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It’s A Water Slide, You Keep Going Till You Hit The Bottom

A weekend topic starting with the Globe and Mail in Canada. “One out of every 10 condos built between 2016 and 2017 in the city of Toronto is owned by a non-resident of Canada. And nearly 9 per cent of recently built condos from 2006 to 2017 in the city have had at least one non-resident owner on title, according to a new government data report analyzed by Andy Yan, director of the City Program at Simon Fraser University.”

“‘We are seeing that owning new and expensive property in Canada doesn’t necessarily mean you actually live in the country,’ Mr. Yan says of his analysis. ‘It’s illustrative of the global consumption of local residential real state, and how Toronto and Vancouver are chapters in the emerging new story of Canadian housing.'”

“In metro Toronto, there were 66,240 properties worth $44-billion involving ownership by at least one non-resident. In Metro Vancouver, by comparison, non-residents participated in the ownership of 58,710 properties valued at $76-billion. In metro Vancouver, the rate of non-resident ownership of new condos is much higher, close to one in five in the city and one in four in some municipalities.”

“The industry has definitely come to depend on the foreign buyer, says John Pasalis, founder of Toronto’s Realosophy Realty. The preconstruction condo industry is proof of that dependence. He points out that most local income-earners could afford to pay $1,000 a square foot for an existing condo unit rather than the $1,300 a square foot they’d have to pay for a presale. The non-resident buyer is more likely to take on that 30 per cent extra because they can flip the property as an assignment, prior to completion.”

“Mr. Pasalis was not surprised by the data, and fully expects that the numbers are much greater when the inflow of foreign money is factored in. ‘That [figure] is purely non-residents. If we think about what percentage is being fuelled by foreign capital, via someone who is a resident here, it’s probably more than double.'”

“Mr. Pasalis says the disheartening part is that government, including the CMHC, didn’t make an effort to obtain accurate data on the forces driving the housing market sooner, before citizens took on more debt in order to attain home ownership.”

“‘That’s the worst thing,’ Mr. Pasalis says. ‘What you would have expected from CMHC is, ‘yes, we have done this research, but it doesn’t mean there is no foreign money. These are the problems with the research methodology, and we need to do more.’ They didn’t do that. They came out and said, ‘Our stats say it’s only 4 per cent, so stop complaining about foreign money.’”

“Toronto mortgage broker Ron Butler has been in the mortgage business for 26 years and he always doubted government agencies and politicians who claimed that non-resident ownership was a non-factor. Now that it’s reportedly much more difficult for wealthy buyers to take money out of China, the market is slowing, depending on the neighbourhood.”

“‘Here’s the ultimate truth: They [non-residents] will stop coming and they are not required to buy. When there are no more buyers and the capital to do the buying is from somewhere else, there are no hand grips on this thing, there’s nothing to grab. It’s a water slide. You keep going till you hit the bottom – because now there’s nobody that would jump on that house for $2-million,’ he said.”

“Overall, Mr. Butler is optimistic about the Toronto market because the city is benefiting from immigrants who are growing the tech industry and other job markets. But he’s seen short-term consequences in the housing market he finds disturbing. ‘Who in the name of God is paying $1-million for a crappy 1,000 sq. ft. World War Two bungalow in a crappy part of town? That’s insane.'”

“Mr. Butler has seen residents become over-leveraged to the point that they are borrowing more and more money. If government had created policies to protect against inflated house prices, they’d have done their citizens a service.”

“‘I blame the provincial, federal and municipal governments, because when you are busy calling legitimate journalists racist like they were four years ago, you are papering over a problem you will have to live with in the next decade. If you’d just thought of it sooner, imagine how much better off you’d be,’ Butler said.”

“As to whether the development community has become dependent on foreign capital for financing of projects, Mr. Butler offers a fitting anecdote. An established private lender he knows was invited to a meeting two months ago by a developer of townhouses, on the outskirts of Toronto. The last phase of the project wasn’t selling, so the developer wanted to create a financing program that would offer buyers a two-year interest-free mortgage. The developer would charge more for the townhouses, give the private lender a lump sum and enable her to loan the money without interest.”

“‘This is how car leases work,’ Mr. Butler says. ‘You pay too much for the car, and with this, you pay too much for the townhome. This was done a lot in the nineties.'”

“The lender asked the developer and his sales team why their final phase wasn’t selling, considering their previous success. ‘Finally, the guy at the end of the table, the sales boss, he says, I’ll give you a really simple answer: ‘there are no more speculators. We’ve got to get the speculators back.’”

From North Shore News. “One house out of every 10 in West Vancouver is owned by foreigners, according to recent data from the federal Canadian Housing Statistics Program. And when it comes to more recent construction, the percentage of foreign ownership is higher – about 15 per cent of all single-detached homes built between 2011 and 2015 are owned by people who don’t declare themselves a resident of Canada for tax purposes.”

“Brent Eilers of Re/Max Masters Realty, who sells in West Vancouver’s luxury real estate market, agrees the numbers presented so far are ‘probably grossly understated as to the reality of what’s going on.'”

“West Vancouver Mayor Mary-Ann Booth said she’s not surprised by the figures. Booth said she and other councillors first began to ask questions about foreign ownership and lobby the province on the issue several years ago.”

“‘Prices were starting to go up dramatically. The community was starting to see a lot of empty houses,’ she said. ‘Vans were showing up with a carload of people looking at houses.'”

“Booth said at the time, she raised the issue with West Vancouver’s Liberal MLA Jordan Sturdy, but was told the province didn’t have any data to support foreign ownership and ‘didn’t think it was a problem.'”

“Measures put in place since then have improved the situation, she said. ‘I think a number of steps have been taken around ensuring transparency so we can get a true picture and around taxes to discourage foreign speculation in real estate,’ she said. ‘These are supposed to be people’s homes. If people want to make investment in real estate they can make it in commercial real estate.'”

“‘This isn’t about keeping people out,’ she said. ‘It’s about encouraging people to build a life and pay taxes and send their kids to school and work here. It’s about ensuring people are paying a fair share of taxes and not using our real estate as a safety deposit box with no contributions to the community.'”

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This Post Has 28 Comments

  1. What will make the housing boom go bust? ‘Greed’

    Shelley Youngblut
    Published April 14, 2012
    Updated May 8, 2018

    ‘Undeterred by naysayers – you try convincing folks back then that not only were home prices going to plummet, but the fall would bring with it a tsunami of financial pain – Mr. Jones kept posting daily roundups of news stories culled from every corner of the U.S., as well as Canada, Japan, Europe, Australia and China, with readers from around the world adding comments about what was happening in their local housing markets.’

    ‘Almost eight years later, Mr. Jones is still uncovering signs that the real-estate mania is far from over, and news reports from Canada are making on to his blog with unsettling regularity. A self-styled professional skeptic, he maintains that the fallout from the housing bubble is far from over.’

    ‘You’ve been posting a lot of stories recently about the Toronto and Vancouver real-estate markets. When you look at Canada right now, what parallels do you see between where we’re at and where the U.S. was when its housing bubble burst?’

    ‘From what I can tell, the condo markets in Toronto and Vancouver are even crazier. Prices are still going up and the participation of so many foreign investors is indicative of a more vulnerable market than in, for example, Miami in 2004. And that was a complete disaster.’

    ‘Speculation isn’t a sign of strength – it’s a sign of weakness. I’ve read that in Toronto there are Chinese investors buying entire floors of condos. That’s clearly speculative, and those people will be the first to walk when things fall apart.’

    https://www.theglobeandmail.com/real-estate/what-will-make-the-housing-boom-go-bust-greed/article4100579/

    1. After this article ran, this little get together was recorded:

      What if it’s not a bubble? – Real Estate Marketer Bob Rennie addresses UDI – Part 1

      ‘Published on May 22, 2012
      Leading Vancouver Real Estate Marketer, Bob Rennie, responds to recent public discourse of a ‘bubble’ in the Vancouver housing market. Mr Rennie’s speech to over 900 members of the Urban Development Institute was given on 17 May 2012 at Fairmont Hotel Vancouver.’

      https://www.youtube.com/watch?v=NCSIg51DLDk

      The ‘public discourse of a ‘bubble’ was mostly this G and M article I posted. Of course Bob “the biggest asshole in Canada” Rennie was basically scolding the paper for daring to mention a bubble. And who was the biggest money raiser for the Liberal party?

      Condo King Bob Rennie’s abdication as chief Liberal fundraiser raises …
      https://biv.com/article/2017/01/condo-king-bob-rennies-abdication-chief-liberal-fu

      Jan 11, 2017 – If money is the necessary oxygen for a political campaign, Bob Rennie has been the life-saving tank for the BC Liberals.
      Bob Rennie to step down as B.C. Liberals’ head fundraiser – The …
      https://www.theglobeandmail.com/…/bob-rennie…liberals…fundraiser/article3363095…

      Jan 15, 2017 – Before Mr. Rennie’s arrival, the B.C. Liberals had typically seen its fundraising led by people from the investment industry, like Marty Zlotnik and …
      Pricey meetings with premier helping fuel B.C. Liberal fundraising …
      https://www.theglobeandmail.com/news/…liberal-fundraising…/article29413577/

      Mar 28, 2016 – With an election just over a year away, the B.C. Liberal fundraising … Bob Rennie, chair of fundraising for the B.C. Liberals, estimated that …
      How ‘Condo King’ Bob Rennie Became the Most Controversial Man in …
      https://news.artnet.com/art-world/bob-rennie-collector-vancouver-1091051

      Oct 5, 2017 – Bob Rennie stands on the rooftop of the Rennie Collection, in front of an …. million dollars—give the money to the Vancouver Art Gallery, and let them … A large donor to the recently-in-power Liberal Party, he tells artnet News that … art community says: “Rennie abuses the artists he collects, and I think it is a …
      Christy Clark’s Club: Big Donors and Rainmakers | The Tyee
      https://thetyee.ca/Opinion/2017/05/08/Clark-Club-Big-Donors-Rainmakers/

      May 8, 2017 – The oil sands billionaire organized a fundraising dinner at Calgary’s Petroleum Club. … Bob Rennie … Rennie remained chief fundraiser for the BC Liberals and has helped the party raise $32 million since 2013, including …
      Clark’s Pay from Donors Too Tied to Real Estate Moguls: Eby | The Tyee
      https://thetyee.ca/News/2016/05/02/Clark-Donors-Tied-Real-Estate/

      May 2, 2016 – Clark-Rennie Premier Christy Clark with BC Liberal Party fundraising chair Bob Rennie, who has made millions marketing Vancouver region …

  2. May 5, 2018

    A report from Macleans in Canada. “When Toronto-area home prices began their slide, the market served up painful lessons for buyers and sellers alike — and revealed shady behaviour that helped inflate prices in the first place. John, who asked that his name not be used for reasons that will become obvious, knew he had to make an offer. He figured he could rent it out, and if the payments didn’t cover the mortgage costs, no matter. Back in early 2017, home prices in Toronto were on an unstoppable tear, surging double-digits every month. The house would surely be worth more in no time. The home was on the market for only a few days when John’s offer was accepted. He bid nearly $1.9 million, about $360,000 more than the list price. Then everything fell apart.”

    “During the closing period, the Ontario government introduced the Fair Housing Plan, which included a 15 per cent tax on non-resident buyers. The plan released the air from the housing market, and prices took a nosedive. John’s investment property sat on the market for 27 agonizing days before a buyer could be found. The home sold for 25 per cent less than what John had paid just five months earlier, leading to hundreds of thousands of dollars in losses. ‘I was so greedy,’ he says now. ‘I will not play the game like that again.’”

    “John’s tale of misfortune isn’t exactly unique. Hundreds of Greater Toronto Area residents were caught when the housing market took an abrupt dive last year after a long run of booming activity. For the first time in a generation, it was possible to lose money in the Toronto real estate market. A detached house in Richmond Hill, Ont., was purchased by a real estate agent and a business partner for $2.1 million in February as an investment property. They sold it again in November for $1.7 million—a 19 per cent loss. Similarly, a would-be real estate investor spent $1 million on another home in Richmond Hill, intending to renovate, according to the agent involved. The purchaser hit financial trouble in a matter of months and had to offload the property. The home eventually sold for 15 per cent less than the previous purchase price.”

    “Another house east of the city sold for $75,000 over the asking price at the end of March. The purchasers, who lived in the home, couldn’t find a cheaper mortgage. ‘The monthly payments were just insane, so the only option was to lose a hundred grand and sell the property,’ says Paul Jaypour, the real estate agent who sold the house the second time. The original purchasers took an 18 per cent loss. ‘The worst is still to come,’ he predicts.”

    “All Lisa Mastrangelo wanted to do was sell her house. ‘It turned into the biggest nightmare of my life,’ she says. Mastrangelo was going through a divorce, and decided to sell her home in Oshawa, Ont., where she lived with her two teenage daughters, and move to a smaller place. At this point, Mastrangelo was carrying two properties and a bridge loan, and facing a lawsuit and escalating legal fees. ‘I couldn’t even talk about the situation without bawling my eyes out,’ she says. ‘Financially, I’m not ahead,” she says. “We’re only just starting to get back to normal and have a life again.’ Mastrangelo filed a lawsuit against the first buyers and hopes to recover the difference in purchase prices.”

    “A falling real estate market can also reveal shady behaviour that helped inflate prices in the first place. Monica Peters, a lawyer in Toronto, cites cases where transactions involve straw buyers or fake names in order to conceal the ultimate purchaser. The real buyer can then speculate on the market with little fear of consequences if the transaction fails. Similarly, pursuing a non-resident buyer in court can be both pricey and onerous. ‘I’ve had cases where this person exists, but they’ve gone back to China,’ Peters says. ‘I can sometimes spend five to 10 thousand dollars trying to track that person down.’”

    http://thehousingbubbleblog.com/?p=10423

  3. ‘he’s seen short-term consequences in the housing market he finds disturbing. ‘Who in the name of God is paying $1-million for a crappy 1,000 sq. ft. World War Two bungalow in a crappy part of town? That’s insane.’”

    “Mr. Butler has seen residents become over-leveraged to the point that they are borrowing more and more money. If government had created policies to protect against inflated house prices, they’d have done their citizens a service.”

    “‘I blame the provincial, federal and municipal governments, because when you are busy calling legitimate journalists racist like they were four years ago, you are papering over a problem you will have to live with in the next decade. If you’d just thought of it sooner, imagine how much better off you’d be,’ Butler said.”

    This is exactly what happened, but it went back further than 4 years.

    If someone even mentioned foreign money, they were blasted with “racist!” And it went on for years. This Liberal government in BC was crooked beyond belief. Four or five years ago Business in Vancouver ran a report with an anonymous Vancouver broker. He spilled the whole can of beans. He told all about the money laundering, political cover for the crimes, appraisals were a joke. But most of all he said everybody knew what a gigantic scam the whole market was and didn’t give a damn.

    1. Good description Mr Butler – Insane crappy crappy – this is the best description for the craziness i have heard. Granted there is some good housing in Toronto – but a lot of it was regular middle class housing from the 50’s-70’s stock that needs a lot of work. Some neighbourhoods that had gang issues has housing that are over $1M. Imagine buying a house and find a few bullet holes.

      ” ‘Who in the name of God is paying $1-million for a crappy 1,000 sq. ft. World War Two bungalow in a crappy part of town? That’s insane”

  5. “‘We are seeing that owning new and expensive property in Canada doesn’t necessarily mean you actually live in the country,’ Mr. Yan says of his analysis. ‘It’s illustrative of the global consumption of local residential real state…”

    “Global CONSUMPTION of real estate.” Isn’t it just grand what central bankers have done? Imagine living your little old life toiling away at your job, hoping to one day be able to purchase some shelter and start a family, when instead money launderers, fraudsters and speculators descend upon your town and bid up the price of everything to more than 10x your annual income where you have absolutely no prayer of ever buying it. What a fvcked up world we live in.

    1. 50 years to release all of the Watergate Report just to protect the innocent that got swept up in it?

      I don’t see the Pelosi – Schumer crowd standing for that just to protect 100 American citizens.

    2. If Julian Assange isn’t disappeared, I am looking forward to his trial testimony about Seth Rich.

      Anyone else here noticed that none of the DNC emails released by Wikileaks is dated after Rich’s death?

    3. Loosely quoting Maria Bartiromo from a few minutes ago…

      Shortly you will see how the media was complicit in getting out that garbage Trump–Russia dossier to the public and you will be shocked.

  8. Is that an undocumented disabled pet chicken?

    Nah, if it was they wouldn’t have joked about it on SNL

    Girl not amused by ‘SNL’ joke about her disabled pet chicken
    April 12, 2019

    UNDERHILL, Vt. (AP) — A Vermont girl isn’t happy that her disabled pet chicken was joked about on “Saturday Night Live.”

    The chicken, named Granite Heart, is learning to walk with a custom wheelchair.

    On a recent ‘SNL’ episode, the television show’s “Weekend Update” co-host said she should “just eat the chicken.”

    The custom wheelchair came from a company in Amherst, New Hampshire, that makes pet wheelchairs.

    https://www.apnews.com/eaa6927d39954c84b73fc1c4fcac14b7

  9. Who knew that real estate bubbles have been going on for centuries? Or that they can persist over decades before deflating?

    Apr 11, 2019,10:15 am
    One Fascinating Fact Linking The Oldest Documented Housing Bubble To The Recent U.S. Crash
    John Wake, Contributor
    Real Estate
    I write about real estate economics, home buying and house selling.
    City scenic from Amsterdam in the Netherlands
    City scenic from Amsterdam in the Netherlands

    City scenic from Amsterdam in the Netherlands Getty

    From 1604 to 1810, Amsterdam had three real estate bubbles. House prices doubled or tripled and then fell back to their initial values. Each bubble lasted decades.

    Recent research looked at possible explanations for these Amsterdam bubbles, including economic fundamentals like changes in wages, rents and population, but found the top factors were:

    1) An initial shift toward investing in real estate (caused by outside forces), which increased house prices; and
    2) The higher prices triggered additional purchases justified by those past house price increases, which in turn caused additional price increases, and so on until house prices were completely out of whack.
    …

    1. “Bubble Economics

      One definition of a bubble says when higher prices make people want to buy more, not less, of something, it’s a bubble.“

      Buy now I’d be priced out forever!

  10. Ebola is widespread and spreading widely.

    Editor’s Choice
    April 11, 2019 02:37 PM
    Are housing prices in 40 big cities, including Cleveland and Akron, ready for a fall?
    Scott Suttell
    Managing Editor

    Cleveland and Akron both show up in the top 20 of a GOBankingRates study that examines 40 markets that could be in line for housing price declines.

    As CNBC points out in this story, GOBankingRates “evaluated cities based on multiple criteria: percentage of homes with mortgages in negative equity, foreclosure rates, delinquency rates on mortgage payments, homeowner vacancy rates and rental vacancy rates.”

    The site then ranked 40 cities according to these risks. Data came from the Census Bureau, RealtyTrac and Zillow.

    From the CNBC story:

    On top of the list is Newark, N.J., which also came in first with highest delinquency rate and highest homeowner vacancy rate.

    Other Northeast cities to make the list include Baltimore; Bridgeport, Conn.; Hartford, Conn.; Philadelphia; and Syracuse, N.Y.

    Midwestern cities were also prominent, including Chicago; Cleveland; Dayton, Ohio; Detroit; Toledo, Ohio; Akron; Milwaukee; and Rockford, Joliet and Aurora, all in Illinois.

    Cleveland ranked No. 7 on the list of cities at risk of seeing prices fall. This is how GOBankingRates described the market:

    • Percentage of Mortgages Underwater: 25.9%

    • Median Home Value: $55,900

    With one in every 832 homes in foreclosure, Cleveland has the second-highest foreclosure rate in the study, behind Columbia. More alarming is that more than a quarter of Cleveland’s homes have negative equity. Cleveland’s median home value of $55,900 is four times less than the current U.S. median of $226,300, according to Zillow.
    …

  11. House prices
    UK house prices likely to keep falling for another six months
    Prices in south-east and London likely to fall for whole of 2019, industry survey finds
    Patrick Collinson
    Thu 11 Apr 2019 01.01 EDT
    Last modified on Fri 12 Apr 2019 06.10 EDT
    Two woman looking at houses for sale in an estate agent’s window

    House prices are likely to continue falling for another six months in the UK and for the whole of 2019 in London and the south-east, according to an industry survey.

    Separate official data shows that rents are also falling, with tenants typically paying £757 a month, down from £772 a year ago, continuing a pattern of declines that began after the Brexit vote in 2016.
    …

  12. “‘Here’s the ultimate truth: They [non-residents] will stop coming and they are not required to buy. When there are no more buyers and the capital to do the buying is from somewhere else, there are no hand grips on this thing, there’s nothing to grab. It’s a water slide. You keep going till you hit the bottom – because now there’s nobody that would jump on that house for $2-million,’ he said.”

    Whose dumb idea was it to allow an influx of foreign investor money drive residential real estate prices up to levels that the country’s citizens couldn’t afford? Someone high up in government must have been asleep at the wheel.

    2. I’m fascinated by how many different places fought to capture dumb or corrupt foreign money. But I’m even more fascinated by the failure of ostensibly intelligent people to envision any of the political consequences. And it’s not happening now, either.

  13. When people cautioned the amount of $ speculation money coming in to Vancover and then Toronto, some politicians and REIC leaders called the complaints racially motiviated. You apparently were not allowed to do math analysis – if the results seemed to indicte an issue.

    “‘I blame the provincial, federal and municipal governments, because when you are busy calling legitimate journalists racist like they were four years ago, you are papering over a problem you will have to live with in the next decade. If you’d just thought of it sooner, imagine how much better off you’d be,’ Butler said.”

  14. I feel bad for condo dog.

    8 THINGS TO KNOW ABOUT DOGS AND CONDOS

    6 The lower the floor you’re on, the better: if your dog has to get outside now or risk anointing your carpet, it’s a lot faster to go down four floors than 20. Never consider your balcony as an emergency pet bathroom, or you’ll soon earn the wrath (and possibly a formal complaint) from the owner below you.

    https://www.styleathome.com/how-to/pets/article/8-things-to-know-about-dogs-and-condos

  15. We’ve got to get the speculators back.

    Who cares how much it hurts the country? Just get me my check.

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