Vancouver Housing Market Implodes: Average Home Price Plunges 20% In 1 Month - "The Market Is Devastated"
Three weeks ago, when we looked at the long-overdue sudden change in the Vancouver housing market, long a receptacle for Chinese hot and laundered money, we found that as a result of the implementation of the 15% property tax implemented by British Columbia (something we recommended over a month earlier), that the Vancouver housing bubble has burst.
“A lot of people have said to me quietly that they hope there is a substantial housing crash.”
Well, it appears they got what they wanted. Now the only question is what happens once Vancouver "corrects" by 30%, 40% or more - will the Chinese buyers stay away permanently or, like a good S&P 500 algos, simply BTFD. We will have the answer in a few months.
DYI Comments: Foreign hot money comes into play, in the case of Vancouver, at the tail end of a mania NOT the cause of it! Markets go through four phases:
1.) Accumulation Stage. This is the period of time AFTER the crash has been fully played. An example would have been gold prices that peaked in January 1980 at $850 then went into a secular bear market until gold bottomed at $287.80 in 1998. Gold didn't begin to rally until 2002; this time period is the value players paradise allowing a 4 year window to accumulate physical gold/silver and/or precious metals mining shares at give - away - prices! No where is to be found foreign buyers in significant numbers, except for the minority contrarian/value players.
2.) Investment Stage. The liftoff for prices has begun bringing in more value players along with traditional institutional investors appealing to their need to diversify into an asset that is in a bull market. They shun the accumulation stage, especially institutional money managers as that money would be seen as "dead money." An asset not going any where, neither up or down placing a drag on their performance, along with the loss of his or her job! Every correction is correctly seen as an opportunity to further build their position, positioning themselves for future profits. Foreign money will come into play now in larger amounts managed in a conservative manner seeking addition returns and to diversify.
3.) Speculative Stage. Here is where the foreign hot money comes in. The reason is simple and time immemorial - LARGE PROFITS ARE SEEN AS EASY! Not just foreign money this will include average John & Jane Doe chasing hot performance. Profits are easy(at least in the beginning) so it is time to swing for the fences and get RICH! Remember the U.S. housing market mania there were at its peak 220 T.V. programs dedicated to real estate with "Flip this House" marking the insanity. At this stage common sense is thrown out. In order to pursue the dream of getting rich borrowed money pyramids to the point of insanity! A debt bubble tied to this asset class waiting for a pin. Contrarian value players use rallies to sell down their positions. Systematically reducing until they have nothing left to sell. If they sell too early - so be it - they have been in since the accumulation stage many years earlier and will end up with the bulk of the profits.
4.) The Crash. The bubble pops! The hot foreign money drys up faster than the driest desert. The banks seeing losses piling up for their speculators clamp down on future loans further reducing buying power. A full retreat is in progress. Prices may bottom in a few short years or go into a secular(long term) decline. Contrarian value players sold out way before the crash who are spectators watching the carnage. They have moved on to other undervalued assets.
1.) The Accumulation Stage. Contrarian value players watch all asset categories waiting until they have entered into the accumulation stage this may take a few short years or a long arduous process.
Canadian real estate has been in bubble for years and is now in the process of bursting moving from one Province to the next. Vancouver single family homes most likely from peak to trough will drop 50% on average with condos dropping from peak to trough 75%. This will be first hit with a crash of around 25% a bit of a bounce then the long grind downward over many years. This decline will need to be measured on a after inflation basis. Mark my words, the Canadian central bank will reduce interest rates significantly and very likely print money (QE).
Where is Canadian RE on our sentiment indicator?
No comments:
Post a Comment