The Elusive Canadian Housing Bubble

[GRG55]

Re: The Elusive Canadian Housing Bubble

You mean all the rates are adjustable? I'd be really scared to get one of those!

How are the rates determined? And is there a limit?

The mortgage market varies from "variable rate" mortgages, which adjust each month based on Canadian bank prime rate, to fixed interest for anywhere from 6 months to 5 years. There are some exceptions, but this is the core of the market. If rates are high and declining then shorter terms and variable rate are more popular, if rates might be headed higher then more people prefer to lock in for 5 year terms. At the end of the term the entire mortgage comes due and a new mortgage has to be taken out. If one stays with the same bank its usually just a paperwork formality. If you change lenders then a new appraisal and so forth has to be done on the property and it gets more expensive.

In really severe property price collapses, such as the one that Alberta experienced in the early 1980s, lenders can simply stop writing mortgages and they won't renew your expiring mortgage. That just added to the collapse of the housing market back then, with houses selling well below lot service and construction costs at the bottom...much like Phoenix and parts of inland California and Florida not that long ago.

Mortgage rates tend to track the Canadian bank prime rate, government bond rates and GIC deposit rates for the applicable term, with the usual healthy mark-up for the banks to make their executive and Board bonus money.

[Polish_Silver]

Re: Defending Krugman

The source of the potential "deleveraging shock" that Krugman is referring to is exactly the same as the source of the USA deleveraging shock that hit starting in 2007...debt backed by over-inflated home prices. So I don't see any material difference in the situations north vs south of the 49th Parallel.


What I find most amazing is that almost everyone I speak to where I live in western Canada is completely convinced that real estate is the most secure "investment" they can make today. Most of them seem to have way too much of their net worth tied up in their expensive personal residences, and an extraordinary number also have second vacation homes on the lakes in B.C., at the ski resorts in the Canadian Rockies or Whistler, and most recently in places like Phoenix or Palm Springs. Mind boggling...

You make an excellent case that Canada, especially Vancouver, is in the midst of a bubble.
The belief in real estate is secure is typical of mid to late bubble popular thinking. I remember the Time cover article "why we are gaga over real estate".

The only data I can think of adding would be a long term plot of mortgage rates.

If rates are low now, that may be one reason people are piling on . . .
It's the last chance to buy a house, just like it was in the USA in 2005 . .

Any way I can short Vancover and go long on Ottawa?

[GRG55]

Re: The Elusive Canadian Housing Bubble

More than three years since Fiat Currency started this thread...and the beat goes on...

New mortgage rules having little effect on high-end real estate

Finance Minister Jim Flaherty’s tighter regulations don’t faze wealthy buyers

CP July 12, 2013

TORONTO — Ottawa’s tightened mortgage rules seem to have had less of an impact on high-end real estate than on the overall market, according to experts.

“Most people who are going to buy a $3-million to $5-million house usually have access to the funds,” said Elli Davis, a sales representative with Royal LePage in Toronto. “They don’t really care if they pay a touch more.”

In July 2012, Finance Minister Jim Flaherty made changes to Canada’s mortgage rules in a bid to cool down an overheated real estate market.

These changes included reducing the maximum amortization period to 25 years from 30 for insured mortgages as well as limiting government-backed mortgage insurance to homes under $1 million, effectively increasing the down payment required on luxury homes...

...Sales of single-family homes over $1 million were up by more than 60 per cent in Vancouver, Calgary and Toronto in the first half of the year compared with the last half of 2012, according to a report released by Sotheby’s International Realty on Friday...

But some cracks are showing

...Year over year, sales of luxury single-family homes were up a more modest 10 per cent in Calgary and down by two per cent in Vancouver and five per cent in Toronto.

“We had a very unbelievable 2010 and 2011 across Canada,” said Ross McCredie, chief executive of Sotheby’s.

“You had this massive volume, especially in Vancouver and Toronto, and obviously you can’t sustain that type of momentum.”

Sales of condos over $1 million were up in Toronto, Vancouver and Calgary in the past six months but down year over year...

[Spartacus]

Re: The Elusive Canadian Housing Bubble

about to go out, so only a quick reply for now - there's a guy commenting on Garth Turner's blog who does google map mashups that list ask prices versus sale prices. Last time I looked there were very few blue (sale > ask), and lots of pink (sale < ask) and red (sale << ask)

[Spartacus]

Re: The Elusive Canadian Housing Bubble

this guy

or copy & paste to guarantee I'm not goatse-ing you:
http://recharts.blogspot.ca/2013/07/...s-july-18.html

[GRG55]

Re: The Elusive Canadian Housing Bubble

http://www.cansofunds.com/wp-content...-Revised-2.pdf

"We hope very much to be proven wrong, but the analysis is clear. Canada borrowed its way out of the2009 Recession by stoking our residential housing market to absurd levels. We cannot afford the houses we are
living in."

[GRG55]

Re: The Elusive Canadian Housing Bubble

CMHC cools mortgage market with new cap for banks

Posted: Aug 6, 2013 9:15 AM ET
Last Updated: Aug 6, 2013 11:40 AM ET


Canada Mortgage and Housing Corp. is putting a cap on the amount of mortgage-backed securities sold by banks that it is willing to guarantee.

A spokesperson with CMHC confirmed media reports Monday that the national housing agency will, effective immediately, limit banks and other mortgage lenders to $350 million worth of new mortgage-backed securities per month. The decision comes in the wake of "unexpected demand" for the guarantees, a spokeswoman for CMHC said in an emailed statement.

Under the National Housing Act Mortgage-Backed Securities (NHA MBS) program, banks have been able to securitize large portions of the mortgages they carry on their books. Because those securities are backed by CMHC, not the banks themselves, they're able to go out and lend that freed-up money to new homebuyers at lower prices, which adds fuel to Canada's housing fire.

Earlier this year, Ottawa announced it would limit the amount of those mortgage-backed securities that it would guarantee to $85 billion this year. That's a rise from from $76 billion in 2012.

But by the end of July, barely over halfway through the year, the banks had already tapped the program for as much as $66 billion, hence the need for the cap to stay under the annual limit.

CMHC said Monday no one lender will get guarantees for more than $350 million worth of securities per month, from now on.

The move takes some of the air out of the housing market by forcing banks and other lenders to be responsible for the risk of mortgage defaults, instead of being able to pass that risk on to government and taxpayers via the CMHC.

It's the latest move from a government that's getting increasingly vigilant about its attempts to cool down the housing market. After loosening rules to allow for no-money-down mortgages of more than 40 years a half-decade ago, the federal government has taken multiple steps to ratchet those rules tighter again, limiting new mortgages to no longer than 25 years, and requiring a minimum down payment of five per cent of the value of the home.

Those moves were targeted directly at the homebuying public. But moves such as the one revealed Monday target the banks themselves, by effectively limiting the amount of money they have at their disposal to lend out in mortgages.

In the spring, Finance Minister Jim Flaherty went as far as publicly criticizing a number of lenders for encouraging reckless spending by offering mortgages with historically low interest rates.

The last time CMHC disclosed its data, the housing agency had $562.6 billion worth of mortgages on its books, getting close to its legally mandated limit of $600 billion.

[jabberwocky]

Re: The Elusive Canadian Housing Bubble

Closing the barn door after the horse left?

[GRG55]

Re: The Elusive Canadian Housing Bubble

Closing the barn door after the horse left?

In the case of this government they were the ones that panicked after the financial crisis started, opened the barn door, led the horse out on a halter and lead rope and then turned it loose. Now they want us to forget they are the ones partially responsible for the idiotic mess in the pumped up Canadian real estate market...

[GRG55]

Re: The Elusive Canadian Housing Bubble

Too much amusement from Garth Turner's blog today not to share it.

For those of you outside Canada, the "elfin deity" is our Federal Finance Minister, Jim Flaherty; BeeMo is Bank of Montreal; RBC is Royal Bank of Canada; CMHC is Canada Mortgage and Housing Corporation, the taxpayer owned mortgage insurance provider. Although he didn't use it in this blog post if you are cruising his site and come across TNL@TB it stands for The Nice Lady at the Bank (the one that smiles while you sign the lifelong indentured servitude mortgage papers for that shiny, new 600 sq ft, $750,000 condominimum in Vancouver's Yaletown).

The real thing

August 21st, 2013

Well, that didn’t take long.

Yesterday when BeeMo jacked mortgages, thanks to Mr. Bond Market, I suggested it was no aberration. It’s official. It’s a trend.

In fact RBC went a step further than BMO, and its five-year, fixed-rate benchmark home loan now sits at 3.89%, ten bips more than the other guys. This is the fourth rate increase in the last eight weeks. To put things into perspective, mortgage rates have increased by a full 1% since the spring, which is a 37% jump in the cost of a 5-year home loan. In fact, it now costs more to borrow money for five years than it did to get locked up for an entire decade in May – when I pleaded with you to do just that.

And this is not the end of a process, nor is it temporary. It’s the arrival of the big, hairy bête noire everyone’s been warning about for the past two years. Hell, even the Bay Street eggs are sounding the alarm. Here’s Benny Tal, deputy chief economist at CIBC (which is also about to increase rates): “This is the beginning of a test for the mortgage market. It’s a test of how Canadians are able to tolerate higher interest rates. I think this is the real thing.”

You betcha. As you probably heard, the US Fed is about to start tapering back on its frenetic bond-buying orgy, which has goosed stocks, plunged bond yields to historic lows and breathed life back into the American economy. Now that the housing market to the south has revived (prices up 13.7% in a year – the most since 2005), the Fed will unprint money as effectively as it printed it. As a result, bond prices have been falling since June and yields rising.

The 5-year Canada bond which was at 1.15% in April is close to 2% today. That means the bankers whose mortgage costs are tied to bonds are passing through the inevitable to borrowers. If BeeMo, RBC and the rest of the gang thought this was temporary, they’d resist, since new mortgage applications are already tumbling. The fact they did not should tell ya something. It sure spoke to Benny Tal.

So let’s be clear. As I argued in the previous post, the fundamentals of the housing market are terrible. Average prices have inflated to a wicked multiple of both incomes and rents. The supply of certain kinds of properties – like condos – is overwhelming demand. New home sales, included SFHs, have collapsed. Developers have slashed their land purchases. Top-end property prices are down by 20%, while condo buyers are demanding free furniture and waived fees. And personal debt – already at a record, thanks to a house-horny society – continues to increase.

The last pillar left supporting detached house prices of $1,100,000 in Vancouver and $757,000 in Toronto? Yup. Cheap money. The cheapest ever. Mortgages at 3% or less, for the past four years. Never happened before. Emergency rates, ushered in to keep the lights on during the GFC became the crack cocaine of our HGTV nation.

Of course, this series of increases has happened without the Bank of Canada touching its trendsetting rate. Politicians can’t stop or moderate it. But they sure warned it was coming. Cue the elfin deity, from two full years ago: “We are cautioning people not to assume too much long-term debt on the assumption that interest rates will stay as low as they are — because they won’t. We want to make sure Canadian households plan ahead and know, if they renew a mortgage in the next several years, it’s likely that the interest rate will be higher. Interest rates have nowhere to go but up.”

Jim Flaherty should know, since he hand-picked the guy who engineered rates lower, while he himself was bringing in 40-year, zero-down mortgages, creating world-class house porn. If they could suck and blow any better, they’d be airborne.

Well, a rate hike of a fifth of a point won’t bring Vancouver bungalows back to earth. But four of them in a few months, layered over a slowing economy, fewer jobs, tighter lending, CMHC restrictions, flat incomes and a coming gush of listings, should start the job. As this pathetic blog said a few weeks ago, those boffo realtor numbers from July did not foretell a strengthening market. Instead, it was the rush of virgin buyers to sign offers before their low-rate pre-approvals turned into pumpkins. More evidence youth is wasted on the young.

By this time next year a shocking number of them will have lost all of their equity. This was so predictable. I will have no pity.

[Fiat Currency]

Re: The Elusive Canadian Housing Bubble

Cue the elfin deity ...

Only in Canada, eh? What bubble?

Tiny Toronto House Selling For $229,000: Hey, It's Cheaper Than A Condo

If you haven’t been stuck under a rock for the past several years, you likely know just how astronomical Toronto house prices have gotten.

But fortunately, it’s still possible to buy a house for under $230,000 in the inner city. Yes, you heard right: A house in Toronto, close to a subway station and walking distance to some of the city’s best neighbourhoods, for the very reasonable price of $229,000.

The catch?

It’s about the size of a toolshed in a typical suburban back yard.

The house at 30 Hanson Street on the city's inner east side is some 189 square feet in size, roughly half the size of an average two-car garage. But it fits three rooms -- kitchen, living and one bedroom. And the realtor boasts it’s “cheaper than a condo.”

That it is. The average condo price in Toronto was at about $430,000 last month, according to RealNet, though that’s down about 1.6 per cent from a year earlier. But compared to the average price of a stand-alone house in Toronto — about $645,000 at last count — this place is a steal.

Just to give you an idea: The same amount of money will buy you a swanky, modern two-bedroom house in Winnipeg, or a six-room apartment in an elegant building in Montreal.

And the property tax bill on 30 Hanson? $168 per year.

BuzzBuzz blog is reluctant to call this the smallest house in Toronto, since there are other contenders. But it does appear to be the smallest house on the Toronto market right now.

For members of the Tiny House Movement, this place is ideal. But would you ever move into a house this small? Let us know in the comments section.

[ATTACH=CONFIG]5053[/ATTACH][ATTACH=CONFIG]5054[/ATTACH][ATTACH=CONFIG]5055[/ATTACH][ATTACH=CONFIG]5056[/ATTACH][ATTACH=CONFIG]5057[/ATTACH][ATTACH=CONFIG]5058[/ATTACH][ATTACH=CONFIG]5059[/ATTACH][ATTACH=CONFIG]5060[/ATTACH][ATTACH=CONFIG]5061[/ATTACH]

[GRG55]

Re: The Elusive Canadian Housing Bubble

Only in Canada, eh? What bubble?

When I lived part time in London, UK in the middle of the last decade I thought the prices there were completely insane and the bubble would have to burst any minute. When the financial crisis hit I was certain that London, being a preeminent FIRE centre, would get hit pretty hard. Today? More insane than ever.

I keep thinking Vancouver and Toronto property just has to end badly. There just isn't any fear of losses out there any more.
Friend of mine dropped by this evening. He just sold his house in Calgary to a retired couple from B.C. They plan to rent it out because it's an "investment". They think Calgary housing is "cheap". I think they are completely nuts. But then what do I know...

[jpatter666]

Re: The Elusive Canadian Housing Bubble

When I lived part time in London, UK in the middle of the last decade I thought the prices there were completely insane and the bubble would have to burst any minute. When the financial crisis hit I was certain that London, being a preeminent FIRE centre, would get hit pretty hard. Today? More insane than ever.

I keep thinking Vancouver and Toronto property just has to end badly. There just isn't any fear of losses out there any more.
Friend of mine dropped by this evening. He just sold his house in Calgary to a retired couple from B.C. They plan to rent it out because it's an "investment". They think Calgary housing is "cheap". I think they are completely nuts. But then what do I know...

Washington DC the same -- and I went through the same process. My house now is worth *more* than the bubble height -- bidding wars are back. Going to malls and restaurants, you'd come back and say "What recession?" and my wife and I do say this to each other in sad mocking tones -- because we both travel extensively and are very aware of life "outside the Beltway".

[lektrode]

Re: The Elusive Canadian Housing Bubble

have heard comments just recently from some in HNL that 'bidding wars on 1mil+ houses are back' in areas that arent the most pricey (and 1mil in HNL isnt anywhere near the top of the scale, is more 'low-middle', with 'starter' houses anywhere i'd want to be running 6-800k)

of course the 'conventional/common wisdom' out here is that 'RE doubles every 10years'

[GRG55]

Re: The Elusive Canadian Housing Bubble

The Canadian property market juggernaut rolls on...

Toronto real estate prices jump with condos leading rise in sales

It’s been a surprisingly hot summer for real estate across the GTA, with sales up 21 per cent in August over a year earlier, according to figures released by the Toronto Real Estate Board Thursday.

Prices have also rebounded, in defiance of naysayers who, for more than a year now, have been anticipating a market crash. The average GTA sale price in August was $503,094, up almost 5.5 per cent from a year ago.

Even Vancouver, which suffered the brunt of the slowdown that started in spring of 2012 and accelerated when tougher mortgage lending rules were imposed by Ottawa a few weeks later, saw a dramatic surge in sales.

Transactions were up 52 per cent in August, although prices remain slightly below year-ago levels in what has long been Canada’s hottest, and priciest, housing market.

Some of the strongest growth numbers were seen in Toronto’s beleaguered condo sector last month where sales were up 20.1 per cent across the GTA — 21.4 per cent in the City of Toronto — and prices climbed by 3.7 per cent year over year...