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The Elusive Canadian Housing Bubble: Summer 2010 Edition - Canary In A Coal Mine
Our friend Alec Pestov has just completed the follow up to his original in-depth analysis of the Canadian housing market: "This second edition of the report is the first of the semi-annual sequels for the original paper to provide timely updates on the state of the housing market in Canada. This document introduces a structure of the semi-annual releases, and your comments and suggestions regarding it are always welcome." For all in the market looking to buy or sell real estate in Canada, this is a must read.
The Elusive Canadian Housing Bubble: Summer 2010 Edition - Canary In A Coal Mine
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a nation of 33 million and they talk about a bubble. Who cares about a tiny market smaller than California?
Well they do have one edge. When the US collapses a lot of us will turn our eyes to the north. We will discover out love of maple syrup and hockey and hop the border :)
Shameful
Fuck dude then Canuck ICE, probably with members of Alpha Flight and Wolverine supported by Mounties, will rou8nd your ass up. They will crash the home you and your twenty family memebrs live in devouring the delicious back Bacon.
While you are still muttering "eh, bring me a Molson hoser" you will be whisked across the Peace Bridge to one of the retraining camps. Then you will be shipped to Colorado or Kansas to fight the Mexican border wars.
If you are lucky you may have seen the stampede, but more likely you will have spent your time doing lawn work and shovelin the mountains of winter snow.
How about them Maple Leafs?
That was excellent, get some Alpha Flight!
What does the Toronto Maple Leafs and the Titanic have in common ?
the both look good until they hit the ice.
When the US collapses a lot of us will turn our eyes to the north.
I'm not sure we should be letting any of you in without an intelligence test...
"One adult American in five thinks the Sun revolves around the Earth" WTF?!
http://www.nytimes.com/2005/08/30/science/30profile.html?_r=1
It is how idiot politicians stay in office. If a portion of the voters are clueless, you just need to manipulate them with emotions.
Well, we do happen to be your biggest trading partner and biggest supplier of crude.
Well said. The most notable thing about canada is the montreal strippers.. they are dirty!!!
Get out the popcorn...
After the 2012 pole shift Canada will be directly under the North Pole, and in a few centuries unde 1 mile of ice, I would not wanna buy property there ;)
It's probably worth a mention. I think you may have logged into Zero Hedge by mistake.
whaddya mean?
'the end is near' is a very common theme on zh.
Sure thing. And I like it, though usually it's better argued than "The Mayans had a rudimentary date denomination system therefore we're all going to die".
the magnetic north pole has been shifting at a rate of 40KM per year. Around 1100 KM over the last hundred years, though it is heading more towards Russia than Canada.
and its power is decreasing.
but that wouldn't have any impact on anything like say global temeratures, unless of course deflecting high energy particles were important.
Its not global temperatures you have to worry about with a sufficiently weakened magnetic field. We'd get bombarded with radiation and the atmosphere would be torn away.
I'm not disputing that. Nor am I disputing that it is changing and always has done.
All I was suggesting was that the Earth has it's own schedule and it's not telling.
This never happened:
From: gaia@solsystem.org
To: balam@mayantempletrust.org
Subject: Calendar
Dear Balam
I'm impressed with your work on a new calendar system. Very forward looking. Mind you, just so you know and don't put too much effort into it, you don't need to be too forward looking. You might as well only count up to the end of the 13th b'ak'tun.
Your ever giving,
Gaia
Major housing bubble being brewed in Indian real estate as well fuelled by cheap funding from western banks.
Here's a point not many realize. Newfoundland used to be an independent country. Then they ran into a credit crisis, and Canada took them over. The source is "This Time is Different", though I see that Martin Armstrong ripped off that book entirely without attitribution recently (of course, what does one expect from a Con in prision, I guess).
My point here is that the way things are going, perhaps we'll get to own both Canada and India. That would be interesting.
i saw some program on tv that showed million dollar (!!) condo buildings going up in the midst of the slums of mumbai...totally anecdotal, but didn't look like a good sign to me
No, no, no, there is no real estate bubble in Canada! Just like Greece, prices will keep going up forever...D'OH!!!!!!!!!
The Calgary Condo situation disgusts me. What's an extra couple hundred thousand? It's got granite counter-tops.
http://www.financialpost.com/news/Alberta+headed+record+deficit/3442324/...
Eat shit Ed Stelmach, go Wildrose Alliance!
No surprise there that Stelmach runs a deficit...it's what neo-cons do, isn't it? Federal finance minister Flaherty isn't called 'Deficit Jim' by the boys on Bay Street for nothing...the guy couldn't run a yard sale. Typical neo-con...takes over with a surplus, slashes taxes he was warned against slashing (all for votes), does a vicious flip-flop on taxing income trusts, and tells everyone that a) there won't be a global financial crisis (wrong!) and then says Canada won't run a deficit (even wronger!!).
So inept, if you gave him a year of free lunches he'd still manage to starve to death.
I don't believe the term "neo-con" correctly applies to conservative gov't in Canada, though there is some overlay.
http://en.wikipedia.org/wiki/Neoconservatism
Remember Harper telling the libertarians in the party to shove it? Ottawa has a strange effect on those who go there.
Copy that.
Harper had his own 'Night of the Long Knives' when he purged the party of the 'Progressives' and even went so far as to dump the term from their name. I expected a much smarter performance from him...always thought that when he got in power he'd be more subtle, but he's been anything but. The whole census debate is astonishingly stupid...a total non-issue that was unbelievably unimportant but totally mishandled. And by silencing the RCMP on the gun registry, he's turned what was going to be a cakewalk vote into a possible defeat. It's not a confidence issue and I think the opposition parties are gonna bury him on it. Harper has never heard the term 'kill them with kindness'.
Fwiw, Harper and Ignatief are both neo-cons.
runs a deficit .it's what neo-cons do,
What with liberal policies driving growth and tax revenues what else could happen? Have you ever been to California or Illinois? Neo Con strong holds both.
All those grainy pictures of Willie Brown partying with Bill Kristol, Norman Podhoretz and Paul Wolfowitz, frankly, sickened me.
Speaking of Canada, check out PHYS in August..... nice.
When's the silver PHYS coming out?
Good question....
My understanding of the Canadian housing industry is that on April 14, 2010 the gov't changed the rules for first time homebuyers, making qualifying much more onerous. If you look at the sales stats across the cities, from May onward sales tank. Seems to me that new entrants into the market have a tougher time qualifying, so upward mobility has to slow if the pool of first-time availables to buy your current home diminishes.
Nowhere do I see this important development mentioned in the article.
You are correct. They tightened the rules for first time homebuyers in an effort to curb any speculative activity taking place.
yes and two consecutive rate hikes by the BOC on top of that would kill any real estate market mood.
come 09/22/10 we'll see if their rate hikes are motivated by bullshit inflation or by pure greed to sell bonds and ensure massive public service sector pensions are being paid.
the BOC killed the real estate market in Canada in the Eighties. They caused alot of financial harm to many Canadians.
So they should cut rates and puff up the bubble? No thanks. By the way, 5% interest rate isn't "high" in a non-ZIRP normal world where people have to pay for what they buy.
No, they tightened rules to make it difficult to proceed further with the housing bubble, knowing full well that the legerdemain instituted in the face of the U.S. would have the exact same result, a bubble and a deflation of that bubble. Once the bubble proceeded to highs, they instituted 'new safety measures' which were really designed to favour insurers of risk.
They even managed to wrangle higher money-market rates and kept up the band playing the higher interest rates theme, even though long term rates are at historic lows.
Not very well known is how the banks are ebullient on the sales of their "covered bonds," which are Asset Backed Commercial Paper by another name, derivatives with tranches of mortgages and credit. And here we have the Ontario Teacher's Pension Fund clamouring up and down, wanting to "insure" mortgages.
Banks are prevented from engaging in legerdemain by law, but are in behind the scenes backing the scheme with derivatives, while pensions are big buyers of the fraudulent paper. Sounds awfully familiar.
So the young, who have little to go on in this market are walking into the trap, writing mortgages they can't afford, unaware that their interest rates can rise along with credit default swaps "insuring" their mortgages, despite historically low long term bond rates. And the retired are looking to back covered bonds in the scheme, appropriating risk from the unwitting who never realizes that their risk trades on Bay St, not knowing that the whole scheme can go illiquid. And the taxpayer, the ever gullible source of fresh capital for this insane bubble is none the wiser, because in Canada, 'the banks are sound.'
A monthly updated average Canadian housing price chart is available here:
http://www.gettingtechnical.com/01_home/market_commentary/can_en.html
Stats Can is the source for money supply:
http://www40.statcan.gc.ca/l01/cst01/econ07-eng.htm
P.S. If you travel to Canada, do not mention the housing bubble, because you'll be treated as if you were insane. Interest rates are going up apparently, the economy is robust because of Tim Horton's, and we're buying fighter jets.
Buy our fighter jets cause they are made in America. hahahahahahahhahahhahahahahhahahah made in America hahahahah
This was another case of closing the barn door after the horses have already left. HST, rule changes and "pending interest rate hikes" pulled demand forward, leaving a vacuum on the other side. This isn't the cause of a downturn, just the spark once an overvalued, overbought market is already vulnerable.
PPT under full, high rep lash to hold 1057.
Bubble. bubble on the wall...
http://israelfinancialexpert.blogspot.com/2010/08/guest-post-bubble-bubble-on-wall-which.html
They have been saying its a bubble for 20 years.
I remember hearing that too, back in '01 when I put a deposit down on a $155K condo - it's now worth $265K, would have done better piling that 155K into gold but hindsight is 20/20...
that said, I'm seriously considering selling NOW, not necessarily because I think the Toronto market is in a bubble - annual increases have been at the "real" inflation rate - but because I'm worried that a fall crash in the _____ markets might lock up credit availability - I paid cash when I bought, most buyers today don't and can't
Thats right and the only thing that will pop it is higher interest rates.
This bubble will last as long as the US treasury bubble
exactly.
affordability is a problem already, but seems to be manageable (so far, although i don't see how). But i liked his analysis of what happens with a 200 bp rise in rates...look out below
Visited Vancouver lately. It's is without a doubt 110% in a bubble, that is in fact already deflating. All of the endless talk about real estate, the "must get in now" frenzy, the "it's different here" rationalizations, was exactly like what you heard in the States in 2005.
Based on a comparison of median home price to median household income, Vancouver BC is the most unaffordable city in the world. More unaffordable than New York or San Fran.
The tighter lending standards may protect the banks a bit more than in the US, but that just means it will be the homeowners themselves who take the whole hit.
yeah thats why I went short the candian banks(via etf) after they rocketed through pre lehman prices.
MFC was a great short. Eerily similar to AIG.
TSE:HFD was good until this morning.
My friend with a single income family just bought a 2 bedroom in Gastown for 800k. I can't figure out how that makes sense. That graph showing 70% of income going to mortgage servicing was no surprise to me.
Well said.
A new "Vancouver Mansion or crack house" has come out.
http://www.crackshackormansion.com/
I know the exact subdivision he mentions in Huntsville (Muskoka). The prices are so far out of the range of local affordability that the only people buying are affluent retirees looking to dump their overvalued Toronto homes. The Canadian market is indeed due for a sizable correction; many young families choose to just build from scratch on property away from the villages...and there's almost no way they can afford waterfront.
Check out Kelowna prices, waiting on Vancouver retirees. Waiting, waiting, waiting
People like to compare and contrast the US and Canadian housing markets. (lending standards, down payments,etc). In Canada, the mortgage you take out is a 'recourse' loan, so you are on the hook NO MATTER WHAT happens. If prices dropped, people here could NOT just 'put the keys in the mailbox' and walk away. The 'big six' banking cartel here loves it! The whole country is locked onto the hamster wheel going forward, regardless of where prices go from here. Careful what ya sign up for!
And yes, the prices need a good old fashioned correction. Everyone in Vancouver is determined to double their money and flip everything they can get their hands on onto the greater fool. From what I can gather (from here in Victoria, where it's VERY quiet), the music HAS stopped in Vancouver. A few margin calls from Shanghai could just be the one Jenga block too many... With condo prices pushing $1000/$2000 per square foot in the core, it could get interesting going forward.
what? Canada doesn't have foreclosure proceedings or bankruptcy laws?
the biggest problem is the influx of fairly new immigrants that are sitting in new condos or houses. when their jobs are done, they will leave the key in the mailbox and fly back to Delhi.
so much of the recent RE boom in Greater Vancouver is based on immigration that it would bring the ship down.
Ssssh! The Toronto Star or the CBC might hear you commenting on how part-time Canadians are driving up housing prices in the major urban centers!!! Don't you know they're perfect and it's the rest of Canada that's not doing enough to help them 'feel at home' (like welcome Shariah Law, or waive health inspections in Chinatown restaurants).
Most of Yonge Street below Wellesley is now owned by Israeli, Middle Eastern or Asian property companies, just waiting to flip them.
@price declines on mortgage principle
In Canada, you have to re-imburse the bank for price declines the value of the principal.
I know, the banks will garner wages but what if everyone just walks away ? Everyone will be under water soon enough and everyone will walk away.
The banks are done, even the one Federal Reserve primary dealer, RBC.
as someone based in Alberta and currently both dealing with a family real estate sale/purchase in the Calgary market, and involved in the retail industry, let me throw a few things out for consideration.
The Alberta economy is HOT....and I mean retail sales the past few months ( yes right up to the present) have been on a rip. Not based on stupid borrowings, but on solid job conditions. There is a ton of work coming out of the Northern oil sands projects and a great many people are getting renewed contracts, new jobs and generally feeling better about their employment status. Unless and until the energy sector tanks ( read global economy ) this may not change. Oilsands plants dont readily stop and start.
The Calgary r/e market was very solid in the spring and then as the article points out....end of June....THUD. There's a ton of listings and nothing moving ( except high end still it seems).....BUT, here's a kicker, still lots of traffic and lookers. Likely there is so much choice, no one feels any rush to make a move.
Loan approval process isnt overly harsh....reasonable equity downs and loan/income ratios. Prudent, not restrictive.Not sure what caused the market to suddenly come to a halt ( possibly those tighter lending criteria referred to above and a small uptick in rates??). More to the point, and I have no answer for this---what is causing all these listings in what is traditioanlly the very end of the Calgary housing season. ( there one can only speculate, and ZM'ers will find lots of black clouds !! ).
Is this just a normal "pause" ? ( and Calgary is notorious for its on/off r/e market )....only time will tell, but we may have to wait until early 2011 when the smell of spring arrives.....for now the freeze has come early.
As for Vancouver....its always amazed the rest of the country, but it has its own special factors ( drugs/immigration/in house rental units).....and Toronto? ....who cares......( reminds me of...............!
The glut of inventory, slow moving sales will bring prices down to Earth in Calgary as well.
I'm close enough to the BC market to understand how BC and AB real estate work.
Many houses were bought as investment holding property and when the prices start falling, the "TOP" is in, investors are pulling out and selling off the product they held for a good return since 2005.
Investors that didn't get cold feet in 2008 / 2009 feel lucky to have gotten the 2nd chance to sell at a profit and they're going to take it.
A house that doubled since 2005 and doesn't have a mortgage on it can still be sold at 2005 prices + whatever % profit the investor seeks. Let's say 50% and a guaranteed sale as opposed to 100% and maybe, maybe not. Any real estate return at 50% in 5 years is a good deal. Not such a good deal for the avg homeowner with only 5% to 20% equity.
Canadians spend like drunken sailors, they are just as bad as yanks. Everyone up here is loaded up on debt and when interest rates go up, the party will be over.
A hot retail market is not a good thing, it means people are spending what they are making and not saving.
I live in Ab BTW
Ditto. I always wonder how much financing is behind Joe Pickup's $60k truck and every middle class family's second home for a week a year--oh I mean, the $100k RV. Albertans are well paid and they blow it all on the redneck's version of conspicuous consumption.
We do.
I am sick of seeing sailboats, motorboats, seadoos being pulled by pickups on gawed damn prairie roads. "Lakes" my ass! It is refuckingtarded.
5 cents
The author highlights the HST but fails to point out that HST primarily impacts new construction, which would actually imply that existing homes will benefit.
On page three the author says "Calgary gives a clear indication of what the future holds for the Canadian Real Estate Market". Comparing Calgary to Vancouver or Toronto is like comparing Houston to San Fran or NYC.
He goes on suggesting that "The combination of factors that led to a violent housing bubble burst in the the US is partially present in Canada now." Is the reader to infer that the dynamics of the Canadian market have been similar to those of the US, that would appear to be what the author is hoping for. Sub-prime never existed in Canada.
He concludes that Vancouver is 35-50% overvalued, translated into a percentage decline, the author appears to be suggesting that prices in Van will from an average of 653,000 decline to between 436,000 (34% decline) and 484.000 (25% decline). Correspondingly Toronto according to the author can look forward to a decline from the current $435,000 to between $335,000 (23% decline) and 348,000 (20% decline). Basically back to 2005/2006 levels. While the author chose to express the percentages in the more dramatic format I am not sure a 20% decline in Canada's largest city could be construed as a crash, not that I think a decline of that magnitude is in the cards.
He goes on to say "During the 10 year span between May 2000 and May 2010 housing prices increased 96% (in nominal terms)"
To provide some perspective, since 1990 average prices for houses in Canada have increased at a rate of 4.3% on a real basis and 2.1% adjusted for inflation and does not include factors such as urban migration dynamics, declines in interest rates, higher incomes, lower tax rates etc.
If I have time I'll provide a more detailed critique but yes I think from current levels prices are due for a correction, but make no mistake there is not a bubble in Canadian Real Estate.
Oh, is that how prices doubled in 6 years, by going up 2% a year?
depends on your perspective, facts say
1990 148,000
2005 249,000
2009 320,000
2010ytd 340,000
Mortgage rates (one year convent)
1990 > 14%
2010 < 4%
CPI 1990 - 2010 +50%
Keep dreaming Manfred--I bought in 2000 for 190k, invested 30' in cosmetic improvements (looked real nice though) and sold for 385k in 2006. Not a bubble though.
Have you looked at prices over the last 40 years in relation to rents and incomes? If prices stop going up, and a major driver of growth is gone, what will happen to rents, employment and incomes? Will that make this P/E or P/R more favourable or less?
Explaining the many reasons we are due for a housing correction in Canada, in fundamental terms, is too exhausting and frusterating. It is an emotional subject for many, and it makes it hard for them to see clearly.
The number of times I've heard "while prices may go down there, over in (fill in the blank town) things are different because of (fill in the blank).
In a healthy market the regional differences would have a greater impact on price in percentage terms, but in an ultra low interest-rate environment assets go to the moon and become reliant on liquidity. In other words, just like the stock market, correlation is high.
Even if you ignore the fundamentals, RE prices broke a trendline in place for 8 years in the fall of 2008, backtested the trendline with a double top in spring of 2010, failed to break through, and are now pointed down with over 8 months of inventory and climbing. Sales volume is in a downside breakout from a symmetrical triangle in place since '08.
I'm a proud Canadian, but its time for us to drop the smugness. We'll get shitkicked just as bad as the U.S. has been, if not worse. We're just on a different timeline.
Exactly, compounded
HST and existing homes argument
>> Contrary to your view, the impact of HST goes beyond the new homes sales. HST was poorly understood by the general Canadian public. As such, there was a rush to "dodge" the HST by buying properties (new and old) before the HST implementation. Frontloading of sales shifted demand from the future to the past, and pushed prices higher across the board in spring of 2010. It will have a profound effect on sales later this year and help bursting/deflating the bubble.
Calgary gives a clear indication "fallacy" >>
Calgary didn't not have to undergo the HST introduction, which pushed May sales higher in Toronto and Vancouver. Thus, dropping sales in Calgary is a "leading" indicator for sales in Toronto and Vancouver. In this context, the analogy is appropriate.
Sub-prime never existed in Canada
>> That is correct with a small qualifying statement - not before 2007. The numbers suggest that nearly 90% of new mortgages issued in 18 months between 2008 and 2009 were sub-prime, using the 40-year-ammortization, 0% down payment scheme. Injection of 10,000s of sub-prime buyers propped the market in 2008-2009, but will help it to go down in 2011.
since 1990 average prices for houses in Canada have increased at a rate of 4.3%
>> 1990 was the peak of the previous housing bubble in Canada. Setting it as a starting point is like setting the early months of 2000 as a starting point for measuring NASDAQ performance. Even so, by your calculations, prices in Canada have gone up 232% since the peak of the previous housing bubble (after which they had collapsed), while incomes were up by less than 80%. What you are confirming is the gap between prices and incomes now is greater now than it was at the peak of the previous housing bubble. That is unfortunate for Canada.
deleted
I purchased my current Canadian home in 1990 for $265,000 (4,000 sq ft bungalow, 90% finished/full basement - man cave with tiled bar/BlackBerry community/near Mennonite farmland, during a real estate crash under power-of-sale from a bank. I tossed in a few more bucks for upgrades.
The Canadian real estate market has finally softened. If I should take a 20% haircut, I wouldn't complain. Homes on my block are selling recently, $500+ (Can). I expect prices to shortly flatline, until till I'm pushing up daisies. At least I won't be needing to stock up on cat food ( I can rent out the basement. I've Black Swaned my retirement portfolio and I have no mortgage.) Live in hope, never die in despair.
My particular housing bubble coal-mine has left my in negotiable waters. Economic shaman may have different opinions. It's all relative. Eh?
"It can also be used as a sarcastic remark or insult, which mocks a grunt."[citation needed]
http://en.wikipedia.org/wiki/Eh
http://en.wikipedia.org/wiki/Shamanism
Resto or Ele?
I haven't seen much mention in the article or the comments about the impact of foreign money flowing into Canada, Australia and New Zealand the last few years. I hear stories regularly from the commercial RE market that foreign money is looking for a place to hide and they are dumping huge amounts into certain Canadian cities - not all, just certain ones. This has become a challenge for some of the smaller firms who have lots of business but are finding few good opportunities to buy, which drives up prices of existing buildings. New commercial properties are being built at a very rapid pace as well, even strip malls when you think retail would have maxxed out by now. A lot are new office buildings and much of the space is being leased quickly.
Similarly on the residential RE side, I heard again just last week from a colleague who recently moved to Calgary. He was trying to buy a particular house and found himself bidding against overseas buyers who didn't even bother to come and check out the property. These are just stories but we hear them daily, and they never seem to get noticed by any media, even the non-MSM!
the offshore money is a significant factor as is the migration to urban areas, the above article is (figuratively) a page taken from Garth Turner's blog. Great headline but when you dig into the data and the text the author is case building. Yes the market is due for a correction, but a crash well I guess if you believe prices in North Van or Toronto Beach share the same dynamic as Cape Coral or San whatever in the valley/desert.
So with property values falling, and lenders becoming ever more choosy when giving credit, it seems like the people who rent, have steady jobs, live within their means, and have low or zero debt with some cash savings might get a great deal on a house if they choose to buy. This is a most welcomed correction.
I didn't read the whole article but the other big issue is what will happen to the Canadian economy when the US tanks -- not good.
I live in Saskatchewan.
One thing a lot of people don't take into account in Canada, is that we have recursive mortgages unlike the United States.
What is a recursive mortgage?
In Canada, if you walk away from your home, the Bank can sue you for the difference between what they sell the house for and what you owe on your debt. They can then garnish wages and even go after your pension I believe.
As I understand it, the ONLY WAY to walk away from a home in Canada is via total bankruptcy.
Basically, you have a strong built in incentive to keep people in their homes. Now, has this made us more responsable? No, however I think if push comes to shove, it helps us maintain a stronger market than the US.
Is this a good thing or not? I don't know.
One thing about Americans walking away from their homes is that they immediatly free up cash and get out of the pressure, wheres in Canada, you are forcing people to "tough it out and stay in their homes" and that could make a down turn last years longer and be much more painful in the long run for Canadians, as opposed to immediate price collapse in the United States.
Either way, I think prices are going to come down, probably a good 20-30% at least in the next 5 years or so.
Myself, I bought a house for about $260k a couple years ago and today, after some upgrades, it is probably "worth" about $290-300k and I owe about $200. It would need to take a 50% drop in value before it would really bother me.
If it went like Phoenix, I would just walk away and declare bankruptcy or whatever and start over. :)
clearly there are lot of you long on opinions, but short on currency LOL
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Should be interesting to see how much this program moves the market
http://www.youtube.com/watch?v=4IC7AzNUjHk