The Elusive Canadian Housing Bubble

[Polish_Silver]

Re: The Elusive Canadian Housing Bubble

Crane's (by themselves) don't imply a bubble. They can prevent one. Housing bubbles happen because it takes time to build a house.
So, if demand picks up in a region, and crane's don't arrive in time, a bubble occurs. This is typical of the San Francisco, Boston, and Manhattan areas, where it's difficult to build new buildings. In, say Dallas, when demand rises, the cranes get right to work, increasing supply and popping the incipient bubble.

I wonder if Keen was looking at national index. That might not show excesses in Vancouver.

[lektrode]

Re: The Elusive Canadian Housing Bubble

Crane's (by themselves) don't imply a bubble. They can prevent one. Housing bubbles happen because it takes time to build a house...

in some places, they can keep one goin... esp where it can take years just to get permits...

[GRG55]

Re: The Elusive Canadian Housing Bubble

I know, it's pretty obvious from most measures that Canadian house prices are unsustainable, was just curious what data he obtained from the BIS and/or OECD that came out with flat real Canadian house prices. Makes no sense unless you have a commensurate level of inflation, which I'm guessing has not happened. If the data doesn't correlate with reality, then the data can't be right...or we have jumped into an alternate reality.

My wild-azz guess is that the Canadian real estate index is using our Big 5 Bank CEO compensation figures for the denominator. On that basis I am sure housing in Canada is actually cheaper than it was 10 or 20 years ago...

[nedtheguy]

Re: The Elusive Canadian Housing Bubble

redacted

[GRG55]

Re: The Elusive Canadian Housing Bubble

Crane's (by themselves) don't imply a bubble. They can prevent one. Housing bubbles happen because it takes time to build a house.
So, if demand picks up in a region, and crane's don't arrive in time, a bubble occurs. This is typical of the San Francisco, Boston, and Manhattan areas, where it's difficult to build new buildings. In, say Dallas, when demand rises, the cranes get right to work, increasing supply and popping the incipient bubble.

I wonder if Keen was looking at national index. That might not show excesses in Vancouver.

An abnormal excess of cranes is ALWAYS a sign that the bubble is entering the blow off phase. I watched this first hand during the late stages of the inflation bubble in Calgary and Houston in the early 1980s, the condo insanity in the Vancouver West End in the 1990s, in a number of Persian Gulf cities including Dubai in the 2000s, and a select few other places along the way. The reports of insane numbers of tower cranes from China convince me that the same thing has been underway there. In the end we will find that China isn't different after all. And neither is the current idiocy underway yet again in the Toronto and Vancouver high rise concrete sarcophagus condo-minimum markets today. Brad Lamb groupies and disciples are about to become Lamb kebab...

[GRG55]

Re: The Elusive Canadian Housing Bubble

This was just too good not to share. Insanity in the real property market knows no national boundaries...

From Garth Turner's blog:



The Toronto row house on an anorexic 16-foot lot features stylish vinyl siding and sent the listing realtor into spasms with this feature: “Rare Front Hall Closet!”. It sits just off Queen Street across from Canada’s largest psych hospital, and lasted all of five days before being scooped up in a bidding war.

The asking price: $629,000. The selling price: $770,000. That’s right. Fevered combatants all hopped up on pre-approved cheapo mortgage money actually shoved this geriatric wobbler almost $150,000 over the asking price (plus another $23,000 in double land transfer tax). Why? It’s an almost-trendy area or, as the agent put it: “Steps To Ossington Restaurants/Shops/Yoga Studio And Transit!”

But here’s the thing. It’s a dive. Not the house, exactly (it has “Barnboard Laminate Floors & Pot Lights!”), but the location – and herein lies an important lesson. Let’s look and see what’s beside this house. Hey it’s an urban art gallery! How cool is that when you’re teaching your toddler to spell?




And across the street? It’s a really nice building fronting on Queen called “Wicked.” Looks like some kind of a club. Hmm.

Let’s Google that and see what some of the patrons have said ‘cuz gee, Hon, you know we really enjoy grabbing a nice latte and listening to some music on a Friday night, and now that we own this great little row house we can just, like, walk on over. Yeah, I know we paid a lot, but you remember what Larry the realtor-guy said, you’re not just buying 16 feet, you’re buying an entire neighbourhood. Wicked…let’s see…here’s a review…

“We picked up a third couple and were ready to go upstairs. We reach the top of the stairs, put on our birthday suits, cram our stuff into very small locker and check the place out. Nobody is changing any sheets anywhere. We select the largest bed and start the party. We start having fun and other people take an interest, then they start getting over involved. Men touched me without asking, couples joined without being invited, my date was not spared. He was orally (not verbally ;) assaulted by an 80 year old woman and harassed by a man who wanted “a black guy” to have unprotected intercourse with his wife. Eventually my date and I find each other, have an awkward romp in a small corner of the bed and run like our someone said Fire! Oh did I mention that the fire alarm went off and there was no communication about what was going on. Thank heavens it was a false alarm because no one took it seriously.”

Yes, this is billed as a “hedonistic on-premise club” which “provides a safe, erotic environment where you can live out your sexual fantasies no matter how wild or how mild! Cutting edge music, provocative performances and weekly special events will ensure an erotic experience to remember.” You can read more client experiences here, but only if you’re currently naked.

So there ya go. Hot listing, sells for 122% of asking in a bidding war after five days, to people who spend almost $800,000 to live beside a condom-festooned parking lot across from a building full of moist mattresses. The sellers made out like bandits. The listing agent cleared almost fifty grand in commission. The bank likely scored with a massive mortgage. And a new floor’s been set for a geriatric row house on Sex Lane.

This is why the real estate market’s doomed. Oh, maybe not this month or by the end of the year, especially now that the Bank of Canada has thrown in the towel on monetary policy. Cheap money will continue to flow. Idiots will continue to buy. The premium commanded by single-family homes – now at an historic high over every other type of housing – will continue to swell and bloat like a midnight gland.

Until somebody looks up, and says Fire!

[GRG55]

Re: The Elusive Canadian Housing Bubble

And one more laugh on a Saturday afternoon:

...“This gives a whole new meaning to property virgins,” he says. “Just look how they’re flogging new homes in Edmonton. I found this poster above my urinal in a sports pub.”...

[GRG55]

Re: The Elusive Canadian Housing Bubble

The Squid weighs in...which probably means they are already short :-)

Goldman Sachs warns on 'large correction' in Canada housing

Published: Tuesday, 29 Oct 2013 | 1:19 AM ET

Canada is careering towards a sharp fall in house prices with some areas of the country's market already showing signs that overbuilding and ultralow interest rates are taking their toll on the property market, Goldman Sachs reports.

Adding its voice to a growing chorus of concern, a report from Hui Shan, an economist at Goldman, late last week warned: "what goes up can keep going up, but then tends to come down."

Ranking high-growth property markets in the last four years, Canada comes fourth behind Israel, Norway and Switzerland, according to her research. But unlike some other markets, construction activity has been trending up for years and has not shown signs of slowing down in Canada, she explained...

...The Goldman Sachs report forecast that, in the short term, house prices may continue to increase before any "large correction", however Sebastien Galy, senior currency strategist at SocGen told CNBC that some data suggests that small pockets of the market could already be seeing that downward pressure...

[don]

Re: The Elusive Canadian Housing Bubble

The Squid weighs in...which probably means they are already short :-)

Goldman Sachs warns on 'large correction' in Canada housing

Published: Tuesday, 29 Oct 2013 | 1:19 AM ET

Canada is careering towards a sharp fall in house prices with some areas of the country's market already showing signs that overbuilding and ultralow interest rates are taking their toll on the property market, Goldman Sachs reports.

Adding its voice to a growing chorus of concern, a report from Hui Shan, an economist at Goldman, late last week warned: "what goes up can keep going up, but then tends to come down."

Ranking high-growth property markets in the last four years, Canada comes fourth behind Israel, Norway and Switzerland, according to her research. But unlike some other markets, construction activity has been trending up for years and has not shown signs of slowing down in Canada, she explained...

...The Goldman Sachs report forecast that, in the short term, house prices may continue to increase before any "large correction", however Sebastien Galy, senior currency strategist at SocGen told CNBC that some data suggests that small pockets of the market could already be seeing that downward pressure...

Goldman's skill at investor manipulation reduces Bill Gross to the level of Barooke's shoeshine boy . . .

[Fiat Currency]

Re: The Elusive Canadian Housing Bubble

One must dance while the music is playing

Housing market firing up again as Toronto sales leap 19%

The Canadian housing market appears to be on the mend again, with a new set of stellar statistics released in Toronto.

Combined with news out of Vancouver that sales are improving in British Columbia’s largest city, the recovery could stoke fears that Finance Minister Jim Flaherty might intervene in the market with another set of tough restrictions for lending.

Sales in the Greater Toronto Area jumped more than 19% in October from a year ago. The Toronto Real Estate Board reported there were 8,000 sales last month, up from 6,713 a year ago. Prices also continue to be strong. The average sale price in the GTA was $539,058 in October, up 7.4% from a year ago.

“The GTA home ownership market has been broadly characterized by a rebound in sales since the summer. Market conditions have been tighter in some market segments more so than others. Ground-oriented homes listed for below $1-million dollars in some areas of the GTA have been especially popular with buyers, while listings for these home types have been constrained,” said Dianne Usher, president of the board, in a release.

Those Toronto numbers come as news out of Vancouver shows the country’s most expensive market is rebounding, even if prices haven’t followed. Last week, Calgary also reported an 18% increase in October sales from a year ago.

“Written off for dead last year, Vancouver’s housing market (one of the priciest in the world) has made a startling comeback,” said Sal Guatieri, an economist with Bank of Montreal.



The Real Estate Board of Greater Vancouver said Monday that October sales were up 37.8% from a year ago and 7.2% from just a month earlier. However, the board’s MLS Home Price Index composite dropped 0.5% from a year earlier to $600,700.

Mr. Guatieri cautioned that the number of completed and unoccupied condominiums in Vancouver remains high — about 33% above two-decade norms. He also noted condo prices are no higher than they were in 2008.

“That’s about as soft landing as you could possibly hope for,” said the economist.

Condo research firm Urbanation Inc. also released a new set of statistics about Toronto sales which show sales declines are not as bad as they once were. The 3,049 condo sales in the third quarter were off 8% compared to the same period a year earlier but it’s the smallest annual decline in a year.

“The softer numbers this year should be viewed in the context of exceptional strength that proceeded them,” said Shaun Hildebrand, senior vice-president of Urbanation.

Any recovery in the housing market is expected to put more pressure on Mr. Flaherty to cool it off. He has already intervened four times in the market. One of his most restrictive measures has been to reduce amortization lengths from 40 years to 25 years for government-backed mortgages — something that raises monthly payments and allows consumers to qualify for less debt.

Mr. Flaherty has said he continues to monitor the market. “I have no intention of interfering in the market for the time being,” he told reporters this month, acknowledging the Bank of Canada is very restricted on what it can do to cool the market since it doesn’t not want to raise interest rates for fear of impacting the overall economy.

The finance minister is faced with a market that continues to show signs it is heating up. This month the London-based Royal Institute of Chartered Surveyors said a survey of its Canadian members found construction output, led by housing, is set to grow by about 4% over the next year, despite the fact the industry faces labour shortages and financing concerns.

The Toronto board said it expects prices to continue to rise in the city in 2014.

“Inventory levels for ground-oriented home types will be low from a historic perspective and home ownership demand will stay strong as affordability remains in check due to the continuation of accommodative borrowing costs,” said Jason Mercer, TREB’s senior manager of market analysis, in the release.

[GRG55]

Re: The Elusive Canadian Housing Bubble

One must dance while the music is playing



"...Mr. Flaherty has said he continues to monitor the market. “I have no intention of interfering in the market for the time being,” he told reporters this month, acknowledging the Bank of Canada is very restricted on what it can do to cool the market since it doesn’t not want to raise interest rates for fear of impacting the overall economy.

The finance minister is faced with a market that continues to show signs it is heating up. This month the London-based Royal Institute of Chartered Surveyors said a survey of its Canadian members found construction output, led by housing, is set to grow by about 4% over the next year, despite the fact the industry faces labour shortages and financing concerns.

The Toronto board said it expects prices to continue to rise in the city in 2014.

“Inventory levels for ground-oriented home types will be low from a historic perspective and home ownership demand will stay strong as affordability remains in check due to the continuation of accommodative borrowing costs,” said Jason Mercer, TREB’s senior manager of market analysis, in the release..."

A couple of amusing excerpts from Garth Turner's blog:


...So will our delusional obsession with real estate come to bite us in the economic butt? Maybe it already is – says the Bank of Canada, which now lists a “disorderly unwinding” of consumer finances as the thing to fear. A new report there speaks of growing strains which could lead to a housing plop. They include an imbalance in the ratio of house prices to incomes, and a big deviation in real estate values from the long-term trend. Kinda like this?



Never, ever think this will end with a whimper...



...“This popped into our mail box the other day,” Wendy says of the flyer she snapped below. When it did, she could think of only two words: disorderly unwinding. It’s what I told you yesterday the Bank of Canada is sweating about these days – that consumers will eventually blow up after pigging out on houses and debt.

Take a look at the pitch for this new development in an outlying burb of Fordlandia. Fifty grand reductions. No interest on financing for three years. No bank approval. Inventory clearance.

“On the face of it,” she says, “anyone with a pulse can buy this with 0% financing for three years, but if people were so keen to drive five minutes east to save 50 grand, there wouldn’t be any inventory, would there?”

That’s right. Maybe we’ve run out of people with pulses. New home sales in the nation’s biggest market have collapsed, running 31% below the ten-year average and down 26% compared to 2012, according to the industry.



...Like 189 Grace Street, for example.
The ugly house in Toronto’s Little Italy district was listed for $849,000. Ten days later the sellers sat one evening with Graham Connaughton, their agent, and reviewed 16 offers. They picked the highest one, which was $1.12 million. “We all knew it was going over, but to go over by 30% – that’s amazing,” he said.

And the buyers, who paid $271,000 more than the sellers asked for, to snare a house that needs work? “They’re very happy.”

Strangely enough, like Wendy, I can’t get those words ‘disorderly unwinding’ out of my mind. Try as they might, realtors cannot make the case that this is a normal, healthy, balanced or sustainable market.

Household debt rises every single month, and mortgages are off the chart – sitting near $1.2 trillion. With every new deal, rising real estate values embed risk and convince more fools that housing rocks. And yet last month 22,000 jobs were lost in the private sector. We had positive job numbers only because 47,000 new civil servants were hired. There are 1.35 million people out of work, and the labour participation rate is the lowest in a decade.

Wage increases are less than inflation. And 42% of employed people have no savings...

[jk]

Re: The Elusive Canadian Housing Bubble

A

Wage increases are less than inflation. And 42% of employed people have no savings...

their houses are their savings, silly. they'll all retire and support themselves by selling their appreciated houses.

[don]

Re: The Elusive Canadian Housing Bubble

their houses are their savings, silly. they'll all retire and support themselves by selling their appreciated houses.

. . . to each other

as a neighbor of mine planned. he was in a Las Vegas RE buyers club during the Big Bubble and when asked what would he do if pricing reversed course, he said he would simply sell to a club member. everybody, including him, was buying flippers sight unseen . . . today's he's blub, blub, blub . . . with the fishes

[GRG55]

Re: The Elusive Canadian Housing Bubble

their houses are their savings, silly. they'll all retire and support themselves by selling their appreciated houses.

Brings a new meaning to "retirement fund"...

. . . to each other

as a neighbor of mine planned. he was in a Las Vegas RE buyers club during the Big Bubble and when asked what would he do if pricing reversed course, he said he would simply sell to a club member. everybody, including him, was buying flippers sight unseen . . . today's he's blub, blub, blub . . . with the fishes

I think the strategy in Vancouver rests on the assumption the Chinese are going to provide "retirement fund" liquidity for the locals as they relentlessly buy up every last home, apartment, condo, duplex, garage, teepee and birdhouse in southern B.C. After all, the worker's paradise the Left Coast of Canada has become will make them feel right at home (although the unfettered access to political satire and internet porn might confuse them initially)...

[don]

Re: A Possible Needle in the Hay Stack?

"You can't just steal money from China and then enjoy life in Canada." Reuters/Mark Blinch

Seizing Bo Xilai’s French villa may be just the beginning.
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China’s corrupt officials and crooked businessmen have smuggled billions of dollars overseas, much of which has ended up in real estate in the United States, Canada, Australia and the United Kingdom—particularly in high-end neighborhoods in London, New York, Los Angeles, Sydney and Toronto. Now the Chinese government is embarking on a worldwide hunt to seize the properties with help from foreign governments, according to asset recovery and anti-corruption specialists.
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Since Wang Qishan, the Communist Party chief tapped to head China’s new anti-corruption drive, took office last fall, he has been pushing to crack down on capital flight from the country. In recent months, Chinese officials have quietly said they are specifically targeting foreign assets, and sought help from organizations like the OECD, anti-corruption groups and the foreign government agencies including the US Commerce Department about their newly aggressive pursuit of overseas real estate.
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Chinese officials “are interested in understanding where the assets are” in the US, and “the US has said it will work with them,” said Nathaniel B. Edmonds, a former Department of Justice official and a partner with the Washington DC law firm Paul Hastings. In July, Canada and China agreed to seize, share and return the proceeds of crime.
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Beijing’s interest in hunting down the proceeds of corruption takes place amid a similar push around the globe, with countries like Libya seeking to take back the assets that their corrupt officials have squirreled away. “There is an increased push to use asset recovery mechanisms in the context of corruption globally,” said Faisal Osman, a barrister with the London firm ARM Stolen Asset Recovery.
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Following the money

President Xi Jinping’s corruption crackdown has resulted in a surge of convictions—in the first quarter of this year alone, China’s prosecutors handled nearly 3,700 corruption cases involving $87.5 million. And the campaign has claimed some prominent scalps, many of which involved prominent foreign property holdings. When the Jinan People’s Court sentenced former Politburo member Bo Xilai to life in prison in September, it also announced plans to seize a villa owned by his wife on the French Riviera. Separately, a home in Walnut, California, believed to be owned by ex-railway minister Zhang Shuguang, is also a likely target for Beijing’s asset hunt.
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Those high-profile cases may be just the beginning.
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Estimating exactly how much corruption-tinged cash has fled China in recent years is difficult, but Ran Liao, senior program coordinator for Transparency International, a non-profit that works with governments and the private sector to curb corruption, said estimates run as high as 500 billion yuan ($82 billion) taken overseas in recent years. Other mind-boggling estimates abound:
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• A leaked report from China’s central bank estimated that from the early 1990s to 2008, some 18,000 officials and employees of state-owned enterprises pilfered a total of 800 billion yuan ($123 billion) from state coffers, with the culprits most likely to flee to the US, Canada, Australia and the Netherlands.
• China’s anti-corruption unit, the Central Commission for Discipline Inspection, predicted in another leaked report (link in Chinese) that $1 trillion may have fled China in 2012.
• “Grey income”—household revenue above what’s declared officially—reached an estimated $1 trillion in 2011, according to the China Society of Economic Reform.

For a corrupt official with money to invest, putting funds directly into an overseas bank or stock market can be risky, because financial institutions are required by global anti-money laundering agreements to report suspicious funds. But real estate agents in most countries have no such requirements. So when Chinese buyers land with suitcases full of cash, as they have in recent months, real estate deals can get done quickly.
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Chinese buyers spent $30 billion on overseas real estate in 2012, estimates Juwai.com, a property website. Of that, $9.1 billion went to the United States and much of it specifically to California. And almost 70% of the purchases made by Chinese buyers in the United States were made entirely in cash, according to the most recent report from the National Association of Realtors.
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Australian regulators approved $4 billion in real estate purchases by Chinese investors in the 2011/12 fiscal year (pdf, pg. 30), the most recent figures available. Canada keeps no hard data about foreign investors in real estate, but Chinese buyers in one year outnumbered local buyers in Vancouver by a three to one margin. They also bought 27% of new homes sold in London last year.
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Hunting “naked officials”

The soon-to-retire Chinese bigwig who has stashed money and relatives abroad in preparation for his escape is such a common character in China that it has its own phrase: luo guan, or “naked official.”
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Some of them have laid the groundwork for years; one common ploy is to send a son or daughter overseas to a private university as a way to legitimize sending funds out of China. For example, the leaked Chinese central bank report on corruption showed that former ministry of finance official Xu Fangming deposited roughly 1 million yuan ($164,000) into the bank account of a son studying abroad. Perhaps not coincidentally, the number of Chinese students studying abroad has jumped in recent years. In the United States, it more than doubled to 194,000 in the 2011/2012 school year from five years ago.
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Another popular strategy for gaining a foothold overseas is securing a foreign passport through “immigrant investor” programs.
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The ultimate goal in transferring money out of China, said Transparency International’s Liao, is that either the official or his offspring will have a happy life after they leave China. The new crackdown on overseas assets is designed to stop this process.
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“The government wants to make them hopeless,” Liao said. The message is “You can’t just steal money from China and then enjoy life in Canada.”
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A tough road to recovery

Whether the Beijing’s hunt for overseas properties will be a success, and perhaps even impact home prices in Los Angeles or London, remains to be seen.
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Seizing and recovering assets in a foreign country can be a tough slog for any government, experts in the field say. While China and most Western nations are signatories to the United Nations Convention Against Corruption, in which countries pledge to help each other recover the stolen funds, the process is lengthy, arduous, and fraught with diplomatic and legal complications.
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In the United States, for example, the party hoping to seize a home needs to prove that it was purchased entirely with funds derived through corruption. “In drug-related cases you seize the house and the car,” quickly and authoritatively, said Edmonds. But corruption-related cases are often more complicated, because tainted funds are mingled with other, legitimate, funds, he said.
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Another glaring vulnerability in any US-Chinese cooperation on asset seizure is the lack of a “Mutual Legal Assistance Treaty” between the two countries, which allows governments to seize foreign assets related to crime, said Daniel F. Roules, a Shanghai-based partner with Squire Sanders. That means Chinese authorities need to rely on cooperation from their US counterparts.
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And while US government officials have pledged to help, Laio of Transparency International said that Chinese officials he’s spoken with aren’t getting as much assistance as they would like. The US State Department and Department of Justice declined to comment.
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Jurisdiction shopping in Britain

British courts, on the other hand, see themselves as “world leaders in asset recovery,” Osman said, because there are powerful laws on the books, a long line of precedents and relatively straightforward laws.
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A 10 million pound ($16 million) home in Hampstead Gardens, a wealthy London suburb, purchased by Saadi Gaddafi, son of the deposed Libyan dictator, was seized in 2012 by the Libyan government after British courts ruled that Saadi could not have made enough money to purchase it on his military salary. Often officials hoping to pursue property they believe was purchased by the fruits of corruption will “get a judgment here [in the UK] and get it enforced in another jurisdiction,” Osman said.
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A UK judgement can sometimes be used successfully in the United States, as it was to seize a mansion in Houston and two Merrill Lynch brokerage accounts belonging to Nigerian governor James Onanefe Ibori.
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Whether the Chinese campaign to halt corruption and seize overseas assets will have real impact on property markets in the United States, Australia and Canada has less to do with international laws than it does what happens in Beijing in coming months.
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“What it comes down to is political will,” said Osman. Given the changing winds of politics, a push towards recovering assets of one person or group can sometimes be halted abruptly. “These by their very nature are lengthy proceedings and sometimes the political will fades,” he said. In one case he worked on involving a South Asian country, “the guys’ assets we were tracing a few years ago are now the guys in power.”
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Ivy Chen and Jennifer Chiu contributed reporting.