Category Archives: hype

Realtors warn of dramatic sales slump for September 2016

Do you feel like someone should have warned you that Vancouver real estate sales slumped dramatically in September? Well now you have been.

VANCOUVER — Real estate agents say home sales continued to fall dramatically in the Vancouver area last month and even hit a 10-year low in some neighbourhoods.

Agents say the high-end detached home market is seeing the most substantial losses, while the condominium and townhome market remains active.

The Real Estate Board of Greater Vancouver, which covers a large swath of Metro Vancouver but excludes several large suburbs including Surrey, is set to release its home sales data for the month of September tomorrow.

Read the full article over at the Vancouver Sun.

The ‘cry wolf’ club

There are a few organizations that have raised a public alarm over the state of the Canadian housing market, with particular focus on Toronto and Vancouver:

The IMF, The Bank of Canada, The Canadian Mortgage and Housing Corporation, The Office of the Superintendent of Financial Institutions, Most of the big banks, The OECD, and more.

It seems that everyone is freaking out about the Canadian housing market.

Despite industry assurances that the hottest housing markets in Canada, particularly Vancouver, will always remain hot, and that it is physically impossible for prices to decline in this miracle economy, Canadians are now becoming aware that those assurances have just been another load of industry hype. And a larger share of them are starting to grapple with a new reality – a reality in an over-leveraged, inflated housing market where prices have come to rest on the edge of a cliff.

In Vancouver’s once white-hot commercial real estate market, the hunt is now on for Chinese buyers as big institutional investors are trying to unload.

And yet, despite years of warnings here we are near record high house prices. If you bought a few years back and sold a month ago, you’ve done quite well.

So it seems we’re now entering another down phase, with reports of softening sales and prices, especially at the high end. The warnings are getting louder, but of course there are always people who propose that this market is different and will never truly crash.

Sometimes the number of warnings and lack of crash almost seems to prove it – Just like the boy who cried wolf, we start to get desensitized to all the warnings.  Unfortunately for some of the villagers we all know how that story ends.

Vancouver Market Summary so far for August 2016

yvr2zrh wrote a good summary of what the market looks like currently, how media headlines can get it wrong and where we might go from here:

With about 9 market days remaining in the month, we can start to look forward to how the month will end up. During the past two weeks, we have seen so many numbers in the media which highlights not only is the market falling but also that the intricacies of the underlying data are not well-understood by so many people.

The message (although correct in that the market is bad) is so poorly explained and supported and thus the true state of the market is not clear to people. So – here is the summary of what is really happening.

1.) Sales volumes will be down around 25% for unit sales but 33% for dollar volume. My model predicts a 10% decrease in condo sales (which is not much).
2.) The decrease in average price across the entire market is driven primarily by mix at this stage. It is not known how much is driven by actual price movement. Likely little so far.
3. ) Detached home sales are down significantly. This is likely more than a 50% decrease from July volumes and could be more than 65% down from August 2015.
4.) It is not clear what the benchmark price will do but we would expect that the condo price is probably almost unchanged. This market is mainly suffering from supply issues which will take time to resolve. Detached benchmarks are likely to fall in the higher-priced markets. The reason is that there will be buyers but only low-ball buyers testing sellers.
5.) The stats will be partially supported by the month-end date cutoff issues at REBGV. They report sales based on the date they get paperwork. Many of the sales recorded to beat the tax will actually show as an August sale, while they are actually July sales. Since these are from a period with a “different regulatory and tax framework” they are not really comparable and should perhaps be shown separately for accuracy purposes.
6.) Inventory will be up a bit but we still have a supply shortage in condos. Detached house MOI will increase to 10 or more.

Ultimately, this tax is taking money out at the top. It will take a couple months to see how it all plays out but the top of the market will now need to rely on move-up buyers and bona fide immigrants who are permanent residents.

We can already see the headlines coming but some of the intricacies of the stats will not really be understood.

I also have some stories from the front lines which I will get more info on next month and then write a more detailed update.

And – let’s try to keep the discussion on topic as much as possible – we have started to waiver a bit in the past few weeks.

Posted by yvr2zrh on Friday August 19th 2016 in the comments section.

Foreign buyer tax hurts blue collar immigrants in the Fraser Valley?

Business in Vancouver has an article predicting that the BC Foreign buyer tax will hurt blue collar immigrant workers in the Fraser Valley, which is weird because we were under the impression that the tax was on the Metro Vancouver area and the valley was exempt:

Rob Philipp, chief executive officer for the Fraser Valley Real Estate Board (FVREB), said that while the new tax is aimed at high-end buyers, it’s only going to hurt the working-class immigrants who are trying to move to the region. He called the Fraser Valley’s immigrant population “the engine that drives us.”

“The people who are buying on the west side of Vancouver, they don’t really care about an extra 15% tax. If you’re buying two-, three- or four-million-dollar homes, they want into the market regardless.”

Philipp said the new tax also dampens the incentive for skilled out-of-country workers to settle in the region.

“As a province we’re trying to recruit really specialized professionals – doctors, nurses, certain types of engineers,” he said. “And those are people who are spending $800,000 to buy a place out here and now they’re thinking, ‘Well, I have to spend another $120,000. I’m not going to do it.’”

The other odd thing is that if skilled out-of-country workers actually ‘settle in the region’ and file a Canadian tax return they are exempt from the foreign buyer tax, so we’re curious how it would dampen incentives to move here any more than paying $800k for a house out in the Valley would.

Read the full article here and please correct us if we are mistaken about how the foreign buyer tax actually works.

Condo king knew buyer tax was coming (via educated guess)

The recent announcement of a 15% foreign buyer tax was a surprise to a lot of people. Even finance ministry staff were kept in the dark about the tax.

One of the few exceptions seems to have been a very successful local condo marketer who also happens to be the chief fundraiser for the liberal government.

Mr. Rennie said he knew an additional property transfer tax for foreigners was coming about three weeks ago, but he figured it would be about 5 to 8 per cent. He said a more holistic approach would have created a tax targeting speculators of any nationality for flipping properties rapidly and “interfering in the market.”

But as Rennie points out, the polling showed that people were ‘frantic’ and specifically wanted a tax on foreign buyers. He has since clarified that it was an astute assumption based on those polls rather than inside information that led him to believe a foreign buyer tax was coming. He has offered to step down as the chief fundraiser if the BC liberal government asks him to.

Though the optics of a marketer having advance knowledge of a surprise tax in his market isn’t great, what advantage could be taken of this position?

So far the tax has mainly provided marketing opportunities and  big headlines of a 75% drop in sales even though most sales haven’t been recorded yet.  Nobody really knows what affect this tax will have on the market if any, so what would you have done with a 3 week advance notice that this tax was coming?