Canadian Housing Question

[Aetius Romulous]

Re: Canadian Housing Question

I don't think you can talk about the Canadian economy without mentioning the strange and unique society that is Canada.

Canadians are different than Americans in many fundamental ways. Their attitudes to money, greed and profit are far more muted. The Canadian government is vastly more "socialist", and exerts far more influence and control than does the American. Canadians are less speculative, more staid and conservative in their value sets as a group.

Additionally, Canada just may be the most "immigrant" friendly nation in history, and even with the batshit craziness raging next door, Canada remains free of much of that overt fear and prejudice. I don't have the data at hand, but I believe you would find immigrants to Canada settle in and adopt the Canadian dullness happily and successfully. This has no small bearing on housing. In Vaughn, north of Toronto, tens of thousands of homes have been built and occupied by immigrants who construct self sustaining communities with a mix of their old world financial customs and the Canadian system. North Toronto is riddled with huge, gleaming new Mosques and Temples surrounded by sheets of new homes that comprise the community. These comunities are readily absorbed into the Canadian fabric and form an invisible part of every statistic.

So much of the crash and collapse south of the border occurred not simply because of data points and interest rates, but because of the attitude Americans take to consumption. That is simply not the case in Canada. You can see it in the cars we drive (smaller), the clothes we buy, and the toys we accumulate. Few Canadians see their home as an open ended ATM as Americans were wont to do.

So the success of the Canadian economy versus the rest of the industrialized world recently has as much to do with policy as it does with social custom and attitude - stuff you can't measure but should.

The Canadian economy will fluctuate, as all economies do, and there are macroeconomic winds that will blow across the land regardless. However, the frozen Canadian pshyche will always have a mitigating effect that will ensure Canada remains dull and plodding, invisible and without notice. Turns out, it is good to be Canadian - whatever being a Canadian is.

[LargoWinch]

Re: Canadian Housing Question

Canadians are different than Americans in many fundamental ways. Their attitudes to money, greed and profit are far more muted.

Really? Call me greedy, but I am Canadian and I want to make as much money as possible. That myth that Canadians are nicer, less greedy than Americans is a very superflous and extremely subjective argument in my view.

The Canadian government is vastly more "socialist", and exerts far more influence and control than does the American.

I do not agree here again. In the US they own Freddie, Fannie etc. while in Canada we have CMHC: our systems are very similar. Even if that were true, how does this benefit the housing market?

Canadians are less speculative, more staid and conservative in their value sets as a group.

I disagree: See my first point above.

Additionally, Canada just may be the most "immigrant" friendly nation in history, and even with the batshit craziness raging next door, Canada remains free of much of that overt fear and prejudice. I don't have the data at hand, but I believe you would find immigrants to Canada settle in and adopt the Canadian dullness happily and successfully. This has no small bearing on housing. In Vaughn, north of Toronto, tens of thousands of homes have been built and occupied by immigrants who construct self sustaining communities with a mix of their old world financial customs and the Canadian system. North Toronto is riddled with huge, gleaming new Mosques and Temples surrounded by sheets of new homes that comprise the community. These comunities are readily absorbed into the Canadian fabric and form an invisible part of every statistic.

I understand that the US has a lot of immigrant as well coming from Mexico. My point is this: who cares about immigration when it comes to RE valuation? Are all these immigrants rich oil sheiks? Of course not. More likely they are earning the median income (if they are lucky) after establishing themselves. So how come immigration is a justification for overpriced RE?

This is a straw man of an argument, which is usually followed by "they do not make any more land".

So much of the crash and collapse south of the border occurred not simply because of data points and interest rates, but because of the attitude Americans take to consumption. That is simply not the case in Canada. You can see it in the cars we drive (smaller), the clothes we buy, and the toys we accumulate.

Oh really? Have you visited an Apple store lately? All Canadians are lining-up - just like Americans - to buy the latest gadget on credit. Are you saying there is no Wal-Mart here? No Banana Republic? No American Apparel? No Gap? No Best Buy? It is all the same. As for cars, well, people here do not only buy Ford Focus, a lot of F-350 and i530 everywhere I look.

Few Canadians see their home as an open ended ATM as Americans were wont to do.

Again, I disagree: CanadaLend.com baby!

It is amazing that these ads are still running 2 years after the US collapse.

The Canadian economy will fluctuate, as all economies do, and there are macroeconomic winds that will blow across the land regardless. However, the frozen Canadian pshyche will always have a mitigating effect that will ensure Canada remains dull and plodding, invisible and without notice. Turns out, it is good to be Canadian - whatever being a Canadian is.

Don't get me wrong, there are a lot worse places than Canada, but to say that we are head and shoulder above the US, I say bullshit.

The main thing going for us is that we are a net oil exporter, but this discussion is about real estate.

I said it several time in this thread and I will repeat it again: the only measure of housing affordability is median house price to median household income. Period. And I am affraid that this ratio is currently severly out of balance in Canada, and not in a good way.

[Aetius Romulous]

Re: Canadian Housing Question

I can agree only that my post is largely subjective. So I stand by it.

There is a great deal more to human beings than data points.

[Spartacus]

Re: Canadian Housing Question

I understand that -- but why Vancouver, and not Montreal? It is not that there is a huge exodus of population from Montreal, Ottawa and Toronto to Vancouver.

equal per-capita credit flowing into a much smaller market.

And Vancouver is land-constrained, like Manhattan, Zurich (I'm unsure about this - anyone want to verify?) and Hong Kong - unlike Toronto's and Montreal's ever-expanding burbs. There are a couple of Montreal sub-communities that I think are constrained and those are reported as massively increasing in price too.

This is one of those grains of truth that in a realistic world would raise Vancouver prices a little bit but not a lot(Vancouver is NOT Manhattan), but the boosters get a hold of the grains & turn them into avalanches of boulders, and easy credit greases the wheels furhter ...

[don]

Re: Canadian Housing Question

Speaking of data points, the pdf has a number of graphs, some of interest like Price Drops from an Orderly Deflation.

The link again is: https://s3.amazonaws.com/policyalter...ing_Bubble.pdf

[blazespinnaker]

Re: Canadian Housing Question

Why? If inflation starts in earnest, CBs will be forced to raise rates (even though rates will remain negative in real terms).

The increased rates means that when the "mortgage rate reset" occurs (every year to 5 years), borrowers will be left in the dust.

There is no "inflating your mortgage debt away" in Canada: homeowners will be it with higher payments and lower/negative equity on their houses. As I said, a disaster insured by CMHC (in other words, the $CAD bonar).

Exactly, negative real rates. Look at the price history of Canadian real estate and you'll see it's always gone up after the pressure of negative real rates. Perhaps RE won't go up anymore, but it might stabilize.

[LargoWinch]

Re: Canadian Housing Question

Exactly, negative real rates. Look at the price history of Canadian real estate and you'll see it's always gone up after the pressure of negative real rates. Perhaps RE won't go up anymore, but it might stabilize.

Actually, it seems I disagree with everyone posting on this thread these last few days [except Sparta]

So, there, I disagree with you blaze:

Negative interest rates may support RE for a while, but my point is that what counts is median house price to median household income. Look at the US: neg. i-rates and see the mess? See gold prices? Ag prices? Yeah great job CBs: asset deflation, but price inflation in commodities due to dumb policies.

[Adeptus]

Re: Canadian Housing Question

I understand that -- but why Vancouver, and not Montreal? It is not that there is a huge exodus of population from Montreal, Ottawa and Toronto to Vancouver.

Rajiv:
1) Vancouver is the largest city in BC in terms of population. BC is known for its world renoun BC-bud (marijuana). Estimates are that a minimum of 5% upwards of 10% of BC GDP is from illicit marijuana growth & sales into the USA. Real estate purchase is just one way to launder that money. Further, houses with large basements are required to run large grow ops.
2) Vancouver has a very large sub-urb called "Richmond". With BC being on the West Coast and facing Asia (much unlike Montreal & Toronto), we get the majority of Chinese immigrants (the #1 type of immigrant into Canada for many years until this year - it's now East Indians, Chinese=#2). Chinese (and even Indians) have a highly speculative culture when it comes to investments - just look at their major stock indexes in the past few years. In order to get into Canada, immigration laws of the past ~10+ years or so require that people are either highly educated (Bachelors minimum in most cases) or very rich. Either of which spells housing affordability for immigrants, but I would still venture to guess that speculation is rampant in Chinese and to a lesser extent in the East Indian communities.
3) Another reason why Vancouver and not Toronto or other more Eastern cities is because we had the 2010 Winter Olympics here (and paraolympics), and for 5+ years before that, Realtors would blurb at every chance that real estate is going up because we have the olympics and foreigners are going to look at how nice Vancouver is and want to move here (I know, it's laughable to a great extent, but soon there after, this was coming out of every investor's mouth, regardless of the fact that real estate was already sky high). To give you a jist of just how far the propaganda was, our government decided to change our license plates that now say "BC THE PLACE ON EARTH" (!!!).
4) Vancouver has much better weather than any of the cities in eastern provinces, it only snows for about 1 max 2 weeks in a year, versus 3-8 months in most other cities, although Vancouver seriously lacks sunshine compared to even more Western cities like Victoria, and they get lots of rain instead.

Those are the main reasons why Vancouver and not Toronto/Montreal off the top of my head.
-Adeptus

[blazespinnaker]

Re: Canadian Housing Question

Actually, it seems I disagree with everyone posting on this thread these last few days [except Sparta]

So, there, I disagree with you blaze:

Negative interest rates may support RE for a while, but my point is that what counts is median house price to median household income. Look at the US: neg. i-rates and see the mess? See gold prices? Ag prices? Yeah great job CBs: asset deflation, but price inflation in commodities due to dumb policies.

Yup, the US is frigged, no doubt about it. Too many people, not enough money.

Canada, on the other hand, has 1/10 the people and a greater land mass filled to the brim with rich resources. We live off of the fat of the land.

Anyways, I think we both agree a correction is coming. The question is how much that correction will be.

[GRG55]

Re: Canadian Housing Question

Actually, it seems I disagree with everyone posting on this thread these last few days [except Sparta]

So, there, I disagree with you blaze:

Negative interest rates may support RE for a while, but my point is that what counts is median house price to median household income. Look at the US: neg. i-rates and see the mess? See gold prices? Ag prices? Yeah great job CBs: asset deflation, but price inflation in commodities due to dumb policies.

The real world is more nuanced than that LW. If your repeated assertion was indeed all that really counted...well, there would never be a housing bubble anywhere, anytime, now would there...

[c1ue]

Re: Canadian Housing Question

The issue of a collapse in Canada is a function of its growth and its monetary policy.

Clearly Canadian monetary policy is going the print and spend route.

But were the rest of the economy growing, this might not be as serious an issue.

A 100% overshoot in RE prices would moderate if the Canadian economy were growing at 8% - in about 15 years. In this scenario, the house prices are merely anticipating future economic (and presumably wage) growth.

However, if growth is actually 4%, it would require 40+ years to catch up.

This is a totally different scenario.

So on to the next question: is Canada growing like China purporting to be? And what is the likelihood of present growth rates to go up/down/stay the same in their respective 'catchup' time periods?

Extension of this principle to the US shows just how bad things are.

[blazespinnaker]

Re: Canadian Housing Question

The issue of a collapse in Canada is a function of its growth and its monetary policy.

Clearly Canadian monetary policy is going the print and spend route.

No, the US is going print/spend route. Canada is structurally tied whatever the US does. If we were to cut our ties, our entire economy could fall on itself face tomorrow.

But were the rest of the economy growing, this might not be as serious an issue.

A 100% overshoot in RE prices would moderate if the Canadian economy were growing at 8% - in about 15 years. In this scenario, the house prices are merely anticipating future economic (and presumably wage) growth.

However, if growth is actually 4%, it would require 40+ years to catch up.

This is a totally different scenario.

So on to the next question: is Canada growing like China purporting to be? And what is the likelihood of present growth rates to go up/down/stay the same in their respective 'catchup' time periods?

Extension of this principle to the US shows just how bad things are.

People simplify the issues too much. There are factors at play that people don't quite understand on either the bull or bear side.

[GRG55]

Re: Canadian Housing Question

...Clearly Canadian monetary policy is going the print and spend route.

...

You may be correct, but in the early 1990's Canada came as close as a developed economy can to an IMF intervention, without it actually happening. That was an epiphany for the political and "politically well connected" class in our country, although it apparently came as no surprise to a great number of common-sense-filled ordinary Canadians ["ordinary Canadians" is a much overused description of the rest of us, that our politicians like to trot out every election campaign...we are all still waiting for the first authenticated sighting of a real "ordinary Canadian"].

That is what prompted the austerity program that resulted in Canada being the only G7 nation to run budget surpluses [for 10 consecutive years!!] prior to the onset of the financial crisis. There is still less tolerance for ongoing Federal deficits here than might be south of the border...but I fear that our government has created the foundation for structural rather than cyclical deficits, and will, over time, find it increasingly difficult to wean the economy from that source of stimulus. The only good thing I can say about the government largesse is that much of it seems to have shown up in 2010 in the form of infrastructure...seems to me that every damn highway in the nation has undergone repaving, expansion and/or bridge maintenance this summer.

Edit added: In my trips to the west coast this summer, I noticed that some of the infrastructure roadworks there was bringing public structures up to the current earthquake standards...which in light of the recent experiences in Chile and now New Zealand, seems a sensible way to invest public funds in that Pacific Rim seismic zone.

[blazespinnaker]

Re: Canadian Housing Question

Funny how those budget surpluses coincided with the emergence of the BRIC economies. I think you'll see a lot of parallels between our economy and Australia's. Now I wonder why that might be...

Canada's so called management miracle is mostly a result of our small population living off the fat of the land, our tiny military, and our proximity to the largest economy in the world.

[GRG55]

Re: Canadian Housing Question

Funny how those budget surpluses coincided with the emergence of the BRIC economies. I think you'll see a lot of parallels between our economy and Australia's. Now I wonder why that might be...

Canada's so called management miracle is mostly a result of our small population living off the fat of the land, our tiny military, and our proximity to the largest economy in the world.

The tax policies of the Mulroney government, particularly during Michael Wilson's term as Finance Minister [GST, partial de-indexing of tax exemptions, conversion of tax exemptions into credits, etc.] greatly benefited the Chrétien/Martin Liberal government that followed...which got all the credit. This massive compound tax increase over many years had a material impact on reducing the Federal deficit.

I serve on the Board of an Australian headquartered company the I co-founded. I find there are many similarities in the attitudes of the people, the politics, and the economies. They seem to have a remarkable number of the same "bad habits" that we do here in Canada [and I am not talking about our shared fondness for beer and bikinis].

What would you suggest? That we ignore our natural legacy of resource and agricultural wealth, thumb our nose at the largest economy and market right next to us [Trudeau tried to advocate that in one of his less lucid moments I recall], and expand our military to defend those northern igloos? Everyone tries to play to their strengths...why would Canada be different?