Category Archives: predictions

10 reasons the top is in for Vancouver real estate

Whistler or bust? posted this list of reasons they think the top is in for the Vancouver real estate market. What do you think? 

10 Reasons why am I calling a top now

1. Vancouver Real Estate has finally gone parabolic. It has gone from years of above average price increase to massive never before appreciation. No asset class that I am aware of has ever gone parabolic or hockey stick on a chart and not had a major crash. Not tulips, oil or tech stocks. This is textbook classic top – Greed has replaced Fear and it’s different this time for ______ and _______ has replaced rational thinking.

2. Panic buying and large price increase have spread to the distant suburbs such as Maple Ridge, Places where there is plenty of buildable land and lots of new inventory. Places are going multiple bids in average neighborhoods. People genuinely think if they do not buy now they will be priced out forever.

3. Real Estate prices in the vast majority of BC are flat to down. Its as if the Lower Mainland is an island onto itself. These are areas not affected by HAM or DAM so it better reflects the current economic fundamentals of the real estate.

4. The Canadian and BC economy is weak. There is risk that the spill over of falling oil prices will spread to Vancouver. This can be in the form of layoffs at West Jet or the CIBC because they have to cut costs due to losses on loans to oil companies. This is a bigger thing than many people think.  Continue reading 10 reasons the top is in for Vancouver real estate

Let’s confuse the public.

Frances Bula has some comments about a recent proposal to tax vacant properties, pointing out the bizarre lack of logic in most arguments against:

… Real-estate marketer Bob Rennie said it would kill foreign investment in everything, since it would inevitably lead to a tax on foreign investment in manufacturing or other sectors. (Never heard of that in other jurisdictions with housing taxes.)

The mystery documents from the finance ministry surfaced again, claiming it would kill off $1 billion and 4,000 jobs related to construction. (Puzzling claim, since this surtax wouldn’t affect, say, foreign investors who are putting capital into major construction projects.)

And Premier Christy Clark claimed again that somehow this could end up targeting seniors who spend part of the year in the hospital or vacationers. Yet the proposal clearly stated that people who do or have contributed to the local economy (in other words, people collecting pensions) would be exempt.

Read the full comment here and Bulas’ article in the Globe and Mail here.

Resolve to make 2016 the year of the Emergency Fund.

What’s in your emergency fund? Do you have cash on hand to get your through unexpected lean times?

Rob Carrick over at the Globe and Mail think’s it’s time to focus on building your emergency fund in 2016.

Now seems an opportune time to return to the emergency fund theme. The Bank of Canada indicated last week that it would consider using negative interest rates, an extraordinary measure already in use in some European countries, if the economy worsens significantly. Governor Stephen Poloz believes the makings of a recovery are in place, and he doesn’t expect to have to resort to negative rates. And yet, oil prices last week hit their lowest point in six years.

I took a look at our household emergency fund recently and decided we needed to up our game. How about you?

Definition of an emergency fund: Money sitting in a high-interest savings account at a bank or credit union. These accounts are insulated from the ups and downs of the stock and bond markets, and easily accessible online. Interest rates are pitiful on these accounts, but the emphasis is on safety over returns.

Read the full article here.

3.5% Fed rate in 2017?

Here’s a prediction:

“US interest rates will rise – and hit 3.5pc by the end of 2017”, The Telegraph UK

“A momentous change looms large in the US. It seems highly likely that the US Federal Reserve will raise interest rates this week.”

“What makes the probable rise in interest rates so significant is not the size of the increase. The rate rise is likely to be a mere 0.25pc. But this would represent the first rate increase for nearly 10 years. Moreover, we all know that once rates have begun to rise, usually the process does not stop after only one increase.”

Does anyone believe we’ll see a rate increase by the Fed from 0.25% to 3.5% in the next two years?

CMHC: Boom to end in 2016

Hmm. This sounds familiar.

The CMHC is predicting that the Canadian housing boom will come to a screeching halt next year and barely keep up with inflation:

Canada Mortgage and Housing Corp. issued a dim forecast for the housing market for the next two years on Monday, predicting dismal price growth — but at least one economist thinks the Crown corporation’s numbers may be off in Canada’s most significant market.

CMHC, which advises the federal government on housing policy, isn’t predicting a massive correction for housing, but it did say that consumers can expect prices to barely keep pace with inflation through 2017 and that sales and new construction would slow down.

Read the full article here.

Will the new government drive house prices up or down?

How will the new Liberal government policies affect rates and house prices in Canada?

And just what does ‘affordability’ mean in this context?

“Here’s some of what the mortgage market can expect from Mr. Trudeau’s new government:

Higher bond yields: Balancing the budget is not a priority for the Liberals until 2019. Trudeau is expected to go on a spending spree and bond traders aren’t keen about it. It suggests a greater supply of government debt and potentially higher long-term yields to come. That, of course, could mean at least slightly higher fixed mortgage rates than we’d otherwise see.

A More Hawkish Poloz: The odds just dropped for a cut in prime rate. More spending by Ottawa puts less pressure on governor Stephen Poloz to stimulate the economy with rate cuts. The implied probability of a rate hike by next October has almost doubled, from 8% yesterday to 15% as we speak.

Wider RRSP Access: The Liberals say they’ll open access to the RRSP Home Buyer’s Plan, particularly for homebuyers coping with significant life changes (divorce, death of a spouse, a sick or elderly family member, etc.). More access to down payment funds will prop up housing sales and home ownership slightly, and support home prices.

More “Affordability”: The Liberal platform includes a review of housing policy in high-priced markets. The new government will “consider all policy tools that could keep home ownership within reach.” What that means, we’ll have to wait and see. It could definitely be positive for renters and income property investors, given the Liberals have promised to “direct CMHC…to provide financing to support the construction” of new rental housing.

First-timer Support: Trudeau’s government will add more flexible programs for first-time homebuyers. This could mean any number of things, potentially even higher amortization limits for new buyers.
New Blood at the DoF: The Liberals will be installing a new Minister of Finance, who has enormous power over housing regulation. Will he or she be as hands-off on mortgage policy as the outgoing Joe Oliver? We’re guessing not. We’ll likely have an answer by the time the Liberals release their first budget next spring.”

Can someone please explain this market?

The following was posted by ‘Whistler or bust?‘ in the comments this weekend:

I will be the first to admit I have been very wrong about the direction of Van RE in the past 2-3 years. That disclaimer said, lets examine some facts to see if there is any upside left:

These are the incomes required to be in each % (Source CBC)

10% of income earners $80,400*
1% of income earners $191,100*
0.1% of income earners $685,000**
0.01% of income earners $2.57 million*

So with the average Vancouver detached home at $1,408,722 (Source Yatter Matters)

A DP of $281,744 is required to buy
PPT is $26,174
Misc Closing $2,000
Total $309,918

Mortgage $1,126,978 @ 2.59 for 5 yrs = $66,072 Annually ( I will note these are record low rates)
Assume 1% Annual Maintenance (This is a standard benchmark over many years) $14,080
Property Taxes – These can vary but lets assume $7,000?

So Annual carrying costs total $87,152 AFTER TAX – I am excluding heating and hydro which vary but in no cases less than $3,000 annually for a detached home

Back to our chart above – Lets assume a 30% avg tax rate for the 10%, 35% for the 1% and 45% for the 0.1 and 0.01%.
After Tax
10% of income earners $56,200* – This house would take up 155% of the after-tax income
1% of income earners $124,215* – This house would take up 70% of after-tax income
0.1% of income earners $376,750* – This house would take up 23% of after tax income
0.01% of income earners $1.413 mil – This house would take up 6% of after- tax income

This is assuming all of these people have $310K for closing. This is assuming they are buying the average house of $1.4 mil. I think we all know what kind of house $1.4 mil gets on the West Side and even on the East side nowadays.

So the conclusion – Even the 1%ers are realistically priced out of the average Van detached home. Only the 0.1% and and above can really afford to buy.

Put another way – 99% of people are priced out. As families combined lets assume 95% are priced out.

So to all you bulls out there, please answer the questions: Is this a healthy market? Is this a market with any upside left?

I think we all know the answer.

We suspect Vancouver isn’t actually ‘hell on earth’…

Occasionally we have some commenters here who seem to be pretty sure (or at least proclaim to be pretty sure) that Vancouver is hell on earth.

We suspect this isn’t entirely true, because most anyone you meet here has the ability to move away to a number of other options yet they hang around.

But  one recent comment references the fear that Vancouver will become ‘hell on earth’ by slowly crushing the economy into two strata:

Soon there will be two classes of Vancouverites.

The service class will live in 200 square foot mini-apartments, twenty such units per building, working for 50,000 dollars a year, paying 2,500 a month in rent, and paying a big chunk of their paychecks on taxes at the provincial and federal levels to pay for schools, hospitals, universities, and the coast guard. They will service the rich class and take the bus to get there.

The rich class will live in 7,000 square foot rectangular box houses, worth three million each, ridiculously crammed on 45 foot lots, their BMWs and Bugattis parked out front. Each household will claim poverty status, claiming to be earning just ten thousand dollars a year. That way the wives and kids and grandparents in those houses will not have to pay anything for their healthcare and education. It is all paid for by the income taxes of the suckers in the service class.

Meanwhile, unknown to Ottawa or Victoria, the businessman head of those rich homes is earning a million dollars a year in China, in activities that are often associated with phrases like “rule breaking” and “money laundering”.

That allows them to own another three houses and condominiums in Vancouver, places that are empty, places the government thinks his kids and nephews own because he put their names on the deeds.

Vancouver is turning into hell on earth.

Original comment from a Globe and Mail article referenced by Yunak.

Harper plans to pump up housing market

Harper has announced an interesting goal: 700,000 new home owners by 2020.

Harper says home ownership provides Canadians with financial stability and strengthens communities.

According to information provided by the party, the target would raise Canada’s home ownership rate to approximately 72.5 per cent. The Canada Mortgage and Housing Corp., citing information from Statistics Canada’s National Household Survey, says the home ownership rate was 69.0 per cent as of 2011, the most current data available.

Meanwhile in the Metro area home ownership rates have moved from 56% in 1986 to 65% in 2011.

No sign of bubble bursting

This Vancouver Sun article used to have the headline “Vancouver housing market in bubble, new house price index claims.

That version of the article apparently included the following:

“While foreign investors are no doubt playing some role, we think this explanation is overblown. Low interest rates and self-fulfilling expectations of higher prices continue to inflate actual prices independently of fundamentals,” reads a press release from the creators of the index.

“Over the longer-term, we still believe that these housing markets will experience major price reversals.”

But that has since been updated to “Vancouver’s ‘housing bubble’ shows no sign of bursting” and we’re having a hard time finding the above quote. The article now says:

According to Davidoff, it is impossible to judge Vancouver’s real estate market on the same bases as that in other cities. In the Prairies and the U.S. Midwest, where space is plentiful, the value of a home is essentially what it costs to build. Vancouver, on the other hand, is almost out of new land to build on. “The house, that means, is worth whatever people are willing to pay,” he said.

We can’t quite put our finger on it, but it feels like there’s been a subtle shift in the tone of this article.

Read whatever the article currently says here.