The Elusive Canadian Housing Bubble

[santafe2]

Re: Who is paying for this?

And, I think the same applies to Sydney.

Chinese millionaires love North America. But apparently NA is not returning that love. US EB-5 Immigrant Investor rules have kicked in after the program was completely subscribed for the first time in 2014. These rules require that no more than 7% of investors are accepted from any single country if the program is fully subscribed. In 2014, 85% of applicants were Chinese, (most likely a combination of Mainland and Hong Kong). Canada has suspended their national Immigrant Investor Plan as of early 2014. Ontario still has an active program which may partly explain Toronto's housing boom. Australia is next on the list of desired locations.

[GRG55]

Re: Who is paying for this?

And, I think the same applies to Sydney.

Sydney is comparable to Toronto. Both benefit from being their nation's financial center, and during any credit boom the banks benefit and therefore the banking centers lead the price parade. This is true all over the world, London, NY, Tokyo, Singapore, Dubai and so forth.

For many, many decades Toronto property prices were always the highest in Canada. In addition to being the financial center of Canada it is the largest city in the nation and has by far the most diversified economy. Often in the past Vancouver wasn't even #2 or #3 after Toronto. Now Vancouver SFH prices are nearly 50% greater than Toronto. This would be like Adelaide 50% higher than Sydney. Illogical.

[GRG55]

Re: Who is paying for this?

We might disagree around the edges but without foreign buyers, it's unlikely Vancouver real estate would be even close to these prices. Certainly Canadians didn't all-of-a-sudden find Vancouver irresistible. All markets are finite. In any market where there is more demand than product, the product continues to move up in price. Americans and Chinese buyers have seen a moderated market price from their monetary point of view. Canadian buyers are chasing an unrelenting market price and they're not happy about it.

Here's a resent article:
http://business.financialpost.com/pe...foreign-buyers

It doesn't matter who the buyers are, it's still basic economics. If there are 99 widgets and 100 buyers, the widgets don't go up by 1%. There is nothing linear about markets out of balance. If there are 10% too many buyers a product can easily move up 100% in price. Vancouver housing is a 21st Century tulip.

Anger towards foreign (read Chinese) buyers is because they are a convenient scapegoat for the consequences of Canadian's own nitwit behaviour. It is always easier to blame someone else. This anger is now being stoked by our worthless Federal politicians and has been used by the real estate sector in Vancouver for some time now to flog condo-minimums. One developer got caught, but not until after the whole made up scheme was aired on the evening television news. He hired two lovely local Chinese gals, had them pose as the daughters of wealthy offshore Chinese businessmen looking to buy expensive apartment units, then called in the television cameras to interview first them, then him as he promoted the line that Canadians needed to get into the market NOW before they are permanently priced out by all the Chinese buyers clamoring for his product.

Real estate is an emotional buying decision for most people. The property mongers and assorted professional groupies that hang around with them (mortgage brokers, real estate lawyers, appraisers, etc.) know this and play that game. The complete lack of information transparency from Canadian Real Estate Boards and their ability to excommunicate anyone that tries to break their club rules works against the buying public. They wouldn't have it any other way.

You are absolutely correct...it doesn't matter who the buyers are. And if it really was the Chinese (or other rich foreigners) buying luxury digs in Vancouver, then how does one explain the skyrocketing prices in recent years in places like Coquitlam, Surrey, Abbotsford, Matsqui, Maple Ridge and Mission? Chinese millionaires? Not bloody likely.

But there is absolutely no supply and demand "basic economics" to this mania. It is pure emotion trumping logic + abundant cheap credit + everybody on the same side of the deck - from the Bank of Canada Governor, the Prime Minister's office, the banks & credit unions (TNL@TB), the Boomer parents (lending the kids the down payment), the peers (only stupid people throw away money on rent), and the rest of the now rather considerable property industry in this nation of fools.

Think I am kidding? Here's a recent sampling:



Exhibit #1 From the "Obviously Credit Isn't Cheap Enough. Yet." file:

Banks cut prime lending rates after Bank of Canada slashes benchmark rate to 0.5%

2nd time since January that central bank has cut lending rate

Posted: Jul 15, 2015 10:07 AM ET Last Updated: Jul 15, 2015 10:55 PM ET

Canada's big banks have all cut their prime lending rates following the announcement that the central bank had lowered its benchmark interest rate to 0.5 per cent.

It was the second time this year the Bank of Canada had dropped the rate to stimulate the economy, after holding the rate steady for about four years...



Exhibit #2 from the "We Do It All For You" file:

Good times for Vancouver mortgage shoppers

By Vancity Buzz
11:14 AM PDT, Wed May 13, 2015

Here’s some good news for Vancouver mortgage holders and those shopping around for a new home. Earlier this year, the Bank of Canada lowered its key interest rate by 0.25% – but what’s all the fuss? We’ll dig into it, but first, since we’re going to be knee-deep in financial jargon, let’s define a few relevant terms right off the top.

• Key interest rate: The interest rate at which banks and lenders can borrow money from the federal bank, in our case, the Bank of Canada. Also referred to as “the overnight rate.”

• Prime lending rate: The interest rate at which banks lend money to their most trusted or secure customers on short-term loans.

• Variable mortgage: A mortgage where the monthly payments stay the same, but the interest rate applied to the mortgage can fluctuate periodically.

• Fixed mortgage: A mortgage where the monthly payments and interest rate remain the same for the duration of the term.
• Vancouver: A city where it has proved difficult to afford the purchase of a new home.

So, how does the key interest rate affect mortgage rates? Well, if the Bank of Canada drops the key interest rate, the lenders (banks, credit unions, etc.) will usually follow suit and lower their prime lending rates.

In essence, any change to the key interest rate has an immediate effect on the rates of certain products offered by those lenders, such as variable mortgages and lines of credit...

...Banks and credit unions are offering up some attractive incentives to entice potential customers.

As an example, Prospera Credit Union is offering up to $1,000 to help cover new mortgage costs or renewals. They also offer automatic qualification for a $5,000 line of credit. These incentives are called “Prospera Perks,” and they’re part of Prospera’s MyStyle Mortgage offer. Couple this with the already competitive mortgage rates Prospera offers and you’re looking at a pretty inviting deal...




Exhibit #3 ("Harper" is Stephen Harper, Canada's Prime Minister):

Harper promises to introduce permanent home renovation tax credit if he is re-elected

August 4, 2015 7:31 PM ET

On the second full day of a campaign already deemed endless, Prime Minister Stephen Harper appeared in Toronto Tuesday to promise help for those who economists say mostly don’t need it.

In the heart of Toronto’s overheated housing market, where the average detached home now sells for more than $1 million, Harper vowed to make life better not for those struggling to enter the market, but for those who already own their own homes.

Speaking at a warehouse in North York — in Finance Minister Joe Oliver’s Eglinton-Lawrence riding — Harper promised to introduce a new, permanent home renovation tax credit if re-elected in October. The plan would be phased in, depending on economic conditions, during the 2016-17 fiscal year. It would cost the government approximately $1.5 billion annually.

“For most Canadians, the family home is their biggest asset and their most significant investment in their future financial security,” Harper said. “I’m therefore very pleased to announce that to help make it more affordable for Canadians to adapt their homes to their changing needs and to maintain and increase those houses’ values we will establish a new home renovation tax credit.”...




Exhibit #4 (RRSPs are Registered Retirement Savings Plans. Jim Flaherty died in April 2014):

Harper vows to boost RRSP withdrawal limit for first-time buyers

The Globe and Mail
Published Wednesday, Aug. 12, 2015 5:48PM EDT

The Conservatives are pinning their re-election hopes on a resurgence in household spending to help power the economy, even as they risk reversing years of policies aimed at engineering a soft landing in the housing market and curbing rising levels of consumer debt.

Conservative Leader Stephen Harper announced Wednesday that if re-elected his party would boost the maximum amount that first-time home buyers can withdraw from their RRSPs to purchase a home under the Home Buyers’ Plan from $25,000 to $35,000...

...The election platform represents a stark reversal for the Conservatives. Under former finance minister Jim Flaherty, the party spent years steadily tightening the mortgage-insurance rules, raising premiums on mortgage insurance from the Canada Mortgage and Housing Corp. and warning of the risks of rising household debt, only to essentially campaign on a platform of helping Canadians spend more on housing...

...The Canadian Real Estate Association (CREA) cheered the Conservatives’ proposed increase to the RRSP withdrawal limits. The lobby group representing the country’s 110,000 realtors has long pressed the federal government to increase the amount of money Canadians can withdraw from their registered savings to buy a home.

“We know real estate continues to grow in cost and this will give more first-time home buyers the ability to buy their first home,” association president Pauline Aunger said in an interview.

Nearly three million Canadians have cashed in their RRSPs to finance a home purchase since the federal government first introduced the Home Buyers’ Plan as a temporary stimulus measure in 1992. The plan allows first-time buyers to take out money from their RRSPs penalty-free to finance a home purchase as long as they repay the money within 15 years...





Exhibit #5 from the "Let's Get Votes By Blaming Foreigners" file (politicians pandering to the absolute worst instincts of voters):

Canada Prime Minister Stephen Harper vows limit on foreign home buyers if needed

Aug 13 10:38 AM ET

Prime Minister Stephen Harper promised new measures to track foreign home ownership in Canada and even hinted at restrictions on buying, during a press conference in Canada’s most expensive housing market.

“There is another matter I hear a lot about, especially here in the Lower Mainland of British Columbia, that is Canadians struggling to afford a home,” Harper said at a press conference in Vancouver. “There are real concerns that foreign, non resident real estate speculation is the reason some Canadian families find house prices beyond their budgets...

...Harper offered no specific on how he will began tracking foreign ownership levels although Crown Corporation Canada Mortgage and Housing Corp has been tracking the sale of existing condos in the Toronto and Vancouver area and found less than 2.5 per cent of that market is foreign owned...




Exhibit #6 from the "Meanwhile Back At The Rancher" file:

Average house price up 9% in July to $437,699, CREA says

Aug 14, 2015 11:51 AM ET

The average price of a Canadian home rose at an annual pace of 8.9 per cent in July to $437,699, the Canadian Real Estate Association says.

But stripping out the two major housing markets of Toronto and Vancouver, the average price drops to $341,438 and the year-over-year gain is reduced to 4.1 per cent, according to CREA...




Exhibit #7 "Buddy Can You Lend Me $437,000?" (while the financial industry in Canada is doing its best to bury this story, the word on the street is the regulators are in Home Capital Group looking through the coffins, er boxes):

Home Capital cut ties with dozens of mortgage brokers over falsified documents

Jul. 30, 2015 10:49AM EDT

Trading was halted on Home Capital Group Inc.’s stock after the company revealed late Wednesday that it cut ties with dozens of mortgage brokers in the wake of an investigation that revealed they had falsified documents about borrowers’ incomes.

The details of the internal investigation, which began last fall, were made public at the request of the Ontario Securities Commission, the company said...

[santafe2]

Re: Who is paying for this?

The Conservatives are pinning their re-election hopes on a resurgence in household spending...

Conservative Leader Stephen Harper...

...introduced the Home Buyers’ Plan as a temporary stimulus measure in 1992.

Thanks for the in-country report GRG. Apparently your "conservatives" conserve nothing. This is just like our "conservatives". Our liberals are just as "conservative" and proud of it.

In politics, "temporary" should be viewed within a geologic context.

[GRG55]

Re: Who is paying for this?

Thanks for the in-country report GRG. Apparently your "conservatives" conserve nothing. This is just like our "conservatives". Our liberals are just as "conservative" and proud of it.

In politics, "temporary" should be viewed within a geologic context.

In 1993, the year after the above "temporary" measure was brought in by the then majority Conservative Government, they called an election and went from a 156 seat majority to fifth place with 2 seats.

There is still much time left in the campaign, and as the old saw goes "a week is a long time in politics" so anything can still happen. But if things carry on in the current direction neither the Conservative Party nor the Liberal Party will form the next government. It'll likely be a minority government by the socialist New Democrats.

[GRG55]

Re: Who is paying for this?

I don't know how I missed this one...I've been travelling quite a bit lately so maybe that's my lousy excuse

Nothing like the government continuing to find creative ways for buyers to qualify for more debt to buy overpriced housing. Methinks this is just going to allow people to pay am even higher price for the same box, instead of more mortgage to buy a bigger box.

The cynicism of the politicians and their government agency cronies is breathtaking to behold. The Socialists don't know any better, so we might cut them some slack if they were naively promoting these "good for the peasants" policies, but the so-called fiscally knowledgeable Conservatives have no excuse for the nonsense they are promulgating here.

New CMHC rules make it easier for some homebuyers to include rental income in mortgage application

Change aimed at boosting affordability will likely affect suburbs most.

CBC News Jul 29, 2015 11:31 AM PT


Changes to mortgage rules mean that some home buyers in Metro Vancouver's hot housing market may soon get a break when it comes to their loan application.

Currently, home buyers with a deposit of less than 20 per cent are required to have their mortgage loan application approved and insured by Canada Mortgage and Housing Corporation (CMHC).

Starting this fall, CMHC plans to change the rules for those buyers to allow them to include projected income from secondary suites when they apply for a loan.

"CMHC will consider up to 100 per cent of gross rental income from a two-unit owner-occupied property that is the subject of a loan application submitted for insurance," the new rules state...

...The rule change is aimed at boosting affordability, although some experts say the new regulations could actually further heat up housing markets in Toronto and Metro Vancouver.

In the Vancouver area, the changes would most likely be felt in suburban areas, including the Fraser Valley, where single family homes are still within reach of average first-time buyers... [I am not sure what "average first-time buyers" they are referring to here - the Fraser Valley only looks cheap compared to Vancouver itself]

...Professor Tom Davidoff of the University of British Columbia's Sauder School of Business said the changes will likely appeal to young families, allowing them to buy bigger properties with suites that can later be used by the owner...

...Tsur Sommerville, also with the UBC Sauder School of Business, said the CMHC change will have more impact than the Bank of Canada's recent prime rate reduction.

"For someone who is looking to buy a house with a basement suite that was generating $1,200 in rent, they can borrow an additional $72,000 to purchase that unit because of that change," Sommerville noted...

[GRG55]

Re: Who is paying for this?

I don't know how I missed this one...I've been travelling quite a bit lately so maybe that's my lousy excuse

Nothing like the government continuing to find creative ways for buyers to qualify for more debt to buy overpriced housing. Methinks this is just going to allow people to pay am even higher price for the same box, instead of more mortgage to buy a bigger box.

The cynicism of the politicians and their government agency cronies is breathtaking to behold. The Socialists don't know any better, so we might cut them some slack if they were naively promoting these "good for the peasants" policies, but the so-called fiscally knowledgeable Conservatives have no excuse for the nonsense they are promulgating here.

New CMHC rules make it easier for some homebuyers to include rental income in mortgage application


...

Maybe the rental income from the "carriage house" will help subsidize the mortgage for this one?

'The Manor House' in Calgary listed at $12M despite drop in luxury sales

It has room for all 7 of your cars and so much more

CBC News Aug 19, 2015 4:13 PM MT


It's 10,000 square feet with five bedrooms, seven bathrooms, two powder rooms, a two-storey garage with a carriage house and room for only seven of your vehicles and a 1,200-square-foot patio.

In other words, it's a lot of house. It also comes with a $12.25-million price tag...

[thriftyandboringinohio]

Re: Who is paying for this?

We'll GRG55, that's only $1,200 per square foot.
Sure it's ten times the cost of fine homes around here in the U.S. Midwest, but the one you show is in Calgary. That's Calgary, Canada.
Location. location, location.

A quick google showed this local home for just $2.75 MM, it's 15,370 square feet. That's $178 /sq ft, compared to $1,200/sq ft up in Calgary.

http://www.herrealtors.com/homes-for...3209-123577266

[GRG55]

Re: Who is paying for this?

We'll GRG55, that's only $1,200 per square foot.
Sure it's ten times the cost of fine homes around here in the U.S. Midwest, but the one you show is in Calgary. That's Calgary, Canada.
Location. location, location.

A quick google showed this local home for just $2.75 MM, it's 15,370 square feet. That's $178 /sq ft, compared to $1,200/sq ft up in Calgary.

http://www.herrealtors.com/homes-for...3209-123577266

Ya, but up here we have "free" medicare. And colder winters. Top that, eh!

[dcarrigg]

Re: Who is paying for this?

Ya, but up here we have "free" medicare. And colder winters. Top that, eh!

Hey, Canada has no monopoly on that. We got Comm Ave condos in Boston going for $2.35mm at 1,300sqft and our government healthcare costs more than yours, even though most of us get nothing for it. Plus we got 111 inches of snow last winter.

[lektrode]

Re: Who is paying for this?

Hey, Canada has no monopoly on that. We got Comm Ave condos in Boston going for $2.35mm at 1,300sqft and our government healthcare costs more than yours, even though most of us get nothing for it. Plus we got 111 inches of snow last winter.

now i wanna know, dc - are you BRAGGIN OR COMPLAININ?

altho from reports/comments eye saw/heard, it seemed like it didnt work out all that well for Up North ?

[GRG55]

Re: Who is paying for this?

We'll GRG55, that's only $1,200 per square foot.
Sure it's ten times the cost of fine homes around here in the U.S. Midwest, but the one you show is in Calgary. That's Calgary, Canada.
Location. location, location.

A quick google showed this local home for just $2.75 MM, it's 15,370 square feet. That's $178 /sq ft, compared to $1,200/sq ft up in Calgary.

http://www.herrealtors.com/homes-for...3209-123577266

$2 Million, $12 Million, it's just pocket change.

What do the 1% really want?

California Dreaming: Record $500 Million Tag on L.A. Home

One of the biggest homes in U.S. history is rising on a Los Angeles hilltop, and the developer hopes to sell it for a record $500 million.
Nile Niami, a film producer and speculative residential developer, is pouring concrete in L.A.’s Bel Air neighborhood for a compound with a 74,000-square-foot (6,900-square-meter) main residence and three smaller homes, according to city records. The project, which will take at least 20 more months to complete, will exceed 100,000 square feet, including a 5,000-square-foot master bedroom, a 30-car garage and a “Monaco-style casino,” Niami said.
“The house will have almost every amenity available in the world,” he wrote in an e-mail. “The asking price will be $500 million.”...

[seobook]

Re: Who is paying for this?

$500 million means that even after you "own" it & even if you bought it outright, you would likely be spending a million a month on property insurance and property taxes. And then of course maintenance and staff would cost more.

[GRG55]

Re: Who is paying for this?

$500 million means that even after you "own" it & even if you bought it outright, you would likely be spending a million a month on property insurance and property taxes. And then of course maintenance and staff would cost more.

Think of it as doing your part to support jobs and the US economy

Personally, I think we should start an internet search for something suitable in Cali to be the new international headquarters for iTulip and VirZOOM. Surely EJ is tired of shovelling snow in Boston after that last two winters?

[dcarrigg]

Re: Who is paying for this?

now i wanna know, dc - are you BRAGGIN OR COMPLAININ?

altho from reports/comments eye saw/heard, it seemed like it didnt work out all that well for Up North ?

Nope. Berlin or New Haven. It didn't matter. The white stuff aimed square at Boston this year...or maybe Braintree...either way, ol' man winter had his sights trained this time.