VREG Blog

“I’m surprised that everyone else is so surprised to hear anyone talk about a housing bubble…” “Housing prices went up 17% in a year where underlying wage growth is stagnant…” “I called the bubble in the US in 2005-2006… I was looking at price to rent ratios, I was looking at price to rent ratios… household exposure to RE… I’ve got news for you… the numbers in Canada now are worse than they were in the US 13 years ago” [asked about colleagues who say there is a “bubble in calling bubbles in Canadian RE”] “Bubbles can go further than you think, but they don’t correct by going sideways…” “I listen to… Stephen Poloz [BOC governor]… it’s like listening to Ben Bernanke in 2006 when he told everybody “Oh, don’t worry… house prices nationwide never go down“.. “Bubbles can last a long time, but we’re in a very unstable situation”. excerpts from economist David Rosenberg’s Bloomberg interview, 24 March 2021

As a mortgage agent, Lorina Serafico, a home-financing adviser with Scotiabank, often gets asked when is a good time to buy a home. “If a household has the income, down payment, and the credit score to qualify for a mortgage, it is always the right time,” she said. According to Serafico everyone needs a home, whether owned or rented. “I consider mortgage payments as a forced savings plan,” Serafico said. “A $500,000 property you bought today will be worth $873,000 in 10 years. That’s an average of 7.45 percent annual increase, beating a medium-risk investment portfolio.” … With more than a decade as a mortgage agent, Serafico has served numerous customers, and a number of them have started meeting with her again. They’re usually owners of townhouses and condos, and now they’re thinking of upgrading to single-family homes. “They like what is happening in the market. There’s more inventory; prices have stabilized; and interest rates are good,” Serafico told the Georgia Straight in a phone interview. On March 27 this year, the Bank of Canada slashed its key interest rate—which determines bank lending rates—to its lowest level of 0.25 percent. – excerpt from ‘Mortgage holders can seize on opportunities to upgrade’, Carlito Pablo, Georgia Straight Vancouver’s News & Entertainment Weekly, 17 June 2020 “It’s hard to make predictions, especially about the future.” – attributed to Yogi Berra. One would think that people, especially finance professionals, had learned not to say things like “…it will be worth…”, “…7.45%…”, and “…always…”. – vreaa

“Two days ago, my mortgage holder (a Credit Union, no less) called and told me that after 22 years, I was no longer an “A-list” borrower, and they would not renew my mortgage. I have no credit cards, never late with a payment, never late with utilities, taxes, etc., etc., BUT, because of the ‘new’ mtg. rules, they could not renew my mtg. because two years ago (as a result of a series of family crises), I took a small 2nd mtg. (ridiculous rates, but I’ve met EVERY payment, etc. – the credit union wouldn’t ‘help’). My total debt is only the two mtgs. against the property and, together, they are less than 1/2 of my equity (compared to the assessed value). My son (who is on disability) lives with me and takes care of me (as I do him), and we share our expenses with our two limited incomes. I’ll be 73 in a couple of weeks, am not well, have been isolated at “home” since the beginning of March. None of that ‘counts’. Nor does it ‘count’ that for over 50 years, I’ve been involved in environmental and social justice issues, worked pretty much full time my whole life (never collected EI, even!), contributed to my community (have received awards), raised a family, supported many others in crisis. In a month, I, and my son, could be homeless. I don’t even have the strength to champion my own personal needs. To those of us that are experiencing the REALITY of the NOW – those living in corrupt care homes, or homeless, or helplessly addicted, or victims of genocide or poverty, or racism, what it’s “called” is moot. — from commenter ‘dda’ 30 May 2020, under the article, ‘Normal Is The Problem’, by Andrew Nikiforuk, The Tyee, 30 May 2020 Also see: A Confluence of Whammies: A Single Realtor (& Airbnb-host) with a dependent child, an elderly dependent parent, two lost tenants, and dwindling business is forced to sell their house (presumably at a loss) and take a $30,000 mortgage penalty. TD Bank charges $30,000 mortgage penalty to woman forced to sell home due to pandemic – 1 Jun 2020, CBC News. Your banker may seem like a friendly guy, but the banks will always look after themselves – first and last. – ed.

According to CMHC estimates, the ratio of household debt to GDP in Canada could reach 130 per cent in the third quarter of this year, a sharp increase from around 99 per cent before the pandemic. Debt as a share of disposable income, meanwhile, could also rise precipitously to 230 per cent in the third quarter, up from 176 per cent. Siddall said those ratios are well over a critical 80 per cent threshold, above which “the Bank for International Settlements has demonstrated that national debt intensifies the drag on GDP growth.” Such high debts risk future economic growth by “effectively converting future consumption into debt service payments,” he said, at a time when households and governments are increasingly leveraged. Adding to real estate concerns amid COVID-19, the agency also sees housing prices plummeting in the next calendar year. “The resulting combination of higher mortgage debt, declining housing prices and increased unemployment is cause for concern for Canada’s longer term financial stability,” Siddall said. The CMHC sees housing prices declining between nine and 18 per cent over the next 12 months. Those estimates are loosely in line with an earlier projection by DBRS Morningstar, a credit rating agency, says which says housing prices could fall between 10 and 15 per cent by 2022. By way of comparison, the owner of a $300,000 home at a five per cent down payment could lose around $45,000 if housing prices fell by 10 per cent, Siddall said. He said the agency is “debating whether we should change our underwriting policies” as a result of the pandemic, potentially restricting the future lending environment as debt levels soar. “Our support for home ownership cannot be unlimited,” he said. “It’s like blood pressure, you can have too much, [but] you need some.” – excerpt from ‘Bloody terrifying’: COVID-19 will raise household debt levels and ‘drag on GDP growth,’ CMHC warns’, Jesse Snyder, 19 May 2020, National Post Remarkably straight talk from the organization that has played such a large part in extending rope to participants over the last 20 years. And we’d guess that ‘18%’ is just a best guess estimate of the first step. As we’ve postulated over the years, when the bubble bursts, few are going to step in and overextend themselves to go into debt to buy assets that are falling in value yet still very overpriced by every metric. The Vancouver market has been predicated on prices that only go up, and the result has been prices that are about three times those determined by fundamental utility value. Once the drops start, we see no way of this all bottoming at 18%-off. In Vancouver, the direct and indirect economic effects of a drop of 18% in RE would alone almost definitely guarantee a larger drop. – vreaa

According to CMHC estimates, the ratio of household debt to GDP in Canada could reach 130 per cent in the third quarter of this year, a sharp increase from around 99 per cent before the pandemic. Debt as a share of disposable income, meanwhile, could also rise precipitously to 230 per cent in the third quarter, up from 176 per cent. Siddall said those ratios are well over a critical 80 per cent threshold, above which “the Bank for International Settlements has demonstrated that national debt intensifies the drag on GDP growth.” Such high debts risk future economic growth by “effectively converting future consumption into debt service payments,” he said, at a time when households and governments are increasingly leveraged. Adding to real estate concerns amid COVID-19, the agency also sees housing prices plummeting in the next calendar year. “The resulting combination of higher mortgage debt, declining housing prices and increased unemployment is cause for concern for Canada’s longer term financial stability,” Siddall said. The CMHC sees housing prices declining between nine and 18 per cent over the next 12 months. Those estimates are loosely in line with an earlier projection by DBRS Morningstar, a credit rating agency, says which says housing prices could fall between 10 and 15 per cent by 2022. By way of comparison, the owner of a $300,000 home at a five per cent down payment could lose around $45,000 if housing prices fell by 10 per cent, Siddall said. He said the agency is “debating whether we should change our underwriting policies” as a result of the pandemic, potentially restricting the future lending environment as debt levels soar. “Our support for home ownership cannot be unlimited,” he said. “It’s like blood pressure, you can have too much, [but] you need some.” – excerpt from ‘Bloody terrifying’: COVID-19 will raise household debt levels and ‘drag on GDP growth,’ CMHC warns’, Jesse Snyder, 19 May 2020, National Post Remarkably straight talk from the organization that has played such a large part in extending rope to participants over the last 20 years. And we’d guess that ‘18%’ is just a best guess estimate of the first step. As we’ve postulated over the years, when the bubble bursts, few are going to step in and overextend themselves to go into debt to buy assets that are falling in value yet still very overpriced by every metric. The Vancouver market has been predicated on prices that only go up, and the result has been prices that are about three times those determined by fundamental utility value. Once the drops start, we see no way of this all bottoming at 18%-off. In Vancouver, the direct and indirect economic effects of a drop of 18% in RE would alone almost definitely guarantee a larger drop. – vreaa

“If homeowners can just hold off selling, the Canadian housing market will emerge fine from its current “deep freeze”. According to a recent TD Economics housing forecast update, the market is expected to gradually recover from the effects of the COVID-19 pandemic. After an anticipated “historic” plunge in sales in the month of April 2020, a “much stronger activity” is seen next year. A lot of that depends on whether homeowners can avoid distressed selling during this pandemic. “Absolutely key to our forecasts is the assumption that listings mirror sales by dropping substantially in the near-term and recovering gradually thereafter,” Rishi Sondhi, an economist with TD Economics, wrote. By holding off on selling, homeowners can do one thing for the market. “This puts a floor on prices and sustains relatively tight-supply demand balances across most markets, allowing for the resumption of positive price growth as provincial economies are re-opened,” Sondhi explained.” – excerpt from ‘Homeowners avoiding distressed selling key to Canadian housing market recovery: TD Economics’, Carlito Pablo, 1 May 2020, Georgia Straight No, folks, that ‘analysis’ is not from ‘The Onion’. Seems like the TD analysts have found a sure fire way of maintaining every bull market, forever… (it’s easy: just get sellers not to sell). It’s remarkable that this kind of ‘analysis’ can get parroted on & on without getting called out. Remember: Sellers aren’t competing with Buyers, they’re competing with other Sellers. How many Vancouver RE speculators (essentially each and every buyer for the last 10-15 years) are going to realize their thus-far-paper profits? We are already seeing many anecdotal examples of people who bought in 2016 or later taking losses on resales. – vreaa

Urban planner Andy Yan, director of the City Program at SFU, thinks the pandemic has exposed Vancouver’s economic fragility. Besides real estate, Yan explains, the economy is driven by service industries such as tourism, which has been clobbered by COVID-19. Not only do tourists help fuel short-term rentals like Airbnb, but many long-term renters work in tourism and hospitality. “If you were either counting on Airbnb or on a renter living in your secondary suite helping pay for your mortgage, and now they can’t, what do you do?” Yan asks. Add in the fact that international travel is now very difficult, and things could get much uglier. “You have the local economy not doing well, and now you’re cut off from the global economy,” Yan says. “So it feels like it’s 1978,” when Metro Vancouver resembled what he calls Detroit by the Pacific. His summary of that era: “It wasn’t good.” When it comes to retail and office real estate, the future looks uncertain, too, Yan reckons. It’s easy to blame Amazon, but storefront retail was already struggling before the crisis, he says. “You know how COVID takes out people with pre-existing health conditions? Well, we have pre-existing economic conditions.” As for the office property market, Yan says that before people started staying home, 20 to 30 percent of Metro Vancouver’s labour force already worked there. “If you accelerate that and it goes into now 40 or 45, maybe even 50, how much are they going to stay at home?” Bryan Yu, deputy chief economist with Central 1 Credit Union, also sees uncertainty ahead. “Commercial is probably a little bit problematic, especially the retail side, and even for some of the commercial product as work from home becomes much more normalized,” he says. “Will companies go back to requiring that large footprint they have now, or are they moving to a more nimble, work-from-home type of environment?” Either way, creating a new local economy won’t be easy. Given what the pandemic has revealed about the risks of relying on global supply chains, one possible scenario is that manufacturing returns to the region. But as Yan points out, the City of Vancouver converted much of its industrial land to residential in the 1980s and ’90s. “Now where does that industrial perhaps go?” he asks. “It either goes to, say, Surrey or Abbotsford, or it goes to Calgary or Winnipeg.” For the province as a whole, the fact that tourism, retail and other service industries dominate spells trouble in a deglobalized world, Yan warns. In food service alone, more than 120,000 B.C. workers have lost their jobs, at least temporarily, Restaurants Canada estimates. “There are these green shoots in technology or highly specialized manufacturing, but they can’t generate a mass of employment,” Yan says. – excerpt from ‘For B.C. real estate, will COVID-19 bring down the house?’ Nick Rockel, BCBusiness, Apr 23, 2020 Apt metaphors include Biblical ‘feet of clay’ and Buffett’s “when the tide goes out you discover who has been swimming naked”. – vreaa

“While lockdowns, job losses and uncertainty are roiling property markets from the U.K. to Australia to Hong Kong, Canada’s situation is more precarious than most. As its oil sector shriveled in recent years, Canada’s economy became ever more driven by real estate, an industry now in a state of paralysis. Nearly one in three workers has applied for income support. What’s more, its households are among the world’s most indebted, poorly placed to weather the storm. “I think it is the Great Reckoning,” says Douglas Hoyes, a bankruptcy trustee in Kitchener, Ontario. “We’ve been in a period for so long where it didn’t matter what property you bought or how highly leveraged you were. Well, guess what? Now it matters.” Since the economy began shuttering in mid-March to slow the spread of coronavirus, policy makers have raced to buttress the property market. Banks are offering mortgage holidays, including to landlords with multiple loans on investment properties. That has raised eyebrows even within the real estate industry. “Should someone with four properties really be granted financial assistance?” asks Steve Saretsky, a Vancouver realtor. “Where exactly do we draw the line?” The country may not have much of a choice but to prop up housing. Real estate has become Canada’s largest sector. Including residential construction, it accounted for 15% of economic output last year; energy accounted for 9%. If it collapses, there’s not much that can pick up the slack — certainly not oil nor the seemingly unflappable consumer. Canadians have been on a two decade spending spree since a downward shift in mortgage rates began in the 1990s. Toronto and Vancouver, the two biggest housing markets, haven’t had a major correction during that time. Housing turned into a wealth-conjuring machine. As values spiraled higher, homeowners felt richer — they spent more, borrowed more, and sent prices even higher. That virtuous circle just popped. The City of Vancouver fears it’s heading for insolvency after it surveyed residents and found that 45% of households say they can’t pay their full mortgage next month and a quarter expect to pay less than half of their property tax bills this year. It’s a stunning contrast to 2016, when those lucky enough to own a detached house in the west coast city watched their net worth balloon on average by more than C$1,600 ($1,130) a day without ever leaving home. In one year, the city’s properties surged in value by C$47 billion, more than double the cumulative take-home income of all its residents. Tellingly, billboards by the consumer financial watchdog began cropping up — “Don’t use your house like an ATM” — as homeowners borrowed against those gains to fund renovations, vacations, and rental properties. Today, Canadian households owe C$1.76 for every dollar in disposable income. In Vancouver, that spikes to more than C$2.30 — a ratio that puts the so-called supercar capital of North America on par with Iceland before the global financial crisis. Recessions tend to be deeper and last longer when households are mired in debt — an alarming prospect for a nation that may already be experiencing its sharpest contraction on record. Canadians owe C$2.3 trillion in mortgages, credit card, and other consumer debt, about equal to the country’s GDP, which is an even higher ratio than the U.S. had before its housing bust. “You have all of these flammable items that just need a spark, some external shock,” says Anthony Scilipoti, president of Toronto-based Veritas Investment Research Corp. “And this virus is a worst-case scenario none of us would have predicted.” Airbnb Customers Vanish It doesn’t take much to tip a seemingly tight market into a meltdown. If only 2% of the housing stock were to be listed for sale, it would trigger the kind of supply shock behind a 1990 crash, according to Veritas. That’s most likely to come from investors, half of whom weren’t generating enough cash to cover the cost of owning their rental properties, Veritas found in a survey last September. For loss-making landlords, things are about to get a lot worse: about 30% of apartment rent due April 1 went uncollected, according to estimates by CIBC Economics. That’s in line with similar estimates of U.S. rental collections. Then there are those who invested in properties for the short-term rental market that’s all but dried up because of travel restrictions. Nearly a third of Canada’s Airbnb hosts — who jointly had 170,000 active listings in late 2019 — need the income to avoid foreclosure or eviction, Airbnb said in a letter to the Canadian government last month. Confronting a swiftly collapsing pool of renters, more than 200 Canadian listings have exploded across Vrbo and Airbnb in recent weeks pitching themselves as isolation or quarantine havens, many offering Covid-19 discounts, according to data from Toronto-based Harmari, which analyzes online classifieds. Former Airbnb rental units have also cropped up in sales listings. Shaky Pillars Economists and lenders have long pointed to two pillars that have underpinned housing: a robust labor market and the biggest increase in international immigration in more than a century. Neither is holding up. Nearly 6 million Canadians have applied for income support. Lenders had deferred nearly 600,000 mortgages, about 12% of the mortgages they hold, as of April 9. Meanwhile, immigration targets, based upon an earlier growing labor shortage, will almost certainly be scaled back. In steps that dwarf those taken during the global financial

Here’s my yearly roundup of the best books released by local authors and publishers this year, just in time for your last-minute literary gift shopping. Let us rejoice in the glory of our regionally written words! Cascadia Cookbook (Said The Whale Music) Vancouver band Said the Whale has been filling our ears with their West Coast-flavoured indie rock for over a decade. Now, as a tasty compliment to their 2019 album Cascadia, the band fills our stomachs with the release of Casadia Cookbook. In this beautifully designed, 80-page feast, you’ll find Pacific Northwest-inspired recipes paired to each song on the album, for dishes such as salal berry pie or “Buckaroo Spuds.” The book was designed by Said the Whale keyboardist/band chef/skilled baker Jaceyln Brown, with mouth-watering photography by Lindsey Blane. A perfect addition for any West Coast kitchen. Cougar Companions by Judith Williams (Harbour Publishing) Sink your claws into this incredible and untold true story from B.C.’s coast. This is the wild tale of the Schnarr family: single father August, a trapper, logger, and skilled amateur photographer, and his three young daughters, all trying to make a go of it in remote Bute Inlet. The Schnarr family was infamous in the 1930s for their collection of fully grown pet cougars. Cortes Island author Judith Williams passionately unfolds this adventure with the help of August Schnarr’s lifetime of incredible photographs. Finding Callidora by Stella Leventoyannis Harvey (Signature Editions) If you enjoy exciting historical fiction, you must escape into this epic novel by Whistler author Stella Leventoyannis Harvey. Inside, you’ll enter into a bloody family saga that spans generations, continents and two world wars. Driven by actual headlines of the eras, this is a fast read convincingly set on remote Greek islands, Egyptian streets, rugged Turkish landscapes and, finally, Canada, as a scattered family tries to piece together a tragic past. I Saw Three Ships: West End Stories by Bill Richardson (Talonbooks) A smart and hilarious collection of fictional short stories set in Vancouver’s most densely populated neighbourhood, penned by the great humourist, author, broadcaster and longtime West End resident Bill Richardson. All eight of the finely tuned stories within are linked by West End characters from various walks of life, set amongst the garishly decorated apartment lobbies of Christmastime west of Burrard. (Bonus tip: I think the Paper Hound on Pender Street has signed copies.) Major Misconduct: the Human Cost of Fighting In Hockey by Jeremy Allingham (Arsenal Pulp Press) In his debut book, author and CBC Vancouver journalist Jeremy Allingham has provided a potential knockout blow to hockey fights, as well as the toxic culture that surrounds it. And timing is everything. As if predicting the sea change that may finally be cracking up our frozen game, less than a month after this book came out, several notable figures in hockey’s leadership circles have been fired or put on leave. A very revealing read for any fan, especially those who think fighting should still be part of hockey on any level. Vancouver After Dark by Aaron Chapman (Arsenal Pulp Press) Whether it’s saucy stories of Oil Can Harry’s, the Cave, Retinal Circus or (my personal favourite) the Starfish Room, Aaron Chapman’s latest outing nattily steps into a century of Vancouver’s nightlife with crisp detail and refreshing research. Like a cold Kokanee upon entrance at the Town Pump, consider this book essential consumption for any Vancouverite (from any era) who has ever experienced our city’s notorious and colourful nightclubs. All of these best of 2019 books are available at Vancouver’s independent booksellers, including the newly opened Iron Dog Books at 2761 East Hastings. Happy holidays, and happy reading! Grant Lawrence is the author of three award-winning nonfiction books, most of which are at least partially set in Vancouver.