We know you’re busy. You’re also smart, and curious about the real estate market. So here’s the TL;DR version of the most important insights in real estate this week.
Global
Tracking global capital flows in Asia produced some interesting insights.
Flood Of Foreign Buyers In March? Nope. China’s FX Reserves Rise Again
The FOMO is real. China’s new capital controls put in place in January has stopped the Mainland Chinese buying spree, and analyzing global foreign exchange reserves definitely supports that. China is now seeing capital inflows, instead of outflows in 2017. Although it’s cute to hear people think they beat super rich investors at a bidding war by maxing out their credit. Read the full story.
Even North Korea Is Experiencing A Real Estate Bubble
Global real estate speculation is leaving no part of the world untouched, as people start using property as lottery tickets. Even North Korea, where private property ownership is illegal, and the median annual income is only US$36 dollars, we saw prices climb in line with tier 2 financial capitals like Toronto, and Vancouver. In case you’re curious, they all dwarfs tier 1 cities like New York, and London. Read the full story.
North Korea’s state media announces a tower in Pyongyang was built at a story per day.
Vancouver
A look at how effective the foreign buyer tax was (or wasn’t), and analyzing population growth.
Vancouver’s Foreign Buyer Tax Didn’t Stop Real Estate Sales, China Did
The foreign buyer tax is being sold politically as extremely effective, however the large drop now looks more like a market “squeeze” event. Shortly after that, foreign buying continued to increase right up until January, when China passed new rules preventing the exchange of capital for real estate. That’s right around when sales started to taper. Read the full story.
Analyzing Vancouver Real Estate And Population Growth
We dropped an intro on analyzing buying and selling potential market size in Vancouver. Using the province’s projections, the potential pool of first-time homebuyers vastly outpaces the pool of last-time sellers. This number is slated to flip in the future, but not nearly as much as cities like Toronto. Read the full story.
Toronto
Buyers pile into the market in March and a look at the relationship between rents and real estate prices.
Toronto Real Estate Prices Go Parabolic In March
Despite every major bank in the country calling Toronto’s real estate market overheated, buyers kept piling in. In March, all but one neighbourhood saw prices rise more than 15%, an increase that’s more than 3x that of cities like New York or San Francisco. Read the full story.
The Inverse Relationship Between Toronto Real Estate And Rents
We analyzed over 20 years of real estate prices, and rents. What we found is historically rents rise when real estate prices are weak, and real estate prices are weak when rents rise. With anecdotal evidence that rents are rising in Toronto, what does that mean for real estate prices? Read the full story.
Canada =real estate bubble.
Vancouver market is purely speculative. I’ve observed several of the same houses in my neighbourhood bought and sold two or three times in the last two years. Everyone is marking up and out to make more $$$ along the way. That is speculative buying/selling. The provincial government doesn’t care. Every time the same properties are sold the property transfer tax is revenue that keeps on giving. I’ve also been told my realtors and bankers that despite the supposed credit scrutiny, banks are still very lenient with mortgage lending, and most people are getting approved for high $ mortgages despite questionable profiles. Speaks a similar story to the U.S.
Keep buying propert people. The market is low and it’s going to go higher and higher! Really, it will. Next time your realtor tells you that it’s okay to spend 1.3 million on a house that sold the previous year for 850k and is assessed at 700k make sure you tell your realtor that you are willing to spend $1.5 mil to secure the house and outbid any other offers. You will come out on top! 🙂
Remember we are Canadian, and we will never have the same issues that are neighbours to the south who have a profoundly larger economic foundation than us.
That’s very obvious of you, Mr. Obvious. 😀
Credit fuelled markets like Canada work well on the way up. However on the way down, the question becomes, can the latest buyers afford the losses?
Looking at US comparable cities, I’d say detached homes in Toronto should average around $700K. Since the average is about $1.4 million, can the home owners who borrowed afford to lose $700K? That is, will they decide that bankruptcy is a much better alternative than paying off some massive mortgage like a loser. Once people start going bankrupt, then prices fall below that $700K. A huge group of people now bankrupting, and forces the market lower.
Also note that people reference the US that they have foreclosures you can walk away . That argument works when losses are around $100K. In the US, sure walk away. In Canada, just wait it out. However when losses are $700K it makes total sense to go bankrupt, which means you lose everything and can’t get a new mortgage for a decade. Foreclosures work fast to correct the market and get people back in, hence the quick US recovery. In Canada we could be talking about decades of pain as people will not be able to rebuild credit or keep their assets like in the US.
People walk away. It happened in 1990. With the growth of CMHC it definitely means less skin in the game and for sure, if the market were to correct 50% in Toronto / Vancouver, most recent buyers would be smart to let taxpayers pay off their mortgage.