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Guest Post: What's Really Driving House Prices In Canada? The Must-See Graph Of The Day...

Tyler Durden's picture




 

Submitted by Ben Rabidoux of Economic Analyst

What's Really Driving House Prices In Canada? The Must-See Graph Of The Day...

We've spent a great deal of time analyzing the drivers of house price
appreciation in Canada.  We know the usual suspects...the ones that
drive house prices in normal times.  And we've examined them all and
found them wholly unable to account for the unprecedented rise in house
prices in Canada:  Rents (cities and provinces), Incomes (part 1 and part 2), GDP (part 1 and part 2), Inflation.  House prices have massively outpaced them all.

We've also examined the supposed drivers of real estate appreciation:  Population growth and immigration
The reality is that these two have a negligible effect on real estate
values except in situations where land use regulations are highly
restrictive.  It's supply and demand, baby!  Population growth increases
demand, but don't think for a second that our construction industry in
Canada isn't just as motivated by profits as any other industry.  Demand
will not go unmet....unless restrictive land use regulations are in
play, in which case they contribute to boom-bust cycles (reference this gem by Leith Van Onselen for an excellent read).

And just for fun, we examined how demographics gave real estate a 0.5% annual tailwind for the past 40 years.  That party is now over.  Demographics are now estimated to exert a 1% per year drag on house prices going forward.   Bummer.

My position has long been that the driver of house price appreciation
in Canada over the past decade has been primarily the result of the
unprecedented expansion in debt caused by the loosening of CMHC mortgage insurance requirements and the removal of the maximum insurable mortgage ceiling....facilitated by a falling interest rate environment, a new mass perception of the 'investment worthiness' of real estate as an asset class, and the emergence of housing as a form of conspicuous consumption
But if we boiled them all down into one word, it would be this:  DEBT! 
And the pace of debt accumulation is not sustainable... ergo, the pace
of house price appreciation is not sustainable.  Nor are house prices at
current levels relative to underlying fundamentals.

Not convinced?  Behold!....presented without further commentary...

house prices canada debt gdp

 

 

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Fri, 06/24/2011 - 19:04 | 1400034 Sockeye
Sockeye's picture

Uh-oh!

Fri, 06/24/2011 - 19:09 | 1400041 Clayton Bigsby
Clayton Bigsby's picture

I see your uh-oh, sir, and raise you a "Ruh-roh Raggy!"

Fri, 06/24/2011 - 20:37 | 1400213 bankrupt JPM bu...
bankrupt JPM buy silver's picture

Not so fast.  I commented on this the other day on my blog.  So I must comment again, here, to see if I am the only one seeing what I'm seeing.

All my new neighbours are Asians.  They have bought all the houses near me at market asking price in the last 2 years. 

So the above graph and theory are completely disregarding the fact that the Asian invasion is NOT buying real estate in USA anymore.  They are coming to Canada to buy it.  Thus, we could say that most new real estate purchases are in 'strong hands' as Asians usually put down a substantial down payment down as they dont spend their money on worthless shit like Americans do.

Finally, there is no doubt a buying frenzy is here, but they are taking the weak sellers off the market.

The only way that this market will be derailed is if Mark Raises rates to 7% overnight.  Or else this will continue until rates get jacked.

Comments please.  Is anyone else seeing this in their Canadian city?

www.silvergoldsilver.blogspot.com

Fri, 06/24/2011 - 20:58 | 1400255 Thomas
Thomas's picture

I'll take another angle. Since so much of real estate is based on debt (not a lot of equity out there), this seems almost to be an identity. Of course real estate debt correlates with real estate prices. The question is what is driving the increase in debt? It's the mechanics of debt acquisition that needs scrutiny to really answer this question. It's that loosening part, not the plot, that is the meat on the bones.

Sat, 06/25/2011 - 03:23 | 1400724 Michael
Michael's picture

$350k median house price in Canada? That's nothing, from my experience, literally.

The home I own and live in now first sold new in 2006 for $311K in SW Florida.

In 2009 I bought the house for 29K cash. You heard me right the first time, $29K.

I will so enjoy watching Canada and Chinese real estate crash and burn just like SW Florida in the coming years. 

Sat, 06/25/2011 - 09:59 | 1400889 raymondrza
raymondrza's picture

No one in their right mind wants to live in SW Florida...squeal like a pig...?

Fri, 06/24/2011 - 21:02 | 1400257 eureka
eureka's picture

"All my new neighbours are Asians. "

You are correct. What drives everything?  China - including USD depreciation which equals Canadian $ appreciation. I.E.  Canadians "got rich" without doing anything.

Anyway, who cares?  Canadians are a bunch of speculators, priviledged day dreamers and tight-wads.  Vancouver - pretty class tower condos notwithstanding - lets out ALL ITS sewage unfiltered - which proves one can pretend & whine environmental yet remain a swine - and that saves you quite a bit of CAD$ too, ehh?

I'm with SouthPark: Blame It On Canada - and - there's the solution for the ramining 35% moronic US Isolationist Hegemons: ATTACK CANADA - IT'S RIGHT NEXT DOOR - YOU CAN BE HOME TO FUCK YOU SHEEP FOR SUPPER.

Any proud US humorless hegemon may now junk himself away.

Fri, 06/24/2011 - 21:11 | 1400267 bankrupt JPM bu...
bankrupt JPM buy silver's picture

"Canadians are a bunch of speculators, priviledged day dreamers and tight-wads"

 

How can someone be a tight wad if they are a speculator?  Priviledged?  How so?

Everything I make is taxed by 50%.  Then, everything I buy is taxed by 13%.

Whats left I buy phyzz with.

Fri, 06/24/2011 - 21:24 | 1400287 King_of_simpletons
King_of_simpletons's picture

Here's news. There is nothing called Fixed Rate 30 year Mortgage. Everything in the common wealth is ARM. By common wealth, I meant Canada, Australia and such.

Sat, 06/25/2011 - 05:59 | 1400768 Advoc8tr
Advoc8tr's picture

And mortgage attached to person not asset .... the difference between what the bank sells the forclosed home for and your initial loan compunded at the new high interest rates follows you into destitution. Any job you get .... wages garnished

Fri, 06/24/2011 - 22:13 | 1400377 mickeyman
mickeyman's picture

No question there are more Asians in our area of Canada (western part of GTA)-Chinese in the southern portion and Indians in the Brampton area.

One thing about the graph--it looks to me like mortgage debt is lagging price. Given the author's thesis I would have expected the opposite.

Maybe houses are that kind of good--I can't recall the formal name--for which demand rises with price rather than falls. So when Canadians see house prices rising they rush to get into the market before the price rises out of their price range. Sounds like weak hands to me.

Sat, 06/25/2011 - 01:00 | 1400630 Double down
Double down's picture

Morgage debt is the implied put to the asset.    

Fri, 06/24/2011 - 22:45 | 1400430 ExploitedCitizen
ExploitedCitizen's picture

SGS,

I'm a government building inspector, out east of Toronto.

The Asians are buying up houses here around Markham/Unionville, Richmond Hill and some of Muslimsauga.

The whites are all moving outwards, Whitby, Milton.

You will see outside of the Asian areas, it is mostly naive white couples, with 2 brand new cars, a big $375000 house, and then proceed to landscape the shit out of it.

Look outside the asian areas and you will see bubble towns everywhere.  The asians are fueling this bubble.  I see 50% retirees who sold there house in the GTA for a buttload of money to asians, moving out my way and dropping a ton on a shitty subdivision homes.

So this is a real guess to see what pops first, the whites or the asians.  The asians are buying a lot on spec, from the asian investors I've spoken too, they are really naive to bubbles.

Look at 2008 what happened, our bubble almost popped.

Fri, 06/24/2011 - 23:16 | 1400490 BenRabidoux
BenRabidoux's picture

I don't buy this explanation at all.  If it is all the strong hands buying the real estate, how do you explain the fact that the debt to income ratio in BC is by far the highest in the country?

http://www.theeconomicanalyst.com/content/credit-risk-across-nation-whos...

Asian buyers may well be driving a small segment of the market, but they don't make the market.  I would suggest that this pie-in-the-sky story of unending capital inflows from China has been the major factor in motivating locals (earning local incomes) to plow headlong into the market in order to keep up with the Wangs.

How else do you reconcile the 'wealthy Asians paying cash' story with the most indebted consumers in the country?

 

Sat, 06/25/2011 - 10:18 | 1400899 centerline
centerline's picture

Why dont you go visit Steve Keen's site.  It is Australian - but the mechanics are all the same.  The bubble is going to pop, and it isn't rates that can serve as a trigger.

Fri, 06/24/2011 - 19:11 | 1400058 Chris Jusset
Chris Jusset's picture

Can you say "BUBBLE" ?

Fri, 06/24/2011 - 20:33 | 1400212 sheeple
sheeple's picture

"eh"?

Fri, 06/24/2011 - 19:06 | 1400037 IdiotInvestor2
IdiotInvestor2's picture

Well the question - is this merely unsustainable or is this a real bubble like it was here in US ? And when it bursts, who are the primary bag-holders ? Which banks ? And will the Canadian Govt back-stop them making the tax payers pay for all this.

How big will be the economic impact if the bubble bursts, assuming it is indeed a bubble.

I know very little about Canadian housing market, hence all these questions.

Thanks in advance.

Fri, 06/24/2011 - 19:13 | 1400067 Dr. Porkchop
Dr. Porkchop's picture

CMHC = Taxpayer backstop already in place

Fri, 06/24/2011 - 19:19 | 1400070 Sockeye
Sockeye's picture

The real bag holders are Canadian taxpayers via CMHC. The real winners, Canadian banks. Surprising, eh?

Fri, 06/24/2011 - 19:36 | 1400118 ZeroPower
ZeroPower's picture

Quite an irrational liberal viewpoint.

Is anybody pointing a gun to the head of those people wanting to buy a home? No. If they choose to try and live beyond their means, then we've all seen what soon happens. 
Granted, there isn't trillions of MBSs collateralizing CDOs ready to head to WS on these homes, but i suspect a large part may still default soon as rates start inching higher in the US.

The banks win because of the yield curve - but this has always been the case. Someone takes the risk who gets the reward. The buyers, if they make it through the mortgage, got the reward of getting a house at a (post probably ever since a few years) very low rate.

Fri, 06/24/2011 - 19:59 | 1400157 Diogenes
Diogenes's picture

They are not living beyond their means. Unlike the US, in Canada you have to show you have a job, or some other source of income before you can get a loan. Furthermore you must have a credit rating and not too much debt.

Conventional financing is 25% down payment, CMHC insured is minimum 10% down. So even in the case of a CMHC insured mortgage the buyer has his own cash on the line, and has a job and a credit rating.

If interest rates suddenly shoot up a lot of people will be in trouble. But what are the chances of that happening as long as Bernanke and Obama are in charge?

Make no mistake, US interest rates control interest rates around the world.

Fri, 06/24/2011 - 20:17 | 1400176 ZeroPower
ZeroPower's picture

I agree people are "better trained" here than in the States - or maybe theres just bound to be less irrational people using their houses as ATMs merely because we have 1/10 of the pop and so the impact isn't as large. As for a credit rating too - ya you had to have a credit rating in the US, except it was lowered to a totally unreasonable amount.

Market is pricing in rate increase only near end 2012 so this indeed might be just in time for a new administration.

Fri, 06/24/2011 - 23:29 | 1400515 BenRabidoux
BenRabidoux's picture

Hard to agree.  Check out the growth in lines of credit in the graph in this post, then tell me Canadians aren't using their houses as ATMs.  To the same extent?  That's debatable...

 

http://www.theeconomicanalyst.com/content/rough-day-vancouver-boston-bru...

Fri, 06/24/2011 - 21:14 | 1400272 SRV - ES339
SRV - ES339's picture

You couldn't be more wrong... you may want to do a bit more research... it's been more like the US model than you could ever imagine.

Fri, 06/24/2011 - 22:27 | 1400406 mudduck
mudduck's picture

yup

Fri, 06/24/2011 - 22:29 | 1400413 Jessica6
Jessica6's picture

Yep, I suggest the poster above spend a little more time on greaterfool.ca and other sites.The Harper government really gutted a lot of the saner regulations.

For a while BMO offered zero down mortgages (40 years amortization) though they fortunately put a stop to that. Most recent mortgages have been 5/35.

Plus there are no shortage of 'alternative' mortgage lenders, it's subprime all over again just a different name they call it.

As for living beyond their means - Canadians are terrible for that right now. Just need to spend some time in the GTA - admin assistants driving leased mercedes, young couples bragging about their equity (which they've borrowed on). Just wait till job losses hit and it's going to be very ugly.

Fri, 06/24/2011 - 22:43 | 1400425 Bay of Pigs
Bay of Pigs's picture

"not too much debt"

Fuckan eh pal, what part consumer debt to GDP @ 147% don't you get? That is the very defintion of "living beyond ones means".

That is the whole point of the article. Cheap DEBT is driving this market. 

Fri, 06/24/2011 - 23:27 | 1400500 BenRabidoux
BenRabidoux's picture

"Conventional financing is 25% down payment, CMHC insured is minimum 10% down. So even in the case of a CMHC insured mortgage the buyer has his own cash on the line, and has a job and a credit rating."

 

You don't know what you're talking about.  CMHC insurance is required for any mortgage with loan to value of more than 80%. 

Minimum down payment is 5%, not 10%.  And on the topic of having your own money on the line, how about the 5% cash-back mortgages offered at all big Canadian banks.  Here's one offer for you:

https://www.cibc.com/ca/mortgages/article-tools/up-to-7prct-csh-bck.html

Let me break it down for you.  Borrow the down payment from a friend/relative/credit card/line of credit, pay it off when the mortgage closes and you get the cash back.  You now own a home, with the mortgage fully insured by CMHC....check that....the Canadian taxpayers. 

 

It's exceptionally difficult to reconcile the 'conservative Canadian bank/consumer' story with the fact that consumer debt as a percentage of GDP is now equal to the US at the peak of your own bubble.  Certainly we never had the predatory lending and blatant fraud in our mortgage market, but let's dispense with the notion that Canadian banks or consumers are prudent.

http://theeconomicanalyst.com/content/so-much-%E2%80%98conservative%E2%8...

 

 

Sat, 06/25/2011 - 00:44 | 1400613 Double down
Double down's picture

You do not need a friendto borrow from.  Use your RRSP as a tax free down payment.  You have to pay installments back to yourself over the course of ten years (I think) to avoid paying tax on the amount withdrawn) 

There is your tax free down payment, shit you even get a tax credit if it is your first house! 

Sat, 06/25/2011 - 14:07 | 1401248 Terminus C
Terminus C's picture

5% down is only for first time home buyers

Sat, 06/25/2011 - 15:29 | 1401387 BenRabidoux
BenRabidoux's picture

100% false.  5% applies to all homebuyers. 

Sat, 06/25/2011 - 06:05 | 1400771 Advoc8tr
Advoc8tr's picture

"Make no mistake, US interest rates control interest rates around the world."

 

I wish someone would tell Mr Stevens that .... we are paying 7+ % on standard ARM down here. Lowest we ever got was 5+ %

Sat, 06/25/2011 - 09:16 | 1400871 Squid-puppets a...
Squid-puppets a-go-go's picture

same in australia

goofy fukn thing is, our reserve bank drops and raises interest rates as the economy dictates, but the 'big 4' lenders dont even follow them anymore- because they're borrowing something like 80% of their cash from short terms US markets.

So effectively govt policy is window dressing, and irrespective of other fundamentals the aussie market is beholden to US banking dictates.

We're one of the only countires in the western world with low govt debt but we cant take advantage of it because the private sector banks are so intergrated with the international cult of debt.

Sat, 06/25/2011 - 10:19 | 1400904 centerline
centerline's picture

They way Australian banks are set up makes a claim of safer lending which in fact is a complete joke.  Now, the level od debt over there is way past the point the US bubble burst.  There is going to be some serious pain down under.  May be very soon.  Be careful.

Sat, 06/25/2011 - 12:26 | 1401048 BigJim
BigJim's picture

So... if something happens to drive the OZ dollar down relative to the USD, could be very bad news for all those Aussie banks...

Fri, 06/24/2011 - 23:32 | 1400512 Malachi Constant
Malachi Constant's picture

Is anybody pointing a gun to the head of those people wanting to buy a home? No.

But yes. Parents, peers, coworkers, parents of their kids' classmates, government, neighbours - let alone banks and their PR machine, aka mass media, including "news" "reports". Real estate and hockey, followed by the distantly third weather, is ALL that people talk about in Vancouver. If you have as little as a single atom of desire to be accepted in the society, you will rush to "own".

Sat, 06/25/2011 - 10:20 | 1400902 centerline
centerline's picture

Uh, haven't you already seen the playbook?  Does the term "bubble" mean anything?

Fri, 06/24/2011 - 19:21 | 1400082 Jaciems
Jaciems's picture

k relax, its still nowhere near the scale of the states and the banks arent at risk of default, this really depends on the city youre talking about 

i live in montreal and the whole real estate bubble talk is bs here but places like around toronto or vancouver i wouldnt be surprised if real estate were overpriced (especially vancouver)

im sure the numbers are skewed big time by the growth in the prairies (alberta, saskatchewan...) mainly because of the oil sands

im sure that supply hasnt been keeping up with demand there and prices have been shoothing up

Fri, 06/24/2011 - 19:39 | 1400126 Raphio
Raphio's picture

Average Vancouver house price now @ $815 000. Largely driven by Chinese influx.

Here is a fun, graphic presentation of Vancouver RE prices over the last 40 years

 

http://www.youtube.com/watch?v=URSQOLftbqI

Fri, 06/24/2011 - 20:12 | 1400165 The Real Fake E...
The Real Fake Economy's picture

right on.  The Chinese who are paying all cash are what's/who's driving RE prices up.  

Fri, 06/24/2011 - 21:58 | 1400362 RockyRacoon
RockyRacoon's picture

So, by proxy, the US is buying the houses in Canada!  I like it.

Trade those Treasuries for a little chalet in Vancouver.   How quaint.

Fri, 06/24/2011 - 19:55 | 1400146 Diogenes
Diogenes's picture

Canada is not the US. There will not be a crash because Canadian banks did not make all the crazy loans in the first place.

Look at the chart again. Notice how there was a big boom in the eighties, worse than today and with interest rates much higher than today's.

Now see how the boom ended in 1988-90. Prices dipped then basically flatlined for 10 years before the next boom took off.

That is what typically happens in Canada. Yes we have boom and bust cycles but not to the extent of the US.

I expect prices to continue rising as long as governments pursue inflationary policies. If they ever decide to go for the balanced budget, higher taxes and higher interest rate policies I expect the market to dip then stay flat for a while.

In the meantime I am buying nice houses in quiet small towns for the rental income. If they go up that's nice but I can hold on quite comfortably and live on the rental income. If they come out with some kind of draconian rent control due to runaway inflation I can sell them at a profit. So no, I am not afraid of a Canadian real estate collapse.

Fri, 06/24/2011 - 20:18 | 1400172 Boston
Boston's picture

Wanna bet?

Fri, 06/24/2011 - 21:01 | 1400263 Diogenes
Diogenes's picture

Right now I am betting about 85% of my life's savings in small town Canadian real estate, the balance being in physical gold and silver.

Fri, 06/24/2011 - 21:31 | 1400300 Loose Caboose
Loose Caboose's picture

Yup, small town is okay.  It's the west coast and Toronto housing prices that have become bloated beyond all recognition.  So, I agree with some correction coming to the these particular areas but small town will take a small, even negligible correction.

I happen to live in a small-medium Canadian town but it's the home of the Blackberry, so we have other concerns......

Disobey.

Fri, 06/24/2011 - 23:37 | 1400521 BenRabidoux
BenRabidoux's picture

I agree.  The housing bubble in not 'national' in the sense that every community will be hit equally.  You are getting an excellent cap rate....certainly no evidence of a bubble there.  If you read my posts examining house prices and GDP across the nation, you'll note that I don't make blanket statements regarding the Canadian housing bubble.  I would avoid Vancouver and Toronto condos like the plague.  I expect the eventual drops to be as severe as many of the hardest hit areas in the States.  But that is not to say that all communities will be hit hard...

http://www.theeconomicanalyst.com/content/regional-look-canada%E2%80%99s...

 

Sun, 06/26/2011 - 15:15 | 1403398 pain_and_soros
pain_and_soros's picture

Disagree.

The Canadian econcomy is driven in large part by its 6 major cities/metro areas (Toronto, Vancouver, Calgary, Edmonton, Montreal, & Ottawa) where almost 50% of the country's population resides - so if and when the US economy experiences an economic downturn, so will the Canadian econcomy and asian immigration to Canada will slow and those 6 major cities will be suffer a massive crash, but the smaller communities will be significantly impacted as well - especially in Ontario where the provincial government debt is $220 billion & counting (yea, you read that right with a B).  Its interest payment is $10 billion - which is half of its total annual deficit and growing....so it won't be in a position to bail out the municipalities, who will be left with drastic property tax increases and cuts in social services to try to maintain livability.  I doubt that BC will be any better off.

How about the feds - surely they'll bail out the provinces, since they control the printing presses, right?  Yea, except their debt currently stands at $560B (over 40% of GDP and growing), and interest payments at current low rates are starting to take up a great portion of the annual budget - and in an economic downturn, government tax receipts will drop while social assistance payments go up - which will tend to increase interest rates, putting further downward pressure on house prices.

The fact is, housing has been an unsustainable growth strategy for the natural resource based Canadian economy, driven by population (i.e immigration) growth and the FIRE economy (about to go up in flames). 

The once solid manufacturing sector has, like its counterpart in the US, been hollowed out, so all we have left is dwindling precious natural resources (including fresh water) and a bunch of land speculators/real estate developers bribing (er, convincing) municipal politicians to make zoning changes to allow for increased development (and toll highways and traffic gridlock) increase their municipal tax base, while the land developers build as many shithole $300K townhouses they can cram into a 100x100' subdivision (same goes for the condo builders) for our "growing" Canadian econcomy...

This is the same type of massive ponzi scheme as in the US that will also end badly since the real economy has been crippled by the pigmen, who are protected from any losses thanks to CMHC...

If you live in Canada, get ready for hard times coming to a place near you.

Fri, 06/24/2011 - 20:20 | 1400174 Bay of Pigs
Bay of Pigs's picture

Consumer debt to GDP is 147% in Canada now. That is worse than the USA.

A smarter move (which I've been telling my Canadian friends) is to SELL in Canada and BUY in Hawaii. A total no brainer if you ask me. And a currency at better than par with the USD.

 

Fri, 06/24/2011 - 21:20 | 1400286 Diogenes
Diogenes's picture

As long as the wind doesn't shift to the west.

Fri, 06/24/2011 - 20:20 | 1400180 ZeroPower
ZeroPower's picture

In the meantime I am buying nice houses in quiet small towns for the rental income. If they go up that's nice but I can hold on quite comfortably and live on the rental income. If they come out with some kind of draconian rent control due to runaway inflation I can sell them at a profit.

 

Currently there is a draconian rent increase cap in QC - about 1.5% y/y increase in the monthly rent. 

Very interested in (more) rental properties as well. What provinces are you investing in?

Fri, 06/24/2011 - 21:24 | 1400265 Diogenes
Diogenes's picture

Small towns in the neighborhood of Belleville Ontario.

Latest purchases, a 1400 sq ft bungalow on 2 1/2 acre lot on the Moira River, 265ft water frontage, $85,000 plus another $50,000 in fix up costs.

2500 sq ft solid brick Victorian 2 story 4 bed 2 bath house in a small town, $124,000.

1000 sq ft raised bungalow, circa 1987, 3 bed one bath, quiet neighborhood $140000

All bought since last fall, rents $1000 to $1250 per month.

I leave it to you if these are "bubble" prices.

 

Fri, 06/24/2011 - 21:46 | 1400334 ZeroPower
ZeroPower's picture

Thats a more than generous cap rate, calc just over 10% assuming $1250/mo for the $140k

Recent one was looking at in QC was 459,000 for a 4plex (suburbs) but horrible income of $27,000/yr. Cap rates of around 6% are common here... Quite shitty tbh

Fri, 06/24/2011 - 23:25 | 1400498 Jaciems
Jaciems's picture

you can get around the whole capped rent increase by renovating the unit

Fri, 06/24/2011 - 21:46 | 1400335 Bay of Pigs
Bay of Pigs's picture

Well, maybe you could say that instead of making blanket statements about the whole country that are not even close to being accurate?

 

Fri, 06/24/2011 - 19:03 | 1400038 Ahmeexnal
Ahmeexnal's picture

Hubba Bubba bubble gum!

Fri, 06/24/2011 - 19:10 | 1400042 PulauHantu29
PulauHantu29's picture

China's RE Bubble Domino will fall hard on Australia where house prices to income are at 10:1.

 

And how "About Those 65 Million Vacant Homes In China..."

By Gus Lubin

http://www.businessinsider.com/chinese-g...

China is finally buying fewer US Treasuries, StanChart says

http://ftalphaville.ft.com/blog/2011/06/...

As William Bonner and Addison Wiggins say in their book, The Day of Reckoning, "every Bubble eventually finds its pin."

BOOOOOOOOOOOOOOOYAAAAAAAAAAAAH!

Fri, 06/24/2011 - 19:35 | 1400102 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

65 million empty houses in China, plus 20 million empty houses on shadow inventory in the US and the other few million empty houses on sale, plus the empty houses in Europe (anyone have a number for me?), plus the houses that will need to be liquidated when the bubbles in Canada and Australia pop, means just enough houses for the people of the Island State of Japan to move into when they realize their homeland is unlivable due to massive radiation from the Fukashima disaster.

Fri, 06/24/2011 - 19:08 | 1400048 LeBalance
LeBalance's picture

And the vampire saw and came and feasted upon the unwary and then the complicit.  And it lasted for many eons.  And the souls of the departed and chewn called out for something that would be unpalatable to the hunger of the squid creature.  And the answer has been long in coming and many have forsaken the answer's arrival.

Are you the non-tasty morsel?

Fri, 06/24/2011 - 19:11 | 1400059 buzzsaw99
buzzsaw99's picture

the bernank will buy every failed canadian mortgage.

Fri, 06/24/2011 - 19:18 | 1400068 magpie
magpie's picture

Canadian RE, perfect backing for the NAU $.

Fri, 06/24/2011 - 19:15 | 1400069 Ecoman11
Ecoman11's picture

The CMHC holds a near 900 billion in liabilities while its total equity is 8 billion. If home prices fall by 5% the deck of cards will collapse; if the Bank of Canada lifts rates the deck of cards will collapse. Meanwhile Vancouver prices are 11.5 times average income and the bidding wars continue today.

They'll have to bailout everybody out and go full steam with the hyper-printing press. Lead the way America!

Fri, 06/24/2011 - 19:18 | 1400075 Sockeye
Sockeye's picture

CMHC is a crown corporation so technically the queen of Canada is the bagholder, but I'm sure she will find a way to get her subjects to cover the losses.

Sat, 06/25/2011 - 14:02 | 1401238 Robbob
Robbob's picture

queen of Canada?  Celine Dion?

Sat, 06/25/2011 - 14:22 | 1401270 Terminus C
Terminus C's picture

Elizabeth II

Fri, 06/24/2011 - 19:25 | 1400098 Sockeye
Fri, 06/24/2011 - 19:28 | 1400104 Ecoman11
Ecoman11's picture

CHMC is a private entity and is not regulated by the government or OSFI (Office of the Superintendent of Financial Institutions)

Pierre Serré of CMHC

"In addition, CMHC is governed by a Board of Directors and currently reports to Parliament through the Minister of Human Resources and Skills Development, the Honourable Diane Finley."

    Incidentally:  Unlike private insurers, CMHC is not regulated by OSFI. That’s because CMHC is incorporated under the CMHC Act and not the Insurance Act.

Fri, 06/24/2011 - 19:30 | 1400113 Sockeye
Sockeye's picture

You, sir, are incorrect. I refer you to the CMHC itself.
http://www.cmhc-schl.gc.ca/en/corp/about/cogo/cogo_003.cfm

Fri, 06/24/2011 - 19:44 | 1400133 Ecoman11
Ecoman11's picture

Meanwhile the Finance Minister Jim Flaherty said the housing market is moderately stable 4 days ago. Where have we heard this type of tone before?

http://ca.reuters.com/article/domesticNews/idCATRE75J3NI20110620

Fri, 06/24/2011 - 19:30 | 1400099 Jaciems
Jaciems's picture

ya prices are high in Vancouver, the rest of the country is doing alright but there might be slight corrections in certain markets and no bailouts

stick to what you know

i love how theres all these articles on canadian real estate dont mention the massive growth that was been going on in the prairies shooting up prices over there...

Fri, 06/24/2011 - 19:32 | 1400109 ZeroPower
ZeroPower's picture

For once i agree with you - if that is your real name, 'Ya-Cheyms'

Fri, 06/24/2011 - 20:16 | 1400168 Diogenes
Diogenes's picture

Remember some of those loans were insured 5, 10, 20 years ago. The borrowers have that history of making timely payments and have built up a lot of equity over the years. They are not going to abandon their homes en masse because of a slight dip in prices. To say a 5% fall in prices will bring a collapse is ridiculous.

Fri, 06/24/2011 - 23:28 | 1400502 Jaciems
Jaciems's picture

ya honestly...canadian banks can take massive losses and still be perfectly fine, look at 08, only developped country in the world that didnt have to bail out a single bank

Sat, 06/25/2011 - 14:35 | 1401297 Terminus C
Terminus C's picture

$75 billion of taxpayer money was made available to Canadian banks in 2008.  We didn't call it a bailout but it was essentially the same thing.  Also, the big five have been sucking at the tit  of the fed discount window for three years.

You are smoking crack if you think all is fine here.

Fri, 06/24/2011 - 19:22 | 1400083 Dr. Porkchop
Dr. Porkchop's picture

Let me give you an on the ground picture... I live in the Mississauga/GTA, and virtually every billboard, bus shelter and cheap cable ad scroller is taken up by the smiling face of a real estate agent.

The condos are still going up, the developments are still breaking ground..

..it's a suburban nightmare.

My grandparents had a nice house on the other side of the city; the result of a lifetime of hard work and frugal living. They still travelled mind you, but they saved.

Everyone my age and younger is getting into these 500k+ mortgages, thinking they've arrived in life. What happens when interest rates go back to something realistic?

I rent and feel no shame. The 'buy real estate' strategy of my boomer parents doesn't cut it anymore. It just isn't affordable. There's more to life than hardwood floors and granite countertops.

Fri, 06/24/2011 - 19:38 | 1400125 AUD
AUD's picture

virtually every billboard, bus shelter and cheap cable ad scroller is taken up by the smiling face of a real estate agent.

Same here in Australia, in the more 'salubrious' parts of Sydney anyhow. Huge billboards plastered with real estate agents as if they were superstars rather than snake oil salesmen, crazy shit.

Though I don't necessarily blame them, they are just exploiting dysfunctional government monetary policy & general scumbaggery.

 

Fri, 06/24/2011 - 22:41 | 1400427 WonderDawg
WonderDawg's picture

Salubrious... What a great fucking word. Thank you. I love cool words. I like it almost as much as "perspicuous" and more than "trenchant".

Sat, 06/25/2011 - 01:29 | 1400655 StychoKiller
StychoKiller's picture

Persiflage!

Look it up...

Sat, 06/25/2011 - 10:11 | 1400896 dogbreath
dogbreath's picture

you're such a bitch somtimes

Fri, 06/24/2011 - 20:19 | 1400178 Boston
Boston's picture

Here's an idea---persuade you boomer parents to get out.  Sell their house.  Cash in their chips while they're way ahead, and before the bubble bursts?

Kind of like selling your home in the Florida in late 2005 or early 2006.....

Fri, 06/24/2011 - 21:48 | 1400342 ZeroPower
ZeroPower's picture

What happens when interest rates go back to something realistic?

I dont see how anyone wouldnt want a FRM today?

Sat, 06/25/2011 - 00:34 | 1400600 Double down
Double down's picture

Concurr

I live in a medium sized blue collar hick town Alberta near by but not onone of those damn man made, kelp infested, mosquito hatching, mud holes we call a "lake" we love to dig out of the prairie.

Standing on my drive way I can throw a rock at a house slightly larger than mine but nonetheless on the corner of the "strand", in the parlance of the locals. 

The price of said abode: north of CAD 600,000.

I do not know what a bubble is but something is really wrong. 

 

  

Fri, 06/24/2011 - 19:26 | 1400089 FranSix
FranSix's picture

The counterparty in the mortgages are the banks, and incredibly, the larger pension funds banging down the door to insure mortgages. Banking regulations were also modified to accommodate 'covered bonds' a rehash of the Asset Backed Commercial Paper that were bailed out 100 cents on the dollar. The rush into swaps by the bigger players says they took their cue from Wall St, and sold the tranched mortgage 'crap' to....? YURPEENs. Huh-murrkins..

Fri, 06/24/2011 - 19:27 | 1400092 OuaisBla
OuaisBla's picture

I see a great future for the home market in Canada. Once US will default, Canada will be a safe heaven for thoses whowant to secure what's left of their personnal worth.

A booming market is underway! 

The US evonomy will default. And Canada's economy have already account for a part of the loss with its exchanges with the US, so the impact will be limited, though much noticeable.

Thus, it doesn't matter much. Internal demand will surge when Canadian cities will be flooded by poor US citizen and their devalued green worthless paper. LOL

Hurry up for your move when the Loony is still at par!

 

Fri, 06/24/2011 - 19:32 | 1400107 Sockeye
Sockeye's picture

Canada and the US are the worlds largest trading partners, good luck with Canadian export demand in the even of a US default.

Fri, 06/24/2011 - 22:06 | 1400369 Village Smithy
Village Smithy's picture

Never mind, Canadians can be a little smug. that's part of the reason that they are so deep in debt. The Jones' that the author speaks of are actually Americans. Canadians watch U.S. TV and think that everyone here has granite counter tops and drives an X5. "Hey, we're richer than Americans we better get some of that stuff". Last I heard 70% of all their exports come right here. So good luck Canada when the U.S.A. starts sinking.

Fri, 06/24/2011 - 23:55 | 1400556 Jaciems
Jaciems's picture

Canadians watch U.S. TV and think that everyone here has granite counter tops and drives an X5. "Hey, we're richer than Americans we better get some of that stuff"

 

WTF??? dont even know what to say to that that so stupid...and the whole exports thing, i think youre forgetting that we have the worlds largest supply of oil and have commodities out the ass all over the country and have been diversifying our trade quite a bit over the past decade

the downfall of canada will probably be our incompetent government that is too stupid to do anything right...

Fri, 06/24/2011 - 19:29 | 1400112 Jaciems
Jaciems's picture

k relax...dont need to sound like a homer, though canada isnt nearly as dependant on the states that it used to be, the country would be hurting if the states default though nowhere on the same level as the states

Fri, 06/24/2011 - 20:23 | 1400177 Bay of Pigs
Bay of Pigs's picture

Canada isn't dependant on US trade? WTF? Are you serious?

Fri, 06/24/2011 - 23:30 | 1400506 Jaciems
Jaciems's picture

response to ouaisbla retard...

Sat, 06/25/2011 - 12:16 | 1401027 darkpool2
darkpool2's picture

Agree in principle. Dirt cheap houses in Arizona still cant attract me ( despite the lure of the sun ! ) when all I see from the USA is a rapidly evolving police state, a Government sector out of control, demoralised entrepreneurial sector, and soon to be coming social unrest. Yes, a serious economic upheaval could cause future dislocations in the Canadian housing market, but for now its stable and a) the economy is on firmer footing than the US and b) we do look a lot more attractive as a place to live and invest wealth........as long as these remain true, I dont see huge changes in store.

Fri, 06/24/2011 - 19:31 | 1400100 ZeroPower
ZeroPower's picture

Anyone else think that clusterfuck Vancouver town (Toronto not far behind..) is creating this upward slope? More than reasonable pricing in Montreal and the Eastern coasts. Not that youd want to invest or, gasp, live on the coast..

Fri, 06/24/2011 - 19:29 | 1400110 jackinrichmond
jackinrichmond's picture

geez, i sure wish these guys would do their homework before posting such half-ass research.  

in vancouver, asian immigrants stand in lines to buy condos with CASH.  the immigration into this market is posted by the BC government at 40-60K/year.   the prices are going up because of supply and demand FUNDAMENTALS <period>.  

when or if the international and provincial immigration fundamentals change, there will likely be a change in the canadian real estate markets.  last time i checked there was a never-ending supply of asian investors looking for a sound economy to invest their hard earned fortunes.

so please, look a little bit past the media statistics before you draw these ill-informed conclusions. 

Fri, 06/24/2011 - 19:34 | 1400124 Ahmeexnal
Ahmeexnal's picture

Wrong. The smart money is already dumping BC real estate. West coast is toast.  Fukushima's revenge.

Fri, 06/24/2011 - 19:41 | 1400132 oddjob
oddjob's picture

70% of SFD's in Vancouver proper are held without any mortgage at all. Typical $1 mil.+ house transaction is an Asian couple getting out of their 10 year old camry and writing a cheque curbside. Condos in Onterrible I suspect are the bubble.

Fri, 06/24/2011 - 20:29 | 1400195 Sockeye
Sockeye's picture

I'm sure you have links to prove this.

Fri, 06/24/2011 - 21:41 | 1400321 Spitzer
Spitzer's picture

hahaha, the average price of a Van house is 815,000 USD and 70% of these properties have no martgage.....

get fucking real you moron.

Fri, 06/24/2011 - 21:39 | 1400317 Spitzer
Spitzer's picture

who the hell tells you this shit ?

Asians buying with cash ? Where is the proof ?

Look at the profits of the big 5 Candian banks and tell me these asians are paying cash

Sat, 06/25/2011 - 13:46 | 1401205 jackinrichmond
jackinrichmond's picture

spitzer, you don't know what you're talking about.

your silly request for proof on which properties are owned or financed is a silly request from a person who has no perspective on this matter.

as my favourite econ prof used to say, "there are lies, bloody lies and then there's statistics".. clearly this graph falls into the latter category.

i am in the housing & construction business here in vancouver.  i will tell you that most/all highrise suites are sold long before completion and a vast majority of urban real estate is being purchased by asians and other immigrants.  that is what is making the prices go up..  what else would ?  do you really think asian investors would pay these prices if the real estate wasn't worth it ?   i will remind you that they can invest anywhere else in the world. 

so, please..  i understand that you're bitter and for some reason you want to see other countries fail too..  but for now canada is doing okay.   we will certainly have our challenges as our biggest trading partner struggles, but canada has trading partners all around the world that vie for our commodities and energy -  the world's population is 6Billion and growing every day, so i would say that our chances are better than most other economies..

will the housing prices eventually go down..  of course.. all markets expand and contract.  however, a dip is not likely to happen until canada's immigration numbers change.

as i said before, its a supply & demand issue.

Sat, 06/25/2011 - 14:49 | 1401315 Terminus C
Terminus C's picture

They are sole to real estate speculators and many have been sitting empty or half full for quite some time.

You are smoking hopium.

Sat, 06/25/2011 - 14:59 | 1401334 Spitzer
Spitzer's picture

i never said anything about there not being Asian buyers. I said these Asian buyers are not all paying cash. There is a huge diffrence and you didnt even address it.

 

I am Canadian and i grew up in none other then vancouver and i owned a house there. I live in Alberta now.

You are a dreamer. I am short Canadian banks.

Sat, 06/25/2011 - 00:12 | 1400527 BenRabidoux
BenRabidoux's picture

Yup....clearly it's the Asians with cash that are driving the debt load in BC to be the highest in the country by far.  Someone definitely does need to do their homework. 

 

 

 

 

 

Sat, 06/25/2011 - 00:13 | 1400530 BenRabidoux
BenRabidoux's picture

Double post

 

 

 

 

Fri, 06/24/2011 - 19:33 | 1400111 Slow-choke-off
Slow-choke-off's picture

I am Canadian, and I can confirm this is true, debt everywhere. People are in debt past any reasonable ability to pay. There will be a correction but no one knows what will cause it to correct, yet. Possibly contagion from the US? It will correct eventually with much misery.

Fri, 06/24/2011 - 23:31 | 1400509 Jaciems
Jaciems's picture

which part of canada?

Fri, 06/24/2011 - 19:33 | 1400123 Dre4dwolf
Dre4dwolf's picture

Might be people moving from USA to Canada ;p

Fri, 06/24/2011 - 19:38 | 1400129 buzzsaw99
buzzsaw99's picture

moist canadians are in debt up to their trapper cappers. worse, for them, they can't walk away from debt like deadbeat americans can.

Fri, 06/24/2011 - 19:59 | 1400152 W.M. Worry
W.M. Worry's picture

By "moist Canadians" are you referring to those who live in the more humid regions of the Country?

Fri, 06/24/2011 - 20:13 | 1400166 Ahmeexnal
Ahmeexnal's picture

he meant pre-menopausic canadians

Sat, 06/25/2011 - 00:20 | 1400590 Double down
Double down's picture

An absolute necessity to anyone civilized.

Fri, 06/24/2011 - 20:36 | 1400210 FranSix
FranSix's picture

He meant 'moist and garrulous.'

Fri, 06/24/2011 - 19:45 | 1400134 Diogenes
Diogenes's picture

Where has this guy been? The government and the CMHC have been gradually tightening lending requirements since 2008. I don't know why house prices are still climbing. I figured the US crisis would spill over into Canada so I sold all my rental properties between 2008 and 2010. I was wrong, now I am buying other properties at higher prices. But here in small town Ontario prices are still  low compared to Toronto and Vancouver.

My view is that inflation has a lot to do with rising prices. The Canadian government's borrowing and spending and the effect of US $$$ on world commodity prices. As I do not think inflation is going to stop, and as prices here are not in a bubble I figure my investments are safe.

Fri, 06/24/2011 - 19:57 | 1400149 Ecoman11
Ecoman11's picture

House prices haven't collapsed yet because there is a flock of capital flight coming from Asia to Canadian real estate. This is what's keeping the ramshackled market in place and is now the primary driver of rising prices.

Fri, 06/24/2011 - 20:26 | 1400183 Sockeye
Sockeye's picture

"Heads in sand, Federal and Provincial governments have stood by as out of control forces abuse Canada's immigration largesse and place financial pressures that are already harming Canadian taxpayers.
Now Canadians get a glimpse at the sources of the cash that has corrupted the whole Immigration industry, and created a strange anomaly that has become known around the world as the Vancouver Housing Bubble.
The Financial Times has revealed, "Corrupt officials took $124bn out of China" outlining the size of the fraud perpetrated on China by corrupt officials. Canada has not been the recipient of the "investment" part of that stash, but its real estate has been impacted by large amounts of "cash sheltering." For twenty years the stories of Chinese "buyers," purchasing real estate in Vancouver, as well as Toronto, sight unseen, have been common place.
These ill gotten billions have created an unusual situation for Vancouver. As the Vancouver Sun reported, "Chinese are parking money in Canadian land like a bank." Its real estate prices have no economy to support them.
British Columbia produces very little that anyone outside its borders wants to purchase, other than the natural resources it digs out of its soil. And yet, it's real estate is among the most expensive on earth. Young people cannot afford to house themselves in Vancouver, and even find other parts of the British Columbia lower mainland too expensive.
The aberration of corrupt Chinese officials offshoring their cash has placed a massive burden on Canadians whose homes are in majority owned by banks. Canadians now shoulder more personal debt than Americans. The housing bubble that will inevitably burst, will begin a wave that will start in Vancouver, and will rapidly spread across the country. Neither Ottawa, nor Victoria, can do anything to temper the damage the burst will bring."

http://m.digitaljournal.com/article/308061

Fri, 06/24/2011 - 19:46 | 1400139 Hedgetard55
Hedgetard55's picture

I would like to see Canuck real estate priced in gold or silver rather than fiat loonies.That will tell us if real estate has "appreciated" in real terms or not. Nominal numbers today are worthless.

Fri, 06/24/2011 - 19:56 | 1400156 Ecoman11
Ecoman11's picture

Presenting the insolvent CMHC 2009 balance sheet. http://i51.tinypic.com/2q2jqt3.png

They haven't released their 2010 report. They need more time to fudge the numbers.

Fri, 06/24/2011 - 20:11 | 1400164 breezer1
breezer1's picture

ben's newsletter is free. check out his archives and see the true nature and extent of the debt bubble in canada. check out his sources. i know ordinary slightly above minimum wage workers who live in 300k homes and vacation twice a year. its all debt and yes i believe it is worse than the states.
we have a goldman saks allumni running our central bank and a wannabe american in the pm's chair with a majority in parliment surrounded by yes men who takes his marching orders from the cia. we are truly fucked.

Fri, 06/24/2011 - 20:26 | 1400186 Ecoman11
Ecoman11's picture

After reading through some of his posts, Ben is still stuck on the skewed data numbers and refuses to believe the country has been hijacked by central banking criminals. Unfortunatly they didn't teach him that in school. 

Fri, 06/24/2011 - 22:48 | 1400244 Bay of Pigs
Bay of Pigs's picture

+1

Nice to see someone with a balanced view on this bubble that so many in Canada refuse to acknowledge. The facts speak for themselves. CMHC is woefully upside down. The banks there have massive RE exposure (both residential and commercial). 800K for a starter? 11 times income to buy in Vancouver? Consumer debt to GDP at 147%?The buyer pool is shrinking, inventories are rising, and foreclosures are also going up. What else could this mean?

The top is in, (or very close to it). Nowhere to go but down. 

 

Fri, 06/24/2011 - 23:36 | 1400519 Jaciems
Jaciems's picture

holy shit youre dumb...i didnt see any canadian deny that theres a bubble in vancouver or toronto but not the rest of canada....can you read???

im from montreal....no bubble here though i wouldnt be surprised if theres price correction for condos since they're being built like crazy around here

and i would love to see you tell someone from the prairies that theres no where to go but down...since you probably dont know what the prairies are that the part of the country where all the oil is coming from (alberta, saskatchewan, manitoba)

 

Sat, 06/25/2011 - 11:59 | 1400999 Bay of Pigs
Bay of Pigs's picture

WTF? Calgary? Edmonton? Saskatoon? Yeah, no bubble there eh?

Who's fuckan dumb here? The guy who lived in Belleville (above) said there was no Canadian RE bubble. He's wrong, just like you are.  

Your argument holds no water. Cheap RE in North Dakota didn't save Vegas and Miami. Montreal will not save the rest of Canada either. It will get hit too. Wake up.

Fri, 06/24/2011 - 20:15 | 1400167 jal
jal's picture

One of the blog that you need to look at is 

http://vreaa.wordpress.com/ 

 

Vancouver Real Estate Anecdote Archive

 

If the USA causes a rise in unemployment, in Canada ... then everything will go down hill very quickly.

Most mortgages are locked into a five year rate. 2015  looks like the year of reneawals and troubles.

 

jal

 

Sat, 06/25/2011 - 10:52 | 1400937 AbbeBrel
AbbeBrel's picture

Thanks!   Your link led me to GreaterFool.ca - and Garth Turner.   He has a wonderful sense of humor, especially in his pithy comments on his commenters.    I hadn't heard of him before, and also didn't realize that Vancouver CA house prices are pushing a pin that pops...

Fri, 06/24/2011 - 20:21 | 1400181 Bindar Dundat
Bindar Dundat's picture

Oh Holy Cow. We in Canada never eat anything bigger then our heads.. no that would never happen...

Fri, 06/24/2011 - 20:25 | 1400182 Bindar Dundat
Bindar Dundat's picture

Oh Holy Cow. We in Canada never eat anything bigger then our heads.. no that would never happen...

Fri, 06/24/2011 - 20:43 | 1400221 FranSix
FranSix's picture

People are parroting the press, saying its 'Hot Asian Money' but in fact its the immense liquidity provided by the central bank after the ABCP collapse and the 2008 crash that is fuelling the market.   But the prices are in the hands of realtors aided by the banks.

Its not really a real estate bubble per se, but almost exclusively a housing price bubble.

No lack of overpriced run down homes and expensive tiny condos in this housing market.

Money supply up 12% yoy.

http://www40.statcan.ca/l01/cst01/econ07-eng.htm

http://www.gettingtechnical.com/01_home/market_commentary/can_en.html

Fri, 06/24/2011 - 20:41 | 1400230 hardcleareye
hardcleareye's picture

Thank you Tyler, Good read...

Fri, 06/24/2011 - 20:41 | 1400231 Haole
Haole's picture

Aye Aye, Vancouver full-on.  They don't call it Hongcouver for nothing.  Cash for Million$+ teardowns on standard city lots upon which the aforementioned teardowns are torn down and big boxes full of rental suites or gorgeous new homes for the owners are built.  It is everywhere in the city.

Fri, 06/24/2011 - 20:49 | 1400242 Stuck on Zero
Stuck on Zero's picture

The key is that the bankers get there bonuses at the end of the year.  The taxpayers get shafted at the end of the decade.  All bankers should receive their bonuses over the payoff period of the loans they make.

Fri, 06/24/2011 - 20:48 | 1400245 archiehicox
archiehicox's picture

I presume old chaps everyone knows about Steve Keen, who since 08 has been getting more and more attention (after predicting the crash).  He first caught my eye predicting a 40% fall in Aussie house prices but like most, underestimated the ability of govt/central banks and banksters to reinflate the balloon.  Prices for houses in Aus are possibly starting to roll over, and all the "we have good loans" karma Canada has mentioned above is actually only going to make the crash bite even harder because here loans are very much nailed to your chest even if prices are falling and you are underwater.   Anecdotally locally premium real estate where we live (ie 4 years ago prices for the mansions - not mc mansions, but the genuine articles with 15 car basement parking for your ferrari collection)  has come crashing down and turnover has plummeted both for these homes and broadly (I recall a multiyear low). Up to 2008 there was a boom in these homes with overseas, interstate and speculators flipping them for hundres of thousands more.  That seems to have halted.  I expect the agents will start really hurting soon (though they do have ferraris).  Some vendors are being forced to take a bath on some properties (I recall one which turned down 13mil a few years ago at auction that went for <7M semi recently).  Aussie premium homes are definitely more than the national fall of 2% currently off their highs.  If I had RP data access Im sure that better stats could be obtained, but surprisingly no one seems to generate and publish them to the masses like me.

 

Apparently we (aus) hold the title of most overvalued property based on the average punters ability to pay and the avge house price.  Median house price on the Gold Coast is now $485000 with units $150k less; avge wage $65k;  qrtr pounder large meal I think thesedays is $6.45AU (but could be more) - soon that will be $20US :)    I couldnt see how $120k with kids affords a mortgage. 

 

Lending has tightened somewhat but recently moodys downgraded our banks due to their huge res mortgage loan books and exposure to offshore funding.  Business loans are a fraction of their book. Worst we got was 105% of the property sale price - no deposit, capitalise purchase costs. 

http://www.debtdeflation.com/blogs/

 

Fri, 06/24/2011 - 21:21 | 1400288 andyupnorth
andyupnorth's picture

Here in Montreal, I guesstimate that there are perhaps 100k Egyptian families who immigrate here every year (and have been for the past decade).  They come with very large down payments; such that no one born here could generally afford.

Often, their plan is to have a paid-off house and have kids; there's no point in working since the government take such good care of those with no "income". They might dip into their Egyptian saving on occasion.

So the massive money printing over the course of the last century has been accumulated and the worldwide flux into Canada is in the making.

I don't know how long it will last, but I do know that young adults who were born and raised here are getting the short end of the stick.

Fri, 06/24/2011 - 21:26 | 1400295 andyupnorth
andyupnorth's picture

And I'm sick of all those real estate ads everywhere I look!!

Also, I noticed some ads saying, "We'll get your house sold, GUARANTEED, or else WE will buy it!".  That just scares me.  I think this can go wrong in so many ways.

Sat, 06/25/2011 - 11:32 | 1400968 FranSix
FranSix's picture

The irony of all that is the former apparatchiks of the dictatorial regime in Egypt moving to Montreal want to live in a social democratic state, where they have voting rights.  Not that they had much need to exercise these kind of rights in their former abode.

The Federal government for its part welcomes (possibly)french-speaking immigrants from any country in the world willing to reside in Quebec because they'll vote in favour of federalism.

Fri, 06/24/2011 - 21:29 | 1400294 Mec-sick-o
Mec-sick-o's picture

I always thought the new rich Chinese were flocking to Canada, specially west coast (Vancouver and environs), creating a huge demand, and house appreciation.

Fri, 06/24/2011 - 21:47 | 1400341 Spitzer
Spitzer's picture

its bullshit

There is Asians in every city.  Low rates are the reason

Fri, 06/24/2011 - 23:07 | 1400468 zen0
zen0's picture

Chinese likee Vancouver so much people call it HongCouver. It is a matter of degree.Low rates help, but universal health care help mo betta.

 

Low crime, don't have to deal with Americans...its all good.

Sat, 06/25/2011 - 14:58 | 1401340 Spitzer
Spitzer's picture

Auckland is loaded with Asians too and vancouver was second to Miami for highest property crime in north america a few years ago.

Sun, 06/26/2011 - 04:34 | 1402506 Mec-sick-o
Mec-sick-o's picture

Too many people "affording" low rates.

It is not the absolute number of Asians per city, but the rate of influx of new Asians going into them, specially Vancouver.

And all of them getting those low rates.

Fri, 06/24/2011 - 21:55 | 1400356 Diogenes
Diogenes's picture

Let's take another look at that real estate price chart above. It starts in 1980 at the tail end of the late 70s real estate boom. It shows prices shooting up to $75,000 at the end of 81, then they dip slightly in 82 then go sideways for 5 years.

Then in 86 there is another boom and prices double in 3 years. Then there is another reaction of 10% or so and the market goes sideways again from 1990 to 1999.

The final stage shows prices doubling again from 1999 to 2008, from slightly over $150,000 to over $300,000. Then a dip of less than 10%, a quick recovery and off she goes again.

Now let me ask you this. If you saw a chart of a stock market that had gone from 60 to 360 between 1980 and now, and never showed a loss of 10% in all that time, would you be afraid to invest in it?

I'm not saying you would invest, just like you wouldn't rush out and buy any random stock. The point I am trying to make is that I do not see a major real estate crash in Canada's future. A 10% drop and a flatline market, sure that can happen. But a major crash where everyone winds up living in tents and cardboard boxes, no.

Sat, 06/25/2011 - 15:05 | 1401347 Spitzer
Spitzer's picture

1980 is close to when the bull market in bonds began. The cad housing bubble pops when the bond bubble pops.

Fri, 06/24/2011 - 22:24 | 1400396 agrotera
Fri, 06/24/2011 - 22:26 | 1400404 wang
wang's picture

great article - generalize on house prices for a country of 30m+ spread across a gazillion sq miles

to that end if one were to exclude the greater Vancouver area from the Canadian sample the graph would paint a much different picture

speaking of that graph (average house price and mortgage debt to GDP) why not compare average house price and mortgage debt to average carrying costs as a percentage of disposable income.

 

Benny like some other Canucks (Rosie. Turner et al) you have been calling a bubble since 50% ago (poetically speaking) eventually you will be correct = from your Blog almost a year ago:

http://www.theeconomicanalyst.com/content/primer-2-there-housing-bubble

( I am not sure the analysis of a part time instructor at a nondescript community college in the Canadian hinterland is worthy of a platform such as ZH particularly when the reasoning is as shallow as it appears to be i.e. "it boils down to debt"

Sat, 06/25/2011 - 00:08 | 1400576 BenRabidoux
BenRabidoux's picture

"great article - generalize on house prices for a country of 30m+ spread across a gazillion sq miles"

You want regional data? Here you go...

http://www.theeconomicanalyst.com/content/examining-house-prices-and-rents-major-canadian-cities

http://www.theeconomicanalyst.com/content/examining-house-prices-and-rents-across-provinces

http://www.theeconomicanalyst.com/content/examining-house-prices-and-income-growth-canada-part-1

http://www.theeconomicanalyst.com/content/examining-house-prices-and-income-growth-canada-part-2

 http://www.theeconomicanalyst.com/content/regional-look-canada%E2%80%99s-housing-bubble-part-1

http://www.theeconomicanalyst.com/content/regional-look-canada%E2%80%99s-housing-bubble-part-2

http://www.theeconomicanalyst.com/content/house-prices-and-inflation

http://www.theeconomicanalyst.com/content/how-important-construction-economic-growth-and-employment-across-canada-part-1

 http://www.theeconomicanalyst.com/content/how-important-construction-economic-growth-and-employment-across-canada-part-2

"I am not sure the analysis...is worthy of a platform such as ZH particularly when the reasoning is as shallow as it appears to be i.e. "it boils down to debt"

Actually I've gone to considerable lengths to quantify the element of mass psychology, as well as explore the potential implications of a housing correction on GDP and economic growth. But that 'shallow' analysis pales in comparison to the position you've presented: There is no bubble since it hasn't burst yet. How does one debate such iron-clad logic?

 As far as my credentials go, I'm sure an anonymous poster on an internet discussion board has more insight on the topic. Your ad hominem attack shows you have little else to stand on.

Sat, 06/25/2011 - 13:16 | 1401159 wang
wang's picture

Benny so thin skinned are you. I believe you were the one that summarized your  article with a single word, "DEBT!", sorry if you were offended that I called that and your 350 word artlicle shallow.

I asked a simple question about a ratio that compares debt servicing to income that you still have not answered, with respect I believe that is  more relevant than debt to GDP in the context of housing affordability. 

You quote me as saying "There is no bubble since it hasn't burst yet", but for some reason I can't find where I said that.

 

I also  am not sure why you consider someone pointing out your credentials to be ad hominem - but I am curious, as someone named Wang, your comment #1400490 above " keeping up with the Wangs"  is that a phrase you would use in mixed company?

 

I do apologize for comparing you to Rosie an Turner as you are clearly in a different league.

Fri, 06/24/2011 - 22:37 | 1400422 BernankeHasHemo...
BernankeHasHemorrhoids's picture

You hear the same nonsense in Australia and Canada - it's different here, they say, there's a new paradigm blah blah blah.... Yeah it's different until it's the same BUBBLE!

Fri, 06/24/2011 - 22:42 | 1400432 BernankeHasHemo...
BernankeHasHemorrhoids's picture

Although I don't live there, my family is in Canada - they are all up to their ears in debt - debt that any American would find frightening. My brother makes about $40,000 a year - he has that much in credit card debt and he keeps piling it on. He figures he will never pay it off and eventually he'll die. His philosophy seems to be the norm in the great white nanny state.

Fri, 06/24/2011 - 23:45 | 1400534 Jaciems
Jaciems's picture

so because your brother is a retard and lives here the whole country is?

ya theres alot of people here who have just as much credit card debt as they make in income a year but here youll never see a person making 30k with 150k in student loan debts and its actually possible to find a job here to pay your debts...

 

Sat, 06/25/2011 - 14:08 | 1401249 BernankeHasHemo...
BernankeHasHemorrhoids's picture

Canadians are smug self-satisfied bastards - in fact they remind of Americans a couple of decades ago. What goes around comes around - the US is descending into Third World status and Canada will follow. Of course it's always different this time........

Fri, 06/24/2011 - 23:00 | 1400464 ExploitedCitizen
ExploitedCitizen's picture

OK, I live in Canada.

I make $70,000 a year, I have a stable job.  After taxes, union dues, CPP, EI I get to keep about $45000 of that.  That is $25000 in bullshit taxes.

The average Canadian, like 90%, make around $50000.  That means they get to keep around $35000 tops.

I see young couples everywhere, two new cars (leased) $30k each, brand new house $375k, and of course they need a pool and landscaping, ETC.

The numbers don't work for the majority 90%.  These idiots are paying $3000/monthly payments, with an arguable average yearly income of $35000 each.

That means most people are living paycheque to paycheque, and if one of them loses therer job, its bankruptcy time.

I tell people I buy gold and silver, they say they would but they can't borrow money to buy it.

You watch this bubble explode.  I can see no scenario where in the next 2 years it doesn't pop.

FYI, I own my car, and have 5% equity in my $200k fixer upper.  I took a clue from the US, strategic default.

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