Vancouver house prices are falling
qz.com
qz.com
The only thing I can really think of is that it might force people to divest in a very down market where it is difficult to find renters, but it doesn't seem like a huge tragedy for people who have at least two dwellings to be forced to sell one of them or else eat losses.
http://www.theglobeandmail.com/news/british-columbia/vancouv...
We can play similar games in the US with abandoned houses - there are probably enough abandoned homes in Gary, Indiana to house the entire US' homeless population. Said homes, unfortunately, happen to be in Gary.
I don't know enough about England towns and cities to make a judgment, but it looks like The Guardian got their data from here: https://www.gov.uk/government/statistical-data-sets/live-tab...
Most people won't go through the trouble though.
What I'd do is just rent out the room, and not pay the fee.
Land value tax. No income tax. People who add no value get nothing.
http://www.macleans.ca/economy/economicanalysis/a-roadmap-fo...
> One example is the Immigrant Investor program, where those wishing to immigrate would make an interest-free loan to government of $400,000 in exchange for landed immigrant status. UBC geographer David Ley has shown that investor immigrants in the Vancouver region represent nearly 10 per cent of the Vancouver region’s population. That population paid, on average, $1,400 in income tax 10 years after immigrating. This is less than refugees. > … > A property surtax is an elegant and legally safer way to reduce foreign capital flows into Canada’s cities than the new foreign buyer’s tax. A one per cent surtax would work like this: if you own a $1 million house, you will receive a surtax bill for $10,000. If you have already paid equivalent income tax, are on a disability pension, or if you are a retiree on CPP, the tax is a full deduction—you’ve already paid, thanks.
http://www.macleans.ca/economy/economicanalysis/a-roadmap-fo...
How's that possible - do they all become non-resident after receiving their passports?
The interest-free loan of $400,000 to the Canadian government was also a weak test for 'investors'. The Canadian banks would front the money on behalf of the immigrant, if they prepay the interest on the loan. I was told by a banker that this was at a pretty high rate of around $120,000. This amounted to paying $120k to a bank in exchange for a clean citizenship path. Lots of people benefited from this system (banks, property owners, developers) so it went on for a long time. Ottawa ended the program in 2013, but one of the problems is that Québec hasn't--they control their own immigration policy to an extent. So it became common for investor immigrants to apply to Québec but then move to Vancouver.[1] In theory, immigrants that bring a lot of wealth with them sounds great, but I was also shocked by the stat showing that they paid less taxes than refugees after 10 years.
[1] Quick reference:
http://www.news1130.com/2015/04/01/investor-immigrants-using...
> “Quebec gets the benefits from that loan, which lasts for five years. It’s a very lucrative program as far as Quebec is concerned but the downside is that the people don’t actually end up living there. There’s plenty of data that shows 90 per cent of those arrivals actually end up living elsewhere. I think it’s fair to estimate that a large majority end up living in Vancouver.”
TL;DR People who try to launder money and escape capital controls in China have a high overlap with people who cheat on their taxes in Canada.
Define "local" and "foreigner". Does local mean you grew up in vancouver, or moved there a while ago, or your family spent three generations there already?
In addition, define foreigner. Anywhere else in British Columbia considered "foreign"? What about from Ottowa?
If you mean that you want to punish behaviour, such as buying houses and properties you don't live in or use, that's one thing. Discrimination based on locality sounds an awful lot like Jim Crow laws.
It isn't unheard of. In SE Asia (the Phillipines for example), all properties must have 50%+ occupancy by permanent residents.
I think that's an overly wide generalization. For instance, in Thailand, I don't think you're allowed to own land or houses, just a condo. In Laos, you can't own land at all.
The situation is much the same in much of Latin America.
Let's face it, capital coming into the country to buy property is a Good Thing from an economic perspective. You "just" have to make sure this capital rewards low-income people as much as property owners. This tax is one way to do that, which I think is very good.
When you're passing a law that disproportionately affects certain ethnic groups, that particular comparison is apt.
Your ethnicity isn't being discrimated against, just your country's economics circumstances. No reason to bring the SJWing into an economic argument.
Restricting people, no matter their ethnicities, based on their country's circumstances is generally frowned upon. Especially when it only affects citizens of a few countries. "Well, this law only applies to <action> Too bad only people from these countries perform these <actions>"
Besides, your claim that the money is being laundered is highly speculative and unproven. That's the definition of painting with a wide brush - because most money is suspect, you cut off access to all of it?
Local residents and voters have the right to keep others out if their laws allow for it. Outsiders/non-citizens don't get a vote.
This is fundamentally a monetary and trade policy issue.
Are you claiming that, for example, tarriffs on Chinese dumped imports are also equivalent to racially targeted laws?
Your simplistic views of history do not explain reality. Just because they weren't called Jim Crow laws doesn't mean that similar laws didn't exist.
Vancouver is located at the most western point of the Fraser Valley which is locked in by a mountain range to the North and the US border to the south. I live in Chilliwack, BC at east end of the Valley. I bought my home out here in the "cheap" part of the FV in 2015 for $375,000 and two years later it's assessed at $570,000.
The joke here is "they pay you in mountains and rivers". Wages are nowhere close enough for the average family to live here, so many are having to leave. But because Canada has some pretty epic winters in most of the country, and Vancouver has the mildest weather and climate (read: it rains a lot here) many baby boomer Canadians move here to avoid the winters the rest of the country endures 3 - 4 months out of the year.
If you're a US citizen thinking about leaving the US and are considering moving to Vancouver, do your research first. Talk to other Vancouverites and check your assumptions before committing to buy property. I'd recommend renting here for a couple of years to see if it's for you, and also because the market will hopefully correct and you'll get a better price on a home.
This is like your computer was constantly restarting, so you unplugged the weird printer. Now it hasn't restarted...yet.
No one in Vancouver is thinking anything is solved.
It appeared that there had even been demonstrations to thank Big Brother for raising the chocolate ration to twenty grammes a week. And only yesterday, he reflected, it had been announced that the ration was to be reduced to twenty grammes a week. Was it possible that they could swallow that, after only twenty-four hours? Yes, they swallowed it. .. the other table swallowed it fanatically, passionately, with a furious desire to track down, denounce, and vaporize anyone who should suggest that last week the ration had been thirty grammes. Syme, too-in some more complex way, involving doublethink, Syme swallowed it. Was he, then, alone in the possession of a memory? .. http://www.george-orwell.org/1984/4.html
So house prices drop, so the backstop for the loans doesn't work anymore. Interest rates are rising, so monthly payments are going up.
Let's just say "I hope rents are rising too". Otherwise ...
This is only looking at housing as investment/speculation. Downside is that people also sell if life forces them to. Like if they need to move because of personal or professional reason.
If the price continues to trend downward, realizing a loss isn't as bad as losing more, or more likely unable to deploy capital in better investments. While there are mortgages, my assumption is that foreign money is mostly all cash buyers.
And the shocking thing is just how big the losses can be when homes cost >$1M. If you buy a $200K home and the market drops 10%, it's a $20K loss of your down payment. A lot of money, but something manageable for most people.
If you bought a $1.5M home and the price dropped 10%, that's a $150K hit to your pocket book. And 10% is a small drop in an overheated market like Vancouver. It wouldn't surprise me to see a drop closer to 20-30%. That's a $300K to $450K loss for those home owners.
You would think by now people would have learnt their lesson and stopped thinking of housing as a 'great investment'.
Especially at a price of $1.5 million!!
Granted, even if the 1.5M house falls by 30% this year, over decades it is likely it will still come out ahead, adjusted for inflation, compared to say, a savings account. But chances are, on average, it won't beat an index fund.
But many people also see it as a way to make money. Unlike basically everything else we buy for living, people think that the only direction the value of their house can go is up.
If you look at it like your car (it costs money, but maybe you'll get some money back), then you can't be disappointed. In the worst case, it's no different from paying rent.
Plus, unlike penny stocks, you can live in the house.
The obvious protip here: don't buy a second house unless you can afford losing money on it.
Much better off investing in the S&P 500.
Also, when you factor this in - the landlord also knows how to factor those in. So rental prices won't be far behind. There are a lot of factors in renting vs. owning, but it's not clear-cut either side - you need to always look to specific local prices.
There are many markets where renting makes perfect financial sense.
Getting a place to live is quite different from getting one as an investment.
> the landlord also knows how to factor those in
Rents are determined by supply & demand. They are not determined by whatever the landlord pleases to charge any more than whatever the renter pleases to pay.
Not really. You need a place to live anyway, so why not get one that can also would appreciate in value? Alternatively, getting one that would depreciate can be financially ruinous. So investment consideration is always there, even if they might not be always the primary one.
> Rents are determined by supply & demand.
That's a platitude. But you are thinking of "supply and demand" to narrowly - nobody would purchase a rental property that brings in less money than it takes out, whatever demand is around. There's a price floor for rental price, and that's how much it costs to the owner to get and maintain the property. Short-term, the price can drop below it since selling house takes time, and the market may be not good. Long-term, nobody would keep such asset. People don't do it for fun, they do it for money. If selling is more profitable, they'd do that.
What I'm fearful about is that the large majority of mortgage buyers don't see it as a 10x leveraged investment, nor do they understand how badly the amplified price fluctuations of a 10x leveraged investment could hit them if there was even a tiny dip in the price of their homes, let alone another housing crisis like 2007.
We don't learn.
A coworker was particularly happy that his apartment had appreciated a lot in value since he bought it. Now, what he doesn't take into account is that the rest of the market has appreciated just as much. It isn't that his apartment has magically become more valuable, it's the entire market that has moved. The only way to realise that profit (without renting) would be to move somewhere where apartments are less expensive for the same standard, which he is not going to do.
- They think they understand it. Everyone lives in a property, right? And they have an opinion about which parts of their town are nice.
- Access to leverage. There's not a lot of things you can buy where the bank gives you 60-95% of the money you need, depending on the country and your situation. Other places where you can get this kind of leverage tend to have a bad rep, such as spread betting.
Given that, why does it matter if someone in Canada had a $200K home and the market dropped 30%, v.s. someone who had a $2M home and the market dropped 30%? Surely their earnings were priced into the loan?
Or is the Canadian real estate/loan market so insane that nobody asks you if you can plausibly pay for the loan you're taking?
If you're making $300K per year and you buy a $1M house, then yes, a loss of $100K-$200K is probably manageable. However, a lot of people don't make that much money. What they did is scrap together a down payment, sometimes borrowing from Mom or Dad. They get a mortgage payment they can just afford on a salary of $100K.
The other thing that happens is that some people will get a 2nd loan to cover the down payment requirement. There are regulations against it, but it does happen.
Disclaimer: not sure this is how US/Canadian mortgages actually work, but this screwed lots of people in a certain financial crisis I know of.
One of the biggest differences between Canada and the US is 30 year terms for mortgages. They are standard in the US and allow you to lock in a fixed rate for pretty much the rest of your life.
In Canada, they still do 30 year amortization, but loans are typically 5 year. You can get 1 year sub-prime loans with very low rates or 10 year fixed with higher rates. The 5 year is the most common.
What this means is that you don't get to enjoy a fixed rate over your lifetime. Get a mortgage for 4%? Great, it might be 7% 5 years from now. In other words your monthly payment could increase substantially.
Since you need to reapply for a mortgage in Canada, the banks will reassess the value and make sure you have enough collateral. I have heard of people refinancing after a downturn and the bank asks for another $5K to $20K to make sure you have the minimum 20% equity.
Mortgage loans typically have 2-10 year periods of discount or fixed rate (with the lowest interest rates normally found on the 2 year plans), then they revert back to the 'standard variable rate' which is significantly more expensive, and subject to change at very short notice. To keep a low interest rate you have to reapply for your mortgage every few years to get a new deal, and with reapplication comes the requirement to have a certain percentage of equity to loan.
So it's actually easier for foreigners to speculate on real estate in Canada.
One of the problems is that if a foreign owner ends up underwater after a correction they can easily just walk away.
But long-term, ordinary Canadians living in these properties stand to make out alright (indeed - assuming this is not a long-term depression in prices). They get their utility out of the property (if city rents are 2-3K/mo for a 2 bedroom, that's 480K over 20 years in "cost of renting the space" which they don't end up incurring).
I cannot speak for Vancouver, but scenarios in the US where cities saw non-trivial % declines had those % returned in-kind within a decade. So we're seeing short-term losses, it will impact folks selling today or tomorrow, but not in 10 years (as I've caveat-ed along the way: probably).
But overall, housing prices do increase over time relatively inline with inflation. So even if Vancouver takes a huge hit in the short-term, over the long haul it will keep going up.
One interesting thing I noticed is that some housing markets don't really go down that much, they just stop growing. I can remember the home my parents owned in Toronto. They sold it for $325K in 1990. In 2005 I looked up the price and it was about the same. Adjusted for inflation, the it was a price decrease.
This isn't actually what happened in Toronto, to be clear. There was a huge housing boom (especially condos) in Toronto in the late 80s, followed by a bust. >100% gain in real housing prices between 1985-1989, then a 40% drop between 1989-1996. What you saw was a housing collapse which took until the 2000s to recover, not a flatlining.
The owner is not "saving" $480K, but a sum quite a bit smaller than that, likely around 20-40%.
The great part about a severe correction in home prices is that.. Well I think generally speaking... Luxury homes have a higher beta than non-luxury homes, i.e. Luxury homes correct harder than non luxury homes. If you're staying in a 1m home hoping to leg into a 2.5m home, it sometimes happen that a correction drops your home value by 150k and the target 2.5m home by 650k or more. So the hurdle to change home just got cheaper by half a mil... Which is a good thing!
The scenarios you mentioned are the risks of overleveraging and that applies to everything. Few people leverage their retirement portfolios. If your home value is 90% of your retirement, why take that risk? Would you gear 90% of your retirement portfolio 4-5x and put it in a single asset?
In Canada, they don't have fixed 30-year mortgages like in the US. They have 25-year mortgages with 5 year terms. They need to refinance within 5 years. If they take a 20-30% hit in the house costs, they will absolutely be unable to renew their mortgage, unless they come up with the cash to make up the difference in appraised value.
This will lead to a lot of forced selling or foreclosures which will only pull the house prices down further, and cause more forced selling.
Do you mean the interest rate is fixed for only five years? If so, people will not need to refinance as long as interest rates stay low.
even if interest rates are flat (or go down, even) you can still be forced into foreclosure if your equity in the home drops below an acceptable threshold
What would be really terrifying would be another period of stagflation (no growth, high inflation). You could see your salary stay the same, but your mortgage payments increase by 20-40% when you refinance.
The truly terrifying thing is that the banks have been adding clauses to the mortgages that on renewal if the market value drops below the outstanding balance, the homeowner is required to pay the difference in order to renew.
This is scary because they will not have paid off much in the first 5 years, but the house price can certainly drop a lot in 5 years in a down market, and there would be very little hope for finding a new lender willing to offer a new mortgage for more than the market value of the house.
Getting a mortgage in Canada is (in my experience) a very weird process for an agreement over such a large sum, but typically can happen within a week.
To me, massive government subsidies is more like in France where you can have a 0% interest 25 year mortgage if your household income is low enough.
Or the special account which gives a 2.6% fixed interest after having saved some money in a special savings account.
In addition VA loans & FHA loan security is applied to something like 45% of loans. I've seen estimates that suggest the US taxpayer backs or owns 60% of loans in the residential market.
My understanding is that is pretty similar to the US, but it sounds different to Canada.
We don't have the same tax breaks as in the US though.
It's really quite amazing if you think about it.
I know a guy who refinanced a few years back at 2.89%. That's insane as it's barely above inflation. He's basically borrowing money for free.
If inflation goes up to 5-7% over the coming years, his rate will stay at 2.89%, drastically decreasing the cost to pay it back.
That said, most loan originators sell the mortgage off. Many of those go to quasi governmental corporations that most people believe the US tax payers will bail out if necessary.
We have fixed-rate mortgages in Norway too, but the interest rate loss or gain is realized when you refinance. Meaning that if you refinance to a lower rate, you'll have to pay the loss taken by the bank, and if you refinance to a higher rate, the bank pays you the loss you take. If you pay off the loan faster than scheduled, the same rules apply. So the risk is taken entirely by the borrower.
The mortgage is essentially a 30 year option, in those terms it becomes obvious why 30 year fixed mortgages wouldn't exist in an unsubsidized market.
They may have (potentially) had a few month's worth of being underwater but they were able to borrow at a lower rate also.
Further, there are several %age points of spread between what banks pay to borrow and what the mortgage rate is, further cushioning them. See the CIDOR here: http://www.tradingeconomics.com/canada/interbank-rate ... now compare with the mortgage rates a bank will charge.
EDIT: CIDOR under 1% but ratehub.ca says the best 5-year fixed rate you can get is... 2.42% .
There's not really a loss, since the terms of your old loan allowed the early repayment.
Before the Great Depression, mortgages were completely private – homeowners would generally string refinances one after another, and mortgage terms were less than 5 years. It wasn’t until 1934 that the Federal Housing Administration stepped in with an insurance program on mortgages, an amortization plan, and terms of 15-20 years (much like today, many mortgages are insured based on standardized programs – say, 30 years, fixed interest, 80% loan to value).
[1]https://dqydj.com/history-30-year-mortgage-private-mortgage-...
Tax breaks of course is another thing that massively influences US mortgages. I probably would never take my current mortgage if not the interest tax break.
I'll admit to being one of those who thought Vancouver's real estate prices were due to an unwillingness to build. I was wrong. It was always just Chinese money fleeing uncertainty and trying to find a safe place to land.
More like fleeing Chinese taxes and laundering money.
There is also some laundering going on, as well as some fat cats setting up their life outside of china so they can escape to somewhere when Xi's anti corruption campaign catches up with them.
There are plenty of people who have built their empires via guanxi, bribery, and lots of untaxed grey money. Those are the ones that are a bit more worried about the government turning against them (because there is plenty of ammunition).
I stopped by two City of Vancouver public consultations today and both were about rezoning areas to expand housing. One was about upzoning Chinatown to include more housing and the other concerned the design of the new North East False Creek neighbourhood that will exist after the viaducts come down. Tons of housing will be created when that land currently used for an incomplete highway is freed up.
In vancouver with $60k/yr average incomes and a decent enough willingness to build, it's housing-as-bank foreign money. You see it even more with rent & housing price ratios being out of wack.
In the bay area with strong anti-building NIMBYs, prop 13 , a tech boom and some foreign housing-as-bank money leads to it's high prices. You see it in how housing prices and rent is pretty even in many cases. The places in the bay area that don't have fairly even rent/buy ratios are the ones who probably have money being imported.
A friend of mine pointed out how there seems to be about a $2 million limit in housing liquidity in palo alto now since there was a law passed that required that sources of cash have to be disclosed for housing that is over $2 million. You can often see housing liquidity bands too in the '1 tech worker salary' & '2 tech worker salary' limits, mortgage lender down payment behavior and what not.
The more likely cause of the rise and then decline in Vancouver prices is the incredible levels of debt home buyers are taking on, due to low interest rates.
This is a testable hypothesis. Toronto is currently where Vancouver was pretax: rising prices, but decline in inventory and overall sales volume. If Toronto declines in 6-12 months without a tax, then the tax likely wasn't the major cause of the Vancouver decline.
See https://www.ft.com/content/87d8a7e8-cfe8-11e6-b06b-680c49b4b...
As I stated in another reply, I have no doubt the foreigner tax had an impact. But even without it, the Vancouver market was poised for a downturn.
"It’s working (pdf), according to Bank of Montreal analysts. They show how prices have been falling in Vancouver but are still appreciating steeply in Toronto and Victoria, which don’t have a similar tax."
If your point were correct, you'd also see declining prices in Toronto/Victoria, no?
Here's the PDF: http://economics.bmocapitalmarkets.com/economics/amcharts/GD...
http://www.huffingtonpost.ca/2016/09/02/vancouver-detached-h...
I'm more interested in the effects of the new monetary rules/enforcement that China has imposed on its citizens. Still, I remain steadfastly skeptical that the sky will fall.
except they don't, really.
Tamed? The article makes it sound like over a decade of faster-than-inflation price appreciation has been wiped clean with a one year decline of 3.7% and cooling sales.
The real estate market moves in very long cycles due in part to the difficulty of trading in an out of it. Believe what you want, but I suspect now is not the time to dive into the Vancouver real estate market.
Also, no mention of China and the strong desire of many citizens to move their money out of the country and into offshore assets like Vancouver real estate:
http://www.huffingtonpost.ca/stephen-punwasi/chinese-buyers-...
I'm thinking of dynamics where geographical wealth mismatches could affect prices. A couple examples I've been exposed to:
- Chinese investment in Bay Area residences
- Transient Bay Area tech workers renting in Mission / SOMA
- Residences being turned into vacation rentals in SF
- Houston oil money buying residences in Colorado communities
- NYC, LA, SF money flowing into Austin, both travel and investment
- Vacation spending and mainland investment increasing the cost of residences in Hawaii
The counter-side to this is that the wealthiest property owners (local and foreign) benefit from the free inflow of capital. These people may be more influential constituents to municipality leaders than people who would be negatively affected by rising housing prices.
But I'm pretty sure that's not what GP was referring too ;)
We burn out after a few years of realizing that home ownership is perpetually off the table and raising kids here will be nearly impossible.
We give in the locals' demands that we move out, and locals double down on working to punish us for our transience.
I live in the Bay Area, and I'm trying to buy a house with my fiancé and we are really struggling to find anything affordable. I'm a software developer and she is a school teacher.
High competitiveness among the few thousand who actually got rich would not fall on the middle and working class so heavily.
A huge number of people willing to pay most of their upper-middle-class salaries for a standard of living we would call poverty in any other region, on the other hand, makes even poverty-style living too expensive for the Bay Area's actual poor.
Google pays enough to get your own apartment on less than 50%, sure, but I don't think Google is making people millionaires anymore, except the slow way (401k savings).
Over a few years, the big company compensation package is over 1 million. (It helps that the valuation has been rising steadily forever).
There are 7 million people who live in the greater Bay area and they live in ~2.5M owner-occupied housing units. I can't see tech millionaires making that much of a an impact on housing prices. Sure, they could push prices up by 10-20%, but SF housing prices have pretty much doubled since the great recession.
I think it's the "now or never" mentality of home buyers. they think that prices will only ever go up, so if they don't buy now (even if it means overextending themselves) they'll never have a home. I'm sure a lot of people thought the same thing before the housing crash of 2007.
Sales volume in the bay area are low for a variety of reasons (Prop 13, not enough new construction).
It doesn't take many people with high salaries when there is low inventory to push prices up.
If many more houses were for sale, the prices would plummet due to lack of buyers able to pay the current prices.
As someone who once was outbid by an all-cash offer on a house in Piedmont I had to sort of grit my teeth over that one.
If you are talking about sale prices, then those hopefuls hardly influence that market. Instead, it is the people coming in with money that can afford to bid up houses that you have to worry about.
There's a huge amount of demand to live here. The price level has to rise until only the number of people who can fit in the housing stock are coming in. We could have no inward migration, but I don't think we could have a large number of people without money moving in - how would we decide who gets a home and who doesn't, if not by raising prices?
Vancouver, even though rents are crunched also, is not so affected much by internal movements. The distortions are much more at the sales level and then, speculators leaving bought property empty because they intend to flip sooner rather than later, or just don't want to rent it out for money that isn't very comparable to the purchase price.
Vancouver is basically the mainland Chinese real estate market: very expensive to buy a house, but still cheap (relatively) to rent. The Bay Area is not.
If we're using the 2-2.5x income definition of "afford" that stands in the rest of the country, no. Total compensation across software engineers at Google looks to be about $160k [0]; a Googler can afford about $400k.
Not a lot of $400k condos around here.
To get to $700k, you'd need a married pair of Googlers (not an easy thing to do in this overwhelmingly male industry), the equity from a paid-off house somewhere else in (more likely), or the willingness (and lenders' willingness) to spend a much higher multiple of your income (seems to be what's happening).
[0] https://www.glassdoor.com/Salary/Google-Software-Engineer-Sa...
It's extraordinarily unaffordable in the Bay Area and none of my friends there (at Google, Facebook, or elsewhere) would say it's easy, but I don't think $400k is the right number to pick even if you're conservative about affordability.
Google has been hiring extremely heavily over the last 4-5 years, and their HQ gets tons of early 20s fresh university hires. So I'd expect that $160k number (which I see as $166k?) to be skewed down a bit. Anyway, fresh early 20s university hires aren't likely to have the savings, stability of personal situation, or desire to buy property.
You're probably looking at more established engineers as buyers, and they'll have been able to save longer and advance in their careers, and $160k + the standard 20% down payment is probably on the low side for that.
Glassdoor's numbers don't change much when you bump up the experience, and I'm afraid I don't have sources other than my fairly extensive social network at large Bay Area tech companies, but I can pretty confidently say 3-6 years out of school that yearly total comp number will be $200k+ and if you're saving properly without 6 figures of debt you'll have upper 5/lower 6 figures saved to put down on a place.
$700k is still a stretch, so I think your point still stands, but I don't think you need to be a dual-income Google/Facebook/etc. software engineer household to afford it.
In Milwaukee, a 20th percentile household still has a car and a commute below 30 minutes [0].
Here, even six-figure professionals can't afford such things, so life is nearly impossible for the genuinely poor.
I doubt a foreign buyer tax would have much of an effect on the Bay Area, since much of it is driven by internal demand and high salaries. On the other hand, places like Sydney, Auckland, etc. have similar problems with foreign buyers and could probably benefit.
Although foreign buyers do have an impact on the Vancouver housing market, I think people really overestimate the effect it has.
After lots of discussion about hoards of Chinese buyers, the BC gov't started tracking purchases. It peaked at 13% just before the tax (and most of that was concentrated it the top of the price range).[1] Also, that definition of foreigner is just someone without Canadian citizen or permanent residency. If you live and work in Canada and are on a work visa, then you would still count as a foreigner (which I don't think is fair).
That means only 1 out of 8 homes were bought by a foreigner and 7 out of 8 were purchases by resident Canadians.
What people seem to ignore is the absolutely shocking way that Canadians are overextending themselves when it comes to real estate. It's a "now or never" mentality and mortgage products like the ones that brought down the US economy are becoming more and more common in Canada.
The foreigner tax is likely the straw that broke the camel's back when it came to the Vancouver real estate market. Even without the tax the market was about to turn.
[1]http://www.theglobeandmail.com/real-estate/vancouver/foreign...
1 out of 8 is more than is necessary to create a massive bubble, and is the driving factor - along with low interest rtes.
In a housing market - nobody knows for sure which direction it's going to go.
So how do they price? They price on 'similar properties'. So when 'the similar house down the street' sells for '5% above asking' that sends a 'validating pricing signal' to other buyers of homes in the neighbourhood.
It's not so much that it's 'foreign buyers' - if they were normal buyers it wouldn't have much on an effect - it's that they are generally 'price insensitive'. They need to get their money out of China and into something and they generally com e in and buy above asking, and out-bid everyone or whatever.
In a 'normal situation' a house may not sell for some time, it gets buyers skittish, and they wait, and maybe give low-ball offers. Sellers may be weary and then sell it.
But all it takes is for a few 'over asking bids' to come into an area and it props ALL of the homes up in price. Local buyers feel confident taking out their massive loans because 'that's what the house is worth, i.e. it's an investment'.
Without some upward driver on prices, they'll collapse to a different level - and guess what that level is? The level that people earning the local Houshold income feel comfortable buying at :) given all the variables.
Especially when the word 'bubble' is floating around, it means the only way local buyers will buy is if there is the 'up signal'. So - no 'foreign inelastic buyers' -> 'no up signal' -> depreciation.
As for: "What people seem to ignore is the absolutely shocking way that Canadians are overextending themselves when it comes to real estate"
This is rational behaviour. If the market is going up-up-up - and you're a family in Van - you either buy a home now while you can barely afford it - or be left out of the housing market forever, and rent - and within a few years, rents will be too much - and you have to leave Vancouver!
So the effect of 'price inelastic foreign buyers' is forcing otherwise normal people into a serious economic quandry - the system is forcing them to gamble their entire life of 'net worth' in a crazy crapshoot - when people just want a place to live.
Globalization is having a crazy effect on real estate - and outside of maybe a few 'globalist' cities like London and NYC - I believe that every nation should have a 15% tax on foreign buyers - so that local citizens are given a kind of advantage - or rather just a 'protection' from foreign blips of money coming and ruining them all. The local banks will pay a price as well. A serious Vancouver housing crash could kill a bank, in which case taxpayers have to come in and bail it out.
When the entire world is interconnected, the bad decisions of one government can send shockwaves through the world. That's why 'some kinds of walls' are good. Think 'economic firewall'.
I have a hard time believing that Vancouver real estate prices have been driven by 'organic' demand. It's a beautiful city, for sure, but the economy isn't exactly stellar. Canadians are probably overextending themselves, but I doubt the average young Canadian with 60k income can quality for a 1 million dollar mortgage.
You can still purchase permanent residence status with cold hard cash in Quebec. A lot of Canadian "citizens" / "permanent residents" are nothing of the kind, they are citizens of convenience. The passport and house is for getting out of Dodge when the sht hits the fan.
Similarly, a lot of multi-million dollar houses are owned by Chinese students.
I'd feel very comfortable betting the truly* foreign percentages is far, far higher than the government is telling us. It took high levels of public outrage before the government finally released a subset of the statistics, if they were really now interested in telling the truth, they'd publish all the metadata available for citizens to examine.
Wishful thinking. Wealthy asians are still buying up everything.
Seems they've dipped a touch since the summer, but that's part of the usual summer-is-buying-season cycle as far as I understand.
http://www.rebgv.org/sites/default/files/1.%20REBGV%20Stats%...
However, this assumes people mostly buy property to live on. You get a stronger impact on investment property which is why people are predicting 15% or so.
[1] http://www.theglobeandmail.com/news/british-columbia/bc-to-t...
If the intent is to just park money then a 15% cost to do so might or might not make sense.
I'd guess they're good enough at this game that they're even more leveraged than the 20% conventional downpayment requirement and probably using the (bubble inflated) equity to print new money out of thin air and get another property.
I have no idea what's actually going on but this is how I've seen people speculate on real estate in other markets and seems like the obvious thing to do. I would even guess that there are ways of borrowing against money that is still in China, which subverts their restrictions on moving money.
I also predict that this hiccup will be invisible within 6 months, for two reasons.
1. Nobody goes shopping for houses in December and January because it's cold and there is Christmas/Lunar New Year etc, especially with the storms this year.
2. These restrictions are going to have loopholes and a market this big has an implicit bounty on finding them. They'll figure out how to get Canadians to hold the title to dodge the 15% foreign tax and they'll sign rental agreements with their lawyers kids/pets and say it's officialy rented or whatever else they need to do.
They might live there, or have a family member/student live there, or their wife/kids while they stay in China.
These people might be a little 'price inelastic' but also 'not stupid'. A 15% advantage for local buyers gives some leverage.
It could also just be a little skittishness - 'what will the tax be next year'? Or 'will this cause other buyers to be skittish because if that happens, prices will drop, so I'll hold off'.
15% will definitely pull out a chunk of buyers - that pull out might be enough to make those buying 'at any price' not enough to keep the bubble up.
Finally - Toronto saw a big increase after Van put in the law. The money just may have switched gears into TO.
http://www.theglobeandmail.com/news/politics/cra-launches-re...
"“Management has known of this issue for at least three years but did not want to pursue the real-estate flips because most of the auditees were Chinese in descent. They were scared of being racist … I can confirm this fact, based on meetings held,” the auditor said."
Of course, this is all being rectified as we speak, the government assures us. ;)
A 'national 15% tax' would have been much better.
Buyers from Van have shifted to Toronto. Which kind of defats the point - one city passing on their disease to another.
Globalization is having some crazy effects on the entire world, and we need some new laws.
A 15% tax on all foreign buyers on all homes in the world would be appropriate - these are not 'stocks' or other assets - these are the homes that people live in, and they are forced to gamble with their entire savings and future savings due to shifting economic tides that they don't have the capital base to deal with.
When shifting economic tides disrupt markets - the big winners are those who have enough capital to withstand the storm - they come in and pick up the pieces. Much like farmers during the great depression forced to sell their land cheap to big banks.
Also, I agree that there should be a difference, and that should be reflected in the tax as well.
Non local residents 15% tax, resident, non citizens 5% tax, citizens 0% tax. For every regime.
House price inflation hasn't gone down in the slightest, especially not if you consider the greater vancouver area, which is where everyone's been driven off to, and consequently has become a metric that has to be considered when talking about "Vancouver" house prices. Those people are now also getting driven out of the GVA because the price increase over the last five years despite being "neighbouring city" was in the order of ~4%, ~4%, ~4%, ~4%, and then suddenly thanks to Vancouver proper, 30+%