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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

May 2, 2018 | The Big Shed

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.

For months this pathetic but prescient (and well-muscled) blog has told you Van was pooched. The market was obviously rolling over many months before the NDP decided to ride down into the valley and shoot the wounded. Market-killing taxes, measures to repel non-local investment, a wealth grab in the name of a speculation tax and higher property taxes all came at the same time Van was insanely taxing ‘empty’ houses, interest rates were rising and the mortgage stress test was arriving.

Real estate values in the LM would have corrected this year on their own. Now, thanks to Comrade Premier Horgan, we’re looking at a collapse. Ironically, it will help no one buy a house. What a fail.

This week the realtors gave their version of reality. It was a watered-down, tepid and carefully-crafted one. Overall sales fell 27% from last year, and are a fifth under the 10-year average. Meanwhile new listings surged almost 31% in a single month and total listings sit 17% above year-ago levels. Only 14% of detached houses sold, while 46% of condos found buyers. “The mortgage requirements that the federal government implemented this year have, among other factors, diminished home buyers’ purchasing power,” said the board, “and they’re being felt on the buyer side today.”

But B20 is not the only reason this once-impenetrable, FOMO-laced, delusional market is shedding. There’s so much more at stake, even as the provincial government contemplates more changes, like outlawing pre-sale condo flips, a higher foreign-buyers tax, an extra ‘luxury’ tax, ending the free-downpayment program and fatter land transfer levies.

So the official version – plunging sales and bloating listings – is bad enough. Now some other facts.

  • 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.

Here’s how our deep, secret, industry insider source puts it:

“No one truly knows the magnitude of effects of shifts in government policy, interest rate changes, tax rule changes and enforcement efforts.  However, one thing is becoming increasingly evident in Vancouver: the Fear of Missing Out is loudly muted.  For as impactful as interest rate increases and tax increases are on one’s ability to borrow and pay down debt, the psychological effects of future expectations are having a very real impact on the average person’s buying and selling behaviours. FOMO is no longer the driving force it once was.  The motivation to chase a detached house price beyond the asking price is largely dead. This is the new reality of a depressed, sagging and in some cases, bursting housing market.”

Buying in Vancouver or the LM in this environment could be financial suicide. While the central bank is reluctant to raise rates too fast with $2.1 trillion in outstanding household debt, increases are inevitable. The US Fed will continue to tighten, inflation will tick higher and the dollar will be under pressure. The Bank of Canada wants to normalize rates, and that process will ultimately take place. Given this, the Dippers running BC and the cascading market, newbie buyers stand a good chance of being crushed in the years ahead.

If rates rose 2%, a BMO report this week pointed out, a family in Ottawa now needing 16% of its gross income to service a mortgage and would have to increase that to 20%. But in Toronto or Vancouver where mortgages already eat at least half family income, a 2% rate jump would see debt charges consuming about two-thirds of their earnings. And, of course, they couldn’t pass the stress test. Or buy food.

Well, this is what an unravelling looks like. But it will not make houses easier to buy. All these taxes and government actions have increased the cost of cheaper homes while knocking down the value of unaffordable ones. They’ve punted many entry-level purchasers completely out of the market. And the significant declines now being seen in Vancouver have erased buyer confidence. People want things that go up. They’re motivated by FOMO. They flee when sales fall. Plus the economic mess politicians are now creating will most greatly impact those with the least. You’d think socialists would know that. Or care.

A one-word strategy for you, kids. Rent.

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May 2nd, 2018

Posted In: The Greater Fool

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