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With falling sales and prices, patient buyers are sitting on the sidelines, waiting for sellers to face reality

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West Vancouver is an exclusive oceanside suburb realtors consider the epicentre of a real estate correction in the area. This house sold this year for $7-million, far short of its list price of $16-million in 2017.Rafal Gerszak/The Globe and Mail

Jon Buss has spent the past four months looking for a home in West Vancouver. Every weekend, he and his wife attend an open house in the exclusive coastal community, where their kids are starting school in the fall. They have noticed the same thing at almost every one: “No one ever shows up.” Often it’s just them and a realtor, sitting in a chair, staring at his phone. “Nothing is moving.“

Mr. Buss, an entrepreneur who invented slip-on covers to rejuvenate old baseboard heaters, currently lives in Delta and is shopping for a house in the $3-million-to-$5-million range. He does most of his research on his bike, to get a better feel for the livability of a home and neighbourhood. He’s seen prices in the municipality – where 38 homes are listed for sale with asking prices north of $10-million – drop as much as a million dollars in a single day. He’s in no hurry: “Why buy in a falling market?”

Jeff Carnahan moved to the Lower Mainland from Calgary eight months ago and has been looking to buy in the $1-million range. He meets the same buyers at weekend open houses. Like him, they are sitting on the sidelines for now. “Sellers are still in denial about the housing correction and unwilling to come down from that mythical price they have been banking on. Buyers, meanwhile, know the home is no longer worth what they are asking," he says.

“It’s very clear we’re on the back end of a bubble.”

The Real Estate Board of Greater Vancouver reported this month that sales in the Vancouver region slumped to a 24-year low in April and prices are off 8.5 per cent over the past year as a market downturn deepens. The benchmark price for detached homes, condos and townhouses, an industry representation of the typical home sold in an area, fell last month for the 11th consecutive time, to $1,008,400 – the lowest in almost two years.

Realtors point to West Vancouver as the epicentre of a correction that began some 18 months ago. This month, a mansion in the oceanside municipality sold for less than half its 2016 sale price of $11.2-million, a $6-million loss for the former owners.

Realtor Mark Wiens is already seeing his clients swallow hefty losses. One recently sold for $2-million below the home’s assessed value of $6.2-million. Another turned down an offer of $4.5-million for his West Side house last year only to relist it this year for $2.39-million. The “best-case scenario” for a third is a $350,000 loss on the condo bought for $1.1-million less than a year ago.

As Vancouver’s housing market continues to contract, Mr. Wiens tells his clients on the city’s exclusive West Side, where he figures prices of high-end homes have fallen as much as 35 per cent since peaking in 2016, that they are throwing away at least $5,000 every day that they delay listing. “There’s no way this market is coming back any time soon,” he says.

While snacking on a $13 slice of avocado toast, the former landscaper, who speaks Mandarin, offers a one-word prediction for the year ahead: “Pain.”

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Vancouver realtor Mark Wiens, who cautions his West Side clients they can lose $5,000 for each day they delay listing their properties.Rafal Gerszak/The Globe and Mail

This cooling off was, to some degree, orchestrated. To slow mortgage lending, the Office of the Superintendent of Financial Institutions, a federal agency overseeing the country’s lenders, introduced a mortgage stress test last January that had the effect of reducing the amount Canadians can borrow.

At the provincial level, successive governments introduced several measures of their own to bring the market to heel. First came the foreign buyers’ tax – 15 per cent of a home’s purchase price – one of the final major policy initiatives of the previous, Liberal government, announced ahead of an election fought almost entirely over housing issues. The stated purpose of the tax was to keep locals from being priced out of the market, but it’s now the subject of a lawsuit that claims the tax is discriminatory and unconstitutional; the summary trial concluded April 1, and judgment has been reserved.

The new, NDP government bumped it to 20 per cent. And transfer taxes were increased to 5 per cent from 3 per cent on homes valued north of $3-million, ostensibly to discourage flipping.

For its part, Vancouver introduced a municipal tax on empty homes to punish investors who leave their houses vacant – again, to discourage speculators and to provide more rental housing.

Realtors may loathe these measures, but a large majority of British Columbians support them, according to polling by the Angus Reid Institute.

The focus on foreign buyers, especially from China, has been intense – and not without reason. A recent Statistics Canada report found that one in five B.C. condos built in 2016 and 2017 were purchased by foreigners. Vancouver, with its historical and cultural links to Hong Kong, clean air, good schools and respect for the rule of law, is a favourite destination for wealthy Chinese to park their money.

With the Shanghai Composite Index down 25 per cent last year and the Shenzhen Composite Index falling 33 per cent, Chinese investors have been desperately looking elsewhere. But Chinese courts have begun jailing nationals for life for moving money illegally out of the country, part of Beijing’s ongoing effort to halt currency outflows, Vancouver lawyer Christine Duhaime explains.

Ms. Duhaime, an expert in financial crime, represents Chinese banks hunting fraudsters in Vancouver. Many took out sizable business loans in China, then fled to B.C.'s Lower Mainland, where they hid the money in real estate, shielding their identities through corporations, numbered companies and trusts. Transparency International, a corruption watchdog group, estimates that 50 per cent of owners at the high end of Vancouver’s housing market have hidden their identities this way.

Like it or not, their identities will be made public next month, when the province unveils a residential property registry. This could be another reason for the flood of new inventory, up 46 per cent over last year, says Ms. Duhaime: Some owners may be trying to get their money out of the market before the disclosures take effect.

The city has also become a favoured destination for global cartels and gangs that have been washing billions of dollars through B.C.’s housing market and casinos. This week, in announcing a public inquiry into the explosive growth of money laundering in the province, B.C. Finance Minister Carole James said the criminal activity had increased home prices in Vancouver by as much as 20 per cent.

It’s a strange new world for Vancouver, where the median cost of a home tripled to $1.5-million in the decade before 2015. The sharp rise was fuelled by cheap mortgages and a flood of new speculators hunting for investment gains, particularly after Blackrock chief executive Laurence Fink, one of the world’s best-known investors, named Vancouver condos one of the greatest places in the world to park money.

But unlike New York or London or San Francisco, where the huge salaries typical of the financial and tech industries help explain the high cost of housing, local salaries in Vancouver are so low they became a selling point in the city’s bid to lure Amazon’s new headquarters to town.

This leaves the market in the strangely precarious situation of “resting on the shoulders of local income earners,” says realtor Aaron Best. Vancouver, he says, was the first city in Canada to see foreign speculation spike its housing market. It now looks set to become the first to find out what happens when that wealth pulls out – and no one is left to replace it.

It’s a new era for condo marketers and developers trying to offload presale condos, too. Gone are the days when long lines of people in sleeping bags snaked around presentation centres ahead of launches. Back then, speculators saw presales as quick wins: They could put down 20 per cent, flip the contract for a steep gain before the project’s completion, then reinvest the earnings in several units in another tower, Mr. Best says.

Last week, developers behind 17 projects, representing roughly 5,000 units, announced they are postponing their sales launches in the hope that market conditions improve. Other developers are offering buyers hefty discounts and bonuses to realtors, according to flyers sent to local real estate agents.

In Vancouver’s tony Kerrisdale neighbourhood, the Shannon Wall Centre, for example, is offering realtors a $150,000 bonus and a 4-per-cent commission, roughly double what they traditionally receive on assignments. They’re also offering to pay buyers’ condo fees for their first two years.

Saadat Enterprises is knocking off the GST for an 18-unit development in East Vancouver. In suburban Richmond, Paramount is offering realtors $100,000 and a bonus of as much as 4.5 per cent. Woodbridge Homes is targeting millennials for its Kira development in Coquitlam, offering them free avocado toast every week for a year.

The Mortise Group is knocking $40,000 off purchase prices at two of its Surrey townhome developments. Anthem has dropped the requisite deposit to 5 per cent and is offering buyers a $5,000 discount at its Marine and Fell development in North Vancouver. Onni is offering a $75,000 discount for units at 1335 Howe, a 40-storey tower near the base of the Granville Bridge, and has dropped the deposit to 5 per cent for a North Shore development on Keith Road.

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Sehrish Qureshi, a UBC student from Toronto, rents a room in a 6,000-square-foot mansion that needs occupants if its owners want to avoid paying a vacancy tax.Rafal Gerszak/The Globe and Mail

While there is plenty of misfortune to go around, it turns out there’s also plenty of delight. On social media, more than a dozen or so accounts have sprung up to document the collapse of the market and highlight speculators’ biggest faceplants. One of the most popular goes by the handle Vancouver Real Estate Flip Flops.

Typical tweets begin like this one, dated earlier this month: “SOLD FOR 50% BELOW PEAK MKT VALUE IN DUNBAR! EPIC CARNAGE.” It goes on to detail the total losses of the flipper caught holding the bag. “+$2M LOSS IN 11 MONTHS” another begins, celebrating yet another speculator’s legendary fail.

It may sound an awful lot like schadenfreude, but for the generation shut out of the housing market in Vancouver, the news is also cause for cautious optimism. People have begun sharing links and joining Facebook groups such as “Metro Vancouver Housing Collapse,” which is run by a retired Coquitlam teacher.

And what is bad news for realtors, speculators and over-leveraged homeowners is anything but for bailiffs, auctioneers, bankruptcy lawyers and entrepreneurs ferreting out ways to cash in on the downturn.

Diana Mander of the Mander Group, a mother-daughter property-management firm, has seen a surge in new rental listings in the past six months, many of them Chinese owners who want to keep their investment properties but don’t want to pay the vacancy tax.

Vanmates, a new site targeting the foreign student market, has begun renting out bedrooms in empty Vancouver mansions for about $1,000 a month. That’s how Sehrish Qureshi, a Vancouver Film School student, found herself living in a brand-new, nine-bedroom, chalk white mansion that her housemates have dubbed “the castle.” For $900 a month, the 26-year-old Toronto native shares it – and the billiards room, steam room and pool – with 13 other young people.

But not all realtors say house prices are cratering in Vancouver.

David Peerless, manager of Dexter Realty, says the local market is “in the process of stabilizing and correcting as we speak.” In 2008, he adds, the market dropped significantly, “then recovered 100 per cent the following year.”

West Side realtor Carole Lieberman says she considers the softened market “the best buying opportunity for West Side detached properties in years."

As Ms. Lieberman notes, price declines vary across the spectrum and are much more moderate at the lower end and on the city’s east side, where the market is still showing signs of life.

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This property, located on Vancouver’s West Side, sold for $4.1-million this year, $2-million less than its sale price a year ago.Rafal Gerszak/The Globe and Mail

For the first time in his 30-year career as a foreclosure lawyer, Lindsey Goldberg is seeing defaults hit the Lower Mainland’s two most exclusive communities: West Vancouver and Vancouver’s West Side. “These places are home to very wealthy individuals – people who had no problem getting their hands on money when they ran into trouble."

Consumer insolvencies are up 6 per cent from a year ago, the largest jump since the Great Recession. But it can take several years for rising rates to be reflected in default figures, says Blair Mantin of Sands and Associates, B.C.’s largest insolvency firm. This quarter, the firm recorded its busiest January, February, March and April in its 30-year history. Mr. Mantin has hired five new staff, expecting business will continue to grow in tandem with the correction.

Last year, the Bank of Canada increased its benchmark rate three times to 1.75 per cent. For the first time in 25 years, households are going to be renewing their mortgages at higher rates. That’s when things are going to get ugly, Mr. Mantin predicts. “You’re going to start seeing people who are maxed out and can’t get refinancing.”

He thinks Vancouverites are still in denial about what lies ahead. We’ve reached our Wile E. Coyote moment, he says, referring to the hapless antihero of the Road Runner cartoons, a dreamer puffed up on arrogance and ambition.

”We’ve run off the cliff and just looked down. Beneath us, there’s nothing but thin air. Right now we’re pumping our legs, hanging in the wind.”

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