https://www.zolo.ca/vancouver-real-estate/trends
Bubble popping scenario in my head:
Phase 1: Starts with the pinprick of federal rates going up and QT.
Phase 2: Weak hands sell first- in my opinion- foreign investors- mainly Chinese nationals that have scooped up American and Canadian RE- who have fled to safety to escape volatility of Yuan/Xi (I don’t blame them). Why hold assets on the other side of the country that are becoming inherently more risky when their goal was to escape risk? Especially if they have made equity or rental returns from it? (Get going while the getting is good). And as the phrase we keep hearing: cash is king.
Phase 3) the rest of RE investors start selling- attempting to sell at whatever price they can after seeing a big price drop from phase 2.
Phase 4) Will affect white collar workers who have bought a house 4-5 years ago who can barely afford their mortgage especially if there are tech layoffs which is expected if there is a huge stock market layoff. Even nowadays we are hearing some similarities between earnings reports: “I’ve are now focusing on bottom line. Cost cutting. Hiring freezes” This means less R&D, less speculative projects, more layoffs, and more cost cutting measures.
Something to think about: Each house goes for around 1M-2M USD in major metro areas. With hundreds of investors having multiples of SFR’s under their belt- this is quite a bit of money being pumped into the sell side of the housing market.
Using this as reference: The Vancouver real estate is already dropping quite a bit. This is important in my opinion because 33% of the entire Vancouver real estate market is owned by Chinese investors falling in line with phase 2. Any thoughts?
Edit: I know many markets in the USA have not been affected too drastically by house prices. I know in some places a mortgage is still cheaper than rent- but in general, I think the American market on average- has way over-sailed. Especially in metro areas- such the Bay Area- where I live- where I think there will be a more drastic and impactful deterioration of the housing market.
Edit 2: Some white collars may be able to afford their monthlies if they manage to keep their jobs in the case of a economic downturn/layoffs…. But then the question would be: Now that houses around them have much lower monthlies… why over pay? In that case, I would consider short selling instead of over-paying- ESPECIALLY if I overpaid for a crummy house because of the past 3 years of housing shortage.
Leave a Reply