wisdom

You need to bid $200-250k over asking in Vancouver to even be considered. What is $200k amongst friends.

http://www.cbc.ca/beta/news/business/real-estate-prices-suburbs-soar-1.3562481 Bidding wars in Toronto and Vancouver. Buy now or rent forever.

http://www.financialpost.com/m/wp/news/blog.html?b=business.financialpost.com/personal-finance/mortgages-real-estate/as-house-prices-soar-millennials-get-a-foot-in-the-door-of-their-first-home-with-help-from-their-friends&pubdata-ipsquote-timestamp=2016-04-27 Not sure, why rational individuals wouldo do this. Buying houses with friends, etc

JBTC - that seems fairly consistent with money from China. They seem to have a 2 year timeline to flip the properties they are buying. They are extrapolating the results and plan to get out of the market at that stage. They do not care about cashflows, etc., speculating on the ever increasing prices.

http://www.theglobeandmail.com/globe-investor/investment-ideas/chinas-credit-fuelled-growth-gives-reason-to-doubt-market-recovery/article29676216/ Good write up on China and debt.

I also believe that majority of the demand is from people buying additional revenue properties as their experience with real estate has been so good that they do not see any risk in leveraging up further on this asset. What is interesting is that in reality the new purchases are 100% financed as the down payments are coming from equity take outs from the other homes that they own. ETO is the major source for down payments as not many individuals in a city with median household income of $73,000 and homes with median values close to $1 million have the resources to come up with 20% down payments. Another interesting sign of a bubble that I see - majority of the individuals I talk to believe this is a bubble. Yet, they feel compelled to participate because of FOMO. It is fascinating to see irrational behavior compelling people to act against their own interests. If anyone wanted to conduct a study on herd behavior, social proof, etc. this is an awesome opportunity as it is so obvious.

It is not just for bad credit scores even though that is also part of the market. It could be people who don't qualify because of income or do not have a down payment (5% for insured mortgages and 20% for uninsured mortgages). In the first scenario these pools are lending based on their experience of the last 15 years - i.e. you cannot lose money on Vancouver real estate. Thus, one need not worry about cash flows. As a result of ever increasing prices, within a few years the borrower can withdraw equity from the house from a traditional lender at regular pricing. Thus, both the lender and the borrower end up getting what they want. In the 2nd scenario, brokers/lenders will recommend that you get lines of credits for 5% of the houses value right after they have pulled your credit history for the mortgage. Thus, these lines of credits/mortgage will not show up on the credit bureau and lenders will not need to debt service this new debt. In reality as your 5% is coming from borrowed sources - a fair number of these purchases are 100% financed. In the greater Vancouver region you can't buy a detached house for under a million, thus, you do need 20% down. Most individuals in this city do not have access to $200-$400k in cash. Thus, all or part of the down payment could be from borrowed sources. Even if you pay 12% on $200k (20% of asset value), but, the asset price increases at an average of 9% a year for close to 15 years, you still come out far ahead. After a year or 2, you can refinance the property and pay off the private lender.

The market frenzy seems to have slowed down a bit - at least based on what I see and talking to a few others involved in the market. Last 3-4 weeks, things seem to be slowing down (not so say that they are still not crazy, just not as crazy as they were). This maybe wishful thinking but the first 3 months of the year were the most similar to the December 1999, Jan and Feb 2000 relating to tech stocks, in my memory - it felt exactly the same. If it was, we just experienced the peak.

50 cent - What you describe is big business in Vancouver. A lot of individuals are either doing this on their own (lending HELOC's out for income) or pooling their funds for the same purpose. In the last 15 years the only time this has not worked out was in 2008 where individuals lost money. HELOC at 3.2% Lend at 12-14% approximate costs are 1% (lawyers, registration, etc) You net around 7-8%. Several brokers run their own pool of funds as well. They try banks for financing and if they can't get you approved for traditional financing they use these pools for financing. Depending on the deal and the pool you can borrow for anywhere from 9% to 14%. New regulations limit HELOC's to 65% of a homes value now. It used to be 80% until the change, approximately 4 years ago. One other interesting number - with the recent increase in housing values in the first 3 months of the year - 65% of a houses value today is over 80% just 4 months back. This is what Watsa's referred to in the Mortgaged to the Hilt report. Historically, 3% of Canadian households have mortgage debt of 500% of income. In British Columbia (Vancouver is the largest city in the province), over 20% of the households were in this category in 2012. My bet would be that the number in Vancouver today would be between 25-30% in Vancouver. In other words, every 3rd or 4th household is financially stressed because of their mortgage in the city. I have not read of any other city that has come close to these numbers.

That is great Mcliu. It isn't easy to find good data. The fact that caught my eye was that 30% of Vancouver's GDP is housing sales. I knew it was very high, but did not realize it was that high. Scary! Especially with the amount of HELOC's and mortgage debt connected to housing.

https://www.project-syndicate.org/commentary/china-risk-global-deflation-imbalances-by-arvind-subramanian-2016-04 http://www.bloombergview.com/articles/2016-04-14/disguised-outflows-show-money-s-still-leaving-china http://finance.yahoo.com/news/chinas-stock-market-turning-dumping-175200914.html Interesting articles on China

http://www.theglobeandmail.com/real-estate/vancouver/brokers-concerned-about-real-estate-offers-made-with-no-conditions/article29603246/ All purchases over the last few months have no subjects. Even realtors are concerned. A new trend that is mushrooming in parts of Vancouver - List your house and accept an offer with $50-100k deposit. Don't allow the banks appraiser access to the house until closing. Thus, the buyer is unable to complete and the person who listed their place gets to keep the deposit. Never been easier to make $50-100k in a month.

Higher density has been part of Vancouver's urban plan for decades now. This is another reason why they do not have a freeway anywhere close to downtown unlike other cities. They wanted to go in a different direction than the rest of North American cities. High density, more reliance on public transit and closer to nature.

http://www.theglobeandmail.com/news/investigations/inside-a-fast-growing-bc-firm-that-has-home-sellers-crying-foul/article29578417/ Tip of the iceberg? We will only know who has been swimming naked once the tide goes out. Is this the beginning? So may be it was all about manipulation rather than foreign money and no more land in Canada!

Gary there are ways around it if you know the Canadian banking system. Which the brokers and a lot of investors know. When a broker sends an application, there is no contact with the client. Brokers who know the system often do not disclose the true reason. Secondly, when 2 FI's are lending at the same time using the broker supplied credit bureau it is impossible for them to know there is a 2nd application in progress. And remember Canadian banks do not report mortgages on credit bureaus and they have no way of knowing if you are a guarantor on any debt unless you voluntarily disclose. Unfortunately, there are too many people who see nothing wrong with lying because they believe they are not hurting anyone. So no, Canadian FI's do not know. And often people working within FI's who know the system are also helping customers exploit the loopholes so that they can meet their targets. It is pretty perverse. So all this fraud is seen as victim less because you cannot lose on Vancouver real estate. The borrowers and the lenders believe this, thus, they continue to beat the system. I believe that should at some point increase instability in the system because of the sheer number of people doing this. PS. I would add that it is obvious to most lenders why someone would be financing $200-300k on a house, but, they choose to look the other way. You have to remember that bank losses have been historically low for the last 16 years that real estate has been rising. Why? Because you can always refinance for more or sell your place if you start falling behind. Thus, it reinforces the belief that there is no reason to be conservative. I would also argue that the sheer volumes this year have been so high that most lenders do not have the time to use common sense. They are just processing the documentation and providing financing. From what I understand some FI's were running more than a month behind on certain applications recently.

At least in Vancouver, majority of the homes are being bought by locals. They refinance their existing houses and buy new places. When you apply through a broker - one bank gets an application for an equity take out and the other bank gets an application for 80% financing request on the new purchase with 20% down. Though the 20% is also being borrowed (on the first property) on highly inflated property values. In a lot of cases 80% would be 100% of the value of the same property as recently as December 2015. Neither FI knows of the other application. If they knew or cared to look, they would figure out that the new property is 100% financed (20% on existing and 80% on the purchase). Everyone is too busy feeling giddy. Both, FI's end up under reporting risk as they are unaware (or look the other way) of the debt on the othe FI's book. The regulators are also ignoring this risk.

http://finance.yahoo.com/news/fairfax-talks-invest-300-million-032742991.html Another potential purchase in India

http://business.financialpost.com/personal-finance/mortgages-real-estate/march-home-sales-smash-through-record-in-greater-vancouver-as-bubble-fears-grow Housing sales hit record high in Greater Vancouver. Average detached house is now $1.78 mil. Median household income around $75,000. Note: this is not just Vancouver but Greater Vancouver.

One word - leverage. You only need to put down 35% to get financing. If the property is up 10% in a month = 28% return in a month. There is a new to Canada program which allows any resident of Canada (work permit or permanent resident) to get 65% financing without credit history or in many cases local income. Buy a $3 mil property with $1 mil down and sell it in a year at $4 mil or having doubled your equity.

This is how the story goes - Vancouver has mountains, water, clean air and good governance. So all the rich people want to move here. These prices are nothing for the world's rich. They have no where else to go but move here. And we in Vancouver don't have any more land. BTW - that property is about an hours drive from downtown.

http://blogs.theprovince.com/2016/02/23/langley-property-listed-at-1-8m-just-a-month-after-selling-for-1-15m/ Another example of what I have been saying for the last month or so. This is fairly normal right now. Incredible to see!

Spent time talking to developers/realtors and investors on the weekend. The euphoria is incredible in Vancouver and everyone is "king of the world" right now because they have made the smartest decision. Feels very similar to my conversations with people during the tech bubble. That did not last too long once the delta got very high. Let us see how long Vancouver can maintain it.

Alberta is non-recourse. And Liberty is correct in his statement on recourse mortgages. What about Ireland? Too much debt sets up society for lots of volatility. This is not good where shelter is concerned in a society with homeownership at 70%.

I was talking to a couple of homeowners looking to rent out their homes in Vancouver. The example below lays it all out: person looking to rent out an old home at above market rents. When I asked them for the reason, this was their reply - even with a large down payment, they did not realize how much the payment would be. They only realized the cost when they were signing documents at their bank. The rent was not going to cover their mortgage payment even though they had gone with a 1 year term to get a lower rate and they're hoping the rates do not go up in the next year. Purchase price $1.5 mil and trying to rent the property at $2,800/ month and property taxes should be 7,000 or so. Not accounting for any other expenses, net is sub 2%.

The real estate bubble in India burst in 2013. Even though it is the fastest growing large economy there is a huge oversupply. It is difficult to sell and prices are down everywhere - prices are down from 20-50% over the last 2 years in an economy with inflation averaging closer to 7%. Thus, the real drops are larger. And India has a real shortage of housing. But, people can't buy at the prevailing prices. I had read somewhere that less than 10% of Indians have mortgages which is low compared to most of the world. Brazil would be similar but they are having a tough time too. This helps me put things in perspective when I look at China, Australia, Sweden, Denmark, Canada. But of course we are running out of land in Canada.