins, The Visual Capitalist, 1 May 2015

83 responses to ““Canada has the Most Overvalued Housing Market in World”

  1. you have been singing the same tune since you created this blog! how many years was that, since 2008?
    be more creative, give the bears your followers something new to keep their hope up.

    • Formerly Know As...

      Real Estate is declining slowly in many parts of the country compared to inflation despite record low interest rates. Vancouver is the anomaly and probably will continue be because of foreign investors and wilful blindness on the part of local governments.

      “It’s different here” may really apply to Vancouver, but not to the whole country.

      But best of luck to everyone who want to stay here. I have good job offers in Southern California that I’m going to take up and start within the next year. No reason for me to stay.

  2. I have said this before and say this again, if you really want to understand what is going on, you have to look at things on the ground. You are using macroeconomics arguments to explain something that is inherently quite micro. I have not seen one study done to answer this question, how much wealth / income is supporting each house purchase. We can’t use median incomes to measure things, because that’s like saying everyone reports their taxes honestly when we know that is far from the truth and it also assumes a western model of how house purchases are made. I am on the ground and have many friends from the tech industry who are in the middle of these bidding wars. I can assure you, they all have combined incomes of 150K or more and have downpayments of over 500K (hint, parental help and stock market has done very well in case you have not noticed, most of their portfolios have gone up something like 250 percent in the last five years). If things get too stretched, their parents who are debt free have another 150K of income to support not to mention that those who have downsized have cash in the millions to help with downpayment. How is this unaffordable? Forget a million, with a mortgage helper, 1.2 to 1.5 is not out of the question. The issue is that there is not enough supply to sell to this group at all. We do not have enough SFH’s in smaller vancouver. And this is just one group, there are other groups, investor immigrants, foreigners.This is what is happening on the ground. Before people can comment on this matter, they should be able to answer two very simple questions. 1. Who composes of the supply and demand curve 2. How much money do they really have to support the purchase. Without this info, the rest of the talk is very useless.

    • Sure, some buyers match that profile. But I imagine more of them built their downpayment from riding rising house prices rather than investment portfolios.

      • I think it is actually all money from rising prices. For example, parental help comes from selling houses from the west side. So even though people say that it is all locals buying the east side, the money is mostly coming from the chinese buying up the west and injecting millions of cash into the market place. This cash has to go somewhere. So it is moving eastward, along with everyone who was priced out of the west side.

    • Formerly Know As...

      Exactly. The standard models of house purchases just doesn’t apply in Vancouver any more. The reason why the prices don’t make any sense is because the assumptions and models we’re using to evaluate them here don’t apply.

  3. The only thing pumping up the Canadian real estate prices are the rich foreign buyers from more prosperous economies. These people are not very loyal to the local community and economy. They will dump and run when they realize that they paid too much and the locals can no longer afford to buy it back from them because of no work, crappy wages, no savings, huge out of control debt loads. Most of the local Canadians can not buy homes anymore high jobs or low jobs. Go check out some of the negative Canada comments on economy, life, politics, everything on web sites Topix (On Victoria, Is Victoria a nice place to live?, etc), Ratemyemployer.ca, Yahoo Answers, Canadian Immigrant (Why Some Immigrants Leave Canada), and others. These real people comments are the truth, not the happy happy propaganda the agencies spew out to trick ignorant people

  4. The 42yo man killed inside the $6-million house at British Property, was the real owner. However, the house is registered in the name of his sister and his brother-in-law.

    Another property at Shaughnessy, 3333 The Crescent registered under his name, was purchased in 2009 July for $5.8M. It was listed for sale in 2012 July (3 years later) for a whopping $18.8 million. In between 2013 June and 2014 October, it was relisted 4 times asking from $1.68 million to $1.368 million. The last listing was on 2014 December with a price tag of $1.468M. The house is still for sale.

    His name phonetically sounded like YEN Gang. He was a Canadian PR and a PRC citizen, and a director of a listed company owned by China state-owned enterprise.

    photos of 333 The Crescent
    http://tinyurl.com/pj5ro82

    • oops .. sorry for the typos .. incorrect decimal places

      Another property at Shaughnessy, 3333 The Crescent registered under his name, was purchased in 2009 July for $5.8M. It was listed for sale in 2012 July (3 years later) for a whoping $18.8 million. In between 2013 June and 2014 October, it was relisted 4 times asking from $16.8 million to $13.68 million. The last listing was on 2014 December with a price tag of $14.68M. The house is still for sale.
      ……………………………………….
      Apparently, he was a director of Datang Capital
      https://www.linkedin.com/company/datang-investment-management-co.ltd.

      a subsidiary of Datang Telecom
      http://en.wikipedia.org/wiki/Datang_Telecom

    • Some media hinted hunting gun. On an online memorial set up for the victim, someone posted that the killer Li ZHAO’s daughter, Florence ZHAO (Flo.z) participated in “Utra Rich Asian Girls (of Vancouver)” reality show.

      Flo.z giving an interview.

      Flo’z welcome all to her family private island in B.C. in this video.
      Her family moved to Canada when she was 14-year-old. (first to Montreal, then to Vancouver)
      At video point 2:08 onwards, she remembered her parents made RMB100/day, i.e. C$20-C$30/day, when they were in China.
      Q: If she was 14 when she came to Canada, lived 12 years in Montreal before moving to Vancouver, did they won 649 in the last 13 years or so?

      There are no lack of talented and articulate analysts on this bog. I really shouldn’t bore you with macro-, micro- nor rates.

      • my apologies .. it should read:

        “At video point 2:08 onwards, she remembered her parents made RMB100 per MONTH, i.e. C$20-C$30 per MONTH, when they were in China.”

        Imaging making C$30 a MONTH, and be able to purchase an island off BC coast 4-5 years ago (circa. 2000-2001?).

    • According to Mingpao, the late Gang YUAN acquired this house in Richmond recently before he was killed.
      http://www.theprovince.com/news/vancouver/Richmond+couple+wants+talk+their+neighbours+about+trimming/11047453/story.html
      He was a real estate developer, and had land leasing business in China.

    • Mingpao put it at several billion yuan, but one source stated his net worth at 7 billion yuan, i.e. roughly US$1.129 billion.

      timeline:
      2007- landed in Canada
      2011 – State Agricultural Development Inc
      Sask – bought 7,520 acres of agricultural land
      20150409 – Canada National Development Group Inc
      20150410 – Canada National Investment Inc
      2015 – 2 contracts worth C$10M

      assets and properties:
      Rolls-Royce & Bentley (about C$600k)
      963 King Georges Way, WV (last sale on 2010 October at C$4.45M, current assessment value C$6.56M)
      3333 The Crescent, VW (last sale on 2009 July at C$5.8M, and is for sale since 2012 asking C$18.8M – C$13.68M)
      Cathay Rd, Richmond (2011 sale price was C$1.4M; last sale on 2015 at C$2.3M)
      Pym Island
      ……………..

    • Weird message left online at the memorial site:

      Tycoon LIU Han, who was executed in February this year for his mafia-stye activities, had close business tie with ZHOU Bin (elder son of former Security Tsar, trial pending). In 2004 and 2005, LIU sold 2 hydropower stations to Huiri Company (a shell company) for half-a-billion yuan; the latter then resold them to a subsidiary (Guiguan Power) of state-owned Datang Power for a hefty 2.74 billion yuan, netting a profit of 2.2 billion yuan.

      Hope the good people of Ottawa wont get their feather ruffled for letting em in.
      Real estate is easy come easy go until one sleeps with the fishes.

  5. Haven’t posted for awhile. So maybe a longer piece.

    VREAA is spot on. What’s changed since GFC1? Nothing.

    Incomes disconnected from asset prices, pumped up on an excess of finance, with record low interest rates.

    Are incomes going to suddenly rise to support current prices? No

    With record low interest rates, is there any room for long term significantly lower interest rates to support in the long term current prices.? No

    So what happened after GFC1? USFED pumped masses of liquidity into the market. That is money printing. By money printing they prevented all of these asset bubbles from collapsing.

    The Canadian market did not fall back as it would have normally corrected during any normal economic cycles over the last 100+ years

    That means any reset when it comes will be significantly larger and totally unexpected by those who believe in ridiculous Vancouver prices and the unexpected failure of central banking money printing.

    So the reason that Canadian prices but particularly Vancouver property prices are is still high, now has 0 reasons to do with Vancouver and everything to do with asset bubbles pumped up and held up by money printing carried out by central banks

    Money printing debases a currency. It destroys purchasing power. That should be shown in inflation and precious metals prices.

    But inflation has been low I hear you say. Inflation is the change in prices of the major expenses of most people. Has the price of your housing gone up dramatically? Of course it has, but with practically 0 effect on inflation.

    Let’s see, inflation goes up, interest rates go up. Oh and everybody goes broke. Any motivation at government level to not tell you the truth?

    What did they do? They changed the basket of items to obscure the inflation of rising house prices. Suddenly no inflation.

    Individuals and governments are totally maxed out on debt. There will be no growth while all purchasing power is consumed with debt repayment.

    Risk discovery mechanism has also been destroyed by these artificially low interest rates.

    My banking sources have told me that the financial system has been preparing for the last few years to deal with this. There will be a significant “sorting out” in 2016+. In fact it is being discussed openly.

    The number 1 issue is that the financial system must survive. The rest of us can make our own arrangements

    I’m betting on the U.S. Losing reserve currency status, and when things become really bad during the reset process we will see a new world reserve currency backed by multiple currencies and backed by a significantly higher price of gold.

    As for the price of gold? Why has it dropped? First in many currencies even though the price of gold has fallen in U.S. $ terms in many foreign currencies with exchange movements there has been little change.

    Secondly any deep study of the gold market reveals that the price is manipulated on a daily basis. Anything to protect the promise of the us$. But the U.S. Government is now bankrupt.

    All one needs to consider is that in 1934 there were $35usd for each ounce held by the us government. Now there is over $75,000 us$ for every ounce of gold held by the U.S. government

    One can only wonder what the reset price will be when the U.S. Loses reserve currency status.

    Good luck to VREAA. The future world after the reset will no longer be a world for flippers but one for those who understand value and not price

  6. YVR Housing Analyst (@YVRHousing)

    Interest rates have been dropping for over a generation. I heard a rumor that this environment can continue for another 30 years. Don’t know if it’s true but the guy talked really loud.

  7. So how far negative are they going to go?

    Only way for them to keep dropping.

    Also well known human condition. People believe that things that happened in the past will continue into the future.

    That is until it doesn’t and they get blindsided

    • Johnny Horton

      Yes, that could be narsty. Very narsty! 🙂

    • where have you been, mr. fake developer! geyser at RE Talks missed you there.

      • Yeah Fred, you and your alter ego don’t have a life.

        Currently business is booming. Has all the feel of 2007.

        Last stock being unloaded. Net debt decreased by 100%.

        Last thing you want over coming years with high levels of debt .

        Foreign Chinese are having a small influence on price although there are a few cheer boys who don’t get outside their ethnic group much.

        Biggest influence is cheap finance and masses of QE to keep the bubble expanded since 2008

        I have sons in Sydney which is almost as silly as Vancouver on property prices and the smart play is to rent. Why be the greater fool!

        Prices will always return to median vales over medium long term.

      • Hey Taipan, you sound like a really smart guy. I have no idea about Sydney, I only know the local markets here. Can you explain to me what is going on in the Chinese housing market using median income? If we think it is disconnected here, then it is not even in the stratosphere in China. Median in come in Beijing is about 1500 canadian a month.

  8. Oh sure it is going to keep pumping the Canadian housing market forever. The prime lending rate is already less than 1% and only a small minority of the population even buy housing. This small percentage of the general population is already maxed out on credit cards, lines of credit, loans, etc. There is not enough gas fumes remaining to keep inflating the bubble. Even if they manage to keep inflating, the bubble can only contain so much before it pops. Either it will pop or it will deflate, maybe both? If lending interest rates goes into negative percentages, that means the banks will have to pay us to borrow money from them, beg for us to borrow. For profit companies will never do that. Zero percent lending interest will be the very last line, the final floor level.

    • First of all, it is useless to evaluate real estate markets on a national basis. That’s like saying that New York and Detroit markets are somehow aligned. Real estate is very local. For example, in Vancouver, while the attached housing market is interest rate driven, the detached market is completely demand driven. This demand can withstand interest rate hikes all the way back to 5%. The issue at hand is that the supply for this demand is too small. That’s what we have to address.

      • “Real estate is local”.

        “Supply is small”.

        These are the deep insights of the some of Vancouver’s market participants. A 5th grader could do better.

      • Brian Chen

        Very insightful El Ninja, how is waiting for the market to crash working out for you? Remember having this conversation with you a few monthes back, hope no one listened to you and waited. If you are so smart, why don’t you answer my fifth grade question posted in my earlier reply? I hope you haven’t been a bear since 05 cause there is no way short of vancouver sinking into the ground for us to go back to 05 levels. Btw, just came out of an open house yesterday in east van. Asking 900, standard lot, the place was jammed with families. Not speculators but families. Going to go for 1.05 conservatively. Scary part, the rest of the 15 or so families who won’t win this bidding war will still be in the market and there just aren’t enough supply to sell to them. Wake up and look at the numbers from stats can and tell me where is this magical single family home supply going to pop out of the ground?

      • Actually, Brian, I’ve been a bear since 2004, which is when prices began to detach from fundamentals. The fact that prices haven’t yet normalized to economic reality doesn’t mean that my reasoning is wrong. It just means that I can’t predict the depth and duration of human folly. And make no mistake, the market has been driven in large part by folly.

        Vancouver RE, and in particular detached westside homes, possess an intrinsic value of one-third to half of current prices. And that’s how much they’ll go for when this monster bubble bursts.

      • Wow… Man, I feel bad for you. But you are right in one thing that 04 prices are about one third of what they are today and for us to get back there would require Vancouver to all of a sudden ban anybody with an asian last name from owning a house. That actually might just do it. Btw, I would love for prices to go back to 04, that way I can actually own a house on the west side. You realize that the last time Vancouver had a house market downturn was due to the withdraw of Hong Kong demand after the 97 handover right? Such withdraw is highly unlikely by the Chinese contingent given that their goal is to get money out of china. But good luck man, you really will need it. Either that or you can rent for the rest of your life, that works too I guess. But doesn’t work for me.

      • Wow, your entire investment thesis is: “Asians”. That’s deep.

        Anyway, don’t feel bad, Brian. I don’t live in Vancouver anymore and, even if it was 2004 and I had the benefit of foresight, I would not purchase RE in that city. I’ve earned more money through a diversified financial portfolio over the past ten years than I would have owning in Vancouver. As for prices not falling, you might note that U.S. prices cratered by 70% in some markets and, ten years later, are still about 15% below their peak on average. So, yeah, RE can and does fall by that much. See graph at top.

      • Congratulations, you must have been a good investor then. First of all, Vancouver homes for me is not an investment. It’s what I am living in, I need one and so does everyone who lives in Vancouver. For many, it’s simply a question of whether you buy now or later. My answer to that is if you are buying a single family home, then buy now, if you are buying an apartment then wait for the rates to rise. Now, as for your issue with a 70% fall, absolutely, there are cities like that, but we are not Detroit, we are not phoenix, we are a desirable international city especially to the Chinese which is about the worst people you want to be desirable to (ask Hong Kong how that’s working out for them) when you have limited supply of land. 70% didn’t happen in Manhattan, didn’t happen in San Fran, didn’t happen in Seattle and anything short of a 8 scale earthquake will not bring it down here in Vancouver.

  9. pffft! … forza titano! … forza bolla! … http://tinyurl.com/mbp4xvh

  10. China’s $60 billion Australian property splurge
    http://tinyurl.com/o33tpm4

  11. Sure, we’re importing money, but there is more to the RE bubble than that… every time somebody (local or offshore) puts down $500K and takes a mortgage of $1M and buys a property for $1.5M; $1M is injected into our economy that nobody earned, nobody worked for… it’s magic!… In many cases, this $1M funds the next round of speculation on more RE…
    This all looks wonderful in forward gears…

    • Yep, that’s how credit works. But here is the rub, if the guy borrowing 1 million has no issues paying it off then what is the problem? What I am saying is that we use median income to measure our ratios when median income is a terrible way to measure given the model that people use to pay for the house purchases have changed. We need to figure out how it has changed and to better measure income supporting house purchases. What do you think the price to median income ratio for Beijing is? Give you a hint, median income is far lower there than here. How do you think they manage to afford it in China? If we are 43 percent Asian descendants, shouldn’t we at least account for it in our models? Also, I have many friends who are in the market and none of them are that leveraged. They don’t need to be, it’s called parental help. Look it up, apparently more than half of purchases on single family homes are done this way. House purchase is now no longer a two person decision.

      • Not one buyer is intending to pay any of these mortgages off, not one.
        All buyers are certain that ascending prices will allow them to sell in future at great profit (no taxes!!) and the (then seemingly trivial) mortgage will be erased.
        Assumes ascending prices, of course (and we all know it’s naive and perverse to suggest any alternative ….)

      • Wow and you know this because? I am one buyer who is intending to pay it off btw. I have already chewed 100K of the 500K mortgage in about a year. So…… there goes your theory. 400K mortgage is nothing against the value of the land currently, not to mention there is a mortgage helper which brings in about 1000 dollars. You underestimate how much money people can save. My parents paid off their 500K mortgage just recently in 10 years. Their income is nothing special, I helped them with my income. Now they help me, it is only natural. So there are already two cases that defy your logic. Most of my parents’ friends have paid off their mortgages, some are in the 200 to 300 range, others in the higher ranges. Why do you think that it is so difficult, if you combine the entire family’s income, the mortgage goes pretty quickly. It is a very western way of thinking that everyone is for themselves, in Asian cultures, we all bond together. The Indian culture is even crazier, three or four brothers all pay the mortgage along with their spouses, you think a 500K mortgage is difficult? Think again when you get six incomes all chewing at it at the same time. I have Indian neighbours who own three houses, two mortgage free and the third one have multiple incomes plus all the rentals to pay it off. They will buy more once they have paid it off.

      • “Not one buyer is intending to pay any of these mortgages off, not one.”

        oh my god, haven’t your taken your med ? so now you know the intention of all the people, and speaking on their behalf !!! Told you, find something else more constructive to do! I wonder how many prospective buyers have been forced out of the market since they became your followers with all your silly analysis.

      • If you are normally-functioning person and can’t afford shelter without help from your parents, either you’re a loser or the market is overinflated. I’m asserting the latter, btw.

      • El Ninja, answer this one question. Why is it that people have such a difficult time understanding families that bond together? In asian culture, there is no such thing as moving out at 18. You move out when you own a house. It is the way it is in asia and also the way it is here. There is another way to crash the market, it’s called ending the asian stigma against renting. The mere mention of the word rent brings about scorn in my greater family. It’s you own or you live at home. Either option is great for building equity. Asian families’ finances are interchangeable, the family operates together like a company of several incomes. This way, when this company faces other smaller ones, this one will usually win financially. That’s why the traditional western way of two income families I believe are dying in Vancouver. These days open houses are family adventures. I don’t think this movement has been captured anywhere in the expert analysis of Vancouver housing.

      • “In asian culture, there is no such thing as moving out at 18. You move out when you own a house.”

        That is the flimsiest argument I have yet heard. Guess what? The exact same practice applies throughout Latin America. This is a family-level dynamic and has no effect on the market in the aggregate.

    • A zero sum game for buyers & sellers. The mortgage banks and the government coffers are the winners.

      Our local real estate market is fanned by a decade long of record low interest rate. However one can’t just explained it away with macroeconomics and microfoundations. ZIRP rates encourages algorithmic trading behavior. All 3-level of governments do not want a market crash or hardlanding, hence the constant official reiteration of “there is no bubble”.

      Vancouver is unique in that we are the hotbed of illicit money and capital outflow from desperate investors. Our smartassed bureaucrats may think that the end-result is a win-win economic windfall, but the downsides are irreversible. If they are trying to emulate the high real estate prices of Hongkong, Singapore and China’s cities, these places have recurring riots.
      …………..
      Right up to end 2008/9, some houses could be fetched at 2006 level. I’m out of touch with current market now, so I can only rely from what others told me. Friends who sold recently in Vancouver, Burnaby and NewWest, immediately bought back another replacement home in Richmond, Delta and Langley for fear of not being.to get back in later. “Fear”, or distrust in the system? Not a good social sign.

      • Brian Chen

        Yep this I absolutely agree with. I am not saying that it is right but it is what is happening. 3rd rock, let’s just say whatever you thought was bad in 09, double it now. Give you an idea. A old sfh in North burnaby parkcrest area was about 700k in 09, now 1.3. 06 level is about 500k. But one thing I never understand, unlike hongkong or China, vancouver has other housing options. A old 3 bedroom townhoise in the same parkcrest area costs about 350k and it is a perfectly good place to raise a family. Yet people don’t seem to want it. I am not sure we can have social unrest until we exhaust all housing options which I don’t think we have. It’s only the detached market that has gotten so ridiculous.

  12. EastVan had families 10 years ago…… now its a ghost town of empty houses

  13. I have some Victoria BC friends who sarcastically opinionated that people can almost buy whatever homes they want after they win the lottery and have no wealthier foreign buyers hitting the prices out of the baseball park. Apparently, even Victoria housing prices are slowly approaching Vancouver and Toronto levels. The majority of locals can’t afford anything.

  14. Seeking Knowledge...

    My observation is that as long people in Vancouver is ok with sharing their houses with multiple renters, extended families, etc., there is still lots of room for the prices to go up; even if prime rises beyond 4%. People from all cultures are buying houses with mortgage helpers in mind in addition to parental help. With all the lane way housing our flamboyant mayor is promoting (cha-ching for CoV coffers), this will only exacerbate this irrational growth. Now, when someone buys a detached house, it’s not really a single family home, but a condo business. That’s why people are willing to work hard and save for that mortgage since it’s really a business loan and they are expecting to sell that ‘business’ at a profit down the road.
    The days of the traditional Canadian middle income sfh are numbered, except for the doctors and lawyers.

  15. Same strategy of using multiple family incomes and intergenerational mortgages in Japan also failed and they have seen their property prices fall for over 20 years. Imagine that falling prices for 20 years and all those smart families who were still on the hook for the higher prices still had to pay and pay and pay.

    Thats how it works when you buy in a bubble. Real estate prices fall but mortgages don’t. They should rename that book with the woman crying in the kitchen by Billy Button, “I Bought at the top of the bubble”.

    Just read through the 35 odd posts and the lack of market analysis is frightening. When market fundamentals end, and euphoria and stupidity take over is where you are now.

    Forget the “new asian buying model, the new indian buying model”. That is total rubbish.

    And why? Because when they turn off the QE those models will collapse.

    • Taipan, do explain what is your market findamentals based on? Mine is simple supply versus demand. Specifically supply of single family homes versus the demand and the uncles to fill this demand. I think this is the most basic of all models isn’t it? You can talk price to rent price to income all you want it is all down to supply and demand. Just do me a favor and answer the most simple question, what is the supply of single family homes in smaller vancouver and what do you think the demand is and where do you think it is coming from?

      • “what is the supply of single family homes in smaller vancouver and what do you think the demand is”

        This is painful. Brian, there is something very basic you need to know about investing: you can’t make money acting on information that everyone else knows already. Vancouver’s housing supply, Asian money, and so on, are known to everyone and their dog, and are already accounted for in prices. The only unpredictable factors have been sustained emergency-level interest rates and the level of indebtedness people have been willing to assume in response to them. Neither are sustainable.

      • Don’t pretend like you are the only one who has ever done investment. Of course I am betting on the unknowns. Ten years ago, no one thought Vancouver would be full of Chinese agents, now on the westside, most of the purchases are done by the Chinese. Who knew that was coming ten years ago. But here is what you are not accounting for. I am saying that from my analysis, chinese money into Vancouver, thanks to all the foreign restrictions in Australia will accelerate. Vancouver is not the only place that they buy in, we are not delusional. They buy in London, they buy in HK, they buy in Australia. What I am saying is that the amount of chinese money in the future is not accounted for, people expect there to be chinese investment, I am saying there will be even more than what it is today. People ask me when this will end. I say answer this one very question, when does the average simple family home appear expensive compared to an apartment in Beijing, then you have your answer. Our issue is that our single family homes appear too cheap when I compare the two. When the perceived value gap closes, then this investment might start to end. Btw, I would like to hear your analysis on why we are seeing an increasing gap between the value of Single Family Homes and apartments. If this is all madness, then all real estate in Vancouver should rise about the same correct?

    • Btw, there is a reason why I am here. I am here because this is the same kind of talk that have screwed up the lives of some of my friends who are bears like El Ninja since 2004 and ignored the influence of massive chinese wealth that have poured into the Vancouver market and decided not to buy. Their marriages and life events actually got delayed by this decision. Their families have had to pour hundreds of thousands more for their kids to get married because in our culture the son must supply a house to get married. Pre 97 Vancouver had a big run up in prices caused not by QE but by Hong Kong immigration, if one city in China can do that to Vancouver, what do you think an entire country of 1.3 billion can do? They are having an effect everywhere in the world, I am contending that our real estate market and specifically the single family homes market is so small and any additional influence will send it skyrocketing. I love how only recently do people start to report on the fact that there is a detachment of apartment prices and house prices, could have told you that years ago if people only looked at the supply numbers of the two.

      • “Skyrocketing”. I love the language — very colourful.

        The reason you’re here is that, deep down, you are unsure of your convictions. Why else would you spend time arguing with someone like me, who has polar-opposite views to yours.

      • Err.. did you ever think about the fact that I enjoy debating this stuff? Who else am I supposed to argue with, a bull that have the same views? That’s like talking in the mirror. Of course it is more fun to hear the opposite views. I am deeply convinced about the value of the Vancouver market. I think as China gets ever more powerful, we, as the city with the biggest asian descendent population in the western world, will be one of about ten places in the world where this money comes to. We are seeing incredible growth in prices in the other spots, Australia, Hong Kong, here, even some places in the US are starting to feel it. Btw, can I get a prediction out of all, can you say what you think will happen five years from now?

  16. cant resist … by one measure (usdcad) can_re market is down 20% … multiple major currencies move 20%-30% in <1yr, oil cut in half, whole shale oil industry (that probably should never have existed) born-flourish-crash, big pct moves in gov bond yields lately … if you think your market is based on fundamentals, please reconsider the leverage needed to hold it together … how much qe/zirp/deficit_spend since 2008 vs how much growth? … qe obviously doesn't work and the fed has cornered itself … first greenspan backs gold, then bernanke starts a blog to deflect blame – lol

  17. El Ninja:

    “You can’t make money acting on information that everyone else knows already.” “already accounted for in prices.”

    Tell us what information surfaced in the past year to drive up home prices 12.5% in Metro Vancouver?

    http://www.theglobeandmail.com/report-on-business/economy/housing/the-real-estate-beat/vancouver-house-prices-spike-in-once-ignored-markets/article24249436/

    • Sustained emergency-level interest rates and the level of indebtedness people have been willing to assume in response to them.

      • Sustained emergency-level interest rates have been around since the financial crisis of 2008 and before, level of indebtedness since before then.
        Nothing new in the past year then.

      • You don’t get it. You’re talking hindsight, I’m talking foresight. The past year’s level of interest rates, and the speculation they fuelled, were not knowable in advance. They could have gone in reverse, but they didn’t. No one could have predicted that, other than by blind luck.

      • Brian Chen

        I kind of get what El Ninja is saying, we couldn’t know for sure what the interest rate is next year. But how is this any different than saying that you have no idea how much Asian money will pour into vancouver during a given year. Why do you think that the Asian money is a known factor when in fact no one knows how much is even in the market. Put it this way, in terms of interest rates, we have hindsight, Asian money we don’t even have that. So how in the world can you claim that has been priced in? One of the greatest factors of Asian money is the exchange rate. The Canadian dollar dropped and I noticed right away more chinese buying at much higher prices. So how can you tell me it is a known factor?

      • Brian Chen

        Btw, like you said, I can’t make money off of information that everyone knows already. Tell me, since everyone is apparently aware of this, how much money came from China into Vancouver real estate in the year 2014. If you knew the answer to that, please sell that to our local papers cause they are all dying for this number. Let’s try something simpler, how many Chinese nationals purchased a property of any type in Vancouver? Or even simpler, the average house hold income to support a single detached home in Vancouver. All three are extremely relevant to the current discussion and should be, as you claim, information that people already know. So please share this cause I sure don’t have a clue. Here is what you are saying, people are aware of Asian money in our market and that has been priced in. I am saying that in fact people have no clue how much is actually in our market, no one knows for sure. And best of all, no one, including our own government knows how much is going to come. That’s why they are not acting. Because they have no data on even the past, so good luck with the future.

  18. Interest rates have been dropping for 35 years, the trend is your friend. No one can predict interest rates, but if you think a quarter point at some point this year will torpedo this market, good luck with that.

    • You have recency bias. Look it up.

      • I’m long the stock market, the bond market and the Vancouver real estate market. Held on to my stocks during the financial crash of 2008, kept investing monthly. Still own my house, paying down the mortgage while investing for retirement. Still taking the long view on my finances. No recency bias here. Stay balanced in your approach and be ready for anything.

      • Your own biases are showing. Old people have money, and lots of it. When was the last time you saw a v-bottom in the bond market after 35 years downtrend. There is nothing artificial or emergency about current interest rates.

  19. China state-owned property firm, Greenland Group, breaks ground on the King Blue Development in Toronto
    May 8, 2015
    The project will feature 44 and 48-storey condominium towers, containing 910 residential units ranging in price between $299,000 to $1,000,000, as well as Theatre Museum Canada, and a newly announced 122-room luxury Primus boutique hotel.
    Mayor John Tory and Minister of Citizenship, Immigration and International Trade,Michael Chan< were present.
    http://urbantoronto.ca/news/2015/05/greenland-group-breaks-ground-king-blue-development

    This month, they broke ground on their first residential project in London, UK. as well.
    The Ram Quarter project
    http://www.mingtiandi.com/real-estate/outbound-investment/greenland-group-breaks-ground-on-922m-london-housing-project/

    Another one of their offshore projects is located in the projected Iskandar Waterfront City (reclaimed islands), off Tebrau Bay, Johore Bahru, Malaysia. Reportedly:
    "Greenland’s latest Johor project adds to a flood of Chinese real estate speculation in the rapidly growing area along Malaysia’s border with Singapore.
    At least seven Chinese developers now have projects in the area with projected investment values totaling billions of dollars."
    The Singapore government has warned its citizens of risks in view of the Johor property glut.
    May 12, 2015
    http://www.todayonline.com/print/1240406

  20. http://www.scmp.com/property/hong-kong-china/article/1568282/average-home-prices-hong-kong-hit-another-record

    This older article may be a bit out of date, but it illustrate one of my biggest frustrations when it comes to this debate, we are not debating apples to apples! Take a look at the chart showing the world’s highest property prices per sq ft in city centre, we are not even in the same league. If we want to compare prices, how do we use a single family home to compare to an apartment? This is my issue with macro economics, by averaging everything out, we essentially mix everything into a big melting pot. If we do an apples to apples comparison, using what the SCMP has provided us in what I assume is fairly accurate, then is our real estate that expensive compared to places like Hong Kong, Mumbai (where the median income is far less than Canada). We all know that commodities are becoming global and real estate is becoming a commodity, then how do we compare in terms of an apples to apples comparison against the same properties everywhere else in the world? I don’t believe we are as expensive as people here think.

  21. Robert Dudek

    It’s been awhile since I posted here, but I used to post frequently. At that time, the Van RE market had strongly recovered from a blip caused by the GFC. Debate raged here between bulls and bears about whether a new boom was sustainable, or even if a high plateau was possible instead of a full on bust or slow deflation of the bubble.

    All that said, I am neither a bull nor bear about Vancouver real estate – I don’t live in the area and so have no real dog in the race.

    To chief bear El Ninja … If I had been consistently wrong for 11 years about the state of Van real estate, I would certainly re-examine the assumptions that led to my conclusions. I infer some level of hubris in the absolutist tone of your commentary – I’d suggest a little less of that and more willingness to consider Brian Chen’s arguments point by point.

    Brian Chen – I think you make a strong case about the nature of Chinese money. But I think it is a mistake to consider it the dominant factor affecting real estate prices in Vancouver over the next few decades.

    My own view is that QE/money-printing, which has been driving up assets all over the world, is the main fundamental at work here. A closely related phenomenon is the nature of global production, trade and capital flows. Currently, China is the manufacturer to the world, resulting in huge accumulations of capital that then flow out of China seeking safety in view of the Chinese central government’s “capriciousness”. The fact that the Chinese economy is sputtering gives even more impetus for capital flight.

    While these conditions may obtain for quite a long time, they will eventually end (not saying anything new – I wouldn’t be surprised if they did not end in the next three decades).

    They must end because the basis on which the entire global economic and financial system is based is in a state of decay. That basis is the extraordinarily cheap and concentrated energy source known as petroleum. It, and coal before it, was the basis of all technological progress in the last two centuries.

    That special era in human history is coming to an end – as most of the stuff that’s cheap to extract has been used up. Peak cheap oil occurred around 2005 and since then unconventional sources have allowed global oil production to avoid collapse. There will be no sufficient replacement for that oil – renewables are good for some purposes but they lack the energy density of hydrocarbons. I can’t predict when it will happen, but the world is going to have to get by without cheap energy by the time the 22nd century rolls around.

    What that means is that there will be upward pressure on the cost of transporting things around the world. Think of the cost of transporting all those raw materials from Australia, Canada and Russia to China to manufacture all those goods, and to then transport them back to the rich world. That is what has been going on, thanks to “wonderfully” organised cheap Asian labour. It is also a process that the end of cheap hydrocarbons will stop in its tracks. That’s a heck of a long round trip, and in the face of rising transport costs it will make perfect sense to manufacture things much closer to the consumer.

    I am in my mid-40s and I think it is very likely that I will see globalization go into reverse in my lifetime.

    • You have written ten paragraphs, yet managed to say nothing of actual utility.

      • I think this comment sums up what he was trying to say about you perfectly.

        I actually agree with Robert. I have no idea what will happen in terms of chinese money in Vancouver 30 years from now. Hell, China might even be a democracy by then and there won’t be a need to move money out of the country. As long as China is a dictatorship, there will always be a need to move money out of the country.

        My comments are very narrowly focused as I despise of this macro talk which pretty much groups all real estate into one. I wouldn’t buy a vancouver condo. I am only interested in land and in areas where the immigrants buy. And my timeline is also very short sighted as in my predictions are only for the next ten years.

        Frankly, I am not interested what happens 30 years from now, I will adjust on a year to year basis. For someone like me who can’t rent, I can only focus on where the market will be going in a few years. Because if indeed a crash happens 20 years from now, then I would have been screwed for 20 years because I don’t own. That’s a lot of time for anyone. Like I said, some people have to own, they might be able to wait a couple of years, but waiting five ten years for a crash is not an option even if the crash will happen.

      • cant blame you for not understanding an intelligent post. you cant see pass your shadow.

  22. About 50% of condo owners in Toronto and Vancouver are planning on selling within 5 years. The majority expect prices to continue increasing:

    http://www.theglobeandmail.com/report-on-business/economy/housing/toronto-vancouver-condo-owners-look-to-cash-out-over-next-five-years-cmhc/article24562790/

    If prices start dropping, will the numbers intending to sell go up or down?

    • rod_jonsson_pmd

      chief … could say same/similar for all asset markets inflated by hyper_extraordinary_qe … value types driven out to lick their wounds in cash and contrarian assets, waiting for more sensible times … remaining participants are highly tactical and believe they can get out with their gains but [day ain’t over yet] … or follower/converts believing the new age ‘fundamentals’ [been putting it up your whole life and just didn’t know it]

    • That’s why I don’t buy condos. Simple reason, can’t control the supply. Why do you think there is this phenonmenon that experts can’t seem to explain about the increasing price gap between condos and single family homes? Historically, they were very much attached hip to hip. Now the property ladder is missing a rung. Here is a prediction for ya, watch this gap get massive over the next few years.

      But I find it interesting that you missed the part of the cbc claiming that most condo owners aren’t as leveraged as we think they are.

  23. http://www.scmp.com/comment/blogs/article/1804916/something-grotesquely-wrong-vancouvers-housing-market-and-time

    This is one of the better pieces on Vancouver Real Estate that I think everyone needs to read. This basically sums up my point. The purchases that have been made in Vancouver Real Estate is neither foreign nor is it speculative. This is very hard to stop.

    • Royce McCutcheon

      http://www.wsj.com/articles/the-federal-reserve-asset-bubble-machine-1431386994

      This is one of the better pieces on the root causes of asset bubbles forming in myriad sectors around the world. It basically sums up my point. While the last 30 years have seen a significant shift in demographics in the Lower Mainland and this has indeed changed the region and driven up costs, steadily declining interest rates and massive expansions in credit has driven up asset costs, including real estate, all across Canada and around the world.

      THIS is the “new element” that has changed the game here for the last decade or so. Money laundering/ citizenship of convenience has been a problem for much longer.

      • Brian Chen

        Yep, agreed but Ian Young brings up a good point. What makes vancouver so much worse than everywhere else other than Hong Kong? I think you are right about the global phenomenon. But it is clearly worse here than other places.

  24. http://www.vancouversun.com/touch/business/affordability/Former+ambassador+questions+Chinese+money/10856158/story.html?rel=10878127

    https://publicintelligence.net/global-shell-games/

    SCMP: “something grotesquely wrong”
    You should read what the other media have to say about “grotesque” in Vancouver. Oh! never mind. Let’s just celebrate the Queen’s Diamond Jubilee Medal for most wanted crook.

    • “We as a community have an issue with non-income tax paying investors cherry picking our real estate. Sure, they pay property tax, but it seems somehow inequitable to us that they can use money earned in a country with far different math when it comes to per capita income taxation to buy property over here. Canada is a bit of a unique country. Every public thing that gets built costs far more per capita due to our thin population density. Highways cost more; airports costs more, shipping costs more etc…So, as a community of contributors, we pay more for common expenses and have less to keep for ourselves. Hence, we can afford to buy less property than people from countries that keep more of their money after taxes. Taking this to its limit, we will one day find that too much of our country is owned by people from elsewhere, unless as a country we apply some kind of equalizer so that non-residents (for income tax purposes) are not better able than Canadians to buy Canadian residential property.”
      http://www.shuchatgroup.com/Blog.php/affordable-housing-3-steps-in-the-right-direction-for-canada

    • Well, there is. An IIP immigrant is supposed to report foreign income and pay income taxes. They are technically residents. Their dependents live here. But they don’t. CRA could get smarter on how to track this. If they paid their taxes the way it is supposed to, we wouldn’t have this issue.

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