Vancouverites upset about being priced out of the housing market because of rising real estate prices fueled by foreign investors, are likely to be heard as the apparent bubble has just burst.
Greater Vancouver home sales have fallen 85% in the first half of August to a mere 87, down from 597 homes over the same time last year.
Meanwhile, Richmond was down 96%, Vancouver West down 94% and the North Shore’s West Vancouver down 90%.
Although the Johnny come lately are still listing homes to cash in on the capital gains, the buyers have dried up, thanks in part to the 15% tax the B.C. government introduced on property transfer’s for foreign nationals buying real estate.
The descent in housing sales is being perpetuated by China’s State regulated media which is warning Chinese buyers of the dangers of owning Canadian real estate.
Hexun, China’s largest financial website; comparable to Yahoo Finance, recently published an article pointing to Canada’s debt fueled economy. They noted that Canadians spend an average of 165% of their salary and have the largest debt-to-income ratio of any G7 country. During the height of the US housing crisis in 2008, Americans carried what was then considered an outlandish 147% debt-to-income ratio – 17 points lower than where we currently sit. Canada’s total household debt reached $1.892 trillion dollars, with $1.234 trillion dollars of that as mortgage debt – roughly 65% more than we make per year.
Jared Dillian, former Lehman Brothers trader and noted financial writer, says that the real estate market is near the peak of a massive bubble.
Dillian says that a long, drawn-out “death by a thousand cuts” scenario is in the cards for the Canadian housing market. And, this economic pain will probably last for years.
He also notes that nearly all mortgages in Canada are “recourse mortgages” (except in Alberta). This means in-the-hole homeowners are not as likely to walk away as they were in the US housing crisis.
Dillian states that more interest rate cuts by the Bank of Canada could be in the cards. With the prime rate in Canada at 0.5% right now, it’s not far to zero. In fact, he wouldn’t be surprised to see negative rates by the second half of 2017.
He goes as far to suggest selling any real estate assets in Canada you have, including your home, because you’ll be able to buy that same property back cheaper in three to five years.
Dillian may be right as we watch the Canadian dollar weaken to a two-week low against its U.S. counterpart as oil fell, and the greenback drew support from heightened expectations of a U.S. interest rate hike as soon as September.
The Perfect Storm.