The Biggest Real Estate Bubble Of All Time Just Did The Impossible

One month ago, we said that “the Vancouver housing bubble Is back, and it’s (almost) bigger than ever.”

Fast forward to today, when we can scrap the almost part: according to the latest data from the Real Estate Board of Greater Vancouver, nearly a year after British Columbia implemented a 15% property tax targeting foreign buyers, in May the biggest real estate bubble of all time did the impossible and in a testament to the persistence of Chinese oligarchs, criminals, money launderers and pretty much anyone who is desperate to park their cash as far away as possible, after a modest drop following last summer’s tax the Vancouver housing bubble has bounced right back to new all time highs, as prices of detached, attached houses and apartment all surged to new record highs.

According to the Real Estate Board, rhe breakdown in prices by category was as follows:

• For condominiums, the benchmark price was C$571,300 last month, a 17.8% jump over the past 12 months and 3.1% more than April 2017.
• The benchmark price of an attached unit was C$715,400, 13.1% more than a year ago, and a 1.9% increase compared to April 2017.
• The benchmark price for detached properties was $1,561,000, an 3.1% increase over the last 12 months and a 2.9% increase compared to April 2017.

The only thing that did fall in May was the number of actual transactions, as residential property sales in the region totaled 4,364 in May 2017, a decrease of 8.5% from the 4,769 sales in May 2016, an all-time record.

In other words, all that the 15% surtax achieved was to drastically slowdown the rate of transactions (or perhaps home flipping). Meanwhile, as sellers held out to find more aggressive buyers, they were in luck as the new wave of buyers has emerged, and undeterred by the 15% premium, they have been slowly but surely lifting all available offers.

While there is little we can add to this month’s update that we didn’t already say a month ago, below we again put Canada’s housing market, and bubble, in perspective with some of our favorite charts, first showing total Canadian household debt compared to the US. Most of this is in the form of mortgages.

Next, despite Canada’s low rates, the debt service ratio of an average Canadian household is nearly 40% higher than when compared to the US.

And finally, the punchline: indexed home prices in Canada compared to the US. This needs to commentary.

In retrospect, perhaps Canada was lucky that the attempt to deflate the Vancouver housing bubble failed, had it succeeded and spread across the nation leading to a historic crash and collapse in collateral values and widespread defaults, the “mean-reversion” outcome would have been devastating for the Canadian banking sector. Which of course, is not to say that Canada’s problem has been fixed, but at least for the time being, the can has been kicked once again, courtesy of Chinese buyers who would rather park their cash in Canada than at home.