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Canadian Business on housing bubble

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The cover story in the current issue of Canadian Business: our housing bubble.

Resale prices are falling. Yet all this fits neatly with a prevailing opinion among realtors, economists and federal officials: that a combination of new harmonized sales taxes in Ontario and B.C., stricter lending standards and looming interest rate increases “front-loaded” sales into the first half of this year. Activity and resale prices will drift gently downward for the remainder of this year and the next, but Canadians will be too busy enjoying their sound banking system to notice.

This sanguine consensus overlooks how the federal government stoked the housing market over an extended period, particularly during the recession. The result is that sales have been front-loaded for far longer than many suppose. Canadians should brace themselves accordingly for a more jarring correction in residential real estate.

hat tip to Jonathon for the link!

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YLTNBoomerang

@buffates:

I saw that too. I've started tracking Delbrook and Capilano Highlands in addition to downtown townhouses. After surveying strata fees it makes no sense to buy anything over 1000sqft in this town so I'm going back to North Van.

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Bilbo Bloggins

@VanCity Guy:

Do we win for most economic activity generated by real estate (percentage-wise)?

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Renting

"1500 Howe is 20 years old. I wonder if a new roof is on the agenda for the next AGM…."

I don't know about a roof, but I do know the guy with unit 1204 in the same building is not going to be happy. His unit is for sale which is also 1116 sq ft but a few floors lower and is asking $728,000 or $198,000 more. I wonder how his realtor will break the news to him. Umm we need to drop the price by 200K to meet market pricing. Or the guy can wait for next spring and drop 300K.

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fixie guy

@ realpaul

Lol, "Garage Mahals". Hadn't heard that one.

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realpaul

A typical sign of a bear market mentality spreading like wildfire. McMansions are being replaced by 'practical' sized homes. Is this 'sensible approach' the furture?

http://www.cnbc.com/id/38757287

I see theres still a few complete idiots in the crowd paying up full price for cat box condos……boooooohooooo……The real set up for the crash when jumpers make the news. " I paid tooooooooo muuuuuuuuuuuuccccchhhhhhhh…..splatttttttttt!!!!!!!!!

C'mon, lets face it……..its going to become so socially abhorrent to admit that you bought a condo that the admission will only generate guffaws and derision.

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Anonymous

@Renting:

1500 Howe is 20 years old. I wonder if a new roof is on the agenda for the next AGM….

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Renting

A couple of the very few recent sales in Downtown where pricing appears to be getting sharper. These are likely the "must sells" that will drag all prices down. ____________________________________________________ 1907-1500 HOWE ST One owner, spacious corner unit, facing south & east, views of Granville Island… 1145 sq ft List $595,000 Sold Aug 17th $530,000 That is $462.88 sq ft. on the sea wall. ____________________________________________________ 2503-833 HOMER ST Atelier on Robson: Brand New, No GST, No HST, Ready to move into. This 1180SF, 2 Bedroom, 2 En-suite, 3 Bathroom offers Exceptional 180 Degree Views of City, Water and Mountains. Priced below cost. Bring your offer. List $995,000 Reduced $899,000 Sold $885,000 If 995 K was below cost the guy took a pretty nice hair cut after transaction costs. This place would have been bought 2 to 3 years earlier as… Read more »

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Dan in Calgary

@Aleks, regarding "low interest rates alone are not enough to draw in more buyers and keep the pyramid scheme going, for that you need to keep lowering interest rates."

Pyramid scheme is a good name for it. But low interest rates can't possibly work, because there are no more buyers. The market has borrowed demand from the future, possibly stretching forward a generation to entice people to buy long before they normally would have, because they bought in to the mantra "buy now or be priced out forever". The scheme is up; there's no-one left to be drawn in. Everyone who wanted in is already in.

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Renting

"Released in March, the Ipsos survey found that 91% of Canadian homeowners think real estate is a good investment — “the highest level in 12 years,” the pollster observed."

1. When everyone is bullish that is a bearish sign. Once everyone has bought the bubble pops as there is no one left to buy.

2. Note this is 91% of Canadian Home OWNERS. It is non home owners who count. Home owners have already bought so of course they thought it was a good investment. How many investors who owned Nortel stock in 1999 thought Nortel was a good investment? My guess is over 91%. How did that work out?

3. The survey was done March 2010 when everything was rosy. Check back in March 2011.

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Renting

"I’m interested to hear how long readers here think it will take for prices to bottom out."

The bottom could take up to 10 years for a true bottom before things start heading north again. Although I suspect we will see 30% come off from peak in the next 18 months and be close to bottom in 3 years at 50% off peak.

Looking at actual sale prices over the past couple of weeks Vancouver West condos are already 10% off peak.

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Best place on meth

From Macleans:

A list of Realtard® excuses why business sucks this summer.

http://www2.macleans.ca/2010/08/19/blame-it-on-th…

No mention of prices being way too fucking high though.

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jesse

Intrade bets on Vancouver bubble! A "short" of sorts, for those who are looking for one.

https://www.intrade.com/jsp/intrade/common/c_cd.j…

https://www.intrade.com/jsp/intrade/common/c_cd.j…

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Vanrod

@Anonymous: I'm personally not in the market, but thanks for the offer. The real question is. Is she going to lose money on the place? is she on the brink of foreclosure? Does she spend her evenings crying herself to sleep? this is what bears would have to believe is the life of a vancouver homeowner.

OR

Is she still going to make a reasonable profit on a home she has enjoyed. Maybe she has to lower it a bit, big deal. I suspect my version is closer to reality.

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Starving Artist

@Vanrod:

Keep saying next spring and when it doesn’t materialize push your prediction back another year…rinse and repeat. Its been going on everyone here since 2005

It would have been much better for the country and its people if it had corrected in 2005. The bigger the bubble the more pain when it pops. There's no question we've been way beyond fundamentals for many years. The bears' miscalculation was on the financial illiteracy of the locals, not on asset valuation.

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Best Bser Anywhere

"When that original boomer house goes from a million dollars to $500K, and the children condos collapse and the escape home turns into a financial prison, generations of wealth will be wiped out. You will hear this story over and over again in Vancouver" Makes sense, yet we have a local pumper/blogger/ philosopher/writer/economist/ Sara Palin follower who contends the opposite. A few days ago he proclaimed in his theory, that the baby boomers will sell their home in North Van, and with the proceeds buy a home in the Valley, and give each of the kids a 100k to put down on a townhouse. No major price correction will take place here –the best place on earth, where he sells the best real state anywhere. But now it all make me wonder, is this guy more dangerous if he believes… Read more »

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oneangryslav2

@Anonymous: Oops, that was me.

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Anonymous

@Vanrod: So when are you buying? My sister's got a nice 4-BR home in nice part of Coquitlam–Harbour Chines–that's been on the market for about 60 days without an offer. E-mail me at my user name (without the 2) at yahoo and I'll take you out for a look. She and her husband will take up to 50K below ask.

In three years it will be worth over 1 million dollars, right?

P.S. I'm serious about showing you the place.

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giggling

@paulb.:

New Listings 170

Price Changes 70

Sold Listings 102

One hundred and two fools parted with their money today. Was it burning a hole in their pocket?

Was it too heavy stuffed in that suitcase with "China Air" sticker on it to be carried around any longer?

Was it smelling too much like weed every day, stashed in the basement behind the double wall right next to the hydro bypass wires?

Or was it just a pocket change anyway?

Oh, I know – it wasn't really 102 fools – it was 17 wives with 17 huzbas and they each both three.

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Kosta

@Vanrod:

Why are you concerned about this, all is well. Everything will be alright, no?

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Vanrod

@buffates: Why is it always next spring with you bears. I know why – your just like every other dooms day shill. Keep saying next spring and when it doesn't materialize push your prediction back another year…rinse and repeat. Its been going on everyone here since 2005

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paulb.

New Listings 170

Price Changes 70

Sold Listings 102

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jesse

@flip_this: "Is it possible that record low interest rates can keep housing bubble in Canada inflated longer then some people think"

Yes but, as you allude, it is no permanent cure. Low interest rates means the pool of money is either outright decreasing or flat. I'm of the opinion that this means that, at best, aggregate revenue from rents will stay flat. This does not necessarily mean that there will be no rent rises, only that some landlords will accept lower quality tenants, some will leave units vacant, and future residential construction starts will be muted. In total it means less money flowing into rentals and the pain will not be shared evenly.

And yes that is a deflationary spiral.

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Aleks

<@<a href="#comment-90415" rel="nofollow">flip_this:

Is it possible that record low interest rates can keep housing bubble in Canada inflated longer then some people think?

The bubble has already gone on for many years longer than most of us thought, so of course it's possible. However, low interest rates alone are not enough to draw in more buyers and keep the pyramid scheme going, for that you need to keep lowering interest rates. Obviously, you can't lower interest rates forever, at some point you reach zero and have to stop. We already did that last year, so while the BoC could lower rates again and reverse the recent increases, that would only provide a temporary boost.

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buffates

961 Forest Hills Dr. Just got reduced to 849K from 939K in 66days. The best neighbourhood in North Van just dropped 90K in two months. All list prices are BS. If you look at listings in your neighbourhood, the common characteristic in each one is how long the higher priced listings have been on the market. Any and all offers are to be low balled. The violence of the first of the major price decreases won't yet commence until the inventory of "out of buying zone" houses builds up which may take a few more months. This will time nicely with the media having to publish more substantial negative year on year numbers. By that time there will have been up to another full percentage point of interest rate increases. Next spring will put chills in many of our lower… Read more »

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realpaul

Right…and prices are never going to come down. The prices in the US are still falling in spite of all the stimulus dollars and phony incentives. Bottom line….too much product…..prices unaffordable…..not enough suckers. lets face it…..the market is more than 60% over the 'affordabiltiy' ratio of average income. And BTW….the chinese have their own problems with real estate…they know Vanshithole prices are in freefall.

http://www.cnbc.com/id/38653757

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