USA bubble peak vs. Canada today
Vibe posted an interesting comparison of the 2006 US bubble peak to the present day Canadian situation in the forums this weekend. The local Vancouver market is bubblicious, but is there a national Canadian housing bubble?
Everyone pretty much agrees about Vancouver, but here are a couple of points that were made about the national scene:
1.It is reasonable to claim that there is not a housing bubble in Canada because only certain areas are over inflated.
2.Vancouver’s very high prices skew the national average and cause Canada to look worse than it really is.
One thing I think we can all agree on is that the US did have a housing bubble. Well I put together a spreadsheet that I feel shows that affordability is about as bad across Canada as it was in the US at their peak. It also shows that Vancouver is not skewing our national data any more than the most overpriced cities in the US were skewing their data.
In order to measure affordability I used house price to personal income ratios. I compared the 20 cities used in the Case Shiller Housing Index to the 6 cities used in the Teranet Housing Index. The US data is from 2006 while the Canadian data is from 2009.
I think the following graph most clearly illustrates my point:
Vancouver is the only Canadian city with a ratio over 9, while the US had 3: LA, San Fran and San Diego. Toronto is the only Canadian city with a ratio between 5 and 9, the US had 9 in this range. The under 5 range looks bigger for Canada but we have more population covered by our index than they do by theirs. The important thing is that the percentage of each nations population living in cities with elevated ratios is similar.
The distribution and average ratios for both countries are almost identical. I did a population weighted average of the ratios and this gave a higher value for the US than Canada, 6.3 versus 5.6. Keeping in mind that the Canadian data comes from 3rd quarter 2009, during our recent price dip, I don’t think this is a huge difference.
Now I don’t know what the future holds, but to me this data suggest we are in a very similar situation to the US at their peak. We might not take the same path down (we already had a double top) but I don’t see why our eventual bottom should be much, if any, higher than theirs. And any price drops should be distributed across the nation in a similar fashion as well.
Here is a link to the data for anyone interested.
May 4th, 2010 at 5:55 pm
Shameless and disgusting Van bears are suppression views from bull camp which has been right for the past ten yrs;times and times again reality has proven bull are right 101 percents.With Great China's blessing, Van RE will never collapse though there might be occasional Hiccup but Van RE will only go upward indefinitely. Those idiots who are following the advice from stupid bears are the losers,while listeners of bull are rewarded abundantly with ton of cash which they couldn't imagine in unspeakable joy. Listen you bear:admit your stupidity and ego and following the trench or you will be priced of this heavenly beautiful city.
there ain't a city like Vancouver in this icy old country.
May 3rd, 2010 at 11:31 pm
@BH:
CMHC is a Crown corporation and a Crown entity cannot default on its obligations. Period.
There are essentially 2 options for CMHC if it runs out of reserves due to defaults:
1) Borrow on the bond market (CMHC has a Crown guarantee on its debt and can borrow on the same terms as the GoC), and raise premiums to amortize this debt over the long term. IOW future housebuyers would pay.
2) Get a bailout from the GoC, i.e. GoC would expressly make an equity transfer to CMHC. IOW taxpayers would pay.
My bet is on (1), as it could be done quietly and would not affect the GoC deficit (CMHC is off the books). (2) would go on the GoC budget, vastly increase the deficit and would be political suicide for the Cons IMHO.
BTW, for the poster who said that people would start making 20% down payments to avoid higher CMHC premiums – give me a break. People don't have that kind of cash and it's going to take a long time for savings habits to return to the level where a significant number of people do.
May 3rd, 2010 at 11:13 pm
"reach super level 10+"
I'm on pins and needles there superdouchetime.
May 3rd, 2010 at 10:39 pm
@superboomtime: Tiger Woods? Gotcha:
http://laist.com/attachments/la_zach/tiger-woods-…
May 3rd, 2010 at 10:26 pm
Bears your dreams will never come true because once 17k is reached realtors will start bringing in the hot money. Once the hot money is in then watch out above because prices will reach super level 10+. This market is about to take off like tiger woods to whore house.
May 3rd, 2010 at 10:10 pm
@paulb: I've wondered that too, but she only takes high-net worth individuals.
May 3rd, 2010 at 9:28 pm
@Fandango:
I wonder if she is a good financial advisor. She sure seems like a real straight shooter.
May 3rd, 2010 at 9:19 pm
@paulb: So 17K tomorrow. Geez, how am I going to sleep tonight. The anticipation is killing me.
May 3rd, 2010 at 8:34 pm
Vancouver Roller Coaster on Danielle Parks Juggling Dynamite:
http://jugglingdynamite.com/
May 3rd, 2010 at 8:32 pm
@paulb: Another 3 party month? Yay!
May 3rd, 2010 at 8:05 pm
@crashcow:
16,800 no biggie