The Elusive Canadian Housing Bubble

[GRG55]

Re: Va Va Voom Vancouver...

March data chart update was a bit later than usual:

[thriftyandboringinohio]

Re: Va Va Voom Vancouver...

Thanks GRG55.

Apparently trees DO grow to the sky, and gravity IS for suckers, at least in Vancouver and Toronto real estate markets.

[jk]

Re: Va Va Voom Vancouver...

those graphs would look somewhat less impressive if they were deflated by the falling value of the canadian peso.

[GRG55]

Re: Va Va Voom Vancouver...

those graphs would look somewhat less impressive if they were deflated by the falling value of the canadian peso.

Perhaps, but I don't see it would serve any useful purpose other than adding more volatility to the price charts. On Jan 19, 2016 it took 1.4567 Loonies to buy a US$. Today it was 1.2669. Regardless of this recent strengthening in the CAN$ exchange, YVR and 416 house prices kept their relentless upward trajectory.

The majority of homes in Canada (and Vancouver) are mortgaged, and owned by Canadians who both earn their incomes and pay those mortgages in Canadian $. The flow of cheap credit and condo flipping is the only thing keeping this country from a very steep recession. The governments better hope they can keep that game up a while longer until some other economic driver has time to kick in.

[aaron]

Re: Va Va Voom Vancouver...

We no longer hear from VancouverGoingUp because he is retired and is traveling the world with the fortune he has made. Lukester is probably doing something similar.

This thread is 6 years old. It is truly amazing how long this can go on for.

[jk]

Re: Va Va Voom Vancouver...

We no longer hear from VancouverGoingUp because he is retired and is traveling the world with the fortune he has made.

lol

[GRG55]

Re: Va Va Voom Vancouver...

April's rocket shot chart. Toronto now trying to catch up to Van. Breathtaking to behold. Just like the Naz in early 2000.

In a rational market people would be snapping up property in Montreal, and spending time enjoying the delights of that most European of Canadian cities. Instead they are lining up to buy concrete condo-minimum coffins in Vancouver. This is an entertaining read:

http://www.greaterfool.ca/2016/05/15/the-clap/

[verdo]

Re: Va Va Voom Vancouver...

April's rocket shot chart. Toronto now trying to catch up to Van. Breathtaking to behold. Just like the Naz in early 2000.

In a rational market people would be snapping up property in Montreal, and spending time enjoying the delights of that most European of Canadian cities. Instead they are lining up to buy concrete condo-minimum coffins in Vancouver. This is an entertaining read:

http://www.greaterfool.ca/2016/05/15/the-clap/

Interesting. It really looks like the time to bet against this thing is coming closer. I just don't know how I'd do it when the time is right, or if it would be a good idea. Any suggestions? I'm thinking that betting against the currency would probably be better since the housing market is supported by the government through the CMHC. A housing market can't sustain that kind of parabolic rise. I mean a stock market bubble is one thing, but a market where people need to borrow large sums in order to keep prices moving up? I don't see how this thing continues for very much longer...

[GRG55]

Re: Va Va Voom Vancouver...

Interesting. It really looks like the time to bet against this thing is coming closer. I just don't know how I'd do it when the time is right, or if it would be a good idea. Any suggestions? I'm thinking that betting against the currency would probably be better since the housing market is supported by the government through the CMHC. A housing market can't sustain that kind of parabolic rise. I mean a stock market bubble is one thing, but a market where people need to borrow large sums in order to keep prices moving up? I don't see how this thing continues for very much longer...

Perhaps time to think about shorting the Canadian banks. NPLs will rise as this thing finally blows up, and it's gone on so long it means they are well and truly exposed.

[thriftyandboringinohio]

Re: Va Va Voom Vancouver...

Perhaps time to think about shorting the Canadian banks. NPLs will rise as this thing finally blows up, and it's gone on so long it means they are well and truly exposed.

It sure is tempting, GRG55.
The trick is figuring out when the collapse will be allowed to happen, and figuring out which banks will be rescued and which allowed to fail.
In a free market, the collapse would have already happened.

[Milton Kuo]

Re: Va Va Voom Vancouver...

It sure is tempting, GRG55.
The trick is figuring out when the collapse will be allowed to happen, and figuring out which banks will be rescued and which allowed to fail.
In a free market, the collapse would have already happened.

It seems better, then, as verdo suggests, to short the Canadian dollar against the U.S. dollar or gold. Canada is going to have to do something to address the fallout from the eventual housing bubble bust, either in the form of free money for the people who foolishly got caught up in the bubble or maybe buying up all the crappy debt backed by overpriced houses. Maybe Canada will throw in a bank bailout, too.

I cannot see any of this being good for the Canadian dollar. The only thing that would blow up such a trade, assuming one got the timing right, is if Canada were to take an Austrian view of things and force the foolish speculators, the foolish mortgage investors, and the foolish mortgage insurers to take their medicine, potentially triggering a deflation. From what little I know of him, it seems highly unlikely that Trudeau would pursue that kind of policy.

[aaron]

Re: Va Va Voom Vancouver...

Can a non-reserve currency ever experience deflation? I am trying to think of an example but cannot. For Canada, as the inflation rate goes up around the world,Canada experiences inflation. If there is deflation around the world, the Canadian dollar goes down and inflation (prices) also go up.

I think foreign demand for houses in Canada goes up as the cad goes down. Dollar holders recently got a 30% discount on Canada houses. It may look ridiculous to the natives for foreigners to pay such high prices, but it may be slightly less ridiculous considering the cad.

How much speculation is really going on, by the way? It seemed a lot of the buying was from Chinese cash purchases. The environment is so bad in China that parents fear for the health of their children. They likely will live in the homes instead of flipping/renting them out, especially at today's prices.

[santafe2]

Re: Va Va Voom Vancouver...

It seems better, then, as verdo suggests, to short the Canadian dollar against the U.S. dollar or gold.

Why would anyone short the Canadian dollar here? That ship sailed years ago and the loonie is still down 25% from the peak. Housing is an issue but Canada's economy appears to be turning the corner. Housing, even a horrible retrench will not cause the Canadian dollar to fall from here unless there are outside contagions that cause a worldwide issue decreasing demand for commodities. I don't see that happening.

[Milton Kuo]

Re: Va Va Voom Vancouver...

Why would anyone short the Canadian dollar here? That ship sailed years ago and the loonie is still down 25% from the peak. Housing is an issue but Canada's economy appears to be turning the corner. Housing, even a horrible retrench will not cause the Canadian dollar to fall from here unless there are outside contagions that cause a worldwide issue decreasing demand for commodities. I don't see that happening.

I don't see a massive move down relative to the USD; maybe at best down to $0.60-$0.65 US buying $1.00 Canadian. But it seems that the CAD reaching par and above with the USD might have been a commodities bubble-fueled illusion. Take out the bubble boost and add-on what looks to be a spectacular housing bubble bust and I think the CAD has further to fall.

Being that Canadian mortgages are full recourse loans and if we assume that most of the buyers aren't Chinese kleptocrats (I still have trouble believing this), I just don't see how Canada will condemn a good number of its citizens to debt peonage. Without some way of quickly deflating the debt, they'll either have to work the rest of their lives to pay off the mortgage or maybe they'll emigrate.

These are the factors I see in the Canadian dollar going down:

1. The massive housing bubble going bust which will trigger some sort of government intervention that depreciates the currency.
2. The commodities bubble bust (see Grantham's latest news letter) that may not recover. Canada needs to hope that the Chinese people ditch the RMB and buy an excessive amount of nickel, potash, aluminum, iron ore, etc. as a store of value. Failing that, hope that India goes on some massive infrastructure binge and creates the next commodities bubble.
3. Continued low oil prices thanks to the shale fields in the U.S.

I'm probably not going to short the Canadian dollar simply because there are too many moving parts. It seems in this day and age, the only things that can be shorted, assuming you have a good reason to trade, are gold, crude oil, and frauds. Everything else gets juiced up to maintain the appearances of the Potemkin economy.

[thriftyandboringinohio]

Re: Va Va Voom Vancouver...

I don't see a massive move down relative to the USD; maybe at best down to $0.60-$0.65 US buying $1.00 Canadian....
These are the factors I see in the Canadian dollar going down:

1. The massive housing bubble going bust which will trigger some sort of government intervention that depreciates the currency.
2. The commodities bubble bust (see Grantham's latest news letter) that may not recover. Canada needs to hope that the Chinese people ditch the RMB and buy an excessive amount of nickel, potash, aluminum, iron ore, etc. as a store of value. Failing that, hope that India goes on some massive infrastructure binge and creates the next commodities bubble.
3. Continued low oil prices thanks to the shale fields in the U.S.

I'm probably not going to short the Canadian dollar simply because there are too many moving parts....

Here's a long term chart of CAD/USD, from 1953 to now.





Milton you make good points.
Even though Canadians seem to be suffering an epidemic of home-mortgage-madness, it is not plausible to me that the currency truly collapses.
Canada just has too many fundamentally good things going for it when you compare it to other nations.

They own half a huge continent teeming with valuable resources.
They have a stable political system with a fair and predictable legal system that protects contracts and property rights and it has low levels of corruption.
The Canadian people are well-educated and peaceful.

Canada will always be a desirable place to live and do business, and their currency will be valued accordingly in the long run.


That being said, if one could confidently time the inevitable Canadian mortgage crisis collapse, the currency may have a brief and sudden spike down to some ridiculous low value before quickly returning to its normal range.

I'm not smart enough to trade it, but it might work for those who can predict such things.

My personal poster child for such opportunity is stock in Ford Motor Company during the financial crisis.
In November 2008 a smart person could have backed up the truck and filled it with Ford stock at $1.43 per share.
Three short years later in Jan 2011 those shares were $18.65 each, for a 13x return. Sweet.
They say one should buy low and sell high. Spotting an opportunity to buy at unreasonably low prices makes that strategy work like a charm.

If the Canadian mortgage crisis happens dramatically, and I see CAD/USD get to 1.75, I will pay attention, and if it hits 2.0 I would fill my truck with Loonies.
I certainly don't expect to get that chance.