How Credit Has Inflated Real Estate Prices The debate rages on as to why real estate prices have grossly inflated and have completely diverged from basic economic fundamentals. Some blame foreign buyers and speculation while others dumb it down further to population growth and supply constraints. However, research from the brightest minds in finance and economics will tell you those are all symptoms of an underlying disease. The disease, is a prolonged credit cycle, combined with low interest rates, lax lending standards, and a hunger from banks to provide more and more leverage for homebuyers in need of a mortgage.  As a result, household debt levels and real estate prices are at record highs. To explain further, I’ll pass this one off to the experts. Here’s what billionaire hedge fund manager Ray Dalio has to say. “There are two important cycles to pay attention to — the business cycle, or short-term debt cycle, and the debt supercycle, or long-term debt cycle. We are eight years into the expansion phase of the business/short-term debt cycle — which typically lasts about eight to 10 years — and near the end of the expansion phase of a long-term debt cycle, which typically lasts

Toronto Real Estate Following In The Same Footsteps as Vancouver I often get asked what are my predictions or thoughts on the Toronto Real Estate market. While I can’t comment from a statistical or feet on the ground perspective what I can tell you is all financial markets tend to function the same regardless of the location. There’s no such thing as “it’s different here.” With Toronto real estate prices soaring 22% last year, and expected to increase by 25% or more this year, the housing plague has gripped Toronto residents. Economists and other market experts are now sounding the alarm bells. “Overall, while the investment boom in housing supported the economy through the oil shock, the further deterioration in housing affordability and greater housing imbalances are worrisome, symptomatic of an economic crisis in the making caused by investor speculation and excessive financial leverage.” – David Madani, Capital Economics  “Let’s drop the pretense, The Toronto housing market — and the many cities surrounding it are in a housing bubble. Housing starts in Toronto and Vancouver have been chugging along at almost 70,000 units per year recently, an all-time high, while overall Canadian starts are above demographic demand at 200,000 units

Price Trends Suggest a Correction in Vancouver There’s no shortage of predictions for Canadian real estate prices nor is there a shortage of opinions on how financial markets function. But predicting markets correctly is an almost impossible task, as famed economist John Maynard Keynes once said “The market can stay irrational longer than you can stay solvent.” But let’s dive in anyways. The latest from Macquarie Research group, a leading provider of financial, advisory, investment and funds management services believes that a 25% correction in the Canadian National home price index would bring it back to trend. Of course, in Vancouver that’s even higher. Famous Blog dog Garth Turner‘s doodling shows a 33% price correction would be required for Vancouver real estate just to fall back to it’s “normal” trend line. There’s no question a price correction would come as welcoming news to many Vancouverites. According to Metro News, Doctors, lawyers, computer programmers and accountants can’t afford to buy a home in Vancouver. But alas, segments of the market are still hot hot hot leaving some bulls to believe prices could triple this year and heck may even quadruple next year…

Why All Levels of Government Are Reluctant to Prick the Bubble When it comes to the housing crisis in Vancouver there seems to be much finger pointing. Trudeau says it’s a provincial problem, Christy Clark alleges it’s a city problem, and Mayor Gregor just wants more bike lanes. So who’s bubble is it anyways? From a federal level Trudeau and the gang have been backed into a corner. GDP growth is anemic, commodity prices are in the gutter, and interest rates virtually at rock bottom. Canadian residential real estate is one of the last legs holding up the economy. HELOC’s (Home Equity Line’s of Credit) made up a staggering 12% of Canadian GDP in 2015. Even more pathetic, home ownership transaction costs represented nearly 21% of total GDP growth post-2014. No wonder Trudeau passed the hot potato over to CC. After holding out for years Christy Clark painstakingly pulled the lever on a 15% foreign buyers tax. The market fluttered into a tailspin, so a panicked CC pulled the other lever, this time in the form of sub prime loans to first time buyers. After all, don’t kill the hand that feeds you… Next up, Mayor Gregor. High house prices?

Housing Debate Gets Heated Amongst Finance Committee Just the other day local politicians got together to discuss the future of Canadian housing. There was about a one hour segment where politicians grilled CMHC’s Evan Siddall. Most of the focus was on the stress test and further lending policies moving forward. You can watch that full interview here. Mortgage Stress Test Since the implementation of the stress test CMHC says there has been a 15-20% reduction of first time buyers being able to qualify for an insured mortgage. CMHC says they are pleased with the results to weed out over leveraged buyers.  Of course, this had some local politicians up in arms saying that CMHC is denying first timers the Canadian dream of home ownership. How quickly they forget just how generous the banks have been in recent years. The massive lending towards residential real estate is unprecedented. Risk Sharing with Banks CMHC’s Evan Siddall says the Bank of Canada is continuing their research towards implementing risk sharing with the big banks. They want the banks to pay a deductible should someone default on their payments. CMHC says if this is implemented that borrowers can expect between a 10-50 basis point

Activity remains sluggish in Vancouver Real Estate Market Activity in the Vancouver real estate market remains quite sluggish through the first half of February. This report follows the two previous January reports (January 2017 Detached Market Report and January 2017 condo/townhouse Market Report). So what do I mean by sluggish? Well sales are down, way down from last year. New listings are also quite scarce. Let’s take a look. REBGV Detached Detached sales are following the exact same trend as the past six months or so. Detached sales through the first 15 days of February are down 52% year over year. There have been a total of 385 detached sales across Greater Vancouver which is 28% below the 10 year average.   There have been 690 new listings added so far in February. This puts the current sales/actives ratio at a paltry 9%, which of course means it’s still considered a buyers market. REBGV Townhouse Townhouse sales remain relatively stable, once again following a similar trend we have seen over the past few months. Through the first 15 days of February sales are down 30% year over year, and are also 8% below the 10 year average. Through 15 days

Fraser Valley Detached Slumps, Condos on Fire After popular demand i’ve decided to put together a quick update on the Fraser Valley real estate market. For the most part it’s doing similar things as the rest of the Greater Vancouver market. The trend appears to be detached sales and prices slumping, while condos continue their torrid pace. Let’s break it down. Detached Market Fraser Valley detached sales were down 47% year over year in January. To add to that, detached sales were also 15% below the 10 year average. The detached in the Valley lagged behind Greater Vancouver on the way up and appears to be doing the same on the way down. While sales fall, inventory is also rising, up 16% year over year. The median and average sales price shows a 7% price correction since it’s peak in May. The MLS benchmark shows a 4% drop. Townhouse Market The townhouse market is still going quite strong. The sales/actives ratio of 39% (way down from it’s ridiculous high of 105%) indicates it’s a sellers market. With that being said, townhouse sales are down 22% year over year, but still 27% above the 10 year average. Inventory is down 29%

Loan Approvals and Multiple Offers Booming in Condo Market As I mentioned in a recent post, there’s an Entry Level Feeding Frenzy in the condo market. Prices and sales are picking right back up from the dark winter months, despite the detached market crumbling. I believe there’s a strong possibility this could be fuelled in part from Christy Clark’s first time buyer loan program. As CTV News reports, 356 first timers have already been approved since the program began taking applications January 16, 2017. Just to put that into context, in January there were 828 condo sales in Greater Vancouver, and 276 sales in the Fraser Valley. Although some of the loans will go to buyers in other markets such as Victoria, or the Okanagan. Nonetheless, the condo market in the lower mainland was not ready for any surplus of demand. It was and is still in the process of recovering from record low inventory levels. This especially holds true in the Fraser Valley where entry level condos were in high demand. The Fraser Valley condo market didn’t heat up until February 2016 and with or without the home loan program still had plenty of wind left in the sails.

Population Growth, Limited Supply, and a Strong Economy? As of today Greater Vancouver real estate prices have soared by 39% since January 2015. We’ve been told the astronomical price growth has been a direct result of population growth, limited supply and a strong economy. New findings show otherwise. Population Growth Population growth in Vancouver has been average at best. Metro Vancouver ranked 11th of all Canadian cities for population growth from 2011-2016. The population grew by 6.5% down significantly from the 9.3% growth from 2006-2011. Meanwhile, as prices continue to surge, research from U-Haul suggests people are leaving Vancouver. Each year, U-Haul studies how many of its trucks leave various communities on one-way trips versus how many trips are arriving. According to the U-Haul data, Vancouver is a “net-loss city,” with 52.9 per cent of one-way U-Haul trucks leaving the city versus 47.1 per cent arriving. “While migration trends do not correlate directly to population or economic growth, U-Haul growth data is an effective gauge of how well (communities) are attracting and maintaining residents.” Supply As i’ve talked about before, supply tends to be a symptom of the underlying issue and a shortage tends be more a result of unsustainable levels of demand.

Multiple Offers Still Ravaging Entry Level Condo Market Despite the detached market in turmoil mode, prices down 15% or more and sales plummeting, the condo market remains red hot, particularly at the entry level. Just as I have noted in previous blogs and videos, Christy Clark’s first time buyer loan program would likely pin buyer against buyer in a royal rumble cage match to compete for the record low inventory available.   Disguised in the form of free money, the provincial government and sellers alike have begun dangling the bait.  It appears UBC Economist Tom Davidoff’s prophecy is coming true, buyers are devouring the loan, creating a feeding frenzy at the entry level. Just last week I was caught up in several multiple offer situations with my buyers all competing at the entry level. Four or five offers later, amidst a flurry of first time buyers, the highest bidder came away the victor. Sometimes tens of thousands over ask.  Bidding up prices for the next eventual buyer.  This prompted me to dive into the numbers further. Just how many condos are going to multiple offer? In January 2017, 25% of all Vancouver West condos sold over asking price. Down slightly

Condo Sales Fall Again, Inventory Levels Remain Critically Low The Vancouver condo market remains quite hot. Sales continue to fall, following a similar trend to (December Condo Report December 2016) however, because inventory is still at historically low levels buyers are still stuck competing for the few condos available. This is causing some multiple offer situations which can lead to price increases. Sales Here’s a five year history of Vancouver condo sales for the month of January. [table id=32 /] Vancouver condo sales fell across the board from one year earlier. Using a larger data set, Vancouver west condos fell 30% year over year. Condo sales were also 7% below the 10 year average for January. Average Days On Market Vancouver West- 33 days Downtown- 40 days Yaletown- 23 days West End- 23 days Kitsilano- 29 days False Creek- 35 days Vancouver condos are selling quickly. This is primarily because inventory remains scarce, especially at the lower end of the market (anything under $600,000). However, days on market is up 3% from the same time one year ago. As we head towards the spring market things generally tend to sell quicker so it’s likely days on market drops in the

Sales Plummet But Inventory Still at Historic Lows Quite the contrary to the sinking detached market (January 2017 detached market report) condos and townhouses remain quite stable. Despite a significant drop in sales, inventory remains at historically low levels preventing prices from moving much. The divergence from the detached market is really quite remarkable. Sales [table id=30 /] Condo sales across Greater Vancouver slumped year over year. For January sales fell year over year by 14% in Vancouver East, 30% in Vancouver West, 18% in Richmond, 39% in Burnaby, and 24% in REBGV. Despite sales falling year over year, they remain above the 10 year average. REBGV condo sales were 11% above the 10 year average for January. Except for Vancouver West which was 11% below the 10 year average. New Listings Vancouver East- 155 Vancouver West- 493 Richmond- 209 Burnaby- 206 REBGV- 1640 New listings remain at historic lows across the board. New condo listings in REBGV were 22% below the 10 year average for January. The lack of new listings is keeping total inventory at all time lows. Total condo inventory in REBGV fell 36% year over year. Here’s where we currently stand. Sales/Actives Ratio Vancouver East- 42%