Desperation Invades Vancouver Housing Bubble, as Hot Money Still Pumps up Toronto, Hype Overflows

In Toronto, “home ownership continues to be a great investment,” which is what they said about Vancouver a year ago.

So the bottom has fallen out of the Greater Vancouver housing market, a process that started after the crazy peak in July. According to the Real Estate Board of Greater Vancouver (REBGV), sales of homes of all types – detached, attached, and condos – plunged 40% in January compared to a year ago, with sales of condos dropping 25% and of attached properties 32%. Detached homes got hit the hardest: sales plummeted 58%.

There was no way to put a positive spin on it, not even for a real estate board. REBGV president Dan Morrison put it this way: “It’s a lukewarm start to the year compared to 2016.”

Even as sales collapsed from the record-breaking bubble-pace a year ago, the number of homes newly listed for sales in January rose 7% year-over-year to 4,140. And the total number of homes listed for sale rose 9% to 7,238.

The benchmark price – a theoretical price that the REBGV uses instead of the more typical median price – for detached homes has fallen 7% since the July peak, to C$1.475 million.

By the same measure, condo prices inched up 0.3% to C$512,300. And prices of attached homes inched down 0.4% to C$666,500. For the Greater Vancouver area, the composite benchmark price for all residential properties is down 3.7% over the past six months to C$896,000.

The hot money has abandoned the Vancouver housing bubble, which is now left to its own devices. And the idea of homeownership as this magnificent investment with outsized annual returns has just been taken out the back and shot.

But the hot money is till pouring into Toronto. The Toronto Real Estate Board (TREB) reported that total home sales in January through its MLS system jumped 12% in January year over year, to 4,640 homes.

“Home ownership continues to be a great investment,” explained TREB President Larry Cerqua. “As we move through 2017, we expect the demand for ownership housing to remain strong….”

That’s what they said about Greater Vancouver a year ago.

In February last year, the REBGV said, “Fundamental economics are driving today’s market. Home buyer demand is at near record heights and home seller supply is as low as we’ve seen in many years.” Nothing could go wrong.

In March last year, the REBGV said, “We’re in a competitive, fast-moving market cycle that favors home sellers.” And: “Sustained home buyer competition is keeping upward pressure on home prices across the region.” At the time, the benchmark price had jumped 22% year-over-year.

But then new listings began to pour on the market, and by July 5, the REBGV lamented: “Since March, we’ve seen more homes listed for sale in our market than in any other four-month period this decade.” That was a sign that the bubble had run its course: more and more residential property speculators were trying to unload. Now we know that July was the peak of the bubble.

But the Greater Toronto Area (GTA) hasn’t reached that point yet. In January, the benchmark price and the average price were both up 22% year-over-year, with the average price of detached homes up 26%, of semi-detached homes 28%, of townhouses 27%, and of condos 15%.

And the number of active listings in January plunged “essentially” by half. The report: “That statistic, on its own, tells us that there is a serious supply problem in the GTA – a problem that will continue to play itself out in 2017. The result will be very strong price growth for all home types again this year.”

A year ago, there was a serious supply problem in Vancouver too – until suddenly, there wasn’t.

The Vancouver housing market was already showing signs of peaking, with lots of supply coming on the market when in August last year British Columbia implement a 15% transfer tax on properties sold to non-resident investors. This was aimed at Chinese buyers who’ve been flocking to the Vancouver market. Scaring them away sped up the process of bubble pricking.

It coincided with Canadian government efforts to tamp down on risky mortgages to overstretched home buyers.

By December, Vancouver home sales had slowed to such a scary degree that the B.C. government offered interest-free loans to first-time buyers (Canadian citizens or permanent residents) to be used as down-payment, which put the taxpayer on the hook to keep the Vancouver house price bubble from imploding. They called it the “B.C. Home Owner Mortgage and Equity Partnership program.”

There are some limitations, including that the price must be less than C$750,000. So condo territory. And condos are notoriously volatile. The buyer will end up with a second mortgage on the property but will not have to make interest or principal payments for the first five years. After that, this second mortgage is put on a 20-year repayment schedule, payable in addition to the first mortgage.

This makes for one heck of a “down payment.” So now, B.C. is creating the next generation of first-time buyers with a borrowed down-payment on top of a mortgage to finance a purchase near the peak of the house price bubble which UBS last September considered the one with the highest risk in the world of deflating.

Developers love it. This taxpayer money is going to line their pockets. And by the time the ruse falls apart, they’re long gone with the money.

But it won’t keep the bubble from deflating. Once the process starts, it saps the blind confidence that bubble buyers require, and it knocks the wind out of them, and they pull back. Suddenly owners are motivated to unload their properties, hopefully at peak prices, just when buyers have evaporated. And the market freezes up with sales volume plunging. That’s the first step.

This is happening now in Vancouver. Toronto is lagging behind.

The market will remain frozen until sellers lower prices enough to lure in some buyers. And when those buyers are under water a little while later, it further knocks the wind out of the next wave of potential buyers….

This unraveling of the house price bubble will continue to play out in many small steps, spread over years – and the fact that the BC government is offering interest-free second mortgages to cover down payments that cannot be covered otherwise proves just how ludicrously overpriced the market has become, in relationship to incomes, and how much of a potential decline it is facing.

In the US, the overall national rent figures are hiding the drama on the ground. Read… Rents Plunge in Costliest US Cities, Soar in Mid-Tier Cities

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  43 comments for “Desperation Invades Vancouver Housing Bubble, as Hot Money Still Pumps up Toronto, Hype Overflows

  1. Michael says:

    The Chinese must be desperate to get their money out. Seems to me they are trading one devaluation for another. The winner…..Realtors

    • Nicko says:

      Due to the cheap CAD$, they’re still getting a deal…plus the fringe benefit of being able to live in Canada.

      Plus, due to the Orange menace south of the border, Canada is poised to grow closer trade ties with China, a win-win for all concerned.

    • Loser says:

      Meanwhile Trudeau et al sit by and let their citizens lifestyles get eroded by high rents or sucked into mortgages they can barely afford. Sad.

  2. Spock says:

    we have been waiting for Toronto and the GTA to come “home”.
    It is so incredible that people feel these price levels will continue. This bust will take years to unravel.

  3. Cyrus says:

    I think Vancouver prices has fallen much more their real estate board wants everyone to believe. This guy posts tweets and other postings from different people which seem to indicate it is far worse than they lead us to believe.

  4. Mick says:

    Detached house sales collapse by 77%, prices down double digits. Stats courtesy of Zolo, the largest real estate broker in Canada, which puts out honest numbers, so even tho the real estate board admits the market is dropping, they buffer the numbers.

  5. Paulo says:

    As a BCer, this is a very ‘good news’ article. Maybe our Province will stumble into reality.

    Except as a possible investment, (and hard to imagine how a new buy in Toronto could be a good investment at the Peak), who on earth would buy in Toronto if you didn’t have to? New money coming in? Are the purchases sight unseen?

    Sweltering humid for 4 months of the year and ice cold for 4 months with a few shoulder months. Traffic jams said to be the worst in North America. I don’t get it. Toronto?

    Vancouver? No one can really afford to live there unless you have been established for a long while. We have a good family friend who has been counting down the years to retirement when she can finally move out of New West. She has a great job with good benefits (including defined benefit pension) on top of an excellent salary, but no way can she stay there for retirement. She can’t afford to. She can’t even afford to own a car while she lives there. She is strictly, Transit.

    Oh well, I’ll just kick back and make some popcorn as this unfolds. Going prawning next week. We’ll set the traps for two hours and jig some halibut while we wait. We should pick up 400 prawns at a minimum. Maybe some halibut. mmmmmfish and chips. Our friend will be moving close by in just 2 years. My wife can’t wait.


  6. ru82 says:

    I am guessing if you bought in Vancouver more than 2 years ago you are still have a very nice gain on your books. Probably more money than many people have in their 401k accounts.

    Owning a home in California or Vancouver has been the way to increase your wealth the easy way.

    • PIGL says:

      I bought a condo in Vancouver turn a half years ago at a price I consider to be extremely high, such that I would only pay it because I really want to live there again and I can afford to indulge my whims. Barely.

      Since they’re in the prices gone up by 50%. I could not afford to buy there now. I am hoping in fact the prices drop very substantially it was emotionally prepared for 25 to 30% drop below my purchase price a risk that I fact I hope it happens soon enough to prevent my beloved city from devouring the rest of itself. Some of the major developers go tits up that we’re also suit me just fine sadly they seem to be able to immunize themslves from any risk.

    • PIGL says:

      excuse the pedantry but in Vancouver,people don’t have 401(k)s. Those are American instruments.

      We have similar instruments designed to transfer people’s savings upwards into the pockets of the rich in lieu of adequate pension plans….but at least the names are different.

  7. Arthur says:

    “who on earth would buy in Toronto if you didn’t have to?”

    Extremely large immigrant (temp and semi-temp) population in Toronto. In many areas you might think you’re in India, China or the Middle East. Most people in Toronto are brainwashed by the media and all recite the same mantra of –

    “Our market can’t crash because you have to put down real money and show real employment. That was what the problem was with the American crash”

    Naive? Well, that’s how they think. As long as the foreign money flows it will not end.

    Central banks are bluffing, so I’m not expecting any serious interest rate rises and if the Euro tanks (Italy) then the US dollar will soar and the Canadian dollar will likewise suffer relative depreciation against the US dollar.

    US dollars will continue to push Toronto higher.

    Nice people aside, Toronto is an ugly place to live – flat, unstylish bauhaus architecture set amdist endless min-malls with crappy parking and crazy drivers.

    Canada outside Quebec has no soul.

    • memento mori says:

      you hit the nail on the head, toronto has to be the ugliest place to live in canada, urban soulless hell. Crazy traffic, bad weather, stalinist architecture. One would give me a house for free, I will never live there. The main city attraction is a phone tower for which you have to fork out 120 bucks to take the elvator to eat a disgusting sandwich up there. Take away niagara falls and there is really no reason to be around the aera. Vancouver is beautiful in the summer, but that is it, there is no soul left in the city as multiculturalism has reduced it to the lowest denominator of all cultures. Quebec city and Montreal are probably the best desitnations that make Canada a lovely place for me. Looking forward to go back again in the belle provence, nice food, nice architecture, lots of vibe.

      • Martin says:

        Ontario is not Toronto buddy, I like Toronto for the many distractions but it’s NOT Ontario. I own a semi in Oshawa, 50K’s away and even though I love the equity I have built up, I’m counting the months to when I can sell and move to one of many beautiful places on Ontario. The last thing I need is a doom and gloom report about the GTA being only a year away from Vancouver’s plight. Thanks Wolf.

    • Boo says:

      The Republic of Quebec isn’t Canada anyway…

  8. realist says:

    “This unraveling of the house price bubble will continue to play out in many small steps, spread over years”
    I hope that you are correct, as the massive inflation in Vancouver RE has created an unsustainable economy and much social stress. However, billions of dollars continue to pour out of China, and to the extent that they do, they create a floor for Vancouver RE. Legally it is Canadian land, but functionally, it is not: it is a hedge for Chinese money, first in the 1980’s and 90’s from Hong Kong, now from PRC.

  9. Justme says:

    >>The benchmark price – a theoretical price that the REBGV uses instead of the more typical median price

    Huh? Things are so bad that the realtors have to invent pricing benchmarks other than the median, which is already a pretty bad measure. In the US we have at least the Case-Shiller benchmark methodology.

    • Wolf Richter says:

      Canada has the Case-Shiller equivalent “Teranet National Bank of Canada House Price Index” whose charts I show here from time to time. It hasn’t come out yet for January.

      Like the Case-Shiller, it’s also based on pairs of sales of the same home over time (often many years apart), and they both use an algorithm to come up with their home price changes, which has its advantages and disadvantages. But neither one includes sales volume, inventory, etc. Just their measure of price changes. The Case-Shiller is also a rolling three-month average and is reported with a one-month lag.

      I prefer median price, but I cannot get median price for Vancouver and Toronto – only their “benchmark” prices.

  10. Mike R. says:

    People with money (and from all around the world) are looking for the better places to live and to where they can get in. In the US, the same thing is happening with aging boomers who can afford to move. There would be a mass exodus of certain cities if people could afford to do it. All of this will continue until it runs out of gas .

  11. Thor's Hammer says:

    I lived in Steveston, a former fishing village on the Fraser river just south of Vancouver in 2001. About 22 minutes to downtown on the well designed new (and already crowded) SkyTrain. Rented a nice one bedroom garden apartment on the river for $1200CAD per month. New attached townhouses across the street sold for about 800k.

    If Vancouver were stripped of all Asian money laundering “investment” the real economy of BC would support prices at a similar level or factoring in the collapse of the Petro-Loonie, perhaps 20% lower than that baseline. Are you prepared for the real world, Vancouverites?

    • Taddie says:

      Steveston is a beautiful place..I lived in Vancouver 1999-2001 – crazy place..workers so used to handouts living in LALA land – they had no one can drive – crazy busy and everyone thinks they are so special…+ very snobby – couldn’t wait to get the heck out of there..BC – stands for bring cash – because even at that time – overpriced….Asians running that market..whole condo towers sitting empty 50 weeks a year due to foreign buyers

      • Elements Usually Associated says:

        I get you hate BC, Hippies and working people. But do tell how you got from Bring Cash because everything’s overpriced to everyone’s looking for handouts? What handouts, exactly?

        Like many here, I suspect you’re letting your political views overpower your senses…A man sees what he thinks he ought to see.

  12. nhz says:

    prices just 7% down after an epic runup and people get desperate? Wow, amazing how spoiled all these brats are …

    In my area after 2008, sales cratered by 80-90% for a few years and average sales prices declined 10-20% (list prices didn’t decline much, and the declining average was probably more due to relatively stronger decline in sales of more expensive properties). After loud complaining by all those home debtors (a voter majority) the government stepped in with the most desperate support measures one can imagine. We are now back at the races with very healthy sales numbers and prices in many areas even higher than in 2008 which was the previous all time high (both in absolute terms and relative to incomes, all for the last 400 years). Realtors are now worrying that they are running out of homes to sell.

    Despite the endless complaining, 99% of home debtors and other small speculators didn’t experience any downside of the ‘housing bust’, except maybe that the proverbial EUR 10-50K of yearly free money didn’t arrive on schedule… The only ones who got hurt by the ‘bust’ were renters and savers, because the Dutch government took all kinds of measures to jack up rents in the free market (by 5-10% each year) and increased wealth taxes on savings accounts.

    I guess shortly after the Toronto bubble peaks, they will gradually introduce some Chinese taxes and hand the baton back to Vancouver. Rinse and repeat, there probably is plenty of desperate and crooked Chinese who still want their money out of China at any price. Surprising though that the Dutch government hasn’t been able to tap this Chinese potential for making the Dutch housing bubble even more epic ;-(

    • Mick says:

      Believing the vancouver real estate board numbers are ya?
      Well, might wanna check out, where truthful numbers are posted, in detail.

      Your “7-8%” drop is closer to 15-20%, and we’ve barely even begun this ride.
      This isn’t 2008, it’s 2017. There will be no QE, no world saving measures to stop the crash this time.
      Some here actually believe the Fed is gonna QE-infinity. Apparently they haven’t noticed, QE ended almost 3 years ago and they’ve been pretending the economy is so good they can raise rates.

      Seems the parties are still swinging from the chandeliers even on “doomsday” blogs.

      • nhz says:

        The FED doesn’t need to do any QE, the BOJ and the ECB are doing it for them, keeping rates in the US down and pushing asset prices up.

        If you think there are no saving measures possible, consider that about 90% of the idiot measures that we have in Netherlands to support the bubble haven’t yet been implemented in Vancouver ;-)

        I agree though that average numbers say very little, but it’s the same in my country and most of the West. Our ‘median sales price’ is an average of an unspecified ‘basket of median sales prices’ that is continually massaged in order to give the appearance of steadily increasing prices, as much as possible. And last month’ median is often restated downwards when nobody is looking ;-)

        While the official median home price here increased by about 500% from about 1990 to 2008, real home prices (as in a repeat sales index) often increased by 1000-2000%. The difference is mainly caused by a changing composition of the homes that make the index; at the start of the bubble only premium homes sell for good prices, in the mania phase even the worst crap (that nobody would touch years ago) sells for top dollars and homes are split up in ever smaller apartments to keep prices ‘affordable’. The reverse might happen on the way down. A repeat sales index gives a more realistic indication, but those indexes have their own problems. It’s really difficult to know what is going on under the hood, and it can vary strongly even within the same city.

  13. Forget all this noise Wolf – I have a much better indicator for you about when this economic cycle will end – the hits on your website.

    When the hits on your website start soaring – whenever that is – and I’m betting we are nowhere near it yet – that is the harbinger of economic doom.

    My guess? This surge in interest and visits to your site is still some way away – for godsake, we still haven’t even had the Trump splurge!

    I’d suggest we’re good for at least another 2 years or so. The perfect time to trash the economy and discredit Trump is 2019 leading into 2020 and that will destroy Trump’s re-election chances.

    This was done to Bush and the Republicans in 2007-08 to ensure the company man Obama rode a wave of discontent into the White House and it will be done again in 2019-2020 to get rid of Trump.

    Mark my words – this expansion has some time to run yet – the sales figures in Toronto prove this bubble is really nowhere near popping – plenty of money to be made.

    • Wolf Richter says:

      The “hits” on WOLF STREET are up 40% year-over-year. They’ve been up every year since WS started in 2014. I expect the increase to slow down as the site gets bigger. The predecessor site started at zero in 2011, and the initial growth rates were HUGE :-) It has been quite a journey.

      So a 40% yoy increase at this stage would be normal maybe? And “soaring” would then mean 100% yoy? 300%? Would be nice. But I doubt that life in my business is that easy….

      • dave says:

        wolf, a while back i suggested finding the truck traffic over the ambassador bridge between detroit and windsor. busiest crossing between canada and US. any luck?

  14. Mike R. says:

    There is really no way to predict when things might get ugly. I do know the conditions for such have been building, continue to build and something will trigger it. We could go on another 5 years or 5 months.
    As time passes, more and more people finally grasp the gravity of the overall situation. That increasing base of realists is what it takes for a big reaction or overreaction to a scary event.

    Events on the horizon: Taking out North Korea with massive bombing campaign, maybe even small nuke God forbid.
    Bombing Iran in similar fashion. Naval skirmish with China over Spratley Islands. Any one of those with the right scare level could unleash some massive market moves that couldn’t be abated by the Central Banks.

  15. Neil says:

    Canada policies at political level as well as their central bank both sucks. Canada is most frustrating nation to live in. forget about weather..they are destroying themselves….Look at their management of Immigration, healthcare, pension system reform. Everything sucks.

    The best way to describe Toronto is people do not have money to pay their HYDRO bills and house prices are sky rocket. Shame on this govt, country and their authorities like CMHC. It is even shameful when country like canada has to rely on China’s action to curb their housing prices and protect their land.

    In my view if there would not be military backing from USA, either china or russia would invade canada. And canada politicians are so nice…they are selling it to china already….. !! i love so called “Nice People” canadians.

    • nhz says:

      why would russia invade canada, because they love to overpay for houses ? Because they love Chinese neighbors??


  16. roddy6667 says:

    If I were one of the Chinese “hot money” transplants to Vancouver or Toronto, I would buy cash and refinance soon. Put the cash in Singapore or some other safe place. If the bottom falls out of things, stop making payments and get on the next plane to the Next Big Place.
    Rinse and repeat.

  17. chris Hauser says:

    the boom is over, what does the man on the ground say?

    when you are so drunk that a 15% kick in the teeth doesn’t hurt, there’s still got to be a morning after.

  18. Shawn says:

    The 15% property tax for foreign buys is the only thing that crashed the Vancouver housing market. I doubt the Ontario government would allow the same thing to happen in Toronto. See, there is nothing else happening in the Canadian economy these days, so these housing bubbles are vital to maintain the ‘feel good’ factor so that politicians can keep their jobs.

    More and more Chinese money will flood into Toronto, housing prices will continue to increase, for a long time to come. Salaried professionals will continue to be pushed out of the city to make way for crooks laundering money into the city’s economy.

    • nhz says:

      many articles have pointed out that the bubble topped a few months BEFORE that 15% property tax was announced. This tax was a political decision that was long overdue, they waited until they knew the bubble was going to pause or pop anyway.

      All politicians (from the bigger parties in most of the Western world) and most of the public love housing bubbles, they only have different opinions about the ways to keep them going :-(

  19. Mortadell says:

    Hey there fellow wolf people!
    I really do enjoy the wonderful insights provided by you readers.
    A truly enlightening bunch.

    I am born and bred in Toronto. When I say thats is a soulless urban wasteland my friends all look at me like I’m crazy.
    Trust me, there’s nothing going on here, just a huge sucking sound…
    Brainwashed is an understatement.

    Here’s reality, the townhouse next door to mine in Richmond Hill just sold sight unseen to a Chinese guy who overpaid something like $100K
    yesterday. You can’t even pull out of the subdivision in the morning, pure traffic hell.

    The fellow across the street from me, also Chinese told me the other day that he knows absolutely zero about the workings of his house, in fact he didn’t know that there is a water heater tank in his basement!!

    Forget your talk of bubbles etc, the Ontario government will not stop until these folks have brought over every last cent. Good if you are a seller, realtor, or developer.

  20. Tom says:

    More reflection is needed. Not so much “desperation”. Depends. For Vancouver, it’s mostly unattached capital (mostly 1%’ers ever increasing cashflows) chasing limited yet desirable by them assets …ie l would live in Vancouver if l had some millions to spare! …”total wealth of the world’s billionaires grew 9 percent in 2015 to $7.3 trillion” …”The 2015 figures show the number of ultra-rich up 6.4 percent and a 5.4 percent growth in their overall wealth compared to 2014.”….these buyers want out of cash and into hard assets or into productive assets ..or for some they want out of the toxic air in Beijing ..or they want out of the refugee and banking crisis in Europe ….or they want lifestyle of London/Paris/NY/Vancouver. The equation is: more money per rich person + more rich people + a limited and the same number of great places = prices go up. For the 1%’ers the price does not matter as much as they earn more very year and their basics are taken care of. In Vancouver that $20M waterfront home may have dropped 15%, because of the new tax, so what, few could afford that anyways, and even if it dropped 50% the locals still could not afford it – but that doesn’t mean the sky is falling – but that condo in Vancouver, in the right neighbourhood!, is still going up. Rather, there is more desperation for the people who are stuck in a bad situation! (war, toxic environment, refugees flooding in, financial mess, etc) and where governments (most) are not operating in “public interest”. Is this ‘capital chasing assets’, in globalized world fair, or right for the locals? Is it stable? Sustainable? For sure growing income inequality is not stable, in the long run. For now the middle class and working class, in the western world, are being economically crushed. Timing is hard to predict, yet history says it takes a big event to have a reset. Is world economy stable? Sustainable? Not likely. Other factors too, but one thing that is crushing the locals is the bail-ins/handouts/crony capitalism. If some billionaire xyz goes bankrupt, who cares, but bail-in the public, then that crushes the locals and the consumer economy. Now some will say socialism/communism is nasty; but ignore growing income inequality long enough, and it will bite back. Back to Vancouver, a whole pile of offshore and local too millionaire/billionaire money bought the waterfront up – just like an art auction. The angst for the locals is – the locals who could afford waterfront down town Vancouver, now can afford a condo up the valley. Re Cdn RE prices – not about desperate. Just capital flows. Desperation is for the locals who now can’t afford housing like they use too. They still have housing, just not same quality or price. It is worse in London UK, where 4 to 6 locals there are renting in flat shares just to affords the unit rent. For now beacuse of a local tax the capital shifts from Vancouver to else where in Canada, not as inaccurately summarized in article – this was not market fear or desperation or panic – it was a government created very localized interference – not a market panic – or the sky falling. Not desperation. Just a government local event on some rich people. The fundamentals of capital flows have not changed. The issue of income inequality have not changed. Affordable housing, like they use to have, is more the issue – for the locals. Uber rich, buy where and when ever they like.

  21. james wordsworth says:

    Actually housing bubble is spilling out of Toronto into areas like Waterloo and Cambridge and Guelph. Prices the last couple of months have soared, with lots of above asking deals and a real dearth of listings. You are seeing people sell up in Toronto and buy in KW. With what they make on the old and svae on the new, one parent can stay home with the kids and they are still better off.

  22. FranSix says:

    One analyst called the top on the Vancouver housing market. The ‘crash’ comes later, when the capitulation in the market is front page news.

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