Canada Crude Contagion: Calgary Home Prices Drop Most In 2 Years

Tyler Durden's picture

For the 2nd month in a row, home prices in Calgary - corporate hub of Canada's oil industry - have fallen. This is the biggest 2-month-drop in almost 2 years (and comes on the heels of yesterday's news that Suncor is slashing jobs and capex). As Bloomberg reports, Bank of Canada Deputy Governor Tim Lane said yesterday development of the more expensive deposits are threatened by lower crude oil prices. "The dive in energy prices will put pressure on house prices in the Western provinces in the coming months," warns one economist and as the following chart shows, more pain is likely...

 

It appears the price of homes in Canada's most important energy region are extremely correlated with a lagged oil price... which suggests a lot more pain is to come...

 

*  *  *

As we explained previously, this won't end well...

In Canadian debt we trust

There was an inflexion point for US markets when household debt surpassed household income.  People kept saying it was a liquidity crisis initially but it was truly a solvency crisis.  People took on too much debt and were walking on a financial tightrope.  In the US, this peaked above 120 percent.  Canada is well on its way above 160 percent:

Canada-US-debt

 

Basically Canadians are deeper in debt relative to their income.  And a large part of this debt is housing related.  A large part of the economy is also tied to oil and as you may know, oil just took a massive cut.

...

Canada has enjoyed many years of the global commodities boom and now finds itself contending with a market full of debt and inflated housing values.  Short of oil rising back up to $80 a barrel and higher Canada is likely going to face some short-term pain.  The housing market is due for a correction.  Those of us in California realize that booms and busts can occur all of a sudden but the events leading up to this are largely foreseeable.

I’m sure many in Canada assume that home values will simply continue to go up and just because banks check incomes doesn’t mean squat.  As the above data shows, households are already deep in the quicksand of massive debt.  It is all dandy when everything is going up including oil.  When oil gets smashed as it did, it came on quickly.  Canada has their versions of $700,000 crap shacks usually in the form of condos.  Hey, at least with a crap shack you don’t have to share a common wall.  When you look at the Canadian housing market it makes the US look like a frugal uncle.

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Raoul's picture

Time for the Toronto and Vancouver market to cool down as well!

Jlasoon's picture

Short those Canadian Banks, should be the easiest money to make this year. 

Manthong's picture

Matthew 7:26

"And every one that heareth these sayings of mine, and doeth them not, shall be likened unto a foolish man, which built his house of cards upon tar sand and that droppeth in value like a rock”.

King James Bible "Abominated Version" 

 

Stackers's picture

Edmonton is the town to watch. They had an insane real estate boom up there in the late 90's when the oil sands stuff really started coming on line.

A Nanny Moose's picture

I don't suppose Banff/LL will feel the effects.

FFS, I remember when you could ski there without a....passport.

Spitzer's picture

I've been in Edmonton for the last 6 years. Vancouver and Calgary are the places to look. Edm is actually not that bad

nope-1004's picture

I don't think any Canadian cities are immune.  Read this gem of a piece posted on ZH last September, then look again at that household debt:income chart and you really see how precarious canada is.  It has all the ingredients of a blood bath, literally.

So how strong is the balance sheet for Banque du Canada? Not very.  As it turns out, Banque du Canada is actually the most pitifully capitalized central bank in the western world. They’re in such bad shape they actually make the Fed look healthy.

 

Sooo obviously kept inflated by the banks to keep the illusion of household (and therefore, mortgage) solvency.

dogbreath's picture

I thought you were living in Smoky Lake or thereabouts

Spitzer's picture

i own a house around there. Geez how the hell did you know ? NSA ?

 

 

dogbreath's picture

you made a comment way back about being in a cheap house in a small town  - not edmonchuk -  same kind of canadian real estate thread

 

and your name is Spitzer

angel_of_joy's picture

It started already. Property assesments for 2015 in Vancouver started to trickle in. Some downtown condos had their value decreased by 7-8% compared to last year, allegedly...

FieldingMellish's picture

Property assessment for my "farm" on the Island just came in. 100K lower than last year, that's about 12%. I'm as happy as a piggy in his sty.

Spitzer's picture

My parents just bought a 6 million dollar acreage in Abbotsford. Spent the last 6 years talking them out of it to no avail. Looks like they top ticked it

FieldingMellish's picture

Ouch. Payed far less than 1/10th of that for my patch beyond the reach of the zombie masses.

FieldingMellish's picture

Middle of Vancouver Island.

cnmcdee's picture

Vacouver Island is where people go to age and die and loose the last vestiges of wealth.   I expect a pricing carnage to set in there as well.

What is amazing is how cheap fifth wheels and motorhomes are on the Island (kijiji.ca) as most of the population there is the geriatic crew downsizing or dumping before the old folks homes.

Carpenter1's picture

Easiest money in the world,  shorting Canadian banks. 

 

Between oil contagion losses, real estate crash, and the most indebted consumers in the world, Canada is royally screwed. 

long-shorty's picture

it's funny how the "easiest trades in the world" sometimes turn out to be hard.

JuliaS's picture

All trades are easy. That's why we're all stinking rich.

Osmium's picture

Can you say underwater?

Temporalist's picture

Just saw this the other day; seems to be more than just Canada.

 

 

Canada Housing Market Is 63% Overvalued: Deutsche Bank

"Canada, Australia and New Zealand are in the top ranks of the developed world’s most overpriced housing markets, according to Deutsche Bank AG.

Homes in Canada are the most expensive, being 63 percent overvalued, the bank said in a survey ranking Organization for Economic Co-operation and Development countries’ markets. The measure reaches 56 percent in New Zealand, the second-most priciest, 53 percent in Belgium and 49 percent in Australia."

http://www.bloomberg.com/news/2015-01-08/canada-home-prices-are-63-too-h...

 

 

This too

Proof the property market has gone mad: It's now more expensive to live in Wollongong than NEW YORK - with Australian house prices now overvalued 49 per cent

http://www.dailymail.co.uk/news/article-2909454/Proof-property-market-go...

 

Spitzer's picture

 I have been renting in this frozen wasteland for 5 years. I am an avid ZH reader. This feels sooooo good.

Bring it on.

cnmcdee's picture

I'm exactly where you are at and could not agree more!

Suncor layoffs were the pin in the balloon.  Herein is the rub.  Some disappearing link to Fort McMurray housing report off Zerohedge showed that only 5% of the houses listed in Fort McMurray  actually sell!!  That is a stopped market.

Suncor cut $1 billion in projects and another $600 million in plant operating expenses for 2015. They are probably in closed door meetings today typing up the lay off lists.

This people will be forced to sell at any offer and it will be shocking when it comes in at 35% LESS.

Bring it on bitchez!!

 

August's picture

FWIW I live in Auckland, and wouldn't touch Auckland real estate with a 10 meter cattle-prod.

Handful of Dust's picture

63% overvalued seems a conservative estimate. Some places I looked at in 2000-2001 are still about 400%-550% higher then back then. 

robertocarlos's picture

We have free healthcare.

MASTER OF UNIVERSE's picture

Our Canadian Health Care system is not 'free healthcare', but more to the point, it is centrally planned government heath care that is purportedly universal and supported via massive transfer payments to provincial directorates in health care that dole out the funding they receive from Federal coffers that are replenished via municipal, provincial, and federal taxation. Nothing is FREE except the air, and the motherfuckers are considering taxing that as well so get with the programme, eh.

 

NOTE: The CEO of the Ottawa Hospital makes 750k for 40 hrs per week and 1 month paid vacation. Canadians don't pay the CEO by picking currency off of secret Canadian money trees as far as I know.

Toxicosis's picture

Nope I'm paying for it.  Nothing is ever free.  And don't worry your free health care also won't last much longer. 

foodstampbarry's picture

Canada has been drinking the full on real estate kool-aid, that home prices can never go down. Reality is going to be bitch for them hozers. Bend over, here it comes!

A Nanny Moose's picture

Yup. If there wasn't so much of that white shit on the ground this time of year, I might consider buying some property at discounted rates, and dropping my US Tax Farm status....to join the Canadian Tax farm.

Oh what's the use?

Charming Anarchist's picture

There are limitless possibilities for you to find freedom in Canada if you are the type of man who intends to live frugally off the land.  Do you hunt?  fish?  farm? 

Sure, if snow shoeing and sking make you think "means of transportation" rather than dim-witted sports, than yes, the white shit is miserable.  However, the white shit can also provide social insulation too from urban centers. 

Spitzer's picture

Fail

Hunting and farming land is just as fuct as anything else. Ask me. My parents just blew 6 million

long-shorty's picture

you should speak of your future inheritance more lovingly, lest your parents donate it to the humane society when they leave this mortal coil.

Spitzer's picture

its not worth half that in reality

A Nanny Moose's picture

6mill. Cheaper to squat on BLM Lands....in the Former United States of Amerika.

Charming Anarchist's picture

OK.  I will ask you: 

Are you too lazy to work on the farm? 

Did your parents bite off more than they could chew? 

 

<<Hunting and farming land is just as fuct as anything else. Ask me. My parents just blew 6 million>>

 

 

Do you really think you need to spend 6million whatevers just to start a hobby farm?   It does not take much land to support yourself.  You just need to work it. 

6 million???  Really????   How many kids did your parents have???? 

oddjob's picture

As the Canadian dollar falls, Vancouver detached house prices will keep going up. These are not people that need mortgages, they need a place to burn some paper money.

http://www.vancouversun.com/business/Detached+house+prices+record+high+Lower+Mainland/10703768/story.html

Calgary house prices are bound to fall, alot.

cnmcdee's picture

I think that's coming to an end even in Vancouver, China downturn will end the wealth exodus to the Canadian escape.

general ambivalent's picture

Yeah, but my dad's got lots of beers and there's mental house work up town, eh.

Pancho Villa's picture

When oil prices crashed in the early 80's, Houston home prices also tanked and didn't recover for over a decade. If I were a homeowner in the Canada oil patch, I would sell now.

MASTER OF UNIVERSE's picture

Goldman Sachs and JPMorgan Chase own all the condos and they can afford to lose investors shirts if they don't find enough Muppets to fill the crap shacks, methinks. Only Calgary will manifest problems due to the oil patch downgrade. Toronto, Montreal, and Vancouver are always going to keep going gangbusters because these enclaves don't see a prospect of population decline in the long run. In brief, the Canadian Ponzi is much more regulated than the American Ponzi was.

Angus McHugepenis's picture

I'm right here in the thick of it. Never mind fucking housing, our neighbour in the shop next to us (CNC machinist) is sitting on $8,000 in hi-grade steel for an order for one of the big oil companies. He bought the material but the job is now "on hold". And he's a small one man shop. I told him to ship the material to them so he can at least claim they owe him for the material. If he holds it he gets nothing since he can't return it to the supplier and the oil company won't pay for what they don't receive.

Multiply that scenario by thousands.

WillyGroper's picture

1984

literally

figuratively

I remember that cascade well.

Jack Burton's picture

Oil companies will cut loose all their small time contractors and contract employees. These folks cost nothing to cut. That is why employees as self contractors has become more of the norm. A real company employee is a terribly costly liability and sometimes expensive to even fire. British North Sea Oil firms lead the way with having made most workers in the North Sea private self employeed contractors, they simply work on a contract, and have zero employee benefits, rights or legal status. In fact, Britain is fast moving to make nearly all private wokers into self employeed contractors. Magie Thatcher's rule set this employee employeer contract system into motion all the way back to the late 80's. Building trades were the first to fire everyone and then let them come back as single individual private self employeed contractors.

Uncle Remus's picture

Back in the 80's that was the defacto situation in Arizona. Oh, you were still an "employee" in a right-to-work-state, but if you didn't think like a self-employed contractor you were going to be disappointed and out of work an awful lot. That translates to crew poaching, zero company loyalty, zero benefits or retirement, revolving door at jobsites and generally unpleasant work environment for the most part. Never mind the boom/bust cycles of the construction business.

The union shops were a far sight better in this regard due to labor contracts BUT, Davis-Bacon and union pension funded projects were slim pickens AND Arizona did have a non-union apprenticeship program to that allowed open shops to compete for Davis-Bacon (AZ had a little Davis-Bacon for state work) projects.

I lost a sizable chunk at the end of the 80's when commercial construction collapsed, BUT, I had already started my business diversification out of construction, so I was able to pull up stakes and open in a new market. I still had some customers from the construction side of the business for another five years or so post-move before I shut that down completely.

 

Angus McHugepenis's picture

Remus: The last person I knew that retired on a company pension after a 44 years at one company was my father. That was 1984 (for you G. Orwell fans).

Your story rings many bells with my own experiences around the same times. You must be an old fucker like me.