Feeling bearish on Canadian housing?

Over at the Financial Post there’s an editorial that’s pessimistic about the Canadian real estate market:

The arithmetic is simple, and some of the warning signals look uncomfortably like those of the days before the market implosion that brought the 1980s to a thumping, crashing close.

Start with resale home prices. A “matched sales” approach to measuring prices tracks, over time, multiple sales of the same properties — this reduces the likelihood of measurements getting skewed by cyclical or regional shifts in the price mixes of homes that happen to be selling. Over the past ten years, prices so measured, in Canada’s major markets, have doubled, increasing at more than 7% per year, at a time when consumer price inflation generally had been running at about 2%.

So why is that a problem? Because average wages have not been running much ahead of inflation, and that means that house prices have steadily been bubbling out of reach of workers’ abilities to afford them. The house price-to-income ratio last peaked and then plummeted from 1989 to 1991, and the ratio regained its prior peak in 2004-05. Since then? It has climbed steadily higher yet, the ratio now far outstripping anything seen in the past 20 years.

Eventually that makes housing affordability a problem, and quickly so when interest rates start to rise. Housing looks affordable now, given that mortgages remain on the market at rates near their all-time lows. However, carrying costs relative to income would rocket upward, were rates one or two percentage points higher. Such rate increases are not in the cards in Canada today — but they will arrive all the same, and sooner rather than later if inflation continues to test the upper bound of its target range, as it did through 2011.

Read the full article here.

70 Comments
newest
oldest most voted
Inline Feedbacks
View all comments
fixie guy
fixie guy
8 years ago

67 WhatProblem Says: "Two B.C. residents killed in a week in Mexico..Yes I would advise enjoying what B.C. has to offer which is plenty."

Like avalanche zones? Leave BC and die. Spinning ignorant xenophobia into a 'positive outlook' suggests you'll find value in Dabster's advice.

george
george
8 years ago

The first link in my post will take you to the Total Household Credit numbers in Canada as of the end of November 2011 (as per the
Bank of Canada's web site).

In spite of the record household debt in this country it looks to me like the lending to (and the borrowing by) Canada's household sector is not slowing down one little bit.

If you want to see some real interesting numbers check out the Residential Mortgage Credit lending done by Canada's chartered banks over the last year.

If anyone is interested Canada's total business credit numbers as of the end of November 2011 can be accessed by clicking on the "business credit" link at the very top on the page.

http://credit.bank-banque-canada.ca/householdcred

Follow Australia by privatizing CMHC

http://opinion.financialpost.com/2011/12/29/follo

Patiently Waiting
Patiently Waiting
8 years ago

@WhatProblem: Dabster has a point. You sound frantic. Nothing anybody says here is going to impact the economy one way or another. So calm down. If real estate crashes, it crashes. Just make your plans with that (very real) possibility in mind.

And why go to that overpriced dump Whistler? There are lots of places to see in this province. Whistler is not MY local economy. In fact, I've never been there. You'll sooner find me in Dawson Creek. Whistler is far removed the reality of most people in this city. If it disappeared tomorrow, few would notice.

WhatProblem
WhatProblem
8 years ago

@Dabster…Look in the mirror dude…I'm not the one wishing for financial collapse and for people to lose their jobs and homes. I just want a healthy prosperous Province..I don't even think people should shop across the Border. Two B.C. residents killed in a week in Mexico..Yes I would advise enjoying what B.C. has to offer which is plenty.

Dabster
Dabster
8 years ago

@WhatProblem:

Man, you should look for some help, seriously.

http://www.psychologists.bc.ca/

WhatProblem
WhatProblem
8 years ago

Probably best to stay close to home…maybe even head up to Whistler and enjoy yourself and help the local economy.
http://www.cbc.ca/news/canada/british-columbia/st

WhatProblem
WhatProblem
8 years ago

People are a little worried with all the Negativity out there but they are still spending and the economy is healthy.
http://www.hstincanada.com/2012/01/boxing-day-sal

N
N
8 years ago

I wander how this sentiment will affect the RE market:
http://www.vancouversun.com/business/residents+gl

WhatProblem
WhatProblem
8 years ago

Richmond is an anomaly..Mostly Chinese buyers who got put off it a bit.
http://www.realestatevancouver2010.com/blog/2011/

VHB
VHB
8 years ago

First week of 2011:

4-Jan 88 267 33.0%

5-Jan 76 250 30.4%

6-Jan 40 165 24.2%

7-Jan 86 177 48.6%

I have daily data pretty much back to March 2010. Today's 13.0% sell-list is the lowest in my entire sample. Just sayin'.

VHB
VHB
8 years ago

Only three days into the year, so this is a rough projection–surely, sales will pick up a bit by the end of the month. Still, if you project forward at the pace we have seen over the first three days, here is what you get. Jan-2012 Total days 21 Days elapsed so far 3 Weekends / holidays 2 Days missing 0 Days remaining 18 7 Day Moving Average: Sales 47 7 Day Moving Average: Listings 259 SALES Sales so far 140 Projection for rest of month (using 7day MA) 840 Projected month end total 980 +/- 382 NEW LISTINGS Listings so far 778 Projection for rest of month (using 7day MA) 4668 Projected month end total 5446 +/- 620 Sell-list so far 18.0% Projected month-end sell-list 18.0% MONTHS OF INVENTORY Inventory as of Jan 5, 2012 11042 MoI at this… Read more »

Uz
Uz
8 years ago

@DEFAULT NAME: Really? I lived in Point Grey near the bottom of Dunbar last year and I dont remember it having a large population of chinese residents. When I went up Dunbar to do some shopping or go to a restaurant I saw many more europeans, vietnamese, koreans and pasty white north americans than chinese.

Paulb.
Paulb.
8 years ago

@VHB: Lol! As much as a dramatic drop would suck for my business I would love to buy at a significant discount in a couple years.

The Ant
8 years ago

@DEFAULT NAMEe: I'm going to show you a video of someone throwing a ball in the air. Which of the following will you be able to predict before you see the video:

– How high the ball will go

– How long the ball will be in the air

– Whether the ball will ever fall

Anonymous
Anonymous
8 years ago

@Outsider: …I’m also interested in the Chinese economy, but living there would be the worst punishment imaginable to me. ….

Try living in Dunbar, you get China, but wetter!

Anonymous
Anonymous
8 years ago

@N: ..I’ve got to say, I can’t understand why people who don’t like living in Vancouver care about the prices of houses here. ….

I really have to say, that I can't understand why someone who likes living here and who's apparently not alarmed at the outrageously high prices would be posing on a blog that discussed prices being too high. Really, it's a head scratcher.

Anonymous
Anonymous
8 years ago

@macho nacho: Whistler's been dropping in housing prices for more than 10 years. Since the economy in Whistler is based entirely on peddling RE and timeshare, folks are desperate not to admit what's happening with prices.

Things began to get brutally overpriced there in the early to mid nineties. You won't find a higher density of overpriced mediocre restaurants anywhere else in Canada.

And, it's been busier in Whistler during the summers for more than 15 years so although you might get a cut rate on a room, everything else is just as expensive as it always is.

The hill will surely go bankrupt again soon. It's not about the number of skiers (which has been declining for years), it's about the number skiers getting fleeced on RE and timeshares, which has completely flat-lined.

fixie guy
fixie guy
8 years ago

34 DEFAULT NAMEe Says: "If it was, we’d all be rich."

If it wasn't you'ld be typing that idiocy on a computer designed by baking turtle shells and tossing bones.

Patiently Waiting
Patiently Waiting
8 years ago

@DEFAULT NAMEe: This week he might be right though. Those numbers are pretty extreme, even for this time of year. Sales are almost non-existent.

I was quieter than usual about real estate this holiday season. This is not a good time to be "that guy" who wished everyone's house values would crash. I see years of keeping my mouth shut ahead of me (outside of this blog 🙂 ).

Anonymouse
Anonymouse
8 years ago

@RippedtoShit:

You say that every week.

RippedtoShit
RippedtoShit
8 years ago

we could see a total meltdown in prices this month.

i think we see year over year losses in all parts of the market in 120 days or so.

heck, if prices flatline we'll see that…heck, we could get down 10% (i'm talking msm reported numbers) in a hurry.

Wholly shit, this could become a downright bloodbath.

RippedtoShit
RippedtoShit
8 years ago

Thanks PaulB, party on Dude!

Default – "classic rush to the exits"….sure is starting to look like it could actually be IT! (finally!)

Should we see an outpouring of new For Sale signs littering lawns with a noticeable absence of orange Sold stickers, the FEAR could pour into this market…all it takes to take a market down a few quick notches is a couple of desperate sales that changes the composition of the com parables (especially in condos, but it will go viral).

Man oh Man, this could finally be the real deal.

Yahoo
Yahoo
8 years ago

@Makaya: This is a pants optional party.

Anonymous
Anonymous
8 years ago

This is shaping up as a classic rush to the exits

Makaya
Makaya
8 years ago

@VHB: Jeez, I haven't even had time to put my pants on!