DATE

East Newtown house
Steve Saretsky -

Newton Area Ravaged by Cheap Credit and Massive Debt There’s an outstanding book i’m reading called House of Debt. It’s been referenced by Evan Siddall the CEO of CMHC several times over the past few months so I was inclined to pick it up. Siddall has been critical of Canadian debt levels and elevated house prices and much of the recent lending polices introduced have likely been influenced by this book. Authors Atif Mian and Amir Sufi explain the direct correlation to private debt levels, elevated house prices and impending financial crises. Siddall most recently quoted the book in a piece by the Globe & Mail “economic disasters are almost always preceded by a large increase in household debt. In fact, the correlation is so robust that it is close to an empirical law as it gets in macroeconomics.” The authors go on to explain “a close relationship has existed between the build up of credit during an expansion and the severity of the subsequent recession..We show that the economic costs of financial crises can vary considerably depending on the leverage incurred during the previous expansion phase.” So what does this mean? The authors illustrate in almost every housing boom

Steve Saretsky -

Real Estate Bulls in Full Force Perhaps the most entertaining part about this Vancouver real estate bubble are all the crazy narratives and wildly different opinions floating around out there. Perhaps no more evident than in a recent article from the bullish Real Estate Weekly newspaper titled Eleven Ideas How the Fed can Improve Housing Affordability. This report comes from none other than the Canadian Home Builders Association. Asking a Barber If You Need a Haircut The Canadian Home Builders Association denies any kind of rumours about a Canadian Housing Bubble. “Do we have a housing bubble? No,” the report states. It adds, “There has been a lot of confused speculation about a Canadian housing bubble, fuelled largely by international economists who don’t understand the Canadian market. Talk of overvaluation in hot markets like Toronto and Vancouver does not consider underlying new fundamentals of supply and demand. High house prices do not necessarily reflect overvaluation if they are supported by fundamentals.” Well there you have it. New fundamentals, oh and because we are polite Canadians this could never happen to us. The Irony Despite The Home Builders Association saying there is no bubble, housing starts fell 52% year over year

Steve Saretsky -

Permits & Housing Starts Plummeting in Vancouver Despite rumours that new developments are flying off the shelf the numbers seem to paint a different picture. A recent report from Real Estate Weekly also shows new home sales are slowing similar to the resale market. It seems developers are being very cautious and holding off on starting new projects. Do the developers know something we don’t? For the month of October Vancouver building permits were down 21.7% year over year. But more importantly, new home starts dropped 52%. Perhaps even more startling was that new home starts were 35% below the 10 year average for October. The slowdown doesn’t stop with Vancouver. Residential construction across BC plummeted. New home starts dropped 25% year over year. Yet permits were only down 1.6%. Does this imply that despite projects being given the green light developers are choosing a wait and see approach? The writing is on the wall. New construction sales are plummeting along with new construction starts. Recent stats from Urban Development Institute show concrete condo sales are down 21% year over year, while wood frame condo sales are down 44%. New townhouse sales also sunk by 28%. Buyers appear hesitant to

Steve Saretsky -

Stats Show Alarming Number of Vacant Homes Just last week our beloved mayor Gregor Robertson introduced a vacant homes tax in Vancouver. The tax will penalize owners who leave a secondary home vacant for more than 180 days of the year. Offenders will have to declare it on their tax returns and will be hit with a 1% tax of the assessed value. False declarations will be whacked by a $10,000 daily fine. So just how big of an issue are empty homes in Vancouver and across the lower mainland? It seems there’s no clear answer. Some studies reveal there are roughly 10,000 vacant condos in Vancouver. Meanwhile, a recent study by Andy Yan, director at the SFU City Program found that over 22,000 homes are vacant. Regardless of the number we look at, the city is undoubtedly plagued by a sea of investors who could care less about the 0.5% vacancy rate. But I guess that’s capitalism. Perhaps an issue we can all agree on is the number of empty homes never lived in. A recent report from Better Dwelling highlights 10% of homes being resold in Vancouver have never been lived in.  Like this one at 1235 West

Steve Saretsky -

Average & Median Prices Down Year over Year Lately the average sales price has been dismissed by the real estate industry. Which is funny considering it was frequently mentioned on the way up. Of course now that the average sales price has collapsed we have decided to ignore it. The typical response in the industry is that it fluctuates too much and can vary depending on what type of inventory is sold that month. While this is 100% true, ignoring the average sales price altogether is completely irresponsible. Ultimately, the average sales price shows the amount of capital flowing into Vancouver real estate. The capital flowing into Vancouver real estate has evaporated. Average sales price shows that 2015 price gains have been erased. Let’s look at all of REBGV first and then break it down into further sub areas. For all property types from October 2014 to October 2015 the average sales price was up 16%. From October 2015 to October 2016 it’s now down 5.2% year over year. This decline is even more dramatic when you look at the average price peaking in March 2016 and has since fallen 18%. Vancouver East Vancouver East average sales price is still

Steve Saretsky -

Vancouver Real Estate Mid November Market Update Following up on my October Detached Market Report and my October Condo/Townhouse Market Report this is the Mid November market update which covers the first 15 days of the month. In a fast changing market it’s vital to stay on top of things. I don’t expect the market to change much during the slow winter months. It seems sellers are holding off on selling and hoping for a turnaround in the spring, while buyers appear hesitant to pull the trigger. Many sellers seem stuck on past prices so not much is getting done right now. The market appears to be chugging along in uncertainty at a very slow pace. REBGV Detached The detached market continues to be sluggish. October marked the third consecutive buyers market, it appears that won’t change in November. As of the first half of the month new listings are 5.2% below the 10 year average (Nov. 1-15) while sales are 36% below the 10 year average. REBGV Townhouse Townhouses sales are 12% below normal levels despite inventory being 16.3% below normal levels. An uptick in inventory will be needed to continue a downwards pressure on prices. REBGV Condo REBGV condo

Steve Saretsky -

New Era of Higher Mortgage Rates Ahead The brakes have been slammed on the Canadian real estate market. Back in October the Canadian Government announced they would be implementing new mortgage stress tests rules requiring insured mortgages to qualify at the posted rate of 4.64%. It was widely believed these changes to the mortgage industry would have an impact on future rates. Sure enough those predictions are coming to fruition. Just a few weeks ago TD Bank announced it was going to increase it’s mortgage prime rate to 2.85%. This meant a 0.15 increase for every customer holding a variable rate mortgage. Today, RBC announced they are increasing their fixed term mortgage rates. Rates went up by as much as 40 basis points on their 5 year fixed term rates. Perhaps this doesn’t sound significant, but it is. A mortgage with a 30 year amortization is now 3.04%. On an average Vancouver house, assuming you put 20% down, this would add an extra $260.33 to your mortgage. Doesn’t sound like much until you sadly realize Canadians are $200 away from being overwhelmed by debt according to recent surveys. Canadians going to renew their mortgages will be under further stress. The average

Steve Saretsky -

Canada More Addicted to Real Estate than United States in 2006 The Canadian real estate bears are coming out of the woodworks. More and more evidence continues to mount between the frightening similarities between the US housing bubble of 2006-2008 and the current situation playing out in Canada. Last week Andrew Hepburn of Maclean’s wrote a piece titled Canada’s Housing Bubble Makes America’s Look Tiny.  I’ll be referencing some of his findings as well as adding a few things I’ve stumbled upon lately. It all starts with household debt levels. Canadian household debt levels are now higher than the United States was back in 2007. As of September 2016, Canadians owed $1.68 in debt for each dollar of their disposable income. For comparison this is much higher than the United States peak debt levels of $1.28 back in 2007. With Canadian debt levels so high and virtually spending every penny to try and keep up with mortgage payments, Canadians can no longer take on more debt. Even lowering interest rates at this point will essentially be pushing on a string. Hence recent government action to cool housing prices. Which brings us to the next question, just how important is real estate

Steve Saretsky -

Richmond is Evidence of Strong Overseas Demand Richmond, my first love. Having grown up in Steveston; a tight knit fishing village in Richmond, where everyone knows each other, remains close to my heart. But it seems those days are nearing an end. Myself, friends and family appear to leaving en masse. But why? Richmond, now the fourth largest city in BC and growing has changed dramatically over the last 10 years. Richmond has the highest immigrant population of any city in Canada. Roughly 50% of Richmond residents are Chinese as per city stats. With that, appears to have brought a flight of overseas capital. As evidenced by recent foreign buyer data released by the provincial government which indicated almost 25% of real estate transactions were from foreign buyers (90% were from China). This has undoubtedly pushed up real estate prices. Richmond detached homes are now up 80% over the past 3 years as per the Real Estate Boards MLS benchmark. This is the largest increase of any city in BC which also has the highest concentration of foreign buyers. Most of my friends and family have chosen to move south to more affordable areas with detached prices now completely out of

Steve Saretsky -

MLS Benchmark Pricing Appears Inconsistent Many pundits have accused the MLS Benchmark as a pricing algorithm designed by the real estate board to formulate prices which keep the public in the dark. While I’m not entirely convinced, there are definitely some inconsistencies that make the MLS benchmark unreliable in a fast pace market. Never has there been so much uncertainty regarding prices and so much public demand for more transparency. So what does the public rely upon? The MLS benchmark, average, or median prices? Just last week we discovered the MLS benchmark was off by as much as 5% in September. Hardly a minor mistake in this crazy and fast pace market. So what’s the deal with the MLS benchmark? (You can try to understand their formula here) Here’s where things get interesting. According to the benchmark, detached home prices in Vancouver East peaked in September. But we all know that isn’t true. Even most Realtors would have told you prices were down about 10% in September. Yet as of the end of October the benchmark shows East Vancouver prices are down 1.3% from September. Yet the average price shows prices peaked in July and are now down 8%. Median

Steve Saretsky -

Breakdown of the Condo/Townhouse Market in October Much like the October Detached Market Report, the condo/townhouse market was very similar to September. A cool down, but not much change on a month to month basis. Although this may come as a surprise to some, I think it’s important to understand markets don’t change overnight. We just experienced the hottest real estate market in history. This fire will need more than a couple buckets of water to put it out. Condo Sales Vancouver East- 110 Vancouver West- 301 Richmond- 162 Burnaby- 151 REBGV- 1190 Condo sales dropped in every area this month except for Richmond which saw a small increase. In fact, condo sales are actually well below normal levels when comparing over the last 10 years (2005-2015). For example Vancouver West sales were 22% below average. While REBGV returned to normal levels. Condo New Listings Here’s where things get interesting. New listings for October are down from September. In fact, they are well below normal levels. So despite sales dropping you are seeing little change in price because there are so few listings coming on. As I have mentioned before, people are more reluctant to sell when recent price appreciation

Steve Saretsky -

Breakdown of the Single Family Housing Market in October As the clock hits 5pm to signal the end of the business day over at The Board it brings and end to October, and with that, a monthly market update for you. In this report i’ll be covering the same things I did in September Detached Market Report.  More new policies were announced and implemented this month, including a Mortgage stress test for uninsured buyers making them qualify at 4.64% and likely removing 20% of those buyers from the market. For a little context, October generally sees a similar amount of activity as September. Full Report below. Sales October Sales Vancouver East- 66 Vancouver West- 79 Richmond- 63 Burnaby- 45 REBGV- 674 Just like September, this was the fewest detached sales for Vancouver East on record (last 10 years). The second fewest was 74 in October 2008. Other areas didn’t stack up much better. This was the second worst October besides 2008. Here are October 2008 sales numbers. This chart summarizes the current situation in East Vancouver. Taking the average sales over the past 10 years (2005-2015) and plotting it on a chart vs 2016 sales shows East Vancouver has been

Join the Monday Newsletter

Every Monday morning you'll receive a short and entertaining round-up of news on the Vancouver & Canadian Real Estate markets.

"*" indicates required fields

The Canadian Economy

Steve Saretsky -

Newton Area Ravaged by Cheap Credit and Massive Debt There’s an outstanding book i’m reading called House of Debt. It’s been referenced by Evan Siddall the CEO of CMHC several times over the past few months so I was inclined to pick it up. Siddall has been critical of Canadian...

Steve Saretsky -

Real Estate Bulls in Full Force Perhaps the most entertaining part about this Vancouver real estate bubble are all the crazy narratives and wildly different opinions floating around out there. Perhaps no more evident than in a recent article from the bullish Real Estate Weekly newspaper titled Eleven Ideas How...

Steve Saretsky -

Permits & Housing Starts Plummeting in Vancouver Despite rumours that new developments are flying off the shelf the numbers seem to paint a different picture. A recent report from Real Estate Weekly also shows new home sales are slowing similar to the resale market. It seems developers are being very...

Steve Saretsky -

Stats Show Alarming Number of Vacant Homes Just last week our beloved mayor Gregor Robertson introduced a vacant homes tax in Vancouver. The tax will penalize owners who leave a secondary home vacant for more than 180 days of the year. Offenders will have to declare it on their tax...

Steve Saretsky -

Average & Median Prices Down Year over Year Lately the average sales price has been dismissed by the real estate industry. Which is funny considering it was frequently mentioned on the way up. Of course now that the average sales price has collapsed we have decided to ignore it. The...

Steve Saretsky -

Vancouver Real Estate Mid November Market Update Following up on my October Detached Market Report and my October Condo/Townhouse Market Report this is the Mid November market update which covers the first 15 days of the month. In a fast changing market it’s vital to stay on top of things. I...

Steve Saretsky -

New Era of Higher Mortgage Rates Ahead The brakes have been slammed on the Canadian real estate market. Back in October the Canadian Government announced they would be implementing new mortgage stress tests rules requiring insured mortgages to qualify at the posted rate of 4.64%. It was widely believed these...

Steve Saretsky -

Canada More Addicted to Real Estate than United States in 2006 The Canadian real estate bears are coming out of the woodworks. More and more evidence continues to mount between the frightening similarities between the US housing bubble of 2006-2008 and the current situation playing out in Canada. Last week...

Steve Saretsky -

Richmond is Evidence of Strong Overseas Demand Richmond, my first love. Having grown up in Steveston; a tight knit fishing village in Richmond, where everyone knows each other, remains close to my heart. But it seems those days are nearing an end. Myself, friends and family appear to leaving en masse....

Steve Saretsky -

MLS Benchmark Pricing Appears Inconsistent Many pundits have accused the MLS Benchmark as a pricing algorithm designed by the real estate board to formulate prices which keep the public in the dark. While I’m not entirely convinced, there are definitely some inconsistencies that make the MLS benchmark unreliable in a...

Steve Saretsky -

Breakdown of the Condo/Townhouse Market in October Much like the October Detached Market Report, the condo/townhouse market was very similar to September. A cool down, but not much change on a month to month basis. Although this may come as a surprise to some, I think it’s important to understand...

Steve Saretsky -

Breakdown of the Single Family Housing Market in October As the clock hits 5pm to signal the end of the business day over at The Board it brings and end to October, and with that, a monthly market update for you. In this report i’ll be covering the same things...

Get the Saretsky Report to your email every month

The Saretsky Report. December 2022