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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

February 5, 2019 | The Landing

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.

My, my. Imagine telling the house-horny masses in Vancouver two years ago that this was coming:

  • Overall sales tumbling 40%
  • The better part of two years’ worth of inventory sitting, waiting for buyers
  • New listings overwhelming the market – up 244% in a month.
  • Prices in the best hood in town down 14%
  • Of 100 detached homes on the market fewer than 7 selling in a month
  • The benchmark price falling $150,000, or 9% in a year
  • Over 40,000 new housing units ready to flood onto the market within two years
  • The fewest monthly transactions in a decade
  • And realtors warning, this is but the tip of the berg.

Yes, the latest stats are chilling – unless you’re BC Comrade Premier Horgan. This is precisely what the province’s NDP government has been engineering – a forced crash in a market which was already rolling over. It’s how you make a soft landing hard enough to taste your coccyx.

The Van market’s in freefall. The collapse evident in the last couple of months is picking up speed, and will accelerate from here all the way into a silent spring – perhaps the worst in living memory for rockstar realtors and latte-lubricated condo floggers. All it took was the anti-foreigner tax, the empty-house tax, the speculation tax, the uber property tax plus the mortgage stress test and higher interest rates. Who knew?

As sales crater, buyers retreat further. It’s human nature. Nobody wants to catch a falling knife. Thus, the price of detached houses (once the gold standard) is now fading by 1.4% per month, or $5,000 a week. Even condos have hit the skids, with average prices currently tumbling about 1% monthly. Most impacted, of course, have been the top-end digs, which always have a limited universe of buyers. If you’ve got six mill to spend, this is your lucky day. Or, on the other hand, you might soon have a property worth $5 million.

Of course, income is why the Vancouver market was always destined to correct, and was doing so nicely before the Dippers were elected:

 

At first the locals (who voted orange) were adamant Chinese dudes were responsible for rising prices and succumbed to FOMO, forcing valuations higher. When that was found statistically bankrupt they changed the focus to dirty money, believing every source that came along talking about hockey bags full of rolled bills being drycleaned at casinos – then laundered into suburban condos.

But this doesn’t pass the smell test. There were 36,000 property sales in 2017 and fewer than 25,000 last year. Of those over 95% were local-to-local, amounting to about $25 billion in activity in 2018. Even if money-laundering hit the $1 billion-per-year level that the Dippers allege (without proof) and if every dollar ended up in real estate (it didn’t), this would account for just 4% of annual transactions. In reality, it might be 1%, or a tenth of that amount.

Nope, the market flipped out up because of cheap money and house lust – greed. It’s crashing because of high taxes and spooked buyers – fear. Sales soared when houses cost the most ever. Now sales tumble as prices decline. Buy high. Sell low. Well, done YVR!

Well, as stated, more to come. The loss of real estate equity between, say, 2017 and 2020 will be historic. Tomorrow we will have a useful comparison with the GTA, where a housing-friendly administration was recently elected. Should prove interesting.

Meanwhile, in related news: mortgage growth at the Big Banks has just shriveled to a dried peanut 17-year low, and is down about 50% in the last 24 months. Yikes. Everybody’s blaming the stress test, of course, and there’s now a furious lobbying effort in Ottawa to have it gutted.

Earlier today the No.2 person in the regulatory office responsible for the test (OSFI) left the door open to changes. “OSFI monitors the environment on a continual basis and when we determine that adjustments to our standards and guidelines are warranted, we make them,” she said.

Not much doubt now.

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February 5th, 2019

Posted In: The Greater Fool

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