The Elusive Canadian Housing Bubble

[GRG55]

Re: The Elusive Canadian Housing Bubble

John Sanford, one of the owners of Rocky Mountain Pawn on Macleod Trail, Calgary

It is working its way up and down the entire food chain in Alberta.

Apparently it's no longer considered an embarrassment if your waiter informs you that your credit card was rejected. Happens all the time here now. Proper etiquette is to pull out your wallet full of cards, offer them to the waiter and suggest he pick one and try again, repeat until your meal charge is accepted.

[don]

Re: The Elusive Canadian Housing Bubble

Apparently it's no longer considered an embarrassment if your waiter informs you that your credit card was rejected. Happens all the time here now. Proper etiquette is to pull out your wallet full of cards, offer them to the waiter and suggest he pick one and try again, repeat until your meal charge is accepted.

The ubiquitous usefulness of skilled labor. 'George has an uncanny ability to pick the right card, the first time, every time . . . .'

[don]

Re: The Elusive Canadian Housing Bubble

CALGARY – The number of half-empty office buildings in Alberta is projected to spike, as Colliers International predicts an “ill-timed” building boom should push up vacancy rates in Calgary and Edmonton.

(aka the China Syndrome)

In a report released Tuesday, the real-estate brokerage’s chief economist Andrew Nelson said, “the fall in oil prices has had a negative impact on the energy-reliant markets (in Western Canada),” which has contributed to rising vacancy rates and falling rental prices in Alberta’s two largest cities.

Vacancy rates jumped over the course of the second quarter. In Calgary’s case, Colliers reported the downtown vacancy rate rose to 13 per cent from 10 per cent, while Edmonton’s vacancy rate increased to 11.2 per cent from 10.6 per cent.

A glut of new buildings under construction in both cities could push those numbers up even higher.

“Canada is also in the midst of an ill-timed supply surge that caused vacancy rates to rise even in markets with positive absorption in (the second quarter),” the report noted.

There are 5.2 million square feet of office space under construction in Calgary right now, which is the largest amount of new commercial space being built in any city in Canada and could further push up vacancy rates.

Edmonton, a city with a current total of 17 million square feet of office space, is in the middle of its own building boom with over 2 million square feet of space under construction.

Some observers see at least a partial silver lining in the numbers.

In recent years, Calgary Chamber of Commerce director of policy and research Justin Smith said, commercial real estate costs downtown Calgary were “going through the roof” and “accelerating at a pace far beyond the Canadian average.”

He said those escalating costs made it difficult for some companies to stay in downtown Calgary and noted that even large companies like Imperial Oil Ltd. and CP Rail Ltd. moved their head offices to the suburbs.

The uptick in vacancy rates, he said, could provide some relief to smaller companies looking to do business downtown, as rental rates are projected to fall as vacancies rise.

However, the numbers in Calgary may understate how much office space is sitting empty as a result of a phenomenon called ghost vacancies, where companies that have cut staff hold onto more office space than they need.

Colliers executive vice-president and partner Jim Rea said that ghost vacancies mean that, even if employment levels rise, vacancy rates may hold steady.

“The ghost space may never come to market, but those companies that currently have excess capacity of office space, as they continue to staff up, you can’t assume that they’ll be back in the market looking for more space,” Rea said.

Weakening demand for office space in both Calgary and Edmonton has resulted in large quantities of commercial real estate coming back on the market this year.

The report showed that 1.7 million square feet of office space has become available in Calgary’s downtown core, thanks in part to thousands of layoffs in the oil patch and a decline in the need for commercial space.

That is the largest quantity of newly empty space in any downtown in North America, including Houston, an oil and gas town where 1.6 million square feet have become available this year.

Edmonton posted positive absorption numbers in the second quarter, but is still down over the course of the year. So far this year, 8,400 square feet of downtown office space has gone on the market in the city this year.

Calgary Oil Update:

http://www.financialpost.com/m/wp/news/blog.html?b=business.financialpost.com/news/property-post/half-empty-office-buildings-on-the-rise-in-calgary-edmonton-amid-oil-price-plunge&pubdate=2015-09-03

gmorgan@nationalpost.com

[GRG55]

Re: The Elusive Canadian Housing Bubble

Signs of desperation tinged with hope setting in at the Bank of Canada:

Bank of Canada cuts key interest rate as economy falls into recession

July 15, 20158:06 am

The Bank of Canada cut its trend-setting interest rate to 0.5 per cent on Wednesday to help boost an economy that’s in retreat...

And the Canuck Buck heads lower...soon to be once again renamed "The Northern Peso". But not to worry...I'm confident we'll make it up in house price increases

And the results are in. Mortgage debt is rising faster, while other personal and business credit growth rates are slowing. Anybody here still believe it's all those dastardly foreigners (aka the Chinese) driving house prices? If so I have a bridge I would like to sell you...

Household debt rises at fastest pace in nearly three years

The Globe and Mail
Published

Monday, Sep. 28, 2015 4:25PM EDT

Canada’s household debt levels rose at their fastest year-over-year pace in nearly three years in August, as Canadians continued to pile into residential mortgages in the wake of the Bank of Canada’s second interest-rate cut in six months.

The central bank released new data showing that total Canadian outstanding household credit rose to $1.869-trillion in August, up an annualized pace of 5.9 per cent from July...

...Over the past three months – a time period the bank uses to indicate the recent credit trend – household credit rose at a 5.6-per-cent annualized pace, the fastest since March, 2012.

The acceleration of debt growth at the household level in August came on the heels of the Bank of Canada’s decision in mid-July to cut its key interest rate to 0.5 per cent from 0.75 per cent in an effort to stimulate a struggling Canadian economy that contracted in the first half of the year. The cut, coming on top of a similar quarter-percentage-point cut in January, dampened borrowing costs and provided a renewed green light for home buyers in Canada’s long-overstretched housing market.

Residential mortgage debt jumped 7.5 per cent annualized in the month, raising the three-month pace to 7 per cent, its fastest since April, 2012. On a year-over-year basis, mortgage growth was 5.9 per cent, a 32-month high.

But consumer credit – which includes credit cards, car loans, personal lines of credit and other personal loans – grew at a much tamer 2 per cent annualized in August, continuing its recent slowing trend...

...The Bank of Canada also reported that total business credit rose at a slim 2.4-per-cent annualized pace in August, to $1.728-billion, a sign that the month’s financial-market volatility and global economic stumbles may have put a chill on business loan demand...

Some of you may know that Canadians are going to the polls for a Federal Election next month. So what is one of the major planks in our current Prime Minister's policy platform? Read it and weep, and yes that is Mr. Harper in the hardhat bringing a whole new definition to nailing a stud (btw, for those of you who STILL think it's all those dastardly foreigners driving up Canadian house prices, I have a bridge... ):

If Stephen Harper has his way, 72.5 per cent of Canadians will be homeowners by 2020

Last Updated: Sep 29 9:47 PM ET

VAUGHAN, Ont. — Conservative Party Leader Stephen Harper continued his bid for the middle class electorate on Tuesday, declaring home ownership “one of the most unmistakable marks of economic success” and vowing to increase the number of Canadian homeowners by 700,000 by 2020.

The end goal, according to the Conservative Party, is to push Canada’s homeownership rate to 72.5 per cent, up from 66 per cent in 2001, and 69.0 per cent in 2011.

Appearing at a half-built housing development in this Toronto suburb, Harper re-announced a set of tax incentives and other measures aimed at helping first time buyers into the market, and named the new target of 700,000.

With construction workers in hard hats and safety vests behind him, Harper said buying a home is “more than anything, a statement of optimism, a sign of commitment to your community, of faith in your country, of hope for our future.”...

...“We are not lowering the threshold for achieving home ownership,” he said. “We are raising Canadians ability to achieve it through lower taxes, economic growth and new, well-paying jobs.”...

Somehow the above sounded faintly familiar. We bring you a golden oldie from the past; an excerpt from President George W. Bush's October 15, 2002 "Ownership Society" speech at George Washington University:

"...All of us here in America should believe, and I think we do, that we should be, as I mentioned, a nation of owners. Owning something is freedom, as far as I`m concerned. It`s part of a free society. And ownership of a home helps bring stability to neighborhoods. You own your home in a neighborhood, you have more interest in how your neighborhood feels, looks, whether it`s safe or not. It brings pride to people, it`s a part of an asset-based society. It helps people build up their own individual portfolio, provides an opportunity, if need be, for a mom or a dad to leave something to their child. It`s a part of — it`s of being a — it`s a part of — an important part of America.

Homeownership is also an important part of our economic vitality. If — when we meet this project, this goal, according to our Secretary of Housing and Urban Development, we will have added an additional $256 billion to the economy by encouraging 5.5 million new home owners in America; the activity — the economic activity stimulated with the additional purchasers, the additional buyers, the additional demand will be upwards of $256 billion. And that`s important because it will help people find work.

Low interest rates, low inflation are very important foundations for economic growth. The idea of encouraging new homeownership and the money that will be circulated as a result of people purchasing homes will mean people are more likely to find a job in America. This project not only is good for the soul of the country, it`s good for the pocketbook of the country, as well..."

Sure. This should end well, eh.

[jk]

Re: The Elusive Canadian Housing Bubble

how can this be happening with the example of where this leads just to your south and not many years back?

i thought you canadians were more sensible than us yanks. whatever happened to that?

[GRG55]

Re: The Elusive Canadian Housing Bubble

how can this be happening with the example of where this leads just to your south and not many years back?

i thought you canadians were more sensible than us yanks. whatever happened to that?

Who knows.

All I can do is hark back to this old thread and lament that we appear not to have taken Finster's sentiments (in the closing post) to heart...

[santafe2]

Re: The Elusive Canadian Housing Bubble

...(btw, for those of you who STILL think it's all those dastardly foreigners driving up Canadian house prices, I have a bridge... )

Conservative Party Leader Stephen Harper continued his bid for the middle class electorate on Tuesday, declaring home ownership “one of the most unmistakable marks of economic success”...

I took a very long drive from Southern Utah to Southern AZ today and suspect I drove close to the ex London Bridge...speaking of bridges for sale. The Chinese upper class added octane to your real estate markets during 2008-2014. Your citizens have taken that as a signal that Canada is different, that Canada is more sensible than its Southern neighbor. I suspect that's a bad notion.

Your "conservative" leader is much like Bill Clinton. Everyone should be a home owner.

Add President Clinton to the long list of people who deserve a share of the blame for the housing bubble and bust. A recently re-exposed document shows that his administration went to ridiculous lengths to increase the national homeownership rate. It promoted paper-thin downpayments and pushed for ways to get lenders to give mortgage loans to first-time buyers with shaky financing and incomes. It’s clear now that the erosion of lending standards pushed prices up by increasing demand, and later led to waves of defaults by people who never should have bought a home in the first place.

http://www.businessweek.com/the_thre...ons_drive.html

Of course BusinessWeek was calling him out from a decade old rear view mirror. Your press will do the same when the real estate downturn finally happens. And no matter how much or how little the Chinese upper class has to do with your real estate bubble, xenophobia will win the day. In that regard, we're not so different. After all, the citizens can't be blamed for stupidity in a democracy. Even the idiots have a vote.

[santafe2]

Re: The Elusive Canadian Housing Bubble

dup

[don]

Re: The Elusive Canadian Housing Bubble

Your "conservative" leader is much like Bill Clinton. Everyone should be a home owner.

Drawing on his experience as captain of the cheerleaders, George Bush is the nonpareil "Ownership Society" medicine man.

[GRG55]

Re: The Elusive Canadian Housing Bubble

September offered with no comment - but plenty of astonishment looking at Vancouver

[Milton Kuo]

Re: The Elusive Canadian Housing Bubble

The talk of Chinese buyers being a driver/cause of insane Vancouver real estate prices has arrived in a more mainstream news source. (This is the first time I've seen mention of this in the mainstream media.)

"In North America's Costliest City, Rich Chinese Face Backlash" from Bloomberg:

“Stop allowing people from China to buy our houses and leave them vacant,”

Yep. Those empty houses were probably bought by Chinese people. It's going to be interesting to see what ideas Canada comes up with to address the problem of insanely expensive housing.

I wonder if Canadians will be happy if the answer to greater affordability of housing is a housing crash. The powers-that-be down here were not happy at all with that solution.

[GRG55]

Re: The Elusive Canadian Housing Bubble

The talk of Chinese buyers being a driver/cause of insane Vancouver real estate prices has arrived in a more mainstream news source. (This is the first time I've seen mention of this in the mainstream media.)

"In North America's Costliest City, Rich Chinese Face Backlash" from Bloomberg:

“Stop allowing people from China to buy our houses and leave them vacant,”

Yep. Those empty houses were probably bought by Chinese people. It's going to be interesting to see what ideas Canada comes up with to address the problem of insanely expensive housing.

I wonder if Canadians will be happy if the answer to greater affordability of housing is a housing crash. The powers-that-be down here were not happy at all with that solution.

Canadians and their politicians love high and rising house prices. Makes everyone feel rich and generates lots more property taxes for the cities to spend, spend, spend. They will do whatever it takes to support the inflation of house prices until the bubble finally exhausts itself (as all bubbles eventually do).

Then the hunt for a scapegoat to blame will really get underway.

[GRG55]

Re: The Elusive Canadian Housing Bubble

I took a very long drive from Southern Utah to Southern AZ today and suspect I drove close to the ex London Bridge...speaking of bridges for sale. The Chinese upper class added octane to your real estate markets during 2008-2014. Your citizens have taken that as a signal that Canada is different, that Canada is more sensible than its Southern neighbor. I suspect that's a bad notion.

Your "conservative" leader is much like Bill Clinton. Everyone should be a home owner.



http://www.businessweek.com/the_thre...ons_drive.html

Of course BusinessWeek was calling him out from a decade old rear view mirror. Your press will do the same when the real estate downturn finally happens. And no matter how much or how little the Chinese upper class has to do with your real estate bubble, xenophobia will win the day. In that regard, we're not so different. After all, the citizens can't be blamed for stupidity in a democracy. Even the idiots have a vote.

In his Greater Fool blog, former Federal politician Garth Turner says it best when he describes all three of the major Federal political party leaders as "merchants of debt pimping housing" in this election campaign. It is completely insane, and the nation will be the worse off for it regardless of which one of them wins the election next Monday.

Some other random tidbits from the Greater Fool blog:


Exhibit #1 - The National Passtime (Hint, It's No Longer Ice Hockey):

So why are Millennials horny for real estate even when this will render them indebted, immobile, inflexible, penurious and pale, sad imitations of their parents?

• They were shaped by the GFC, watched their folks being hosed with high-MER mutual funds sold by commission-mad salesguys and now simply mistrust financial markets. Besides, houses always go up. It says so on Twitter.
• Speaking of parents, the kids have been utterly indoctrinated by mom & dad who grew up in a different (inflationary) time, with a one-asset strategy. It worked for them, so they imbue Junior. See the last bullet point, below.
• Excessive education has delayed adulthood, marriage, careers and finances. Virgins swallow the property hype and think this is a fast-track way to catch up. So cute.
• The Bank of Mom. Doting, copter parents believe it’s smart to circumvent the laws of economics and shovel down payment money onto their spawn, so they can be massively indebted, never leave the hood and come for dinner every Sunday.
• The 99% thing. And the NDP. Most Millennials lean to the left, eschew ‘banksters’, hate Wall Street and would eat the rich. Somehow they think ending up with a condo and an epic mortgage held by a bank makes them special.
• Financial illiteracy. Real estate involves massive leverage, big risk, huge fees and recurring costs. Prices are at an historic high and unsustainable by every measure. Millennials say they’re afraid of risk and yet flock to the flame. Fortunately, they know everything, so what can possibly go wrong?

Exhibit #2 - Keep Borrowing, But Don't Forget to Blame the Result on Asian Foreigners:

The largest credit union in Ontario has lowered the bar a little more. You might remember last Spring when Meridian made headlines with a 1.49% mortgage, but only for an 18-month term. Since then, a lot’s happened. The Bank of Canada cut its key rate again in July. The economy slumped into a technical recession. Our exports tanked. The real estate market – at least in two cities – bloated further. And consumer debt levels popped right alongside.
So now Meridian is offering a five-year mortgage at the unheard-of variable rate of 1.85%. That undercuts the big banks, which are flogging similar loans for between 2.2% and 2.7%, and means you can carry $500,000 for two grand a month.



...Even though we’re creating precious few good jobs, the borrowing orgy continues. Mortgages have been expanding at the annualized rate of 5.5% and new borrowing has crested once again, with a fresh historic high in the ratio of debt to income. Housing markets in YVR and the GTA have become completely detached from the economic fundamentals beneath them, with prices in some regions of the 905 escalating 14% a year...

...Meanwhile almost 70% of homeowners say they’d be troubled or sunk by a $500 mortgage payment increase and half of us couldn’t survive one missed paycheque. It now seems lost on everyone (outside of Calgary) that low rates are a 9-1-1 warning tougher times lie around the next corner...



Exhibit #3 - The National Passtime (Revisited):

Tom and Sarah make $140,000 between them, although she’s now just logging part-time hours. They have two kids under four, rent a decent townhouse in the GTA (“But too many stairs,” she complains) and have, at 38 years of age, saved about $250,000. Not bad.

They have a choice, and dumped it on me three weeks ago. They can carry on as now, topping up the TFSAs and putting a little into Tom’s group RRSP while maxing the kids’ RESPs. At age 65, I told them, they should have about two million bucks, and a life-long retirement income north of $150,000.

Or, they can buy a house.

“We really don’t wanna spend more than $950,000,” Tom said when we met. “But we’ve been pre-approved to purchase a property as high as $1.2 million. That’s what Sarah wants. Besides, wouldn’t we be smart to up our budget to just over the 1 million mark considering there are fewer people who can actually muster up a bigger down payment on a million-dollar property?”

By the way, these guys had already ‘lost’ out on at least two bidding wars. That experience impacted them deeply, so the house lust within has been smoldering and explosive. As usual in life, the most desired object is the one you do not possess.

So, I said sagely and uselessly, if you buy for over a mill you’ll need at least 20% down, plus closing costs, wiping out all your savings. Then you’ll have no liquidity, no retirement nestegg, a one-asset strategy with zero diversification and a mortgage of at least $800,000 which won’t stay at 3%. Property taxes, insurance, renos, maintenance and interest charges will far exceed the rent you now pay (by two grand a month), so you’re totally gambling housing prices in the next decade will continue to wildly inflate. Is that a risk worth taking?

So, they bought the house.

[touchring]

Re: The Elusive Canadian Housing Bubble

I took a look at the CAD vs USD chart and it appears to me that even if Canadian property prices has risen marginally, but at the same time they have depreciated tremendously in terms of the Dollar over the past 3 years straight.

[GRG55]

Re: The Elusive Canadian Housing Bubble

I took a look at the CAD vs USD chart and it appears to me that even if Canadian property prices has risen marginally, but at the same time they have depreciated tremendously in terms of the Dollar over the past 3 years straight.

You are catering to the view that Canadian real estate is an international market dominated by foreigners. It isn't. The Real Estate Board and other statistics demonstrate absolutely conclusively that the overwhelming majority of properties in Canada, even in Vancouver, are purchased by locals. They earn all or the majority of their income in Canadian dollars, and their debt is in Canadian dollar denominated mortgages. The price increase, and the increasing debt they are taking on, is very, very real for them.

If you can figure out how the average Canadian can earn their income in US Dollars then you might have a point.