There are bubbles, then there are really bubbles. I am at a loss for words how obscenely overpriced the Vancouver housing market has become.
Sellers list “low” prices hoping to start a bidding war, and the strategy works.
For example, an ordinary bungalow on a 44′ by 122′ lot that was “attractively” listed at $3.188 million, spawned a bidding war and sold for $4.19 million.
Inquiring minds may be interest to see what $4.19 million buys in Vancouver.
“Perfect for Families”
The Vancouver Sun reports Vancouver Home Sells for $1 Million Over Asking Price.
The Dunbar area bungalow was listed for $3.188 million and sold earlier this week for $4.19 million.
Just over a month ago, a Point Grey home with a view sold for $1.172 million more than the asking price. The sale price for the house on Bellevue Drive was more than $9 million and the new owner planned to rent it out then tear it down and rebuild in a couple of years, according to the realtor. The house had not been updated.
But the 71-year-old Dunbar house has been fully renovated, according to the MLS listing. It sits on a 44 by 122-foot lot and has a view from the back of the North Shore mountains. The house has a new roof, updated bathrooms and a gourmet kitchen as well as a one-bedroom basement suite.
“Perfect for families,” says the listing. Or, “hold and build.”
What does $9 Million Buy?
With that “perfect for families” bungalow going for a mere $4.19 million, inquiring minds no doubt wonder what a $9 million teardown looks like.
“It was the view. It is spectacular,” said Park, a realtor with Sutton West Coast Realty.
She said the house was an estate sale and the buyer plans to rent out the place then rebuild within a couple of years.
“The house needs a lot of work — at that price it makes sense to rebuild,” Park said.
Anyone who can make sense out of this is crazy.
That said, I can explain what’s going on: capital flight and desperation to get money out of China, regardless of price.
Mike “Mish” Shedlock
Hi Mish,What is the best way to short this bubble? Are there any Vancouver residential REITS, publicly traded builders or banks more exposed than others to ridiculous underwriting, etc.? How much of this is caused by radical leftist supply suppression through regulation as is the case where I live in NYC and in SF?Thanks.Rick
Date: Sun, 10 Apr 2016 22:47:59 +0000 To: rvartan@hotmail.com
No idea the best way
Hell, I would have thought this would have blown up years ago
Mish, is it the case that as confidence in government and bonds evaporates, all money goes into private equities, pm’s and real estate…in which case the bubble is far from over??
People have been talking about a Canadian RE bubble AT LEAST 10 yrs now. I’m amazed it hasn’t burst either long ago. It seems there may be a little distress in Alberta because of oil?
Andreas Van Ginneken Winfield, IL
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Amen. The insanity seems endless.
The insanity hasn’t even started… wait till the market tries to find it’s long term price, then the selling will get even more insane. I wonder how their re-assessments are going?
This is where another problem lies, for the most part, homeowners are elated with the overnight paper wealth effect, however when real cash flow has to service property taxes, it’s a different story. In BC if you are over 55, you can defer property taxes and let your estate deal with the balance plus 1% compounded annually when you die. Everyone I know in this age group is doing this. The real issue though is taxes in the lower mainland pale in comparison to major centres in the US.
Property taxes are extremely low to begin with
http://jaybanks.ca/real-estate/greater-vancouver-property-tax-calculator/
My guess is rolling back that antiquated tax deferral strategy and increasing property taxes more in line with major US centres, inventory would build considerably and that’s just at the municipal and provincial level.
Homeowners are cheering in the Seattle area.
I live here. There is no signs of any slowdown.The Fraser Valley is now on fire with people desperate to buy property before they are priced out. It wouldn’t surprise me if houses here doubled again in the next few years.
The only thing that will stop this madness is offshore Chinese money drying up and/or a major interest rate hike which doesn’t seem likely. Any dips in the market will be aggressively bought and real estate prices will remain at a high plateau.
“That said, I can explain what’s going on: capital flight and desperation to get money out of China, regardless of price.”
Why don’t these desperate Chinese buy property in Calgary or one of the other Canadian cities where there is no bubble?
All humans behave like their family/friends/townsfolk/co-ethnics, with small variations.
It always blows and there are always winners and losers on both sides of the event. My illusion of safety in distance (not participating) will likely prove flawed, but I will maintain my belief that it is the moral choice regardless. It is those playing for gain, on BOTH sides of this game that will create the wreckage we must all suffer.
How does this end? What is the pin prick? Taxation? Tightening foreign capital requirements? As a resident and builder in this town, it is sickening what is happening yet politicians at every level refuse to take the necessary steps because it’s the only game in town at the moment and the BC land transfer tax is a huge cache cow.
The sector is getting it from both ends. There’s a major mis-allocation of capital rushing into real estate right now because it can. Foreign capital flight is targeting 1 million and over and the locals, through conventional sources are snapping up everything else for fear of missing out. The real issue down the road is the locals who are buying the condos and townhouses in the sub 1 million$ range have racked up mountains of debt.What happens to their debt when the reset comes and they can’t renew their mortgages? CMHC only back stops anything under 20% down where the borrower pays for the insurance on the loan, the banks cover anything over that which is why I guess the banks are loading up on bulk insurance on their low ratio mortgage portfolios. I guess the IMPP wasn’t enough to shore up the bank’s collateral requirements to keep the game going.
This could be a chapter straight out of Extraordinary Popular Delusions and the Madness of Crowds.
How does this end? What is the pin prick? Taxation? Tightening foreign capital requirements? As a resident and builder in this town, it is sickening what is happening yet politicians at every level refuse to take the necessary steps because it’s the only game in town at the moment and the BC land transfer tax is a huge cache cow.
The sector is getting it from both ends. There’s a major mis-allocation of capital rushing into real estate right now because it can. Foreign capital flight is targeting 1 million and over and the locals, through conventional sources are snapping up everything else for fear of missing out. The real issue down the road is the locals who are buying the condos and townhouses in the sub 1 million$ range have racked up mountains of debt.What happens to their debt when the reset comes and they can’t renew their mortgages? CMHC only back stops anything under 20% down where the borrower pays for the insurance on the loan, the banks cover anything over that which is why I guess the banks are loading up on bulk insurance on their low ratio mortgage portfolios. I guess the IMPP wasn’t enough to shore up the bank’s collateral requirements to keep the game going.
This could be a chapter straight out of Extraordinary Popular Delusions and the Madness of Crowds.
1. Wonder how the locals are doing? All will be moving east as none will be able to buy a house in the neighborhood they grew up in. Some with millions. But most with nothing,
2. The bubble will end when the insanity of cheap government money ends, And it always ends badly, Very badly. As in wars and revolutions and economic ruin.
3. Banks will demand bailouts. Flippers will demand bailouts. Local governments will demand bailouts. The fraud goes to all levels. Canadian banks will be bankrupt. The Lonnie will crumble even more than now.
The locals are moving away…I have lived here all my life…me and my wealthy friends are standing back watching like being at a fireworks show!…kaboom
Some of the locals are selling in Vancouver and buying in Victoria. Some over priced waterfront lots that had no buyers for 3 years is suddenly sold. A lot of properties are now selling over asking in the Victoria region, so we are experiencing some spill over effect.
That may seem like a lot, but I assume those are Canadian dollar prices. Aren’t those like Yen these days? :–).
1 million CAD over ask on a 3 million CAD bung is still 750US over on 2.25US. The more that can leave mainland China, the better. Not the point. The US through the Fed has exported inflation globally, it’s now repatriating itself blowing a huge bubble in my town and because our central planners were preoccupied pumping LNG they don’t know how to stop it or have not interest in stopping it with an election on the horizon.
There is no real reason to stop Chinese people from buying houses if they want to. The stupidity; lies in the zoning laws put in place, which prevents building until a unit’s cost approaches it’s cost of construction.
This is not any different, just on a wider scale, than the limited-number-of-medallions taxi rackets most corrupt city governments ran pre Uber. Or any other government mandated rationing, for that matter.
Who exactly is it that can buy crummy $75,000 houses for millions in these places? How does someone earning even a half million per year avoid the old rule of thumb of a house being no more than two years pay?
What goes on there that anyone could be so hot to screw themselves over in perpetuity to buy said $75,000 house for millions?
Most of it is converted from Chinese Yuan… makes me wonder what is really going on in China.
In areas like mine (NYC) it was always more than that. For at least 40 years in the outer boros it would be 3 years pay as a reasonable rule of thumb. Then again, we actually had fairly high interest rates and a sane down payment at that point in time. Interestingly, even in NYC it isn’t quite as crazy as what is happening in Vancouver. Forget Manhattan though; to buy you need serious money.
I think you hit the nail on the head when you mentioned capital flight and desperation to get money out of China regardless of price. When these cash deals resulting from foreign capital flight (laundered money?) dry up, there is going to be some serious indigestion for house humpers.
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Prices in the Dallas area have skyrocketed.
Houses here used to be reasonably priced… but not anymore.
It’s a good time to sell… but where would you go ?
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Property tax in Vancouver on a $4 million house = 14,711.00 CAD
Property tax in Chicago on a $4 million house = 110,000.00 US
In California it’s around $30-35K. Part of the reason Cali prices resemble Vancouver’s more than Chicago’s, I suppose.
California property taxes are around 1.2% of assessed valuation plus in applicable areas Mello-Roos subdivision fees where applicable which increases the tax rate to around 1.9%.
One word: China
Multiple bids over asking in many markets these days. Reminds me of the inflationary 70’s in the SF Bay Area when folks were camped out in front of builders offices hoping for a chance to be lucky enough to get into a new home. Prices more than doubled from the early 70’s to 79 or 80 in that area.
All being priced in dollars, maybe there are just too many of them floating around out there, especially in China? For years the Fed has been exporting it’s print fest to China in exchange for imported goods. Now they are coming home to roost.
All fine, if the Fed can keep the flow going. If not, I guess it’s a way of sopping up a supersized TMS without needing to raise rates, when/if all these bubbles pop and trillions of these funny bucks evaporate.
Meanwhile, can we blame those who’s preference is bricks and mortar rather than zirp yielding, reward free risk Treasury paper? Certainly, they also know that holding all those Federal Reserve Note debt instruments is a losers game. At least with a house one holds something real, rather than implied.
Deflation? Ha!
The Federal Reserve has certainly no “exported its print fest” to anyone and 100% of the $3.6 trillion in QE funds has always remained INSIDE THE FEDERAL RESERVE in the required and excess reserves accounts there. No money to “given to anyone as part of QE which was merely a series of ASSET PURCHASE PROGRAMS. More than $2.5 trillion resides in the excess reserves accounts of those banks inside the Federal Reserve and has always been kept in those account since it was created.
In huge contrast, China and the PBOC have literally printed more than $30 TRILLION of renmnbi and credit over the past 10 years despite the fact that their $10 trillion economy is only about half the size of the US economy and China as a result has created the most unprecedented money and credit bubble in the history of the world all by itself and now renmnibi are sloshing all over the place including into capital flight into real estate outside China.
Radio ads here in the SF Bay Area are recommending buying rental housing in Georgia and Dallas. That is because there is nothing cash positive here. I like the old adage “buy the rumor and sell the news”. I suspect that its time for the investors to get out so hence the radio bits. This roller coaster ride is going to be amusing. Unless you are on it.
With property taxes based on property values, and property values based on recent sales, there are going to be a lot of pissed off people concerning the hike in property taxes that they now face at the end of the year.
Hot money from China, and, at least here in Seattle, LLCs and real estate investment companies. Nonexistent cash disclosure laws for international buyers allow foreign nationals to launder money. The FED and all local governments love this (better financial data, and more property tax loot). Another thing that is helping is the continued suspension of mark to markert rules for the banks. Housing fraud is the only game in town!
Tulips baby……..tulips.
You read about the old one…. now we get to live through the new version!
Only way not to get burned is not to play.
What is the monthly rental for a $1 or $2M home in Vancouver? It’s my impression that the rental vs owning costs there are totally disconnected. I looked at vancouver monthly rentals and they seemed reasonable esp converting from mighty US dollar.
Have Victoria (city) prices run up apace with Vancouver?
I rented a $3 million dollar home for $4200 – born and raised here but can’t afford to buy as we left the area for 20 years and then moved back. Once my kids are finished highschool I’m out of here! When all your earnings go to rent/mortgage, that’s not living.
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I’ve owed a home mortgage free for decades.
That was my first priority…. paying off my mortgages [on two houses]… but that was when interest rates were much higher.] My current 2200 sq ft house in a nice neighborhood in the Dallas area only cost $135,000 in 2001 [housing prices have since gone way up.]
The irony is… today because I intentionally keep my current income as low as possible… I would not qualify for a mortgage.
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Those are clearly not arm’s length transactions, what we have is Chinese family members selling to other family members to move capital from China, the higher the sale price the better.
It is all a scam to defraud Chinese banks.
Connected Chinese people take huge loans on Chinese banks and move that money and their family in the property in Vancouver asap. The loan to the Chinese bank will never be paid back.
That aside, time for Mish to admit that he has been totally wrong on Vancouver RE for the last 8 years that I follow him.
How long do you have to be wrong to admit that your analysis was flawed?
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As always, the issue is the State.
Without its diktats, houses that could be built for $300k would not be sold for ten times that.