Banker Bubble-talk Bundle
There has been a surprising number of comments from lenders and bank economist lately about the idea of an overpriced Canadian real estate market and the risk to irrational buyers. I thought it might be interesting to round up some of the comments Canadian Bankers and Economists have made in the media recently regarding the housing market and the possibility that some Canadian markets are in a housing bubble.
TD Bank Financial Group economist Pascal Gauthier
..the current momentum is not expected to last beyond the next six to 10 months. Were it to continue into 2011, there would be more credence to the view that a bubble has formed. But the brakes are currently being applied in the background, which should prevent a bubble from forming between now and then.
BMO Capital Markets deputy chief economist Doug Porter
“Housing has definitely been at the forefront of any kind of a recovery we’ve seen … I don’t think you can find a single segment of the economy, other than maybe bankruptcy lawyers, who’ve thrived more in the last six months or staged a more impressive turnaround.”
“The rapid-fire rebound in Canadian housing is showing no signs of letting up,” Mr. Porter said in a note to clients. “While that may be causing some sweaty palms among bubble-phobes, the quick turn is a vivid illustration that monetary policy still works in this country.”
CIBC senior economist Benjamin Tal
“I challenge the [mortgage lending] industry to come up with research to make sure we know what types of mortgages are in the pipeline. We need to know how many people taking variable rate mortgages at 2.5%, who cannot afford financing a mortgage at 4.0 or 4.5%. If it’s a marginal number, then we’re not creating a bubble — we’re basically seeing monetary policy that is working.
We have to make sure if you take a mortgage now, you have to be able to finance it 200 basis points higher after 2010. If you can’t, then you should probably buy a smaller house or don’t buy a house at all — that the prudent thing to do.”
ING Canada President and CEO Peter Aceto
“You have situations in some markets such as Toronto where people are making multiple offers for homes, they are paying thousands more and waiving conditions. It gives me concern they may not be thinking rationally, and this could lead to problems. Canadians are also paying their homes off slower and slower, and the concern for me is that they are buying more house than they can really afford.”
“Canadians have been proud internally that we’re very different than the Americans in the way we behave in terms of our spending habits and the way we deal with credit. But over time we have become a lot closer than we think.”
Scotia Capital economists Derek Holt and Karen Cordes
“Is Canada in a housing bubble? Probably, but low rates, mortgage innovation and a relative shortage of new supply are likely too keep it going for a while yet.”
“The Canadian Real Estate Association has reported October sales and prices. The results are a bright spot in the Canadian economy, but with prices up 20 per cent over year-ago levels and at all-time highs by virtually every measure, this is becoming an over-valued asset class in our opinion.”
HSBC Securities Economist Stewart Hall
“… it certainly bears watching. The real estate market is definitely showing very, very robust levels of activity, particularly at this stage of the business cycle, where we have an economy that really hasn’t launched into recovery mode yet. Beyond 2009 and getting into 2010, if we are continuing to throw off these heightened levels of activity, then I will become quite concerned that we are on the cusp of an asset bubble here…”
“And when they pop, it’s rather painful to all and sundry.”
Have I missed any? If you spot any interesting quotes from lenders or economists share them in the comments section.
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Aston Lau – How the Canadian housing market doesn’t make sense Says:
April 26th, 2010 at 5:24 pm
[...] A roundup of bubble comments that the major banks have been making lately. The prevailing sentiment is that a bubble is forming or has already formed, and come mid-2010 when the Bank of Canada raises rates, we might see the start of a shake-up in the real estate market. Bad news like this is rarely seen in the mainstream media, so when so many noted economists publicly voice this opinion, it’s a good idea to perk up and listen. [...]
December 6th, 2009 at 12:13 am
@stagnate:
What land constraints?
There is plenty of land in the Lower Mainland.
“No Brainer… or Madness?” « Vancouver Real Estate Anecdote Archive Says:
December 5th, 2009 at 4:45 pm
[...] 5 December 2009 · Leave a Comment This from realtor Maggie Chandler’s blog 1 Dec 2009 (hat-tip to Starving Artist at vancouvercondo.info)- [...]
December 4th, 2009 at 4:00 am
#11 Patriotz, I meant that foriegn investors ‘can’t’ buy CDN bonds at .40% compared to the 3.75% they can get from the Oz bonds. Its a case of ‘they won’t’ buy CDN bonds because the CDN government is buying up all its own debt to keep from having to go into the open market. Sorry for the confusion. PS Garth has done again on his latest posting, suggested reading for sure.
#32
T192,
1)Debt obligations are a liability. Its costing Canadians plenty to utilize the 800 billion used to backstop the CMHC debt orgy as debt instead of capitalizng into other areas of the economy. Thats a philisophical argument though and I am not on the side of socialism in the marketplace. It always ends badly for the taxpayer.
2)The failure stats are not public information so we don’t really know what the cost to Canada is. We will find out eventually through FOI or the Auditor general but both systems are fraught with delay. Guaranteed, this massive debt overhang is far from ‘free’.
December 3rd, 2009 at 10:07 pm
So, you all remember when Vanoc gave the DTES crack whores and all other prostitutes a flyer about how to deal with Olympic vistors. I think it said something like “Be nice and don’t say anything bad about Vancouver’.
Well obviously Vanoc is saying to the Olympic committee “hey guys, we’ve greased up the pig, now get out there” with the purchase of 100,000 condoms to be distributed amognst the Olympic organizers. These cracked up yahoos will be cruising the streets on your dime!!!!
Is this also why Campbell decided to close all the elementary schools? So that a few stray kiddies might get dragged in to the bushes by a ‘visitor’. Of course he’d have diplomatic immunity and get away with it. This is our gift to the world. Abundant whores and poverty stricken single moms desperate enough to have to streetwalk. Don’t you feel proud to be a Canadian.
http://www.vancouversun.com/Sw.....story.html
A very astute reprter in Aussie during the Sydney games picked out a group of ‘visiting Olympic dignitaries’ and followed them straight from the airport to see where they went. They all went straight into the prostitution area and he photgraphed them in the act.
These are the type of scum who are involved in the Olympic Committee. And now you know. You not only pay for this but are expected to like it.
December 3rd, 2009 at 8:46 pm
San Fran in Van: whoa there cowboy, homework time. apart from some macroeconomic differences vancouver is not like san fransisco due to much stronger in-elasticity of demand. you have to get into factors like immigration trending, land constraints, etc that can be specific to a region. you have to put in a bit more work than paraphrasing garth turner.
December 3rd, 2009 at 4:57 pm
Excuse me, that’s “current account”, not “current exchange”.
December 3rd, 2009 at 4:56 pm
@oneangryslav2:
Yes, foreign purchasers of Canadian debt would get low yield combined with exchange rate risk. But the real reason there is little holding of Canadian debt abroad is that the country hasn’t had to borrow abroad – until very recently Canada had a longstanding current exchange surplus. In other words, Canada had been lending to the rest of the world, not the other way around.
Note that USD debt has a low yield as well but is widely held abroad, for the simple reason that the US has to borrow abroad. As well a number of the US’s trading partners (e.g. China) have an interest in supporting the USD and so will buy their debt at a low yield.
But now Canada is running a current account deficit, for the same basic reason as the US has been for years – a very low savings rate. And need I mention that the policies of our “Convervative” government have abetted that low rate. If our savings rate does not improve soon, interest rates will have to go up to attract foreign lenders.
http://www.economist.com/marke.....d=15020004
December 3rd, 2009 at 4:52 pm
How do we captalize on that? I am thinking of shorting the Canadian housing market. The problem I have encountered so far is that 1) there are few publicly traded home builders (if any), 2) no tradable sector-wide indices (except banking which I would ignore for the moment as banks in Canada have been smart to pass on the mortgage risk to the government thanks to the explicit guarantee through entities like CMHC. The only exception being the confluence of multiple risk factors to bring about systemic risk in the financial system just like in the U.S.), 3) most financial bellweather companies outside of banks and holders of income producing real estate (e.g. pension funds, life companies, REITs etc) are also privately held and not tradable. The problem is that the market appears to be much more closed and not easily permeable than that of the U.S. In that sense, the most direct effect of a decline in the sector in the future would be a sudden and severe decline in gross domestic output against which the government is going to have to print out a whole bunch of inflated Canadian dollars to counteract that. Betting on cyclical changes in output is a painstaking undertaking and not very lucrative, either.
I guess the Canadian dollar appears to be the only viable proxy for a possible future hedge betting on housing prices decline in Canada. However, housing price adjustments can take place over multiple years (e.g. the United States), and often without a clear and immediate shorting target it would be very difficult to make money this way. Any suggestions in an open forum?