Don’t say ‘bubble’

The term is all over the news right now: Canadian Housing Bubble.

All because some nerds at the CCPA issued a report saying the six largest Canadian markets are in bubble territory.

Even the trust-worthy local Vancouver Sun is obscured by dark clouds and using headlines like “Vancouver real-estate ‘bubble’ an accident waiting to happen“.   The Globe and Mail has pretty pictures charting different scenarios of home price collapse and there’s more coverage at Canadian Business Online.

The steep rise in house prices in so many cities points toward an “accident waiting to happen,” Macdonald said.

In the past 30 years Canada’s housing market has undergone three bubbles. Bubbles occur when housing prices increase more rapidly than inflation, household incomes and economic growth, according to the report.

Each of Canada’s previous bubbles was punctured by only a one per cent rise in interest rates over two years, Macdonald warned.

It would take only a one per cent to 1.25 per cent mortgage rate increase by Canada’s big banks to cause a housing crash similar to the one the U.S. is grappling with, he added.

Vancouver saw housing bubbles in 1981 and 1994 and another one burst in Toronto in 1989. In Canada’s other major markets — Calgary, Edmonton, Ottawa, and Montreal — prices remained stable from 1980 to 2001 at around $150,000 to $220,000 in today’s dollars.

“The concern today is all six major markets, not just Vancouver and Toronto, are out of that comfort zone,” Macdonald said. “All six major markets now have an average price of over $300,000.”

Judging by the recent signal to noise shift in the comments section on this blog, some people are getting a bit edgy about all this negativity.  Even the CMHC is predicting falling sales and dropping prices for pete’s sake!

But take heart! There’s good news – a conflicting report from the C.D. Howe institute says no problem, there’s little likelihood of a national Canadian housing bubble.

..and if there isn’t a US style national housing bubble, then there can’t be a housing bubble here in Vancouver right?

Also! August is over and I hope you got all that yard work done because there are some houses out there to buy.  We’re breaking records for low sales this month of new units in Vancouver West as well as units in Port Coquitlam and Maple Ridge.

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D. Bone
D. Bone
10 years ago

@r_: …

Enough to produce over 10 GJ of hot water heating on an annual basis…..

9 3/4 GJ of which happens in the 2nd week of August in Vancouver.

Enough to reduce your domestic hot water heating bill by 40-60% on an annual basis.

……

In Phoenix maybe.

Enough to save a couple hundred dollars a year…..

The needle just broke in my BS meter. (Considering my hydro bill for all of last year was about $700, you're telling me that water chillier (in Vancouver case) will save me a couple hundred a year? Get Real. Oh, wait, I get it… You sell these systems. Wow, what a parallel discussion to Realturds!

r_
10 years ago

@D. Bone: said "…days do you think there …"

Enough to produce over 10 GJ of hot water heating on an annual basis.

Enough to reduce your domestic hot water heating bill by 40-60% on an annual basis.

Enough to save a couple hundred dollars a year.

And there are more sun hours annually here than in places like Bonn, Hamburg and Tokyo even though Japan and Germany are the top nations for solar photovoltaic generation capacity.

D. Bone
D. Bone
10 years ago

@rob_: …

I have seen a system on a cold clear January day in Vancouver deliver water that needed to be mixed through anti-scalding valve because it was too hot…….

No doubt. But, how many clear January days do you think there are (or any other month between September and July for that matter)?. If you don't know the answer to this, you just moved here.

brainsail
brainsail
10 years ago

ts561rs

"In TX there are rather steep property taxes and they are-like most states in the US- progressive. In some districts of TX- like Austin for example- the tax is set at 3%. That’s rather high. So if I bought a typical $150,000-$200,000 Austin house, I’d be paying something like over $4,500- $5,000 a year just on property taxes and that amount will only go up with time."

I am Vanncouver born and currently live in Austin(21 years). We own a $400K SFD on a greenbelt in the hills and paid $8400 for property taxes last year. That is 2.1% not 3%. Sure, property taxes are high because Texas is one of the few states that does not have a state income tax. The funds for public services have to come from somewhere. Also, property taxes are income tax deductible.

BadNewsBears
BadNewsBears
10 years ago

dumb bears

Inventory
Inventory
10 years ago

Sept

1994 = 2241

1995 = 1951

1996 = 2217

1997 = 2050

1998 = 1755

1999 = 1955

2000 = 1761

2001 = 2241

2002 = 2555

2003 = 3468

2004 = 3006

2005 = 3505

2006 = 2583

2007 = 2852

2008 = 1620

2009 = 3632

2010 = ???1200-1500???

oneangryslav2
oneangryslav2
10 years ago

Today's anecdote: Since I was going to do some yard work early this evening, then realized that I'm a renter so Instead I went down to Granville Island for an orientation seminar for the upcoming Vancouver Fringe Festival. 🙂 Anyway, after the seminar we lined up for volunteer passes and t-shirt and I was standing in front of a pleasant young lady with whom I began to make conversation. She's a recent SFU graduate in English and works for a real estate development firm on the creation of specification brochures for purchasers. She could be as young as 22, but looked to be in her mid-20s and we started to talk about the real estate market and I mentioned that I would not buy in this market as it is due for a major correction. She tepidly agreed then blurted… Read more »

Meat Robot
Meat Robot
10 years ago

KK for undisputed VCI champion. Could it be that I'll never have to scroll past a comment by SSB ever again? I'm misting up.

Animal Spirit
Animal Spirit
10 years ago

@Best place on meth:

Thank you so much as well KK!

If we all don't respond to the trolls, they will now start to disappear 🙂

realpaul
realpaul
10 years ago

#140 B, the BMO obviously doesn't get it…its not mortgage rates that are detering people from affording real estate…its the fact that prices are too high and need to come down by at least 50% ( and more) to match fundamental demand ie the price – income ratio common in all western economies. 9 X's earning for a condo and 22 X's earning for a SFH in Vancouver make no sense at any rate. What has happened is that a high number of suckers have been attracted unwittingly into the RE market…..the BMO assuredly that the sucker pool is dry and is making this pronouncement for public relations purposes…they can't create more suckers than already have screwed themselves…..like any classic ponzi scheme they've run out of willing particapants….no…it is not a grteat time to buy…..anyone who has bought real estate… Read more »

House
House
10 years ago

@McLovin: That facebook story sounds a lot like a scheme my partner heard about through the REIN. 25% return with no downside? Maybe true but the way it's set up it's taking advantage of a desperate homeowner. Based on what I've heard coming out of REIN, they're making baby Jesus cry on a regular basis.

Bob Arctor
Bob Arctor
10 years ago

<a href='http://www.edmontonjournal.com/business/fp/cuts+mortgage+rate+spur+home+buying/3469471/story.html&#039; rel="nofollow">BMO cuts mortgage rate to spur home buying

"Bank of Montreal has chopped its benchmark five-year mortgage rate, aggressively throwing its weight behind what many are calling an increasingly wobbly housing market.

“It’s a great time to buy a home,” Martin Nel, a senior BMO official, said in news release announcing the change. He added that people who take advantage of the offer will benefit.

“If ever there was a time to buy, it is now,” Mr. Nel said."

rob_
10 years ago

@D. Bone: wrote "…but in a city where the average temperature is about 10 degrees…"

ambient air temperature has little affect on solar hot water system (especially evac. tubes).

I have seen a system on a cold clear January day in Vancouver deliver water that needed to be mixed through anti-scalding valve because it was too hot.

Anonymous
Anonymous
10 years ago

@Yalie: "Doom and Gloom"

Real estate is seen as a healthy indicator of our economy by CHMC and friends.

Kim Jong-il buy 3
Kim Jong-il buy 3
10 years ago

re: Solar Hot Water systems.

New Westminster will soon require a rough for these systems in all new construction.

I've caught a female crackhead peeing on the front yard of my rental twice in the last month; perhaps the city can issue a new by-law to require front lawns to have a urine heat capture system to preheat hot water tanks too!

McLovin
McLovin
10 years ago

I mean DOES NOT rope in someone

McLovin
McLovin
10 years ago

And now for your daily laugh! My wife received this on Facebook that someone posted to all his "friends" He had written: "Looking for a buyer/invester for a 2bed 2 bath 948 sq ft condo in the heart of Pitt Meadows. Message me FAST if you are interested in hearing details about this opportunity for a 25% return on your investment in one year with little or no risk! Looking for $25k-$35k additional equity injection for a one year hold. " My wife responded: "_______ you do realize the bubble has burst and we are now in a real estate decline?" To which he answered: "I'm assuming your comment was in regards to my assertion that a potential investor could make 25% return on their money with little or no risk in one year in this particular real estate deal.… Read more »

realpaul
realpaul
10 years ago

Those 'warts' Rennies sporting may be an advanced case of CLYMIDIA…..I'd watch what I touched in the OV show suites. Funny how that popped into the mayors head and let slip as he backpaddled away from the OV like a closet queen from a blind date with a woman…..something Freudian about two gay guys channeling each others 'issues'. Yuck!

OV Renter
OV Renter
10 years ago

So here is sit in my City owned rental in the OV, been here a few weeks now and have seen, heard and witnessed what this place is all about…. rush job construction, and fool can see the flaws inside and out, poor management, and what looks to be some serious design flaws in the HVAC system. Fortunately for me its priced well as rental, and i have the place to myself for the most part. The future is dismal at best here.

Over & Out!

rob_
10 years ago

@Purp:

re: Solar Hot Water systems.

One reason that you don't see as many systems here is that the initial costs for the systems are higher for two reasons:

– the systems here require freeze protection which isn't required in Mediterranean countries.

– our building codes require closed loop double walled heat exchangers whereas in some areas they use single loop systems without heat exchangers.

So the cost for a system installed is closer to $7,000-$8,000 (minus the $2000-$3500 rebates currently available). And with our cheaper energy costs the payback is more like 10-20 years.

But still a good technology. I will install one on the home I buy after the 30-40% price correction we are starting to experience.

Renting
Renting
10 years ago

The other thing I wonder about the OV is will the retailers show up? Is there anyway Urban Fair, London Drugs or a private liquor outlet can make money in a ghost town with no residents? My guess is the lawyers for the retailers are trying to get them out or delaying the lease until the place is occupied.

Renting
Renting
10 years ago

"I bet they are ignoring good advice. For all his warts, give Rennie credit for knowing how to price and move condos." Yes I am sure Rennie has been telling them to slash prices for a while. Any good salesman is able to convince the powers that be to price the product correctly. That is how you make sales. The realtors still around in a few years will be those who convince their clients to price the product correctly. It will have nothing to do with marketing. All the marketing in the world will not sell the OV at it's current prices and Rennie knows that. The problem with dropping prices is it likely means bankruptcy for the developer. It will take the city to step up and call the loan and force the issue. My bet is this will… Read more »

Best place on meth
Best place on meth
10 years ago

@Purp:

Furthermore, the city is losing $300K per month by not having any tenants in the rentals. How is that for managing our finances?

The mayor's response to the 2/3rds of units still for sale was "it's a tough market out there".

Yes, it is mayor. Yes it is.

It's so tough that Rennie has offered to do the dishes and housecleaning of anyone who buys before the end of the year. For 6 full months. Bedtime stories for those with kids as well.

Just to show what a tough market it is this nasty East Van hovel was just listed in a poor market but the owners are feeling optimistic nonetheless.

See the last photo.

http://www.mls.ca/propertyDetails.aspx?propertyId

observer
observer
10 years ago

I think the RE prices will start to crash the moment prices stop rising, simply because of the high percentage of investors in the market, low rental yields, and dependence on perceived price appreciation. So although rises in mortgage rates would certainly do the trick, that is only one of many downside risks at the moment.

Renting
Renting
10 years ago

"But this is what happened. The outlying areas- cities that are like an hour away like Stockton- or the crime-infested areas like parts of Oakland and others like it, along with lower income areas took a HUGE hit. Small houses in bad neighborhoods or far-flung exurbs had been selling for $500,000 at the peak. Those prices dumped to what they had been before, as in $150,000 or less. Some houses in Stockton are going for $75,000 these days."

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Watch out Surrey! This could be you in 3 years.