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February 5, 2017 | Goats & Scapegoats

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

“Good news Londoners, Stockholmers, and San Franciscans,” says the new age, NY-based Quartz media thing, “Vancouver may have solved one of your toughest problems. Last year, the Canadian city topped UBS’s Global Real Estate Bubble index, a ranking of cities most at risk of being in a property bubble; the bank said Vancouver’s housing market was in ‘overdrive.’ But in the last four months, house prices have taken a marked turn downwards.”

As the world is apparently noticing, Van sales plopped 40% last month and prices keep eroding. “So how did Vancouver tame its roaring housing market?” Quartz asks. The answer from their US perspective is simple – a 15% foreign buyers tax. Given the fact the Canadian dollar’s weak, the central bank’s rate in the ditch and our bankers are money pimps, that must be the deciding factor, it concludes.

“Of course, what worked for Vancouver may not work everywhere—and indeed, if other cities adopt such a foreign buyers’ tax, it may end up putting even more pressure on the markets of cities that don’t,” Quartz adds. “Still, it shows that there are ways to bring a runaway market under control.”

Well, unlike my guest-blogger colleagues, Rowat & Lewenza, each of whom have recently admitted human frailties and attitude adjustments, I’m stickin’ with my story. Van’s market was rolling over months before the 15% shocker was applied, with sinking sales and a loss of market momentum that actually began almost one year ago. It’s just a fact of life – in a world where Americans now blame everything bad on Muslims – it’s easier to find a scapegoat than face our own stupidity. The Foreign Buyers tax was the final market gust that blew the house of cards over. It was not at the heart of the collapse. This is a lesson Toronto’s yet to learn.

By the way, how bad are things? The local real estate board claims prices are down just 3.7%. So what’s the big fuss about?

Local realtors see it differently. Like Stuart Bonner, a Re/Max dude toiling in the tony Westside. “There were 37 detached home sales in January, 73% less than January 2016,” he tells clients., “and 60% less than the 10 year average. Of last month’s sales, 4 received over the asking price and 30 sold below the asking price.” In other words: Sellers 4, Buyers 30.

As for prices (still outrageous), in this hood they’re 24% less than just eight months ago. Listings have swollen 20% from last winter, which means there’s a 15-month supply of detached houses for sale (compare that to less than 10 days in Toronto). For Bonner, this real estate slaughter could be the result of buyers retreating from too-high asking prices, plus uncertainty over politics in general and Trump in specific.

Like all other assets, houses rise and fall due to supply and demand. A year ago demand was insatiable in the Lower Mainland and supply was limited. Prices raced. The average detached topped $1.8 million. Today demand is tepid and supply is swelling. The average for a detached has plunged to the $1.4 million range. And it would appear there’s more to come.

Is Vancouver headed for 33% correction, or worse?

Source: GreaterFool Global Macroeconomics Research Dept., Real Estate Board of Greater Vancouver

Given recent price trends – even if the real estate board is fibbing and fudging and hiding behind its Frankenumbers – it would appear difficult for Vancouver to escape a 33% price reduction in this current correction. That would put it in line with the national decline that occurred in the US, and the last housing plop in the GTA more than 25 years ago. Of course, it could be far worse – if Trump imposes his Border Adjustment Tax, for example, or the province’s real estate-diddling government is replaced by the rabid socialists.

But back to the basic question: did the Chinese Dudes tax do this, as many people (like Quartz editors and the deplorables who flock to this pathetic site) believe?

Well, it helped. The best stats around show 9.9% of Van sales went to offshore buyers, a number that has now dropped by at least half. (Toronto realtors last week said fewer than 5% of sales there are to foreigners.) So when you carve out 5% of buyers, it helps destabilize everything. More consequential has been the widespread, media-fueled belief that Guangzhou titans were Hoovering up properties, creating the buy-now-or-buy-never FOMO that propelled sales and prices. In Van, that’s gone. And that’s good.

Toronto’s problem is more fundamental. A huge imbalance between supply (tiny) and demand (swelling). As prices are pushed higher, even fewer listings materialize since most people can no longer afford to sell and move. It’s a self-perpetuating vicious circle. Crap houses in questionable areas of 416 are getting 10 offers and selling for 25% above list. No conditions. Prices of detached homes from Niagara Falls to Cobourg – two hours of commuting from the core – are bloating as never before. The Vancouverization of the GTA is in full swing. And, yes, it will have the same outcome.

When and why are unknown. But don’t blame the yellow guys.

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February 5th, 2017

Posted In: The Greater Fool

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