WARNING CANADA REAL ESTATE BUBBLE TO POP 2017
By Sandford Tuey
If you presently own a house or condo in Canada, you have a smile on your face as large as the potential sales price of your property. Deep down you wonder when is the time to sell to maximize your profit. Could that time have been last year? Most owners of houses and condos in Vancouver and Toronto enjoy over a 30% increase in perceivable value, thanks to hot foreign buyers. The rest of the Canadian real estate market has not fared as well, and in fact, Alberta’s market has declined so quickly, that even the province’s financial industry has been negatively impacted, due to the reduction of oil prices, which pretty much shut down the oil and gas industry.
Our Canadian real estate boom is mainly due to Chinese buyers speculating in the Vancouver and Toronto areas to hide their money temporarily. When these Chinese buyers choose to pull their investments back to their home country, this will devastate Canada’s economy. Well this started to happen in December 2016 after the BC Liberal government enacted two new laws regulating the foreign purchasers of BC residential property and a penalty for owning housing that sit vacant while these foreign speculators wait for higher sales prices. Every speculator has the same goal – buy low & sell high. The Vancouver market is flashing red! These foreign speculators are selling and getting out. Don’t be the last one to profit, unless you intend to live in your home for the next 20 years the time to sell is now.
Why do people believe that their properties will continue to rise in value for ever? This insane and deceptive thinking has been proven wrong many times throughout history. The Japanese and American housing markets were expected to continue to rise in a similar way but unexpectedly crashed. Why do humans fool themselves to only believe in the positive and reject any negativity? The Japanese real estate industry dragged their economy down by over 25% and has forced this Asian nation into negative interest rates and an economy on life support for the past 15 years. In 2008, unexpectedly, the real estate mortgage market collapsed and millions of Americans lost their homes and have yet to recover. The US banking industry collapsed and required tax payers to bail out the USA financial industry for $700 Billion US. If the government did not do this, the American economy and dollar would have collapsed and could have brought down the global economy.
The supply and demand of the housing market has inflated as much as it can. Presently 1 in 10 houses and condos sit empty in Vancouver because speculators are hoping the prices of their properties will rise but are now selling. Sale signs are on every block and a few real estate agents I know are getting many more listings than buying interest. Some agents are now working a regular job to earn money due to the lack of buyers in the region. This is due to theBC Liberals imposing a 15% tax on foreign buyers which has pushed them out of the BC market. They then added a penalty for empty residences, which was the strategy for speculators to flip their properties and the main reason rental properties were rare and costing more and more every year. Another looming fact is Chinese citizens that migrate to Canada must have a net worth of $1.6 Million Cdn and must invest $800,000 into Canada treasuries. Mainland Chinese entered into below double digit growth rate for the first time since the global economy started purchasing the majority of it’s products from China. This slow down is going to cause the pain in Canada!
Before the end of this year, I predict the Vancouver market will bring down the entire BC province’s real estate market, which will then lead to a major retraction of financing by our financial institutions. This banking fear will be compounded by the increase in interest rates which will increase the financing costs for people. Canadians presently have a larger household debt ratio than Americans did just before their housing market crashed. Canada’s debt bubble is now larger than the US debt bubble was in 2007-08. Canadians are experiencing the largest debt to income ratio in history = 165% to every $100 of income. Real estate values have risen 115% in the previous 15 years, yet income has risen by only half that. This is a higher debt ratio than Americans had just before their real estate market died.
Canada is climbing to a record total debt of $1.8 Trillion due to the reckless spending by the Liberal governments and citizens demanding more benefits than we can afford to provide. This crisis threatens our Canadian banking system and way of life. House prices have risen, not because of demand, but due to the low interest rates. The banks are leveraged so much, that it is inevitable that they will have to pressure our central bank to increase interest rates to create more money for these greedy banksters. This a planned crisis my friends.
Why should we be different than any other nation’s market adjustment? Alberta knows what it feels like to lose their energy economy and the immediate impact causing the reduction of demand, in not only their housing industry, but also every other one province wide. I personally know a family that owned two major restaurants in Calgary who were forced to sell one and took a major loss because workers fled from Alberta because of the lack of employment. Job loses across our nation are at record highs and most of the new employment have low paying wages. Not a good scenario for potential domestic buyers trying to afford to purchase the overpriced housing glut due to sales from fleeing foreign owners. Who will get stuck with these hot potatoes?
When you add the illogical continued building of more houses and condo towers to the above mix, this looks bad! Do you think you can obtain a mortgage of $1,000,000? A bank manager friend of mine says that financial institutions across our country are pulling back from lending to customers seeking a mortgage without an income of less than $80,000/year. So if you make less, even if you already own property, our banks are declining people because they are not receiving enough profit from extremely low interest rates and is not worth the risk. So only the rich qualify and the average Canadian is now expendable. So don’t keep your head in the sand, it is time to sell.
Nobody in Japan or the USA believed their real estate markets would ever collapse. Do you feel the same? You may think my prediction is overly negative but even the Canadian banking regulator warned smaller banks should expect a minimum 20% reduction in the price of property nationwide. This is a very big bubble and once this bubble bursts, it will cause havoc throughout not only Canada but the entire world. Even the Chinese government is warning it’s citizens that there is about to be a major correction in the Canadian housing market. The economic signs are flashing red, better take note!
HOUSING MARKET COLLAPSES ARE PREPLANNED EVENTS