Trudeau States The Paradox: “The inflated housing market must be stabilized, but any action must not completely devalue those people whose retirements and equity are tied to their homes.”

Prime Minister Justin Trudeau says his government is concerned about the ballooning cost of housing in Vancouver and Toronto but it wants to be certain any action it takes doesn’t make the problem worse.

Speaking Friday morning on CBC Radio in Vancouver, Trudeau said any solutions will require collaboration between all levels of government, as well as academics and stakeholders.

He said overseas money is playing a role in fuelling superheated markets such as Vancouver, where the average price of a single-family detached home is $1.5 million.

But Trudeau cautioned that any federal measures to cap soaring house prices could backfire elsewhere in the country.

He said officials are examining Australia’s decision to tax homes owned by foreigners, but warns federal levers to curb offshore ownership in Vancouver or Toronto have the potential to harm other regions of the country where overseas investment can be beneficial.

Trudeau was scheduled to attend several events in Vancouver on Friday, including a roundtable on housing affordability attended by industry experts and several Metro Vancouver Liberal members of Parliament.

“How do we make sure we are helping people (in Vancouver) in exactly the right and targeted way,” Trudeau said. “That is where the kind of collaboration we haven’t had for 10 years between the federal government and different orders of government is so important to work on together.”

Most Vancouver homeowners know the inflated housing market must be stabilized, because the current trajectory “doesn’t have any good outcomes,” he added.

But any action must not completely devalue those people whose retirements and equity are tied to their homes, he said.

“We just have to make sure we are keeping people protected in how we stabilize it.”

– from ‘Trudeau warns housing solution in Vancouver could hurt markets elsewhere’, Vancouver Sun, June 17, 2016

It’s going to be interesting watching Trudeau and his surrogates try to land a B52 on a sail-boat.
In a Bubble, it is beyond the powers of government to orchestrate either ‘stability’, or a ‘soft landing’. -ed.

152 responses to “Trudeau States The Paradox: “The inflated housing market must be stabilized, but any action must not completely devalue those people whose retirements and equity are tied to their homes.”

  1. Trudeau wants to have his cake and eat it, too.

    As vreaa notes, it’s futile. Landing a B52 on a sailboat, indeed.

    Trudeau’s only hope is that the market turns soon, and fast–so as the street riots have settled down by the next election cycle.

  2. “At the urging of Canadian business interests that argued they could not be competitive without tax agreements, Canadian politicians and bureaucrats signed a dizzying array of tax treaties in the last several decades.”

    Canada willingly makes tax deals with tax havens (for decades)
    Billions of dollars are moving out of Canada – nearly all tax free – with 92 tax treaties signed.

  3. Teranet HPI ~ 2016 June 14th

    • Bloomberg: San Francisco’s housing mania finally may have reached its limit.

      ~ * ~ * ~ * ~ * ~
      Truth be told, the market downunder has slowed down. They (politicians) look smart being decisive than be seen as inept in a downturn market.

      Signs of a softening housing market could also be why states appear to be trying to “grab some revenue while it’s on offer”, leading property data provider CoreLogic’s Australia research head Cameron Kusher said.

      • westisbest

        Thanks for the link.

        What a fail in terms of data representation though. Someone needs to read up on their Edward Tufte.

  4. B52 on a sailboat. Courageous, very courageous.

  5. I don’t get this from the bears. If you are so confident on a crash happening, then tell the PM stay the hell out, cause it will fix itself. That’s my opinion, stay out of this market, let’s see how it plays out. If the free market indeed determine that prices should drop, then so be it, bulls lose, if not then I guess bears lost. It’s that simple.

    • That’s what vreaa said. It’s what I said. Government intervention will do nothing.

    • There are some genuine concerns about some of the financial transactions occurring in local RE with flaccid oversight. Regardless the impact it sounds stinky to me and worth fixing, especially if it means penalties and fines, which help keep my taxes lower.

  6. Nothing prevents BC provincial gov’t to slap on some extra or a LOT of extra taxes – PPT, property tax, on these foreign buyers. Frankly, we definitely should not that we got a such large base already. We could potentially easily raking in a few hundred million to over 1 billion and use that towards a lot of good things. But no, BC Libs and their fing corrupted black hearts would rather see people of this province suffer than their corporate buddies potentially lose a few sales.

    • Except did you check what that price was November 2015 when you made the prediction? You are like the guy who said the S&P would crash 50% at 1000. Now at 2000 he is still saying 50%, problem is, if it only crashes 50 then he would be dead wrong. Here let me try at this game, we will go up by 30%. Who cares when, say if it goes down then go up by 30% I would still be correct. Luckily for you, I have good records and we can see how correct you are in your time frame. One more thing, do you value properties based on asking or selling price?

    • Asking price is not market price…

    • Debating you two is like kicking puppies. I can’t do it.

      • Hope you are better at that than predicting housing trends, surely that is not your forte.

  7. wow 5.5 million for that……..Casa Mia sold for 4 million in 2000

  8. Ian Young ~
    Mortgage lenders who made merry in Vancouver and Toronto now queuing up to call for government intervention to hose down ‘wildfire’ markets

  9. This earthquake shack looks like a good bargain.
    451 Anderson Street
    San Francisco, CA 94110
    2 beds, 1 bath, 1,100 square feet

  10. “It’s going to be interesting watching Trudeau and his surrogates try to land a B52 on a sail-boat.
    In a Bubble, it is beyond the powers of government to orchestrate either ‘stability’, or a ‘soft landing’. -ed.”

    here we go again; aren’t you tired of making statement from thin air! Please remind the readers when you started this blog! You just could not hold yourself from retirement, could you! Another 65% crash prediction? or should you just double it!

  11. Renters Are Making More, And Landlords Get It All

  12. Blame the Global Financial System for Theft

      • #TriedNotToButFailed

        So much wrong with this, I don’t know where to start.

      • Wait wait wait, what is your proposal El Ninja that the government do? This is one thing that you and I might agree on. I think we both think they should just… well… do nothing. I really want to see how this plays out and who is right. If you are right, then the market will correct, if I am right, well then.. too bad for those who didn’t buy. But hey, you play the hand you are dealt, not one forced anyone to buy. Those who bought and are affected have no one else to blame but themselves, and those who didn’t buy well, same there too.

      • We agree — sort of. I want them to do nothing in order for the market to equalize itself. You want it to do nothing because you want to keep the speculative party going.

        I’ll take it one step further. Tax incentives for home ownership, of which they are many, should be abolished.

        Why does the government love home ownership? An immobile citizenry is an easily-taxed citizenry.

  13. [CBC] – Vancouver mayor moves to tax empty homes: “Vancouver housing is first and foremost for home, not a commodity to make money with.”

    Vancouver mayor Gregor Robertson has announced the city will start looking at ways to tax empty homes as the affordability crisis grows larger and the rental vacancy rate shrinks to unprecedented lows.

    • [SCMP] – China’s latest export to Canada: censors: Chinese-Canadian writers claim their columns have been dropped or that they have received death threats, and suspicion falls on recent migrants

      …”A Chinese writer allegedly has his column cancelled after mocking Foreign Minister Wang Yi (王毅 ). Another journalist receives death threats after writing critically about China’s human right records.

      These happened on the mainland? Well no, actually they are both Chinese-Canadians, living and working in Canada. The way a group of angry Chinese-Canadian community activists told it at a press conference held in Toronto this week, mainland efforts at overseas censorship has extended to the Canadian shores, affecting especially the ethnic Chinese community there.”…

      • “There is no reason to think the threats originated from official mainland sources. But conference participants strongly hinted that many Chinese migrants in Canada took with them values and practices they learned from the mainland that are at odds with Canadian values such as freedom of expression and of the press.

        People leave China for a new life. But some seem to be taking their old battles with them.”

      • So, these anti-Commie people have right to complain about China, but commie China lovers don’t have the right to counter-complain? Seems like awfully one sided freedom of expression??

        Though, I do agree that death threats, etc are certainly out of line and need to be addressed. But to say it’s anti-freedom of expression because people protest against your views, that’s just censorship as well in my view.

  14. Today’s news, 19 operators of a billion-$ ponzi scheme including a Canadian will be charged in court.
    Some of the victims had earlier on bypass Great Firewall to ask outside world for help on Twitter.
    The funds were siphoned out to shell companies in Hong Kong, and then the trail stopped. Did they eventually make it to the great Canadian casinos?

  15. Go UK!

    What does this mean for local RE? Beats me. But for bulls it will mean what every piece of news always means: prices will go up more!

    • Yep, and for bears any news is a definite sign that the crash is coming. How is puppy kicking going?

    • Gold miners soar, banks crash.

      My takeout lunch normally priced at $7.49, is now $3.99. That’s a 47% haircut. = ^ 0 ^ =

  16. Carney: Bank of England Well Prepared For Brexit

    Central Bankers Around The Globle Scramble To Defend Markets: BOE Pledges $345BN; ECB, Others Promise Liquidity (ZeroHedge)

  17. Canadian consulate sells luxury Hong Kong home for HK$505 million

    Free publicity for Vancouver

  18. Alley for sale @ 1.5 million yuan (C$298,252)
    frontage: 1.5 meters (4.9 ft)
    length: approx. 7 meters (23 ft)

    From the photo, a few residential homes have their back-doors leading to the alley. Hence, this alley is not for habitation, but it will provide the owner a “legit” address to enroll his kid to a much sought after elementary school.

  19. rod_jonsson_pmd

    confidence lost cannot be reclaimed … sell-sell-sell … sell all rallies … it’s on fire … got to get the family out – lol!

  20. New owners of InnVest Real Estate Investment Trust and Bentall Centre in the news again:

    New Chinese Owner Of Waldorf Astoria Will Convert It Into Condos

  21. Ian Young ~
    “China CITIC Bank Corp has launched a Canadian lawsuit to try to seize the assets of a Chinese citizen the bank claims took out a multi-million dollar loan in China then fled to Canada.”

    “The defendant, Yan Shibiao, owns three multi-million dollar properties in a Vancouver suburb and resides in a luxury C$3 million Vancouver-area home owned by his wife, according to court documents.”

    • Yan’s specialty rosewood company “TanYuan” is engaged in at least two cases of litigation with him as a defendant / co-defendant in Hebei’s Provincial Court. How did he get a ‘good behavior’ clearance to land at YVR?
      h/t: Sam Cooper
      “Title + corp documents show the Citic fugitive had a couple of 100 per cent mortgages from HSBC, big loans from BMO, set up shell company.”

      Assuming he is the same Shibiao Yan, who owns the Hebei Dell City Network Technology Company with over 50 employees, he is prolly loaded, and can hire a team of human-rights lawyers

    • Someone posted online that the fugitive’s realtor is a certain Renee Xu.

  22. I started noticing the house at 3218 E 24th Ave several years ago – not what I’d build (if I had the cash), but a quality expensive building – West Coast Style. It’s modernity and solidity stand out amongst the Van Specs and post war boxes.

    The property was purchased in 2011 for over $800K – it had a 3,000 sq/ft Special on it – a good one. It was torn down and this new house put up in 2013. Who can afford to buy a property; tear down a perfectly good house; and put up one of the best houses in the area? Why would they do it?

    I was told that the owners of the adjacent house (with an extraordinary view – from the playing fields of Windermere School, to D/T, mountains, … a vertiginous view) were the ones with the deep pockets – and the knowledge – to build this fine house. I was told that they gifted it to their son, no doubt with the expectation that they’d live out their lives together. But he promptly sold it. Hasta la vista folks. Thanks for all the fish.

  23. Vancouver parents are buying their kids — some as young as 6 months old — condos, so they don’t get “priced out forever”.

    And when the kid grows up, he’ll be gifted a three-decade-old box in a city he doesn’t want to live in. Unless his financially illiterate parents aren’t broke by then. In that case they’ll sell the condo for vastly lower proceeds than would have accumulated had they invested their initial capital in a diversified portfolio of index funds.

    Ah, but they’ll keep the memories. All those years of interest payments, property taxes, insurance fees, maintenance, repairs, strata meetings, paperwork, and other joys–something to smile about in those golden years.

    • You do realize that the condo is not intended to be lived in when the kid comes of age right? It’s intended to generate rental and capital gains so the kid can have the cash to buy their own home, instead of being stuck in basements for decades cuz their income and savings can’t keep up with RE price appreciation like the last 2 decades.

      • Because “being stuck in basements for decades” is the ONLY ALTERNATIVE to buying real estate in Vancouver.

      • I have a question for all the bears here, do you consider all home owners in Vancouver Financially illiterate? Because it sure sounds that way. Your logic is, everyone who bought is financially illiterate and anyone who doesn’t sell also is. Coming from a group of people whose track record is pretty shocking this is pretty bold. Listen, piece of advice, if you want to claim people are financially illiterate, it is better to do it when you are right, not when you are wrong. And if you are all multi millionaires who have made a ton from the stock markets or all are CFA’s (by the way, they are certified to be financially literate, pretty sure many of you are not certified that way), you have little credibility to claim that others are, in fact financially illiterate.

      • “It’s intended to generate rental and capital gains.”

        Key word “intended”. Whether the plan actually works is another story.

        “cuz their income and savings can’t keep up with RE price appreciation.”

        You do realize that RE cannot outpace income growth in the long-term? You do realize that, right? And don’t tell me that only Chinese incomes matter, and local incomes don’t.

        To Brian’s question. Let’s differentiate between “homeowner” and “recent buyer”. If you’re a long-time owner of Vancouver RE you’re not necessarily financially illiterate. Of course, unless you have compelling reasons to hold on to your property, you are squandering a once-in-a-lifetime lottery ticket by not selling now.

        On the other hand, anyone who has willfully chosen to buy Vancouver RE in the last, say, 5 years, particularly if they have done so on a speculative basis, is not the brightest financial mind. Any gains will evaporate and the value of their property will fall well below the price they paid for it. Time will tell.

      • “of course, unless you have compelling reasons to hold on to your property, you are squandering a once-in-a-lifetime lottery ticket by not selling now.”
        here we go again, singing the same song since 2008 – why don’t bears go ask those who had sold and, what have happened to them afterward! Landless bears cannot get over the idea, that a family home is basic shelter for a family and their children, and not a lottery ticket. You have been priced out, bears, even for condos! Now, get your head back between your arses.

  24. Question:
    who is more financially literate?
    The person who bought a lottery ticket and won 1 million.
    Or the person who did not buy a ticket?
    It’s just fricking luck, my friends.
    Nothing to do with financials and fundamentals.
    Same applies to RE in the Lower Mainland.

    • What % of lottery winners win anything at all?
      What % of home owners won the home equity lottery?

      I’m betting that probably 60% to 70%+ home owners have gain in the equity. To me, that’s at least a different kind of luck than winning a lottery.

      Financial market investments has more valid analogy to be compared to RE than lottery.

  25. Brian,
    To comment on your post, here’s an article from the Vancouver Sun:
    This guy was a CA and in a Senior Financial position at VanCity, and still at age 74 was heavily exposed to equities before 08.
    Greed is all I’m saying.

    • actually, equity exposure at age 74 is not consider bad anymore. In fact, if you read financial / investment journal articles, with life expectancy now above 80 and projected to go even higher, this 74 year old has a good shot at living for another 10 years, maybe even 15. In such case, it is actually a bad idea not to have equity exposure.

      Granted with hindsight, he should have pulled out pre-08 crash, but that’s hindsight.

  26. Rent-to-own: one of the biggest scams going in Vancouver.

    • How so? Isn’t the price locked in at the start of the agreement? Since prices have been going up crazy the last 2 years, I would think if you locked in a 2014 / 2015 price and only has to be buy now, it’s actually a pretty good deal since you are already up. To me, rent-to-own is basically buying a call option, and would you classify buying & selling of call options as a scam?

  27. I bet the Vancouver’s numbers will be much higher than the US cities.
    “Inflation-adjusted rents have risen 64% since 1960, but incomes are only up 18% in the same time period.”
    I’m not saying that parents should go out and buy a condo for their kids, especially when there are so many “doom and gloom” predictions out there right now.

    • As they say, the best way to tell if the stock market is in a bull market is when it is climbing a wall of worry. Think back to 2009/2010 or even 2012/2013 when there are lots of predictions of big recessions, repeat of 08 due to Greek debt crisis, etc. Stock market was going up and the last few years have been very kind in terms of stock market returns.

  28. “Political Intel with Laila Yuile and Martyn Brown”
    BC Liberals issued $665 million dim sum bonds in China and re-invested the whole sum in China. Laila’s take is interesting.

    • Gov’t really shouldn’t be involved in financial engineering or arbitrage. I don’t quite agree with what they did. Smells more like financial gambling than prudent management of provincial debt obligations.

      • It’s an extension of Corporatocracy. Only time will tell how someone’s corporate governance would fare. Given that trillions yuan have been invested in oilsands and real estate here, C$665 million looks like a ‘piece’ offering.

  29. #TheOpticsOfPride…

  30. (h/t: Village Whisperer)
    Linda Steele Show ~ How big of an Issue is Money Laundering in Vancouver’
    Guest: Christine Duhaime – Lawyer

    • Shows where Canadian gov’t real priority lies. Let’s get that $105M into Canada ASAP and make him spend it (eg. lawyers fees, flashy mansion & cars, etc) all before kicking him back to China with nothing.

  31. Since space889 and Brian are fond of bringing “hedge funds” into the discussion, and of postulating that I “would be fired” as a portfolio manager, this ought to be of interest:

    This dude is far, far from the only one taking this position.

    • Read up on “This dude” Marc Cohodes and his now defunct Copper River Management. He was in bed with Goldman Sachs (a group he rightly called a racketeering agency). That speaks volumes. Were there lawsuits? Oh yeah.

      And, never trust someone who says they’re “retired” when they obviously are not. His company imploded, but he still wants to game the system. He’s a short seller wanting to manipulate the market. That is his essential Buddha nature. What else would he say.

      • Sorry, I don’t share your cynicism. But regardless, there are many smart people who are looking at the ludicrous economics of Vancouver RE and calling a spade a spade.

      • There’s a difference between cynicism and critical thinking – the Buddha dude said something to that effect. So did President Ronnie Ray Gun – Trust, but verify.

        You cite others who share “this dude’s” outlook. Who might they be? Certainly Kevin O’Leary is one who has been quacking negatively about buying real estate – that frees up cash for potential clients to buy his mutual funds. Oh joy. Mutual funds.

        Hedge fund managers are the tow truck drivers of the financial industry. Predators. Just like the generally despised corporate raiders.

        Now, Cohodes has gone from playing shorts to being a chicken farmer pontificating about Canadian real estate. Trust him? About as much as Kevin O’Leary.

        Anyway, from what I see, he’s not shorting Canadian real estate, but just one mortgage lender that he identifies as particularly slimy – he’s good at that. Takes one to know one?

        Cohodes says there are lots of other places to buy and build besides Vancouver and Toronto – as though the cities people choose to live in are fungible. They’re not. It’s the Big Kahuna decision. I don’t give a rat’s ass about St. John or St. John’s, or Saskatoon, or Edmonton – no matter what the price. An acquaintance once offered me a free house to live in – in Saskatchewan. No thank you.

        The monied share that view, esp. Chinese investors. The infrastructure is here and it’s not the roads and bridges, but the enclaves. I have neighbours who speak practically no English; and it doesn’t matter. You could live out your life in Richmond or on Angus Drive speaking only Mandarin – no problem. Nobody’s going to short that market.

      • You’re really focusing on this one guy, who I frankly don’t know or care about. I pointed to him as a mere example of a bigger-picture perspective. Namely, that Canadian RE, and Vancouver RE in particular, is scarily overvalued by every time-tested, fundamental economic measure there is. And Kevin O’Leary isn’t the only other guy saying this. How about The Economist, Morningstar, credit agencies, and a number of major international financial entities (IMF, etc.), to name but a few. You may not “like” these groups either… that’s your beef. But dumb they are not.

      • He showed up on global: (in case anyone wants to know what/how he sounds like…)

    • I only speak of this failed hedge fund manager, now chicken farmer, because you provided the link.

      My only real estate interest is Vancouver detached houses. I looked up opinions and prognostications of the other entities you cite – looking for a credible source – not a mouthpiece; not someone with an ulterior motive, and could not find corroboration for imminent collapse of values.

      You mention Morningstar – why? And I don’t see the Economist predicting a bursting bubble in Vancouver. Maybe you could post a link. Re. the IMF – they’re an organization of economic hitmen usually found conning poor countries out of their natural resources. They are not relevant in a discussion about Vancouver real estate.

      When we form an opinion, we tend to see what conforms to that view; like buying a car and suddenly seeing it everywhere. Continuing with the car analogy, rather than giving nebulous credence to self-serving individuals and entities, it’s more practical to park one’s butt on a bench at 41st and West Boulevard. Observe the cars. Teslas are as common there as Corollas in my neighbourhood. Range Rovers are a standard in the West Side. Benz Bluetecs are everywhere. Then there are the million $ plus vehicles – Mclarens, Lambos … I’ve even seen the Porsche Spyder Hybrid.

      The house prices are almost inconsequential.

      • I mention Morningstar because it is a highly respected, independent research agency. No axe to grind.

        All of the sources I cited have noted that Canadian RE is overvalued by fundamental measures. There are others and, in many instances, specific references to Vancouver. You might also look up Robert Shiller.

        As for Vancouver’s fancy cars… it this supposed to be impressive? The fact that there are a lot of these cars on the streets tells me absolutely nothing useful about the current under or overvaluation of local real estate.

        (Besides, do you know how many are leased? How many were funded with borrowed money? How many were bought on the (false) confidence the comes from inflated real estate–the so-called wealth effect? And how many are just a reflection of the shallow, materialistic priorities that pervade this city?)

        It is ironic that you should lecture us on confirmation bias while in the same breath dismissing out of hand the various organizations I cited. I get that you’re a conspiracy theorist, that much is clear. But you can be a conspiracy theorist and still be consistent in your arguments.

        Anyway, confirmation bias affects everyone, so it’s a moot point.

      • Brian Chen

        Wait, El Ninja, weren’t you the one who told me to trust myself and nobody else yet you come here now quoting all these other guys. Arnie is doing exactly what you are telling us all we should do. He is saying, he is examining this issue from his own eyes, not relying on the experts. Cause you know, when I quoted my experts who actually look at data not generalized to Canada but specific to this city came to similar points that Arnie has stated. But you dismissed them and told me to only trust myself. But here, we are have a case where someone has trusted his own eyes yet you are bashing him for doing it. So what is it? Are we to trust the guys like morningstar blindly? Or should we trust our own judgement? You can’t have your cake and eat it too man.

      • If you make investment decisions based on fancy car sightings, or because you heard Chinese spoken on the street, then, no, you shouldn’t trust yourself.

      • Morningstar is a kind of BBB for the financial services industry. This corporation charges big to analyze stocks and the cesspool of mutual funds for mostly institutional buyers. They have nothing to do with individuals buying a house in Vancouver. Nothing. Maybe they look at a few REITs, but that’s outside the scope of this discussion.

        I’ve listened to Robert Shiller before. He’s technically smarter than us in economics, but the last view I heard him express about buying Vancouver real estate was in 2012 – that he wouldn’t do it. That’s a million dollar fail.

        I’m no Robert Shiller, but I’ve been studying real estate, construction, and architecture over 20 years. I knew enough to offer to buy the house we’re in without even going inside.

        This East Van house has been a home to our family of four for the past 11 plus years, as well as providing accomodation for others in our basic suite. The irony is that, given our spotty income history, we would have had difficulty finding a rental.

        Back to Trudeau – why are we looking to him for answers – he’s irrelevant. Just hope that he can’t convince the political pork to move the nation’s capital to Vancouver – prices here would double.

        Are prices here crazy inflated? If you can’t afford it, there’s always the Sunshine Coast, or Whalley, or Saskatoon. If I had the cash, would I buy here at the current market values – yes. With less cash, I’d be looking at Surrey. I wouldn’t be crying about how I couldn’t afford Vancouver.

        Imagine if the wealthy Arabs and Russian oligarchs set their sights on Vancouver the way they have in London. There’s a fascinating documentary called London Basement Wars – these characters are popping millions to build underground additions. It’s peanuts to them to buy a third or fourth house in a place like Shaugnessy.

      • Kaitangata. Never been there, but I’ve been to Dunedin. Beautiful ocean view and fresh seafood.
        1000 jobs available. $37/hr.

      • You’re wrong about Morningstar. They now conduct detailed economic analysis, including the housing sector. And they employ very smart people.

  32. BCSC Panel finds BC sisters committed fraud+engaged in illegal distributions
    through their companies:
    – Wheatland Industrial Park Inc
    – 1300302 Alberta Inc
    – D&E Arctic Investments Inc_
    – LCco to

    “The sisters used a company they controlled called LCco to initially buy the land (in Alberta) for $5,540,000 and then sold it to 1300302 and D&E Arctic at an inflated price of $10,271,300 in an artificial transaction. “
    Why so complicated? Why not buy a $5m house in Vancouver and then flip it at $10m?

  33. Bank of England is planning to cut banks’ capital requirements as early as next week

    • What will happen to the real estate markets in Vancouver, if this economist is right.

      “Andy Xie says the coming collapse won’t be like the Asian currency crisis of 1997 or the U.S. financial meltdown of 2008.”
      “China in 2016 looks much the same (as the 1929-30 depression), with half of the country’s debt propping up real-estate prices and heavy leverage in the stock market — indicating that conditions are ripe for a correction.”

      China June factory activity shrinks more than expected to four-month low: Caixin PMI

  34. Conrad Black’s Toronto mansion sells for $14-million
    * $8 million less than his asking price ($22m)
    * $5 million less than an appraisal commissioned by CRA ($19m)
    “He will receive $1 million from the sale, while the other $13 million will go to pay off mortgages on the property (a 65yo mansion built by his father).”

  35. Fun day in the markets, especially for (precious) metals. Me thinks this does not bode well for savers…

  36. Just opened the “Business” page of the Vancouver Sun. At the time I checked, 4 of 9 featured stories related to RE. As did 4 of 5 featured videos.

    The business section. Not the real estate section. The business section!

    Says something about Vancouver’s economy, doesn’t it?

  37. Wow, what a great discovery that you found El Ninja, you dug up good old Marc Cohodes who have been saying this for a while now. But regardless of whether or not he is bankrupt, or he is a cheat, or he is whatever, he probably knows more than I do about financial systems and general economics. So i could respect that he is shorting the real estate market which is great because it would be no fun if everyone is betting on one side. But my main question for me is: why aren’t you El Ninja? He has at least put his money where his mouth is. All I heard from you when I challenged you was, oh, you can’t short this market, or CMHC protects everyone, etc. You even said you would short it like crazy if you knew how. If you think this guy is a genius then he has clearly shown you how to do it. It’s funny cause Space actually told you that you could short it and he suggested pretty much what this Marc is doing. So let me ask you, why don’t you put your money where your mouth is and follow suit? It would at least put some weight behind your comments. See, at least those who comment here (other than Ted) has some skin in this game.

    Marc is doing it with his own money. Bet you if his hedge fund underperforms as a result of this he would be fired pretty quickly. I remember back in 2009 there were a lot of hedge fund managers who shorted the market when S&P was at 700, pretty sure they aren’t working in hedge funds anymore. Being wrong by about 70% is a pretty bad record.

    • Here’s another tip for you from Finance 101. To make an outsized return in investing, you have to be contrarian. As Buffett says: be greedy when others are fearful, and fearful when others are greedy.

      You think you are going to make money by being greedy at the same time as everyone else. (And if “greed” doesn’t epitomize the current state of the Vancouver market, I don’t know what does…)

      Run with the herd and you’ll fall off a cliff. Good luck with that.

      • Not everyone has the balls to take a different route in investing, and in life. That’s fine. What’s stunning, though, is how totally self-unaware you are about it. Here you go, blathering about how insightful you are, when your entire thesis boils down to nothing more than… ‘do what everyone else is doing’.

      • Brian Chen

        Three issues with what you are saying.

        1. I wasn’t talking about how he was betting, I was saying that he, unlike you, put his money where his mouth is. My main point was, why aren’t you shorting just like him? Either he isn’t as smart as you put him out to be or you don’t believe in your predictions. See, unlike you, I don’t comment on things that I don’t have skin in the game, because frankly, that is pretty useless. It would be similar to me saying stock market will crash soon without having a large net short position in the market.

        2. and more importantly. On this point of contrarian. I love how you pull out every adage there is in contrarian investing. First off, is Buffett actually a contrarian investor? What are his real tenets? Is he even like you. Well, one of his tenets is that he doesn’t use generalizations and will only invest in stocks where he knows the company and business well or the circle of competence as he puts it. You, my friend, fails that as you can’t even give me a detailed analysis of any segment in this market from a buyer, seller, motivation to buy, motivation to sell perspective. So in buffett’s world, you aren’t qualified to really comment. But here is the other question, given any stock, are you more likely to make money by buying it at a 52 week high or 52 week low? Contrarian investing says you should buy at 52 week low as everyone else is bailing out of that stock. Does real research prove that? Cause if what you say is true, it would be real easy to make money, let’s just buy all stocks at their 52 week lows and hedge by shorting all stocks at 52 week highs.

        3. Finally, I love how you keep on pointing on my lack of depth when all you are basing your theory on are simple platitudes. All markets must reach equilibrium to its norm, ummm…. just buy into the market at any point and watch it grow it with the market… what in depth knowledge do you have to offer on the Vancouver market in particular? Do you know what is going on in Burnaby? In Richmond? In Vancouver West, East? Are they all the same, all different? Tell me, where is the depth in your analysis? If anything, you spit out more cliches just like every other person that have predicted the collapse of this market. At least vreaa dives into each small issue and examines it and tries to discredit their effects. You just keep on the same party line that hey.. it will all sort itself out. Please offer something other than, markets always reach back to equilibrium.

        I am pretty sure I would pass finance 101, it is called, identify the supply and demand of the market, you can’t even do that.

      • Brian Chen

        Oh and since you mentioned balls, fine, do it. Have some balls and take up the short positions like Marc Cohodes. I can respect he had the balls to do it. I have met so many people like you, oh you should do this, oh you should do that.. .I ask them one simple question, did you do it? If the answer is no, great… why should I listen to you then when you don’t even believe what you are saying. But hey, you are the one who told me there is no if, this market will crash for sure within the next couple of years, so taking up some short positions will make you super rich. You can thank me later for talking you out of your own way and making you a millionaire in the process.

      • First off, you have no idea where my money is. End of story.

        Two, you say “I don’t comment on things that I don’t have skin in the game… It would be similar to me saying stock market will crash soon without having a large net short position.”

        You’ve got it backwards. Having a vested interest compromises your objectivity. That’s why professional stock analysts are barred from owning the stocks they cover.

        Three, when a city is as deeply overvalued as Vancouver is by measures like price to rent, price to income, economic growth, population growth, and so on, you don’t need a frickin’ neighborhood by neighborhood analysis.

        Stop trying to make it out to be some nuanced, hard case to crack. It’s like saying in 1999: “You can’t call tech stocks overvalued because you haven’t dissected the numbers on”. The ENTIRE MARKET is egregiously out of whack. This is lost on you.

      • Brian Chen

        Oh wow, so you are not the one who said if you could find a way to short this market you would do it in a heart beat. Space, I remember vaguely that a certain someone here did say that on a previous thread somewhere. But sure, you do whatever you want with your money, just don’t come on here claiming things that you have no intention of doing.

        Hmm.. so you are saying that people make better judgements when they are not financially involved? I guess that’s exactly why hedge funds forbid their own managers to buy the funds they manage kind of like how investment banks ban their traders from inside trading. Oh wait.. but they don’t, in fact, there is a usually a reinvestment clause in any bonuses paid out by the hedge funds and the manager MUST invest in their own funds. I wonder if they read the same principle as you that people make better judgements when they are not financially involved. I guess those hedge fund companies aren’t so smart eh? If that is case, what does that say about this dude you just pulled up.

        I am still waiting your reply on contrarian investing. Is Buffett who you quoted a contrarian investor? Also, are you more likely to make money buying stocks at 52 week high or 52 week lows? Because from what I am sitting, you are only good at making useless generalizations like your internet bubble talk. Vancouver isn’t even the only city that is having this issue, Sydney, Melbourne, Shanghai, Hong Kong, all have seen similar growth in values. So are they all the same? All different? How would you know without examining them each one by one. Notice how I don’t comment on other cities, cause guess what, i haven’t dove deep into it. Your analysis is really skin deep, so don’t come here and tell me how lack of depth mine is, at least I can do a deep dive into the market. To anybody who have ever invested in stocks they understand the concept, people who buy stocks based on general market trends would get laughed out of the room by professionals. But again, that you are not.

      • Someone’s cage is rattled! That means you lack conviction. You’re fearful.

        You have skin in the game, right? The thought that I might be even partially correct… that must be nervewracking.

        Yes, Buffett is a contrarian investor. You might do some reading up on him — fascinating guy. Start with “The Making of a American Capitalist”. And, no, contrarian investing is not simply buying on 52-week lows. You can read up on that, too.

        My point is that Vancouver as a whole is so egregiously overvalued that you don’t need to pick individual “stocks” (although if I had to, I would pick westside detached). You could short the whole “index” and still make money.

        That said, I don’t think there is an effective way of shorting Vancouver. Doing what the hedge fund guy is doing–highly illiquid, and not fully exposed. Not a great bet.

        No effective way, that is, other than NOT buying, and investing elsewhere.

        That in and of itself is a short bet. And that is exactly where my money is.

  38. Buffet is not a contrarian investor. He’s a deep value investor who happens to have a lot of political influence, and deep pockets that can get him deals not available to other regular investors. How else can you get the only exemption from SEC for filing exemptions, if you ain’t got some connections.

    Well he may done contrarian investments from time to time, it is not really contrarian. He stayed out of the Internet bubble not because he’s contrarian, but rather he knows he doesn’t understand it and those stocks don’t fit his competence nor his investing style – which is long term value investing. As well, his goal isn’t to generate 100% annual returns but good returns. You might not be aware but Berkshire is also kind of an insurance holding company and there are a lot of regulations on what stuff can be held in its investment / reserve funds.

    Finally, some of his investments aren’t contrarian but simply very good deals he can get due to him have big pockets and long term horizon, something that corporate raiders and hedge funds lack.

  39. El Ninja, sorry but you are sounding like your cage is rattled than Brian. Hearing your arguments is like hearing people who talks about how to play poker, even though he’s never really play more than a few home games, and some poker books / blogs. You maybe sound smart but it’s all useless paper talk without experience.

    Yes, having $$$$ involves may cost you some objectivity, but without any $$$ on the line doesn’t mean you will be 100% objective, nor will you know all the actual real life difficulties that exists.

    There is a very good reason fancy models don’t work, and why the Fed’s forecast record is 0% which should be statistically impossible, especially given how many super smart PhDs they have.

  40. With regards to shorting Van West SFH, yes, there is no ready public market securities to do it. However, it doesn’t mean it’s impossible. When Hank Paulson wanted to short the US RE RMBS/CDO market, there is no ready way to do it either. However, he proposed a way to do it and Goldman implement it. Simply saying there is no easy way is just lazy.

    Here is a free tip for you El Ninja if you really believe Van West SFH will fall 30%+ in the next 5 year. I believe that’s your best case scenario?

    Enter into a purchase agreement with someone for a specific house or set of houses for a set price on say Dec 31, 2021. Now, you are truly short a house that you have deliver on, and your gain / loss will be on how much that house price will rise or fall. You could also make the bet cash settled instead, references to levels of say HPI instead, etc to make it a bit easier. Yes, it’s hard work to find a counter party and such, but then 30% of a $5M is $1.5M which is a nice chunk of $$ and incentive to actually do something? And that’s your best case scenario for a price decline right? So potential payout is even bigger then! I bet a lot of people wouldn’t mind to enter this kind of agreement, especially if they want to buy but can’t come up with the down payment right now, and their savings can’t keep up with the increase in house prices. To be able to lock in a price today would seem to be pretty awesome deal.

  41. @Arnie, @Brian, @space889

    Let’s start by recognizing how utterly conventional your views on this subject are.

    You believe local real estate is undervalued, that prices can only rise, and that Vancouver in 2016 is different from… well, pretty much every other time and place on Earth.

    Those are widely-held views (in Vancouver, anyway). That alone doesn’t mean you’re wrong; sometimes the masses are right. But it does mean that you’re not particularly insightful.

    If you’re going to post frequently to a blog, as all three of you do, perhaps you should offer something original. Another way of looking at things, you know? Something most people haven’t thought of already. Life is short and the clock is ticking.

    I have stated my opinion that Vancouver is overvalued by fundamental economic measures that, in every other market, and in every other instance of history, have been reliably indicative. It is factually undeniable. And it is uncomfortable for you. A conversation best avoided.

    Because you can’t make your case using accepted valuation standards, you cling for dear life to a difficult-to-verify “x” factor: “Asian wealth.” Never mind that you have no idea just how much of an effect this wealth is having, whether it is sustainable or legitimate in origin, and, crucially, to what extent its future influence is already baked in to prices. Instead, you cite expensive cars and Chinese-speaking neighbourhoods as proof positive of an undervalued market. It’s laughable.

    Arnie, you officially jumped the sharked with your “imagine the oligarchs set their sights on Vancouver”. Hey, imagine money started sprouting from trees. Just imagine!

    Having said that, nobody is denying that Asian money has influenced Vancouver, particularly in certain pockets. But your refusal to consider abetting factors, such as the artificially low cost of money, and the greed-fear pendulum of human nature, is narrow-sighted to put it mildly.

  42. Wanting Qu is convinced that Planet Juice is wholesome but – Ms. Qu is rethinking her long-standing refusal to apply for a Canadian passport. “I just believed in China. I believed that one day it will become like America or Canada – we’ll have a passport we Chinese will feel proud of,” she said.

    • In 2000, Ms. Qu left for Canada. Her family financially supported her as she cycled through a series of schools before her music career took off.
      Chinese functionaries are not well-paid. Even in 2014, the salary baseline for a central government worker at Ms. Zhang’s seniority level stood at about $1,400 a month after tax.
      Could Ms. Zhang have turned to illicit means partly to fund her daughter in Canada?
      Ms. Qu says no, recalling a conversation with her mother about Chinese President Xi Jinping’s campaign against corruption. “I’m not doing any of that, don’t worry,” Ms. Zhang said.

      Xi Jinping’s base salary: 11,385 yuan (about US$1,830) a month — or about US$22,000 a year.
      All members of China elite Politburo Standing Committee earn the same base salary.
      The lowest-ranked civil servants’ base salary: 1,320 yuan ($212.50) a month.

      The only way their children can afford overseas education is through state-sponsored scholarships or private sponsorship by vested parties.

        There is no allegation that Qu senior transferred any of the alleged proceeds of corruption, if there are any, to Qu junior. But if Qu Zhang Mingjie is convicted of corruption, the Government of China may become interested in funds in Vancouver. That is because her daughter told the media her mother funded her studies in Vancouver.

      • I think that base civil servant salary is probably nation wide base and there are adjustment factors for various provinces, regions, and cities. I think BJ, SH have minimum salary that are above that basic 1000 yuan / month. Even my wife’s 5th or 6th tier city (equivalent to like Peachland or smaller towns here), starting wages are 900+ yuan / month. So civil servants would probably make more than that official base salary.

        But yes, corruption was fairly rampant and now that Xi has been successful in stamping quite a bit of that out, and took away passports of civil servants & family members, civil service has a lot of luster and attractions now. Not many people want to get into civil service now, compared to before.

    • Canada vs. Japan International Rugby at BC Place on June 11th

  43. Some of us suffer from the syndrome known as “Experts from afar”.

    Who should we believe – a housing sector analyst in a cubicle in Chicago, or someone that has lived in Vancouver for 23 years and pays close attention to the local real estate market.

    I don’t live in the housing sector. I live in a house. And since I don’t invest in REITs, what the cubicle dweller has to say is irrelevant. I know Vancouver and I know my neighbourhood – right down to individual houses and the individuals that live in them.

    And to trust rating agencies is to ignore recent history. The scabrous Lehman Brothers worked hand in glove with these vile cons that gave bogus triple A’s to facilitate securitization of mortgages that they all knew were garbage – destined to fail. They almost caused global financial collapse and would have were it not for the 99% bailing them out.

    To give weight to the opinions of similar financial industries that breastfed that skank Madoff for decades is to be unremittingly gullible. Fool me once, shame on you; fool me twice, shame on me.

    Regarding my credibility on Russian oligarchs setting their sights on Vancouver – I’m half Russian and am fluent in that language. I’ve spent a lot of time with Russians. They like it here. They buy here.

    I’m not from Vancouver. Why have I slugged it out to stay? It hasn’t been easy. Well, I’ve travelled enough, and lived in enough places to know what’s good. If I thought for a second there was a spot somewhere else in the world better, I’d go. I have the means to move there. I don’t love this city, but where is it better?

    • Your house may be sentimentally special to you, as homes are to all of us, but to anyone else it is a commodity that is bought and sold on a market along with lots of other houses that, together, make up a sector of the economy. This sector is broadly measurable, and it broadly obeys certain economic forces.

      What does “paying close attention” the local market mean, exactly? Surely it includes keeping track of rental rates vs. prices. And, if so, surely the current skewing of this all-important, time-tested measure of valuation is cause for caution?

      And what does “knowing the individuals” in your neighbourhood mean? Surely it includes having some sense of their household income. Even a rough sense. And, if so, surely the divide between current prices, and locals’ ability to pay them, has raised your eyebrow? It should.

      There are bad apples in the financial world, yes (same goes for realtors). We should question analysts from “afar”, as you say. But do you dismiss them on evidence, or because it suits your personal narrative? As a committed owner it is only natural for you to fear a decline in your home equity.

      • A house is not a commodity – even in Levittown values from house to house can be quite different. No, there are so so many variables – you cannot call a house a commodity.

        Some of the variables – just sticking with the raw land:
        Is there a view? Vancouver has a wild topography. As Durrell wrote in Spirit of Place: Two paces east or west, and the whole scene changes. He was speaking figuratively, but the same holds literally.
        Is there a view? If you’re in Richmond, probably not – in Vancouver, the best properties have killer views.
        Which way does the house face – south is premium; north is ok – east/west is far less desirable.
        Is the lot at grade, below grade, or above grade. This is a big deal.
        Is the lot very gently sloped – that’s ideal; flat holds too much moisture; steep renders your land largely unusable, or it will cost a fortune to develop.
        Walk or cycle potential locations – it’s like the children’s game of closer closer. As you go lot by lot you’ll know which is best – odds are you’ll see the best houses there.
        Where is the raw land? There’s a 10-30% plus spread on locations vis-a-vis busy streets vs quiet. On million plus homes that’s a lot of scratch. And the quiet locations sell fast.
        Is the lot at a T? Yes, cringe.
        Can a vehicle’s animal headlight eyes rake the property?
        In your wildest dreams is there the possibility a vehicle can crash into your property? It happens surprisingly often. Even if it doesn’t, you can feel it viscerally.

        How about proximity: #1 is Skytrain – we never take transit, but if you want to rent out a suite, it’s the first question out of people’s mouths.
        How close is shopping, banks, library, pool, gym, schools, liquor store, the highway, bbq duck …

        Then you get into the improvements. What kind of a house are you looking at? That’s a minefield of questions. Froogle’s extensive post on this subject is brilliant. His whole post is great. You could ask the cubicle toads at Morningstar if they’ve read it. Why not just ask them what they know about Vancouver housing outside of REITS. That’ll be good for a laugh.

        I observe residential architecture and can tell you in seconds nothing about the housing sector, but nail it on the qualities of a house. After all these years it’s second nature – a gestalt.

        And, frankly, rent vs price questions don’t interest me. It’s apples and oranges. I rented for a dozen years before buying – all that cash in the toilet while living in a place I disliked – smokers, noise, strangers – a stuffy hole. What a waste.

      • Being an architecture buff is cool, but does it make you a shrewd investor? Apples and oranges, as you say.

        And if you’re disinterested in rent vs. price, that’s fine, but it forfeits entirely your credibility in making sweeping statements about the future direction of the market.

  44. rod_jonsson_pmd

    fundamentals? … contemplate the absurdity of -ve rates … not just -ve real rates but actual -ve nominal rates … it’s probably a bond blow-off, which may last a little while longer … reversal could get violent … perhaps why debase-resistant cash has gets a bid … what happens things go the other way for a very long time? pffft! …

  45. I don’t think anyone here denies the effect of low interest rate on housing market. However, even if you have 0% mortgage rate, a top 1% family income of $250K is going to find it extremely hard to pay back $2M+ mortgage required for a Van West SFH over 25, 30 or 35 years.

    Low interest rate explains a lot of condo & TH markets, and used to explain suburb (eg. Tri Cities, Surrey, and until recently Burnaby, Richmond) SFH. However, it’s not the full story, and for Van West, West Van, and now Richmond, North Van, Burnaby. How do you explain a 30% increase in average SFH prices when mortgage rates, local income, etc hasn’t budged?

    Yes, I know you will say it’s a bubble and it will blow. Ok, but why hasn’t it blown? I would have expected it to blow in 08, or that 2009 – 2010/2011/2012/2013 run up as a classic bull trap. But boy was I wrong and wrong spectacularly. Last year it was a 30% pop and this year it looks to be another 20% easily. So let’s say it burst and went down 40%, we are back to what? 2013 prices? Which you consider to be bubble prices as well. So if that’s the case, a 40% drop is not really popping the bubble.

    Do I think house prices made economic – local economic – fundamental sense based on local income, interest rates, etc, alone? Hell no. Do I think foreign $$ is sustainable? I’m about 60/40 that it is likely to continue to run to 2018 at least, maybe even 2020. If I’m right then even a 60% drop isn’t going to do anything for me since it would just take prices down to 2012 after waiting like another 6 years? Do I think my income will rise enough to afford 2012 prices? No! So when is a bubble no longer a bubble? With Van RE at least, when even if it pops, it is still in “classic bubble territory”.

    • Take prices from around 2004, grow them at the rate of inflation, and when Vancouver prices fall to that level, you’ll know the bubble has popped.

    • rod_jonsson_pmd

      don’t know future … just note risk level is v high now … all the signs … major indices multiple gap downs – topping last 1-2 yrs, metals now bid hard, global bonds in -ve rate blow-off … anything that can go up 30% for no particular reason can do reverse as easily … conjecture asian buyers v leveraged, cdn housing poorly regulated, esp with beneficial tax status – v nice casino

      • Shaking you off, or giving you fair warning?

      • rod_jonsson_pmd

        sorry b not understanding your q … i’m not in this vcr market … but watch from afar with fascination about what is happening where i grew up … really does resemble that old vse casino … friends recently sold out of westside for monster deal, all tax free

  46. @El Ninja, btw, I gave you some shorting ideas for Van RE. If you really believe this is the top prices, you should go out and do it. Seriously! The only thing standing between you and millions in profits is basically laziness. And if you think the bubble will pop soon, I think you really should get a hurry on it while there are still plenty of “greater fools” with $$$ around.

  47. @El Ninja, first of all, let’s all start by recognizing how conventional your arguments are. Your argument is one that everyone has heard over and over again since the early days of the so called bubble. Go back to the history of this blog and tell me when was the turning point where people have accepted the foreign capital theories. Back in 2010, everyone laughed at someone even suggesting foreign money was at play. You say, oh, we are one dimensional, but this is the dimension that prior to this year, has not even been explored. This year is the first year whereby there has been research done in this area and people are finally waking up to this dimension. The conventional wisdom has always been, don’t touch the market, it’s just interest rates.

    The second issue is that Bulls are not neccessarily saying values will rise forever. In my case, I am just disagreeing that you will see a large crash in single family home values. We haven’t seen anything in this market that would suggest this could happen yet. And I don’t think anyone is saying that cheap money is not at play. But if that is case, what is so unique about Vancouver where the valuation is this out of whack compared to local economies? When in reality, we show more similarities to other cities such as Sydney, Hong Kong, than say Seattle or Edmonton. You still haven’t offered anything that could even explain the past. No expert has come out and explained how you could possibly get the single family home values that you see today without a large component of foreign capital. And no, foreign capital is not conventional wisdom. This is why you have people like Josh Gordon, like Andy Yan who are local academics looking at this problem and trying to explain it.

    There are two things that standard methods cannot explain. 1. Models can’t explain why single family homes have detached from attached pricing. If it is purely cheap money, then it should all move by the same rate, or similar rates. 2. Why has it disproportionally affected Vancouver so much worse than the other cities?

    • @Brian

      1. In a world with few quality assets for private capital (by that I mean high networth individuals) to invest in, SFH is seen as an attractive convertible bond. You can hold it and get a yield by renting it out or convert it into equity by redeveloping it. This attribute in SFH allows it to demand a higher premium. Not a wise bet for someone who has to use a lot of leverage but a safe one for someone sitting on idle cash.

      2. Vancouver attracts affluent immigrants. The rest of North America to a much lesser degree. This is of course a broad stroke gernalization. And if one where to straddle between Asia and North America, Vancouver offers a familiar community and culture in the shortest flight time.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s