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.

Sort by:   newest | oldest | most voted
Supraboy
Guest
Supraboy

When things are called a bubble, it really isn't until you get a parabolic move. Expect the run to continue. Anyone who's knowledgeable and serious about the housing markets know it's stupid to stand in front of a moving freight change. Bernanke already mentioned that he will keep rates low. These 'bubble' talks are a bunch of jokers trying to shake people out so they can get in. Until a massive flood of buyers on condos and properties are seen, I don't see a top yet.

Boombust
Guest
Boombust

"I don’t see a top yet. – Supraboy

Does that means there is such a thing as a bottom?

Chilled
Guest
Chilled

I think this thing will carry on – forever, or until the average single family home tops a billion dollars and unemployment hits 100%. That's what I learned at the Warsaw School of Economics and I'm sticking with it.

rp
Member
rp
#1 @Supraboy: "Anyone who’s knowledgeable and serious about the housing markets know it’s stupid to stand in front of a moving freight change." That's great advice, I'm going to stay the hell away from this one. My dreams of buying cheap real estate are over. I don't need to own, and current buyers are far crazier than I would have *ever* expected. We just witnessed a worldwide financial crisis – the biggest in 80 years – and they are lining up to mortgage their lives away for a dream. Casting themselves onto the rocks is more like how I see it, because I don't see how this could possibly be over. I save enough money to provide decent financial security for my family and will continue to do so. I'm 30 years old. It would feel good to settle down,… Read more »
rp
Member
rp

It just isn't funny anymore. It's like if everyone started coming to work in chicken suits. First it's funny, then it's a bit disconcerting, then it's hysterical, but now I am deeply concerned. The media is all chicken suit all the time. Everyone in a chicken suit insists they're still having fun, but I don't really believe it. Getting into the suits is getting harder and harder. More and more commitment is required. Some people glue chicken suits to their bodies for the next 35 years!

Wreckonomics
Guest
Wreckonomics

Rp: 100, best analogy ever.

rubberduckie
Guest
rubberduckie
I wish there were something like an MLS, but for rentals. There are sites here and there, but not one single, clean, organized and up-to-date site that everyone uses. I would be willing to pay an agent to help me find a nice long-term rental. My biggest obstacle is I have a cat, and it seems 90% of rentals don't allow pets. Should I apply anyways and hope they like me so much they'll allow it? Should I lie? If legislation passed tomorrow that landlords couldn't discriminate against pet owners, do you think it would have an effect on real estate prices? I bought my first condo because some mean landlords kept slamming the phone down when I said I had a cat. That was in 2001, and it turned out my sweet kitty did me a favour! But now… Read more »
No Longer Looking
Member
No Longer Looking

"My biggest obstacle is I have a cat, and it seems 90% of rentals don’t allow pets. Should I apply anyways and hope they like me so much they’ll allow it? Should I lie?"

Maybe 90% in premium rentals, but the numbers are much better in the burbs. I think the numbers are getting better too.

If you are unsure about their policy, don't bring up the cat at first. Do that after you've impressed them with your income, references, etc.

Lying is a common strategy for pet owners. Even if the lease species against pets, the landlord still has to make a case before the RTB. Also, some landlords barely pay attention to their place (downside is the place might be a dump). Personally, I opted not to lie.

Vic
Guest
Vic
Could this be another case of the "too big to fall"? Could the housing market be something that is so big that if it fell, then the government would bail us out? The only way I can see this playing out…without complete self-implosion is gradual increase in interest rates (like 0.25 or 0.5% a year…over 10 years) and a slow steady decrease in housing prices (~5 to 10% a year) and modest salary increases (like 3% a year). Anything more drastic would cause complete mayhem. Of course…to pay for all this mess, my taxes should go back to year 2000 levels — or an extra 10% of my income. It was a bull market for 8 years…I see an 8 year decline to reality. My question is…who are the creditors for the $1T mortgages? At 0.25% interest…that's $2.5B in interest.… Read more »
domus
Guest
domus

Inflationary effects of easy money:

http://tinyurl.com/yg65q3j

When central banks and governments tell you we have a deflation, do not believe them…

domus
Guest
domus

@Vic: If people pay back, the creditors are the banks. if they don't, it is the CMHC.

it is a win-win game for the banks: they only get the upside. I know it sounds crazy, but this is what is happening right now in Canada.

Information is power. The governments are selling this as a 'necessary' policy. It is a scam to keep this circus going (after all, aren't they up for re-election…?).

No Longer Looking
Member
No Longer Looking

@domus: Yes, I notice the mysterious shrinking boxes of food at the Super Market 😛

rubberduckie
Guest
rubberduckie

@No Longer Looking: I don't want to compromise my location. I'm comparing buying versus renting, not buying in a nice location versus renting in some godawful suburbs or rundown part of town. 🙂

scullboy
Member

People have lost their fucking minds, especially in this province.

Let's recap shall we??

Scotia says were in a bubble.

The crea says even 10% unemployment is ok because that still leaves 90% of us available to sell our lives for shelter.

The first poster here is a full on typical BC real estate zombie who assumes the current circumstace is a good idea.

I am so glad to be getting out of here. BC is so obviously past the point of no return. It's like watching a bunch of rowdy, drunken frat boys piled into a BMW flying 100 mph down the wrong side of the road.

Fuck man, it's such a shame. It's such a pretty place.

HappyRenter
Guest
HappyRenter

@rp:

RP, people are being sold a dream by developers, agents and bankers but borrowing a nightmare. The only people getting wealthy from real estate at these insanely unaffordable prices are the three previously mentioned parties, as they take their profits at the top of the market. No dream of mine involves taking on 35 years of debt.

Boombust
Guest
Boombust

Supraboy,

I just received an e-mail alert from "Silhouette" in Burnaby.

Seems the units are "newly-priced at 299,900"

With things a flyin' off the shelf, I'm surpired to see any reductions AT ALL!

No Longer Looking
Member
No Longer Looking

@Boombust: "Silhouette" pre-sales started at 295K back in 2006, according to one article I read. All that risk for no profit. It'd consider renting there, though, at the right price.

DaMann
Member
DaMann
@rubberduckie: I knwo how you feel about the pet situation. I just rented a sweet place on the westside, gorgeous roof top deck, view , everything. Current tenant said he would not allow pets. I called him, told him our situation and what we wanted to rent, he said I like you guys let's do the paperwork. It was then that I told him we had a dog, he said no way, sorry no pets. I sweet talked him for a good 15 minutes, finally he caved. Having a good long term tenant who really wanted to look after the house like it was their own sold him. He wanted a few extra provisions in the lease but we were ok with that. I completely know your frustration with the pets, it's what drove us to buy in early 2005,… Read more »
rubberduckie
Guest
rubberduckie

@DaMann: Good strategy. There's a lot of legwork in being a renter!

The path of least up-front resistance is buying. Eager Realtors drive you around to showings on your schedule. Property sellers scrub every inch and bake apple pies to try to get your interest!

It's a vastly less glamorous experience when you're renting.

I recently viewed 2 apartments for rent. Both places, completely independent of each other, had dirty underpants on the bedroom floors.

duru2000
Guest
duru2000
My landlord( a realtor agent btw) is selling the house expecting the prices to go down in 2010. I was thinking to buy at the end of next year, but since Bank of Canada kept the party running with crazy low rates i will have to wait a little longer. So i took craigslist and there are plenty of places to rent in my range (1000$) right now, not like two years ago. I was playing with the idea of buying a place right now but i'm not going to do it, i rather have a 200K mortage at 7% than a 400K one at 3.5%. I can put a lot of money down but it doesn;t make any sense right now. Everywhere in the world (except Monaco but that's a different market) the Real Estate took a 25-40% haircut… Read more »
Absinthe
Member
Absinthe
After a lifetime of stable renting, my family and I went through some serious bubble related instability with our rental last year. Now we're paying just slightly more for more bedrooms and a yard, so it's turned out for now- but I must admit for the first time getting grumpy about this bubble. The insanity in the housing market is making rental feel insecure, and I'm having trouble feeling settled. That, I don't like. But I realized there's your self perpetuating mechanism: newbie specuvesting landlord runs all over his business obligations, makes the renter feel insecure, the renter jumps into a terrifyingly risky but looks-easier-to-live-in purchase situation. And seriously – I've never seen so much housing aimed at the double income professionals with no kids no pets no roommates no parties and no smoking advertised. If you go on Craigslist,… Read more »
No Longer Looking
Member
No Longer Looking

I'll be honest, this is another reason I'm nervous about owning a structure in BC:

http://www.cbc.ca/canada/british-columbia/story/2

ReadyToPop
Guest
ReadyToPop

“You only find out who is swimming naked when the tide goes out.”

Warren Buffett

Bizznitch
Guest
Bizznitch
Drachen
Member

@Absinthe:

The no-cat landlords are really showing their amateur status I think. Our landlord is semi professional, he's been doing it for 20 years but with just one house of 3 units and everyone in the building right now has a cat (I think he actually prefers tenants with cats). At the end of the day he's happy because of the new rules that allow him to hold double the damage deposit for pets, which is really what all landlords should be looking at, it's your insurance that you won't get totally screwed by a tenant, the risk of having a cat pee on a few rugs is completely offset by the doubling of your insurance policy.

wpDiscuz