The Elusive Canadian Housing Bubble

[santafe2]

Re: Canadian and B.C. Government Sponsored 0% Down - Unbelievable

When we Southern border folks are viewing the Vancouver housing bubble and the parabolic rise since January of 2013 we have to moderate it somewhat with our rose colored US$ glasses. While it's true the average SFD in Vancouver has risen from $900K to $1.25MM over the last three years, the US$ has gone from parity to $1.44. If I divide 1.25/1.44 my current cost for an average home in Vancouver is $868K. I'm not sure that's a bargain but it's less than $900k US three years ago.

[GRG55]

Re: Canadian and B.C. Government Sponsored 0% Down - Unbelievable

When we Southern border folks are viewing the Vancouver housing bubble and the parabolic rise since January of 2013 we have to moderate it somewhat with our rose colored US$ glasses. While it's true the average SFD in Vancouver has risen from $900K to $1.25MM over the last three years, the US$ has gone from parity to $1.44. If I divide 1.25/1.44 my current cost for an average home in Vancouver is $868K. I'm not sure that's a bargain but it's less than $900k US three years ago.

Just wait a bit longer...you'll be able to buy a Vancouver house for about US $4.97 soon, given the way the Northern Peso is behaving.

Of course The Hot One is going to legalize weed, so we won't get too stressed about trivia such as the exchange rate.

[GRG55]

Re: Cracks Becoming Clearly Visible Now

You are absolutely right, transaction volume is always the first sign that a hot property market is in danger of rolling over. Transaction volume in cities like Calgary fell off significantly early this year. The prices at the high end of the Calgary market are now under considerable pressure with some high profile luxury starter-castle blowouts already making the papers (this is an exact repeat of the pattern here in the early 1980s). Entry level housing in Calgary is just starting to get hit on price, with the overbuilt condo sector leading the way, as expected.

The family home is usually the last thing to be put up for sale in times of income stress - the vacation cottage in the B.C. interior (that market should have been a warning as it saturated, reached exhaustion, rolled over and started to die two years ago!), the winter condo in Phoenix (which was a winner on the exchange rate alone), the summer-only sports car/convertible in the garage, the Harley toy, the holiday trailer/motorhome, the snowmobiles, ATVs, dolled-up "Platinum Edition" pickup trucks and all that other stuff go first. So the process takes time. The smart money (very few) and the lucky money (those few who had to sell to move away to find work) was quick to discount and get out of their unaffordable, now depreciating homes; the dumb money will repeatedly re-list and follow the market down. Happens every time.

For a select few in Alberta and Saskatchewan these two provinces have non-recourse mortgage rules that allow some indebted owners to walk away from their mortgages. However, these rules do not apply to high ratio mortgages insured by the government - CMHC has the right to sue for any shortfall in that instance even in Alberta and Saskatchewan. House prices have not declined enough for anyone with a large downpayment to be underwater yet. But there are a lot of high ratio mortgages now and that means "homeowners" and their bankers will be doing a lot of debt rescheduling. These two effects will continue to cushion the decline and drag it out.

I am watching Vancouver transaction volumes as an indicator that market may finally be setting up for a reversal.

Calgary house prices drop 6% in October while sales plummet 33%

About 20% more homes on sale compared to last year, sitting on the market 11% longer

CBC News Posted: Nov 02, 2015 10:14 AM MT Last Updated: Nov 02, 2015 12:02 PM MT

Canada Mortgage and Housing Corporation (CMHC) couldn't see this coming?
Seriously, it took them this long to figure it out?

Calgary real estate market now has 'strong' evidence of problems: CMHC

Overbuilding and overvaluation cited as reasons for upgrading assessment from 'weak' just 3 months earlier

Jan 27, 2016 2:13 PM MT

Another red flag has emerged in Calgary's real estate market, with the Canada Mortgage and Housing Corporation now saying there's "strong overall evidence" of "problematic conditions" in the city.

Regina, Saskatoon and Toronto also shared the "strong" rating in the CMHC's latest Housing Market Assessment report, released Wednesday.

The previous report, issued three months earlier, found weak overall evidence of problems in Calgary's housing market...

[verdo]

Re: Cracks Becoming Clearly Visible Now

haha, well we can't be surprised by their surprise now can we. Coincidentally, i was talking to a young canadian on skype just yesterday about buying a home in ontario. I'll copy paste some of what was said:

My parents recently bought a house in Toronto, aware of the current financial situation, but also knowing the housing market is still hot. The closing date for the house they bought 6 months ago is in July '16, and as of today, the value of that home is 128% of what they bought it for. Although unstable, the housing market is still rising. There's only so much land after all, and investing it in housing is still sustainable.

I agree that the amount of debt Canadians are racking up is unsustainable, and eventually the housing prices will stop rising. I don't however, think that we'll end up in a situation too similar to the housing bubble popping in the US... least not in Toronto/Vancouver. I mean the prices will drop, but just to a lesser degree.

So my response was, " why do you believe Canada will be immune from having a U. S. styled crash in housing? Like, what is the special thing about Canada and Canadians which you believe protects us that the Americans did not have?" And the reply back was this:

Not immune... Just the impact won't be as prominent in certain regions, like the previously mentioned Toronto/Vancouver, due to said rich people [from China] coming in and pulling up prices (these same people are also ones who have the cash to buy homes, and take on little/no mortgage).
Furthermore, although our current interest rates are low, the interest rates prior to the US crash were historical lows - so people bought homes, then the interest rates jumped up again a year after - so those people now could scarcely pay for what they bought.
The culture in America is quite different from Canada, too. Almost everything they do is much more intense, and elevated by media. So when some people begin buying, everyone else hops on the bandwagon. Canadians are a bit more autonomous - and so a crash wouldn't affect as many people to such extent as the American housing bubble did.

I hate to have to say this about my fellow Canadians, but a lot of us really suffer from a special snowflake syndrome which leads us to believe that the laws of economics only affect everyone else, and we're a special people...protected from any of the mishaps of our wealth misallocations that hurts every other country when they do the very same things

[jk]

Re: Cracks Becoming Clearly Visible Now

Canada Mortgage and Housing Corporation (CMHC) couldn't see this coming?
Seriously, it took them this long to figure it out?

they thought the problems were contained.

[GRG55]

Re: Cracks Becoming Clearly Visible Now

haha, well we can't be surprised by their surprise now can we. Coincidentally, i was talking to a young canadian on skype just yesterday about buying a home in ontario. I'll copy paste some of what was said:



So my response was, " why do you believe Canada will be immune from having a U. S. styled crash in housing? Like, what is the special thing about Canada and Canadians which you believe protects us that the Americans did not have?" And the reply back was this:



I hate to have to say this about my fellow Canadians, but a lot of us really suffer from a special snowflake syndrome which leads us to believe that the laws of economics only affect everyone else, and we're a special people...protected from any of the mishaps of our wealth misallocations that hurts every other country when they do the very same things

Great anecdotes verdo. Pretty well says it all.

The belief in a "128%" price rise in six months is hilarious. Given the year to closing I have to assume its a new build they bought off plan. The builder has no doubt raised prices, hence their thinking they have made a giant profit before they have moved in. I wonder who will actually buy it from them when it's done, when such buyers can buy a brand new clone from the same developer right next door?

If the crashing Loonie and our rapidly disappearing purchasing power (the infamous $7.00 cauliflower) isn't enough to wake up Canadians from their delusions of being sheltered from the economics that impacts everyone else, I don't know what will.

Edit added: From Garth Turner's Greater Fool Blog earlier this week:

"...By the way, recent surveys have indicated that young homebuyers today don’t consider mortgages to be ‘debt’. Did I ever mention this won’t end well?"

Of course it's not "debt". It's a non-deductible "investment loan".

[GRG55]

Re: Cracks Becoming Clearly Visible Now

they thought the problems were contained.

Check this out from Edmonton, just north of Calgary. Pacesetter is a division of Qualico, a company that specializes in entry level, first time buyer homes. The scramble is on to keep people qualifying for those mortgages.

[ProdigyofZen]

Re: Cracks Becoming Clearly Visible Now

wow that is incredible.

[jk]

Re: Cracks Becoming Clearly Visible Now

not very different from the "charity trusts" which were set up to pay downpayments for new homes with inflated prices. the builder would fund the trust, the trust would "gift" the "downpayment" and voila, a mortgage would cover all the cost. somehow, even after "gifting" the downpayment, the builder still managed to make a profit.

[verdo]

Re: Cracks Becoming Clearly Visible Now

Great anecdotes verdo. Pretty well says it all. The belief in a "128%" price rise in six months is hilarious. Given the year to closing I have to assume its a new build they bought off plan. The builder has no doubt raised prices, hence their thinking they have made a giant profit before they have moved in. I wonder who will actually buy it from them when it's done, when such buyers can buy a brand new clone from the same developer right next door? If the crashing Loonie and our rapidly disappearing purchasing power (the infamous $7.00 cauliflower) isn't enough to wake up Canadians from their delusions of being sheltered from the economics that impacts everyone else, I don't know what will.Edit added: From Garth Turner's Greater Fool Blog earlier this week:

"...By the way, recent surveys have indicated that young homebuyers today don’t consider mortgages to be ‘debt’. Did I ever mention this won’t end well?"

Of course it's not "debt". It's a non-deductible "investment loan".

Garth must be feeling so good right about now. He called this a long time ago but was dismissed as a crazy because he called it much too early, underestimating the resolve of governments to keep a bubble going. What's distressing though is that our new prime minister, Trudeau, pretty much stated outright in his campaign that deficits don't matter, so you can bet your bottom dollar he will do whatever it takes to keep it from crashing down. I really worry for Canada's future with this guy in charge. Canadians had to go through a lot of pain in the 90's to clear our books and put us in a better position today...but that all will be for nothing if Trudeau sees this as a great opportunity to expand the governments balance sheet beyond levels Canada has ever seen.

Check this out from Edmonton, just north of Calgary. Pacesetter is a division of Qualico, a company that specializes in entry level, first time buyer homes. The scramble is on to keep people qualifying for those mortgages.

Well damn, now I've seen it all. A lot of Canadians will give the argument (as the person i talked on skype with yesterday) that Americans took their housing bubble to the extreme, but Canadians are much more responsible and conservative and blah blah blah. Well you know...i really don't recall Americans, even at the peak of their bubble, actually paying you to to buy homes off of them. Up to 25k for an RRSP? How desperate are these guys...

[verdo]

Re: Cracks Becoming Clearly Visible Now

**double post**

[GRG55]

Re: Cracks Becoming Clearly Visible Now

not very different from the "charity trusts" which were set up to pay downpayments for new homes with inflated prices. the builder would fund the trust, the trust would "gift" the "downpayment" and voila, a mortgage would cover all the cost. somehow, even after "gifting" the downpayment, the builder still managed to make a profit.

To paraphrase Mario Draghi, "whatever it takes" to keep the new home buyers eligible for that mortgage finance...

It strikes me that given what's going on in the USA, with the US$ and in China, if we get a serious global deflationary phase emerging the record debt levels that Canadians have acquired (compared to incomes) will really come home to roost. Since the financial crisis our American cousins have reduced their debt to income, while we have pigged out and piled on.

[GRG55]

Re: Cracks Becoming Clearly Visible Now

It's like an evangelical religion. The belief in an afterlife of perpetually rising property prices has removed all fear of the evil debt devil.

As for the answer to the question in the headline below, all I can say is: "Who knows?"

Will 2016 be the year the Vancouver housing bubble bursts?

...

Apparently all those Chinese buyers desperate to get their money out of the mainland must have already bought up everything else?
Or could this be Canadians doing it to themselves? With the help of taxpayer backed high ratio mortgage insurance and the Bank of Canada sponsored almost-free-money.

I think if any foreign buyer is stupid enough to pay this price for this house, the governments should not only allow it, they should start encouraging it.

"...The property was recently assessed at $2,145,500, with the building valued at only $45,000. That is a 21% increase from its July 2014 assessment of $1,759,800..."

Nutso nation

January 29th, 2016


The beater house below was listed this week for $2.3 million in Vancouver – in a nice hood, of course, but seriously…

Here’s us how realtor Andrea Kavanagh is flogging it:

Prime Point Grey location. This property is set mid block with mountains view. Quiet & private, 33×122′ property, cherry blossom tree lined street, 1/2 storey home with some improvements & a self contained basement suite. Excellent location within walking distance to Lord Byng Secondary, Jules Quesnel, Queen Elizabeth Elementary, West Point Grey Academy & 10th Avenue shops. Pacific Spirit Park & UBC also close by.

The house has 800 feet on the main level and 500 upstairs. No parking. Built in 1930, frame construction. The mold is free. And the basement suite is “unauthorized.” But it does have some features: “Clothes Washer/Dryer/Fridge/Stove/DW.” So, obviously it’s a tear-down, which begs the question of why any rich person would spend more than two million bucks to get a lot that’s a mere 33 feet across? How are you supposed to build a look-at-me mansion on that?

“I’m a realtor in Vancouver on maternity leave,” says Nancy. “I don’t want to speak ill of my chosen industry but this kind of thing is just funny when you look at the state of the property and the price tag attached and then think, where are all of the young families going to live? I’m sure it will sell in a few days for more than the asking price.”

So gander back at the map posted here yesterday. The old $1 million dividing line between West (nice) and East (the poor people) has recently become a $2 million demarcation. And there’s no more poignant example in Canada of what house horniness will do to an entire region than this.

The big story is not stupidity in Point Grey or the Westside in general, but the ascent of prices well past the seven-figure mark in all parts of YVR.

Supremely ugly, mass-produced, four-decade-old ‘Vancouver Specials’ routinely fetch over a million – which is why BC residents have (on average) a negative savings rate, epic debt levels and are forced to suffer basements full of pasty, rent-paying strangers.

We shouldn’t be surprised more BCers are now tuning to payday loans, according to a new study by Vancity (which is part of the problem). Those lining up to get advances with usurious rates are said to be more highly educated, employed and using this emergency cash to pay for food and utility bills – life’s essentials. The increase in the use of loan sharks is up 58%, and half of those folks say they need the cash for “essentials.” Of course, no readers of this pathetic blog have been spotted.

This is what happens when real estate turns from desire, to cult, to dependency and disease. The advice stands. You are a fool to buy in. A genius to sell out.

By the way, the shack above is open for inspection Tuesday at 10 am. Don’t forget your chequebook.

[santafe2]

Re: Cracks Becoming Clearly Visible Now

This is what happens when real estate turns from desire, to cult, to dependency and disease. The advice stands. You are a fool to buy in. A genius to sell out.

Apparently, there are a few genius home owners in Canada who want to stop riding the roulette wheel.

[GRG55]

Re: Cracks Becoming Clearly Visible Now

Apparently, there are a few genius home owners in Canada who want to stop riding the roulette wheel.

Perhaps. Call me sceptical.

One needs to distinguish between those geniuses that voluntarily list and those that are now listing because they have to. I suspect the majority of the increase in listings is because the economy has turned down and there is permanent income compression (job losses and salary cuts) underway for more than one year now in Canada. Governments at all levels here are now desperately raising taxes aggressively, on everyone at all income levels. The result is a reduction in disposable incomes. The response is recognition:

- of the cost of carrying vacation/recreation properties (the interior B.C. market in this stuff started dying two years ago; I expect this to be the year the first of the distress sales start to appear as seller finally throw in the towel on a discretionary asset);

- the inability to continue to subsidize that "investment" rental property that doesn't come anywhere near covering its cash requirements (the reality finally dawns that this sort of "investment" won't make for a lush retirement income after all);

- the need to sell the principal family residence in order to move to find work (lots of that going on as workers that come west during the commodity runup now start to head back home to Central and Eastern Canada where they have better family support network and such).