Canadians Brace For A "Perfect Storm" Brewing In Housing Market

Tyler Durden's picture

We've spent a fair amount of time discussing Canada's housing market over the past several months as Chinese money laundering operations have sprouted up bubbles all over the place.  Here's a modest sampling of our recent work:

But, as the Globe and Mail notes today, there could very well be a "perfect storm" brewing in several Canadian housing markets as the result of extreme pricing bubbles, over-indebted consumers, a major tightening of mortgage rules and the prospect of rising rates.

On the regulatory front, Canada's Office of the Superintendent of Financial Institutions (OSFI), is considering new rules that would require lenders to effectively "stress-test" borrowers to confirm they would be in compliance with credit metrics even if rates were to rise 200 bps.  From a practical standpoint, such a move would immediately remove roughly 20% of the average Canadian's home buying power.

Canada’s banking regulator (OSFI) is proposing that anyone who gets a mortgage at a bank or bank-funded lender prove they can afford a rate that is at least 200-basis-points higher than their actual rate.

 

A similar debt-ratio “stress test” is already in place for folks getting a default insured mortgage, as well as most variable-rate and short-term borrowers.

 

If OSFI’s change goes through as planned, otherwise credit-worthy borrowers would qualify for roughly 18 per cent less mortgage, other things equal. This one change would have more of an impact to mortgage shoppers than any Bank of Canada rate hike in history.

Of course, with mortgage rates at multi-decade lows, they likely only have one direction to go.  Moreover, as rates rise, it will only serve to amplify the impacts of the proposed OSFI regulations noted above.

If you believe the Bank of Canada’s hints and bond market probabilities, there’s a real chance we’ll see higher floating rates as soon as next week’s rate meeting, or at its meeting in September. (Albeit, Thursday’s OSFI news could limit the BoC’s rate hike plans.)

 

As for fixed mortgage rates, they’ve already shot up on the back of a 50-basis-point surge in bond yields since June 6. RBC, Canada’s de facto leader in setting mortgage rates, hiked most of its advertised fixed rates by 20 basis points on Thursday morning. Most other lenders have done the same and it may be only the first of multiple moves.

 

All of which leads the Globe & Mail to ask 'what should Canadian consumers do now?' 

Well, luckily for our northern neighbors, we would point out that the U.S. had a similar housing bubble issue a few years back...here's a hint on what you should do next...

US

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robertocarlos's picture

Fuck me. I've only been wrong about the housing market for 20 freaking years. During that time it has tripled everywere and gone up ten-fold in some areas. It won't matter even if it crashes. If you didn't buy a long time ago, you're still fucked.

Zer0head's picture

I love these guys

http://www.twitter.com/alderlaneeggs

http://www.twitter.com/donutshorts

and fuck Warren Buffett with his Home Capital attempted extortion /  rescue

 

 

Handful of Dust's picture

Limp-wristed Trudoo is no different then the other pseudo-libtards. he will bail out the bankers just as Bush and Obama did in the USA, pretending to "help the poor home owners" but it's really a Banker bailout.

 

Maybe he'll bring hank Paulson to tremble and stutter on stage to preach "the end of the world!" unless a Bailout is handed to Banks.

thedespised's picture

He's worse. He's legally retarded, on top of being an MK ULTRA mind control kid.

H H Henry P P P Paulson's picture

W W Wh What do you m m mean stutter?

Quantum Bunk's picture

Yep. I knew ZH was calling it early last year. I mean, the country needs an ass whooping in the form of a crash in the worst way.

 

SHEEPFUKKER's picture

How can you have a bubble and brace for a crash at the same time? A bubble means very few are positioned for a crash. 

Ben A Drill's picture

So true. This shit show has lasted longer than I ever expected. I bought a condo in 2000, sold it on 2004 and doubled my money. Now my new place is paid off. I could give a rats ass about Canada.

Whatever happened to Jim crammers recommends research in motion. Lol!

The Real Tony's picture

I knew Research in Motion was a fraud from day one just like Netflix stole their idea from U.S.A. Video Interactive a small defunct company once listed on the Vancouver Stock Exchange. The only difference was bandwidth was quite expensive at the time. No lawsuits from U.S.A. Video Interactive and the statues of limitation has passed.

raybies's picture

Fuck me good too, I've been bearish on property since 2002, and I've had to listen to the Mrs nagging about property for that long... my stupidity and ignorance confound me.

robertocarlos's picture

Every 100 points costs you about 10% on the monthly. 

sixsigma cygnusatratus's picture

It'll all be okay because it's different this time.  And Justin Trudeau.

"...Trudeau said he admired China’s “basic dictatorship...” Hmmm, a socialist leader who admires dictatorships alongside looming economic turmoil...what could go wrong?

http://www.torontosun.com/2016/12/16/the-stupid-things-trudeau-says

 

cesar's picture

You have to ignore what Trudeau says (sorta like the Donald) - he doen't know anything.  Trudeau was a part time drama instructor before entering politics. 

Quantum Bunk's picture

Never thought id say this but I regret educating myself financially. I regret reading about Austrian economics.

I long for the days of delusion.

CHoward's picture

You and me both.  Just the other day I was sitting over a cup of coffee and thinking the same thing.  My life and my observations of others was so much easier and far less complex when I lived in my protected, ignorant shell.  Damn it.

christiangustafson's picture

Yes, turns out being a leveraged debt-mule was the right answer ... ack ...

http://deflationland.blogspot.com/2013/03/finding-hayek-in-portland.html

 

1manrme's picture

Like we can sell anything around here. No buyers.

Zer0head's picture

And God looked down on Kanada and the one named Justin who pays millions of dollars to a convicted terrorist and murderer of an American soldier and He spat them out of his mouth.

robertocarlos's picture

The US families are going to need help because I think the Trudeau government structured this so it would be difficult to sue Kadr in court. Charge him with something, extradite him, and then toss his ass in jail.

Savvy's picture

The US invaded Afghanistan. Were Afghanis to not defend themselves? Murdered? f.u.

U4 eee aaa's picture

You mean the soldier that was on team USA sitting in Afghanistan looking for for rare minerals and a pipeline route for the Americorp empire?

Sonny Brakes's picture

How much does it cost minus land and labor to build a house in US dollars, yes the fiat currency?

Abbie Normal's picture

Depends on where you're building but $150/sq-ft is a good benchmark for a starter house.

tropicthunder's picture

Biggest mistake I ever made in property when I had the chance to buy a 2BR/1.5BA beachfront condo in Redondo Beach back in 2004 from a friend for the outrageous price of $373,000. Guess how much that same shitbox is on the market for now? $1,255,000! I wonder if I should bought Silver or that little fuck shack on the beach. What a god damn idiot. Proof in point, real estate bubbles can just grow on and on and on and on and on......

Déjà view's picture

Granite counter tops-expensive!

Fundies's picture

My mates house in Sydney has gone from 1,3 million to 2,6 million in 5 years. Prices over here are complete bullshit. The China man's curse has been unleashed big time. 

The Real Tony's picture

So just buy on the ouskirts of Seattle while the Chinks destroy all of Washington. The chinks only migrate to places of low taxation. Seattle is coastal and Washington has some of the lowest taxes in America.

Sector Catalyst's picture

(squawk box)

Paging Pitz. Paging Pitz. Please come to the chat thread to defend the legitimate Chinese investments in Canadian real estate that clearly aren't driving up the local prices and making housing difficult to attain for REAL Canadian citizens.

The Real Tony's picture

I somehow missed this one from three days ago so I could tell PLZ or PiLZ or whoever he is that he's completely lost in the twilight zone about Vancouver real estate.

south40_dreams's picture

Is anything going well in the great north? I'm getting tired of cringing at the word Canada

bluskyes's picture

The sale of my farm closed last week, so there's that.

cesar's picture

Its just starting to get interesting - keep cringing.

The Real Tony's picture

My brother-in-law's mother turned 90 on Saturday and I was at a group gathering for her birthday. He shelled out 50 large so Saturday night was a good day for everyone there.

robertocarlos's picture

We're pretty sad here in Trudeauville right now. The Rough Riders are beating our local Roughriders.

Abbie Normal's picture

Assuming you're not just watching gay pron, why do two teams have the same name?

Thom Paine's picture

How could anybody not see the steep down side to this housing price mountain.

 

opport.knocks's picture

There is a very high probability of a correction, see the inflation adjusted prices in the attached chart for Toronto. 

http://www.torontohomes-for-sale.com/account/461083ac0e597a15/pages/2578...

However, there are also a huge number of millennials (such as my daughter) who have been priced out for almost 10 years and have saved a substantial down payment for when prices do start to correct. So I do not think there will be a sharp correction all the way to the median trend line, at least until the boomers begin to sell in a big way.

The full article is here...  http://www.torontohomes-for-sale.com/Toronto-average-real-estate-propert...

bluskyes's picture

What it means, is that you should have sold last month.

Anopheles's picture

5 months ago actually...

cesar's picture

Currently a 5-Year fixed rate mortgage (the most popular mortgage among home buyers ) can be had at a rate of about 2.5%  - if you shop around. This is the lowest rate ever in Canada's history!  So the fact that they are only now considering doing stress tests (i.e., ensuring buyer can afford payments if rates are 200bps higher) shows you how clued out they are.  This stress test should have been implemented 3-4 years ago at least.

Now its time to face the consequences. Reckless Fools!  They should be in jail.

U4 eee aaa's picture

They are clued in, they just didn't have an excuse before. Trump gave them that excuse

mademesmile's picture

I'm part of a national realtor group. Someone posted the following today.

"Our market was like that until April now its flipped to buyers market in most areas - prices have dropped and those that sold at the market peak can't close because appraisals are coming in low or their buyers can't sell -- its crazy!"

I asked where she was working - the answer was Toronto, Canada.

cesar's picture

Good! Toronto is so overpriced its pathetic.  Needs a good super-crash.

The Real Tony's picture

Hardly a buyers market yet, I've been following the entire GTA market and the lowest end of the market has hardly fallen meaning the sutpid Millennials are still buying. So once the Millennials get called on their mortage and lose their properties to the bank then we'll see the large price drops and finally a buyers market. Ground zero is Mississauga and Brampton, Canada's two twin towers that will topple and burn to ashes.

me123me's picture

The US once again has a housing bubble also. Prices are through the roof  you might say. 

mademesmile's picture

It's very regional. My area has hot spots and other areas where 225k gets you a nice three bed two bath with a detached shop and 3-5 acres.

Crisismode's picture

Any hint about where you are at?