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Guest Post: More Insights Into Mass Psychology And Canada's Real Estate Obsession
Submitted by Ben Rabidoux of The Economic Analyst
More insights into mass psychology and Canada's real estate obsession:
Perhaps the most defining features of an asset bubble is a marked and persistent deviation from the underlying metrics that once determined fundamental value. We know how real estate in Canada stacks up when compared to GDP, personal disposable income (cities and provinces), rents (cities and provinces), and inflation. It's not pretty. As with any real estate bubble, the overvaluation is most extreme in a handful of cities. The regional data can be seen in the highlighted links. Certainly not all areas of the country have experienced a massive divergence from underlying fundamentals, but it is extensive enough to concern us.
And with the reliance of the Canadian economy on construction and consumer spending to support employment and GDP growth, a housing correction from current levels would almost certainly be associated with a nasty recession complete with anemic economic growth and persistently high unemployment for several years, a topic I addressed yesterday when we looked at some lessons from Texas, and previously when we looked at how housing supports Canadian GDP.
A second key component to the development of any asset bubble is a new and widespread belief about the 'investment worthiness' of a particular asset. It's one of the key ingredients we discussed in an earlier post about the necessary components of an asset bubble. This shift in perception often occurs slowly at first, then builds under its own momentum as increasing participation in the bubble also serves to drive prices higher in a self-fulfilling loop. Yet this change in perception is often very difficult to measure. It's reported that Robert Shiller became convinced of a US real estate bubble after conducting years of surveys examining people perception of housing and watching respondents' perception of real estate become wildly bullish in the years leading up to the crash. I've explained why overwhelming majorities are contrarian indicators in a previous article.
Unfortunately, such data does not exist in pure form here in Canada. We can gather some insight from reports from CAAMP and RBC, both of which publish survey results, but the necessary historical data is not there from which to compare.
I don't think I need to argue too hard to convince most people that there is wide-spread bullish sentiment towards real estate and an equally pervasive view of real estate as inherently 'safe' and the easiest path to prosperity. However, the goal here is to quantify data in a way that avoids these anecdotes.
The best we can do is to explore data that should have a relatively stable long-term trend, and see if it instead shows a marked deviation from that trend around the same time that the bubble begins, which I would put some time around 2003 when prices began to experience a marked deviation from underlying fundamentals.
Today, Stats Canada released data showing investment in new housing construction, which, as Stats Canada indicates, shows "investment in new housing construction represent(ing) the spending value for individuals, enterprises and governments in the construction of new residential dwellings." This does not include construction investment for cottages, mobile homes, conversions, and renovations. If we compare this to a stable metric like GDP, we might expect that during boom times, demand for new housing would increase as participation in any bubble would have to be widespread. So what does it show?
Unfortunately, the data only extends back to 1994. Nevertheless, the trend is clear. The implications seem to be that either there are more people per capita building new homes, which seems a fairly sure guess given our rising home ownership rates across all demographics (see below), OR the values of the homes being built is increasing relative to GDP. Neither of these are sustainable, particularly rising values relative to GDP as it implies an erosion in underlying incomes necessary to support house prices and very likely is associated with rising house size and the emergence of housing as a predominant form of conspicuous consumption, a trend I argued would likely reverse course as it has in the US.
We can add this data to several other data sets that also suggest that shifting consumer perceptions and widespread participation seem to be a hallmark of the current real estate market:
Do these findings represent a new and stable norm in the Canadian real estate landscape, or is a mean reversion back to more stable long-term averages more likely? Unless we are willing to embrace the mantra that 'it's different this time', it's time to start wrestling with the implications...
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Bitchez ... GoldToTheMoon ... Thats all you really need to know right now.
Author is very focused on Price to Income
I wonder what the data would look like on a carrying cost to income basis
My guess is it would paint a far different picture, but of course that would not fit with his thesis and is therefore omitted.
I recall Rosie saying that it would take a 400 bps move in interest rates for him to start worrying about Cdn Re (VAN being the exception)
Nothing against part time community college instructors but I'm not sure Ben is really qualified to undertake such an analysis.
here's Ben on BNN
http://www.youtube.com/watch?v=JvNClShQapo
With all respect, nothing against ??, as I may have misunderstood your point:
It would seem that more and more homebuyers are newly relearning the importance of price-to-income, and are starting to keep their money in their pocket until they find something they can afford. Otherwise, they stay homebuyers, not homeowners -- otherwise known as "paying rent to the bank."
I suggest that, as in former times, price-to-income is becoming more important to homebuyers than perpetual carrying cost (as for yours truly).
Watch the interview with Ben he's calling for a 'giant' 20% correction and/or the possibility of stagnation
now to your question, if you go to Ben's site he spends a lot of time on price to income. I would suggest that carrying cost to income (and potential carrying cost) is a better metric. So to Rosie's point (if I can find the link I will post it) the trouble will come with a jump in lending rates e.g 400 bps.
There seems to be this insatiable need for some to assign to Canada or Oz etc the same disaster that the US experienced in its housing market. Look at the data and it was the sand states that got hammered after meteoric increases (increases far greater than even Vancouver has seen) . The dynamics are very different but yes if mortgage rates were to suddenly double then there would be hell to pay, alternatively if inflation / currency devaluation were to set in perhaps no. There are pockets in Canada that seem bubbly e.g. Victoria but then the DC area in the US isn't exactly cheap. Compare the dynamics of Phoenix and DFW. IN the end real estate is local and in a little country of 30mm spread across 3,000 miles generalizing can be dangerous.
Also a 20% correction would what bring prices back to 06 - and unlike their American cousins walking from your dump comes with consequences that will follow you for many a year.
Here is a (pdf) report on Canadian housing hot off the presses that focuses in on affordability (and yes there are some issues in that regard)
http://bit.ly/bTmc4m
Thank you, interesting reading.
That kind of correction would take out the entire equity if you had a standard mortgage with a 20% down payment.
Of course you may of had a 5% down payment. http://www.tdcanadatrust.com/mortgages/downpayment.jsp
Or a Canadian 0% / Cash back http://www.mortgagescanada.ca/info/mortgage-down-payment Also at the site you can tap your retirement account for the down payment.
Looks like the train wreck is a comin'
Edit: The above may explain some of the rise in cost of homeownership in Canada.
I guess a follow up question could be what percentage of households are carrying a mortgage with less than 20% equity at current price levels. And even if/when the market were to have such a move or greater it really does come down to carrying costs. Canadians unlike their brothers and sisters in the US can define the word hoser but the Canadian mortgage dictionary does not have an entry for "non-recourse". Liar loans, interest only and all of the insanity of the US bubble were not replicated in the Canadian experience. Getting a mortgage at your local "insolvent" Canadian bank includes a real credit check.
I don't remember if I got this link from here or not. Anyway, it's worth another look.
Vancouver Real Estate Rollercoaster
http://vimeo.com/groups/114/videos/11211712
Not only Canada. Australia and China are in the midst of real estate bubbles.
Again a misconception. Real estate in Vancouver is driven by cash buyers from asia who do not take out mortgages. Therefore, an increase in interest rates will not affect that part of the market in terms of rate adjustment impacting the ability to service or the ability to purchase, the way it did in the US. The main drivers for Chinese to buy real estate in Vancouver is to get their money out of China, and to put their wives and kids in Canada. It is effectively a way to buy them citizenship. This will not change if rates go to 10%.
This is correct there has been massive money flowing into Vancouver from Asia - esp. China since the late 1980's...
There is also a TREMENDOUS amount of dope money ("BC bud") which is being laundered into real estate in Vancouver.
This is NOT correct, the cash market is tiny compared to the 0%, 5%, 10%, etc down payment crowd. This is what a bubble do to people, they start to believe in their own bs.
thanks growyourownfood,
i have been hearing stories of vancouver's impending real estate holocaust for three years now.
it seems to me that many outsiders (and some locals) don't really understand asian investment in the vancouver market.
urban multi-residential development and sales is still booming in the vancouver. many purchases are cash, many are babyboomers downsizing (from houses) and the balance is cmhc approved/insured mortgages. anyone that has gone through the cmhc process knows how thorough it is. you can not get a high ratio mortgage without cmhc approval.
it is a supply/demand real estate market. prices reflect value and demand. anyone that has been to vancouver understands why people pay more to live here.
Here's what I understand about Asians. If they are rich Chinese they must have stolen the money because there is no way you could make that much honest money in China.
The only thing I'm afraid of in Vancouver is bedbugs. Gangs and high prices are a piece of cake.
hahaha, cash buyers. I grew up there. There is less cash involved then you think
I live right in Richmond BC and am quite sure I am on the pulse of things. First of all it IS non resident aliens from mainland China that are driving the stupidity. The reason they are swarming Richmond and Vancouver is because China, Australia and dozens of other countries now have anti-speculators taxes of approx 15% if a home purchaser sells before 1 year is over. The speculators have shifted to our area because our government doesn't care about whether or not its young people can ever afford a home here. Vancouver's economy will cave in if housing corrects and this is why there is an almost daily propaganda campaign in our local media asserting that home prices will level but never drop. The Richmond BC News last week had an interesting story
http://www.richmond-news.com/travel/Property+tourists+arrive+city+from+C...
which proves that the building industry senses trouble coming so in desperation they write things like this front page "story" which is more like a paid for advertising in my opinion. Vancouver citizens are nothing but pimpd who would sell their mother on a street corner to help pay their mortgages
Would any economists reading this PLEASE keep doing stories about how our market will crash? Many of us here would love to see these Chinese get burned big time and the industry pimps and the local government shills that invite them
....the parasite will always experience what the host experiences
Yeah I sent the articles about canadians banks being a joke to a lot of people... and most of them said MEH... everything will be alright, people will invest in Canada... because the US and Europe are crap.
I'm in Canada and I am proud to say I RENT! I tell everyone they are crazy to "buy" a house (if you can call it buying, doubt many people have $200K++ cash onhand) at these prices.
RY(Royal Bank) is leveraged about 30x and has maybe $5Tril, notational in derivatives. Eh, me worry?
Face it, Canadians are a smug bunch. Not for long. U.S. gets a bad cold, Canadians die.
Perhaps, but it's possible the Chinese will pick up the slack on Canadian commodities purchases should their huge population start consuming the fruits of their own labor, non? There's a good argument that the West consumes so much stuff from China, there's not enough left for the Chinese consumers themselves at the moment, so they save by investing in US paper.
whoops duplicate
wow, 15 minutes to begin the canadian bashing. impressive. who's insecure?
Meh, Canadians can survive for years on just hockey, beer and maple syrup. Besides if economic armageddon comes, it'll be just like a long term camping trip. If beer disappears? Yes, many Canadians will die.
And they say you can't cosume gold!
Don't be a hater... If the US ever wrestles it's manufacturing sectr back from China you're going to need Canadian raw materials and resources to run it...
inb4 threats of invasion
Was 2008 a bad cold for the US or the plague? All we caught was a bad fart from the south that lasted a week.
just devalue Canadian bitchez!!!
oops...looking at this article it appears you have engineered it perfectly and are on your way!!
Oh, if only little leo Quislingasskiss were still around to read this!
His responses undoubtedly would have been comical in the extreme.
I think Leo shared rabids outlook, most renters do.
wheres leo when you need him...
Yeah, Leo was to ZH what Joe Biden is to China. I miss him, somehow...
Like you miss that cold sore on your lip?
Every nation has a real estate obsession. Land Lordship, even of a measly 30ftX40ft plot in a choking, filthy city, has been sold to us as having arrived as a person.
There is a also a global mafia that drives construction booms in different countries, all through black/back channels. Bangalore is overbuilt and over-priced. Clearly something is amiss, eh? Russian mafia money, israeli mafia money and of course their Indian donkey mafia/goon money. I'm sure yuo can repeat that pattern in any city around the world.
Globally, real estate is a huge scam and in most countries, title is not allodial.
Vivek (ORI)
http://aadivaahan.wordpress.com
hey, thanks for the "vocab lesson"
Allodial title constitutes ownership of real property (land, buildings and fixtures) that is independent of any superior landlord, but it should not be confused with anarchy as the owner of allodial land is not independent of his sovereign. (wiki/ emph slewie's)
heavy advertiZing today, i see; every post, so far!!!
how many "anon-y-mouse" zH names and e-mails have you gleaned to date, or is that a "secret" between you and your banksters? do you, falakpenis, and the others, collaborate with yer "data" for TPTB?
please answer these two simple Qz, directly below, if you're not too busy "guiding" people to "Truth" elsewhere, ok?
you apparently like "data" to recognize the dumbest shitforbrained moronic asswipe "zeroHeads", while otherZ, here, prefer to do it, "intuitively"....
chacon a son gout eh, swami?
BiChez!!!
Couldn't be more spot on. Just change "Canada" into any Nordic country, France, Holland or what ever this same phenomenon raises it's ugly head. Like it did in the US, UK, Spain, Ireland etc where the bubbles have already burst and continuing the slide ever lower. It's just unbelievable that despite we have real time examples of housing bubbles gone horribly wrong, people in the countries where the "going is still good" in the housing markets fall into the same trap.
I haven't bought yet. I see other Canadians, and the way they live, and it's worse then the U.S. When the bubble bursts, and many are stuck underwater, and hundreds of thousands of Canadians lose their jobs, then it will be time to buy a home. Until then pile in PM. The only sure way to store wealth. That and a good shot gun of course.
bubble bursts, Canada prints, the currency devalues and **POOF** it's 1999 all over again!!
ahhhhh ... the goodness of NAFTA!!
Tyler, you going to post an update on what the teleprompter just said?
Gadhafi is done, according to the Obamaprompter. The will of the people be damned.
America continues it long history or meddlining in foreign affairs and installing puppet governments
disgusting really. We in the West are worried about our pathetic fraud also known as the economy... when people in the ME are fighting for their very lives. Despite the short term pain it will cause me, I have to feel that collapse of the U.S. and its war machine, with NATO, is the only moral outcome. sadly, this will probably only strengthen the grip of the zionist military industrial complex.
You're off-subject, Yahya. Difficult to insert the word "zionist" into a discussion of Canadian RE market, isn't it?
seemed relevant to the post above. but you are free to play mod if protecting zio machine feels important to you.
No relevance to the subject matter at hand, habibi. Keep on trolling.
Can we keep the petty ghetto ethnic squabbles out of serious threads please?
FYI - the entire "THE JEWZ"1 is so last century.
Wise up - the world has moved on from your tired obsessions, and now only sees a shit load of passive/aggressive nonsense, $3 bil a year for one side, $900 million for the other military spend, yadda yadda yadda. Just because the baby-boomers in Congress are still mired in the kabuki show, the youth are not.
The arguing of ethnic tensions between sock puppets is fucking dull. Go talk to God, both of you, I assure you (s)he cares more than we do.
i hope you're good w/ weaponz, b/c your "argument" boils down to: i'm younger than you are!
talk abt "petty": winner!
not that he or they are right, or that you are "wrong", but this is zeroHedge, and to declare an argument "dull" may work for you and yours, but maybe you belong somewhere else where "use of weapons" and mindless bullshitsky will work better for you than here, you ignorant fuk
oh, wait! beavertwat said it, so it must be true! and truth is sooo important to people with weaponz who want to kill people who are maybe raising a family, or helping w/ the grandchildren. so yer father fuked you in the ass. get over it and yerself too while you're at it, or,...just get the fuk outa here, and don't come back, k, toy boy?
+1
You're just jealous that the cougars dig my tight ass, and you're left with crumbs...
hey, b_B!
maybe tyler is not interested in providing this particular disinfo to the trolls, today
prez0 may have been fed some propagananda from his "swamis" that the moQ and two of his degenerate spawn fled "in a boat" yesterday, so, lay down yer arms, give up, and genuflect or whatever that is ("humbling & public 'respect' " or something, so everybody can see that you ain't no idol-worhipper?) to the "transitional" council, their "new & wunnerful, wunnerful" 'demo-cratic god'?
i reported this (obvious bullshit about fleeing by boat) when it "popped up" on this "TripPost" site, on a piece in which tyler sez: all we are getting from everybody outa libya is L-I-E-S: The Tripoli Post - Libya News and Business now, it seems, that this "news" item has been taken down, a rare occurrence, even for this great "Post" which has unflinchingly and unfailingly (as far as i can tell) posted the "stories" for every single lie from everybody, since allah was a little girl. hey! maybe they'll quote prez0, soon, just in case he "knows sumpthin"
who knows? but i've been checking this "rag" 3X/day for months: "all the rumorZ that are fit to print (and then some)"
rumor clouds, like word clouds, can help us see a bit more clearly thru the propagananda, sometimes...
...for ww.thoseWhoRinterested.com in such pastimes, of course...
I'm afraid the currency crisis will supercede any potential RE market crash as denominated in fiat.
Canadians are putting a lot of downward pressure on housing inventories in some U.S. locales such as parts of Florida. An outflow of these buyers would have an adverse effect on inventories and prices.
It was amercians bidding up 1 bdm. OSB boxes at Whistler for 750K, same as the Han buying up Richmond and Vancouver...clearly the obession with BC real estate was with people not from Canada.....check yur title.
It is the Canadian taxpayers that are on the line for most of the new mortages.
Any mortgages in Canada with less than a 20% deposit need to be insured by the CMHC.
They will be liable not the banks so the banks are probably not as exposed as the ZH article expresses.
Are mortgages in Canada full recourse to the borrower?
Full Recourse Mortgages in Canada. Almost all Canadian mortgages are “full recourse” loans, meaning that the borrower remains fully responsible for the mortgage even in the case of foreclosure. If a bank in Canada forecloses on a home with negative equity, it can file a deficiency judgment against the borrower, which allows it to attach the borrower’s other assets and even take legal action to garnish the borrower’s future wages.
True - In fact forclosures are rare in Canada - Normally in the case of default the property is liquidated under Power of Sale and the Mortgagee remains responsible for any shortfall.
Also, Banks usually service their own mortgages, so if a borrower were to get into trouble, they can work with them to adjust payment schedule, long before the foreclosure option.
Yes but then the owner can declare bankruptcy, stay out of the market whilst in bankruptsy and then start again.
Correct. Zero Hedge knows about as much about the Canadian housing market as the Montreal Canadiens I am sure. Funny how hard assets with actual use like homes can appreciate in value and the pundits scream bubble but useless assets like yellow metal can multiply 6x in value in 10 years without any concern.
Daniel Ivandjiiski cares far more about creating chaos and fueling the precious metals bubble and the downfall of the Wall Street elite class than the adverse consequences of his fear mongering on society. He has an agenda and an ax to grind with those who rejected him.
Remember that always when you consider his commentary.
This site reminds me of the Sopranos after the few first seasons. Amazing at the beginning and really raw and honest but overtime it just became dull and repetitive. Yet I kept returning to it for the same reason I come back to this site- just to see how it was gonna end.
Yes............the Canadian housing market will defy every asset and commodity known throughout history in every country and continue to appreciate forever and never correct. Canada is special.
Yeah thats the ticket were special, we are Royal, we own the Artic Bitches.
You think an F22 is impressive, wait till you see our stealth skidoos.
Homes do not, I repeat, DO NOT appreciate, unless something dramatic is happening with replacement costs. Instead, they depreciate, like every capital item. Land, on the other hand, appreciates/depreciates, as enumerated in fiat. "Home price appreciation" is therefore a misnomer.
You seem to be confused about the barbaric relic. You are also confused about ZH. The article was not written by its owner, so the ad hominem attack is totally out of place.
He published it along with the misguided bashing of the Canadian banks last week. He owns this site.
As a Canadian, let me say this... You are a retard.
Do you happen to work for the Globe and Mail?
I believe Ivandjiiski was drafted by the Vancouver Canucks after having competed in the 2006 Olympics in Turin. So no, he wouldn't know much about the Canadiens.
Thanks for the chuckle douchebag.
I know plenty of people in Canada involved in RE that tell me that you're the one full of shit. Any significant raise in rates and it's over. Hard to believe people can't see it when Vancouver is 11x income, or some utterly ridiculous number like that.
Vancouver is becoming like Monoco. Think of it that way.
You idiots store your 5-figure fortunes in gold nuggets that get flushed down the drain.
Chinese billionaires stores there 8-figure fortunes in peaceful, calm, boring, beautiful and politically stable cities like Vancouver.
One generates a 1.5% return on cost the other nothing. Who's the idiot?
Please tell me when you see someone flushing their gold nuggets down the drain. I will make them an offer to not do so.
You should also look into what the central bank of these genius Chinese billionaires you refer to is acquring.
"peaceful, calm, boring, beautiful and politically stable cities like Vancouver"
Dream on. Super crowded with heavy traffic issues. Shootings and murders too. Lots of gangs and drug wars. East Hastings? Surrey?
Been there plenty of times myself. Hardly a paradise.
And nice dodge on the affordability index assclown.
Second that!!!
Vancouver is nice from the inside looking out not the other way around.
Thrid that!!!
Crime in Vancouver is out of control
http://www.statcan.gc.ca/pub/85-002-x/2011001/article/11523/tbl/tbl06-en...
like with what, 4x the population of Seattle they had twice as many murders
http://www.fbi.gov/about-us/cjis/ucr/crime-in-the-u.s/2010/preliminary-a...
Seattle and Vancouver are almost the same size (606K to 640K) with metro Van being 2.3M and Seattle at 3.4M.
Both places are totally overrated. Rains all the time. I know, I grew up there.
Met a couple from Calgary the other day who just bought a house here in Wailea, Maui. They couldn't believe their good fortune of selling overpriced RE in Canada and buying here in a real Paradise. They were laughing at how stupid the prices were in Calgary.
A retired couple? Fuck them! I hope some fat smelly Hawaiian sets then right. And it's difficult for a Canuck to earn 250k a year living in Hawaii. Not that hard in Calgary.
No, they aren't retired. They were here visiting. They dumped their other RE there to buy here. They "get it", while some on this thread have their head in their ass with simple math.
Bay Pig,
It's a CITY, not a gated community. Of course there is some crime but overall it is an amazing place to live and extremely safe.
Is it affordable? No! Neither is Aspen. Neither in Monoco.
People around the world are storing their wealth in Vancouver (and to some extent Toronto) real estate because they would rather rent out and get a 2% return than risk confiscation by an oligarch or punitive taxation, or who knows what else is those back assward countries.
Canadian real estate is just like gold only it actually pays you a dividend and you can't flush it down the toilet.
Not to mention that Vancouver has the highest rate of drug addiction in the Western Hemisphere.
We'll see who's the idiot fairly soon.
I couldn't fine "Monoco" on the map. I guess the comparison makes sense because Vancouver isn't really "on the map" as a world class city as many Vancouverites insist, rather it is a wannabe city with no real economy other than marijuana, real estate speculation, coffee and sushi restaurants, organized crime and money laundering at The River Rock Casino and others and some tourism due to it's beautiful scenery. A REAL world class city has class and has a population with heart, something this city hass none of. Vancouver is always called "The No Fun City" due to an anal city council and bylaws that forbid its people acting like people and not politically correct zombies who cannot think for themselves.
So, I ask you what is a Monoco? Is it like a HongCouver?
Nonsense... New mortgages being underwritten in Canada today are being examined under a microscope. If you have so much as a blip on your credit score or ANYTHING questionable about your employment you can expect an LTV of no more than 70-80%...
For high ratio mortgages requiring CMHC insurance, as the LTV approaches 100% the premiums approach infinity...
It's a well funded insurance program - Unlike Fannie & Freddie.
Why are Canadian banksters any less incompetent and/or corrupt than those in the rest of the West? Why should governments insure mortgages? Have you ever wondered why government involvement is even needed? It's because mortgage default risk in Canada is being mispriced to the point where private insurance won't accept the premium or conditions of insurability that the CMHC does. The CMHC has the Canadian taxpayer to eat the losses from risk it should never have accepted in the first place.
That's not a bubble, it's an igloo.
Canadians are really smug with their "it won't happen here" and "we're better than Americans" attitude. Even the current prime minister and cabinet keep touting internationally how great things are in Canada and how stable Canadian banks compared to their international counterparts. What a bunch of rubbish. When the bubble bursts and the Canadian ecomony implodes, they'll be quick to blame everyone else but themselves. Sad country.
But don't you know that every single home purchase creates like 10 jobs!!!! That's what the TV commercial from the NAR told me.
An interesting thing to look into is the chart of home prices and mortgage interest rates prior to the formation of the National Association of Realtors and post.
I'll let you guess which side looks like a hockey stick. But, the NAR would never conspire to rapidly increase the asking prices of homes by manipulating things like appraisals just to increase the overall commissions paid to the different realty corporations. Nobody would ever do that!!!
The con job goes long and very deep.
Canadian Real Estate is keeping this guy busy: http://www.hgtv.com/holmes-on-homes/show/index.html
Now he's got another TV show: "Holmes Inspection"
"Perhaps the most defining features of an asset bubble is a marked and persistent deviation from the underlying metrics that once determined fundamental value." That would be the entire global fanancial market...
And to confirm the above: TODAY GOLD CLOSED AT $1900/oz.
What a pathetic rally. This is all the market can do.
I predict a 50 bs point drop in interest rates in the next 45 days. Twofold action: save real estate from collapse and devalue the $C dollar to boost exports. BoC is between a rock and a hard place.
Speculators are betting Canada will need to construct a huge amount of housing to accomodate the coming flood of economic immigrants from the United States.
I'd like to know in what way the Canadian economy is so dramatically different from the U.S. or Europe, other than its overreliance on natural resource exports. What exactly insulates Canada from being pulled down the drain with everyone else?
Kruger,
High ratio mortgages in Canada are insured by the government agency, CHMC. It hold all the risk of default, not the banks.
Canadian economy is heavily weighted in favor of natural resources like oil & gas, lumber, wheat, potash, nickel, etc. It is a resource driven economy, much like Australia.
It is also a very high tax jurisdiction and most of the country is boring as shit.
fyi.
ya corporate tax rates in Canada are devastating
http://online.wsj.com/article/SB1000142405311190480030457647640288101129...
Yeah at 16% its fucking northern communism run rampant.
oerhaps if large American corporations paid more than 12% tax, on average, tax, the deficit might not be so bad.
Brian's real beef is with the HELOCs Canadians have taken out. They are not insured by the CMHC and that trend in HELOCs is uh... noteworthy.
My question was, to rephrase it: what are the attributes of Canadian economy that would keep it from being flashed down the drain together with U.S., at a time of crisis?
Well, I think the answer was mentioned in one of the other replies, we're boring as shit. A bunch of very conservative people (not politically, just afraid of risk) live in Canada. Risk is encouraged in the States, but in Canada we don't like risk, any risk (well unless it's in hockey). We are over insured and are savers.
In my home town, Ottawa, the housing prices have only gone down 5 times in the last 50 years (-4.29% 1961 , -0.73% 1962, -0.4% 1994, 2.9% 1995, 1.9% 1996). This is not the first time houses have appreciated a great deal in a short time in the early 70's the prices accumulated like this (9.95% 1972, 25.28% 1973, 21.81% 1974, 6.37% 1975, and 10.05% 1976).
a much better propaganda machine where the media is controlled by the building and real estate industry !!!
There are pockets of Americana where real estate is just as stable as in parts of Canada.
Try and pick up cheap RE in Seattle or NY for example. Good luck.
Canada has 5 large cities.
Vancouver = Seattle
Toronto = NY
Calgary = Houston
Ottawa = Washington,DC
Montreal = Pittsburgh
Something like that.. anyone ever been to Canada knows that Canadians have no choice to live anywhere else but somewhat close to these big cities or spend their lives mostly indoors and remote.
RE in Canada is driven by scarce supply, high demand. Demand is driven by immigration into Canada where 1 new immigrant every minute makes a difference with only 33 million people.
Affordability? Who cares. People have to eat, drink, shit and shower somewhere.
FUCK YOU, comparing Montreal to Pittsburg, more like a combo of Austin and New Orleans.
It's best they remain ignorant, we got enough of them coming here already.
Scarce supply of what? Land, perchance? ROTFL.
The only supply-side argument that would work is that not enough land is being converted to development due to legal, special interest, and/or infrastructural constraints. On the demand side, you would need to see a dramatic spike in immigration to make an argument that the boost in demand was unanticipated and therefore developers didn't have enough time to bring the product out of the ground.
Take a map.
Look at Canada and where infrastructure is located.
Majority of Canucks live close to US border and whereever main access to infrastructure is located.
Infrastructure may be developed. This is what growth planning is all about. Since Canada has had sustained immigration for a long time, I don't see how this is a factor.
canucks are not entirely diff from us yankz in that, even w/out their RE "equity" they are still pretty "rich" compared to many other nations, no matter what the styooopid goobermint and the fuking nannies try next...
but, they also have the "royal family" to support, too, just in case queenie ever decides to stand up for truth, justice, and the irish way!
oh wait! she'll melt into tiger butter if she steps outa line, right? with her degerate spawn, how cld even she give a flying shit at this point?
The monarchical system has merits but is not perfect. Someone of your obvious intelligence should be able to see the merits. I am however, surprised you spew venom at the Queen. She has been a good role model and figurehead at times when politicians are regularly exposed as scumbags and lying powermongers.
ok, fair enuf, but neither canada nor GB is a monarchical system imo. to me they are parliamentary systems.
i can be too venomous at times, and perhaps i was, here, sherry, but my point was not that she hasn't been a "good" role model and figurehead but that she has been only a "good" model and a figurehead, not to mention she is so freaking rich that she could care less abt lying scumbags and powermongers
maybe she even likes them, b/c she doesn't rock the boat. all she does is collect rents and draw her pay, and follow the "meyer of The City" around
all form, very very little substance. maybe b/c she is "powerless" before parliament, but she really isn't is she? maybe she chooses to be "powerless" as a "strategy" and that's not ok, to me, today, with the messes. if the liars & scumbags are criminals maybe she shld "take a chance". maybe she works "behind the scenes" but, in her 60th year of 'Office' her subjects, especially in England, seem hopelessly oppressed, especially financially, not that americans, aren't, also, and just as gutless, too, in general
obviously, many people love her and even in america, people are generally so conditioned to give her rapt attention, that, whenever anything happens in her family, we just can't get enuf of it, either. i mean if everybody is talking about the queen, how could anybody not be interested in what is going on w/ her?
so, i push that, don't i? if her subjects need to hear the word of Justice! why doesn't she speak it? because her word of justice is also all form, and very little substance, if any.
if her people need something and she just can't address their real needs, what good is she, really? why can't she say it? i'm just a rude commoner. so what? if i have a voice, and she doesn't, and the same is true for millions and millions who call her my queen and "respect" the ermine, or whatever, how good of a job is she doing? if her people are losing their freedom and hope, and she just cruises along while it ebbs and sez "oh, what a pity"...
and she's head of the church of england, too isn't she? what if someone stood in the pulpit and called her o-u-t? wld he or she have the freedom to do that? or is the whole scenario just "unspeakably horr-r-r-rid?"
...well, you made your point, and i hope i have too, ok? if tyler puts up a piece and uses the term "mass psychology" where the hell is she really gonna hide, here? as far as i'm concerned, fair or foul, she ain't!
Quite funny reading these comments. I have been a realtor for 27 yrs. Sold in Mexico and various CANADIAN cities. I like to get a gist on whats going on by moving. This will all end badly, like it did in the 80's. It took 13 yrs for it to break even..I have watched people miss trends so many times and get burned losing it all. The trend today is GET OUT of Real Estate! People actually believe things last FOREVER. I sold a house in 2000 and put the ENTIRE amount in GOLD and SILVER. Take that to the criminal banks.
Enjoy the ZH - Vancouver ride one more time:
http://www.zerohedge.com/article/vancouver-real-estate-market-rollercoaster
CDepression, lived through
80's crash Alberta, 18pc mortages, collapse of entire
city, this time in cowtown, so
much more diversity of economy
and so much immigration I think this will cut down on the implosion, but we got our house
for 65K in 86 and today well
can't give that secret away but,
save with hopes the market
is way overpriced and buy
on collapse
.. Im guessing your realtor career hasn't been exactly flourishing now has it.
I was listening to a real estate show and felt really re assured. Despite the fact Condo sales are up 35% year over year and there are literaly hundreds of cranes busy making new condos, there is a shortage, yes Toronto has a condo shortage Bitches.
You ever look at the percentage of Canadian consumer debt?
Oh, that's right. It doesn't matter. RE always goes up. Especially in Canada.
While the Canucks were having a field day, running the US into the ground last year, they were not aware (for the most part) they were idiots.
They did exactly the same thing WE did in the RE Mkts.
Lessons unlearned.........................tend to repeat.
Remedial Thinking Class 101.
People born in the 70s grew up listening to our boomer-aged parents tell us to buy real estate, it will always go up in value. There seems to be this philosophy that if you don't assume hundreds of thousands of dollars in debt, then you have failed in life.
No thanks. I rent.
When I was in school, I took a course on housing and they told you that you should not borrow more than 3x your yearly income for a home. Good luck doing that here... unless you plan on living in some small town where there are no jobs.
I have been investing in Canadian real estate since the early seventies. At the present time here in small town Ontario I can buy a 3 bed 2 bath bungalow for $150,000 and rent it out for $1250 a month. That is $15,000 a year or a 10% return. Of course I have to pay taxes and insurance, that cuts it to a 7% or 8% return. If I want to soup up my income I can buy more houses by borrowing at 3 or 4% and buying more but at the present time I own everything outright.
Now do I really see my house values bombing? Not really. I expect inflation to continue and if the economy stalls I expect the government to pump the inflation higher.
What about a hyperinflation/currency goes to zero scenario? In that case, I expect to come out the other side with my property and precious metals intact.
What is funny is the number of people on this site, and other places, who believe farm land is a great investment while houses are a terrible investment. But farmland has no cash flow. What you get in rent is about enough to cover the property taxes.
My money is in gold, silver, and small town rental houses. Please tell me what I can invest in better. Bonds? Stocks? Mutual funds? Don't make me laugh.
Seriously, if there is anything better and safer than Canadian rental houses with positive cash flow, or precious metals, I would love to hear about it. I don't particularly like the investments I have but everything else sucks.
I think people are talking more about the bubble prices in the big cities in Canada. Speculation doesn't affect smaller towns as much.
Specifically, they're talking about the Chinese driven bubble prices in the big cities in Canada. Not sure of Tyler's angle here, but there's enough hyperinflation of prices in the last 5 years to warrant it - and before everyone gets all excited, he wasn't the first to raise it.
June 29th
The firm says a burst housing bubble would shrink real estate investment and hurt consumption — two things that would considerably slow economic growth.
This decline in consumption would mean a slowly rising unemployment rate as well, according to Capital.
The company says Canadian house prices are overvalued by approximately 25 per cent, close to excessive levels seen in the frothy U.S. market at its 2006 peak.
http://www.cbc.ca/news/business/story/2011/06/29/housing-bubble-capital-...
Yep, that's a Canadian paper covering the Capital Economics report - so what the fuck the Globe and Fail is smoking, no-one knows. I'm presuming that was Tyler's meta-level snark...
Looking back, I'm reminded of NE Australia & the Japanese - oh, wait. I'm three months ahead of myself. Damn Delorean.
Disagree with you on farmland, but for the rest you're bang on.
Think of farmland as "FARMAGGEDON"
Farmland with good soil, good access to water supply and good exposure to sun is rare. I hold a few acres myself and enjoy the fruits of that labor very much every day. If all else fails, steady supply of food and water will dominate everything.
But if you're nice, I will take your silver and gold in increments and share my meat, dairy, vegetables and so on..
Horses don't require plug ins or gasoline. Just saying.
Smart people are looking into this - engineers modding easy to find materials to produce modern farming. Anyone serious about producing their own land needs to get on this link immediately - free blueprints as well:
http://opensourceecology.org/
You're wrong though - horses are fucking expensive. Each horse supports a massive network of service economies.
Hay
Straw / Shavings / Paper for bedding
[both require mechanical services / gas, unless you've access to peasant labour]
Farrier
[steel, forge]
Vet
[modern pharma, higher education, some sophisticated tech unless you're willing to write off investment the moment cholic strikes]
Hard Feed
[industrial sized production]
Tack
[leather > other animals for leather, tanning, metallurgy etc]
Waste disposal
[Burning / composting of poo, requires transport and / or specific knowledge]
Etc etc
There's about 10 different industries that rely on horse ownership, with the owner paying for all of them. That's not to mention the ecological know-how required to run a small / medium sized farm without agrochemicals.
And yes, I've some experience.
You're overthinking it. Horses have been of great use for mankind through the millenia. When we're unable to power our beloved cars or tractors, we can still rely on horses. When we can't use tractors to harvest hay or straw, we can still have horses feed off the pastures or use manual labor to bring in the harvest.
The farrier is gonna come walking if he has to.
But I will give you that horse ownership under current conditions is expensive. It doesn't have to be when the shit hits the fan though. That's another story for another day not too distant in my future.
Shires are a dying breed - modern horses are useless for agriculture. Your major problem is that due to selective breeding, modern horses can't function in the economy you're suggesting. If your horse isn't a retro model, it is a liability - and shires cost exponentially more in costs.
And yes - my ex had a shire, and I've run equestrian businesses in the past. So, no, I'm not over-thinking it, I'm actually being very honest & practical about the experience.
p.s. There's some value in hardy cobs - tough, small, and light on feed costs. Just don't think that thoroughbred is of any value, despite how spanky it looks with your girlfriend/wife in tight jodhpurs on it.
p.s. OSE is looking for peeps to join their team.
http://blog.opensourceecology.org/2011/07/dream-team-sixteen/
Who in their right mind would pay 1250 a month to live in bumfuck Ontario? You could rent an apt in Montreal or Vancouver for that monthly sum.
Well it is good to see some feathers got ruffled. WoW even a bank minister had to come out for a little web site to explain things at the G&M. Historically speaking all housing goes into a bubble and will pop when valuations are too high for most people to pay. Like the USA many Canadians can now buy with 0 down. So your government backs the mortgages. That does not change anything. Values cannot continue to climb in the housing market. There will come a time when they will pop.
The USA may indeed cause the pop when no one can buy canadian goods. Even with your vast natural resources does not mean you are immune. Guess what 9/10ths of the USA is still undeveloped. I applaud you for your patriotism but questions were posed by the article and some got their panties in a wad and want to come here and tell the site they are jerks and assholes and do not know what they are talking about. It seems strange this folly is still going on with M&B. Maybe as a Canadian you should be asking these questions and not ZH. No country including Canada is immune to the financail markets of the world.
After reading the comments in your own G&M it appears even alot of your countrymen and women come here to get some insight. What you take from it is up to you. Everything here is not always correct. Everything here is not totally unbiased as you should know. But ZH has hit the target more then any MSM site in the world. That speaks alot for the site. Why even come here if all you want to do is cry foul because ZH published an article with speculation in it. Nothing was stated that you are next, the examination in the article posed a question of are you next. People of countries all over this world including the USA have their heads in the fricking sand. ZH is helping to open some eyes even if you do not agree with them. That is ok. The funniest thing of all is now Canadians are questioning the truth of their system and to me ZH opened some eyes.
We may be jerks and as one woman spoke of some avatars look like soft porn, but she still endured it to learn. Maybe some of you may want to come here to read and learn and blow off the shit that means nothing to you.
If you came here regularly you would know we even dis our own countries financial and politicial classes, what makes you think your better?
+1000
We're not better. As soon as the elephant rolls over, instant mouse pancake.
ENJOY THE THIRD WORLD, COMMRADES.
Massive Bubble! My frined just sold his condo in Vancouver for over $800,000.....he only paid $285,000 for it in 2004. There is NO Way salaries have kept pace with this Bubble.
Any week now....POP!
Correct. No way Chinese salaries have kept up with a 300% increase since 2004, more like Chinese salaries are up way more.
holy shit Tyler...are you kidding? another shit article about the state of Canada...wtf
yes theres a major bubble in Vancouver and to a much lesser extent in the greater Toronto area but THATS IT!
youre really starting to lose alot of cred north of the border...
The writer of this article is actually some deadbeat who teaches at a community college (lol) but because this topic fits with the current theme of 'Canada is the next domino', the admins decided it would be a good segue into the ever-discussed Canadian RE market.
Some facts on why, yes, Canada is different.
When we start seeding CDOs come back into play on CAD RE, and possible NINJA loans or CAD tv shows on flipping homes for profit, im willing to restate the facts and have a solid look at a possible bubble. Until then, theres no point to argue an unfactual argument.
double post....
Wanna see a housing bubble....try Australia!
How about the Australian Realestate market. Not there is some sky high prices.
Lotta people going to hurt when the bubble bursts. So many extracted equity as values rose, now they'll end up owing $200k on a home worth $150k could be tough to renew a mortgage. Talked to a friend yesterday, they'd used their home as an ATM last few years, pulling every penny of equity out to blow on toys and pay off maxxed out credit cards, seemed like every 6 months they did this. I said "Sell. Now. Rent for a while. Bubble's gonna pop and you'll be left in bad bad shape." He's talking to an agent today.