I'm not so sure it's a bubble. Many people want to live in Vancouver, and housing, especially in downtown Vancouver is limited. As long as there's high demand, prices will maintain or increase. It will take a serious downturn is the rest of the economy before housing in Vancouver is affected.

I'm not convinced it's a bubble either, but I do think the rapid price increases at the higher end of the market that we've seen over the last year and a half may come to an end.

Two forces have been pushing up the high end of the Metro Vancouver housing market, beyond what local incomes can sustain.

The first is wealthy chinese buying property and moving here. Mostly either retirees, or businessmen moving their families here while they live part-time here and part-time in China. I think this is going to continue, as I see nothing in the recent rule changes that will prevent it.

The second is wealthy investors (mostly chinese/asaian) who buy property in Vancouver, sit on it for anywhwere from a few months to a few years while the market appreciates, and then flip it for a profit, without ever living there. Hopefully the recent rule changes will significantly diminish this activity, even if they don't eliiminate it.

The rapid rise in the high end of the real-estate market over the last year and a half is mostly a result of #2, so if fewer people are playing the real-estate stock market the rate of increase should slow, and this is a large part of what the msm has been freaking out about over the last while. However, there are enough wealthy chinese moving here to keep prices at the the higher end of the market up and even continuing to increase, albeit at a lower rate.

Further down the market, part of the price increases can be related to a knock-on effect from the high end of the market, but a large part of it is completely unrelated factors. The knock-on effect is that as wealthy foreign buyers price locals out of the high end of the market, the localS who would otherwise be able to afford the high end of the market get pushed down into a lower segment of the market. Further down the line, it pushes people to continue to rent who would otherwise have been able to buy in at the low end of the market.

Another part of the price increase in the rental market can be attributed to the loss of secondary suites, as houses with secondary suites are bought by wealthy buyers who don't need rental suite income, and who replace the existing houses with new houses that don't contain rental suites.

Unrelated factors involved in pushing up the rest of the market include:

1) Weak rent controls that exist only on the person and not the unit. This allows landlords to "renovict" tenants, perform "renovations" (read: a new coat of paint qualifies as a "renovation"), and then increase the price to the average for the neighbourhood.

2) Developers who tear down older, more affordable rental buildings, and replace them with either condos or new rental units with higher rents.

3) Lack of social housing.

4) Developers building mostly luxury condos, knowing that many folks will have no choice but to become house-poor by spending 80-90% of their income on housing as this is the only suitable accomodation available.

remember it's all interconnected.........

The FT reports, Standard Life has been forced to stop retail investors selling out of one of the UK’s largest property funds for at least 28 days after rapid cash outflows were sparked by fears over falling real estate values. As one analyst warned, "the risk is this creates a vicious circle, and prompts more investors to dump property."

Standard Life Investments has suspended trading on its £2.7 billion U.K. Real Estate fund, effective immediately, following Brexit, Investment Week reported, citing a statement.

 The firm has suspended trading on the SLI UK Real Estate PAIF and the SLI UK Real Estate income and accumulation feeder funds.The company cites "exceptional market circumstances" following an increase in redemption requests from the referendum.....

.......and when the Chinese are finally forced to introduce capital flow controls to save their collapsing banking system? watch the Vancouver real estate collapse!

Not a bubble? With debt levels out of this world, people hanging on because of the engineered negative interest rates? Based on of course the doctored inflation rates?

So when the $C continues its fall, causing food prices skyrocketing, food riots etc. in Canada...forcing interest rate increases? Not a bubble?

Former Wall Street hedge fund manager says Metro Vancouver real estate marker will soon crash by 50-80%. He says a large part of the population will be turned into debt slaves.

Also, he says the BC Liberals need to be thrown out for their dirty dealings with the real estate industry and Finance Minister Mike de Jong is "full of more crap than a Christmas turkey.”

http://globalnews.ca/news/2804304/vancouvers-real-estate-is-fueled-by-a-...

A lot of people who own real estate in BC are sick of this inflated market. Many are seeing their homes rise so fast in value that it affects their Home Owner Grant, maybe losing it altogether. Others are worried their children will never be able to own a home. Many condo owners are stuck in tiny starter condos, and fear they will never be able to move up into a larger condo, townhouse etc.

If enough people feel they are being screwed by this market, the BC Liberals will suffer for it.

I hope so, but I'd think most of the inflation is in Vancouver and Victoria, which won't be going BC Lib regardless.  I've heard Kelowna's market is inflated, but I don't know that the BC Libs would be blamed.

True about Victoria and most of Vancouver Island. But this could cost the BC Liberals some seats around Metro Vancouver.

Sorry, but a guy who can't give a proper explanation of short-selling isn't much of a hedge fund manager. Certainly not someone I'd let handle my money (if I had any...).

I noticed he fumbled that too. It seemed to me he knew he wasn't explaning it right, but it was too late to re-explain it. :P

Might interest you to know that Mark Cohodes has a short position with a mortgage lender active in the Toronto and Vancouver markets.

According to the interview and story posted:

According to a story in the Globe & Mail of a year ago:

Now, that story doesn't tell us what Cohodes is up to today, but one wonder's what other reason he'd have for his interest in the Vanvouver real estate market.

I doubt his interest is purely academic.

not really suprising most of these "pundits" talk up thier trading book positions.  That said personaly Canada in a very dangerous economic position.  And frankly the impact of housing very significant part the economy. Its not just homebuilders and brokers here.  That is the tip of the iceburg.  Banks who loan money to the industry to build and individval retail mortages, those who porfrom the securization of the home mortage, Instituions which insure mortages, appraisal agents,  pension funds and insurance companies who buy this potentail financial puh, and retail stores who sell the dream home upgrades.  Its all going up now but when the tide turns and growth will  reverse than we will have a crisis that will epic.  Rest assured I don't need validation from talking heads to hold this position.

I still remember Greenspan before the congress telling people that spreading the risk of housing from traditionals lenders like banks who used hold all the mortages. Hedge funds, pesnison funds, and insurance compines accepted the risk.  So when the 2007 event came it destroyed the banks, isurance companies, and pension funds.  Debt is risk, you can move around the system but you can not eliminate the risk.

He is exacly right about short selling. What do you think it is?

“Short selling in stocks is basically, you borrow shares that other people own and you sell them,”

Its all going up now but when the tide turns and growth will  reverse than we will have a crisis that will become epic....

...thanks for this...finally someone in these threads that gets it!

In case anyone has no yet noticed...the traditional safe heavens, treasury bonds of the supposedly secure prosperous west (Italy?) and Japan are negative...so the ETFs the mutuals, the pensions must go to high risk ventures and the illiquid real estate markets to get some yield...this is why the biggest European banks are collapsing, what with their high nonoperative loans, junk bonds etc.

Assuming of course that the bailouts will come...but from where?

No we are into a game over checkmate situation...the downside will be overwhelming!

The housing issue could cost the Bc Liberals some seats in Metro Vancouver. Yet there are seats in Metro Vancouver that the BC Libs will likely hold even if anger over Metro Vancouver housing prices becomes the main narrative in the election; because in some Metro Vancouver ridings the majority thinks the way NorthReport does.

Also I think the NDP stands to be shut out in the interior again if anger over Metro Vancouver housing prices is the dominant narrative in the election.

If I was a holder of the shares in question, what would be my motivation in lending you the shares?

If you don't understand how short selling works, don't do it. The risks to the downside are almost infinite.

In fact you would get a margin call at some point, and either ante up, or lose the transaction.

Our friend Mark Cohodes, altruistic concerned citizen who was just somehow contacted by Vancouver media to comment of the Vancouver real estate market, has a bit of a history.

A short seller's new target: Canadian housing

One might wonder how a short seller lost their fortune in the crash of '08 when stocks were dropping like flies. Obviously, his understanding of the market is less than spectacular.

It's also the business of short sellers to do their best to help things along, if they can. So, spreading rumours about problems with a particular stock when you have a short position is not such a bad idea. So when I read the original article posted my first thought was, what does this guy have to do with the Vancouver real estate market, and how did the media find him? My second thought was, I doubt the media found him. Rather more likely he found the media. Also, despite his denial of involvement in the market, he has a history of trying to short Canadian real estate, specifically Home Capital Group (as per the Globe & Mail article I posted here).

In any case, the media love a dramatic story, and the story of Vancouver real estate is pretty dramatic, taken out of context. But here's the context.

Back in 1975, my wife and I bought a brand new 3-bedroom, 3/4 basement home, two fireplaces, 1140 sq. ft. on a very large lot in Squamish BC for the princely sum of $38,500. Today, that house would be selling in the $750,00 - $800,000 range. Over the years, prices have gone up, and occassionally dropped back slightly. But as one can see, the general rule is that real estate increases in price. The longer you hold it, them more you'll sell it for. There has never been a sustained drop in price, and I think I can say there won't be one.

People want to live in Vancouver and environs. Most of the mortgages are with chartered banks, and if they thought the prices were unsustainable, they wouldn't loan the money. So their long position is that this is no bubble. It may be a rise in price faster than normal, but that has happened in the past as well. As I said, there have been corrections, so-called, but they've never been deep or sustained.

It would take a large scale failure in the overall economy before there'd be any major effect of real estate here.  

In fact in Canada the only places where real estate has dropped and not risen back to former levels and beyond is in isolated resource towns where the main industry has left. Gold River is a good example on the island. Campbell River is also suffereing but since it is not as isolated the market is steadily going up after a steep plunge. The cities will see market corrections but never a market collapse.

In the long run, if people can hold on for several years, prices do recover after a crash. But you have to be in a financial position to do so. With the level of debt of many recent buyers in Metro Vancouver (and Toronto) this isn't the case.

 The cities will see market corrections but never a market collapse....

you just have to wonder about people! What crashes are the bank lenders and all the other obnoxious realtor people...insurance industries, mortgage backed stocks ad nauseum!

what really is a pissoff is the ignorance of the socalled left progressives, who should be out in front warning people! Explaining to people, the homeless, the ones drowning in debt, living from paycheck to paycheck, that their sufferings are direct cause of the banks and the government agencies and central banks, which they control!

So! That we need to scrap the system, forgive the debts, build socialist popular democratic alternatives!

This is our job! To link the sufferings of the people to the root causes, the financial system which has been zero interest printing money causing hyperinflationism in real estate and financial assets ever since the successive bubbles began bursting...87? 95? 98? 2001. 2008, 2012 and now the biggest and final one 2016/2017...

The biggest banks in Europe are all insolvent, laying off workers by the tens of thousands, selling off whatever to maintain their leverage with real financial assets, not junk bonds et al......now just waiting for the derivative markets to collapse! This is what Deutsche Bank is all about, Credit Suisse......The big derivative players in Canada won't survive...Royal? 

Why people don't get it is a mystery to me!

It affects the ones that have to remortgage. It is one of the big differences between taking out a five year mortgage at a higher interest rate than taking out a one year mortgage that leaves you vulnerable.  Your cost of housing only changes when you remortgage not when the market either rises or falls.

---

People want to live in Vancouver and environs. Most of the mortgages are with chartered banks, and if they thought the prices were unsustainable, they wouldn't loan the money. So their long position is that this is no bubble. It may be a rise in price faster than normal, but that has happened in the past as well. As I said, there have been corrections, so-called, but they've never been deep or sustained.

It would take a large scale failure in the overall economy before there'd be any major effect of real estate here.  

Why are banks making loans that may go belly up.  The answer is

Securitization is the process of taking an illiquid asset, or group of assets, and through financial engineering, transforming them into a security. A typical example of securitization is a mortgage-backed security (MBS), which is a type of asset-backed security that is secured by a collection of mortgages

In a previuos post 11 I hinted about the mechanics of spreading the finanicial risk beyond the traditional banks. 

This is what happens to when you get yourself a home  mortage.

1. the bank use's it capitial base to extend the money required fund the mortage.  The banks gets a finacncial asset(mortage payment with the attached interest payments). The bank will hold the asset to matuirty and the defualt risk but it gets interest payments.  This was once how the banking system worked.

2. Part 1 + Canada Mortgage and Housing Corporation (CMHC) and Private insurcers. 

Now the bank issues a mortage but it issures the mortage with  either CMHC or private mortage insurcer.  In case of the CMHC the bank is refunded 100% face value of the mortages.  In case of the Private insurance company the bank gets 90% face value on default.  The market for the insured mortage is around 1.1 trillion.  Do the CMHC and Private insurers have 1.1 trillion on hand to play the total amount of defaults, do they 500 billion is their corperate treasury, do they have 250 billion laying around, they maybe have 60 billions of asstes to payout these deflauts mortages payments.  You maybe wondering why would the banks trust the mortages insurces in a crisis to payout the insurance money knowing that the trillion dollar risk is only covered by maybe 5% asstes to pay in crisis time. Because the utlimate risk is on back of the Canadian taxpayer, 100% for CMHC and 90% for PI. The candain government has told these market instutions in mass defult the government will make them whole by using taxpayer to ball them out. Why make conservative loans(less proiftable) when you can higher earnig specuilative loans and both will be bailed out by the insuracne company which will be bail outed by the taxpayer.

---The banks can issues more mortages and make more risky loans,  increasing the amount to debt being used. Remeber debt is risk

3.Part 1 + Part 2 plus mortage securizatation.  This is what make things really dangerous, you throw together 100 moratages together and turn them into a financil trade asset.  The mortage security is almost like bond instructment fave value plus and interest payments on the specifed schedule. 

Now the bank makes mortage loan and then sells the mortage to pension, insurane compsny and hedge fund.  In the process they make nice fee and with the reslut of not holding a mortage to matuirty on the banks books.  You make nice profit and you get no risk because the bond like product was sold to another organization.  So when these instruments go bad they destroy the pension funds and insurance and wound the banking sector.

This system geared to make a quick buck  and let the devil take the hindmost.

Yes, but some people with five year mortgages will have the misfortune of their term coming up at the wrong time. Like what happened in the early 80s.

Only a small portion of homeowners will initially get in trouble. Heck, a significant portion don't have any mortgage at all. But people will get spooked when their neighbour or cousin loses their home due to the market conditions.

I am pretty sure that the reason why Canada's banking system did not take the same hit as other places is because we still have regulations in place that prevent my mortgage from being sold to other institutions from the one I signed up for. The US blew up all its banking regulations when Clinton the First was in power but our government didn't follow suit.

I remember the early '80's and fortunately I did not have the financial means to get into the market so I was renting. A number of friends lost their homes because they had jumped into mortgages that stretched them to the limit and when the interest rates went up they had no room to play with and lost it all. Other friends were lucky enough and locked into a five year mortgage shortly before the interest rate debacle and rode it out and by the end of the eighties they still had their house and it was worth more than before the "crash."

Of course the market surge is blamed on the oldest bogeyman on the West Coast.

http://www.straight.com/news/734491/history-shows-racism-has-always-been...

Who did I see crying on the TV news because he bought a crappy East Van house with no inspection? A white guy. The recent panic buying has been done by locals regardless of ethnicity.

I have heard commentators say that we should track by Chinese names. Of course in Burnaby the population is close to 40% Canadian citizens of Chinese descent some of them whose ancestry in this country goes back 100 years but they should be watched since they are not "real" Canadians.

Interest rates did increase rapidly in the 80's, so people did have increased mortgage payments. That's not true now. Interest rates are not going up anytime soon, and if the interest rate is the same as it was when you signed the mortgage, your payments don't change.