Sales boom sparks bubble fear
Rock bottom interest rates are working their magic as real estate sales leap up to record levels. Was that the shortest correction ever? Even as unemployment levels creep up, house sales are brisk and prices are rising, leading some to believe we’re in a housing bubble. Scotia Capitol is the latest to use the ‘B’ word in public:
“Is Canada in a housing bubble? Probably, but low rates, mortgage innovation and a relative shortage of new supply are likely to keep it going for a while yet,” Scotia Capital analysts wrote in a report.
And as CREA economist Gregory Klump points out, when it comes to people losing their jobs it’s more of a glass-half-full scenario:
“If we have 10-per cent-unemployment, that means 90 per cent of people are employed,” he said. “People are re-entering the market – they have the confidence to take advantage of bargain-basement prices. There’s been a release of pent-up demand, and that has a long time to play out. Prices have gone as low as they are going to go.”
Whatever is in that glass, it’s working. Sales in BC hit record levels in October. And every real estate sales organization and mortgage broker seems to think that it should pretty much carry on indefinitely, and this enthusiasm seems to have been absorbed by the population in general:
According to the CAAMP report, Canadians are increasingly confident that the value of their homes is rising and optimistic about their local housing markets. It also said that the Canadian mortgage market is rebounding and will surpass the $1 trillion mark in 2010.
Scotia Capitol economist Derek Holt points out the obvious when it comes to record low interest rates:
Mr. Holt expects the average mortgage to creep toward 5 per cent within three years, which could mean hundreds of dollars more a month for the average mortgage holder.
For example, a five-year variable rate mortgage at 2.25 per cent on $300,000 would carry a monthly payment of about $1,300, assuming a 25-year amortization period. A move to 5 per cent would boost the payment to $1,750.
“I think that causes a slight pullback on prices,” he said. “Right now, you have conditions that only come around once in a century and it can’t stay that way forever.”
But it’s not like Canadians aren’t used to dealing with heavy debt loads, and we have a distinctly Canadian way of dealing with debt-based money problems: more debt.
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November 20th, 2009 at 10:32 am
These Bulls are being awful cocky. Reminds me of those videos I watched on Youtube where those ultra cocky realtors were outright laughing at the Guy who said the market in unsustainable and will fall. I have to check those out again (priceless). He who laughs last laughs best..
November 19th, 2009 at 11:04 pm
Uhh, I’m still pretty sure it’s going to prove accurate, as I said nothing in my prediction is false yet because I didn’t predict down to the month what would happen, I said “give or take a year”.
So stick it where the sun don’t shine, sit down and shut up until you have something useful to say.
And here’s a prediction where I can just throw caution to the wind. You will still be a jerk tomorrow morning and people still won’t like you.
Maybe that’s going out on too much of a limb?
Nah.
November 19th, 2009 at 11:04 pm
@Time Machine: As Yogi Berra once famously said…”It’s tough to make predictions, especially about the future.” He also once opined that “it was like deja vu all over again.” Here are some other Yogi Berrisms:
–”You can observe a lot just by watching.”
–”If you don’t know where you are going, you might wind up someplace else.”
–”The future ain’t what it used to be.”
Something tells me that Yogi is a closet Vancouver housing bear.
November 19th, 2009 at 9:11 pm
You seemed pretty sure of yourself at the time. Use caution before making predictions.
November 19th, 2009 at 9:05 pm
My prediction was that it would be falling again by now, but I didn’t expect such strong governmental support and I gave myself a window of time (6 months to a year). Also, timing is next to impossible to accurately predict as I’ve said many times in the past.
So if it’s falling by spring/summer next year it’s still well within my predicted zone, just outside the point where I could claim 100% accuracy.
November 19th, 2009 at 8:59 pm
What was your prediction again for this fall?
November 19th, 2009 at 8:24 pm
I’m not sure if that first link will work properly, I just signed up for the Flikr account just now and don’t really know how it works yet. Sorry for the triple post. If the above link doesn’t work use this one
November 19th, 2009 at 8:21 pm
Actually I guess that was almost two years ago. My how time flies!
November 19th, 2009 at 8:20 pm
Here you go Boombust.
November 19th, 2009 at 7:50 pm
“I predicted about a year ago when I first composited those two graphs together…” -Drachen
Can you post it again? I would love to see it.
November 19th, 2009 at 6:30 pm
73 CelicaMan Says:
Little loser boys and trolls will be left holding their little tools, bears, just grit your teeth and be patient.
My strategy lately has been to remove the excess cash from my savings account (after paying rent and bills), and put it into my safety deposit box. This prevents the bank from leveraging it up and loaning it out. I figure if they aren’t going to be prudent about whom they give loans, nor give me a reasonable return for my risk, why should I allow them to use it as they see fit?
Banks are ripping people off…especially seniors who depend on interest income…to do what? Attempt to support inflated house prices and make it harder for young families to own shelter and force them into bidding wars? Where’s the “anecdotal man”? Tell you what…I’ll make it one of mine.
November 19th, 2009 at 5:29 pm
Dave: I believe in graphs, I just don’t believe that by staring cross eyed at a graph (or squinting or whatever it is you think you can do) you can tell the future. It makes just about as much sense as tea leaves or crystal balls and the science backs that up.
Screwed: That’s a relatively recent policy, it just demonstrates that they KNOW there’s a good chance of losing money on the above proposition 30% down payment, which is to say the Banks believe that a 30% or more correction is likely.
November 19th, 2009 at 5:12 pm
@Drachen:
I thought you didn’t believe in graphs.
November 19th, 2009 at 4:47 pm
The airwaves are replete with stories leaking out of the spike in vaccine deaths in Manitoba and BC. Apolgists have been out in force to try and explain it away and urge calm while they come up with a saleable explanation. The health Professional I listened to blamed the media for running the story. They’ll only admit to getting a ‘bad batch’ of vaccine.
Thats the Canadian way isn’t it. The information is so persistenly false that some assholes even start believing that what the government says is true. Man people in this country are naive.
My advice, don’t leave the clinic where you get your shot for at least an hour after they inject you. The adverse reactions have been hitting people in the hours after they have had the shot. You don’t want to be found dead in your car.
November 19th, 2009 at 4:43 pm
Was this always the banks policy or was it changed recently?
So am i screwing myself by saving for 50% downpayment?
November 19th, 2009 at 4:34 pm
I guess everyone knows what happens when a big earthquake hits.
Whether you have insurance or not doesn’t really matter, as the insurance companies go belly-up anyway. Except this time the insurance company is the government… so we all will be paying the premiums for decades to come to cover the asses of those who fucked up.
UNREAL…
November 19th, 2009 at 4:16 pm
that ought to be criminal but i bet nobody’s going to jail for it.
November 19th, 2009 at 4:09 pm
“we prefer when you have a CHMC insurance as our risk is much lower”
Ah ha! I knew it! That’s the question I’ve been wondering all along: Are banks actively encouraging buyers to put down less than 20% because of the CHMC insurance? I suspected as much, only makes sense that they would be more interested in clients with less than 20% downpayment. I guess if you walk into the bank with a couple hundred thousand they’re not so eager for you to be their customer. Makes you think they really know what’s going on here, if RE was really so safe why wouldn’t they jump to give you a good rate on a mortgage with a downpayment of more than 20%?
Oh it’s so ridiculous, the writing’s on the wall, isn’t it?
November 19th, 2009 at 3:54 pm
This was posted by ‘German Guy’ on Rob Chipman’s blog.
German Guy did something simple, he went and applied for a mortgage, asking questions about rates and downpayments.
Absolutely great reading, you won’t believe it (Thanks German Guy…..I hope it is OK I re-post your findings!):
I here a lot of talk about how CHMC is the Canadian version of American subprime so since I don’t have much to do in this never ending rainy place, I decided to go and apply for a mortgage to find out what is it all about.
First , an interesting link then below a simplified transcript of the conversation with the broker.
http://www.canadianmortgagetre.....2009.html
I asked for a 5 /35 year fixed rate with min 5% down payement and 5/35 with 300k down as well as a VMR and wanted to know for how much money I would qualify.
First , don’t think I am going to buy anything here, it was just a time killing exercise, if anything the terrible never ending rain and dull lifestyle is making me to consider seriously going back home (too bad because summer was nice)
So after this disclaimer here are the figures I gave the banker ( those figures are imaginary and have no relation to my real revenue)
Gross annual income: 95k, Est. purchase price 800k
Expenses estimated by banker: Monthly heating costs $67; annual taxes $2500, loan/credit card monthly: $360
In case of 5/35 with 40k down he qualified me for loan of $538 842 monthly payment $2404 with 4.20 interest rate
In case of 5/35 with 300k down he qualified me for a loan of $798 842 with 2534 monthly payment with 4.2 interest rates
I asked to get a lower interest rate in the second case where I put a bigger down payment since the bank was not taking as much risk as with the first one.
Answer: we take more risk when you put a bigger down payment because your loan does not have to be insured by CMCH, so if anything your interest rate could be higher because the bank is taking more risk. We are not in the business of foreclosing homes and selling to get paid, we prefer when you have a CHMC insurance as our risk is much lower than when you have a pig down payment above 20% of purchase price.
I asked for a VMR then, he quoted me a 2.25% interest rate for 35 years and qualified for 665 000 loan with 5% down payment.
I asked if I could put a bigger down payement ?
Answer: No. We will not give you a VMR loan if it is not CHMC insured!
I pointed out the absurdity of the situation in his reasoning, with taxpayer taking all the risk and they making risk free profit but all he said was don’t try to fight the government.
So in the end, maybe the Canadian banks are sound after all. They are not keeping any loans on their balance sheets, all risk is taken by CHMC.
As I have stated before, contrary if cracks will appear on the real estate, it will start first on commercial properties and not residential. Or maybe commercial is also CHMC insured? Sorry for long post.
November 19th, 2009 at 2:37 pm
@duru2000:
Yeah I love that graph, the funny thing is it lines up nearly perfectly with the Vancouver graph if you put the start at around ’86 or ’87. The sell-off/Bear-trap lines up perfectly with the dip in the ’90s and even the double camel hump has appeared right on schedule just as I predicted about a year ago when I first composited those two graphs together, it’s scary how typical the pattern is actually, Vancouver is a textbook bubble.
November 19th, 2009 at 2:20 pm
@Northeast Canuck:
I almost spewed some coffee out my nose when I read your post “the majority of the properties weren’t fit for human habitation, let alone pets”
I think in my next search, when I get up the guts to move (maybe April?), I’ll do just that. I’d like to get into a place that’s so nice I won’t feel I’m “waiting” for a correction.
This last year and a half since we sold our condo has been a rental nightmare. The building is falling apart, the neighbour tenant was crazy (evicted now), and the management company is beyond incompetent. But it’s cheap and I love the location. Isn’t life just an annoying series of tradeoffs!
November 19th, 2009 at 2:03 pm
“H1N1 vaccine death toll climbs but officials don’t want you to think of it as a roulette wheel (which it is) That shot could easily kill you as many healthy people are finding out.”
- Not True, http://www.theglobeandmail.com.....le1367348/
36 serious reactions out of 6.6 million doses and one (unconfirmed) death. Hardly roulette wheel odds.
November 19th, 2009 at 1:45 pm
“H1N1 vaccine death toll climbs but officials don’t want you to think of it as a roulette wheel (which it is) That shot could easily kill you as many healthy people are finding out.”
I’m sure there’s an appropriate forum somewhere for crazy, unsupported, actively disproven drivel.
November 19th, 2009 at 1:09 pm
#7rubberduckie,
Re the pets & rentals thing. We encountered the same problem when we moved to Vancouver in the summer. I couldn’t believe the number of “no pets” listings. Anyway, it didn’t matter in the end, we viewed tons of properties and whenever we saw one we liked, we mentioned on the way out the door that we had pets. They all said “OK”. The joke is that the majority of the properties weren’t fit for human habitation, let alone pets – and these were all houses priced in the $3-4k/mo range. Unbelievable.
So, my advice to you is never mention pets over the phone, always leave it until after they’ve met you. If they like you, it won’t be a problem. That was the advice we were given, and it worked.
November 19th, 2009 at 12:48 pm
H1N1 vaccine death toll climbs but officials don’t want you to think of it as a roulette wheel (which it is) That shot could easily kill you as many healthy people are finding out.
I got the same speal from the community health nurse when I asked her about the possible side effects of the poison she was dishing out. When I asked why so many kids seemed to come down with autistic like side effects she said “only one in thousand will have that happen” I said no thanks, I am not a gambler. When she inssited that it benefited everyone I replied “will you guarantee that my kid will be supported by the government if he gets sick” She said no they won’t do that”.
I see those asshole sucking CANUCKS also jumped the que over the necks of children, real heroes.
http://www.nationalpost.com/ne.....id=2240853
November 19th, 2009 at 12:27 pm
The newest proposal to sweeten the HST inmlementation is 525K. If this happenes it will drag the value (monthly payments) of everything below that towards the tax exempt ceiling. Manitoba has rejected the HST grab and exposed it for what it is, a bad idea, a tax grab. Thank you Manitoba. The sheep are a bit smarter on the prairie it would appear.
The pigs are going to bums rush the homeless into holding pens far up the valley during the Olympics it has been announced. The homeless could find themselves in ‘shelters’ as far away as Kelowna. That factoid was let slip by a senior RCMP spokesman when speaking to the city coucil when discussing budgeting requirements for the influx. He was quickly shut up of course. This is Canada after all and the people have no right to question the actions of the governmnet.
http://www.vancouversun.com/ne.....story.html
November 19th, 2009 at 12:03 pm
Rest assured that supraboy is just faking it. True real estate investors never buy toyotas unless they want to be laughed at. If you want to be taken seriously as a real estate investor you have to own a BMW or a porsche. I own several cars and not one is a junky toyota super car. True slumlords like me have to flash it into the faces of forenters.
November 19th, 2009 at 11:54 am
Just in case you forgot where we are…
http://2.bp.blogspot.com/_mJmw.....ecycle.gif
It really feels like [Return to "normal"] phase these days, so my guess is 3-6 months will be a different story: BoC is increasing the rate, Olympic hype gone, unemployment highest in Canada, do you want me to continue?
The rental market is so large right now that even the Co-op housing has townhouses for rent, remember the 1-2 years waiting list? gone.
This city is not different, just more stupid.
November 19th, 2009 at 11:48 am
Hey Supra, you reall are a dim son aren’t you?
I’m leaving Van next week. I got an excellent job as a consultant for an American bank. By the way the forecast for today in Halifax is sunny and 15 C. Today in van it’s 7C and rainy. Up till Tuesday the forecast is for warmier and sunnier weather in Halifax. My buddy has been sending my photos. It’s blue skies and longer daylight hours.
I hope you and your wannebe wealthy buddies stay here forever, supporting the local $8/hour hospitality industry and buying condos on credit you can’t really afford. Seriously. So fucking sick of you and your kind. The best thing you can do is stay on this side of the Rockies so the rest of us never have to put up with your boorish, bourgeois bullshit.
November 19th, 2009 at 11:44 am
@Vic:
There will be NO government bailout of homedebtors.
One, the government can’t afford it. It would jeopardize the Crown credit rating.
Two, it would be met by huge opposition in the non-bubble areas of Canada which comprise the majority of seats in Parliament – most particularly Quebec.
Three, a government bailout would mean admitting that the government was fueling the bubble in the first place.
Governments CANNOT fix asset prices. The market ALWAYS wins.
South of the border, all of the “homeowner assistance” programs have simply been attempts to keep people making their payments when they would be better off walking, i.e. they are really aid for the banks. Here the banks, who are also the only ones the government cares about, have already received their bailout from CMHC.
The only relief homedebtors will get will be that same as in prior busts in Canada – bankruptcy.