Neighborhood Spotlights of Vancouver: Exploring Unique Enclaves of Charm and Character

Vancouver, a city of diverse landscapes and vibrant cultures, is home to a plethora of neighborhoods, each with its own distinct charm and allure. From bustling urban hubs to serene residential enclaves, these neighborhoods paint a rich tapestry that contributes to the city's dynamic appeal. In this article, we'll shine a spotlight on some of Vancouver's unique neighborhoods, diving into their characteristics, property values, and what makes them particularly attractive to buyers.

1. Gastown: Historical Charm Meets Modern Chic

Gastown, Vancouver's oldest neighborhood, effortlessly marries the past with the present. Cobblestone streets wind through this district, flanked by heritage buildings housing trendy boutiques, galleries, and restaurants. Property values here reflect the blend of historical charm and urban renaissance, with a mix of loft-style apartments and renovated heritage homes. Buyers are drawn to Gastown's artistic vibe, iconic steam clock, and its proximity to the downtown core.

2. Kitsilano (Kits): A Beachside Haven

Kitsilano, fondly known as "Kits," is a laid-back neighborhood that appeals to those who cherish an active lifestyle and ocean views. With Kitsilano Beach as its centerpiece, the area offers a mix of single-family homes, character-filled apartments, and newer developments. Buyers are attracted to the outdoor amenities, bustling 4th Avenue shopping district, and the sense of community that comes with beachside living.

3. Yaletown: Urban Sophistication

Yaletown stands as a testament to Vancouver's urban renaissance. This former industrial district has been transformed into a stylish, upscale neighborhood characterized by modern condominiums and converted warehouses. The appeal lies in its chic restaurants, trendy boutiques, and proximity to the False Creek waterfront. The sleek ambiance and walkability make Yaletown a magnet for young professionals and urban enthusiasts.

4. Mount Pleasant: Creative Energy

Mount Pleasant exudes an artistic and creative energy that resonates with its diverse community. This neighborhood boasts a mix of heritage homes, modern townhouses, and condominiums. It's home to independent boutiques, art galleries, and a burgeoning food scene. Buyers are drawn to the community's unique character, access to green spaces like Queen Elizabeth Park, and the abundance of local artistry.

5. Commercial Drive: Bohemian Spirit

Commercial Drive, often referred to as "The Drive," embodies a bohemian spirit that captivates its residents and visitors. This eclectic enclave is known for its diverse eateries, live music venues, and independent shops. The housing landscape features a mix of character houses, apartments, and unique co-housing initiatives. Buyers are enticed by the neighborhood's cultural diversity, its commitment to community activism, and the vibrant street life.

6. West Point Grey: Prestige and Panoramas

West Point Grey, located near the University of British Columbia, offers prestige and stunning vistas of ocean and mountains. Characterized by elegant homes and luxury estates, this neighborhood attracts affluent buyers seeking spacious properties and a serene atmosphere. The proximity to UBC, Pacific Spirit Regional Park, and the allure of oceanfront living contribute to West Point Grey's desirability.

Conclusion: A Kaleidoscope of Choices

Vancouver's neighborhoods showcase a remarkable array of lifestyles and aesthetics, catering to a wide spectrum of buyer preferences. From historical districts to modern urban centers, each enclave brings its own unique blend of character, convenience, and community. Whether you're seeking beachside tranquility, urban vibrancy, or a mix of both, Vancouver's neighborhood offerings are sure to captivate the imagination of buyers looking for their perfect piece of this dynamic city.

 

Impact of Government Policies on Vancouver Real Estate

The Vancouver real estate market has long been a focal point of both local and international attention due to its dynamic nature and skyrocketing property values into a real estate bubble that is doomed to eventually burst. Amidst this backdrop, government policies and regulations have played a pivotal role in shaping the market's trajectory. In this article, we will delve into how specific government policies, such as foreign buyer taxes and vacancy taxes, have left a distinct mark on Vancouver's real estate landscape.

1. Foreign Buyer Taxes: A Bid to Curb Speculation

In response to concerns about foreign investment driving up property prices and making housing unaffordable for local residents, the provincial government introduced foreign buyer taxes. The taxes, typically levied as a percentage of the property's value, aimed to curb speculative buying by non-residents. The impact was swift and substantial. These taxes not only cooled down the market by deterring some international investors but also generated revenue for housing initiatives geared towards affordability.

2. Influence on Buyer Behavior: Reorienting Investment Strategies

Foreign buyer taxes prompted a shift in investment strategies. Some overseas buyers reconsidered their options, opting for different locations or types of investments, while others explored ways to circumvent the taxes through legal means. Additionally, local buyers often found themselves in a less competitive environment, potentially contributing to more stable property prices and improving affordability conditions.

3. Vacancy Taxes: Encouraging Property Utilization

Vancouver's vacancy tax was introduced to address the issue of vacant properties, which were seen as contributing to a shortage of available rental units. Property owners were required to either rent out their properties or pay a vacancy tax on the property's assessed value. The aim was to encourage the utilization of housing and alleviate the city's housing crisis. This policy not only incentivized property owners to contribute to the rental market but also generated additional revenue for the government.

4. Impact on Rental Market and Long-Term Housing Supply

The vacancy tax, along with other policies aimed at increasing rental housing availability, had a notable impact on the rental market. More properties were brought into the rental pool, helping to alleviate rental shortages to some extent. However, critics argue that while vacancy taxes target vacant properties, they may not be as effective at addressing affordability in the long run, as the underlying issue of housing supply remains a challenge.

5. Ripple Effects and Adaptation

Government policies designed to regulate the real estate market often lead to ripple effects in related sectors. For instance, the introduction of foreign buyer taxes and vacancy taxes may impact real estate professionals, property management firms, and even construction companies. These stakeholders must adapt to changing market dynamics and consider the implications of policy shifts when planning their strategies.

Conclusion: A Balancing Act

Government policies aimed at influencing the Vancouver real estate market have been both praised for addressing affordability concerns and criticized for potential unintended consequences. As the market continues to evolve, it's crucial for policymakers to strike a delicate balance between curbing speculative activities, ensuring housing affordability, and promoting sustainable growth. For investors, buyers, and industry professionals, understanding the impact of these policies is essential for making informed decisions in this ever-changing real estate landscape.

Trends in Vancouver Real Estate Market

The Vancouver real estate market has always been a subject of fascination and scrutiny due to its dynamic nature and stunning landscapes. Over the years, this market has experienced significant shifts in property prices, demand, and supply, making it essential for both buyers and sellers to stay informed about the trends that shape their decisions. In this article, we will delve into the current and past trends that have characterized the Vancouver real estate market.

1. Property Price Fluctuations: Riding the Roller Coaster

Property prices in Vancouver have experienced dramatic fluctuations over the years. The city's desirability, coupled with limited available land for new developments, has often led to a surge in prices. From the mid-2010s to the early 2020s, Vancouver witnessed a remarkable upward trajectory in property values, driven by factors such as international investments and low interest rates. However, this rapid price growth also raised concerns about affordability and led to government interventions.

2. Shifts in Demand: From Suburban to Urban

The demand for real estate in Vancouver has undergone a noticeable shift in recent years. Traditionally, suburban areas held high appeal due to their spaciousness and quieter lifestyle. However, as the city evolved, there has been a resurgence of interest in urban living. This trend is partly attributed to the rise of younger generations valuing walkability, proximity to amenities, and reduced commute times. As a result, neighborhoods closer to the city center have experienced increased demand, influencing the market landscape.

3. Supply Constraints and Development Challenges

Vancouver's unique geography and limited available land have posed challenges to new real estate development. The city's commitment to preserving green spaces and maintaining its picturesque landscape has led to stricter regulations on building height and density. This has constrained the supply of new housing units, further intensifying the demand-supply imbalance. The push for sustainable development and higher environmental standards has added another layer of complexity to new construction projects.

4. Government Regulations and Their Impact

Government interventions have played a significant role in shaping the Vancouver real estate market. Measures such as foreign buyer taxes, vacant home taxes, and stricter mortgage regulations were introduced to curb speculation, cool down prices, and improve affordability. These policies had a discernible impact on the market, resulting in a slowdown of price growth and influencing investor behavior.

5. The COVID-19 Influence: A Temporary Disruption

The outbreak of the COVID-19 pandemic in 2020 brought about a temporary disruption to the real estate market in Vancouver. The initial uncertainty led to a decrease in transactions and a shift towards virtual property tours. However, as the city adapted to new norms, the market displayed resilience, with pent-up demand driving a swift recovery. The pandemic also sparked discussions about the future of urban living and the potential for remote work to influence housing preferences.

Conclusion: Navigating the Ever-Evolving Landscape

The Vancouver real estate market is a dynamic and ever-evolving landscape influenced by a myriad of factors, from economic shifts to government policies and societal changes. Buyers, sellers, and investors must stay informed about these trends to make well-informed decisions. Whether it's understanding the cyclical nature of property prices, adapting to shifts in demand, or considering the implications of governmental regulations, a holistic awareness of these trends is crucial for anyone involved in Vancouver's real estate market.

Real Estate Law Firms in Vancouver

Below is a short list of real estate lawyers who operate within Vancouver, Canada. Please note that this blog is NOT sponsored by any of these lawyers, hence why we have not included any links to their websites. See Also: Real Estate Lawyers in Toronto.

1. Lawson Lundell LLP:

   • Background: Established in 1887, Lawson Lundell is a leading law firm in Western Canada with expertise in various practice areas, including real estate law.
   • Website: https://www.lawsonlundell.com/

2. Farris LLP:

   • Background: Farris is one of the largest law firms in British Columbia, offering a wide range of legal services, including real estate law.
   • Website: https://www.farris.com/

3. Miller Thomson LLP:

   • Background: Miller Thomson is a national law firm with offices across Canada, including one in Vancouver. They provide legal services in various areas, including real estate law.
   • Website: https://www.millerthomson.com/en/

4. McCarthy Tétrault LLP:

   • Background: McCarthy Tétrault is a prominent Canadian law firm with expertise in multiple practice areas, including real estate law.
   • Website: https://www.mccarthy.ca/

5. Clark Wilson LLP:

   • Background: Clark Wilson is a full-service law firm based in Vancouver, offering legal services in different areas, including real estate law.
   • Website: https://www.cwilson.com/

Please keep in mind that this is not an exhaustive list, and there are many other law firms and lawyers in Vancouver specializing in real estate law. Also the information presented above may be out of date by the time you read this.

Toronto in a 1980s Style Housing Bubble

Bank of Montreal economist Doug Porter says Toronto is the midst of a housing bubble, and is making comparisons to the housing bubble of the 1980s - which ended in a collapse and a recession.

"There’s nothing tentative about the red-hot housing market in Toronto and neighbouring areas," says Porter, in a note out Monday.

Porter is referring to the 22 per cent price appreciation of existing homes over last year's prices. He is now predicting a 19 per cent increase in condo prices in the Greater Toronto Area (during 2017) and says to watch for double-digit gains in the Greater Golden Horseshoe.

"An apparent influx of foreign wealth, coupled with record-high demand and a shortage of detached properties, are driving the frothiest price increases since the late 1980s. Prices are even accelerating in segments and areas without shortages."
 
"Admittedly, condo supplies in the GTA are down sharply from prior elevated levels, but a record number of units are now under construction…so why the froth?" asks Porter.

Porter also notes that Montreal and Ottawa have entered a lengthy period of stagnation, that Alberta is stabilizing.

And that there should be "some further softening in Vancouver’s prices", compared to last years 33% increase in Vancouver prices.

The national average price for homes sold in January 2017 was $470,253, up only 0.2 per cent from a year ago and carried mostly by sales in Toronto and Vancouver.

However if you ignore Greater Toronto and Greater Vancouver, the average price of a home in the country is reduced by almost $120,000 to $351,998.

Counting adjustments for inflation and the lack of increases in housing prices across most of Canada, the cost of homes across most of Canada is actually going down comparatively. The GTA and GVA are inflating the national average and skewing the results. Which is similar to what happened in the 1980s. The average prices across Canada stagnated and went down first, while Toronto and various cities experienced a real estate bubble.

And then the bubble burst, economic chaos and a recession resulted. The stagnation across Canada was basically the canary in the coalmine, warning of the impending disaster.

2010s Vs the 1980s, What is Different?

Toronto and Vancouver's real estate bubbles are now mostly driven by foreign investors. That is what is driving the prices to ridiculous heights. That means that the rest of the country could go into a recession and as long as Toronto/Vancouver's prices continue to balloon upwards, the investors will just keep investing.

In British Columbia, Vancouver is trying to curb that by introducing a 15% land transfer tax on foreign investors.

In Ontario, Toronto has rejected the idea of a land transfer tax and has embraced the status quo for now...

But then Toronto Mayor John Tory announced recently that he would be increasing property taxes in Toronto by 2%.

Which gave me an idea.

Don't increase the property taxes for regular Torontonians.

Increase the property taxes for foreign owners of Toronto residential real estate instead. By say... 22%. Or more. Perhaps 27%.

You will note that this would only effect residential investors.  It would still allow for foreign investors in commercial and industrial real estate, which means they are investing in Canada's economy.

If the prices of homes in Toronto are going up by 22%, increase the property taxes on foreign owners of by a like amount (plus maybe an extra 5% to make it 27%).

So if prices in 2017 go up 19%, the property tax for foreign owners should be 19 to 24% higher than people who actually live here.

The thing about property taxes is that it is every year. The land transfer tax is only an one time thing.

Now property taxes are not a huge amount, but those property taxes would mean the mayor wouldn't need to raise taxes on Torontonians (people who might actually vote for him) and only harms non-voters who don't even live in Toronto.

Over time the property taxes on foreign owners could be increase gradually until Toronto's housing market stabilizes to a more reasonable and normal growth. Which means Toronto ends up with a stable and sustainable housing market that can withstand global and local recessions - instead of an ever ballooning market that will burst the moment the local economy hits a recession.

GTA and Vancouver Suburbs Prices Soaring

When will Canada experience a US style burst?

If you think the prices within Toronto and Vancouver are skyrocketing, wait til you see the prices for the suburbs - which would normally be considerably cheaper. All of this adds up to an ever-inflating housing bubble in two of Canada's hottest real estate markets.

According to the latest Royal LePage housing report, the cost of homes in the suburbs are surging, eclipsing those of the city core in some cases.

Home prices in the Toronto area climbed 11.3 per cent in the third quarter from a year earlier, to $612,261. In the city proper, the cost was almost $640,000.

The median price of a two-storey Toronto home, is up 17.1 per cent to $961,656. The price of a similar home in nearby Richmond Hill rose 18.6 per cent to $963,561 and in Vaughan by 18 per cent to $842,173.

Vancouver homes are also high, up 17.3 per cent at more than $1.9-million. The corresponding prices in Richmond and Burnaby surged 23.5 and 20.9 per cent, respectively, to about $1.2-million. A  two-storey in North Vancouver is $1.3-million, while those in West Vancouver are going for about $2.8-million.

Across Canada, home prices rose 0.6 per cent in September from August, and 5.6 per cent from a year earlier, according to the Teranet-National Bank home price index released yesterday. The index showed that prices climbed 10.4 per cent in Vancouver and 8.6 per cent in Vancouver

"The Vancouver index, at 201.24 in September, is the first to top 200, meaning that prices in that market are slightly more than twice as high as in June 2005."

With respect to these two markets a bubble has been forming for over two decades, with prices reaching dizzying heights - especially in Vancouver. At some point the bubble has to burst and prices will tumble, but to do so there has to be an impetus - something to set it off. A proverbial flea that broke the camel's back.

The 2008-2010 recession wasn't enough to do it. The current 2015 oil-collapse recession plaguing Canada likely won't be enough either, because when you consider that the Canadian dollar has slid dramatically over the past two years, what you realize is that if you measure housing prices in US dollars, the prices haven't really gone up that much.

The Canadian dollar hasn’t been above parity with the U.S. dollar since Valentine’s Day 2013. Since then it’s dropped at a record-setting pace of 23 per cent by July 2015.

Now you might think, oh the dollar is down, wouldn't that effect our economy? And you would be right - it does. It boosts our exports because the prices of doing business/buying goods in Canada is now cheaper. It also means the prices of investing in real estate in Canada is now cheaper too (for non-Canadians).

One would wonder if it were possible to take your money you had invested in oil - if you timed it right before the oil prices collapsed - and reinvest in real estate. Then when the oil prices go back up eventually, the price of the Canadian "petro dollar" would rise in value too - which means when you sell the real estate, you've then made a bundle on both the increased value of the real estate, but you've also made a bundle off the fluctuating US-CDN exchange rate. Hypothetically speaking.

Meanwhile Canada has an election coming up very soon...

Now is a great time to sell your home in Toronto and Vancouver

If you are thinking about selling your home in Toronto or Vancouver, 2014 is the perfect time to sell.

Act now because pundits and banks are all predicting prices to start dropping in 2015.

The real estate boards of Toronto and Vancouver are reporting year-over-year price increases of between two and twelve per cent for January 2014.

In Toronto, the average selling price for a home in January was $526,528 – up by more than 9% from a year earlier.

January property prices

Property type	Toronto	Vancouver	Change 2013-2014 Toronto / Vancouver
All residential	$526,528	$606,800	9.2%	3.2%
Detached	$686,688	$929,700	12%	3.2%
Apartment/Condo	$346,369	$371,500	8.7%	3.7%
Semi-detached*	$481,970	$457,700*	6.6%	1.7%*
Townhouse	$346,369	$457,700*	9.0%	1.7%*
Source: Toronto Real Estate Board, Real Estate Board of Greater Vancouver *Vancouver does not separate townhouses and semi-detached homes and uses the designation 'attached properties.'

In Vancouver, the benchmark price for all residential properties rose 3.2 per cent since January 2013 to $606,800. Detached homes in Vancouver were selling for $929,700 on average last month, a 3.2 per cent increase over the previous year. Apartment and condo properties averaged $371,500, a 3.7 per cent increase over January 2013.

Sales of residential properties in Greater Vancouver were up by over 30% over January 2013 although not as strong as in December 2013, which saw sales rise 7.2 per cent above the 10-year average for the month.

There were 5,345 new listings for Vancouver on the MLS listing service last month, a 4.2 per cent increase over the same time last year - suggesting that homeowners who are looking to sell have realized now is the right time to cash in.

Toronto's market saw fewer new listings in January than last year, with 8,822 properties in the Greater Toronto Area listed on MLS, down 16.6 per cent. Sales were down 2.2 per cent over January 2013, but prices are still rising regardless of the lower volume of sales in all categories.

Detached homes in Toronto were selling for 12 per cent more than in January 2013 while the sale prices of condominium apartments were up 9.7 per cent and semi-detached homes saw a 6.6 per cent increase.

CONCLUSIONS

If you want to sell, now is a great time.

If you are looking to buy, you would be better off waiting until 2016 when the bubble has already burst and prices have dropped back down to more reasonable levels.

Canadian real estate bubble grows 10%

The Canadian real estate bubble continues to grow as the average price of a Canadian home increased 10.4% to $389,119 (a new record high) in December 2013, compared to the same month in 2012.

The Canadian Real Estate Association (CREA) released data Wednesday showing that a total of 457,893 homes changed hands in Canada last year, an increase of about 0.8% from 2012's sales levels.

"Absent further mortgage rule changes, sales in 2014 may surpass the annual total for 2013 if demand holds steady near current levels as strengthening economic and better job growth offset the impact of further expected marginal mortgage interest rate increases," says CREA's chief economist Gregory Klump.

As has been the case for years now, CREA says the large jump in Canadian real estate prices was largely due to what was happening in Canada's most active and expensive markets - namely Vancouver and Toronto.

Canadian Real Estate Bubble to Burst?

Sales activity in December 2012 in Toronto and Vancouver was abnormally low, which dropped the national average during that time period, a sign that the growing bubble is ready to burst.

"Removing Greater Vancouver and Greater Toronto from national average price calculations cuts the year-over-year increase to 4.6 per cent," CREA said.

CREA says the average price can be misleading, as it can be too easily influenced by individual factors which drive prices up - factors like too much credit, high demand, etc.

The realtor group says its MLS Home Price Index "provides a better gauge of price trends because it is not affected by changes in the mix of sales activity the way that average price is."

That index shows home prices rose 4.31% over the past 12 months. Gains were seen in all housing types - including condos which is expected to cool sharply in 2014 - 2015.

The index was led by an 8.7% gain in Calgary and a 6.3 per cent gain in Toronto.

Vancouver's market index posted a second straight increase of 2.13% after declines for much of the time between late 2012 and late 2013.

The thing is, the higher those percentages go the bigger the bubble is then the bigger the problems will be when the prices crash.

Worried Bankers and Economists

Economists and policy-makers have been scrutinizing the Canadian housing market for indications of weakness and warning signs of a possible crash - something that is expected to happen sometime in the next two years.

"If you run a bank, you should be worried about it," says Ed Clark, the outspoken CEO of the Toronto-Dominion Bank.

Vancouver Real Estate to collapse in 2013

Now when I say collapse what I really mean is a gradual decline of prices over 2013 and 2014 of roughly 25%.

Home and condo prices / sale records in Vancouver have taken a dive in 2012. Prices for single-family homes, condos and townhouses are down 4.5% and sales are down approx. 25%.

Normally the Vancouver housing market sells 88,000 homes per year. That is the average sold from the 2002 to 2011. The average typically doesn't fluctuate more than 5 to 10% above or below.

In 2012 sales dropped to 64,000 as of December 28th 2012. With only a couple days to go before the end of 2012 we really don't expect Vancouver's home sales to get above 68,000.

Especially when buyers aren't that interested in buying right now, due to combination of new mortgage changes, interests rates and the fact that almost everyone in the Vancouver real estate industry is predicting a collapse in 2013.

So here is the thing... Lets do some math. Lets say they did manage to sell 66,000 before the end of 2012. That means Vancouver's home sales are down by 25%. That is a huge drop!

To be fair the Vancouver real estate market, especially the condo market, has been in a slump since 2009. They've been kind of waiting around, half expecting a crash, but nothing really happening that would become the tipping point.

Something like a recession, to push the real estate market over the cliff. Instead its just been stagnated and in 2012 its even been in a slow decline as buyers have stopped buying.

To have a huge rapid decline, like a drop of 25 to 50% in the space of a year or two, you would need something bad to happen that would hurt the local economy. A fiscal cliff.

But it just isn't happening, which is why I am currently predicting Vancouver will continue to see a gradual decline well into 2014. I don't think we will see a huge decline in the Spring of 2013. I think we might see a sharper decline in the Autumn of 2013...

But I think Vancouver's home prices will overall drop about 20 to 25% by the beginning of 2015, and I think it will then suddenly drop an extra 15% in 2015 as Canada is hit by a recession.

Now you might say this is a pretty radical and detailed prediction for the future of real estate in Vancouver. And you are certainly free to think and say it.

But my predictions are based on pattern observation. I see a pattern developing in Vancouver, and I think that pattern shows a gradual decline until a recession in 2015.

To confirm, here is my precise predictions:

Spring 2013 - Sales slump. Normally Spring is the best time of year for real estate sales, but in 2013 it will be down on sheer volume and prices will drop about 3 to 6% compared to an all time high.

Autumn 2013 - Sales worsen. Inventory of unsold homes becomes worse. Prices drop an additional 4 to 7% by the end of the year, making the total for the year down 7 to 13%.

Spring 2014 - Pre Recession Slump. People keep expecting prices to level out and reach bottom, but prices continue to drop another 4 to 8%.

Autumn 2014 - Sales slow to a crawl. Starts to bottom out when prices hit approx. 24 to 29% below the May 2012 average price.

2015 - The recession hits Canada full throttle and prices plummet an extra 10 to 15% in 2015.

Now you might think this seems a bit extreme. But I should tell you that Vancouver's index price for single-family homes, condos and townhouses stood at $596,900 in November of 2012 – a drop of 4.5 per cent since hitting $625,100 in May of 2012 (the highest point).

All it needs to is for the average price for that index to drop another 4% to $575,000 by May of 2013. Or worse, to an average of $556,000.

And by the following year, May 2014 to drop to somewhere between $531,000 and $469,000.

I predict Vancouver's condo market will be the most effected and see the deepest slide in prices during the next 3 years. New condo builds will crawl to a stop by 2014.

How accurate my estimates are a matter of debate, but it will be interesting to wait and see if I am right.

Additional note, I am expecting one of two things in 2016.

Either prices will stay slumped, with only marginal 1% gains in 2017... Or a swift rebound of 4 to 8% in prices. But that will depend on how deep the recession is during 2015 - 2016.

I am expecting a similar slide in Toronto, but I don't expect it to dramatically effect prices in Toronto until 2014, and I am predicting the price changes in Toronto to be much more delayed and sudden. Gradual decline in Vancouver, sudden impact in Toronto.

Various other markets across Canada will also see varying degrees of gradual decline and sudden impact. I am predicting more gradual declines in Western Canada and these changes will spread eastward. When it reaches Toronto and Montreal the effect will be like an iceberg hitting the Titanic.

2015 is also when a huge surplus of condos will go on the market in Toronto due to new buildings that will be finished by that year. The surplus will be dumped on the market in 2015 and people expecting a crash in 2014 will have decided to wait a year, causing prices in 2014 to slump. When the Toronto condo market bursts in 2015 it will be sudden and dramatic, but not unexpected.

I predict condo prices in Toronto to drop 40% during the 2015 and 2016 time period and house prices to drop 20%. There will be a marginal (1 to 2%) rebound of prices by 2017.

Vancouver's Real Estate Woes

Toronto isn't the only city in Canada which is facing a market correction.

Vancouver has also seen real estate prices soaring in the stratosphere.

However I don't think Vancouver and Toronto will see market corrections at the same time. Their economies are separated by 4492 km and very different market modifiers.

Those modifiers are:

The amount of local demand for real estate. How many people are looking to buy?

The amount of real estate investors in Vancouver. How many are looking to flip for a profit?

The amount of available supply of houses and condos (and rental supply).

The amount of upcoming supply of houses and condos (and increasing rental supply).

The strength of the local economy (the employment rate + the median salary of the middle class).

Local consumer confidence.

Local household debt.

Ratio of average home sale prices to the middle class median income. (No point using lower class incomes because many of them can't afford to buy homes, diddo for wealthy people who have more stable incomes.)

Local demographics (ie. What age groups are buying condos? Elderly? Young professionals? Families?)

And lastly the ratio of housing starts vs condo starts.

ie. In Toronto housing starts has dropped, but condo starts are through the roof. Mostly due to the rising price of land and the air-space is comparatively cheap.

In Vancouver? Housing starts were steady in April 2012 (but up in the rest of British Columbia) and have been growing steadier since the huge market decline in 2009. But its the volume of condo starts in Vancouver which are worrying.

In Toronto (not the GTA) the average price of a house reached $568,436 in April 2012. The average price for a detached single-family home hit $831,214 (doubled in price since 2002), according to TREB.

In contrast the average single detached home in Vancouver runs over $1 million, but the market for homes is softening while the condo market is heating up.

So evidently the high prices of houses is fueling the demand for condos, which is causing prices to skyrocket.

Price growth in the GTA are up 10% compared to one year ago (and household debt is likewise up, but salaries are stable). Its a bidding war in Toronto due to lack of supply for homes and the high price of land even in Toronto's satellite cities.

Restrictive Greenbelt policies, strong immigration and low interest rates have kept demand in the GTA high.

Vancouver likewise has benefitted from strong immigration and low interest rates, and judging by the housing growth centres in Vancouver most of the demand is near the shoreline.

According to BMO Deputy chief economist Doug Porter the softening in Vancouver's housing market could see foreign investors, who fueled Vancouver prices, start looking to Toronto as a new place to invest.

The worry however is that the investors ditching of Vancouver (whenever it happens) would cause Vancouver's real estate market to go into a tailspin, and then if Toronto's market overheats a year later the investors will ditch Toronto amidst a similar collapse in prices.

So... here is my prediction. Vancouver's condo and housing bubble may burst first, Toronto's market will go into overdrive (creating an even bigger bubble) and then when Toronto's real estate bubble will burst too when it gets too hot for buyers.

In which case there are two possibilites in terms of a price correction for both Toronto and Vancouver:

Option 1: A minor price correction, going down slightly and then buyers jumping on the opportunity. (Which means a larger correction will be delayed, possibly for years.)

Option 2: A major price correction, with buyers waiting until prices bottom out before taking advantage of the super low prices.

Me? I would prefer a larger correction. The prices on both Vancouver and Toronto are outrageous.

Canada's housing starts indicate an ever expanding bubble

Back to the news... If you are looking for MY QUEST FOR A CONDO, click here.

Canada's housing starts have almost doubled since the start of 2009. In the last 3 years Canada's housing starts have gone from approx. 130,000 in January 2009 to almost 250,000 by April 2012.

HOWEVER AT THE SAME TIME Canada's household debts has skyrocketed from $1.3 trillion (it was $600 billion in January 2000) to $1.61 trillion in only 3 years. So either way you look at it ($300 billion in 3 years or $1.01 trillion in 12 years) we've really been piling on the household debt in the form of mortgages, credit cards, lines of credit...

NOTE: $300 billion is enough to buy 600,000 houses for the average price of $500,000. I would hazard a guess that Canada's housing bubble is being fueled by too much credit and household debt.

Bank of Canada governor Mark Carney says he regards Canada's household debt — which currently is at a near-record 151 per cent of disposable income —as the No. 1 domestic risk to the Canadian economy. Individual household debt was $39,597 in 2009, but has risen to approx. $48,735 by April 2012.

Remember that is an average debt per household. It may not seem like a lot, but when you consider the demographics of WHO is in debt you start to realize its a lot more than $48,000.

The following is from Statistics Canada:

32% of working Canadians are not saving anything (for retirement or anything else because they have too many debts to worry about right now).

For people making less than $35,000 a year, 49% surveyed reported that their debt levels rose in the last three years. 42% for people $35,000 to $75,000 a year. 38% for people making over $75,000.

So evidently its effecting lower income people more, but when you consider middle income and upper income people are also packing on the debts (and when you consider its middle and upper income people who buy houses and condos) it becomes self-evident that if a housing market collapse happens it will be the middle class people who have a huge mortgage they cannot afford which will end up losing their shirts.

Driving the housing starts is all the pressure on condos currently happening in Toronto and Vancouver, where the condo markets are so red hot you'd have to be a complete fool to be purchasing during a bubble. (Because when the bubble pops you won't be able to refinance...)

In theory Canadian banks should be more cautious about whom they give mortgages to, but the problem is that the banks don't insure their own mortgages. The CMHC (Canada Mortgage and Housing Corporation) insures them. Its basically the equivalent of Fannie Mae and Freddie Mac in the USA.

NOTE: When the US housing market collapsed in 2007-08 it ended up costing American taxpayers $700 billion in bank bailouts and hundreds of billions of dollars more in economic stimulus from the resulting economic fallout. Due to the CMHC's policies the same thing will likely happen here in Canada between now and 2015.

I say 2015 because that is when the condo market in Toronto and Vancouver will likely implode due to the sheer number of condos currently being built which will become available by 2015, despite the fact that people aren't buying that many condos... See my older article Toronto condo market might burst for complete details.

Toronto currently has 199,000 condo units, but another 27,504 are under construction right now and will be finished by 2015. That will boost supply by roughly 14%. The problem is that there is not enough demand for people to buy 27,500 extra condos in the next years. Prices will have to take a huge hit (by maybe 10 to 12% over the short term), but over the long term it will kickstart a collapse of housing prices in Toronto.

A lot of it is fueled by overseas investors who purchase the condo using a Canadian mortgage (via a Canadian bank, insured by the CMHC) and then flipping it for a profit when the property is built. However if they start taking losses all the investors will pull out of Canada in a hurry and the prices won't just fall, they will PLUMMET.

So yeah, doom and gloom.

But there is a sunny side of this for people like me who wants to get a condo (see My Quest for a Condo). It means that when people are desperate to sell they might be willing to trade...

NOTE: Household debt is leveling off, slowing to 4% annual accumulation in 2012 from a high of 10% in 2011. Why? Many Canadians have reached their credit limits and can't get more credit. The danger however is that this means many people might cut back on spending, which will hurt consumer confidence levels, cause more companies to go bankrupt, layoffs, economic downturn... and possibly a housing market collapse ahead of schedule.

I am still betting it will happen by 2015 to coincide with the condo market overflow of supply, but if it happens sooner than I expect then I won't be complaining. It will just make it easier to buy (or trade) for a condo when the prices drop to half.

Who is to blame for Canada's housing bubble?

Its so easy to point fingers.

Banks. The government. Local politicians / mayors. The real estate industry. The housing industry. Greedy sellers.

Canada’s housing market has been relatively stable for over a decade, with the notable exception of Toronto and Vancouver which are the country’s hottest real estate markets. As Canada’s largest city Torono's home prices have risen 10.5% over the past year alone. The condo industry in Toronto is so hot that there is now three times as many cranes dotting Toronto’s skyline as there are in New York City.

Many real estate analysts are becoming increasingly worried that Toronto, Vancouver and Calgary are in an American-style housing bubble which could lead to an implosion of prices and a recession.

The analysts are not alone. Bank of Canada Governor Mark Carney is sounding the alarm over the growing level of household debt, while maintaining the overnight lending interest rate at a near-record low level of 1%. Mark Carney's hands are a bit tied in this matter. He can't raise interest rates without risking being the needle which bursts the bubble.

What is bizarre is the economy in Toronto and Vancouver are both stagnant and yet the prices are rising unusually fast. In contrast cities like Edmonton and Saskatoon where the economy is booming but home prices are stable.

Some people argue that the Canada Mortgage and Housing Corporation’s (CMHC) policies are to blame because they encourage overseas investment in Canadian real estate. They claim that investors from overseas have corrupted the system and is creating an artificial and potentially dangerous real estate bubble that will ultimately lead to a recession in Canada.

There is of course a quick and easy solution to this. Ban overseas investors from buying homes and condos in Canada.

The CMHC controls the majority of Canada's mortgage insurance and securitization markets and guarantees all (100%) of the principle balances and interest rates on insured residential mortgages.

The problem is that the Bank of Canada has such low interest rates that in combination foreign investment and low interest rates in causing the bubble to grow at an exponential rate. Investors are particularly attracted to Toronto and Vancouver's markets because of the recent history of rising housing prices.

Another problem is Canada's artificially low interest rates have been kept low for since 2008.

The longer interest rates remain low and investors keep flooding the real estate bubble the worst it will be when the bubble bursts and a market correction takes place.

Trying to prevent a correction however might make foreign investors skittish and cause them to withdraw from the Canadian real estate market in a hurry. Thus a preventive measure could even kickstart the market correction.

Foreign investors are not wholly responsible for creating Canada's housing bubble. Investors are sheep. They go where they see a financial opportunity with little risk.

Foreign investment is normally a good thing. It creates jobs and adds to the local economy. More condos and homes being built means more money for developers and construction works. More rental properties become available. The problem however is that investors have a tendency to flood markets. The home prices and rental prices go up, people get into household debts they cannot afford due to outrageous mortgages... and when the fit hits the shan everyone with a mortgage loses their shirts.

While its true that in Canada we crave foreign investment, that is only true so long as the investors stay the course and don't all back out at the same time. We need to avoid an artificially inflated housing market that will bring the whole economy crumbling down when the bubble bursts (see the USA, circa 2007-09).

So who does the bulk of the blame lay with then? The answer is the blame can be placed squarely on government policy.

By guaranteeing 100% of CMHC-insured mortgages and 90% of privately insured loans, the government removes the risk from banks and investors, making it much easier to get loans whether you are a foreigner or a Canadian. A foreigner with a good credit rating can invest in Canadian real estate, borrow money from the Canadian government to invest in our own housing market... and if anything goes wrong they're not Canadian and don't have to face any financial responsibility here. If everything goes smoothly for the duration they eventually withdraw their money (with a decent profit) and put it to use elsewhere.

Having such weak policies and lending standards is Canada's Achilles heel.

A report from the Reason Foundation in the USA found that government guarantees always underprice risk, drive mortgage investment into unsafe markets and inflate housing prices by distorting the allocation of capital. Governments simply cannot price risk accurately while banks and private lenders have every incentive to price risk appropriately because its their money on the line. If the government loses money its the taxpayer that ends up with burdened and governments are far too willing to take unnecessary risks when there is no incentive to insure success.

If we were to try to prevent an American-style housing bubble bursting we should not have the Canadian government guaranteeing mortgages. Let the banking industry put the money up themselves and take on the risk.

After all why should taxpayers be asked to take on the risks of bankers and foreign investors? If people want to invest in Canada, fine, but they should do so without using government money as collateral.

The USA is already starting down that path. People looking to get a home purchase loan are now looking at companies which guarantee their own mortgages. ie. Mortgage Solutions of Colorado and similar companies are reducing (or removing entirely) their dependence on government guarantees.

Part of it may be because companies have realized that the American government isn't going to guarantee mortgages willy-nilly any more. Another part of it is Americans have become much more scared of mortgage contracts signed during a bubble and they think it is less risky to deal with a company which has its own money and isn't borrowing against itself to prop up its business.

Sadly I don't think Canada will learn from the USA's mistakes. We are just going to repeat the problem.

Canadian housing overpriced says OECD

According to the Organization for Economic Co-operation and Development (OECD) Canadian housing looks “overpriced” and they believe the Canadian government should take measures to deliberately slow the mortgage market. The Paris based think tank monitors the economics of 33 wealthy member nations, including Canada.

“Canadian house prices, or at least some regional or local housing markets, notably those of Toronto and Vancouver may still reflect excess demand conditions,” says the OECD's annual review of the Canadian economy. “Housing looks overpriced on the basis of both price-to-rent and price-to-income measures.”

The average Canadian in 2010 makes LESS than what they made in 2007 and our disposable income is dwindling. Meanwhile household debt in Canada has skyrocketed 250% from 1989 levels to $42,000 in debt (from $16,800 in 1989). Simultaneously housing prices in Canada have continued to soar, so that the average price of a home in Canada is now approx. $330,000, but the average Canadian only makes $38,000 / year.

Affordable homes, according to economists should be in the range of 3 to 5 times the cost of annual income, after taxes. In Canada its 9 times that of income which means Canadian homes are overpriced.

According to the OECD the cost of Canadian homes is now 35% higher than long term averages.

The OECD also predicts about 7.5% of Canadians are so in debt they could find themselves financially vulnerable by 2012 if interest rates rise while borrowing stays at the current pace. “High household indebtedness also implies a growing vulnerability to any future adverse shocks,” says the OECD. “Household credit growth needs to slow down.”

The Canadian government currently provides financial guarantees for default insurance on risky mortgages, but this is basically just endorsing/ensuring risky mortgages instead of trying to slow them down. The OECD has noticed this.

“Rules to qualify for government backed insurance have been tightened, but more measures should be taken if needed to cool down the market.”

The OECD report suggests the government should require larger down payments on all federally insured mortgages. They also suggest the government force banks to disclose how “sensitive” their mortgage revenues are to rate hikes so that homebuyers aren't getting caught in the middle later on.

“Lending standards and the framework for mortgage insurance are the right tools to contain this cycle,” says the OECD.

The OECD notes that subprime mortgages make up 5% of mortgages in Canada. In 2007 before the recession hit the % of subprime mortgages in the USA was 33%.

As such when home prices in Canada drop or collapse, it should be in the range of 15 to 18% instead of the 45% range it was in the USA. The drop was the biggest in large cities like L.A., Miami and New York. Canada should expect the largest drops in Vancouver, Toronto and Montreal.

Furthermore the big drops were usually in the suburbs or parts of the cities which were more financially woeful. Housing prices stay relatively stable in older / more wealthy communities.