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By now you’ve likely seen uncountable articles reported from many sources advising that there is a housing bubble and we are headed for a crash.  Here are a few recent reasons why:

Until this past year Canada’s economy, while shaky, was not in terrible shape. The US/Euro recession made our banks, bonds and economy look safe and a cozy place to park investments. Those turned out great returns over the past 7 years up until this past year when we saw oil & gas plummet and the Canadian dollar be dragged down with it. Last year 10 out of the 12 months Canada was in a recession and finished 2015 with a dismal 1.2% inflation. A healthy economy functions at 3% and our outlook for 2016 according to Government is 1.8% – this is not good. 80,000 jobs have been lost in as a result of the oil crash at a time when Canadian’s have struggled to find full time and good paying jobs. We have yet to see the ripple effect of a prolonged downturn in oil & gas. 

Canadian’s as a whole are in debt. Statistically for ever $1 Canadian’s earn they are spending $1.64 – looking back prior to the US crash they were under $1.24. This is a big difference, Canadian’s are just too far in debt to handle a shaky economy (let’s be honest debt is never good no matter what) The problem is banks by and large continue to lend MORE and MORE. As a personal experience. In the past month the two major banks I deal with have given me an extra $50,000 in unsecured available credit when I already had more than enough. Why are they extending me my annual income in unsecured debt? This alarms me because if things go sideways massive defaults could occur. 

Interest rates are rising and there’s nothing Canada can do about it. With the crises in the European Union continuing to affect North American business operations, government and corporate bonds are starting to suffer. Investors know anyone doing business with any European nation is at higher risk of defaulting. For that they are demanding a higher rate to get a long-term loan that a bank can then offer to their lending clients. This risk is also affecting Canadian bond rates. The US raising their rates also has an affect on bond yields in Canada as investors obtain a higher yield from the US and capital markets are attracted there. We could very well see fixed rates back up to 4.5-5% as the US plans to raise their overnight rate 2-4 times per year over the next two years. Next BOC announcement is Jan 20, The Fed Jan 26. Indebted Canadians have known only 3% interest rates for the past 7 years and according to CMHC a 1.5% increase in mortgage rates would make mortgages unaffordable for 20% of Canadian mortgage holders. Not good when we are in a recession. 

China is unpredictable and volatile. Their stock market was halted this week. Twice. And also late June of last year. It has been stated that China’s economy has been falsely propped up and is in a bubble of their own. They are our largest purchaser of resources. If they slip into a recession we slip further. China is still a communist country, if they pass restrictions or laws to save their domestic soil, we could be in trouble. Our real estate market is heavily reliant on overseas buyers. The backlash could go one of two ways – maybe Chinese continue to park money in investments elsewhere in the world. Maybe they can’t or won’t. Sadly, we have now stats to this point and all opinions I’ve found are purely speculation. 

I hope we simply level off and the supply/demand of real estate in Greater Vancouver and Lower Mainland balances. These are real issues Canadian’s are facing and the reasons why people say “we are in a bubble”.

Province posts highest number of residential unit transactions ever recorded for the month of December, propping up weaker Canadian markets

Joannah Connolly
Other

Home sales across BC smashed all December records, according to BC Real Estate Association (BCREA) figures issued January 15.

There was a total of 6,590 residential unit sales on the Multiple Listing Service® (MLS®) in December 2015 – a rise of 29.8 per cent from December the previous year.

BC’s total home sales dollar volume in December hit a record $4.62 billion for the month of December, up 55.4 per cent compared to the previous year.

This is attributable to both rising transaction volumes and the average price in the province climbing above the $700,000 threshold for the first time in BC, rising 19.7 per cent from December 2014 to $700,943.

“The 2015 housing market finished in dramatic fashion, with record demand for month of December,” said Cameron Muir, BCREA’s chief economist. “BC home sales breached the 100,000 unit threshold in 2015, and it was only the third time on record that this high watermark was achieved.”

Across 2015, BC residential sales dollar volumes rose to a record $65.3 billion over the year, up nearly 37 per cent from the previous year.

The average annual residential price reached a record $636,627 over the whole of 2015, up 12 per cent from 2014. A total of 102,517 residential unit sales were recorded, an increase of 22 per cent compared with 2014 and a figure eclipsed only by 2005 and 2007.

BC totals tend to mask the significant variations between different markets across the province, with the major southern regions seeing huge increases in sales and dollar volumes, and some of the smaller regions seeing declines in transaction and dollar volumes, especially in the north and Interior of the province.

Of the larger markets, the largest increase in sales was again recorded in the Fraser Valley, where home sales climbed 33.5 per cent from December 2014. Greater Vancouver and Chilliwack remained in second and third spots for transaction growth, up 28.1 and 25.6 per cent respectively.

Unlike previous months, at a massive 47 per cent, the Fraser Valley’s sales-to-active-listings ratio eclipsed even that of Greater Vancouver, taking that region deepest into sellers’ market territory.

Across the whole of Canada, the story was relatively moderate, with the softening markets in resource-dependent provinces pulling down the overall sales activity rise, according to Canadian Real Estate Association (CREA) figures also released January 15.

Total sales rose 10 per cent on a year-over-year basis in December to. CREA reported that sales activity was up compared with December 2014 in about 60 per cent of all local markets, led by BC’s Lower Mainland.

The national average sale price rose 12 per cent on a year-over-year basis in December. However, excluding Greater Vancouver and Greater Toronto, it increased by 5.4 per cent.

“December mirrored the main themes of 2015, with strong sales activity and price growth across much of British Columbia and Ontario offsetting declines in activity among oil producing regions,” said Gregory Klump, CREA’s chief economist.

“The recent decline and uncertain outlook for oil prices means that housing market prospects are unlikely to improve in the near term in regions where job market prospects are tied to oil production.”

© 2016 Real Estate Weekly

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Local real estate set to slow but continue to grow, with detached homes still a hot commodity, predicts brokerage

Joannah Connolly
Other

After a record-breaking year for local real estate, Greater Vancouver home prices are predicted to rise nine per cent overall in 2016, largely due to “eroding affordability”, according to the Royal LePage quarterly house price survey released January 13.

Despite being much more moderate than 2015’s 14-19 per cent house price rises, Royal LePage’s nine per cent growth forecast for Vancouver is by far the biggest predicted rise in Canada, with Toronto a distant second at 5.5 per cent.

“The frenetic pace of our country’s largest housing markets should moderate throughout the year ahead,” said Phil Soper, president and chief executive officer, Royal LePage. “While most of the country will continue to see house value appreciation in 2016, we expect that the pace of price increases in Greater Vancouver and the Greater Toronto Area – where real estate appreciation has significantly outpaced job and wage growth – will settle to a more sustainable price increase trajectory.”

Alan Stewart, regional manager at Royal LePage Sussex, agreed. “The year ahead is going to be an interesting one in the [Greater Vancouver] region,” he said.

“Home prices are undoubtedly going to continue upward, although likely at a less frantic pace. While the supply and demand dynamics that have guided the market in recent periods will continue, we expect the rate of house price appreciation in the region to see a … single-digit price increase trend.” 

This time last year, Royal LePage predicted that Vancouver house prices would rise 2.8 per cent in 2015  – a figure that it revised in July to 9.4 per cent following a scorching spring market. 

Looking back over last quarter of 2015, Royal LePage reported that the aggregate price of a home in the region rose 12.4 per cent year-over-year to $949,468. (Aggregate prices differ considerably from benchmark prices reported by the real estate boards, as they are created using a weighted average of median prices in the region.)

Unsurprisingly, with the cost of land soaring, it was detached homes that rose the most in price. Single-storey homes surged 16.8 per cent year-over-year to $1,025,604, while two-storey houses climbed 12.2 per cent to $1,259,289.

Condos also saw strong price growth during the quarter, increasing 7.2 per cent to $476,213.

“At the close of a record year for real estate in Greater Vancouver, it was a seller’s market across the board,” said Stewart. “Inventory remains constrained in many areas of the city, pushing prices even higher. The supply shortage is particularly critical for detached homes, which explains the double-digit price appreciation for this housing type in almost all neighbourhoods.

“Squeezed out of the freehold market by high prices, younger homebuyers are looking at condominiums or options further from downtown. In many instances the markets for these alternatives are becoming as hot as the ones for detached homes in more established neighbourhoods and central Vancouver.”

Across the country, the price of a home in Canada increased 6.5 per cent year-over-year in the last quarter of 2015 to $500,688. The price of a two-storey home rose 7.7 per cent year-over-year to $610,134, and the price of a bungalow increased 5.4 per cent to $420,082. Condo prices across the country rose a modest 3.1 per cent to $341,448.

Looking ahead to 2016, Royal LePage predicts that the median price of a home in Canada will increase at 4.1 per cent for the full year compared with 2015

The report added, “Royal LePage expects the price of residential real estate in Canada to be more heavily influenced by macroeconomic factors than by housing-specific variables, such as tighter regulation in the mortgage industry.

“The Bank of Canada is expected to keep its overnight rate steady through the all-important spring market, extending the prolonged period of exceptionally low borrowing rates.”

© 2016 Real Estate Weekly

Justin da Rosa
Other

Now may be the time for agents to break into the luxury housing market – at least in these two specific markets.

The luxury market is booming in Toronto and Vancouver, and agents on the fence about delving into the market may be enticed to do it sooner than later.

“It was a very strong year for the luxury market in Toronto,” Jimmy Molloy, an agent with Chestnut Park Real Estate Limited, told REP. “There was a tremendous amount of buyers both locally and internationally.”

A report released by Sotheby’s International Realty Canada found 11,112 luxury homes – worth more than $1 million – were reported in the Greater Toronto Area last year. That represents an increase of 48% year-over-year.

Meanwhile, agents on the left coast fared just as well.

Vancouver saw 4,578 homes over $1 million changing hands in 2015 – a 46% increase over 2014’s mark.

Further, the study found that the greatest boom was for housing costing more than $4 million. Toronto saw an 71% increase in homes in that category, and Vancouver sales grew by 67%.

“We had a lot of buyers who were very eager to enter the market, and they were bidding on a limited number of homes, particularly in premier neighbourhoods,” Elaine Hung, vice-president of marketing for Sotheby’s International, told the Canadian Press.

With both markets booming – and showing little sign of slowing down – it seems agents are poised for another good year. And those agents interested in the luxury market may decide to defer no longer.

After all, while the deals may be further and farther between, they certainly provide a much handsomer commission.

Copyright © 2016 Key Media Pty Ltd

REP
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The Playboy Mansion will be put up for sale for $200 million next month, Playboy Enterprises announced on Saturday (January 9).

The Holmby Hills mansion and its six acres of land will be opened for bidding within February, with one condition: The winning buyer will have to give Playboy owner and publisher Hugh Hefner the right to live in the estate until his death.

Real estate experts noted that the asking price is far in excess of the property’s actual market value, however. Industry observers working with TMZ said that the mansion’s value has been previously estimated in 2011 at $54 million, with the final selling price expected to be in the $80 to $90 million range.

Hefner faced a lawsuit five years ago on allegations that he undervalued the estate on the heels of Playboy going private.

Hefner purchased the mansion back in 1971 for $1.05 million.

Copyright © 2016 Key Media Pty Ltd

Real estate values are evidence of a system that is unregulated to the point of being socially destructive

Allen Garr
Van. Courier

I  must say, in spite of voluminous commentary to the contrary elsewhere, I find no great pleasure in seeing the assessed value of my property escalating beyond belief this past year.

The unintended social consequences of what is taking place in Vancouver sees people being priced out of a market in a town where they grew up and where their parents and their grandparents could afford housing on a modest salary.

No joy there. It is just evidence of a system that is unregulated to the point of being socially destructive.

I am not alone, of course. The little knot of neighbours that gathered on my corner a few days ago were hardly boasting of being Vancouver’s newest multi-millionaires. Our neighbourhood, Kitsilano, was once working class. The most recent house to sell on our block, a house on a 33-foot lot my neighbours note, sold for more than $3 million. Beyond the “holy cows” and the “you’ve got to be kidding,” there was real concern expressed about what this is doing to the sociology of our neighbourhood, and for that matter, to the whole city. “Affordability” is just another 13-letter word with no particular meaning when it comes to Vancouver.

I suppose that sale price made the developer happy. He bought what is referred to as a “tear-down” just over a year ago for $1.2 million. According to the real estate agent who just sold that house, he spent about $700,000 building the new house. So he walked away with just over a million bucks for his trouble and less than a year’s work.

I won’t even speculate as to how the young single woman who bought that house came up with either the cash or the line of credit to make the purchase. The real estate agent told me: “I never ask.”

My assessment, in case you were curious, went up 25 per cent. I will undoubtedly get a tax increase because it went up well beyond the city average of about 15 percent.

To add a little more perspective, my house and land are now assessed at 40 times (that’s four zero) than what I originally paid for it. My intention way back then was not to buy something that would be an investment. It was not some visionary act of genius. I just didn’t want to move.

I actually was a tenant in the house and the owner felt forced to sell when I had him charged under the city’s minimum standards of maintenance bylaw. The joint was falling apart. After I talked several prospective buyers out of making an offer, the owner dropped the asking price and I bought it.

Just to further make a point. My income has not increased by anywhere near 40 times since. The little political gesture, the homeowners grant, created by WAC Bennett back in the day to ease the burden of property tax, is virtually unavailable for any owner of a single-family home in this town. The additional break given to seniors, presumably to compensate them for the fact they have had a decline in income, is also just a distant memory.

I suppose you could say that all of this provides an incentive for people who find themselves land rich but cash poor, to sell and, um, “downsize.” The trick would be to stay in the city.

And as the followers of Vancouver Vanishes author Caroline Adderson or Globe and Mail reporter Kerry Gold will know, the people who buy those houses are not simply a younger version of those who are selling and moving on.

Nor is it likely the houses being sold will be left standing. Gold had a story, perhaps an extreme example, this past week of a 14-year-old 8,700-square-foot mansion on Southwest Marine Drive that sold in 2011 for $6.35 million. It was flipped two years later for $8.88 million and has since been flattened to make way for a 14,000-square-foot pile.

All levels of government are wringing their hands over what this kind of phenomenon means to the very nature of our city. None, however, has managed to do anything about it except to shrug and point fingers.

So, am I happy about assessment values going through the roof?  Why would I be?

© 2016 Vancouver Courier

Sales of $1m-plus properties rise 46 per cent last year; sales in the $4m-plus sector increased by more than two thirds, reports luxury brokerage

Joannah Connolly
Other

Soaring home prices, especially at the higher end of the market, meant that Vancouver was Canada’s leading city for growth in top-tier ($1 million-plus) home sales in 2015, according to Sotheby’s International Realty Canada’s year-end Top-Tier Real Estate Report.

In 2015, 4,578 properties (including condominiums, attached homes and single-family homes) sold for more than $1 million in Vancouver – a 46 per cent rise compared with 2014. Of last year’s sales, 2,706 went for between $1 million and $2 million.

The gains were even bigger in the $4 million-plus sector, in which sales increased 67 per cent to 422 homes in 2015, up from 253 units in 2014.

When broken down by property type, Sotheby’s reported that the detached home market continued to be the most active of the property types within the top tier, with a total of 3,454 units sold above $1 million in 2015, an increase of 42 per cent over 2014.

Sales of townhouses, rowhomes and other attached properties over $1 million surged 95 per cent year-over-year, reflecting the rise in inventory of these properties, as the actual numbers were relatively small. There were 445 attached home sales over $1 million in Vancouver last year, compared with 228 in 2014. Of last year’s 445 sales, just two were for more than $4 million – “due largely to a lack of available inventory,” according to Sotheby’s.

Vancouver’s condo market saw a 44 per cent year-over-year increase in sales volume over $1 million, with 679 sales in 2015 versus 473 in 2014. Of the 679 sales last year, 528 were between $1 million and $2 million, and 32 were for more than $4 million.

Sotheby’s said of Vancouver’s condo market, “Due in part to rising property prices, the $4 million-plus category had the most notable gains, with an 88 per cent increase in transactions in 2015 overall, and a significant 163 per cent increase in number of units sold in the latter half of the year compared to the same six months in 2014.”

© 2016 Real Estate Weekly

Michael Mui
Other

Vancouver has lost more than 400 units of affordable older stock housing to redevelopment over the past seven years.

And even with the renter displacement protections offered by city hall, those given the boot can expect rents of newer buildings to be far higher than what they’ve paid previously.

Data provided by the City of Vancouver through the freedom of information process reveals 49 properties were given demolition permits between January 2008 and August 2015.

In all, they represent 430 units of some of the cheapest rental stock in the city. In Vancouver, rental properties built before 1989 are on average 30% cheaper than new buildings built after 2005, according to the Canadian Mortgage and Housing Corporation.

“Usually older buildings, not only just the depreciation that’s taken place, but also the location of some of these units may be less desirable,” said Richard Sam, principal market analyst with CMHC.

“When you have newer units you are looking at modern fixtures, newer locations, over time things evolve with transportation routes and public transport. New units have very close to condo-like amenities. The demand for those just seem to be much higher and probably the cost to build those units are much higher than the past.”

CMHC data shows the average price of a post-2005 rental building in Vancouver is $1,674. The average monthly rent of one built before 1989 is $1,187.

With the exception of a single building built in 1990, none of the 49 demolished buildings were built after 1975. Five are more than a century old, according to data provided by BC Assessment.

“The older the building the less the rental rate is. The walk-ups or whatever that are 50 years old, they’re generating $1.75 to $2 (of monthly rent) per square foot,” said Les Twarog, a Realtor with RE/MAX Crest Realty Westside who has compiled data on more than 17,000 rental and strata properties in the region.

“The newer buildings and again in Vancouver, Elan, 1255 Seymour, would get about $2.50 a foot. The newer, higher buildings like 1483 Richards would get $2.75 to $3 per foot.

“High end buildings like Shangrila — 1111 Alberni or 1128 W. Georgia — would get $3.50 per foot. Furnished would get $5 per foot.”

While the city’s data does not break down which demolished buildings are strata and which are rental properties, the vast majority of those demolished are likely rentals, Twarog said.

That’s because demolishing strata properties requires redevelopers to buy out each unit owner. Rental apartments are comparatively easier to tear down, particularly if the property has fewer than six units.

Any more and Vancouver City Hall’s official development plan requires builders to replace the same amount of rental units at the new building in a “one-for-one” process, the city said in a statement.

Among the demolished properties, 27 of the 49 buildings had fewer than six units, which means developers did not have to replace the rental stock.

The seven years worth of demolitions are but a snippet of the lost older rental stock in the region. CMHC has records of the age and quantity of rental units in Vancouver dating back to 1990. These records show from that time, Vancouverites have lost 4,448 units of rental housing built before 1999.

Meanwhile, 4,550 of the new, more expensive units built after 2000 have sprung up.

Despite the loss of older, affordable rental stock, experts like Metro Vancouver senior housing planner Margaret Eberle believe the best solution is to increase the supply until the price balances out.

“We have a very low vacancy rate (0.6% as of October 2015) … the thrust of the regional affordable housing strategy is to increase the supply and that would relieve some of the pressure on the rental housing stock,” she said.

“We started to see some new development, which is great, and we also see some municipalities adopting tenant-relocation strategies to help in terms of moving costs and notice for eviction.”

These protections, at least those recently adopted in Vancouver, will require landlords to pay tenants two months rent and moving expenses upon eviction, starting on Feb. 15.

For renters like Amanda Stewart, however, the waiting game for more supply to show up simply isn’t working.

“I’ve been looking for 18 months … I do work full time, but with a car payment and bills and gas and stuff I can’t afford more than $800 a month,” said the Surrey resident, who aims to move to Vancouver to be closer to her job.

“I found a couple of older buildings on Main and say 24th Avenue and some of them still wanted $1,300-1,400 per month … I haven’t given up — I keep putting out an ad every month.” 

Vancouver’s current rental stock breakdown by construction date

Pre-1960 14,626

1960-1979 30,965

1980-1999 6,377

2000 or newer 4,550

Source: CMHC

© 2016 24Hours Vancouver

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It was recently announced that the minimum down payment rules for insured mortgages in Canada are changing on purchases after February 15, 2016. These changes have created confusion for consumers, so Fifth Avenue is here to help clarify what this really means to you. If you are planning on purchasing a home under $500,000 after February 15^th this year, this rule change does not affect you at this time. However, if you are planning to buy a home over $500,000 this change could increase the amount of down payment or deposit you will need to make to purchase by 1/3 or more.

Basically, instead of a minimum down payment of 5% on the purchase price of home, you will be paying 5% on the first $500,000 and 10% on the remaining portion over $500,000.  

So if you bought a $750,000 home today, your minimum down payment would be calculated as 5% on the entire purchase price. 0.05 X $750,000 = $37,500 minimum down payment.

After February 15^th, 2016 the minimum down payment would be calculated as 5% on the first $500,000 and 10% on the remaining $250,000.  (0.05X $500,000) + (0.10 X $250,000) = $50,000 this is an increased upfront cost of $12,500 or 1/3 more savings required. . 

Let’s Break it Down.