First, a Toronto Story: “The home sold for 25 per cent less than what John had paid just five months earlier, a loss of $500,000”
“The house in Toronto was the type of property highly coveted by those in the city: fully detached on a sprawling lot, recently renovated and adorned with granite countertops, hardwood floors and a solarium. John, who asked that his name not be used for reasons that will become obvious, knew he had to make an offer. He figured he could rent it out, and if the payments didn’t cover the mortgage costs, no matter. Back in early 2017, home prices in Toronto were on an unstoppable tear, surging double-digits every month. The house would surely be worth more in no time. The home was on the market for only a few days when John’s offer was accepted. He bid nearly $1.9 million, about $360,000 more than the list price. Then everything fell apart.
John, a real estate agent, thought he had financing lined up. But the bank declined to lend him the money. John had recently formed his own brokerage, and the bank was treating self-employed individuals with far more caution in an overheated market. He consulted two lawyers, who told him that if he walked away from the deal, he could be sued. John decided he had no choice but to take a mortgage from a private lender that carried a hefty 12 per cent interest rate. He knew there was no way he could afford the payments and listed the property as soon as he took ownership.
But there was another problem. During the closing period, the Ontario government introduced the Fair Housing Plan, which included a 15 per cent tax on non-resident buyers. The plan released the air from the housing market, and prices took a nosedive. John’s investment property sat on the market for 27 agonizing days before a buyer could be found. The home sold for 25 per cent less than what John had paid just five months earlier, leading to hundreds of thousands of dollars in losses [ballpark $500,000 -ed.]. “I was so greedy,” he says now. “I will not play the game like that again.” Painful as it was, he looks back at the debacle as a learning experience. He even purchased some books about real estate investment on Amazon to learn how to do it properly.
John’s tale of misfortune isn’t exactly unique. Hundreds of Greater Toronto Area residents were caught when the housing market took an abrupt dive last year after a long run of booming activity. Home sales plummeted 32 per cent from the peak, and prices cratered by 10 to more than 30 per cent in the suburbs, depending on the municipality.”
– image and excerpt from ‘The people who bought at the peak of Toronto’s real estate bubble, and then lost hundreds of thousands within months’, Joe Castaldo, Maclean’s, 4 May 2018 [hat-tip El Ninja]
Second, some Vancouver market facts from Garth Turner: “On the Westside prices have fallen 17% from 2016 and 11% this year while sales volumes have evaporated 80%”
“Detached home sales are crashing hard. What everyone wanted two years ago sits idle and unloved. Transactions are down by a third to the lowest level ever for an April.
In West Van sales are off by half. Incredible. Only 30-odd deals. Another spring record. Sales in Richmond have been sliced almost 60%.
Over six thousand listings materialized across the province in a single day. The meme is spreading. This ship’s going down.
Overall, sales are reduced an astonishing 62% from 2016. The lowest number in 30 years.
The average sale price has declined 6% from last year, 8% from 2017 – and this is just the start.
Two Aprils ago $3.5 billion was spent on housing in Vancouver. This April that fell to $1.35 billion. That’s $2 billion less spent in a single month. If you think there will not be economic implications, you’re wrong.
On the Westside prices have fallen 17% from 2016 and 11% this year while sales volumes have evaporated 80%. There is three years’ worth of inventory for houses valued at $3 million or more – the ones the NDP has targeted for a special punitive tax.
Over 90% of the houses now selling are going for less than asking. Two years ago, almost all were over ask. In April there were as many price reductions on detached houses as there were sales. Yes, it’s sinking in, that Van is sinking.”
– excerpt from ‘The big shed’, Garth Turner, 2 May 2018 [hat-tip El Ninja]
If a serious market correction were to commence, this is pretty much what it would look like. The beginning of a lengthy, drawn out correction process… Watch as wave after wave of ‘Johns’ sell at lower and lower prices. It’ll take years to play out.
Ultimate target: The return of Vancouver RE prices to those determined by the utility of property in our economy.
The top-most rungs of the property ladder have given out.
That this is happening against a generally stable economic backdrop shows how unfounded price increases were in the first place.
Cheap credit, not higher incomes, drove price increases. But the psychological effect was that of pay raises, emboldening people to take on more debt. And like a ratchet, it locked in at each new, ridiculous level.
How to pay it back? Get a better job? Good luck in economically weak Vancouver. Cut down on expenses? Sure, that’ll help. (Ironically, as people cut consumption, the economy will weaken, leading to lower incomes and in turn accelerating the downward spiral in real estate that led people to cut spending in the first place).
But for many, that won’t be enough. They’ll have to sell. We’re seeing it already. The first wave, as vreaa notes. More waves to come.
And where are the bulls? Crickets…
no worries … trudeau noes what to do
We might be only phase 1 of 5 of a 75% Phoenix-like collapse.
Phase 1: Astronaut mamas, foreign & local speculation stops.
Phase 2: All the new condos being built right now goes online and creates a glut.
Phase 3: Realtor bankruptcies and RE affiliated industries dries up.
Phase 4: Greedy Baby-boomers firesale their house “to get whatever they can”. They don’t have a mortgage so they don’t care of the final price.
Phase 5: The pain. Underwater mortgages, bankruptcies, foreclosures, tax sales, etc…
It could be the beginning of the beginning of the end. I agree; if it were to happen it would go a little something like this.
Were you guys old enough to pay attention to Van RE in 2012? If you were not, google it. If you were, you may recall the enthusiastic news about Vancouver bubble bursting. Not sure if this link will go through but there are more similar ones if you want to try http://www.macleans.ca/economy/business/crash-and-burn/
So how is it going to be different this time? Poloz is not going to raise the rates dramatically any time soon. He hinted that much.
Yes, prices went down a bit for the most expensive properties and even for the ‘cheaper’ ones. But how exactly a price drop from 1.3 mil to 1.2 mil for a small bungalow in the suburbs is going to help a regular family of 4 or 5 who has been renting? What is the price drop for dwellings that a renting family can actually afford? Emphasis on the family, not a single person or a professional couple. Despite all the government measures, I still think there are too many folks wanting too buy and not enough wanting too sell at deep discount for the prices to drop significantly. Don’t tell me about the chain reaction. The chains break due to ‘factors that could not have been foreseen’. Waiting for a crash in Vancouver? May as well wait for Godot.
If the City builds all the co-ops that Gregor recently promised, it may ease up the renting situation a bit or maybe not with all the new people moving to Van every year.
Realtors like Joan Tommas finding themselves with a lot of free time these days.
@Joan: From 2012-2014, prices were kind of grinding along. The appreciation of the preceding years wasn’t happening any more.
What happened coming out of that was that the CAD shed something like 25% of its value relative to USD, CNY. I still think many significantly under-estimate the role of local enthusiasm in this market, but those conditions definitely increased foreign participation, such that we saw something like 30%+ appreciation YOY. The government dropping rates again too for a time in there goosed things.
As we sit here now, what do you see on the horizon that would allow this? The CAD could decline, but not like we saw before (plus there are more capital controls in places like China now). Rates could go down again, but that’s not the trend worldwide. The insanity of 2016 turned the heads of a lot of voters, such that we now have politicians willing to 1) introduce policies that work against pumping the market up and 2) explicitly state that their goal is to moderate prices. Those things absolutely did not exist in 2017.
Plus, look at Toronto. Even if it wasn’t immediately apparent from Vancouver, TO’s real estate prices were insanely bubble-icious. Many of the same factors that buoyed that market and ours have turned. Look where they are now. We’re not talking $1.3M to $1.2M, followed by a meteoric rise. We’re talking $1.3M to $1M in one year – and a big change in sentiment. Something similar is building here. We’ll see where it goes.
Royce, I replied to you yesterday but my comment is still awaiting moderation.
@vreaa, was it something I said?
Joan Tommas’ persona evolves.
Joan: You are absolutely correct in pointing out that there have been many many prior top calls in Vancouver RE – and never mind 2012, we’ve heard them regularly since 2005. Crazy, eh?
Now, the thing is that prices are very very far above anything supported by fundamentals. Speculators holding properties are renting them out (now with the added incentive of avoiding the empty homes tax) at rents that don’t come anywhere close to supporting the mortgages. People have ONLY been buying on the premise that prices will GROW. Prices are far far higher than what the utility of the property in this economy merits.
So, the big question has ALWAYS been… what would happen when prices took a substantial hit? .. 10%, 15%, 20% off… We continue to believe that speculative buying (ie ALL buying) would take pause, and that those holding for growth and not use would bail. And drops will beget drops. People won’t buy homes at 25%-off because (as you’re pointing out) they’ll STILL be ridiculously overvalued for those who actually earn money in this economy and want to use them, and momentum speculators HATE buying things that are going down. I know you would have imagined that people would ‘snap up’ Vancouver homes at 25% off, but, suddenly they won’t look like bargains, they’ll look like concrete boots.
So, yes, it’s been said before, but what we’re seeing now may indeed be the beginning of the end. And, if it is, I’d agree with Sebastien.. it’ll be a multi-phased (and drawn out) descent.
vreaa, caveats re: perils of forecasting aside, what sort of potential timeline do you envision for this unwinding?
I think 6-8 years, at least, till we see a bottom. With a likely overshoot. 70% decline entirely possible.
Those numbers seem entirely reasonable.
Will fairly certainly take over five years, possibly ten, with waves of realization.
In 2012 downward momentum wasn’t that aggressive. You have to go back to 2009 to see news that bad.
Well, sudden rising prices in Toronto might have been a knee jerk reaction after the foreign buyer tax was introduced in Van. And, as opposed to Vancouver, Toronto price cooling measures seem to be having some effect on the SFH prices. What about condos and townhouses that were more affordable? Did the prices drop accordingly? How does the price drop at the upper end helps affordability?
Anyway, I do not think the exactly same factors drive RE prices in TO and Van. TO is not in the same league as Vancouver when it comes to desirability. TO is more of a Vancouver wanna be. No offence to Toronto folks.
Vancouver prices bleeped after the foreign buyer tax but then have been holding pretty steady. As for the BC politicians and their new measures, I think you used the right word – they want to ‘moderate’ the prices. But I do not think they mean they want the prices to drop to where they were five years ago. I think they just mean they want to stop them from growing at the insane rates. Large price drop would make a lot of voters unhappy. Sure, folks are hopeful when a 4 mil house sells for 3.5 mil but, let me ask again, how does that help an average family? The seller of the said house will still outbid regular folks for a 1 mil townhouse and buy two condos for their grandchildren on the top of that.
I do not see anything of the horizon that would justify 30% price increase every year, but neither do I see anything that would cause a significant price drop across all types of dwellings. In Vancouver, that is.
So, to summarize: “It’s different here.”
From The Guardian (UK) today:
UK house prices posted their largest monthly drop in almost eight years in April in the latest sign the housing market is weakening, according to the country’s biggest mortgage lender. The 3.1% drop, the biggest since September 2010, knocked £7,140 off the average price of a home to £220,962 last month
False alarm, everyone.
Amazon to push Vancouver real estate to new highs.
There’s a caricature of Greedy Jim hanging in Burnaby Library. He has a massive smiley head with a big bowtie made of cash and virtually non-existent body. Reminds me of an engorged tick.
If someone like this VIP – Vertically Integrated Parasite, or some other billionaire bloodsucker, got it into their heads could, just on a whim, buy every decent property in Vancouver. What would that do to property values. Where do real estate “fundamentals” fit in with this scenario. Amazon’s Bezos has the cash to send rockets to Mars. Buying up Vancouver is comparatively child’s play. He just can’t be bothered; at the moment.
The new bull case: “A billionaire, who became a billionaire by not spending his money on a whim, might suddenly decide to spend his money on a whim. Buy now!”
I, for one, am totally willing to put money on that bet. Can’t believe I didn’t think of it sooner. Thanks, Arnie!
Poor Ninja can’t help himself. He twerks and he trolls.
I call out absurd fantasies like this, yes.
I enjoy the humor that Arnie Carnegie brings to his comments. Buying up Vancouver however, is beyond the financial capability of any billionaire that was overcome by that strange idea.
I went to the online big numbers calculator. There are roughly 42,000 single family homes in Vancouver. Assigning a modest valuation of 1.5 million per house, it would cost 63 billion to buy the stock of single family homes in this city. That would leave all the townhouses and condos yet to be purchased.
Jimmy Pattison is reckoned to be worth about 8 billion U.S. Even if you convert to Canadian at 30%, he could liquidate his holdings of 10.4 billion Canadian and buy about 17% of the single family homes in Vancouver. Child’s play?
Note: I said every decent property. What percentage of listings qualifies? When I peruse listings, that’s not even 10% – more like one in a hundred. What hits the market is [rare moderator edit here for ethnic slur; keep it 2018-clean or we’ll simply trash. -ed.] Dreck Spec, renoflippers, and crap on traffic streets. The good stuff rarely comes up for sale. Our property had the same owner 40 years. We’ve been here over 13, so it has been for sale once in 53 years and, with two kids, will never be for sale again.
“The good stuff rarely comes up for sale”
Yet a random billionaire is going to be able corner the entire market. Just as billionaires have done elsewhere… never.
Pass the bong.
Ah, 13 years ago. 2005. Precisely the level prices are returning to.
Greedy Jim’s doppleganger, the wizened homunculus with the voice of the possessed in the Exorcist, Sam Zell, had, at one point, 40,000 apartments. This is market making. It’s brutal for decent people just trying to live.
Note to ed. – the term I used is not listed as an ethnic slur – it is simply a shortened form. It’s like saying Brits instead of British. At any rate, I respect the hell out of those working so hard to build Vancouver houses. It’s just a pity they build such garish mindless open concept dreck. They need to wrap there heads around hiring residential designers.
3788 Maxwell St – assessed $1.799M – listed $2.55M, a bump of $761K. Owners didn’t get the memo about prices dropping.
Typical Van Spec; undesirable east-west orientation; 16 min slog to Skytrain. No laneway house.
2836 45th Ave E: In the heart of the Killarney Bog. Long in the renoing – about 1.9 years. $450K over purchase price in 2016. Not a super fat bump given the time and effort expended. Illustrative to look at the before and after exterior pictures – dressing up a butt ugly 1956 post war box.
5395 Inverness – There’s a book titled: “What not to build” that has basic stylistic guidelines. It should be required reading to get a builder’s license. We could avoid a lot of ugliness.
omg wtf … 7bd/7b 2800sf … https://tinyurl.com/y8c4dj38 … styling its least pb of all … could never have imagined how perverse
1275 24th Ave E: lots of money spent trying to make a silk purse out of this pig’s ear. Bought for $1.56M in 2016, this 92-year-old shouldabeenascraper is listed at $2.198M – a twilight zone price. Odds of permits pulled on this lipsticked swine are slim to none, ow the listing would be screaming it – but not a peep – just puffery.
3344 28th Ave E: a laughably low end renoflip with a hysterical half mil price bump since purchase last year. The lipstick beavers retained the rubble fence, but rearranged the rocks. Must have taken at least a couple of hours. Laminated the floors; barfed on some ugly paint; threw in some appliances; landscaped with the lowest of the low cedars. Illegal covered deck; illegal suite – this pile on a small lot could be yours for $1.728M.
[CBC] – Divorce judge notes ‘substantial unfairness to Canadian people’ in couple’s (lack of) taxes
…”they ran their business on “very simple lines”: no deductions for GST or income tax; no employee deductions “and the parties kept the cash they received and did not deposit it in the bank.”
“Neither Ms. Wong nor Mr. Li has properly paid income tax over the last many years,” Russell wrote.
“It is not my role to attempt to calculate the income tax the parties ought to have paid, but I will point out the substantial unfairness to the Canadian people who meet their income tax and GST obligations from those who do not.
“Mr. Li and Ms. Wong seem to have no hesitation in, for example, using roads or Court services without the least sense of a responsibility to contribute to the costs of those services.”…
not tim’s too … the wheels are coming off … https://tinyurl.com/ycqref5x
Why the RE bubble will take down the Canadian economy with it:
Nice summary.. pretty much what we’ve been saying here for years.
Like the ending: “…given how important housing is right now, let’s hope that doesn’t happen.”
[hope and markets… not a good combo]
My thoughts exactly. I was going add, “the only part I disagree with is what he said at the end.” Because the fact is, as painful as this unwinding will be for housing and the economy, it is the only healthy outcome in the long term.
Never has a society committed seppuku as Sweden has, and no amount of money would convince me to move there.
The time to change the course of this once-wonderful country has passed (as it has for Germany and France).
This is Canada’s fate under Trudeau.
Not on topic but interesting read;:
More like on topic but boring read. Everyone knew a Charter challenge was coming, and since Canada long ago gave up any pretense of running itself for the benefit of people who already live here, the challenge will most likely succeed.
2395 Wall St: listed at $1.189M over assessed – $3.298M. Too bad the house is such a mindless dog. This location should have had an architect. At this price, who’s going to tear it down and build something worthy. Then again, if you have the cash, why not.
2190 Graveley St: a brutally stupid half house for 2 mil. Ghastly kitchen. No view.
LOL: “Prices in Vancouver don’t decline.”
“NEW PRICE” is the new “SOLD”.
The Toronto story is absurd – that a bona fide rodent, who started his own brokerage no less, was such a bonehead that he bought books on real estate investment – after – screwing around with all this cash. He’d have been better off doing some strategic twerking. The whole article is a steaming pile – to be expected from this garbage magazine.
Bending reality to fit one’s narrative, as Arnie is doing, has long been a trademark of the market’s most delusional cheerleaders. But watch as it becomes a coping mechanism even among sane people, as this bubble unwinds and the cognitive dissonance becomes too much to bear.
It’s curious how a piece of excrement like this article gets hatched. Did the brilliant world-weary editor send out a star reporter, or did he just sit on his ass sucking on a coffee while someone with an agenda dropped it in his inbox?
Once upon a time there was a shmuck real estate agent in Toronto who wanted to make money. He decided to market himself by making up a name “Realosophy Realty” and promote himself as an authority. He and his cohorts considered a name like “the Real Estate Twerkers”, but it didn’t have the same gravitas. His angle is that he gives real advice. Right.
Why waste money advertising? Send stories with a link to a lazy editor working for a billionaire’s scum magazine and, Bob’s your uncle. Free exposure. Trustworthy. Not like all those other tricky agents. No siree Bob. We at realosophy are honest honest honest. List with us, especially if you’re a little old lady. And don’t forget to subscribe.