Is this the sign of a bursting bubble?

[Dagger]

Originally Posted by Winsor_Pilates

Not to detract from the discussion on Calgary, but this study released yesterday is getting a lot of talk in Vancouver right now:
Housing Market Fuelled by Chinese Buyers

To Summarize:
-Around 66% of detached houses bought on Vancouver's Westside were by Mainland Chinese buyers.
-Number 1 occupation of the buyers was "housewife"; "student" was also high on the list

I think this is a case of wanting to have your cake and eat it too. Immigrants have the same right as you or I to come to this country and buy a property. Turning around and levying a tax against them for doing so, because it drives up property prices is tremendously unfair, and additionally inefficient with respect to how the market for property should work.

[blankall]

Originally Posted by Winsor_Pilates

Not to detract from the discussion on Calgary, but this study released yesterday is getting a lot of talk in Vancouver right now:
Housing Market Fuelled by Chinese Buyers

To Summarize:
-Around 66% of detached houses bought on Vancouver's Westside were by Mainland Chinese buyers.
-Number 1 occupation of the buyers was "housewife"; "student" was also high on the list

It's definitely relevant to the discussion of housing prices in desirable neighbourhoods in all major cities in Canada. It represents a total failure by our government to protect its citizens. Canada is one of the few countries in the world without proper regulations and tax schemes to deal with this. Foreign investors are taking advantage of the situation.

[blankall]

Originally Posted by Dagger

I think this is a case of wanting to have your cake and eat it too. Immigrants have the same right as you or I to come to this country and buy a property. Turning around and levying a tax against them for doing so, because it drives up property prices is tremendously unfair, and additionally inefficient with respect to how the market for property should work.

It's not immigrants though. It's non-residents storing money here. It's money they are taking illegally out of their countries of origin and laundering via Canada, because Canada has become an easy target. Canada is one of the few targets left in the world that has not put some kind of regulations into place.

To illustrate the difference, Immigrants are people who move to Canada and, generally, contribute to the economy. Non-resident investors just park the money here. Meanwhile the residents' taxes go towards providing the infrastructure necessary for their real estate (roads, electricity, plumbing, sanitation, etc...). Investing in real estate, unlike other forms of foreign investment, is passive and does nothing to stimulate the local economy.

[Harry Lime]

Originally Posted by Dagger

I think this is a case of wanting to have your cake and eat it too. Immigrants have the same right as you or I to come to this country and buy a property. Turning around and levying a tax against them for doing so, because it drives up property prices is tremendously unfair, and additionally inefficient with respect to how the market for property should work.

The primary purpose of a housing market is to effectively house the citizens of the county of residence. The economic benefit of residential real estate should be a derivative of housing of the resident population. Many countries have passed laws restricting or outright prohibiting what is happening in Canada.

Levying a tax on foreign investment is fair. Restricting the purchase of residential real estate from foreign investment is middling fair. Forcing the cost of a home out of the reach of ordinary Canadian citizens is unfair.

[Locke]

Originally Posted by blankall

It's not immigrants though. It's non-residents storing money here. It's money they are taking illegally out of their countries of origin and laundering via Canada, because Canada has become an easy target. Canada is one of the few targets left in the world that has not put some kind of regulations into place.

To illustrate the difference, Immigrants are people who move to Canada and, generally, contribute to the economy. Non-resident investors just park the money here. Meanwhile the residents' taxes go towards providing the infrastructure necessary for their real estate (roads, electricity, plumbing, sanitation, etc...). Investing in real estate, unlike other forms of foreign investment, is passive and does nothing to stimulate the local economy.

Well said.

And many countries do hold restrictions based on citizenship and residency.

I have a client right now that wants to buy a property in Australia to retire to and she cant because despite being a citizen she isnt a full-time and local resident.

[The Yen Man]

Yah, I'm not sure why Canada is dragging their feet on this. Heck, even Hong Kong has some protection against Mainland Chinese who want are buying properties in Hong Kong, and they're part of China! (not that it helps much with their already high prices which the average citizen can't even dream of affording, but that's another discussion)

[blankall]

Originally Posted by The Yen Man

Yah, I'm not sure why Canada is dragging their feet on this. Heck, even Hong Kong has some protection against Mainland Chinese who want are buying properties in Hong Kong, and they're part of China! (not that it helps much with their already high prices which the average citizen can't even dream of affording, but that's another discussion)

It sounds to me like the government is worried about causing the bubble to pop. So instead of limiting foreign investment, they've decided to make it easier for Canadian citizens to access mortgages by lowering interest rates.

In my opinion, this has just driven an inflationary process that wages haven't caught up to. Meanwhile the bubble has just gotten more inflated and is now entirely dependent on factors outside of our control (mainly the state of the economy in China).

[GGG]

Originally Posted by Harry Lime

Locke and Peter are headed in the right direction. I love reading economists talk about predictions, and if we are lucky get to look at some nifty graphs, but when a 'bubble' has been identified, what they do is 'burst'.

All we are really waiting for is an inciting incident.

An unpredictable event that will bring prices back down to what is affordable for the majority of the population. What will this be? When will it happen? The only thing that we know is that the cost of buying a house has exceeded the buying power of a large portion of the population. Housing is a necessary part of life.

Real estate experts are fun to listen to, but in this particular scenario they will be 'caught off guard', by definition.

My problem with all the bubble talk is that it assumes we have a bubble.

I would say a reasonable market would have the following traits

Cost of new contruction plus reasonable profit = selling price
Price of rents support mortgage + taxes + profit

If these to things are occurring then you don't have a bubble and in Calgary both of these have been reasonable true while the oil industry has been strong. So to say we have housing bubble in Calgary in my opinion would be false as the underlying items to support housing are there.

It will be interesting to see how much room new housing prices have to go down with the cost of construction decreasing. Once you hit the point where the delta between new construction and existing is too high to justify purchasing new, construction stops.

So we might be entering a period of uncertainty but I don't think you see a burst of a bubble because one never existed. Increased interest rates and flat growth may cause small decreases and flat growth for the next 10 years as the boom unwinds but you aren't going to see a 30% drop in housing price Year over year.

If you believe we are in a bubble what would be the year over year decline in housing price you would need to see to say it pops.

(I am referring to Calgary as opposed to Vancouver or Toronto)

[Locke]

Originally Posted by blankall

It sounds to me like the government is worried about causing the bubble to pop. So instead of limiting foreign investment, they've decided to make it easier for Canadian citizens to access mortgages by lowering interest rates.

In my opinion, this has just driven an inflationary process that wages haven't caught up to. Meanwhile the bubble has just gotten more inflated and is now entirely dependent on factors outside of our control (mainly the state of the economy in China).

Any tax or levy against the foreign investment is political suicide because the money would come pouring out of Vancouver and would be akin to taking a needle to the balloon.

This only works because its easy and suits the needs of the people doing it. As soon as this no longer holds true they'll leave to somewhere else that suits their needs and they'll leave the entire situation in ruins.

Thats the Government's job, to the set the rules of the game.

[Buster]

Originally Posted by Dagger

I think this is a case of wanting to have your cake and eat it too. Immigrants have the same right as you or I to come to this country and buy a property. Turning around and levying a tax against them for doing so, because it drives up property prices is tremendously unfair, and additionally inefficient with respect to how the market for property should work.

We have a very distorted market in Canada (and big parts of the world) with respect to real estate.

Taxation on foreign investment is the least of our worries in terms of government intervention in the markets.

Let interest rates float, and get rid of the CMHC and force lenders to take on the entirety of mortgage risk....and then you would start to see a functioning market.

[Buster]

Originally Posted by Locke

Any tax or levy against the foreign investment is political suicide because the money would come pouring out of Vancouver and would be akin to taking a needle to the balloon.

This only works because its easy and suits the needs of the people doing it. As soon as this no longer holds true they'll leave to somewhere else that suits their needs and they'll leave the entire situation in ruins.

Thats the Government's job, to the set the rules of the game.

There still seems to be some debate about the degree to which hot money is flowing into the Vancouver market. My inclination is to think it's a factor, but less than the conventional wisdom in the city would lead you to believe.

[ranchlandsselling]

While I don't generally agree with a lot of what Garth Turner has to say, he did touch on this Vancouver "study" earlier today or yesterday.

And here’s the story. A local Dipper politician (David Eby) pulled land records for 172 sales in one small area of Vancouver (on the ultra-expensive Westside) and handed them over to a researcher for analysis. By the way, 172 sales represents 0.52% of the 33,116 residential properties that changed hands last year, and closer to 0.4% of the number expected to trade in 2015. In other words, it’s statistically meaningless.

But that never stops a good story. So Eby’s guy then looked at the names of the 172 buyers, screening them for ‘non-anglicized’ Chinese names, which is a racist little thing some people do in Vancouver to try and ferret out Asians who might be more Asian than the vast number of locals of Asian heritage. Of course just looking at names does not reveal if the buyers are Canadian citizens, landed immigrants, permanent residents or the children and spouses of people working abroad but investing here.

To David Eby’s shock and delight (the media now loves him) the researcher concluded 70% of the names looked like they belong to people from China. And to further rattle the city, it was revealed that 82% of the purchases involved mortgages – so obviously the banks have been in collusion with the billionaire communists. (Even though it kinda squelched the meme of crooked Chinese investors arriving with bags of cash.)

To recap: an analysis of a handful of sales in one area very popular with Asian buyers, representing one half of one per cent of all Vancouver sales, found seven in 10 have names that might suggest they’re possibly from China, but could actually be Canadian residents or citizens. Wow. Front-page stuff. But it didn’t stop there. Dig this bit of reportage from one of the biggest China-bating media outlets in Canada, the Globe and Mail:

[blankall]

Originally Posted by ranchlandsselling

While I don't generally agree with a lot of what Garth Turner has to say, he did touch on this Vancouver "study" earlier today or yesterday.

I apologize for derailing this thread, and making it about Vancouver.

However, when the cost of a tear down on the East side is 1.5 million, it's not the average Vancouver resident who is capable of buying and then renovating a property like that.

[heep223]

Much more worried about the long term political and social pressure on the energy business than about the current market cycle.

[polak]

I'm more worried about the complete lack of a back up plan for if oil stays at this level for the foreseeable future.

[peter12]

Originally Posted by polak

I'm more worried about the complete lack of a back up plan for if oil stays at this level for the foreseeable future.

What kind of back-up plan? Like a secret plan in a government vault?

There are firms in this city that are profitable at $50/bbl.

[polak]

Originally Posted by peter12

What kind of back-up plan? Like a secret plan in a government vault?

There are firms in this city that are profitable at $50/bbl.

Yeah. Some sort of plan on any level. Even the attempt to make a plan.

Floating in and out of profitability isn't going to work...

[Ducay]

Originally Posted by peter12

What kind of back-up plan? Like a secret plan in a government vault?

There are firms in this city that are profitable at $50/bbl.

Some people have a terrible memory and think that these prices are somehow a death knell for the industry. These prices are terrible for terrible producers; at $100 oil anyone can make bank. Employment levels and capital/operating costs were arguably out of control and needed a correction. The industry survived and thrived for year at oil under $60.

Average '01 25.94
Average '02 26.09
Average '03 31.14
Average '04 41.42
Average '05 56.46
Average '06 66.09
Average '07 72.27
Average '08 99.59
Average '09 61.63
Average '10 79.43
Average '11 95.00

[polak]

Yes but in regards to this thread, how many people moved here and were relying on those terrible producers and the companies that service them for money to pay their mortgages?

[Dentoman]

Originally Posted by polak

I'm more worried about the complete lack of a back up plan for if oil stays at this level for the foreseeable future.

I'm too lazy (or incompetent) to adjust it for inflation or to look it up to confirm, but in the late 90's the Canadian dollar was around $0.65 US and I believe oil was below $20. Oil companies existed and made money then, they will still going forward.