As always, here are your mid month Vancouver real estate stats. The detached market continues to be sluggish, while condo sales, particularly at the entry level are surging (Vancouver studio prices up 24% this year). Vancouver Detached Market For the first 15 days of November detached sales were up 17% on a year over year basis. Of course this comparing to an abysmal 2016 after the foreign buyers tax. I think the important thing here is new listings continue to grow, and inventory is continuing to pile up after a year of sluggish sales. The 197 new listings so far are more than any time in the past decade. Vancouver Condo Market Nothing different in the condo market. Sales are robust and new listings are thankfully inching up towards more normal levels. New listings for the time period rose 14%. I’ll be keeping an eye on sales to see if we get a surge prior to the January mortgage stress test. Vancouver Townhouse Market New supply is beginning to rear it’s head. Vancouver townhouse listings more than doubled from last year and that was almost entirely due to new builds being re-listed on the market as our avalanche of new

Mired in a housing crisis, Vancouver city council announced today that Airbnb would be banned for all secondary residences. Whether you own an investment condo, house, or basement suite, or even a coach house, that will now be banned from renting on Airbnb. The new regulations are as follows: Vancouver hosts will be required to obtain a business licence that costs $49 annually, plus a one-time application fee of $54, and display their licence number in their online listing. Those who fail to comply with the regulations will face a $1,000 fine per violation. Vancouver has also imposed a 3% transaction fee on all bookings. This would be remitted voluntarily by the short-term rental platforms. New Rules Begin April 2018 and are as follows: Allowed: It’s your principal residence, in other words, where you live most of the year and the residential address you use for bills, identification, taxes, and insurance It’s a legal dwelling unit You have a short-term rental business licence If you’re renting, your landlord allows you to sublet your home as a short-term rental If you’re in a strata, your strata allows short-term rentals Not Allowed: It’s not your principal residence, in other words, you don’t live there most of the year If you’re

Another interesting piece today from Macleans. And perhaps only highlighting something that I will continue to emphasize. Canada is mired in a debt binge. Recent data highlights Canada has accumulated more private debt in the past 5 years than any other advanced economy. Record low interest rates are allowing borrowers to take on heaping amounts of debt (debt to income has increased to 169%) creating an inevitable problem when interest rates begin to rise. Scott Terrio, a debt consultant, says the situation is a full blown “extend and pretend” meaning borrowers are just continuously refinancing or taking on more and more debt in order to sustain their lifestyle. Since the year 2000, HELOC debt has grown from $35 billion to $211 billion in 2016. Last year, Canadians used $11.6 billion in HELOC’s to pay down existing debt. In other words, they’re taking on new loans to pay down existing loans. Akin to a Ponzi scheme, more new loans are required to keep the game going. If you haven’t read the book ‘Manias, Panics, and Crashes‘ by Charles Kindelberger I highly recommend it. The famed economist and historian, highlights the role of credit in every boom. “A follow-the-leader process develops as

Studio Condos See 24% Price Increase In 2017 The squeeze to enter the Vancouver Real Estate market has reached a pinnacle. Condo sales are booming and prices are hitting higher highs every month. A mentality of ‘get in at all costs’ has allowed Canadians to accumulate private debt faster than any other advanced economy. This euphoric rush has pushed entry level condos skyrocketing. As you’ll see below, the fastest price acceleration is occurring in studio condo units. Studio condos have increased 24% so far in 2017, faster than any other segment. As you’ll notice, studio condo prices were relatively flat from 2010-2014 before exploding higher beginning in 2015. Since then they have soared from $636/ square foot to $979/ square foot. Good for a 54% jump in two years. 2 Bedroom Condo Prices Rise 38% since 2015 For context, 2 bedroom condo prices have risen 38% since 2015. While that’s still a ridiculous increase it pales in comparison to studio condo units. It’s an interesting phenomenon when you think about it, you’re actually paying less per square foot for more condo. In other words, the bigger the condo, the better the value. 3 Bedroom Condos Only See 8% Increase Year

There was an outstanding article from Don Curren today on Canadian debt levels. You can read it here. The article references some new data courtesy of the Canadian Centre for Policy Alternatives. As I have been mentioning for well over a year on this blog, Canada has a serious debt problem which is particularly acute in the household sector. New mortgage loans have been growing exponentially and is a primary factor behind surging house prices. In the past 5 years, Canada has accumulated more debt than any other advanced economy. Private sector debt to GDP has surged 20% in this time. There’s plenty of research which suggests the tipping point for private sector debt appears when the debt to GDP ratio grows by 17% in five years. Which we surpassed in early 2016. Canada has never before led advanced economies in debt accumulation. The last time it came close was in the early 1990s when it stood briefly in third place—only to see housing prices tumble. It’s important to understand the relationship between debt and house prices. When banks give you a mortgage (debt), they are ultimately creating new money that otherwise never existed. By expanding the money supply and

Vancouver Condo Average Sales Price Hits Record High $906,650 in October The Vancouver condo market continued it’s torrid pace in October. The average sales price hit $906,650, a new high. While there’s no telling how much higher prices could move, it’s evident this has become very unsustainable and completely void of fundamentals. Here’s how the numbers look for October. (September data here) Vancouver Condo Sales Vancouver condo sales increased by 33% on a year over year basis and were 14% above the 10 year average for the month of October. Much of the sales activity is shifting towards the East side of Vancouver as prices on the west side become out of reach for many. For further context, here’s how sales are looking month to month over the past decade. Including a 6 month rolling average, which highlights the drop after the foreign buyers tax last year and then rebounding in early 2017. New Listings/ Inventory Levels Overall Vancouver condo new listings are increasing. They increased by 13% across Vancouver on a year over year basis. This is obviously not enough to keep pace with sales and historic low inventory levels. Vancouver condo new listings were 3% below the 10

Vancouver’s Detached Market Remains Quiet in October The detached market remains relatively quiet. There’s not a whole lot going on, sales are low, new listings are ticking back upwards but nothing worth talking about and prices look pretty flat. But i’ll let the stats do the rest of the talking. For reference you can view the September data here. Detached Sales Detached sales are pretty weak. There’s been an uptick on a year over year basis. However, I’m not sure i’d call it a “recovery” from the foreign buyers tax. Sales on a year to date basis are still down significantly. As you’ll see in the charts below, detached sales are higher this October than last October, but remain well below the 10 year average for the month. I’m hoping these charts also paint a more obvious picture. You’ll see monthly sales laid on top of the 6 month rolling average. What you’ll notice is that sales peaked in early 2016, fell hard after the foreign buyers tax, enjoyed a small uptick this spring and are now about to roll over as we head into the slow winter months. New Listings/ Inventory New listings are up significantly from a year

How Government Has Become Addicted to Real Estate & The Impact of Falling Home Prices With local wages stagnating, and house prices rising beyond sustainability, a serious affordability crisis has unfolded in Vancouver. We’re all looking for solutions and while many are hoping for a sharp drop in prices it’s important to understand the implications behind falling home prices. While I strongly agree house prices are detached from reality and a natural downturn is needed (real estate is cyclical) I want to touch on a few things. One thing most people don’t realize is that when house prices fall it wreaks havoc on the economy. Governments love rising house prices as they tend to create a ‘wealth effect’ spurring consumer spending, create more jobs (construction, brokers, Realtors, etc), and ultimately increase tax revenue. Here’s how the typical house sale pumps up the economy As you can see it’s estimated that the average house sale in Canada creates an additional $61,600 spent into the economy. It also creates a plethora of jobs, mostly concentrated in the FIRE industry (Finance, insurance and real estate). The Role of Debt AKA Credit This is why Governments have become addicted with Real Estate (Canada has

CMHC (Canada Mortgage and Housing Corporation) released their latest housing market assessment today. Here are a few tidbits from the report worth noting. CMHC finds ‘moderate evidence of overheating’ in other words, the sales to new listings ratio was just below 75% for Greater Vancouver.  Anything above that is deemed overheated. You’ll note peak frothiness was back in early 2016. However, as I have been harping forever now, the market is very much divided. Depending on the area, and segment, the temperature of the market varies. For example there’s a historic euphoria for Fraser Valley condos, meanwhile Vancouver Detached volumes have plopped 36%. Here’s CMHC’s breakdown of market segments. A ratio of 40-60% is considered ‘balanced’ while anything below it is considered a buyers market and vice versa. As you can see, peak optimism remains the greatest in the condo market. With the largest price increases dominated by the suburbs. I’d consider this a lag effect or ‘the drive to qualify’ where buyers are forced to drive further and further out in order to purchase a home as prices rise. Case and point. Something tells me this divide could continue to grow with a new mortgage stress test destined to

Fraser Valley Condo Sales Sold Above Asking Price Reaching Epic Proportions Condo prices across Vancouver continue to push higher towards ever dizzying heights. In September 43% of all Vancouver condos sold above asking price, a slight drop off from previous months. However, much of the activity appears to be shifting towards the suburbs. Fraser Valley condos are being driven up to new heights, with locals squeezing each other out, eagerly trying to get their foot in the door. This ‘drive to qualify’ has pushed the MLS benchmark upwards of 35% this year. Condos Selling Above Asking Price is the New Normal If that wasn’t evidence enough of just how detached from reality things have become, the following charts should help. Here is the total number of condos sold above asking price by area. Abbotsford Langley North Surrey South Surrey As you’ll notice, there’s been nearly as many condo sales above asking price in 2017 than the last 16 years combined, and we still have a couple more months to go… Let the soak in while we reflect on a 2013 quote from former Bank of Canada Governor Mark Carney, “Real wealth is built through innovation, and it’s gained through hard

Pre Sale Condo Prices Soaring per Urban Analytics In a recent presentation held by UDI (Urban Development Institute), Michael Ferreira, the head of Urban Analytics, presented some insights on the pre sale condo market in Vancouver. Ferreira helps analyze market conditions for developers of large scale projects. With 20 years of insights on the market he’s seen a thing or two, but perhaps nothing like this… In his latest quarterly report he says: “Some developers are  taking  full advantage of  the  supply/demand  imbalance and  are  seeking  to  maximize  the  achievable  sale  values  for  their  projects by far exceeding previous highs attained in some sub markets. However, it is becoming  increasingly challenging to rationalize the substantially higher prices being sought in a number  of areas  of  the  region, particularly  for market‐watchers who  recall  the end  result  of  previous  market  cycles  where  rapid price  escalation  in  short  time  spans  were  experienced.” Metrotown Pre Sale Prices Jump 57% From his presentation his analysis shows pre sale prices have soared the most in Metrotown, jumping from an average of $700 in 2015 to $1100 per square foot today. Ironically, Metrotown also has the most new construction underway. He also highlights one recent project in

OSFI Announces Another Mortgage Stress Test Starting January 1, 2018 I’ve been mentioning for the past few months that another mortgage stress test was en route. Sure enough, like clockwork, OSFI- the watchdog of financial institutions gave the green light on another 2% stress test. This time the stress test was focused on uninsured mortgages. Today’s revisions focus on uninsured mortgages, after omitting them on the previous stress implemented back in November, 2016. The previous stress test created a scenario where highly leveraged borrowers desperate to enter into the housing market began bundling mortgages and seeking out private lenders in order to bypass the stress test. In fact, as of August 2017, insured loans dropped 4.5% year over year, while uninsured mortgages exploded by 17.3%. What Are the New Mortgage Rules? Now all borrowers will be subject to a new minimum qualifying rate, or “stress test,” for both insured and now, uninsured mortgages. This means regardless of whether you’re putting down 5% or 25% you will need to pass the required stress test. The new guidelines require the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada (currently 4.89%) or