The journey

A new condo development goes on sale in the Vancouver burbs Saturday morning. People started lining up outside Wednesday at 9 am. By opening bell, there should be about 500 buyers for 306 units. All of them are expected to be Asian.

The obsession with real estate evident in Asian culture is having serious repercussions in places where it’s concentrated. That includes BC’s Richmond and (lately) West Van, and towns like Richmond Hill, Unionville and Markham in the GTA. HAM (hot Asian money) is largely blamed for 21% of all sales in Vancouver last month topping $1 million, and an onslaught of buyers pushing new housing prices up in Scarborough.

This has resulted in average prices jumping beyond the means of 95% of working families. Now the average cost of a detached home in Vancouver is $890,000 – 11 times the average household income – and in Toronto’s 416, a SFH averages $775,000, or eight times income. House pumpers say income ratios are now irrelevant, since Canada is in the crosshairs for ‘international investors’ – code for ‘Chinese.’

You need only read this blog for a day or two to see the social impact. What people perceive as the destruction of affordability at the hands of mainland Chinese has resulted in racism, stereotyping and fear. Maybe justified. Maybe not.

Have the Chinese screwed up housing? Apparently nobody has any good stats on the nationality of buyers in either Toronto or the Lower Mainland. But what’s obvious is the glee with which the Canadian real estate community has embraced the Asian invasion – using this as a giant and welcome marketing tool. Locals are told to buy now or be priced out forever, and to snap up properties at inflated, insane, nosebleed valuations, because there’s a foreign guy in a rented Mercedes careening closer.

That this will end in heartache and bitterness is self-evident. But what will be the damage when that occurs?

Apparently the feds are finally interested. Now that houses are beyond the reach of citizens.

Word is the Office of the Superintendent of Financial Institutions (OFSI), the dudes who worry about the regulation, solvency and integrity of our banking system, are now beavering away trying to quantify the influence of HAM. The reason is obvious. Every thinking person (which apparently excludes much of Vancouver) knows this irrational, culturally-fired mania will end. And the more influence Asian money has on real estate lending now, the greater the crunch when it dries up.

Of course, all you have to do it flip on Global BC or CITY-TV in Toronto to understand that prices are rising not just because of Asian buyers, but the perception of Asian money. The lunatic idea that house prices have no ceiling has actually been absorbed by both media and legions of buyers. And as values jump, so does mortgage debt – since nobody you know has received a pay raise lately.

That’s what has OFSI’s panties in a knot. Here’s what one of the regulators told the Financial Post: “The housing market including real estate linked lending activities is among a set of emerging issues, risks and markets across the Canadian financial system. We do this so that we can better understand the risks and impacts these may pose on federally regulated financial institutions.”

Amen. Bring it on.

Now, a final word on the scariest potential outcome of the HAM tsunami (which is what OFSI really fears). It’s not ever-higher prices and unaffordable houses we need to worry about, but what happens when this mess unwinds. If it’s true (and it seems to be) that Asian buyers are moving in a self-reinforcing herd, collectively believing they can make money by buying any shack in their path, what happens when they decide it’s time to sell?

As one of my Van real estate insiders points out, “if you have a market driven by one group of people on one side, and if that group decides to switch sides (i.e. the Chinese become sellers), then who can buy?  Nobody. When the tide turns – people will not know what hit them.”

Prices would tumble, of course, perhaps even cascade lower. The value of all homes in an urban market would be affected, peeling away equity. But mortgage debt would remain. The result: cheaper houses, underwater owners, negative equity and real estate which turns cold, illiquid and unsalable in a matter of months, if not weeks. Hard to imagine that power of sales and financial ruin would not follow for many.

So, worry not about the Asians. Let them buy. Just don’t you.