Garth Turner - Real Estate in Canada

[wisdom]

Canada stopped the class of immigration that allowed rich immigrants to come to Canada as of 2012.

Look at the what is happening to sales to high end homes in Vancouver - they have slowed. Look at jobs in the financial and construction industry - it is not easy in those industries any more.

If your asset prices increase because of hot money coming in, it can drop just as fast.

If Chinese money can defy economics, then why are real estate prices in Chinese cities dropping?

At some point the excessive debt will catch up with the people and leverage is scary on the way down.

[gary17]

You think we will see the type of correction in the US here in Canada?

[leftcoast]

The problem, I think, is that there's simply no data on foreign buyers. So all you're left with are anecdotes and marketing hype. The flow of Chinese capital into the Vancouver housing market is certainly real, there's no question. Just look at what was happening in the investor immigrant program that was scrapped this year. From the WSJ today:

After Overwhelming U.S. Visa Program, Where Will China’s Emigrants Go Next?
At the time of the program closure, there were an estimated 48,000 applications made by mainland Chinese with the Canadian consulate in Hong Kong, and wait times were expected to be as long as five years.
The vast majority of those were going to Vancouver.

But what kind of impact is it really having on the market as a whole? Nobody has any idea, including Garth. This guy took a swing at it 6 months ago, but had to make so many assumptions that his analysis was basically reduced to guess-work:
Vancouver Home Prices to Suffer With End of Investor Immigrant Program

It really is mind-boggling that there's so little reliable data available on a market that is so fundamental to the Canadian economy as housing. Not just with regards to foreign investment, but in general. That shitty report that CMHC put out a few weeks ago just underscores the point... after years of research, they still can't even say what % condos are owned as investments vs. primary residences. Really?

[Potato]

I don't disagree with a correction.
But I think those foreseeing a big drop should consider that in the 80s we didn't have much millionaires from China, a country where rich people want to move out of for their wellbeing.

One of the big memes driving the speculation in the 80's was precisely the exodus of millionaires from Hong Kong, as it became clear that the British lease would not be renewed.

Plus ca change...

[wisdom]

Look at the history of Vancouver RE:
40% drop in 1 yr in 1981.
25% over 4 yrs starting in 1994.

If you say it is CHinese money - then look at HK RE history - it is not unusual for them to have a 50% drop once every decade. HK is the only city more expensive in the developed world based on median household income to median housing prices in the developed world.

Vancouver was about 11x median household income v about 5x back in early 2000s.

Why cant a severe drop happen in Vancouver?

[petec]

I don't disagree with a correction.
But I think those foreseeing a big drop should consider that in the 80s we didn't have much millionaires from China, a country where rich people want to move out of for their wellbeing.

One of the big memes driving the speculation in the 80's was precisely the exodus of millionaires from Hong Kong, as it became clear that the British lease would not be renewed.

Plus ca change...

Plus, all those Chinese departing will only help the *Chinese* RE bubble burst, which will have knock-on impacts elsewhere, possibly bursting bubbles all over the shop including in Canadian (and, closer to home for me, London) housing.

[50centdollars]

What if the chinese stop buying in canada? Why would they buy here when you can get a bigger house for half the price in the US?

[Liberty]

It really is mind-boggling that there's so little reliable data available on a market that is so fundamental to the Canadian economy as housing. Not just with regards to foreign investment, but in general. That shitty report that CMHC put out a few weeks ago just underscores the point... after years of research, they still can't even say what % condos are owned as investments vs. primary residences. Really?

This. Exactly this.

But what we do know is that if most of the data comes from realtors, it's going to be heavily biased to help them, not the other way around. That's why they quietly revise last year's numbers downward to make this year's numbers look better or double and triple count sales just because they've been listed in more than one place and stuff like that.

[Liberty]

Vancouver's the worst in the country, but the epicenter of a crisis doesn't even have to start there. It's about sentiment (certainly not about fundamentals -- look at multiples of incomes and rents), so if the market blows up first in Toronto or elsewhere, you can be certain that Vancouver people will take note and proceed to freak out in turn.

[gary17]

I can see big condo correction... Not so much houses ,,,  a lot of Chinese people are buying with cash... Excess cash ... And are for their kids.  There are also a lot of retired people from elsewhere in Canada who prefer to retire here. WE could see some correction but I doubt it will be significant in the single family market in Vancouver.

You can't really apply conventional value investing / relative valuation when it comes to RE. This is a type of asset for family, for status, for a lifetime of hardworking ... There's a reason why only certain cities in the world attracts premium valuation such as HK, Shanghai, London, New York, etc. most immigrants want to live where other immigrants go to , it creates a network effect if you will.  So you won't see premium even just 2h drive from Vancouver.     

This situation is also not like The early 80s when HK people moved because of fear or HK. There's no fear driving mainland Chinese moving here. It's simple for the sake of their well being because china is too crowded ! If you are the 1% in china, you would do what you can to give your kids the best - and that's why they like certain markets.

Finally, most Chinese don't take out a mortgage with these houses. Cash. Mortgage is viewed as a bad thing in their culture -   Rheas the picture I'm seeing with the single family houses in Vancouver.  Condo market is another story.  Toronto is another story.  I think real estate is very localized.