Not this:
Jokes aside, despite still experiencing record low interest rates, the Vancouver housing market has lost momentum with sales falling almost 50% below the 10-year average last month, the lowest total for the month since 1986. Ashley Smith, REBGV president, suggests that this is due to the governments imposing new taxes and borrowing requirements for prospective home buyers.
This has massive implications for the economy, considering the real estate, construction, financial and insurance industries make up for more than 20% of Canada’s GDP.
Steve Eisman, famous for his bet against the U.S. housing market (if anyone has seen the movie ‘The Big Short’) recently commented on the fact that Canada has not experienced a credit cycle in a few decades and that Canadian bank CEOs don’t know what a credit cycle actually looks like. If the bankers don’t know what that looks like, what about the people in other industries?
“When you’re used to selling 100 homes a year and you’re dropping down to less than 30 or 40, that’s a significant impact.”
It’s hard to imagine what it will look like for realtors who won’t be selling the same volume of houses, at the prices levels at which they were selling for a few years back, I don’t think a lot of people have prepared for this because it’s easy to be optimistic when everything runs smoothly, but this may be a rude awakening for some:
The market will continue to drop, there may be better months here and there, but the trend is most definitely heading downwards:
The Good News
For home buyers, the return of sub-million dollar detached homes in Vancouver may be a sign of hope (albeit typical run down ‘land value only’ type listings). Prices will only soften further as sellers come to terms with the new reality, the market just isn’t as irrational as it was before. Are homes more affordable? Not necessarily, but it pays to be patient.
The Bad News
Those praying for a real estate apocalypse, I hate to break it to you, but there won’t be a global financial crisis (GFC) styled crash, sales and prices will continue to ease, there may be some defaults here and there, but Vancouver will never become a wasteland where you can pick up a house for $10,000.
People tend to forget that a home is used for shelter, it isn’t meant to be traded like a stock or commodity, you can only sell it to a greater fool, if they continue to buy. What happens when prices unexpectedly fall? Those who have over-extended themselves may be forced to unload supply and we’ve been sold on the fact that the reason for these escalating prices is due to a lack of supply:
There are more than 40,000 units currently under construction and it’s scary to think about what will happen if there is all of a sudden an increase in supply? Prospective buyers may be reluctant to enter into the market if they see prices continuing to fall, they might feel that if they wait a little longer, they may be able to get in for a ‘better’ price. This adds further to the selling pressure as sellers may get desperate and be forced to lower their price expectations.
This credit cycle has inflated bubbles across all asset classes. Recession proof economies that walked away unscathed from the last GFC are due for a correction and a lot of people may not necessarily be prepared for that. This isn’t a doom and gloom piece claiming you should sell everything and find a bunker underground, but rather to be prepared for the unexpected.
There are also similarities on the other side of the world, read: The next financial crisis: Australia?
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