Bank Of Canada Warns Of "Higher Possilbity" Of Housing Downturn, Sees Vancouver, Toronto Prices Unsustainable

Tyler Durden's picture

Just a few days after the OECD warned of the risk of a "disorderly housing market correction" in Canada, moments ago the Bank of Canada also chimed in and warned that the "potential" for home price downturn in some areas has increased, and that Vancouver, Toronto home price gains likely unsustainable.  Which is curious because the vast majority of price gains in Toronto and Vancouver have been driven by the outflow of the trillion in Chinese inert deposits, which promptly find their way into Canadian real estate (and lately bitcoin). In other words, is the BOC assuming that China will crash soon?

We doubt they thought that far ahead, and instead this is merely banker support for what Canada Prime Minister Justin Trudeau said yesterday when he called high housing prices a “real drag” on Canada’s economy in an interview with Business News Network. “Rising home prices, uncertainty around being able to buy your first home or upgrade as you want to grow your family is a real drag on our economy,” Trudeau is quoted as saying.

Odd: one would think that like any other Keynesian nirvana, a housing bubble is a boost to Canada's economy. Or maybe this is the "socialist" loophole? Meanwhile, this is what is going on in Canada:

 

In addition, the Bank of Canada highlighted increasing household vulnerabilities in the June release of their Financial System Review, and indicated that the overall risks to financial stability are largely unchanged since December.

  • BoC: Economic fundamentals unlikely to justify continued strong price increases in Vancouver and Toronto markets "Prospective homebuyers and their lenders should not extrapolate recent real estate performance into the future when contemplating a transaction."
  • Bank of Canada continues to highlight elevated levels of household indebtedness and imbalances in some regional housing markets as vulnerabilities
  • Bank: about 15% of insured mortgages originated in 2015 had a loan to income ratio exceeding 450% compared with 12% in 2014
  • BoC: "There is evidence of increased riskiness in the characteristics of recent mortgage originations"
  • BoC: Divergent performance of housing markets in Canada is more pronounced
  • Bank: "Potential for a downturn in house prices has increased in some areas"
  • BoC: Fragility of fixed-income market liquidity identified as vulnerability
  • BoC: Most important risk is a severe recession causing increased unemployment, impaired debt-service, and broad-based corrections to housing prices;
    • Probability of risk low as economy grows, US economy expands, monetary and fiscal policy stimulus remain accommodative
    • Other risks identified include sharply increasing interest rates, stress from China and emerging markets, and prolonged weakness in commodity prices
  • BoC: Financing conditions in Canada remain stimulative
  • Bank of Canada: Financial losses from the Alberta wildfires will be large, but won’t affect banks significantly

Source: BBG

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Toronto Kid's picture

House near my momma is on the market for $300,000. This time last year they were going for the low $200,000s. The whole market is tulip-bulb-mania crazy.

Backin2006's picture

Sad thing is that the houses Canadians are buying are so shitty too. Skinny timberframes wrapped in plastic. At least in the Victorian era, people who invested in a home got three feet of solid stone and genuine slate tiles for their troubles.

John Kich's picture

Trump Got It Right Again. This Is the Undeniable Proof...

However the mainstream media isn't saying a word about it!

What are they really trying to cover up?

https://www.youtube.com/watch?v=K6Vqq2DRfwI

mtl4's picture

The only time the market in these cities is going to come down is when interest rates begin to rise, until then buying real estate in prime areas will continue to be a great store of wealth for foreign business folks looking for a NIRP-free place to park their funds.

Toronto Kid's picture

If you think foreign business folks are buying up my mother's neighbourhood, then I have this really great bridge in Brooklyn up for sale ...

This is all locals and idjits from Toronto bidding up housing.

asteroids's picture

Most of Canada is "no recourse". So, when not if interest rates rise personal bankruptcies will soar. Banks and the Loonie will implode. Either that or personal income will have to skyrocket. It's going to take a few years for this to play out.

Bay of Pigs's picture

And here comes pitz to say the Chinese are nowhere to be found in the Vancouver RE market.

EscapeKey's picture

repeat after me

mark carney did not predise over a huge housing bubble. nudge nudge

and he's currently in the uk working his magic there as we speak

 

 

Bunga Bunga's picture

They should ask Bernanke for advice. "Likely to be contained ...." https://www.youtube.com/watch?v=fT7pFSfVZBI

gimme-gimme-gimme's picture

"socialist loophole"? Are you some kind of fucking idiot?  Retard ZH anonymous scardy cats blowing hot air like normal.

PrefabSprout's picture

Which ZH writer is it now, who constantly leaves typos in the headlines?! Very weird lack of attention to critical detail. Is this guy drunk or something?

 

edifice's picture

No, just in a hurry. The more articles they pump out, the more adspace is available, the more clicks are made, and more money rolls in. Tyler has to keep his spear-fishing lifestyle on Rapa Nui up, somehow!

starman's picture

Vancouver is 47% Asian! Soon to be Chincuver.

Los Angeles is 78% Latino!  If you're white your days are numbered. 

ebear's picture

" If you're white your days are numbered. "

Funny, I thought everyone lived the same number of days, give or take?

Abbie Normal's picture

It was already renamed to Hongcouver in the last millenium.

RazorForex's picture

I had a one-bedroom condo in Toronto which I sold several years ago and I have not looked back since. The housing and condo markets in Toronto and Vancouver exist in their own alternative universe that has nothing to do with the underlying economic funamentals in the country.

Also, Bitcoin usage in Canada is increasing, I have a hunch that some Chinese speculators are starting to see that the real estate shtick in Canada is nearing the endgame and many are starting to diversify: http://razorsforex.blogspot.com/2016/06/bitcoin-infrastructure-and-usage...

south40_dreams's picture

Doesn't Canada have the equivalent of the federal reserve? Just get them to do what ours is doing. Will lead to misery and ruin, but the übers will be just fine don't you worry

DaBears's picture

Don't worry, the fat cat insider chinese are waiting for the next round of "social financing" for their further "investments", after paying off some interest on their mountain of old debts off course. 

walküre's picture

nobody has a frecking clue how much debt the Chinese have

it's a huge centrally planned takeover by the Chicoms

they're beating the Yids at their own game... despicable

walküre's picture

Unless they stop accepting fake Chinese wealth for hard assets all across the EU and North America, the game won't stop anywhere.

Chinese are buying the world with Mao Dollars and there's no end to the fraud.

Governments everywhere have failed to protect their people and the national assets from Chinese locusts with Mao Dollars.

First we must take back Manhattan, than we must take back Berlin...

christiangustafson's picture

^^THIS.  POST OF THE DECADE.

yogibear's picture

Take the bankster ponzi scheme to the max! Central Bank junk bond buying. Complained can just issue more junk bonds to make payments on the previous. 

Keep buying those corporate junk bonds and we'll keep flooding you with ever more, making trillions off  you save everything  gam!e

sudzee's picture

Housing in Canada is not of any importance. What is really important is the tireless work of our Supreme Court. They have finally made the decision, so near to every Canadians heart, that ORAL SEX WITH ANIMALS IS LEGAL.

No shit eh.

any_mouse's picture

D'uh, eh.

 

 

chickadee's picture

Funny- the Bank of Canada is warning about a housing bubble they helped create.