Baby, we got a bubble!?

[mig174]

better late than never.

 

[James]

That said, the elimination of self-regulation alone will not improve housing affordability. Here's a good opinion piece in the Globe and Mail today:

Ending self-regulation in Vancouver real estate won’t solve the market crisis
ANDREY PAVLOV AND TSUR SOMERVILLE

Andrey Pavlov is a professor of finance at the Beedie School of Business, Simon Fraser University. Tsur Somerville is associate professor at the UBC Centre for Urban Economics and Real Estate

"To improve affordability, both governments and we, the public, have to make changes that address each of the different contributing factors to current market conditions: foreign capital, local demand, and constraints on supply."

Full article: http://www.theglobeandmail.com/opin...wont-solve-the-market-crisis/article30739247/

 

[James]

TREB's latest stats for May 2016 are out.

Article: http://www.trebhome.com/market_news/market_watch/
Full Report: http://www.trebhome.com/market_news/market_watch/2016/mw1605.pdf

The overall year-over-year trend of increased number of sales amidst fewer and fewer listings continued for the month of May. The number of condo sales increased over 20% year-over-year across the GTA. Meanwhile, detached home prices surged between 15%-20%. Overall number of sales has increased 10.6% while active listings decreased by 30.4%. Days on the market also decreased 16.7%. The Toronto real estate market is like a runaway train.

 

[BMyers]

"To improve affordability, both governments and we, the public, have to make changes that address each of the different contributing factors to current market conditions: foreign capital, local demand, and constraints on supply."

Full article: http://www.theglobeandmail.com/opin...wont-solve-the-market-crisis/article30739247/

Land supply constraints is the biggest factor. Natural constraints like water, mountains, are huge as are zoning restrictions in housing price appreciation. These often lead to more NIMBYism and the cartelization of land ownership: https://fortressrealdevelopments.com/news/take-advice-housing-professionals-not-amateurs/

 

[Migos]

OSFI to tighten supervision of mortgage underwriting
http://www.theglobeandmail.com/repo...ervision-of-mortgage-lending/article30785896/

However, the watchdog is pledging to keep a tighter grip by “enhancing its supervisory scrutiny.” And it is extremely rare for the regulator to be so open about its concerns. Any worries OSFI has are typically kept secret and dealt with behind closed doors.

OSFI is worried because the toxic combination of persistently low interest rates, record levels of household debt and rapidly increasing house prices in areas such as Greater Vancouver and Toronto “could generate significant loan losses if economic conditions deteriorate.”

To crack down, the regulator will give extra scrutiny to a few key areas of lending: income verification, non-conforming loans, debt service ratios and appraisals.

OFSI sounds worried about liar loans...wait I thought that only happened in the U.S.?

 

[good_times]

This is not a problem that is unique to Toronto and Vancouver. Every major city, New York, London, Singapore, Tokyo etc. has the same problem....

The only reason the government is considering getting involved is because some middle-class Canadians are saying "Twenty years ago we could have bought a house in High Park and paid it off in less than thirty years, now we can't. Do something about it." ... If they want to live in the Toronto or Vancouver markets they need to downsize or look to less desirable neighbourhoods. While it may make individual home buyers unhappy - from a societal point-of-view I don't think either of those are a necessarily bad things.

Excuse the [...] but wanted shorten the quote. The problem with this is that rising property prices, at a certain point, lead to residents being forced to live far from where they work, which is the precise opposite of current planning policy calling for complete communities, and people living within walking/cycling distance of work.

Look at London. I've copied a link below to property listings in Northwest London. This area is easily an hour from Central London by transit, yet you're looking at a bare minimum of £425,000 for a pretty rough townhouse, and more like 800k on average. Even £425,000 is unaffordable for most professionals even in their 30's. You can find cheaper in Essex... but it's Essex.

http://goo.gl/T45Dnn

As a consequence, people are moving further into the surrounding areas, even as far as Birmingham, which is completely nuts, and the government are building high speed commuter trains into London. I can assure you that the average London commute, although by train, is still an hour plus each way. This is the way TO is heading, with people moving to Hamilton, Oshawa, Barrie, etc. and commuting by GO. Instead of being stuck in traffic on the 401 they're stuck on a train.

Left unchecked this situation will only get worse. The income level where you are priced out of Greater London is much higher than in Toronto. If Toronto continues to head in this direction a lot of people who are thrilled about Toronto becoming an international city on the same level as London, Tokyo, etc. will change their tune very quickly.

 

[narduch]

Great post good_times.

This really is a big problem we are facing but is totally under the radar.

The housing prices are insane and its pushing people past Toronto's traditional suburbs. People can't even afford to live in Vaughan or Mississauga or Ajax anymore, so they look to places like Tottehnam. People are even moving to the regions south and west of Hamilton and still working in Toronto.

 

[digitalis]

Foreign nationals account for 5% of Metro Vancouver home sales...
http://theprovince.com/news/local-n...ome-ownership-info-collected-over-three-weeks

This is only 3 weeks of data, but it's a start. It seems permanent residents are being included with citizens, so it really doesn't pull out data about housewives/students who get PR and then purchase a house with foreign money (along with no intention of working or producing for the economy).

Interesting to note that Richmond is showing 14%!

 

[Bill123]

Lets compare foreign percentage of sales to yearly price increases from May 2015 to May 2016:

Richmond: 14% foreign sales sees +45% (http://www.rebgv.org/home-price-index)
Burnaby: 11% Fsales sees +39.5% (http://www.rebgv.org/home-price-index, I just averaged all the 3 Burnaby regions)
Surrey: 3% Fsales sees +26% (http://www.fvreb.bc.ca/statistics/Package 201605.pdf)

Kinda confused as to what the difference is between City of Vancouver and Metro Vancouver...someone else care to do those regions?

It looks like for every 3% in foreign sales there is around 4.5-5% increase in prices. Very interesting!!! I am pretty surprised this is so linear. So I went ahead and made a graph.

Assuming causation, every 3% in foreign sales creates ~21.4% increase in the increase of home prices (4.5/21, I get the number 21 from extrapolating).

(x = Fsales percentage, y = Price Increase in Percentage May 2015 to May 2016)

Observations:
1. 0% Fsales ---> ~+21% PI
2. "Sane, textbook economics price increases (should follow inflation)": +1.5%PI (CPI May 2015- May 2016) <--- ~-11.5% Fsales (Is a negative Fsales even possible?)

Having just this years info on foreign sales is something but its not much on its own, we need some past data. It would be interesting to find similar data on Toronto as well.

 

[Migos]

Don't forget these foreign stats exclude things like PRs buying home but income is offshore (i.e. typical housewife or student living in Vancouver claiming no income while husband is making millions overseas) and numbered shell companies buying houses on behalf of foreigners.

 

[digitalis]

Canada Revenue Agency launches Vancouver housing probe
http://www.theglobeandmail.com/real...ches-vancouver-housing-probe/article30932513/

Just like ending self-regulation of BC real-estate, I doubt this will do much to help with cost pressures. However it's a move in the right direction and hopefully other parts of the country will implement similar measures.

 

[King of Kensington]

Apples to apples, what's the price difference in real estate between Toronto and Vancouver? A commonly cited figure is 40-50% higher in Van, though I think t Vancouver real estate board covers a much smaller land area than TREB (i.e. Van's doesn't include the Fraser Valley while TREB includes Orangeville, Bradford, Oshawa etc.)

 

[wild goose chase]

One thing I don't quite get is why the Canadian cities around Vancouver and to a lesser extent Toronto, the bubble came to be driven so much by and tied to specifically foreign and non-resident buyers and/or investors?

When you hear about other costly cities like NYC, the Bay Area, London etc., there's no doubt that foreign money is parked there too but it seems like gentrification in those places was driven by lucrative industry, and where it seems wealthy foreign buyers driving out less wealthy domestic buyers doesn't seem as much as an issue as wealthy domestic buyers driving out less wealthy locals.

So why do many foreign investors make up such a huge share of buyers of these two cities in Canada (Toronto and Vancouver) when globally there's so many big cities in the western world? Is it just that we're the loosest and most permissive country when it comes to accepting foreign money, regardless of source, and others like the US, UK, Australia have more strict controls on it?

 

[Bill123]

One thing I don't quite get is why the Canadian cities around Vancouver and to a lesser extent Toronto, the bubble came to be driven so much by and tied to specifically foreign and non-resident buyers and/or investors?

When you hear about other costly cities like NYC, the Bay Area, London etc., there's no doubt that foreign money is parked there too but it seems like gentrification in those places was driven by lucrative industry, and where it seems wealthy foreign buyers driving out less wealthy domestic buyers doesn't seem as much as an issue as wealthy domestic buyers driving out less wealthy locals.

So why do many foreign investors make up such a huge share of buyers of these two cities in Canada (Toronto and Vancouver) when globally there's so many big cities in the western world? Is it just that we're the loosest and most permissive country when it comes to accepting foreign money, regardless of source, and others like the US, UK, Australia have more strict controls on it?

Toronto and Vancouver are just a few of the cities which property is used to launder foreign money and so forth. If all countries (US, CAN, UK, AUS) were equally priced then the foreign money would prefer them in this order:

1. UK (Probably because they think its a very stable economy, popular with the rich HK people)
2. Australia (Specifically Sydney, very close to the mainland)
3. US & Canada (Canada has its lax real estate laws and the US has many states each with its real estate laws and some states are more lax than others)

The reality is that the UK (London) now is quite expensive, its for the billionaires. After UK they went to Sydney which now is also ridiculously priced. So off they went to Vancouver which is now nearing ridiculous prices. Slowly they are looking more and more into Toronto which they still deem "Cheap".

 

[wild goose chase]

The US has dozens of cities that are Vancouver-sized or larger, if not Toronto-sized (well, depending if you're looking at city or metro), and many have more of an actual industry/economy than Vancouver does but yet, in many US cities, you don't really hear about foreign money laundering as the main issue in driving the high costs of living. In many US cities, a lot of the talk is about other rich Americans (eg. Tech workers in the Bay Area, hip wealthy millennials, gentrifiers, reversal of "white flight" etc.) driving out less well-off Americans who've been priced out of their long-standing neighbourhoods.

So in the costly US cities the tension seems to be rich, gentrifier Americans vs. poor, displaced Americans, but in Vancouver, the tension seems to be not rich Canadian vs. poor Canadian but rich foreigners vs. Canadians in general. How come in one scenario it's a conflict for affordability between citizens (of differing socio-economic classes) of a nation, with less of a foreign vs. domestic conflict, as in the Vancouver case (less so in Toronto)?

Also, if Toronto is deemed cheap, why hasn't Montreal been the target of money laundering either?