The BC Real Estate Discussion Thread

[Harvey Spector]

48 minutes ago, Warhippy said:

People continue to key in to government policy as the reason the market will collapse

 

I am wondering, from an agents perspective @Harvey Spector

 

What about the issues and now near imminent collapse of Home Capital who has lost over 2/3rds of its value in a week and is now being pegged as unable to maintain or renew tens of thousands or even hundreds of thousands of mortgages, and in the event of said collapse how the ensuing run on CMHC that is obligated to protect homeowners in Canada will affect the entire system

Reposted in Real Estate thread...

 

From what I've read the issue wasn't with the mortgages or the company itself it was with some brokers, around 45 of them, who were giving Home Capital fraudulent employment information to get mortgages approved.  This happened 3 years ago and some internal staff were fired and Home Capital stopped dealing with those brokers. However, the OSC (Ontario Securities Commission) stepped in as Home Capital is a publicly traded company and started an investigation due to Home Capital not reporting this issue as a material change in their financial matters, so the OSC sent out this statement on April 19:

 

"On April 19, OSC staff released a “statement of allegations” against the company and its three top executives. According to the OSC, Home Capital — including the highly respected Gerald Soloway — allegedly failed to adequately disclose certain “material” developments in its mortgage lending operations. They had also issued “materially misleading” information and “falsely certified” an annual report."

 

The stock, then trading at $22, was being short sold in the US by traders knowing the OSC announcement would affect the price of the stock, so in two weeks the stock price dropped to $6.  So the company is in jeopardy of going under, but not because of any of their mortgage business.  The mortgages with fraudulent info are apparently not in default,  Also, Home Capital only accounts for about 1% of Canada's mortgage business and only around 0.3% of its total mortgages are in default, so there would only be a very minor hit to CMHC if they had to cover all the losses.  But even if the company goes under those mortgages would not have to be paid out because a mortgage is actually an asset to the bank, so those mortgages if CMHC insured would just be sold off to another financial institution or packaged into an investment portfolio.  Unless the homeowner actually stops paying the mortgage there is no insurance claim filed for CMHC to pay out.  Also, remember the mortgages are fully covered by the equity in the home so if the home goes into foreclosure there will surely be enough equity to cover the defaulted mortgage.

 

I think this is a minor issue for the market.  We wouldn't be in any trouble at all as a country until prices actually crash and people start defaulting on payments.  But since prices have gone up so much in the last 5 years there is enough equity in homes to cover a 30% price reduction or more.  And as long as people are employed they will keep paying their mortgages.  The problem will come when the economy tanks, people become unemployed and then start defaulting on their mortgages.  That is when it will become worrisome.  This seems a minor blip for now.

[Warhippy]

47 minutes ago, Harvey Spector said:

Reposted in Real Estate thread...

 

From what I've read the issue wasn't with the mortgages or the company itself it was with some brokers, around 45 of them, who were giving Home Capital fraudulent employment information to get mortgages approved.  This happened 3 years ago and some internal staff were fired and Home Capital stopped dealing with those brokers. However, the OSC (Ontario Securities Commission) stepped in as Home Capital is a publicly traded company and started an investigation due to Home Capital not reporting this issue as a material change in their financial matters, so the OSC sent out this statement on April 19:

 

"On April 19, OSC staff released a “statement of allegations” against the company and its three top executives. According to the OSC, Home Capital — including the highly respected Gerald Soloway — allegedly failed to adequately disclose certain “material” developments in its mortgage lending operations. They had also issued “materially misleading” information and “falsely certified” an annual report."

 

The stock, then trading at $22, was being short sold in the US by traders knowing the OSC announcement would affect the price of the stock, so in two weeks the stock price dropped to $6.  So the company is in jeopardy of going under, but not because of any of their mortgage business.  The mortgages with fraudulent info are apparently not in default,  Also, Home Capital only accounts for about 1% of Canada's mortgage business and only around 0.3% of its total mortgages are in default, so there would only be a very minor hit to CMHC if they had to cover all the losses.  But even if the company goes under those mortgages would not have to be paid out because a mortgage is actually an asset to the bank, so those mortgages if CMHC insured would just be sold off to another financial institution or packaged into an investment portfolio.  Unless the homeowner actually stops paying the mortgage there is no insurance claim filed for CMHC to pay out.  Also, remember the mortgages are fully covered by the equity in the home so if the home goes into foreclosure there will surely be enough equity to cover the defaulted mortgage.

 

I think this is a minor issue for the market.  We wouldn't be in any trouble at all as a country until prices actually crash and people start defaulting on payments.  But since prices have gone up so much in the last 5 years there is enough equity in homes to cover a 30% price reduction or more.  And as long as people are employed they will keep paying their mortgages.  The problem will come when the economy tanks, people become unemployed and then start defaulting on their mortgages.  That is when it will become worrisome.  This seems a minor blip for now.

Beauty.  Thanks.

 

Just reading through the time line now.  One expert is approaching this as the proverbial first domino so I thought I'd ask if this could have a compounding affect on an already strained market

[Harvey Spector]

34 minutes ago, Warhippy said:

Beauty.  Thanks.

 

Just reading through the time line now.  One expert is approaching this as the proverbial first domino so I thought I'd ask if this could have a compounding affect on an already strained market

I think this is a small blip to be truthful. If it was CIBC or RBC then I'd be worried. Home Capital is just an alternative lender with about 1% market share in the mortgage business.

 

It's the equivalent of the Canucks losing Jason Megna to a season ending knee injury. 

Edited May 2, 2017 by Harvey Spector

[Gurn]

5 minutes ago, Harvey Spector said:

I think this is a small blip to be truthful. If it was CIBC or RBC then I'd be worried. Home Capital is just an alternative lender with about 1% market share in the mortgage business.

 

It's the equivalent of the Canucks losing Jason Megna to a season ending knee injury. 

Given how thin the Canucks are depth wise losing Megna would be significant.

[Warhippy]

1 hour ago, Harvey Spector said:

I think this is a small blip to be truthful. If it was CIBC or RBC then I'd be worried. Home Capital is just an alternative lender with about 1% market share in the mortgage business.

 

It's the equivalent of the Canucks losing Jason Megna to a season ending knee injury. 

So...a major blow to the PP and 1st line 5v5 unit...man that's gonna shake things up for sure.

[Harvey Spector]

1 minute ago, Warhippy said:

So...a major blow to the PP and 1st line 5v5 unit...man that's gonna shake things up for sure.

It's a catastrophe waiting to happen really...

[Harvey Spector]

B.C. Election 2017: Political parties make promises for affordable housing

With housing affordability rating as a top election issue for B.C. voters, political parties have offered a number of promises to tackle sky-rocketing housing costs.

 

The party that wins the May 9 election will have its work cut out for it.

 

The average price for a detached house in the City of Vancouver is $2.6 million. Across Metro Vancouver, the average single-family home costs $1.5 million. Real estate experts say prices are now rising in other B.C. cities, as workers priced out of Metro Vancouver, or home-sellers enjoying windfall gains, leave the Lower Mainland and buy homes elsewhere.

 

The B.C. Liberals, NDP, and Greens all agree that supply of new homes in B.C. must be significantly increased in order to improve affordability. But the parties have come to different conclusions on how to increase supply, and how to police speculative demand. 

 

Here is a breakdown of party proposals, in three areas:

 

FOREIGN BUYERS AND SPECULATION

 

The B.C. Liberals introduced a 15 per cent foreign buyers tax in Aug. 2016 to calm property speculation in Metro Vancouver and have since announced that foreign buyers that are certified to work in B.C. are now exempt from the tax. Vancouver realtor Steve Saretsky said whether the B.C. Liberals, if re-elected, will cut or reduce the tax is the subject of speculation in the real estate industry.

 

Ministry of Finance spokesman Jamie Edwardson said the foreign buyers tax has helped moderate prices and create conditions that will allow housing supply to catch up to demand. Edwardson would not confirm whether the government plans to eliminate or reduce the tax.

 

”If you listen to (the B.C. Liberals’) language there is a bit of ‘the market was crazy, the tax has done what it is intended to do’,” UBC real estate economist Tom Davidoff said. “So if they win again, of course there is the chance the tax changes. To not see that as a possible affordability factor, I think would be crazy.”

 

The NDP would keep the 15 per cent foreign buyers tax but add a two per cent property tax surcharge on the assessed home values of property owners who do not pay tax in Canada on global incomes. NDP housing critic David Eby said his party would also close a “loophole” that allows offshore speculators to buy and flip condo pre-sale contracts.

 

The B.C. Greens promise to attack speculation, money laundering and tax evasion that they believe is connected to offshore investment in B.C. real estate. 

 

The party will increase the foreign buyers tax to 30 per cent and make it provincewide, Green housing affordability spokesman David Wong, a rookie candidate in East Vancouver, told Postmedia News.

 

The Greens would also eliminate property transfer taxes for sales on housing units that cost less than $200,000, but for others increase the tax on a sliding scale to a high of 12 per cent. For example, the sale of a $3.5-million home would net $83,000 in transfer taxes today but the tax would rise to $236,000 under the Greens plan.

 

The Greens would also add a tax on a home seller’s lifetime capital gains over $750,000, if they sell a home before five years of occupancy, Wong said.

 

NEW SUPPLY

 

The B.C. Liberals want to streamline building regulations so that developers can build more multi-family dwellings faster, and says it will work with municipal governments to make that happen.

 

The party has promised $920 million to create 5,300 new units of affordable rental housing, and says the homes will be aimed at B.C.’s poorest citizens.

 

The NDP promises to build 114,000 affordable rental, non-profit and co-op housing units over 10 years, and to expand provision of social housing from the poor to middle class workers who have been priced out of B.C. cities, Eby says.

 

The Greens will spend $750 million per year building and renovating social housing, to construct about 4,000 affordable housing units per year. 

 

RENTAL HOUSING

 

The B.C. Liberals promise to expand a home renovation tax credit plan to provide up to $20,000 to allow homeowners to build rental suites. The program will help homeowners pay down mortgages and increase rental supply, the party says.

 

The NDP has offered a $400 rebate for each renter household, and the party estimates the annual cost of the rebate will be $200 million. The party will also allow municipalities to create zoning where only rental housing can be built. Both the NDP and Greens promise to increase protections for renters.

 

http://vancouversun.com/news/local-news/the-province-housing-promises

[Harvey Spector]

The Green Party has the best proposal to completely tank the market. Increase the foreign buyers tax to 30% across all of BC and increase the property transfer tax up to 12% on high end homes. This will increase revenues from the rich while stopping some people from splashing the cash on higher end homes. It could significantly affect prices on the higher end in Vancouver West and have a trickle down affect on the lower priced homes in East Van, Burnaby and Coquitlam. 

 

Too bad the Green Party won't get in. Christy is pretty much toast and the NDP's plan is not aggressive enough and to be quite frank I don't really trust them running the Province. 

 

What a dilemma we are in. Lots of pain moving forward. 

[Harvey Spector]

FACT CHECK: NDP plan to build 114,000 homes in 10 years 'incredibly unrealistic' say critics

Plan requires federal cash, free municipal land and fast-tracked rezoning

John Horgan stood in front of a modest $1.2 million Burnaby home last week and told struggling families that he will help them to be able to afford housing in B.C., with an ambitious plan critics are calling 'unrealistic.'

 

"Our plan calls for 114,000 new units to be built over the next 10 years. Co-op housing, rent purpose housing, not-for- profit housing and market based housing," said Horgan.

 

A pregnant woman holding a baby told him that being able to afford a home with a backyard "would be a game changer"  for her family."  

 

"Help is on the way," he replied.

But that help requires a lot of external factors to go Horgan's way should the NDP form government. And few, if any, of the promised homes will be single family dwellings with yards.

 

"The whole continuum of housing has been neglected by the B.C. Liberals," said Horgan, when he announced what would be the biggest housing program in BC history.

 

"The cost of that is staggering. It's billions of dollars over the number of years. Where's that money going to come from?" asked Anne McMullen, the president of the Urban Development Institute, which represents developers.

"It might sound good, but when you scratch below the surface I don't know how realistic it is," said McMullen, pointing out that 14 thousand homes are already being built every year in the Lower Mainland.

 

"Is the government going to take all that over?" McMullen wonders.

 

NDP plan depends on other governments

The CBC fact check team consulted several housing experts who identified three hurdles in Horgan's plan:

 

• The federal government would have to pay one third.
• Municipalities would have to donate hundreds of building sites.
• The rezoning process would have to be fast-tracked

 

The NDP platform includes building 7,000 rental homes a year for 10 years, plus "housing for students, singles, seniors and families, ranging from supported social housing to quality, market rental housing."

 

"Why the government should be in the business of building market housing is beyond me," said Tsur Somerville, the director of UBC's Centre for Urban Economics and Real Estate.

 

Somerville questions the need for so many homes, when there are only 15,000 people on B.C. Housing's wait list.

"I think that's a really, really hard case to make," he said.

 

"That's a phenomenal amount of money for a really large number of units. You're talking about the over-doubling of the existing stock of affordable housing," said Somerville.

 

Cost of NDP housing promise

The NDP platform does not say what its housing plan will cost.

 

"Billions to build, hundreds of millions to operate  and maybe billions of dollars in city land, plus a construction industry that is already running at full tilt," said Jordan Bateman, former Canadian Taxpayers Federation spokesperson, and now communications directors with the Independent Contractors and Businesses Association of B.C.

 

"It is an incredibly unrealistic plan," said Bateman.

 

Somerville estimates it will cost at least $15 billion, if they can find Crown land and $30 billion if land must be purchased.

"Even at $200,000 each, that's $22 billion worth of construction, none of which is costed in the platform," said Bateman.

Last year, the B.C. government said its plans to build 2,000 affordable homes over five years would cost $355 million or $177,500 per unit.

 

$27 billion based on recent example

CBC's fact check team looked at a recent example to get a more realistic figure on the cost of social housing.

 

The cost per unit to build a 108-unit building at the corner of Abbott and Pender Street in Vancouver is $238,000 and most of the homes were just 324 square feet.

 

The land was donated by the City of Vancouver to the Atira Women's Resource Society.

 

At that price, Horgan's plan would cost $27 billion.

 

CBC requested the NDP's costing of the platform.

 

"The Rental Housing Coalition estimates a provincial contribution of $400 million a year to build supply," said a statement from the party.

 

The NDP says it based its housing plan on a report issued by the coalition last month.

 

Where will land come from?

The province has little Crown land in urban centres, according to a 2010 government report.

 

"We're going have to work very closely and very aggressively with municipalities," said Kishone Tony Roy, CEO of the B.C Non Profit Housing Association and former constituency assistant to Christy Clark.

 

Roy is pleased the NDP is taking the advice of housing advocates and he expects cities and the federal government will partner with the province and the non-profit groups that he represents.

 

"We can come up with a third of it, as well our own members own a lot of land. They have buildings that can be densified and we can raise money," said Roy.

 

"The NDP plan is a very credible long-term plan to solve the affordable housing crisis."- Kishone Roy, B.C. Non Profit Housing Association

"The NDP plan is a very credible long- term plan to solve the affordable housing crisis ... solve homelessness," said Roy.

He says it's a new model for building homes, where the province and Ottawa pay up front capital costs and non-profits carry mortgages and cover most of the operating costs.

 

http://www.cbc.ca/beta/news/canada/british-columbia/fact-check-ndp-plan-to-build-114-000-homes-in-10-years-incredibly-unrealistic-say-critics-1.4091560

[Harvey Spector]

 

May 2, 2017

Condominiums and townhomes in high demand across Metro Vancouver Demand for condominiums and townhomes continues to drive the Metro Vancouver* housing market.   Residential property sales in the region totalled 3,553 in April 2017, a 25.7 per cent decline compared to April 2016 when 4,781 homes sold and a 0.7 per cent decrease from the 3,579 sales recorded in March 2017.   April sales were 4.8 per cent above the 10-year average for the month.   For the first four months of the year, condominium and townhome sales have comprised a larger percentage of all residential sales on the Multiple Listing Service® (MLS®) in Metro Vancouver. Over this time, they’ve accounted for 68.5 per cent, on average, of all residential sales. This is up 10 per cent from the 58.2 per cent average over the same period last year.   “Our overall market is operating below the record-setting pace from a year ago and is in line with historical spring levels. It’s a different story in our condominium and townhome markets," Jill Oudil, Real Estate Board of Greater Vancouver (REBGV) president said. “Demand has been increasing for months and supply is not keeping pace. This dynamic is causing prices to increase and making multiple offer scenarios the norm.”   New listings for detached, attached and apartment properties in Metro Vancouver totalled 4,907 in April 2017. This represents a decrease of 19.9 per cent compared to the 6,127 units listed in April 2016 and a three per cent increase compared to March 2017 when 4,762 properties were listed.   The total number of residential properties currently listed for sale on the MLS® system in Metro Vancouver is 7,813, a 3.5 per cent increase compared to April 2016 (7,550) and a three per cent increase compared to March 2017 (7,586).   The sales-to-active listings ratio for April 2017 is 45.5 per cent for all property types. This is two per cent below March 2017 and is indicative of a sellers’ market. Generally, analysts say that downward pressure on home prices occurs when the ratio dips below the 12 per cent mark for a sustained period, while home prices often experience upward pressure when it surpasses 20 per cent over several months.   By property type, the sales-to-active listings ratio is 26 per cent for detached homes, 58.2 per cent for townhomes, and 82.2 per cent for condominiums.   “Until more entry level, or ‘missing middle’, homes are available for sale in our market, we’ll likely continue to see prices increase,” Oudil said. “There’s been record building this past year, but much of that inventory isn’t ready to hit the market.”   The MLS® Home Price Index composite benchmark price for all residential properties in Metro Vancouver is currently $941,100. This represents a five per cent increase over the past three months and an 11.4 per cent increase compared to April 2016.   Over the last three months, the benchmark price of condominiums has seen the largest increase in the region at 8.2 per cent, followed by townhomes at 5.3 per cent, and detached homes at 2.8 per cent.   “Home buyers are looking to get into the market and they’re facing fierce competition,” Oudil said. “It’s important to work with your local Realtor to help you navigate today’s marketplace.”   Sales of detached properties in April 2017 reached 1,211, a decrease of 38.8 per cent from the 1,979 detached sales recorded in April 2016. The benchmark price for detached properties is $1,516,500. This represents an 8.1 per cent increase over the last 12 months and a 1.8 per cent increase compared to March 2017.   Sales of apartment, or condominium, properties reached 1,722 in April 2017, a decrease of 18.3 per cent compared to the 2,107 sales in April 2016.The benchmark price of an apartment property is $554,100. This represents a 16.6 per cent increase over the past 12 months and a 3.1 per cent increase compared to March 2017.   Attached, or townhome, property sales in April 2017 totalled 620, a decrease of 10.8 per cent compared to the 695 sales in April 2016. The benchmark price of an attached unit is $701,800. This represents a 15.3 per cent increase over the past 12 months and a 2.4 per cent increase compared to March 2017.

[wiseupsucker]

so just a small story here. my father listed his house in north delta less than a week ago for 880 000. on tuesday it sold for 981 000. 101k over asking price no conditions, no restrictions.

 

good for him...

 

 

[Harvey Spector]

 

[Chicken.]

On ‎2017‎-‎05‎-‎04 at 5:45 AM, wiseupsucker said:

so just a small story here. my father listed his house in north delta less than a week ago for 880 000. on tuesday it sold for 981 000. 101k over asking price no conditions, no restrictions.

 

good for him...

 

 

What did he buy it for if you don't mind sharing..

[Harvey Spector]

'The worst scenario': What if Canada's real estate bubble bursts? 

A repeat of Toronto's 1989 crash could have devastating effects on the entire economy

It's the question lingering behind every headline. It's whispered among homeowners, would-be buyers and sellers, economists and policy-makers. What actually happens if Canadian real estate prices crash?

 

On the one hand, a crash might be good for some Canadians already priced out of the market. And even a dramatic 40 per cent drop in prices would set homeowners in markets like Toronto or Vancouver back, what, two or three years?

 

But there are broader concerns for the market and the economy itself that could prove devastating.

 

Home prices are notoriously off the charts. Everyone from the governor of the Bank of Canada to the chatty guy in your local cafe has said, repeatedly, that this increase in prices is not sustainable. But what that means, precisely, is vague.

 

The latest numbers from the Canadian Real Estate Association show the average home price in Canada climbed by 10 per cent to $559,317 in April. Notably, the number of sales in Toronto's red-hot market fell by almost seven per cent but prices continued to rise. 

 

No one is saying the end is nigh. Most are still banking on that ambiguous "soft landing" policy-makers have talked about for years. But, for the sake of argument and for a better understanding of the risks, let's talk about what a real crash would look like.

 

First of all, what is a real crash? Think Toronto in 1989. Prices fell off a cliff. The average cost of a home in Toronto hit a whopping $273,698, a 30-year high. Then the bottom fell out.

 

By 1996, that average had fallen to $198,150. (Yes, you read that right, you could buy a home in Toronto for a mere fraction of the $920,000 it costs today.)

Like then, some owners would be largely unaffected by a crash today. Someone who isn't going to move and has a lot of equity in the house would be set back, but given the enormous increase in house prices (33 per cent in 2016), they would have something of a cushion.

 

But housing isn't just about prices. And that's never more evident than during a downturn.

 

"I think the most important thing is the impact on the composition of economic growth," says Karl Schamotta, director at Cambridge Global Payments. He says for 17 years, Canadian real estate, retail finance and construction sectors have significantly outpaced the rest of the economy. That cycle has fed on itself.

"Rising loan volumes and attractive spreads have bolstered the finance sector. Driven by more lending, home prices have risen, allowing households to borrow more money and spend more in the retail sector," says Schamotta.

 

Were that cycle to stop or suddenly slow, the impact would stretch far beyond Toronto's overheated housing circus.

 

Hurting the entire economy

Joblessness would spike, and it would be made worse by people's reluctance to move for work because they are tied to monster mortgages for homes worth less than they paid, Schamotta says.

That would be bad for productivity, but it would also make Canada's entire economy less able to react to global changes. And the loonie would likely fall, too, hurting imports while boosting exports.

 

And even those homeowners who have equity in their homes and don't plan on leaving wouldn't be immune.

 

Benjamin Tal, deputy chief economist at CIBC World Markets, says the important question isn't how far prices would fall, but why they fell in the first place. If prices fell because Toronto's well established supply issue was sorted out, that could actually prove positive for the economy.

But if they fell as a result of a quick rise in interest rates, as happened in the United States in 2006, the impact could be severe. 

 

"The higher interest rate environment would lead to a significant increase in debt financing as opposed to other spending," says Tal. That would require people to spend more covering their mortgage and leave them with less to spend elsewhere in the economy.

 

"Then you get into a consumer-led recession. And this would lead to increased unemployment and people defaulting and continued decline in prices. That's the worst scenario."

 

A cascading correction?

The wealth effect is an economic theory that for every increase in wealth there's a disproportionate increase in spending. In housing terms, that means that for every one per cent increase in prices, we usually see spending go up about five per cent. Tal says the reverse is also true, that for every one per cent fall in prices, people spend disproportionately less.

Based on this theory, it's not hard to see why a double-digit correction in prices could cascade through other parts of the economy, "and that can feed on itself," says Tal.

 

On the upside, just about everyone agrees that nightmare scenario is still unlikely. Prices are slowing in Toronto and Vancouver. And Tal says one big difference between today's situation and the U.S. housing crash is that everyone in this country is trying to slow down the market.

 

"It's banks, even developers, clearly policy-makers. You don't have the situation where banks are seeing green and trying to maximize profits. In fact they are really trying to slow it down. Regulators are trying to slow it down and more is coming."

 

http://www.cbc.ca/beta/news/business/peter-armstrong-housing-bubble-crash-1.4115628

[-DLC-]

Went to the Richmond Council meeting last night.  It was packed...agenda item included the bylaw proposals to address mega homes on farmland.  

 

Meeting ended at 1 AM.  Still isn't done...to be cont'd on Wednesday.

 

Some great presentations...others, not so much.  Mostly by farmer realtors declaring they "needed" bowling alleys and other amenities in their house because...get this

 

"safety"?!!??

 

Citing no sidewalks, buses, etc.  So their children have no nearby or accessible playgrounds, activities, etc.  

 

Seriously.  They don't drive?  Grocery shop?  Send their kids to school?   Come on, try harder.....

 

Anyhow, will be interesting to see how this vote goes.  As speculators are skirting around the 15% tax through farmland, it's a no brainer that it needs a review.

 

Will keep you posted....

[taxi]

2 hours ago, Harvey Spector said:

'The worst scenario': What if Canada's real estate bubble bursts? 

A repeat of Toronto's 1989 crash could have devastating effects on the entire economy

It's the question lingering behind every headline. It's whispered among homeowners, would-be buyers and sellers, economists and policy-makers. What actually happens if Canadian real estate prices crash?

 

On the one hand, a crash might be good for some Canadians already priced out of the market. And even a dramatic 40 per cent drop in prices would set homeowners in markets like Toronto or Vancouver back, what, two or three years?

 

But there are broader concerns for the market and the economy itself that could prove devastating.

 

Home prices are notoriously off the charts. Everyone from the governor of the Bank of Canada to the chatty guy in your local cafe has said, repeatedly, that this increase in prices is not sustainable. But what that means, precisely, is vague.

 

The latest numbers from the Canadian Real Estate Association show the average home price in Canada climbed by 10 per cent to $559,317 in April. Notably, the number of sales in Toronto's red-hot market fell by almost seven per cent but prices continued to rise. 

 

No one is saying the end is nigh. Most are still banking on that ambiguous "soft landing" policy-makers have talked about for years. But, for the sake of argument and for a better understanding of the risks, let's talk about what a real crash would look like.

 

First of all, what is a real crash? Think Toronto in 1989. Prices fell off a cliff. The average cost of a home in Toronto hit a whopping $273,698, a 30-year high. Then the bottom fell out.

 

By 1996, that average had fallen to $198,150. (Yes, you read that right, you could buy a home in Toronto for a mere fraction of the $920,000 it costs today.)

Like then, some owners would be largely unaffected by a crash today. Someone who isn't going to move and has a lot of equity in the house would be set back, but given the enormous increase in house prices (33 per cent in 2016), they would have something of a cushion.

 

But housing isn't just about prices. And that's never more evident than during a downturn.

 

"I think the most important thing is the impact on the composition of economic growth," says Karl Schamotta, director at Cambridge Global Payments. He says for 17 years, Canadian real estate, retail finance and construction sectors have significantly outpaced the rest of the economy. That cycle has fed on itself.

"Rising loan volumes and attractive spreads have bolstered the finance sector. Driven by more lending, home prices have risen, allowing households to borrow more money and spend more in the retail sector," says Schamotta.

 

Were that cycle to stop or suddenly slow, the impact would stretch far beyond Toronto's overheated housing circus.

 

Hurting the entire economy

Joblessness would spike, and it would be made worse by people's reluctance to move for work because they are tied to monster mortgages for homes worth less than they paid, Schamotta says.

That would be bad for productivity, but it would also make Canada's entire economy less able to react to global changes. And the loonie would likely fall, too, hurting imports while boosting exports.

 

And even those homeowners who have equity in their homes and don't plan on leaving wouldn't be immune.

 

Benjamin Tal, deputy chief economist at CIBC World Markets, says the important question isn't how far prices would fall, but why they fell in the first place. If prices fell because Toronto's well established supply issue was sorted out, that could actually prove positive for the economy.

But if they fell as a result of a quick rise in interest rates, as happened in the United States in 2006, the impact could be severe. 

 

"The higher interest rate environment would lead to a significant increase in debt financing as opposed to other spending," says Tal. That would require people to spend more covering their mortgage and leave them with less to spend elsewhere in the economy.

 

"Then you get into a consumer-led recession. And this would lead to increased unemployment and people defaulting and continued decline in prices. That's the worst scenario."

 

A cascading correction?

The wealth effect is an economic theory that for every increase in wealth there's a disproportionate increase in spending. In housing terms, that means that for every one per cent increase in prices, we usually see spending go up about five per cent. Tal says the reverse is also true, that for every one per cent fall in prices, people spend disproportionately less.

Based on this theory, it's not hard to see why a double-digit correction in prices could cascade through other parts of the economy, "and that can feed on itself," says Tal.

 

On the upside, just about everyone agrees that nightmare scenario is still unlikely. Prices are slowing in Toronto and Vancouver. And Tal says one big difference between today's situation and the U.S. housing crash is that everyone in this country is trying to slow down the market.

 

"It's banks, even developers, clearly policy-makers. You don't have the situation where banks are seeing green and trying to maximize profits. In fact they are really trying to slow it down. Regulators are trying to slow it down and more is coming."

 

http://www.cbc.ca/beta/news/business/peter-armstrong-housing-bubble-crash-1.4115628

With increased property prices, comes increased rent. The absurd amount of money people and businesses are spending on rent is stifling the economy more than any decreased in property prices ever would.

 

You also have to look at who actually owns the homes....sorry we call it "wealth" now. Increasingly, it's not people who are actually living and working in the city. 

[ronthecivil]

On ‎5‎/‎2‎/‎2017 at 11:54 AM, Harvey Spector said:

The Green Party has the best proposal to completely tank the market. Increase the foreign buyers tax to 30% across all of BC and increase the property transfer tax up to 12% on high end homes. This will increase revenues from the rich while stopping some people from splashing the cash on higher end homes. It could significantly affect prices on the higher end in Vancouver West and have a trickle down affect on the lower priced homes in East Van, Burnaby and Coquitlam. 

 

Too bad the Green Party won't get in. Christy is pretty much toast and the NDP's plan is not aggressive enough and to be quite frank I don't really trust them running the Province. 

 

What a dilemma we are in. Lots of pain moving forward. 

If we have an NDP/Green coalition we will have the duel taxes and economic slowdown to have the tank your referring to. My fear is that we may not get out of an negative reinforcement mechanism like that for a LONG time. Look how the US housing situation is. Has it truly recovered?

 

Canada's, and especially BC's prices, are even more out of whack from incomes than the US was at their worst.

 

Be careful what you wish for.

[Harvey Spector]

 

[Harvey Spector]

Gordon Clark: New real estate taxes only created new problems

 

I’m not generally inclined to say “I told you so,” but the last few days have been quite validating for those of us who cautioned against government intervention through taxation in the Vancouver housing market. As most people know, the provincial government introduced a 15-per-cent property transfer tax on foreign buyers in August and Vancouver city council passed the empty homes tax, which also targets a lot of foreign buyers.

 

The taxes were designed to directly and indirectly improve housing affordability in Metro Vancouver, which suffers from the highest house prices and rents in the country. At first, the foreign buyers tax appeared to work in removing non-local money from Metro’s real-estate market and cooling prices.

 

But recent reports show that whatever effect it had has almost disappeared, with Statistics Canada reporting this week that Vancouver prices are rising again, and the Canadian Real Estate Association saying that prices are back above where they were in August. While we don’t know for certain where the market would be without the new taxes, prices are almost back to where they were when they were introduced. The Vancouver market is no more affordable than it was last summer, in fact rising 11.4 per cent from a year ago, according to an RBC Economics report.

 

Worse, RBC says, “the cooling effect of housing measures implemented last year may be wearing off in Metro Vancouver” and that prices will continue to rise this summer. RBC said “resales rose strongly by 15.6 per cent month-over-month” in April, the third month that has happened and a sign that the market is picking up.

And the foreign buyers tax had other consequences.

 

The tax — which only applied to Metro Vancouver, stretching from Lions Bay to the Langleys — caused home prices to soar in the Fraser Valley, the one region where people with normal incomes had a fighting chance of owning a home.

 

According to the Fraser Valley Real Estate Board, sales in the region last month were the highest in 10 months, with the benchmark price for detached homes up 14.5 per cent in April from a year ago to $776,500, while the numbers had risen 26.2 per cent to $353,300 for townhomes and up 29.8 per cent to $219,900 for apartments. Those sound like the rise in prices in Vancouver a year ago, suggesting that the tax has only moved the affordability crisis, rather than solved it.

 

If the tax was supposed to help young families just starting out, its impact in the Fraser Valley has been devastating.

 

Other unintended consequences of the tax have also become clear. For one, the tax spooked sellers, with Metro Vancouver homeowners pulling their properties off the market, fearing lower prices. That led to pent-up demand — more buyers chasing fewer listing, driving up prices.

 

It also pushed investors and their money to other markets beyond the Fraser Valley. Toronto and Victoria placed first and second on a list of the world’s “hottest” luxury markets released last week by Christie’s International Real Estate and Chestnut Park Real Estate of Toronto.

 

Victoria “saw significant growth from affluent international buyers who were deterred by Vancouver’s new 15-per-cent foreign buyers tax,” the report noted, meaning the tax just hurt people trying to buy homes there.

 

House prices in Toronto are up 32 per cent year over year, according to the Canadian Real Estate Association. And Seattle has had the “hottest real-estate market” in the U.S. for sixth months, with median home prices in King County last month climbing above $600,000 US for the first time, 15.7 per cent higher than a year ago, according to Seattle Times reports.

 

Some of the money from outside the region that was being invested in Vancouver, where it would also bring people who would contribute to the economy in other ways, has shifted elsewhere as a result of the tax.

 

These unintended consequences are typical of ham-fisted government interventions in markets. With house prices heading to new heights again in Metro Vancouver and in formerly more affordable areas like the Fraser Valley and Victoria, it’s hard to argue that the tax has been a success. It has just created different winners and losers than if the market were left alone.

 

With the NDP and Greens pushing for more real estate taxes, more of these problems are guaranteed.

 

gclark@postmedia.com

 

http://theprovince.com/opinion/columnists/gordon-clark-new-real-estate-taxes-only-created-new-problems

[Harvey Spector]

Sky-high condo prices aren’t a supply problem

Have you heard the one about how supply is going to solve the great Canadian housing crisis?

 

If you've listened to the real estate industry or our political leaders, you likely have. A lack of supply is the great culprit behind soaring prices and the lack of affordable homes. Just build more condo towers and presto, problem solved.

 

Well, they're building them in Metro Vancouver and Greater Toronto – lots of them. The Onni Group is now marketing a building in downtown Vancouver with units starting at $1.7-million. Another developer, Intracorp, is advertising Belpark, on the city's west side, where you can get a two-bedroom, plus a den for $1.5-million. And on it goes.

 

These prices are not dissimilar to what people are being asked to pay for the stock going up in downtown Toronto.

 

This is the so-called supply that is going to solve our housing crisis.

 

The truth is the problem of high costs, and access to reasonably priced accommodation in our two major cities is not being addressed. That is a simple fact. People will say that the condo towers I highlighted are in downtown Vancouver, so what do you expect? Well, the fact is those prices set a standard for the region. They are driving up the cost of housing miles away.

 

The Canada Mortgage and Housing Corp. sounded this alarm just this month in a new report. "Increases in home prices in the city of Vancouver had a spillover effect in surrounding British Columbia municipalities," the corporation said. And that effect was "measurable," it reported.

 

The same thing is undoubtedly happening in Toronto.

 

Here is the other brutal reality about the great supply argument: vast swaths of these units are being built and presold to foreign purchasers. These buyers, in turn, are either flipping the properties for a profit before they are even finished or hanging on to them as safe investments and renting them out. Sure, that might help bolster the rental stock, but why are locals who earn incomes in Canada and pay taxes here being shut out from buying these homes?

 

The problem is this type of foreign-investment activity is helping drive up prices. Everyone knows it and yet little is being done about it. Some of these offshore purchasers are, in fact, flipping the condos for a profit before final sale and avoiding paying the 15-per-cent foreign-buyers tax in the process.

 

No, there is lots of "supply" in Vancouver and Toronto. That isn't the issue. It's who's getting access to that supply that is a big part of the problem. And it's also the type of "supply" being built.

 

Many of the condos being constructed are designed to be purchased by wealthy investors, the Lamborghini crowd. They aren't being built for a couple of young professionals starting a family. Not unless you consider $1-million for 1,000-square-feet on the 10th floor of a tower in suburban Burnaby, B.C., reasonable. No, somehow, some way, governments need to encourage developers, through incentives or whatever it takes, to start building housing that the middle class can afford.

 

Right now, developers are getting everything their way. They are putting pressure on local politicians to speed up the approval process so they can erect more towers, more quickly, but they are doing nothing – nothing – about the costs of the units they are constructing. In fact, you could argue they are engaging in activity that is helping ensure the costs keep going up.

It's ridiculous.

 

I understand that governments are reluctant to intervene in the normal ebb and flow of the market place. That is why the 15-per-cent foreign-buyers tax applied in Vancouver and Toronto was seen to be so controversial. But governments did it because they have an overriding obligation to the people they represent.

 

Right now, not enough is being done to protect the interests of average citizens as it concerns access to reasonably priced housing. The foreign-buyers tax had a momentary impact on prices in B.C.; now they are starting to escalate again, especially condos, which young people have been told is their housing of the future. Forget a detached home. So what is happening?

 

No, the great supply argument is a myth, a dodge. It is not solving anything. On housing, our political leaders continue to fail us.

 

https://beta.theglobeandmail.com/opinion/sky-high-condo-prices-arent-a-supply-problem/article35091277/?ref=http://www.theglobeandmail.com&utm_source=facebook.com&utm_medium=Referrer%3A+Social+Network+%2F+Media&utm_campaign=Shared+Web+Article+Links