wisdom

http://www.fastcoexist.com/1679594/watch-las-vegass-growing-sprawl-from-space http://urbantoronto.ca/news/2013/05/examining-urban-sprawl-through-satellite-timelapse-imagery The prices in Vegas took off from 2000 to 2008 I believe. Not sure how big the change was in that period in vegas.

Vegas and phoenix had been some of the fastest growing cities prior to 2008. Don't think it did them any good.

Before the Chinese, it was the Olympics. The PR machinery keeps providing a story the locals need to hold onto to keep this going and they lap it up.

I would be surprised if those numbers were even close to reality. In the meantime, it looks like the rich foreigners now want to live in townhomes in the suburbs. Those are now up 60% in the last 2 years in Vancouver. Could hit a million at this rate by the end of 2016.

Both Canadian and Australian private debt is at 100% of GDP . Does that imply that Canadians are even more leveraged than the Aussies? The Canadian government has been trying to target the housing market since 2008 when you could buy with 0 down and amortize a mortgage over 40 years.

Another interesting anecdote - a lot of investors/speculators are buying with closing dates out a year or so. They are hoping to flip the property before the closing so that they do not have to qualify for a mortgage. And earn a large return on their deposit on the contract (which can be less than 5% of the purchase price). This can get interesting if they fail in their bid to flip and have no plan B (can not qualify for financing to complete the purchase). The seller may have already signed up on a new purchase. When the buyer does not complete on the initial sale, what happens to the seller? Can they carry 2 mortgages? Where do they get the funds to put down 20% on the their purchase? How long will this game of musical chairs continue?

Impossible to know what will be the trigger. Be prepared for things to stay irrational for longer than anyone can imagine. Have no expectations and it is far easier to deal with any outcome.

The way I look at it - why is there a compulsion to buy when things don't make sense. It is different if you understand the math, yet choose to buy because you feel it meets your emotional needs. Upto an individual whether they believe the emotional benefits are greater than the potential risks.

Mcliu - there are many sources of financing - all the way from traditional bank spec financing (Prime + 2.25%) to private financing (14%). For smaller players most of the financing is done on HELOC's on their residence at prime + 0.5% plus a 50% land loan on the new property. Larger players go to banks and are paying around prime + 2% plus fees of 1-1.5%. A lot of pools have come up where investors pool their funds and lend at 12-14%. They net around 7% after costs. Often the 20% down payment required by the regulators is in fact borrowed from these sources as well which I believe leads to under reporting of the real issue. Individuals are also active in this market. Everytime you hear an ad from a fund or broker that you will be approved as long as you have equity in real estate, this is the source. My understanding is no regulator has any idea about the size of this market. The thing that scares me about these pools is that the money invested in them also includes individuals borrowing on their residences at 3% or so and earning a 4% net spread. This is a source of income for these individuals. If the market ever shuts down, not only will these individuals lose their incomes and capital, but will owe the amount borrowed against their equity in their residence. For private builders who are not sophisticated or are in a rush, this private financing is often a source of funds. These are usually few in number but the highest risk players. So far the ever increasing prices keep bailing them out. One has to remember this works till the music is playing. The only source of payment on these projects is from the sale of property. If the music stops, the builders will not have the cash flow to even debt service as I believe most properties would not be cash flow positive today if people accounted for maintenance. Several of the properties are at different stages of development and there are no cashflows from them. That is when this market should get interesting. The music has not stopped for 16 years now - the longest cycle so far. The belief is absolute that we live in the only special place in the world and we are headed to having an average house valued at $2 mil now on median household incomes of $75, 000.

Gary - China has been trying to shut down outflows for a while. Initially it was $50k per person. Then Macau got shut down - was a major source. Then HK bank route got shut down. People were playing with the $50k limit. So now there is a new $200k total limit. So now fake exports are the main source of funds leaving China. What are the chances that authorities in China actually succeed. If that was the sole reason for Vancouver real estate market going up, I would be even more concerned.

So we can't compare real estate prices across different countries, but it is OK to compare their debt levels? I would prefer to compare with historical numbers - Canadian median houses have over the long run been $10k cheaper than the US. Today we are on average $200k higher. Our median house used to be 2.5x income, today it is lose to 6x. Median house to median household income used to be under 5x in Vancouver and now it is over 12x. Debt to gdp for Canada was 60%, today 100% and increasing faster than GDP. Every single number you compare with historical stats, it is way off. It is always possible that Canada has solved a problem the Americans and Europeans were not able to = more leverage leads to ever inceasing prosperity or we have reached a higher plateau. I remain a skeptic.

From what I see - as I don't have the data to back this up. I do not believe the major buyers are rich Asians, even though they get all the media attention. They are on the margins. The biggest player from what I see - a lot of people have become builders over the last decade or so. Depending on how big these guys are - each individual needs to buy at least 1 property each year if not 2. The slightly larger players are south Asians and iranians. The so called builders often own 10-20 properties. All these properties are financed and at different stages - i.e. some have just been bought as inventory for the following year projects (20% or so), others have had plans submitted to the city another 20% as these will soon be demolished and construction will begin, another group of properties that are mid-way to being completed, and the last group that is completed and on the market. Participants from Asia do not even come close to their numbers in the market nor do they hold the same number of properties. Construction has become a very large part of the local economy. I will add there was a perception here and in the market that Asian buyers were paying cash and I have pointed out several times before that they are also using leverage.

Debt to disposable income was 90% in Canada until 2000. Now the same figure stands at 165%. My understanding has always been that cash flow services debt and not assets. Private debt to GDP has also touched 100%. A figure never seen in Canada before in its modern history. As liberty has pointed out BC has had a negative savings rate for 20 years now bar for one year. How long can this be sustained . Are these signs of people leveraging or a sign of an extremely rich society. Total vehicle financing in Canada was $15B in 2008. Today that figure is over $65B. I am sure someone will come up with the argument that the cars are worth more because they are new. Thus, the assets have gone up in value ( newer cars). I would argue that our GDP has not gone up by 4x, thus, this increase is unsustainable.

I would again propose that it is mainly equity being withdrawn from the increase in real estate prices being leveraged once gain to buy more property. I would also say that for most the amount of debt is increasing at a faster rate than their networth. It could be that this is just my observation. Not sure why everyone is ignoring this.

One should look at the snowbird phenomenon or how many Canadians bought properties in phoenix, Florida, palm Springs to understand how easy it is for Canadians to move between Canada and US. It is leverage that kills and Vancouver cannot be any different. The longer this continues the more leverage is used and more unstable the system. I do not believe any other factors matter in the long run as all markets eventually turn.

I agree - I would be looking at Florida, Hawaii, California rather than Vancouver. Only individuals in Vancouver believe that every rich person in the world wants to move here.

True, you would have to go into the Valley to find something decent around $700k. Most decent places as far as Langley will be in around a mil. From what I know the market went absolutely nuts in the fall and is accelerating. I am not saying families don't bid, just that you are competing with others who are not long term or end users.

Gary - how large is your sample? Are you in the industry?

The only people buying are speculators, developers and people buying their 2nd, 3rd, 4th, 5th..20th rental property. A newcomer cannot enter the market. Everyone refinances and buys more properties and flips them which increases prices allowing them to again refinance and buy more properties. An average person is buying condos or houses 1.5 hours away from the city - this is in a city of 2.5 mil or 1/4th of the cities Vancouver is being compared to. Obviously none of this makes sense to me, but, it does to most others.

The rate it is moving at - this cannot be sustained for long. Feels like it is near the end but I am guilty of having thought that before too. It is going to catch a lot of people swimming naked when the tide goes out.

JBTC - I wasn't exaggerating on the 10% increase in 1 day. Some of my friends have done this. Within 24 hours. In one instance in 7 hours - won the bid in the morning and had sold it by the evening.

http://bc.ctvnews.ca/house-flipping-concerns-as-368-vancouver-homes-sold-at-least-twice-since-2014-1.2769801 Jbtc since you asked I will refer you to some stuff that is common knowledge in this market. Not sure where you live or how informed you are about Vancouver or just trolling. Because of privacy I am not giving you specific addresses but it is common to see houses that are up 100% or more in 18 months or to see bids of $200-500k over asking. I can only imagine that you have no idea about what is happening in this market to make the statement you just did. I would ask you to look into the general market, you don't need any specific address. http://www.theglobeandmail.com/news/investigations/the-real-estate-technique-fuelling-vancouvers-housing-market/article28634868/ Let me know how many more examples would you like. http://globalnews.ca/news/2506976/rapid-home-flipping-in-vancouver-maybe-this-is-when-it-will-be-caught/ Look at increase on the average house. http://www.ctvnews.ca/business/expert-tips-to-lock-down-properties-in-vancouver-s-red-hot-housing-market-1.2805228 http://bc.ctvnews.ca/red-hot-or-reprehensible-vancouver-home-sells-for-735-000-over-asking-1.2792911

10% moves in a day - can there really be any fundamentals in play. How can a house be worth that much more overnight.

Some of the stuff I see is scary because you expect more rational and educated individuals on this board. If this is how the rational and educated think, it scares me to think what the rest of the population would be like. I guess it is difficult for individuals to be open and far easier to fall back to behaving like apes. Ignorance is the reason why history repeats. And the idea that anyone knows the absolute truth is pure garbage. It is OK to allow for others viewpoints.

Liberty not sure if they can make it retroactive. It is already too late in the game to have much of an impact - i.e deductibles.