The Canadian Housing Bubble Puts Even The US To Shame

Tyler Durden's picture

Since the bursting of the first US housing bubble in 2007, one of the primary explicit goals of the Fed has been to reflate the very same housing bubble (whose pop, together with the credit bubble, nearly wiped out the western financial system) as housing, far more than stocks, is instrumental to the "wealth effect" of the broader population (as opposed to just the 1%).

Sadly for the Fed, instead of recovering previous highs, median housing prices (not to be confused with the ultraluxury high end where prices have never been higher) have stagnated and are now in the downward phase of the fourth consecutive dead cat bounce, curiously matching a like amount of Fed monetary injection episodes.

But while the Fed has clearly had a problem with reflating the broader housing bubble, one which would impact the middle class instead of just those who are already wealthier than ever before thanks to the Russel 200,000, one place which not only never suffered a housing bubble pop in the 2006-2008 years, but never looked back as it continued its diagonal 'bottom left to top right' trajectory is Canada. As the chart below shows, the Canadian housing bubble has put all attempts at listening to Krugman and reflating yet another bubble to shame.

Here is the Globe and Mail's take:

The gap between the average price of a home in Canada and the United States widened to a record level in the first quarter of this year, contrary to what economists would have expected, according to Bank of Montreal’s chief economist Doug Porter.


Average Canadian home prices were 66 per cent above average U.S. prices during the first three months of this year, he says. (Note: these are prices for existing houses and condos, not those that are newly constructed).


“The main takeaway is that, contrary to all expectations, the Canadian housing market has just kept on rolling in 2014 even as the U.S. housing market has  paused for breath (after a steep climb out of the dungeon),” he writes in a research note. “Put it this way, how many pundits a year ago were calling for Canadian home prices to rise faster than their U.S. counterparts in any single measure?”


It's worth noting that there are many problems with comparing average Canadian home prices to average U.S. home prices, not the least of which is that average prices themselves can be highly misleading. Mr. Porter is aware that it’s not an apples-to-apples comparison.


“Some may quibble that this doesn’t take the exchange rate into account, but even adjusting for the Canadian dollar leaves a 50 per cent price gap,” he writes.

So if indeed the Fed is intent on reflating the housing bubble for all, not just for some, perhaps it is time to take a look at what the northern neighbor is doing and do the same.  Of course, the question remains how much more "up and to the right" movement is left in Canadian home prices, where the Chinese and Russian oligarch bid is, according to some, an even greater factor in setting marginal prices than in the US and Hong Kong.

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knukles's picture

Well thank God that the Nazis won't bomb Pearl Harbor again on Halloween so there's no reason to think the apple cart will get upset, eh?

Deathrips's picture

With all that personal debt, US imports drying up, and sickening socialism its going down, Eh?


From your friendly nieghbor...who knows canadian mortgages are full recourse.


Welcome to the party ...bitchez!



James_Cole's picture

To be fair to canada, much like Hong Kong there's a lack of land and high population density so one would expect a chart like this over time.

Oh, what's that? Canada is the size of russian and ten people live there? Hmm. Might be a problem. 

Soul Glow's picture

Everything's fine, the Central Banks have it under control.

Bay of Pigs's picture

Having seen the bubble grow first hand on Vancouver Island and watching the hordes of Canadians buying hand over fist (second homes) in places Kihei, Maui (over 70% of all condo and home sales last year alone), it is amazing so many appear to not "get it" in Canada. It is a massive bubble, and ready to pop.

fonestar's picture

Canada is likely to see a great rotation from housing into Bitcoin.  After all, you can't eat a house.

DoChenRollingBearing's picture

Can't eat BTC.  Nor gold (not really).

Rotation from housing to BTC is possible.  


Get at it, fonestar!

aVileRat's picture

Few problems with the short-Canada trade that may require a Bloomberg, a degree in Canadian real estate markets or some brain cells:

1. Canadian construction data does not seperate industrial construction workers from retail/homebuilder labour. May want to tap a few hedge funds on the shoulder to check the COAA/PDAC information and back out how many people are actually employed in the "housing bubble".

2. Canada as a country has a large area per capita, but most infrastructure is in hub clusters, like Russia. Thus, using the "overcapacity" ratio which made retail punters a bunch of cash on shorting the US/UK markets, forgets to account that many properties must be presold for credit syndicates to take the deal on the sheets.

3. Canadian loans do not have a subprime-like, tranche. The best they had as an analog was ABCP, which is now banned from marketing to general institutional consumers. Most of those loan classes do not have a current bid/main-board banks are restricted on generating those MBCP products for secondary offering.

4. Credit leverage and retail consumer credit in Canada. Google or seek legal opinon on how a NINJA is made and how it is impossible to make said loan in Canada retail finance law.

5. Quality of jobs and wage growth in Canada vs. India, Aus., USA, UK, EU. Protip: Do not double count the Quebec numbers and remember to remove the seasonal adjustment for SK/Ont. agri-workers.

6. Corporate leverage and ROA's of Canadian corporations without the use of buyback and tax gimmicks. Now compare that "clean" ROA to the "clean" ROA of the UK, EU, USA or other service led economy.

Or just ignore this post, most of the buy-side PM's who put on the short Canada trade last fall will soon be out of a job at those Tepper Award shops. Expect those long-UK/China PM's to start talking their book hard this summer before the 2015 redemption triggers kick in.

This being said: you would be a bigger fucking idiot to be buying any type of non-A+ debt going into June-2014 than those who went short natural gas/long U-236 this year.

(fuck my posts are growing wordy, stop making such thought provoking threads Tyler ;) ).


James_Cole's picture

Or just ignore this post, most of the buy-side PM's who put on the short Canada trade last fall will soon be out of a job at those Tepper Award shops. 

Yes, your points are mostly pretty weak. However, what is not so weak is the Canadian governments official policy of 'full retard'

I see you were making a similar case over there..

ZerOhead's picture

The Canadian government (it's citizens actually) is on the hook for $900 billion in both private and CMHC loan guarantees.

Home building and renovation is over 20% of Canadian GDP.

"He estimates that as much as 27 per cent of GDP can be linked to Canada’s housing market, a disproportionately large number compared to other countries, including the U.S. at its peak. “Take it away and that alone puts us into a recession, given where we are,” Rabidoux says."

Yup... it's a bubble alright...

jaxville's picture

 You forgot to mention that in April of 2004, Canada Mortgage and Housing Corporation made it legal for the banks to offer (insured)mortgages without the buyer having to bother with a down payment. The charter banks wrote a huge amount of mortgages to people who were previously unqualified. Some banks even offered a little extra for furniture or even a new car. Not mentioning any names like Royal or Bank of Nova Scotia .....

  A high proportion of those mortgages were delinquent by 2008 which exasperated liquidity issues then occuring. That is what led to Canadain banks getting the bailouts. CMHC took most of the non performing mortgages out of the banks balance sheets by exchanging them for gov't guaranteed paper. Even with this 400 billion+ facility in place, Canadian banks borrowed an additional 140 billion in cash from the Fed and others.

  Its a myth that Canadian banks are responsible when it comes to writing mortgages.


ZeroPower's picture

Great post - of course, watch out for the doomsayers who have no notion of CAD RE markets and start making assumptions like you just mentioned above.

0z's picture

You're coming to your senses now.
Unless you werent being sarcastic.

U4 eee aaa's picture

It's a boomer bubble. They are in their peak earning years

kaiserhoff's picture

Lack of land in Vancouver is no doubt an issue.  I remember reading years ago that land use and zoning were a big part of the difference.  I don't know if that's still an issue, but it looks like housing is way out of whack with replacement cost, as it is in many US areas.  Bells ringing at the top?

Carpenter1's picture

"Lack of land" was an issue in LA too, didn't seem to matter. That's just the BS made up by the real estate industry.

pitz's picture

What "lack of land" in Vancouver?  Fly into YVR sometime with an approach from the East, there's huge amounts of farmland that can easily and readily be converted to housing. 

Lore's picture

Sorry, that land is protected Agricultural Land Reserve, for farming only. Thank the "urban containment boundary" of Agenda 21 for stringent law in that regard. I have friends who intended to subdivide and were ruined financially by changes when the new "green" commandments were ordained a few years ago. You can build homes up the sides of the mountains on the North Shore, but you cannot build on arable land zoned for agriculture.

The article is irresponsible for the lack of attention to the fact that Canada was never so free with mortgages as America was.  In Canada, a pulse was never enough: you still had to have a job and make a good down payment.  That eliminates a lot of scumbags. 

Chinese investment on the Left Coast is magnified beyond reason. You're talking maybe 30,000 investment homes in Vancouver, comprising a fraction of one percent of the market, so to "Blame the Chinese" is to have your ignorance exploited by progagandists.

Another point worth mentioning here is the bastardization of the word "affordiability." Blame those greentards I mentioned before. Every house is "affordable" to the extent that it has a price negotiated between buyer and seller.  Nowadays though, when you hear people bitch and whine about "affordability," it translates as "I'm-a-fucking-Marxist-and-want-you-to-build-subsidized-townhomes-for-me-and-my-family-of-socialist-parasites."

pitz's picture

Agricultural Land Reserve is a bunch of nonsense, and will be repealed the moment the land is actually needed.  No politician can possibly resist the urge of all the tax revenue associated with development.  And we're talking about a tiny amount of land relatively speaking, used for residential populations, as opposed to farming. 

Seer's picture

Yup.  govt+developers...

I say let's just get on with the business of breeding and trashing lands, just like humans have done since the beginning.  All this other shit only delays the inevitible.

Lore's picture

Perceptive. ALR seems to be a vehicle for sweetheart deals between developers and whores in local government.

New World Chaos's picture

The dynamic in Auckland is much like Vancouver.  Zoning, greens, Asian immigrants, a bit of escaping Chinese money, an impossible permit process, and a generally nice city (with nearby mountains and farmland) have combined to blow a monster bubble despite mortgage requirements being tight by Western standards.  The left deserves most of the blame.  The housing crisis could be fixed rather painlessly if they could think outside their bureaucratic fiefdoms and intellectual bubbles.  But they would rather blame evil rich speculators.  Of course, the solution is more central planning, more housing projects, and higher taxes.  They will solve the housing crisis by turning Auckland into a city where nobody wants to live.

DoChenRollingBearing's picture

Thank you for the interesting report from NZ.

New World Chaos's picture

No worries, mate.

If you're interested, the South Island outside of Christchurch and Queenstown hasn't been affected that much.  Things are still more expensive than in Peru, but people would be less likely to turn on you in a real SHTF scenario.  The South Island is much better than the North Island as far as SHTF scenarios go.  Lower population density, more farmers, more people who think like us, less drug and gang problems (NZ's underbelly is seamier than America's).

Dr. Bonzo's picture

  NZ's underbelly is seamier than America's.

LMFAO. Good one.

Seer's picture

"The housing crisis could be fixed rather painlessly if they could think outside their bureaucratic fiefdoms and intellectual bubbles. "

Don't leave us hanging here, I'm waiting for the "solution"...

Jreb's picture

Marxists in Vancouver? Surely you jest sir.... /sarc.

umdesch4's picture

Where did you get that 30,000 number from? I was sitting with a Re/max agent a couple weeks ago, and he was showing me something from one of their books. There's 10,000 condo units +/- 4% within a 1km radius of Coquitlam Centre that are labelled "Demographic: Asian Foreign Investment". You can't tell me the entire rest of the lower mainland outside that only accounts for double that. I stood in lines downtown on opening day for property sales just outside of Yaletown a few years back, and every day it was the same story. Asian investors throwing down bids on a dozen or two units at a time. Then there's the new developments happening along the Evergreen line. All those condos coming up around North Road @ Clarke? Sold, and local business owners you talk to around there just shake their heads and tell you that they don't expect much to come of it, as all those units are foreign investments that will be empty when the dust settles, just like much of the already established buildings in that area that only have a 40-50% occupancy rate.

Has anyone refuting all this actually been to any of these places and looked? Because I certainly have, and the official stats can say whatever they want...but the people who live here see it every day.


PS. I didn't downvote you...I'm just questioning that number is all.

Matt's picture

Are you sure any/many of the asians where foreign? 

umdesch4's picture

You mean in the condo bids downtown? I'm not sure, but it just "felt" that way. Young-ish asian guys in suits, with a briefcase, relaying everything going on in Mandarin (sometimes Cantonese) to somebody on the other end of a cell phone. I saw it at least 30 times in one week around late 2009 while I was helping a friend looking to buy a place around there. He never did get anything. The first handful of guys in line would buy up the entire place, every single time. It was comical, though disheartening to watch after a while. He ended up getting a place near Loughheed mall instead, before the Evergreen line turned that mess into the same thing. Just recently he sold, bought in PoCo instead. We have to get further and further out just to stay away from this craziness now. I'm even further daily commute to work is total insanity.

Lore's picture

I was referring to the core body of property investment moguls. There are of course many, many more Chinese people living in Vancouver. Diane Francis did a piece about foreign investment in the Vancouver Sun a couple years back:

Taxpayers also victims of ‘hot money’ behind Canada’s condo bubbles (4-May-2012)

To tame Toronto’s housing ‘bubble’, ban foreign buying (13-Apr-2012)

I can't find the one that estimated the number of Chinese investors, and ZH won't let me go back far enough to where I posted it previously.

umdesch4's picture

Hey, thanks for the follow-up and links! Interesting reading in that tax scam aspect of it. I never heard much about that before...

Seer's picture

I wasn't involved in bidding, but I can concur that the picture you are painting is accurate.

I'm just dumbfounded that they could keep it up this long.

When China's growth really starts hitting the skids you'll find that the rental market up there starts to crumble, which then sets things reversing and the bubble blows.

kaiserhoff's picture

Thanks pitz.  Guess I've never flown in.  I just remember the mountains up against the highway.

So why hasn't that conversion happened?

pitz's picture


So why hasn't that conversion happened?"


No demand that can't be accomodated within the confines of existing supply.  Rents in Vancouver really aren't very high.  If there was scarcity, rents would be much higher.

U4 eee aaa's picture

If you tear down a block of houses you can put up a 50 story high rise in their place. Just ask Hong Kong how that is done.

And if you don't think the developers will make that happen when the need arises, then I've got some Vancouver real estate to sell you.

There you go, fixed that land problem for you

ultimate warrior's picture

Kyle Bass talks about this in a presentation he just gave.

Tyler should make a post of this so more people see it. Lots of good information.

Deathrips's picture

That's funny James.

I heard the same strong defense about Vancouver last week. Geographic limits and scarcity of options supposedly make it a raging bull cock market. I had a short conversation about affordability and interest rates. I also heard some crap about the CAD rising in value against the USD because they dont print? LOL.

I shrug.

But its got an urban rail...he says?


Whats canadian for debtors prison?



Spitzer's picture

Property taxes are going mental in Canada too. I wonder if there is a chart ti compare..

DoChenRollingBearing's picture



+ 1  

Property taxes are a big drawback (and potentially a big risk) to being "All Inn" on real estate.

Seer's picture

Broad-brush caution...

I've got Ag land and it's taxed at a low rate (to keep the developers away- they were driving up property values to insane levels and country folks didn't want to leave their land and get stuck with higher taxes!- if it converts then they absorb a bit hit on taxes).  I have ZERO interest in selling.  It's my home.  I already did my "real estate speculation" on a "property" (that I'd lived in for 10 years).

Not pimping/pushing do this or do that, not selling "investment" ideas or pushing ideological views, just noting ways of looking at things, as some might be of use to others...

crazzziecanuck's picture

Most places in Canada are not seeing explosion in real estate prices.  It's largely only occuring in three cities (which has about 20% of the national population).

In Toronto, you have an executive class that lives off the wealth extracted from the regions as the capital flows into Toronto and then out of the country.  So they are largely immune to economic reality.

The other city with massive explosions in prices is Vancouver, or as some of us call it Hongkouver and the need for Chinese nationals to drop assets in safe places.

Another city that has housing prices is Fort Macmurray, and that's pure supply and demand.


LoneuhRanger's picture

Thanks for these charts.

Bought my house in Regina 2005 $134 K - prop taxes $1700 yr

Today city values my house at $290 K - prop taxes $2500 up 7% this yr. Utilities up 8%. City just started building a new $250 mil stadium, too. We are fucked.

AbbeBrel's picture

Yup thanks to google maps it was easy to find Regina - on a conventional map I think I would need to use a magnifying glass!!   Looks like the town fathers are well on their way to insuring that Regina-ites are "in the box" - renting their homes from the gubbermint and the banksters.   It is a great scheme and works until it doesn't.   Hope your wallet is strong enough to hold up your share of the stadium!!   


And what is the deal with the houses with pink roofs on the NE corner of the town??   The one with the pink roof *AND* pink front yard made me chuckle...

Seer's picture

"City just started building a new $250 mil stadium, too. We are fucked."

I fought one of those kinds of things in the last city I was in.  The "it's for the kids" propaganda won: managed to drag them into court, so got them to sweat at least.

It's all the classic symptoms of what went wrong every fucking where else.  Canadians seem to be pretty bull-headed.  I worry that the "natives" (ha ha- the British/white folks) will start taking it out on the non-natives (mostly Asians); it seems that the race tension is palatable.

Property taxes will eventually go down.  Of course, everything will be in shambles then... (I actually got to experience reduced property taxes w/o a major economic crash- I think it's a rare instance, but an instance nonetheless.)

Deathrips's picture

I was hearing something about the changing in visa process for the Chinese being about, "Now they have to do it the RIGHT way".

ITS Coming Wrong-couveran!



pitz's picture

Even Toronto, Vancouver, and Calgary are in the midst of declines over the past year.  Its like California circa 2007, where the high end kept selling, but the starter homes dropped off the map because the subprime credit dried up.