Canada tracking US with 2 year lag?

The Globe and Mail is reporting today that Merrill Lynch & Co are growing more ‘alarmed’ that the Canadian housing market is tracking the US housing crash with a 2 year lag:

Falling prices, overbuilding and too much unsold inventory in Canada are creating a trend similar to that in the United States a couple of years ago, Merrill economists David Wolf and Carolyn Kwan said in a research note Tuesday.

“Though the consensus does seem to be gravitating towards our view of a sustained downturn in the Canadian housing market, we still do not sense any particular alarm in either the policy-making or forecasting community. We ourselves are getting more alarmed by the day,” Mr. Wolf and Ms. Kwan said in their report.

They aren’t the only economists to raise the warning about a two year lag, though many still emphasis the differences between the US and Canadian housing markets:

The same two-year lag idea was raised this summer by Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc., who called the apparent trend “unnerving” in a report in July.

At the time, Mr. Porter said there were many reasons why the two markets were different, but said even a pale version of what had happened in the United States would be bad news for Canada.

House prices posted a record 16.6 per cent year-over-year decline in the United States in August, according to the benchmark S&P/Case-Shiller Home Price Index report, also released Tuesday. The index has now shown year-over-year declines for 20 months.

Taking into account the two-year lag, Merrill’s data suggests the ramp-up in construction of housing units in Canada may be even larger than it was in the United States.

The number of units under construction currently is just off the peak hit in May, which was the highest recorded in 36 years of available data and 97 per cent above the long-term average, the report said.

By contrast at its peak in 2006, U.S. housing construction was 54 per cent above the long-term average, it added.

Of course, just like in the US its a bit vague to speak of a national housing market – the averages are pulled up in a boom and down in a bust by a few select cities, in our case Vancouver and Toronto are showing some alarming supply issues:

As of August, there were more condos under construction in both Toronto and Vancouver separately than there were in all Canadian cities combined a decade ago, Mr. Wolf and Ms. Kwan said.

“And as in the U.S. two years ago, we are now seeing completed units pile up unsold in Canada, a clear sign of overbuilding and an ominous sign given the voluminous supply still in the pipeline,” they said.

Inventories of unsold new single-family homes in Canada rose by 56 per cent year over year as of last month, close to the maximum increase in July 1990, which marked the last housing market downturn, the report said.

At the peak in April 2006, inventories of unsold new single-family homes in the United States were up 26.5 per cent over a year earlier, the report said.

The two-year lag could be the result of Canada having more room to run up because its recovery started later than that of the United States. Strong commodity prices and looser lending standards initiated in 2006 may also have contributed to the lag, the report said.

Hat-tip to Dingus for this link.

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Chipotle
Chipotle
11 years ago

The article also indicates the ML economystics are hinting strongly that the real estate bust, altho later, will be WORSE in Canada.

Anonymous
Anonymous
11 years ago

Canada tracking with 2 year lag, eh? Where have I heard that before…

Like I’ve said before, California is a preview of BC! First inventory starts to build while prices stall (BC today, Calif. 2 years ago). Then people have problems selling, but are patient. Then prices start to fall and panic begins. Then no one wants to buy and the panic intensifies (along with price drops). This is where California is now, and where we will probably be in 12-24 months.

Oh yeah, comment 78 on this thread:
http://robchipman.net/blog/?p=58

scullboy
11 years ago

No – lympics

Nasty little men who cheat and steal always get what's coming to them.

Always.

It also applies to stupid greedy little f*kers like krrish too.

browntown
browntown
11 years ago

no land making maching in vancouvr price nevir go down! many longshoremans and wisemans buy in gastown price niver going down

arit
11 years ago

Active land-making machine.

Just for those of you who are not aware of how a REAL land making machine works. It does create new virgin land, but it puts it ON TOP of what was there before. You don't want to be there when it happens.

http://www.naturephotographers.net/articles1102/e

Regards

arit

NO -LYMPICS
NO -LYMPICS
11 years ago

islander:

Legal fights are costly, in the end one may lose. Sometimes the best "lemon-aid out of lemons" is "heads on poles" , ie Public Exposure, Complaints to their licensing board etc. etc.

Unfortunately, The system is set up to protect the guilty, but it is a very intriguing story for another day and perhaps another venue. I am curious how much of this goes on, and my educated guess is a LOT, especially in a perfect storm of a hot market with greedy participants. You learn in life from all the good, the bad and the ugly.

PS maybe the prick will slip up sooner than later, and we'll be carrying a big stick , figuratively speaking.

bdk
bdk
11 years ago

The only thing thums/krrrissh/informer/browntown/real estate never go down said that's made any sense is:

"the best time to sell is total opposite"

It's hard to tell if he really belives that crap about the land making machine and privces going up or if this is just his/her idea of funny (saying prices will go up when they are obviously going down for a LONG time)

islander
islander
11 years ago

no-lympics, sounds like you need to see a lawyer. On the surface, it appears your real estate brokerage breached its fiduciary duties to you.

bcubbins
bcubbins
11 years ago

try to find land making machine!

I found one! Was out walking a couple days ago and saw a land-making machine working at the corner of East 7th and Scotia St. Was surprised to see it because I didn't think any developer would bother making new land when there are all these projects getting canceled. But there it was converting a couple old autobody shops into a brand new building site.

By the way, this was just across the street from the Eden Group's canceled Elysse project. That was also the site of an autobody shop before the land-making machine got to it. Now it's a vacant lot, with no obvious activity for months.

NO -LYMPICS
NO -LYMPICS
11 years ago

patriotz:

Bang-on re: 1982

That was a brutal year, almost scary, one I'll never forget.

However, I think 1982 will be trumped via what my crystal ball forecasts reading the current tea leaves.

bcubbins
bcubbins
11 years ago

http://www.canada.com/vancouversun/news/business/

Sky Towers' future uncertain after project fails to secure financing

If the developer still wants to proceed with the two-tower, 901-unit project adjacent to the King George SkyTrain station, superintendent Jay Mitchell said Jung will have to file a new marketing disclosure statement with her office.

That, Mitchell added, will give Sky's more than 800 pre-sale buyers the opportunity to opt out of the project and take their deposit money back.

Vansanity
Vansanity
11 years ago

Haha, ditto on that one Pope!

real estate always g
real estate always g
11 years ago

There is a comments section in todays Vancouver Sun story on the crashing market:

http://www.canada.com/vancouversun/news/story.htm

try to find land making machine! price go more than $500,000!

patriotz
patriotz
11 years ago

The only “black swan” that can save property prices is rising real incomes.

That variety of black swan became extinct around 1982.

no-lympics
no-lympics
11 years ago

No…

Investor confidence is shot, kaput , into the abyss like a shrivelled corpse, …. the post Expo 86 Real Estate " Ponzi" scheme was exposed. Seems each country in the global village had their own version.

This won't re-load for next time, a fiscal judgement day has either arrived or will arrive soon.

jesse
jesse
11 years ago

"A complete collapse of Canadian currency, Zero interest rates or rapid hyper inflation may do it. "

I doubt any of these would help the local market, only change the time scale by which things correct. Hyperinflation means sky-high interest rates and that puts a massive discount on leveraged assets.

The only "black swan" that can save property prices is rising real incomes.

Vancouver Real Estat
Vancouver Real Estat
11 years ago

PREMATURE BUST HAS LOST IT'S STREAM In January 2007 one of the school principle said Canada will follow Usa with 2er lag,In January 2008 Tony Danza said Canada will follow Usa with 2er lag,One that principle has recomended will expire in Jan,2009. and the one which Tony has recomended will expire in Jan, 2010.What makes Merril Lynch to release it's second statement when their first one has been shipped out to junk yard? Are the Canadian press free of influences or are they crupted?anyway the one lag that Lynch has recomended will expire on Oct,2010. that's mean some people what they had experience in the past won't stop saying unless the new rules shut their mouths.Facts given by lynch are also useless because model represent the debacle of housing Prices in Usa and Inventory in Canada but things has changed… Read more »

no-lympics
no-lympics
11 years ago

Paul: Re Real Estate agents: I will try to be fair and state that a GOOD one is worth their weight in gold. Our family had one re: a property we had listed, and this realtor ended up becoming a good family friend. The property listed with them became part of an assembly. Their was a bunch of skullduggery worthy of a Tom Clancy novel at the surface. However, the realtor later quit the company. After contacting them later for an update, our realtor confided some of the backroom dealings that were going on within her firm and how we, the sellers that had listed with them had been shafted to benefit the purchasers. The finger points to the son of the firms' owner, who is a very prominent realtor in our area. In my view, they jerked around and… Read more »

Van-zee
Van-zee
11 years ago

Is Vancouver out of sync enough with larger global markets that outside influences could keep the market inflated? I understood that the FIRE economy was getting scary didn't think it would turn so hard. The world economic forces certainly have made some changes in reaction to the credit and insurance crisis. Is it possible that any of these global changes could keep some air in our local bubble? I've thought it would be possible for a "black swan" event to keep the Vancouver market inflated. For many the markets dieing locally has been an unexpected event but for most here it's been what was expected. So for a bearish view a "black swan" event would be something outside our model that would foil the expectations of a crash. A complete collapse of Canadian currency, Zero interest rates or rapid hyper… Read more »

Tony Danza
Tony Danza
11 years ago

Tiny Iceland, a high-profile victim of the global credit crisis…

Funny, I always thought the victims were us fiscally conservative bears who saw this sh@t storm coming years ago, prepared ourselves financially and now will have to pay to bail out the bankstas and speculators.

EB
EB
11 years ago

"Oh, this glut is going to be sweeeeeeeeet!"

I don't know man – 20,000 hastily constructed, quite possibly leaky new condos? The inventory effect on prices will be great, but everyone is going to have to tread very carefully indeed to not get stuck with a lemon.

patriotz
patriotz
11 years ago

I’ve seen this Can-US lag cycle several times in my life, not always in real estate but other industries. I don’t understand how people keep ignoring their own history. I suppose they fear what that future would look like.

“Hegel remarks somewhere that all great, world-historical facts and personages occur, as it were, twice. He has forgotten to add: the first time as tragedy, the second as farce.”

– Karl Marx

Vansanity
Vansanity
11 years ago

Pope – I just wanted to thank you for the way in which you present articles on your main page. It would be easy for you to be biased like the rest of us. However, you remain objective on the subject and allow others to formulate their own opinion. I appreciate that.