Friday, July 29, 2016

Vancouver Housing Bubble: Wildcard!

Silly Vancouverites.

At the risk of this post being used against me in a municipal election (like what happened when I ran for mayor of Canmore, Alberta), all I have to say is: Vancouverites are delusional.

First off, although this is completely anecdotal, I cannot count how many people I've spoken to that think Vancouver's housing prices will never crash.

Oh yeah, those $3 million houses will just keep climbing in value.

Fucking delusional.

Second, they blame the Chinese all the time. I once mentioned the low-interest rates set by the central bank. I was told that these foreign investors pay for everything in cash and therefore "interest rates are irrelevant."

*Headdesk* For when facepalms aren't enough.

Okay, where to begin?

The "wildcard" as determined by Georgia Straight writer Charlie Smith is the United States Federal Reserve.

Never mind that they actually caused this beast. That credit expansion worldwide is the cause of all these property bubbles.

Apparently, it's all about the foreign investors and the Fed is just an "affect" [sic] as one Facebook commenter put it.

I don't want to dwell too much on this article since there are bigger fish to fry, but I will note this one line:

Keep in mind that the U.S. Federal Reserve will likely want to hold the line on raising interest rates until after the November presidential election. 
That will keep the U.S. economy humming forward, which would help Democratic presidential candidate Hillary Clinton stave off a challenge from Donald Trump.

Oh yes, the Fed will "hold the line" on raising rates, but only because there's no other option. The Fed tried to raise rates late last year and the result was a little bit of chaos.

Now, with the Brexit or whatever excuse they cling to, they can cut rates into negative territory, warning off any economic reality of scarcity and the unsustainability of providing credit where there are no adequate savings to back it up.

But my real beef with this line is that an apparent neutral board of directors who are supposed to remain "independent" from government are holding off on certain monetary policies so the Democratic candidate can win.

Like it fucking matters.

Donald Trump is today's Ronald Reagan: campaigns as a populist but will make peace with the establishment and govern like a neo-con.


The Fed can't raise rates without bankrupting the West and usher in a (much needed) economic depression.

That doesn't quite work for Wall Street or the people who make money off cheap credit, plus it's not politically favourable so...

So? Back to Vancouver.

Or Vancouverites who not only believe that housing prices will never fall, but that one of the only people who have predicted this fiasco is a "typical con bot" and an "idiot" and whatever he says, "do the opposite."

I am, of course, referring to former MP Garth Turner, blogger and author of "The Greater Fool"

Like him or hate him, Turner has been on point (more or less) when it comes to Canada's housing bubble. And he's not jumping on the bandwagon, he's been singing this tune since at least 2010.

Turner says, "There’s simply no data showing foreign guys caused houses to go ballistic, and overwhelming evidence Canadians have done this themselves (with the help of politicians)... Even the latest Van stats reveal locals and foreigners spent an identical amount per purchase, and Canadians outnumbered them by nine-to-one. Case closed."

Indeed, case closed.

Vancouver's housing bubble isn't the fault of foreign buyers, and imposing a "head tax" on foreign investment will do nothing.

As Turner writes, "In fact for decades, there’ve been strong pro-real estate measures enacted by every successive group of politicians, leading us directly to now—when the average family can no longer afford the average home... Artificially-low borrowing rates, government-backed mortgage insurance, legislated 5% down payments, RRSP homebuyer loans, first-timers grants, property tax rebates, land transfer tax exemptions—the list of interventions is endless. So now crap houses cost a million. Good job, government."

It's all about peace, order, and good government, right?

Meanwhile, the Canada Mortgage and Housing Corporation (Canada's version of Freddie Mae and Fannie Mae) is finally admitting something might be wrong.

"Strong evidence of problematic conditions is seen in Vancouver, Toronto, Calgary, Saskatoon and Regina," their report stated. "In Toronto and Vancouver, this is due to the combination of price acceleration and overvaluation. In Calgary, Saskatoon and Regina, this is due to the combination of overvaluation and overbuilding."

Actually, it's a combination of low-interest rates and the policies cited above by Garth Turner.

Why do Canadians, especially Vancouverites, think they're exempt from the laws of economics?

That somehow the laws of supply and demand, especially with loans and savings, are irrelevant?

This isn't going to end well. And I don't mean a real estate crash. I mean ignorant statist yuppies regarding themselves as "progressive" while calling for government overreach and power the likes of which human civilization hasn't seen since the days of Mao in China and Stalin in Russia.

This isn't hyperbole. This is the inevitable conclusion of all-around government bureaucracy. Even if Canada remains "peaceful" in the sense that we never see the likes of such a leader, there remains an economic calculation problem.

Politicians cannot and will not fix this problem. They helped create it.

The only solution to scale back government power, legalize competing currencies, cut red-tape so anyone can start a bank and.... well I'm sure there's more we can do but let's take it one step at a time.

We can start by putting the Bank of Canada out of business. Forget new taxes or regulations on foreign buyers. Central banks are the cause of this mess. Everything else is an effect.


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