The Elusive Canadian Housing Bubble

[GRG55]

Re: The Elusive Canadian Housing Bubble

Someone get me a chair! Our northern cousins almost had to wait for their home to sell.

When the average time to sell is close to a year, we can talk about a problem. See 2009-2011 in the US for an example.

- Credit is still very cheap (bond market interest rates, from which mortgages are priced, are just on the cusp of starting to rise).
- House lust remains coded in the national DNA, like some sort of genetic defect (I was at a Grey Cup party on the weekend where one of my neighbours cornered me and started to explain "the right way to buy condos for investment"...in Calgary no less)
- All three federal political parties campaigned with varying policies to further goose the market; we'll see what The Kid does once he finishes his "Selfie Tour" to Paris this week (and after putting his two nannies on the taxpayer account).

[ProdigyofZen]

Re: The Elusive Canadian Housing Bubble

are escapee money from China/Asia then as long as that pipeline remains open not much is going to change.

GRG, I know that your focus has been on the Canadian investors as the ones driving the VC housing boom but have you considered their mindset? What I mean is that yes the majority of buyers are Canadian citizens and not all cash Asian/Chinese buyers but perhaps their mindset is: "Well the Chinese are all cash buyers that do not have to worry about getting a mortgage so I am just going to buy now hoping that this trend of Asians buying in VC continues into perpetuity as it has for the past 20 years."

This means that the price of VC homes is reflexive, the marginal Canadian buyer sees all cash Asian buyers as continued buyers so they buy no matter the cost even if the fundamentals do not warrant it knowing that the Asian buyers will maybe one day, even a year buy the home they purchased or that all prices will continue up overall.

"I have developed an alternative paradigm that differs from the current one in two important respects. Financial markets don’t reflect the underlying conditions accurately. First they provide a picture that is always bias or distorted in some way or another. Second the distorted views held by market participants and expressed in market prices can under certain circumstances affect the so called fundamentals that market prices are supposed to reflect. I call this two way circle of connection between market prices and the underlying reality, reflexivity. I contend that financial markets are always reflexive and on occasion they can veer quite far away from the so called equilibrium. In other words it is an inherent characteristic of financial markets that they are prone to produce bubbles. "


Chinese No Longer Partial To Australian Housing; Prices Tumble



Reuters: Australia home prices fall as heat leaves market-RPData

Tuesday's figures from property consultant CoreLogic RP Data showed dwelling prices across the major cities dropped 1.5 percent in November, from October when they rose 0.2 percent.

iFeng: 中国买家不再偏爱澳大利亚楼市 房价创5年最大跌幅 (Chinese Homebuyers No Longer Partial to Australia)

Over the past three years, Australia's mortgage rates reached their lowest level in 50 years, which contributed to the housing demand, overseas buyers flocked to the Australian real estate market, pushing up local prices. But in October of this year, Australia's major banks raised mortgage rates collectively. Core Logic Inc.'s chief researcher, said: "The rise in mortgage interest rates is the main reason the housing market decline."

...Chinese buyers have been considered to be pushing up local prices push Australian hands. The Credit Suisse Group released a report in November that China buyers demand for Australian real estate is waning, and Chinese buyers estimate demand in worldwide real estate market is likely to fall by 30%.

[GRG55]

Re: The Elusive Canadian Housing Bubble

GRG, I know that your focus has been on the Canadian investors as the ones driving the VC housing boom but have you considered their mindset? What I mean is that yes the majority of buyers are Canadian citizens and not all cash Asian/Chinese buyers but perhaps their mindset is: "Well the Chinese are all cash buyers that do not have to worry about getting a mortgage so I am just going to buy now hoping that this trend of Asians buying in VC continues into perpetuity as it has for the past 20 years."

This means that the price of VC homes is reflexive, the marginal Canadian buyer sees all cash Asian buyers as continued buyers so they buy no matter the cost even if the fundamentals do not warrant it knowing that the Asian buyers will maybe one day, even a year buy the home they purchased or that all prices will continue up overall.

"I have developed an alternative paradigm that differs from the current one in two important respects. Financial markets don’t reflect the underlying conditions accurately. First they provide a picture that is always bias or distorted in some way or another. Second the distorted views held by market participants and expressed in market prices can under certain circumstances affect the so called fundamentals that market prices are supposed to reflect. I call this two way circle of connection between market prices and the underlying reality, reflexivity. I contend that financial markets are always reflexive and on occasion they can veer quite far away from the so called equilibrium. In other words it is an inherent characteristic of financial markets that they are prone to produce bubbles. "


Chinese No Longer Partial To Australian Housing; Prices Tumble



Reuters: Australia home prices fall as heat leaves market-RPData

Tuesday's figures from property consultant CoreLogic RP Data showed dwelling prices across the major cities dropped 1.5 percent in November, from October when they rose 0.2 percent.

iFeng: 中国买家不再偏爱澳大利亚楼市 房价创5年最大跌幅 (Chinese Homebuyers No Longer Partial to Australia)

Over the past three years, Australia's mortgage rates reached their lowest level in 50 years, which contributed to the housing demand, overseas buyers flocked to the Australian real estate market, pushing up local prices. But in October of this year, Australia's major banks raised mortgage rates collectively. Core Logic Inc.'s chief researcher, said: "The rise in mortgage interest rates is the main reason the housing market decline."

...Chinese buyers have been considered to be pushing up local prices push Australian hands. The Credit Suisse Group released a report in November that China buyers demand for Australian real estate is waning, and Chinese buyers estimate demand in worldwide real estate market is likely to fall by 30%.

You are absolutely correct...it's all emotion and zero logic. And the realtors prey upon people using that emotion "Buy now or all the Chinese money will price you out of the market forever". After all how can you lose? Houses are an "investment" and property only goes up dontchakno.

It's now beyond ridiculous and into the comically absurd in Vancouver.

[jk]

Re: The Elusive Canadian Housing Bubble

if the motivation of chinese buyers is political, not primarily economic, then even if they are a minority in the market, their presence will have a significant and ongoing effect on prices. as long as there are more relatively wealthy chinese citizens looking for a refuge in b.c., vancouver real estate will be a safe investment. the economics are only a minor part of the equation for these buyers, so economic analysis is irrelevant. calculate the value of having that residence in a safe, developed country with a strong rule of law and outside the reach of chinese domestic opponents, prosecutors, pollution, tainted products and so on. what do you think that is worth?

[GRG55]

Re: The Elusive Canadian Housing Bubble

if the motivation of chinese buyers is political, not primarily economic, then even if they are a minority in the market, their presence will have a significant and ongoing effect on prices. as long as there are more relatively wealthy chinese citizens looking for a refuge in b.c., vancouver real estate will be a safe investment. the economics are only a minor part of the equation for these buyers, so economic analysis is irrelevant. calculate the value of having that residence in a safe, developed country with a strong rule of law and outside the reach of chinese domestic opponents, prosecutors, pollution, tainted products and so on. what do you think that is worth?

That is certainly part of it. It might have been the catalyst that started the chain reaction years ago. But its not the main driver now, not by a long shot.

Vancouver saw something similar in the first half of the 1990s as a lot of Hong Kong money flowed there to buy high rise condominiums in advance of the colony reverting to China. Vancouver became temporarily famous for having entire completed high rise towers in the West End with virtually no lights on at night as the buildings were sold out but mostly unoccupied - the escape valve you describe.

Interestingly, that condo bubble burst starting in 1995 and prices fell for four consecutive years before bottoming. The bust started two full years BEFORE the Hong Kong changeover.

The current insanity in Vancouver is regional across the Lower Mainland with prices inflating up and down the valley. Chinese buyers with cash looking for an escape valve don't buy homes in Surrey or Abbotsford. There is something quite different going on this time. And when the inevitable exhaustion arrives the damage is going to be far more widespread, and the Chinese cash buyers will be the least effected since they apparently don't have an outsized mortgage on an overpriced bi-level they can't pay

[GRG55]

Re: The Elusive Canadian Housing Bubble

That is certainly part of it. It might have been the catalyst that started the chain reaction years ago. But its not the main driver now, not by a long shot.

Vancouver saw something similar in the first half of the 1990s as a lot of Hong Kong money flowed there to buy high rise condominiums in advance of the colony reverting to China. Vancouver became temporarily famous for having entire completed high rise towers in the West End with virtually no lights on at night as the buildings were sold out but mostly unoccupied - the escape valve you describe.

Interestingly, that condo bubble burst starting in 1995 and prices fell for four consecutive years before bottoming. The bust started two full years BEFORE the Hong Kong changeover.

The current insanity in Vancouver is regional across the Lower Mainland with prices inflating up and down the valley. Chinese buyers with cash looking for an escape valve don't buy homes in Surrey or Abbotsford. There is something quite different going on this time. And when the inevitable exhaustion arrives the damage is going to be far more widespread, and the Chinese cash buyers will be the least effected since they apparently don't have an outsized mortgage on an overpriced bi-level they can't pay

And it's not restricted to Vancouver either. A little vignette, that demonstrates the national housing psychosis, from Garth Turner's Greater Fool blog today:

The predicament

December 4th, 2015

Terrie’s 31. Peter, 32. Young. In love. Skewered.

“We came across your blog not too long ago, and this is our situation,” she tells me. “We make a combined income of 130 to 140 k, counting overtime, rent in Toronto and pay about 1,000 for 1 bdm. We just got married in July and were saving for a house, until my impulsive nature got me into convincing my husband to buy a new build townhouse in the suburbs – it will be completed in August 2016, cost 470 k. We have so far sunk 13 k into, and must come up with another 20 k. We owe about 33 k in student loans (my student loans), and used our savings for our wedding. Where can we go from here, as we signed an agreement with the builders and can’t get out it? I’m stressed. Please help, yes I got myself into this mess. Thanks and God bless.”

Over the next few weeks and months I’ll wager more people will be waking up in a cold sweat over a real estate decision. No wonder. The perfect storm gathers...

...To contain this house lust, the feds are planning to raise minimum down payments – all the way to 10% for houses prices around $700,000 or more. Combined with rising mortgage costs, oil funk and mounting employment anxiety, the result could be sharp. The old government contemplated it, and balked. The new guys figure they can pull it off and survive. But, you know… horse. Barn.

So Terrie and Peter, you earned that stress. It’s one thing to buy just before a storm if you have lots of equity and a balanced life. If’s suicide to do so with no savings and epic leverage. Kiss your deposit goodbye, file your papers and walk.

[lakedaemonian]

Re: The Elusive Canadian Housing Bubble

NZ update:

75% of Auckland residential property auctions aw failing to clear reserve price. It coincides with increasing restrictions on foreign purchase and taxation.

An exceptionally well connected dodgy lawyer friend/customer of mine is on his way to China for a wedding. His business consists of facilitating residency and investment for wealthy Chinese. He seems to think the tap is turning down a fair bit on money inflow to NZ due to issues with money outflow from China.


OZ update:

i'm in a fantastic area of Surfers Paradise in Queensland in a neighbourhood called Broadlands with Miami like residential towers around a cool cafe/lifestyle district.

Looking at property prices with a friend after lunch today we noticed the only property magazines we could find in 2 different locations were all in Chinese. None available in English. Odd.

But noticeable increase in anecdotal proportional Chinese tourists.

1 and 2 bedroom holiday condo properties in great locations seem downright cheap(well, maybe. It cheap, maybe almost kinda rational). But full time family properties are seem to be even more ludicrously priced than last time.

[touchring]

Re: The Elusive Canadian Housing Bubble

NZ update:

75% of Auckland residential property auctions aw failing to clear reserve price. It coincides with increasing restrictions on foreign purchase and taxation.

An exceptionally well connected dodgy lawyer friend/customer of mine is on his way to China for a wedding. His business consists of facilitating residency and investment for wealthy Chinese. He seems to think the tap is turning down a fair bit on money inflow to NZ due to issues with money outflow from China.


OZ update:

i'm in a fantastic area of Surfers Paradise in Queensland in a neighbourhood called Broadlands with Miami like residential towers around a cool cafe/lifestyle district.

Looking at property prices with a friend after lunch today we noticed the only property magazines we could find in 2 different locations were all in Chinese. None available in English. Odd.

But noticeable increase in anecdotal proportional Chinese tourists.

1 and 2 bedroom holiday condo properties in great locations seem downright cheap(well, maybe. It cheap, maybe almost kinda rational). But full time family properties are seem to be even more ludicrously priced than last time.

This is interesting, is it possible that the inventory for 1 or 2 bedrooms is larger hence the lower resale price.

[GRG55]

Re: The Elusive Canadian Housing Bubble

Insane is a good description.

Oldest son of a long time and close friend of mine just bought his first home a couple of months ago. He and a buddy of his decided that it was "cheaper" to pay the mortgage on a house than the rent on their separate apartments.

They have a variable rate mortgage at a current interest rate that is less than 3%. His parents live in a upscale, but older neighbourhood. The house their son bought is in the same district, but on top of the hill overlooking them, about 20 years newer, and twice the size.

When I saw the pictures of the "new" house I pointed out to his father that when we were at the same stage of life as his son, house prices to income levels were much more reasonable than they are now, and yet although we both were earning professional incomes we couldn't afford such a house. The difference? Interest rates on the debt. Back then they were double digits.

Our bankers and politicians are wrecking the country...

Humpty Dumpty? Or horses and barn doors?


Canada tightens mortgage rules to help cool blistering Toronto, Vancouver housing markets

December 11, 2015 4:58 PM ET

OTTAWA — The new Liberal government on Friday confirmed it is tightening lending rules for residential mortgages, setting a minimum down payment of 10 per cent on the portion of home prices over $500,000.

Finance Minister Bill Morneau said homes purchased below the new price ceiling will remain at five per cent...

...“We believe that by increasing the down payment . . . we will create a better buffer for people and make people more secure, and have the entire market be more stable,” Morneau told reporters in Ottawa.

The federal minister acknowledged the new measure will affect fewer than 10,000 home purchasers, or one per cent of the total market...




New mortgage rules to hit Calgary hard, economist says

Dec 11 12:36 PM ET

A change in the minimum down payment rules will only affect about 3.9 per cent of new mortgages across the country but one of the cities most impacted can least afford a change in regulations.

CIBC deputy chief economist Benjamin Tal said the motivation behind the new policy, which will increase the minimum down payment from five per cent to 10 per cent for the portion of a property more than $500,000, is clearly to slow down the the Vancouver and Toronto markets.

“Those markets also happen to be the most expensive ones,” said the economist. “The Ministry of Finance is touching the untouchable (when it comes to down payments).”

But in the stagnating Calgary market, where November sales were 20 per cent below the 10-year average for the month, the impact could be devastating, said the economist. “Note, the the largest impact, close to 10 per cent, will be on Calgary due to its relatively large share of high-ratio mortgages — not exactly a city that needs additional cooling.”

[GRG55]

Re: The Elusive Canadian Housing Bubble

Looks like the beginnings of a clear downtrend in Calgary.

[Down Under]

Re: The Elusive Canadian Housing Bubble

Surfers Paradise real estate has not recovered from the GFC. My brother is a real estate agent who works there.

[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?

This post on Garth Turner's Greater Fool blog today is a good example of the national insanity up here. No wonder we want to blame it all on foreigners...and the worthless, pandering politicians lap it up and replay that sentiment back to us because it makes us feel good.

Entitled

December 14th, 2015

Markets are wheezy. The Fed is coiled. Oil’s suicidal. But the word revolves around Brianna.

“I am in a dire predicament,” she just wrote me, “and I need your valued advice. ASAP.”

By way of background, Bri is in her late 30s, childless, with a dodgy boyfriend. (Happens.) No kids. Renting a downtown T.O. condo here sister owns, but sis has decided to dump. She‘s been reading this blog, held off buying real estate and been dismayed at rising prices. Makes $100,000, has saved $110,000 but has $65,000 in student loans. “My family is unwilling to help financially, as they are disappointed in my boyfriend.”

No wonder. “He earns 40k and lives with his parents near Brampton and has a son. It is possible we might move into together within the next year to 18 months. He doesn’t have any savings, but his parents will match anything he saves for a house.”

So what’s the emergency?

“I am debating on getting an investment condo to live in until we decide to live together and then rent out the condo (keep as investment property) and then we buy as house together and hopefully start our own family. I am hoping for prices to drop as you have written, so hopefully the timing is right to get into the market."

“Based on what I have seen on general condo prices in my area of the downtown core, condo prices are flat or dropped slightly in the past couple years. It really does depend on the building, but most of the buildings I follow there has not been much appreciation."

“I know you are a major proponent on renting right now, but I will be stuck in a year lease and difficult for me to get out if we decide on living together. There are some affordable condos in the downtown core (small in size) that are in the mid-300s. My thought is to purchase one of these and get a house later. Also, i thought maybe better to have my own property aside from the matrimonial house I would share with my boyfriend. Please, do you have any advice to offer on how I should handle my finances and living situation? I have been looking for guidance and not sure where to start.”

I feature Brianna today as a bit of a case study. She feels sidelined because she thinks condo prices have popped (thanks to the media), but her actual observation is that values are flat or have declined. The woman obviously believes with a net worth of about fifty grand that (a) she should put 100% of it into one asset – a condo with a bad price history, (b) she can actually buy one and then turn it into an ‘investment” even though it will lose money and (c) she can then team up with her iffy BF who has ziltch and makes peanuts to purchase a ‘matrimonial home” while keeping her condo as a side investment.

See what I mean? She’s nuts. Worse, we have a banking system rife with omnivorous lenders only too happy to make these fuzzy dreams come true. They can still buy with 5% down, so long as it’s south of half a million. They can still get a mortgage for little more than the inflation rate.

And they can shoulder between them hundreds of thousands in floating debt destined to reset higher with each future renewal. And did I mention that anyone making a hundred grand who’s almost 40 with a net worth this size is a financial cripple already? Even before jumping off the condo cliff?

This epitomises our culture of entitlement and our embrace of debt. It’s a world in which people without a property feel disenfranchised, even when they lack the money to afford one. Gone is the notion of having money in anything other than real estate. Diversification means a house plus a condo.

No wonder mortgage debt has increased in 2015 by more than twice the rate of inflation and five times the pace of economic growth. As you may have heard, we just hit another milestone – record debt as borrowing continues to quickly outpace incomes. In the latest quarter, debt-to-income nudged 164%, beating out the previous record set one year ago...

[GRG55]

Cracks Becoming Clearly Visible Now

Another data point, but one that is not subject to Real Estate Board manipulations.

Royal LePage Foothills closing its residential offices in Calgary

December 14, 2015 7:50 PM MST

Royal LePage Foothills, a residential real estate company in Calgary, is fading out its operations and 163 realtors in the city will be moved over to two other company brokerages.

“It’s happening for a number of reasons,” said Ted Zaharko, 70, who has owned Royal LePage Foothills for about 25 years. “One is it becomes increasingly apparent that in this current economic climate that a multi-branch organization like mine becomes difficult because the expenses
have accelerated and revenue is dropping according to the way the economy is.

“It’s kind of a tight situation,” he added. “We ran into that situation. Less cash coming in and we’re just a bit behind in our commissions payable to our realtors. You see the writing on the wall and say ‘maybe this is the time to move down to a very small operation and move the sales people into the other Royal LePage offices’.”

The realtors have the option to join the Royal LePage Benchmark and Royal LePage Solutions. There are 210 existing agents at those two brokerages.

Royal LePage Foothills has six offices in Calgary and area.

Zaharko said Royal LePage Foothills will eventually disappear. Details are still being ironed out...

...Zaharko said the Foothills brokerage has been one of the largest Royal LePage offices in Western Canada with the gross revenue of about $35 million this year.

“Gross is one thing, bottom line is another,” he said...

Edit added:

A new Tesla, golf membership among incentives offered to motivate potential Calgary homebuyers

December 15, 2015 5:59 PM MST

A new luxury Tesla is one of the unique incentives being offered in an effort to attract and motivate potential Calgary homebuyers in what has become a tough market for residential property sales.

With MLS sales down nearly 27 per cent from a year ago, and active listings currently soaring to a level more than 33 per cent higher than last year, people with homes listed for sale are coming up with innovative ways to entice buyers.

Offers include everything from the aforementioned Tesla to $350,000 towards the purchase of a helicopter, to a family equity golf membership. There are also buyer agent bonuses being offered for up to $30,000.

“Calgary real estate is obviously taking a bit of a beating as are many businesses,” said Keith Crawford, with Century 21 Bamber Realty. “I had an interesting comment from my seller. ‘Why should we continue to reduce the price of the home in order to attract an offer? I could have given away a Ferrari for the price of reductions’.”

So the listing on that particular home at 80 Bay View Dr. S.W. for $2.349 million includes a brand new luxury Tesla vehicle valued at more than $100,000.

“As a long-term veteran of real estate in Canada I have seen every kind of market. This is one of the toughest as there is such uncertainty,” said Crawford...

...Year-to-date, up to and including Tuesday, MLS sales in Calgary are down 26.53 per cent compared with the same period a year ago. New listings are off by 6.7 per cent; active listings have risen by 33.22 per cent to 5,189; the median price has decreased by 0.26 per cent and the average sale price has dipped by 2.64 per cent.

One listing by realtor Ross Pavl, of RE/MAX House of Real Estate, at 264035 Range Road 293 in Rocky View County for $3.8 million includes: “Receive $350,000 towards the purchase of a Robinson R44 helicopter. Seller to end promotion Jan. 31, 2016.”

Another listing by realtor Rachelle Starnes, with Engel & Völkers, for $1.299 million at 48 Hackamore Tr. in Rocky View County notes: “Included in the sale of this property is a Springbank Links family equity golf membership that the new owner can use or sell!”...

[santafe2]

Re: Cracks Becoming Clearly Visible Now



U.S. interest rate hike is tough medicine for indebted Canada

America has had its housing market 'correction,' ours is yet to come

Let's look at the unfortunate facts for a moment.

The U.S. Federal Reserve raised interest rates slightly today, because it believes an American recovery is well underway. The U.S. economy is now at what economists would call full employment — about five per cent. Good for them. An American recovery cannot be anything but good for Canada.

And yet. The Canadian economy is weak enough that Bank of Canada governor Stephen Poloz is now actually talking about the possibility of going the other way, all the way to negative rates, which means you'd be better off stuffing cash into a mattress.

That would penalize savers and push people to take risks in search of return. (It also means an even lower Canadian dollar; what a difference a few years make.)

The unemployment rate here is now 7.1 per cent.

Americans, having been terrified out of their wastrel-grasshopper lifestyle back in 2008, when it looked as though their financial world was coming to an end, have been trimming back debt and actually saving. As a result, American household finances haven't been in this good shape for many years.

But Canadians, addicted to the cocaine of nearly free money, keep setting records for household debt. The average Canadian household now owes $1.64 for every dollar of income. Canadian debt, to put it plainly, is increasing a lot faster than Canadian incomes.

The young and indebted

In recent days, business writers have been reporting the findings of economist Sebastien Lavoie at the Laurentian Bank, who set the number of "fragile" Canadian homeowners at 12 per cent. What that means is that 12 per cent of households have a debt that is at least 250 per cent of their annual household income. Those highly indebted households carry about 40 per cent of overall household debt.

But Lavoie acknowledges that the situation is actually worse than that. New Bank of Canada figures suggest that the number of Canadian households with a debt-to-income ratio of 350 per cent reached 7.9 per cent in 2014, up from 4.1 per cent in 2007. That level of debt — 350 per cent of your income — is just scary. Those households now hold 21 per cent of all household debt, and if they collapse under the weight of higher interest rates they will come crashing down on everyone.

The 'greater fool'

Acting on this, Finance Minister Bill Morneau last week implemented another set of rules designed to reduce irresponsible borrowing. The question, though, is have Canadians taken on too much irresponsible debt already? The basic difference between Canadians and Americans is that Americans have gone through a correction in their all-important housing market, and we haven't.

Morneau, being a politician, strictly avoids talking about a real estate bubble in Canadian cities. To name it a bubble, after all, can make it real in the public mind, which in turn can burst it.

The U.S. housing market shed trillions in value after the crash in 2008 — up to 60 per cent in some cities — before coming back to more realistic levels, Canada sailed on, congratulating itself, while its housing prices just kept rising. As a result, "There is way more risk in the Canadian economy than most people understand," says Garth Turner, a former MP and housing expert who writes the wryly-titled blog The Greater Fool. "And most of that risk is in housing." "The greater fool" is a maxim in the housing industry; it is the assumption that even if the price you pay for your home is foolish, a greater fool will some day pay more.

Comment: We call this Las Vegas Real Estate in the US.

Americans followed that guideline from the Second World War onward, and it worked just fine, until suddenly, in 2008, it didn't. Turner, it might be noted, is a Cassandra. He's been warning of undue risk, especially in cities like Vancouver and Toronto, for years. "A generation of people have bought houses they cannot afford," he says. He doesn't like to talk about or define bubbles, but he uses language no finance minister would use: "People should just use their goddamn common sense." Well. That's a wonderful idea, but common sense is almost always overcome by greed, until it crashes on the rocks of panic.

Pushing on a string

In Vancouver and Toronto, there have been double-digit increases, year over year, for many years, and people have made ever more reckless bets, egged on by the real estate industry. When I lived in the U.S., my "holy shit" moment came in 2007 when I met a short-order cook, making not much more than minimum wage, who owned two large homes, and was planning to buy a third. Other more educated American observers had reached that moment of clarity much earlier, but were shouted down by irrationally exuberant stakeholders and government officials. Including the financial geniuses at the Fed.

And then came 2008, and the great collapse, and the great recession. Christopher Ragan, an economist at McGill University in Montreal, is chary about pronouncing a housing bubble in Canada's hot markets. Still, he says, "it can be a nothing little event that starts the fall." And that "the panic on the downside is a much more powerful force than the optimism that builds the market."

Everyone, though, seems to agree on this: Canada's economy is more fragile than America's right now, even as house prices roar on in some Canadian cities. As for Poloz's signals that he may lower interest rates here further, Ragan is hardly the only expert who thinks that course is a fool's cure: "Pushing on a string," is how he characterizes it. Making money even cheaper in Canada will just encourage an already heavily indebted population to borrow more money, and there's plenty of cheap money as it is. Having lived in the U.S. during the meltdown, I've seen a version of this movie. I'm not anxious to buy a ticket to the re-release.

[GRG55]

Re: Cracks Becoming Clearly Visible Now

Hard to believe it has come to this.

Here's an excerpt from Garth Turner's blog today: It sez it all.

December 20th, 2015

Forty minutes by car (an hour and a half in the rush) west of downtown Toronto lie the vast suburbs of Milton and north Oakville. This is where young couples go who must have a home (average $600,000) and cannot afford to buy a detached place in 416 (average $1.1 million). For this they pay another price. Monolithic design. Zombie commute. Strained services. No trees. Homogeneity.

But this is the leading edge of Canadian society. Vast numbers of people want it. They’re willing to overlook so much, in order to embrace it.

Here’s a comment from a buyer posting on the community site for Milton’s Hawthorne Village – the creation of a builder (Mattamy) so large it actually hammered together many of these homes 16 hours a day on an assembly line inside a factory:

“I took 2 days off work to line up. Was awesome…got to know my neighbours and I would do it again if need be. Mind you Mattamy raised the price of my house $40,000 during that time…so well worth lining up and losing two days of work…
“We kept checking Mattamy’s website and the site plan was leaked couple weeks in advance so I knew which lot I wanted. We did all our research prior to buying and knew which house we wanted too. In all honestly, I wish I had purchased 2 homes because we had the first 2 spots in line…”

If you ever doubt real estate is a mania in Canada, a social affliction, then remember those words. “Mattamy raised the price of my house $40,000 during that time…so well worth lining up and losing two days of work…” This is what happens to a society when money’s so cheap it’s considered virtually free, and young couples focus only on the monthly, not the pile of debt they’re walking into. These folks often got a down payment gifted to them by the Bank of Mom, believe interest rates can never rise, and guys like me are geezer idiots...