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Watching a Real Estate implosion right in front of our eyes!

Flag_of_Canada.svgOk, today this implosion is not in our yard but it is right in our back yard!  The Canadian housing market has been on a steady rise for Many MANY years.  Shockingly to many.  But year after year the price of homes keep rising. I often wondered did they just figure something out that we did not. If you follow my blog at all you will know that, absent outside forces, supply and demand will rule the market.  If you over supply the market, it goes down; if there is under supply, the market goes up. Well in Canada, at least large cities in Canada such as Vancouver and British Columbia, the supply has not outpaced the demand……until now.  But there is a twist!  Evidently 1 out of 10 home purchases in Vancouver have been foreign buyers.  On the surface this doesn’t seem to be a problem but it seems many of these buyers never move it, no one moves in.  The house just sits.  And no one has to earn a wage where the house is located in order to be able to afford it. The prices keep rising and the people that need a house, who live there, can’t afford it because the house prices are out pacing earnings. So in the infinite wisdom of a government (who rarely get anything right they meddle in) they decided to levy a 15% tax on all foreign buyers.

“For the first time since taking office five years ago, Premier Christy Clark said that limiting demand – not just increasing supply – could help make Metro Vancouver’s housing market more affordable.”

Now this will certainly slow or stop the purchase of 1 of 10 homes.  However when you stop 1 of 10 home purchases over night YOU WILL crash a market because it makes the other 9 of 10 buyers nervous.  You start a dramatic Supply and Demand shift.  I understand the government wants to make housing more affordable.  Unfortunately there are 9 of 10 residents that will be taking a big hit to the equity they have in their home when things become more affordable very rapidly.  As many of us is the US experienced in 2008-2012, when sellers can’t sell (due to 90-100% leverage in a mortgage) they also can’t buy and your demand dries up while supply expands.  I expect a Canadian market crash is underway, we just don’t know it yet. With many loans in Canada being Adjustable Rate Mortgage, if and when a rate hike hits during a down turn in the market………………………

fireworks

Now we will watch this from over the boarder but watch it closely we must! PS This guy is shorting this Canadian market and gives some good reasons for why BEFORE this tax was levied.  He calls for a 50-60% drop in prices. Todd Long, Real Estate Agent Coach

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