Some high-minded Vancouver homeowners want a 30% price decline to restore the city’s housing affordability, according to the New York Times citing a 2016 survey. Hmmm, a 30% haircut would mean a market collapse.
Others will probably settle for 10%-20%, which translates into a loss of hundreds of thousands of dollars. This, too, is a huge amount.
“If I got to lose 200 or 300 grand to keep the kids and the future of this place, so be it,” said Rob Welsh in the NYT story. He’s a paper millionaire, thanks to the risen value of the house he bought in 2000. The Globe and Mail’s national affairs columnist too has declared his willingness to sacrifice some of his hefty gains to help Metro Vancouver achieve affordability salvation.
For sure the region needs to cool its housing fever and help those on the fringe, but do these commentators know what they’re talking about?
It’s not just the housing market that goes down with a sharp price correction: it’s the banking system and the entire economy that will be at risk. Many homeowners will be in no position to take a 10% to 30% price hit, whether on paper or in actual. The snowball effect will be significant — and likely swift and systemic.
As my friend, Dan, wrote in reply:
“It’s pure ignorance to suggest a 15 to 20% drop in property value will resolve the housing crisis. Who will keep paying a mortgage on any property when 30% of the equity disappears. A large number of people will be underwater, financially.”
Like most media reports, this NYT story fails to mention the massive role played by Canadian banks, the world’s quantitative easing programs, and secondary mortgage lenders in inflating the Vancouver housing bubble over the past decade. This story’s a huge miss as these are three very large elephants in the room.
Thanks to years of unbalanced Canadian news reporting, the blame for our housing misery has largely fallen onto the conspicuous Chinese buyer. Angry people want easy answers to complex questions, and Chinese migrants and offshore money are as easy as they come.
With NAFTA in flames, the European Union back in crisis mode, and Ottawa telling China to shaft its money elsewhere, these folks might just get their wish for a housing crash.
They think their livelihoods, their jobs and perks will continue as normal when Vancouver’s housing prices go down 10%-30%. They forgot what happened to the US in 2008. The subprime crisis, anyone?