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It’s Very Clear We’re On The Back End Of A Bubble

A report from the Globe and Mail in Canada. “Jon Buss has spent the past four months looking for a home in West Vancouver. Every weekend, he and his wife attend an open house in the exclusive coastal community. They have noticed the same thing at almost every one: ‘No one ever shows up.’ Often it’s just them and a realtor, sitting in a chair, staring at his phone. ‘Nothing is moving.'”

“He’s seen prices in the municipality – where 38 homes are listed for sale with asking prices north of $10-million – drop as much as a million dollars in a single day. He’s in no hurry: ‘Why buy in a falling market?'”

“Jeff Carnahan moved to the Lower Mainland from Calgary eight months ago and has been looking to buy in the $1-million range. He meets the same buyers at weekend open houses. Like him, they are sitting on the sidelines for now. ‘Sellers are still in denial about the housing correction and unwilling to come down from that mythical price they have been banking on. Buyers, meanwhile, know the home is no longer worth what they are asking,’ he says. ‘It’s very clear we’re on the back end of a bubble.'”

“Realtors point to West Vancouver as the epicentre of a correction that began some 18 months ago. This month, a mansion in the oceanside municipality sold for less than half its 2016 sale price of $11.2-million, a $6-million loss for the former owners.”

“Realtor Mark Wiens is already seeing his clients swallow hefty losses. One recently sold for $2-million below the home’s assessed value of $6.2-million. Another turned down an offer of $4.5-million for his West Side house last year only to relist it this year for $2.39-million. The ‘best-case scenario’ for a third is a $350,000 loss on the condo bought for $1.1-million less than a year ago.”

“Mr. Wiens tells his clients on the city’s exclusive West Side, where he figures prices of high-end homes have fallen as much as 35 per cent since peaking in 2016, that they are throwing away at least $5,000 every day that they delay listing. ‘There’s no way this market is coming back any time soon,’ he says.”

“While snacking on a $13 slice of avocado toast, the former landscaper, who speaks Mandarin, offers a one-word prediction for the year ahead: ‘Pain.'”

“This cooling off was, to some degree, orchestrated. At the provincial level, successive governments introduced several measures of their own to bring the market to heel. First came the foreign buyers’ tax – 15 per cent of a home’s purchase price. The new, NDP government bumped it to 20 per cent. And transfer taxes were increased to 5 per cent from 3 per cent on homes valued north of $3-million, ostensibly to discourage flipping.”

“For its part, Vancouver introduced a municipal tax on empty homes to punish investors who leave their houses vacant – again, to discourage speculators and to provide more rental housing. Realtors may loathe these measures, but a large majority of British Columbians support them, according to polling by the Angus Reid Institute.”

“The focus on foreign buyers, especially from China, has been intense – and not without reason. A recent Statistics Canada report found that one in five B.C. condos built in 2016 and 2017 were purchased by foreigners. Vancouver is a favourite destination for wealthy Chinese to park their money.”

“But Chinese courts have begun jailing nationals for life for moving money illegally out of the country, part of Beijing’s ongoing effort to halt currency outflows, Vancouver lawyer Christine Duhaime explains. Ms. Dumaine, an expert in financial crime, represents Chinese banks hunting fraudsters in Vancouver. Many took out sizable business loans in China, then fled to B.C.’s Lower Mainland, where they hid the money in real estate, shielding their identities through corporations, numbered companies and trusts.”

“The city has also become a favoured destination for global cartels and gangs that have been washing billions of dollars through B.C.’s housing market and casinos.”

“Like it or not, their identities will be made public next month, when the province unveils a residential property registry. This could be another reason for the flood of new inventory, up 46 per cent over last year, says Ms. Duhaime: Some owners may be trying to get their money out of the market before the disclosures take effect.”

“It’s a strange new world for Vancouver, where the median cost of a home tripled to $1.5-million in the decade before 2015. This leaves the market in the strangely precarious situation of ‘resting on the shoulders of local income earners,’ says realtor Aaron Best. Vancouver, he says, was the first city in Canada to see foreign speculation spike its housing market. It now looks set to become the first to find out what happens when that wealth pulls out – and no one is left to replace it.”

“It’s a new era for condo marketers and developers trying to offload presale condos, too. Gone are the days when long lines of people in sleeping bags snaked around presentation centres ahead of launches. Back then, speculators saw presales as quick wins: They could put down 20 per cent, flip the contract for a steep gain before the project’s completion, then reinvest the earnings in several units in another tower, Mr. Best says.”

“Last week, developers behind 17 projects, representing roughly 5,000 units, announced they are postponing their sales launches in the hope that market conditions improve. Other developers are offering buyers hefty discounts and bonuses to realtors, according to flyers sent to local real estate agents.”

“While there is plenty of misfortune to go around, it turns out there’s also plenty of delight. On social media, more than a dozen or so accounts have sprung up to document the collapse of the market and highlight speculators’ biggest faceplants. ‘SOLD FOR 50% BELOW PEAK MKT VALUE IN DUNBAR! EPIC CARNAGE.’ It goes on to detail the total losses of the flipper caught holding the bag. ‘+$2M LOSS IN 11 MONTHS’ another begins, celebrating yet another speculator’s legendary fail.”

“And what is bad news for realtors, speculators and over-leveraged homeowners is anything but for bailiffs, auctioneers, bankruptcy lawyers and entrepreneurs ferreting out ways to cash in on the downturn. For the first time in his 30-year career as a foreclosure lawyer, Lindsey Goldberg is seeing defaults hit the Lower Mainland’s two most exclusive communities: West Vancouver and Vancouver’s West Side. ‘These places are home to very wealthy individuals – people who had no problem getting their hands on money when they ran into trouble.'”

“Consumer insolvencies are up 6 per cent from a year ago, the largest jump since the Great Recession. But it can take several years for rising rates to be reflected in default figures, says Blair Mantin of Sands and Associates, B.C.’s largest insolvency firm. This quarter, the firm recorded its busiest January, February, March and April in its 30-year history. Mr. Mantin has hired five new staff, expecting business will continue to grow in tandem with the correction.”

“Last year, the Bank of Canada increased its benchmark rate three times to 1.75 per cent. For the first time in 25 years, households are going to be renewing their mortgages at higher rates. That’s when things are going to get ugly, Mr. Mantin predicts. ‘You’re going to start seeing people who are maxed out and can’t get refinancing.'”

“He thinks Vancouverites are still in denial about what lies ahead. We’ve reached our Wile E. Coyote moment, he says, referring to the hapless antihero of the Road Runner cartoons, a dreamer puffed up on arrogance and ambition. ‘We’ve run off the cliff and just looked down. Beneath us, there’s nothing but thin air. Right now we’re pumping our legs, hanging in the wind.'”

This Post Has 31 Comments
  1. ‘Chinese courts have begun jailing nationals for life for moving money illegally out of the country’

    Oh dear…

    1. Can they use Bitcoin purchases to hide currency flight? Or foreign real estate investments?

      1. Yes. That is why on Sunday, I guessed the move in bitcoin was due to China. Forbes I believe had an article a few days after that confirming the link

    2. Jailing them is a great start. Hope they get daily beatings with bamboo sticks too. I doubt these speculative gambler crooks had any intention of paying back this borrowed money if their “investments” went the wrong direction. For awhile I thought that they just wanted their money out, but now I’m learning it wasn’t there money in the first place…

      “Many took out sizable business loans in China, then fled to B.C.’s Lower Mainland, where they hid the money in real estate, shielding their identities through corporations, numbered companies and trusts.”

      1. i think that in 2-3 years, we will hear that these same folks who bilked on business loans from China …..

        Will have been found to take out lines of credit (or HELOCs) on the Vancouver houses. These are backed only by the house – so they can walk away …

        Who could have seen this comming

  2. He’s in no hurry: ‘Why buy in a falling market?’”

    Gosh, that’s gonna make it hard for UHS to drum up a false sense of urgency or convince marks to buy now or be priced out forever.

  3. ‘For the first time in his 30-year career as a foreclosure lawyer, Lindsey Goldberg is seeing defaults hit the Lower Mainland’s two most exclusive communities: West Vancouver and Vancouver’s West Side. ‘These places are home to very wealthy individuals – people who had no problem getting their hands on money when they ran into trouble’

    AKA strategic defaults.

    1. ‘These places are home to very wealthy individuals – people who had no problem getting their hands on money when they ran into trouble’

      Correction: those places were FORMERLY homes to FORMERLY very wealthy (as measured in fake Yellen bux) individuals. Now they’re going to be insolvent and living on the wrong side of the tracks.

      I am Jack’s utter lack of sympathy.

    2. Note also that we don’t hear about a recession in Vancouver. Could it be that lower prices are actually an economic boost?

  4. “Mr. Wiens tells his clients on the city’s exclusive West Side, where he figures prices of high-end homes have fallen as much as 35 per cent since peaking in 2016, that they are throwing away at least $5,000 every day that they delay listing.

    Gosh, that’s a heckova lot more than I’m throwing away on rent.

    1. I have so much money left every month after “throwing money away on rent” I don’t know what to do with it all. No roof replacements, no ridiculous HVAC costs, no pushy window salesmen, no grass to cut.

  5. On social media, more than a dozen or so accounts have sprung up to document the collapse of the market and highlight speculators’ biggest faceplants. ‘SOLD FOR 50% BELOW PEAK MKT VALUE IN DUNBAR! EPIC CARNAGE.’ It goes on to detail the total losses of the flipper caught holding the bag. ‘+$2M LOSS IN 11 MONTHS’ another begins, celebrating yet another speculator’s legendary fail.”

    Oh dear – this social media mockery could undercut the MSM’s campaign, in collaboration with their REIC advertisers, to convince us that Everything is Awesome!

    I know – such social media skewering of greedy speculators must be labeled “extremist” and censored. That’ll fix this.

  6. ‘We’ve run off the cliff and just looked down. Beneath us, there’s nothing but thin air. Right now we’re pumping our legs, hanging in the wind.’”

    And worst of all, there’s some chortling HBB dude reclined in his law chair, hoisting a celebratory adult beverage in your direction as all you speculators and FBs start your plummet into the abyss.

  7. Does it seem like stawks are driven these daze by dumb Yellen bux seeking a toetag home to die in?

    Not to suggest that housing is any different…

  8. The day I wake up and see the headline “DJT proposes 20 percent foreign buyers tax on US Properties” will be a glorious day. I’ll even splurge on a piece of $13 avocado toast!

    1. That would be quite a step in the right direction but I wouldn’t hold your breath. Even if it’s the right thing to do, the current administration knows it would send us into the same tailspin as Canada and all this fake money we are entitled too would vanish.

    2. That would be truly amazing. There would have to be a register of beneficial ownership in place though. You’d need to tie house purchases to social security numbers because too many use LLCs and hide ownership.

  9. Did the geniuses who run the Fed realize their housing bubble reflation program would sink the U.S. fertility rate, by miring the younger generation in debt, forcing them to work too much to have any downtime to spend in the bedroom, and driving housing costs beyond their reach?

    U.S. Birthrate Drops 4th Year in a Row, Possibly Echoing the Great Recession
    The 2018 fertility rate remained below the level at which a given generation can replace itself, according to a government report published on Wednesday.
    Credit Seth Wenig / Associated Press
    By Liam Stack
    May 17, 2019

    The United States’ birthrate fell for a fourth consecutive year in 2018, bringing the number of people born in the country to its lowest level in 32 years, according to provisional figures published on Wednesday by the federal government. It said the fertility rate in the United States also fell to a record low.

    There were an estimated 3,788,235 people born in the United States last year, a 2 percent decrease from 2017 and the lowest number of births in any year since 1986, according to the report, published by the National Center for Health Statistics.

    1. The geniuses will just import Central America’s population. They are fertile and easily manipulated thanks to poverty, language barriers, and a culture of government handouts.

      They don’t need folks like myself to have kids.

      1. Now that we have a Wall erected on the southern border, we need people like you to have kids.

        Someone alert the Fed!

      2. “They are fertile and easily manipulated thanks to poverty, language barriers, and a culture of government handouts.”

        Don’t forget their Catholic Shepherd.

  10. There’s one major U.S. city where making $100,000 may not even cover basic bills
    By Catey Hill
    Published: May 17, 2019 10:21 a.m. ET
    California cities dominate the places where a six-figure salary barely covers the basics, a new analysis shows.
    Getty

    A fat paycheck doesn’t always mean you can pay the bills.

    This week, personal finance site GoBankingRates released an interesting analysis of how far a $100,000 pre-tax salary would go towards covering basic costs — rent, groceries, utilities, driving costs and health care — in the 50 largest US cities. (You can find the methodology here.) And there was just one city it found where that six-figure salary wouldn’t cover your basics: San Francisco.

    “The biggest factor in cost of living is housing, and that’s where San Francisco is really pushed over the top in terms of cost,” says Andrew DePietro, the site’s lead researcher and data analyst. “Tack on other costs of living — utilities, health care, etc. — and San Francisco is the only city where $100k isn’t enough.”

    1. The latte factor has nothing on the amount folks spend on housing. If you can cut costs with housing you are better off than any other line on your budget.

      I buy this guy’s line of thinking.

      1. Managing – limiting – expenses is much more important and effective than trying to boost income.

    2. I was there one week ago. I paid $265 for one night at the Hilton near Union Square. Walk two blocks west into the Tenderloin, and it’s third world level squalor.

      The public transportation in SF is surprisingly nice. BART trains and buses were clean.

      1. BART is much better than public transit in most U.S. cities I have ever visited or lived in. Too bad the green California liberals can’t figure out how to induce more ridership and keep their freeways clear by charging tolls sufficiently high on driving cars compared to public transportation options. Consequently, traffic is horrific, and the carbon and other tailpipe emissions footprint of traffic in the Bay Area and other California cities is humongous.

    1. Yes, great article/recap of the Vancouver bubble, which makes one thing clear…

      -Median house price tripling in a decade
      -People camping out for new apartment launches
      -Pre-construction flipping
      -25 years without a mortgage rate increase

      … The bubble was obvious the whole time.

  11. “Many took out sizable business loans in China, then fled to B.C.’s Lower Mainland, where they hid the money in real estate, shielding their identities through corporations, numbered companies and trusts.”

    This is as fraud-y as it gets. China is disgusting, in every single way.

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