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Greed

sailor (Ocean & Mountain)

By Garth Turner, April 8, 2016

“This,” Peter the realtor tells me, “is just dumb and greedy.”

Hard not to agree. It’s a decade-old, cookie-cutter suburban pile on a 44-foot lot an hour’s drive (on a good day, at the right time, in an A7) from downtown Vancouver. (The same distance as from the core of Hamilton to Bay & King in Toronto, where they keep all the money.)

“The current owner bought it in September of 2014 for $675,000,” Peter says of the house now listed for $1,288,800. “Just dumb & greedy. And it’s in Langley, for Pete’s sake.”

Speculation and, yeah, greed are setting us up for an unknown but likely nasty consequence. This is despite the far-better economic news we’ve had lately – the muscular economic growth in January, and a gain of 42,000 jobs in March along with a rebound in oil (up 6% on Friday). That’s welcome for a country that was in recession a year ago, forced to slash interest rates twice in order to avoid a worse outcome as crude shed more than 70% of its value.

But the fact remains avarice is now the deity in control of Greater YVR, the GTA and anywhere else where people go to bed dreaming of fat profits, house-horny Guangdong industrialists and windfall, tax-free capital gains. It’s usually at this point in the cycle when fear of being priced out of a markets starts turning into buyer disgust. Never a good thing.

It’s not just Van, of course. Some days ago I brought you tales of bidding wars, insane open houses and unbridled prices in suburban Oakville. The same is happening Richmond Hill, Vaughan and even Milton, Burlington and the saucy bits of Brampton. As the BeeMo economist quoted here yesterday cautioned, romping prices bring more romping prices. Until the whole thing blows up.

So what’s happened in 416 comes to infect 905, just as the bizarre events in the housing market in urban Vancouver hit the hinterland. Now average prices in the Fraser Valley are 26% ahead of 2015 levels, pacing the bloat in the city. Says the local real estate board president: “This market is uncharted territory for Fraser Valley real estate, It’s typical for spring to see a jump in activity; however, March came and went at a break-neck, record-setting pace. I’ve never seen anything like it.”

North Van is up 24%, Richmond prices are ahead 26% (to almost a million, on average), Coquitlam has gained 18% and even Surrey is 15% more expensive. In the GTA, far-flung York Region and Orangeville prices have jumped 15%, while Durham’s 14% increase is slightly more than that of Halton. What was once reasonably contained to the Kingdom of 416 and the Delusional Duchy of Downtown Van has now seeped into the countryside in a way local observers are calling “drastic.”

It goes without saying that family income levels in these two regions have not suddenly mushroomed. Job creation has been anemic. And debt service burdens have been rising, not falling. Meanwhile blaming all the foreign dudes with their suitcases stuffed with cash isn’t all that credible an excuse. In a TV interview yesterday GTA developer Paul Golini – a guy who builds condos and houses – said the whole offshore-buyer thing is getting old. “We really think that there isn’t a problem here,” he said. “We think the numbers don’t justify the fact that we’re on this witch hunt.”

More evidence of that comes from a new CHMC report estimating that about one in 10 new condos in the downtown core (built in the past five years) is owned by foreigners, with the overall ownership rate standing at 4%. Of the new-build estimate, Golini says: “It seems a little bit high, you know we met just recently with some other industry folks and everyone reported a number that was closer to 5%.”

Peter, a blog dog in Vancouver (and a Millennial – he admits it) says this all makes him wonder about the veracity of what he hears from friends and realtors. “Even if there are 10% foreign owners in Toronto condos doesn’t that mean there are 90% domestic owners? (Ha) Wouldn’t that just prove your point that this speculative price surge was done by self rather than others? Perhaps the foreign money was some gasoline on the fire but it doesn’t reflect the other 90% of buys…”

By the way, CMHC also found 6.6% of condos built in Van in the last six years are foreign-owned, while 4.4% of older units are similarly held. In Calgary, foreign owners hold 0.1% of older units and 1.6% of newer ones. In Montreal the foreign ownership level is 1.6% while it’s 2.3% in Victoria.

Well, draw your own conclusions. But asset bubbles are always characterized by local euphoria, greed and wilful blindness. I’d say we’re there.

(#2202@4096)
2016-4-13 -05:00
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