The Elusive Canadian Housing Bubble

[jk]

Re: Snatching the pebble!

i just sent a pm to vancouvergoinup:

"i have no idea whether this will reach you, but in our discussions on the canadian real estate bubble page we've finally seen that it's overseas [chinese] buyers [who have covert ways of getting funds out of the mainland] that are still powering real estate prices in vancouver. i reminded people of "vancouvergoinup" and someone replied "he was right. we made fun of him." so it has been officially recognized that you were right, and will continue to be [until the chinese bubble bursts, heaven knows when] and we were wrong."

[Polish_Silver]

It's worth it!

Could we finally be approaching the final blow off phase in Vancouver? Seems some of the natives are now trying to buy the place back from the Chinese...



More...

Skeptics have apparently not considered the possibility that it is worth any price to live in Vancouver.

[GRG55]

Re: The Elusive Canadian Housing Bubble

Knowledge

July 25th, 2014

...Well, the relevance of Nova Scotia real estate to Toronto, Calgary, Vancouver or almost anywhere else in the country is that all MLS data – even the saucy stuff realtors like to hide – is open and public (check out Viewpoint.ca). That means sellers have to be reasonable because buyers are informed. This kind of transparency in a marketplace cannot help but create fairer transactions.

But in Toronto, realtors are fighting to the legal death to prevent the wide dissemination of basic info like how long a property has been listed, previous asking prices or historic sales data. For them, an ill-informed consumer is more likely to jump into a bidding war, overpay and establish ever-higher price points.

Days ago the Toronto Real Estate Board lost a key battle, when the Supreme Court ruled against it. Now the issue of disclosure goes back to a tribunal hearing under federal competition law. The feds are (surprise!) fighting this battle on behalf of consumers, arguing that realtors have formed a cartel designed to restrict competition, curtail choice and probably elevate prices.

Said the Competition Bureau on hearing the court’s ruling: “We continue to believe that prohibiting TREB’s anti-competitive practices and allowing real estate agents to provide the services of their choice is the only way to ensure that consumers and real estate agents alike can benefit from increased competition for residential real estate brokerage services in the Greater Toronto Area. Today’s decision brings us one step closer to that goal.”

You betcha. TREB – and similar local realtor cartels across the country – routinely prohibit members from telling the public what properties sold for in the past, or how long they have been listed or relisted. You can get this data on a property-by-property basis from an agent working for you, but you can’t go online and intelligently shop any market – except maybe, poor little Nova Scotia.

So here’s a prediction for you: TREB will lose. The realtor cartel will soon be broken. Data will flood over the marketplace as new online brokerages (like Viewpoint) sprout like magic mushrooms. And prices will reflect a new empowerment. Finally.

[GRG55]

Re: The Elusive Canadian Housing Bubble

And the bubble lunacy continues to inflate - June 2014 data:



...

From the "Owe Canada" file:

...Mass builder Mattamy Homes is releasing lots this Saturday morning – 100 of them – in a new Oakville subdivision which will turn fields into a mass of towns, semis, laneway homes and detached houses. As I write this, more than 400 people are in the line, ready with their photo IDs and deposits cheques.

Homes with a double-car garage (and you’ll need a few cars to get anywhere) start at $765,000, and require a deposit of $70,000. But mostly, they aren’t built yet. No trees. No amenities. No idea of the community makeup. And all a fun-filled 90-minute commute to downtown Toronto on some of the most hellish highways in North America. Or, you can sardine it on the train.

“Honestly,” says a blog dog who stared at the weaving queue of desperate humanity replete with sleeping bags and pee jars, “this is obscene! What is wrong with people?”

They worship the wrong god.

[lektrode]

Re: The Elusive Canadian Housing Bubble

first problem was my original well collapsing. it had been an incredibly reliable and productive well, but i knew that it was dug through some pretty funky rock, and water quality was mostly great but got turbid after storms after the well had been hit - twice - by lightening. [because of the funky rock, the first hundred feet down had casing. the well itself was 400 feet deep.] then the new well seemed fine, but suddenly the water was notably acidic [my wife drew a bath and the water came out green.] then that cleared up and low voltage electrically controlled valves started burning out. we suspected something was wrong with the power supply to the house, but the utility kept saying there were no problems with our transformer. [we're the end of the line and have a transformer that serves just our house.] then, after burning out perhaps 15 valves over the course of 2 years, the transformer itself burned out completely and was replaced by the utility. i now have a claim in for the 2 years of expenses caused by their gradually failing transformer.

sorry i didnt get back sooner on this one, jk - it gets quite difficult to keep up around here...

sounds like some sort of 'stray current' and/or ground fault issue - would seem they've admitted such in replacing the xfrmr ?

the green water is a clue = copper compounds leaching/forming in maybe some sort of galvanic current flow/reaction? (some call this electrolysis but that term is incorrectly misapplied most of the time)

[GRG55]

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.

Here's a few charts below to amuse, the first of which I believe includes a form of the debt to income data you were inquiring about. Please note that mortgage interest on a principal residence is not deductible against other income in Canada, unlike the USA. Further, our mortgage market is quite different from the USA in that 30 year fixed mortgages and easily refinanced mortgages aren't available. Refinancing early usually involves heavy interest penalties, and mortgages generally have to be renegotiated at maximum 5 year intervals, so Canadian home buyers are generally more exposed to rising interest rates over the life of their indebtedness.

The second chart below shows Canadian Mortgage and Housing Corporation (CMHC) insured mortgages. CMHC is a federal government (e.g. Taxpayer) backed mortgage insurer. At present (1st Q 2013 data) it insures some CAD $560 Billion or about 62% of all home loans in Canada. Since CMHC insulates the banks who write the mortgages from losses there is a growing concern about potential loosening of credit standards. Although the Finance Minister won't use the phrase "housing bubble", the now acute concern about Canadian debt levels within the Finance Ministry and the Bank of Canada caused the government to announce that it was capping CMHC's balance sheet at a maximum of CAD $600 Billion. They know full well that in the event of a train wreck in the real estate market the taxpayers will have to bail out the banks both directly and via bailing out CMHC. Earlier this year the banking regulator designated all six major Canadian banks as "systemically important" - read: TBTF.

There is currently Cdn$960 Billion of real estate backed lending on the books of the major Canadian banks. The Cdn $400 Billion that isn't insured by CMHC is high-ratio mortgages that don't qualify for the insurance and Home Equity Lines of Credit (HELOCs) that also don't qualify. If there is a significant downturn in Canadian home prices it is these loans that have the potential to start the deleveraging cascade. That risk rises at the onset of the next Canadian recession (the economy is already slowing, unlike the USA) when reduced incomes will impair the ability to service these record household debt levels.

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...


\\

Another year has passed and the "fearlessness" with which Canadians embrace debt fueled "investment" in property continues unabated...in fact it would seem to be accelerating into that now familiar psychological state that one is a fool not to jump in and participate...

...In the National Gallery in Ottawa hangs a sprawling painting called “Mortgaging the Homestead”. The dude who created it (G.A.C. Reid) was modest enough to think it was a national treasure, so he donated it to the federal government. While documents are being signed at a kitchen table, it depicts family members hanging their heads in shame. Despair. Failure.

That was 1882. People hated debt. Mortgages were 3%.

Recently we got the results of a new survey on Millennials and borrowing. When asked if they worried about taking on big loans, most said no. In fact, a whopping 86% replied they “do not consider mortgages to be debt.” A majority also seem to think mortgages somehow disappear when you sell your property – which, of course, always ends up in a profit.

It’s 2014. Debt fear is gone. Mortgages are 3%.

So far we have amassed $1.2 trillion in mortgages in Canada, and another $250 billion in lines of credit secured by residential real estate. There is also $507 billion in consumer credit outstanding. By the way, a trillion is one thousand times a billion. Mortgage debt in Canada is now growing by $2.4 billion per month...

...This kind of thinking’s everywhere. It shows up in data showing an increasing number of people are comfortable going into retirement with unpaid mortgage balances. A CIBC poll last week found homeowners in BC, for example, don’t plan on being free of home loan debt until age 66 (which is probably wildly optimistic).

So, the wrinklies – many of whom grew up with mortgages at 14% or higher – no longer fear being in hock. And they sure have passed that on to their kids, whose primary goal in life is to be copies of their parents, getting mortgaged as soon as their hormones rustle...

[lektrode]

Re: Defending Krugman

Why Paul Krugman should never be taken seriously again

;)

[Fiat Currency]

Re: Defending Krugman

... In fact, a whopping 86% replied they “do not consider mortgages to be debt.”

That one always kills me, especially in Canada where we should know better. The very word is a combination of 2 French words - mort & gage - which literally means pledge (of debt) 'til death.

[don]

Re: Defending Krugman

With 30-year mortgages, frequent re-fis, leased vehicles - it's a thin veil from the rentier economy.

[GRG55]

Re: Defending Krugman

With 30-year mortgages, frequent re-fis, leased vehicles - it's a thin veil from the rentier economy.

You folks south of the 49th are amateurs at this. Read on:

The tale of two nations. Part deux. This is certainly getting interesting.

The average moist virginal homebuyer in Canada is 29 years old, just emerged pasty and blinking from his parents’ basement, and plans to spend $510,000 in Vancouver and over $400,000 in Toronto to buy real estate. Almost all of these buyers take high-ratio loans, since they lack a 20% downpayment, and end up paying CMHC insurance – which can add $15,000 to that Van price.

But despite the fact this amounts to an awesome debt loan, the home ownership rate among the twentysomething set (according to BeeMo) is 50%. That’s down from the past level of 55%, mostly because houses are so stupid expensive.

In Canada the average place costs more than $400,000, says CREA. In the States, the average is $176,500.

So, you’d imagine US kids would be swarming to real estate, since mortgage costs are roughly equal (thirty-year loans are 4% in the US, but tax-deductible), as are big-city incomes. But you’d be wrong. Home ownership among this group hit 40.6% as the housing boom was ending in 2007, then fell to 34% last year and is now just 29%. Of new-home purchasers, just 16% are first-timers.

What could possibly account for this huge gap between the Yanks and the Maples?

Well, many US kids saw their parents get their butts roasted in the housing correction that bottomed about four years ago. The US middle class was vacuumed for about $6 trillion, and millions of families found that having a one-asset investment strategy, leveraged over a mountain of debt, was a toxic idea. A whole nation of house-hornies discovered real estate does not always go up.

But that’s background. More salient reasons American millennials are renting are (a) student debt, (b) higher youth unemployment and (c) a lack of affordable properties. Sound familiar? So, we still don’t have an answer.

Until we look at lending practices.

To get a mortgage in the States, you typically need a credit score of 750. Yikes. Not only that, but most lenders usually won’t dole out any funds unless a buyer can cough up a downpayment of 20%. Compare that with Canada, of course, where 5% is all you need, and the bank will give you at least half of that for showing up.

Of course we also have teaser-rate and adjustable-rate mortgages, which are now banned in the States. That’s how banks here sucker in people with 1.99% or 2.2% two-year terms. It’s also worth remembering the Canada Interest Act dictates all mortgage terms have to expire after five years, so you cannot lock into a 4% rate for the next three decades, as so many Americans are doing currently. (Refinancings have jumped 23% as bond yields fell.)

The result is obvious.

Half of our kids buy houses and the average price is $408,795. South of us, in a similar country, less than a third can buy – and homes cost $176,500.

This is no coincidence. Real estate doesn’t cost more here because it’s better-built, or since we have a larger population and a better climate, or because people in Seattle make half what Vancouverites earn. Prices are higher because houses are easy to buy, and debt flows.

It’s been deliberate. Pushing real estate’s been a key policy initiative of governments which are financially strapped, strangled by election cycles and bereft of other ideas. By pushing citizens into borrowing and spending massively, politicians don’t need to pare spending, enact stimulus programs or reform taxation, especially when the economy turns south. They just get the fool voters to do it. Simple. It works.

So we got forty-year amortizations and zero down payments, along with first-time homebuyer tax credits. This was layered over the Home Buyer’s Plan allowing RRSPs to be raided, and provincial grants to encourage newbies. Land transfer taxes are slashed or eliminated for the virgins and, of course, CMHC wipes away all lender risk for mortgages up to 95% of a property’s value. We now have an entire banking sector that’s grown fat on giving home loans to people who have been too challenged, lazy, undisciplined or juvenile to actually save any money.

The result?

Unaffordable houses and record debt.

Genius country, eh?

[lektrode]

Re: Defending Krugman

You folks south of the 49th are amateurs at this. Read on:

The tale of two nations. Part deux. This is certainly getting interesting.....
...

What could possibly account for this huge gap between the Yanks and the Maples?.....

The result is obvious.

Half of our kids buy houses and the average price is $408,795. South of us, in a similar country, less than a third can buy – and homes cost $176,500.

This is no coincidence. Real estate doesn’t cost more here because it’s better-built, or since we have a larger population and a better climate, or because people in Seattle make half what Vancouverites earn. Prices are higher because houses are easy to buy, and debt flows.

It’s been deliberate. Pushing real estate’s been a key policy initiative of governments which are financially strapped, strangled by election cycles and bereft of other ideas.
....
Land transfer taxes are slashed or eliminated for the virgins and, of course, CMHC wipes away all lender risk for mortgages up to 95% of a property’s value. We now have an entire banking sector that’s grown fat on giving home loans to people who have been too challenged, lazy, undisciplined or juvenile to actually save any money.

The result?

Unaffordable houses and record debt.

Genius country, eh?

dont suppose 'they' planned it that way (too), do ya? in any case , this all sure sounds familiar....
just wait'll they start looking for special deals on their prop taxes (too)....

[lektrode]

Re: Defending Krugman

You folks south of the 49th are amateurs at this. Read on:

The tale of two nations. Part deux. This is certainly getting interesting.....
...

What could possibly account for this huge gap between the Yanks and the Maples?.....

The result is obvious.

Half of our kids buy houses and the average price is $408,795. South of us, in a similar country, less than a third can buy – and homes cost $176,500.

This is no coincidence. Real estate doesn’t cost more here because it’s better-built, or since we have a larger population and a better climate, or because people in Seattle make half what Vancouverites earn. Prices are higher because houses are easy to buy, and debt flows.

It’s been deliberate. Pushing real estate’s been a key policy initiative of governments which are financially strapped, strangled by election cycles and bereft of other ideas.
....
Land transfer taxes are slashed or eliminated for the virgins and, of course, CMHC wipes away all lender risk for mortgages up to 95% of a property’s value. We now have an entire banking sector that’s grown fat on giving home loans to people who have been too challenged, lazy, undisciplined or juvenile to actually save any money.

The result?

Unaffordable houses and record debt.

Genius country, eh?

dont suppose 'they' planned it that way (too), do ya? in any case , this all sure sounds familiar....
just wait'll they start looking for special deals on their prop taxes (too)....

[GRG55]

Re: Defending Krugman

dont suppose 'they' planned it that way (too), do ya? in any case , this all sure sounds familiar....
just wait'll they start looking for special deals on their prop taxes (too)....

This is fast approaching a full blown mania. Nobody, not even the bankers and politicians, can plan those.

[ST]

Re: Defending Krugman

Thanks for posting the graph, GRG.

Here's how it stacks up via FRED:

[GRG55]

Re: Defending Krugman

This is fast approaching a full blown mania. Nobody, not even the bankers and politicians, can plan those.

Here's the chart updated with October 2014 data. To the moon, Alice!