Throwing Caution to the Wind
We have discussed the dangerous housing and consumer credit bubble in Canada in these pages on several previous occasions in some detail (see “Carney’s Legacy” and “A Tale of Two Bubbles” as examples). Since we first wrote about Canadian real estate, the bubble has continued to grow with nary a pause. Why are we calling it a bubble? The gap between incomes and house prices is widening ever more, and has been far above what is considered normal for several years already.
This decline in affordability is the result of monetary pumping and ultra-low administered interest rates imposed by Canada’s central bank. Moreover, the boom is subsidized by a giant state-owned mortgage insurer, an institution that has the potential to severely impair the government’s finances once the bubble bursts.
Vancouver skyline at night – no doubt a nice place, but a bit pricey.
Photo credit: Mohsen Kamalzadeh, imaginion.wordpress.com
The housing bubble is most pronounced in big cities like Toronto and especially Vancouver. Trophy properties are selling like hotcakes to people who evidently don’t care much about money. In fact, the frenzy proves that the demand for money has long been overwhelmed by the huge growth in its supply among the richer strata of society.
A friend has pointed us to a short video at CTV News about a recent high end property sale in Vancouver that is quite remarkable, to say the least.
Video length: 00:01:51
A bidding frenzy breaks out over a Vancouver trophy property
Consider the background to this sale – within just 12 days of being listed, the house sold for almost 35% above the asking price and a full 55% above its recently assessed value. The bubble has evidently reached the sheer insanity stage.
“A Tudor mansion in Vancouver’s tony Shaughnessy neighbourhood has sold for millions over the asking price, fueling more fears about affordability in the city’s red hot real estate market.
The stately home at 1383 West 32nd Avenue was listed for $5.99-million on Feb. 5, and sold 12 days later for a cool $8,010,000. That’s 33 per cent more than the initial asking price. The deal was finalized two weeks ago.
According to the City of Vancouver, the property was assessed this year at $5,094,600, which means the sale was $2.9-million above the assessed value.
A March report found that the average price for a detached home in Vancouver passed the $1 million mark in both cities.
In his report, Cameron Muir, chief economist for the Greater Vancouver real estate association, says a perfect storm of rock bottom interest rates and rising consumer confidence has fueled an all-out realty frenzy.
“Many board areas are now exhibiting sellers’ market conditions with home prices advancing well above the rate of inflation,” Muir said.
