The Vancouver housing market is white hot: Collapse is imminent

Vancouver’s real estate is ‘fuelled by a money laundering bubble’: Market analyst

"There is no denying that the real estate market in Vancouver is red hot – prices have been rising with no end in sight.

More after the break.

But one market analyst thinks we will see the bubble burst.

Marc Cohodes used to run one of the largest hedge funds on Wall Street. Now, he’s eyeing the Canadian housing market.

“Short selling in stocks is basically, you borrow shares that other people own and you sell them,” said Cohodes. “If I was in the cattle business and I thought the price of cows were going to go down, I would sell all my cows, I would borrow some of your cows, I would sell them with the promise to buy them back and return them to you some day, and if they went down I would make, and if they went up and I got tired of my position, I would lose.'"

How hot?

"Recent headlines of real estate deals in Vancouver include a 7,200-square-foot heritage mansion for sale in Vancouver’s Shaughnessy neighbourhood for $21 million and a a $2.398-million price tag for a ‘fixer-upper’ in the Point Grey neighbourhood.

The Greater Vancouver real estate board says the benchmark price of a detached home in Vancouver hit $1.56 million in June, which is up 38.7 per cent in one year."

Bonkers hot! The problem is a simple supply, and demand problem, and Vancouver is not allowing any more supply of the type of homes people want to buy. Just like Portland, San Francisco, San Jose, etc. It is almost as if the Vancouver politicians have never seen a map of Canada. The place is mostly a desolate wilderness, it is not like there is any reason to limit land development. It would be like Russia limiting development in Siberia to "save the land."

But progressives have wacky beliefs, and truly want to force the hoi polloi to live in dense cities, so Vancouver has wacky housing prices.

Yes, it also has a serious influx of Chinese money which is attempting to find ways around China's capital outflow limits, and this provides lots of high dollar buyers, well, that and the fact that anyone with $160,000 can buy a Canadian residency. The Chinese are fearful of the Chinese collapse and are exiting with one foot in China, and one foot elsewhere, and Canada is a very good elsewhere.

So, what is the advice of the progressives to "cure" the problem. Ask, and hilarity ensues!

"Finance Minister Mike de Jong has said he does not believe Vancouver is in a real estate bubble, to which Cohoes said “he’s full of more crap than a Christmas turkey.'"  Oy vey!

"Michael Levy of Border Gold Corp. disagrees, saying while a bubble can be anything that is overvalued, we can just let the air out and it doesn’t have to burst.

“That would be a correction in the market that would take place, but as Mr. Cohodes said, I do not believe we are in the kind of bubble that is going to burst.”

“To say that markets are going to go down 50 to 80 per cent is absolutely irresponsible and I feel that his statements are doing nothing but inflaming the issues that are going on here, but not being helpful at all,” added Levy.

He said there needs to be more stringent regulation about who can buy in the market, what kind of financial stability they have and he agrees about adding a tax on foreign home ownership.

Levy did agree the real estate market is a “cash cow for the provincial government because of the property transfer tax,” but he thinks the government is going to have to act soon to calm the public’s fears they are being priced out of the Vancouver market.

However, he does not necessarily think a tax is the best way to go.

“I think there are ways to go about this but I don’t think you have to slam the door and to start to think to put a huge tax in place, I just want to remind the viewers that in 1974 that’s what the provincial government did in Ontario,” said Levy. “They put a 50 per cent tax on properties that people bought for speculation and they tanked the real estate market.”

“It absolutely fell apart, so I say, be careful what you wish for.'"

Huh? Or they could just allow much more land development, say increase the land available for development equal to 50% of all developed land in Vancouver today. 

Home prices would, however, nearly instantly fall substantially back to reasonable levels. The bubble would pop, and many would be deeply butthurt to see their phantom gains washed away by a simple political act. And so, the people with land become adherents to the cult of Smart Growth, and Urban Planning.

The Impact of Building Restrictions on Housing Affordability

Progressives will always believe the solution is authoritarianism, "more stringent (government) regulation about who can buy," and "tax(es) on foreign ownership." They do not believe in free markets, or allowing free markets to reasonably maintain appropriate prices. None of this nonsense needed to happen. It happened due to the hubris of the politicians who believed they could manage the economy. They cannot. And when they do disaster results.