5 reasons why the housing market won’t crash

Canadian Business has published a counterpoint to their article about why the Canadian housing market is about to crash. Anyone have some comments/rebuttal for the 5 issues he cites? Note he makes an exception for Vancouver in reason No. 2.

Summary of the reasons:

1. Interest rates will be low unless the economy is growing in which case there will be lots of jobs.

2. Real estate is local, Vancouver might be overpriced, but New Brunswick isn’t

3. Predictions of a bust are simply based on seeing the US market bust and has nothing to do with reality

4. Lenders have recourse to go after people in Canada and there’s less subprime

5. Price-to-rent and price-to-income ratios don’t indicate a turning point.

Here’s the full article.

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Clockbike
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Clockbike

You're up late today, go to bed.

Bailing in BC
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Bailing in BC

While I'm sure that point 2 may be welcome news to those who own RE in New Brunswick, I strain to see it comforting owners in Vancouver. I wonder what the total value of Vancouver RE is compared to NB.

Anonymous
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Anonymous

@Clockbike: They forgot #6: Vancouverites are easily manipulated and believe everything we say

Bilbo Bloggins
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Bilbo Bloggins

How original of you, Canadian Business Magazine…
http://www.wikinfo.org/upload/a/af/Time_Magazine_

Anonymous
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Anonymous

1. Pile on all the jobs you want, but in Vancouver they better be >$150k jobs-if you want to support the prices here.

2. You know what else is local? Cancer.

3. Yes watching one of the world economic powerhouses brought to it's knees by a bubble has it's effect. Oh, we're not talking about Japan?

4. Right- cause only poor people 'r stupid 'nuff to cause an economical colapsification.

5. Wait what? If I can't follow US HOUSING as a model why on earth would US stocks be any better.

Yalie
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Yalie
Of all the arguments for never-ending bubble prices, I find #1 the most misleading. The premise is that, as long as interest rates stay low, prices will stay high because people will maximize their monthly mortgage payments. But why do low interest rates only inflate the price of houses? Why don't we also see more expensive cars, TVs, electric bread slicers, and rubber chickens? The answer is that there is in fact nothing special about houses – the laws of supply and demand work exactly the same on a long enough time frame. That is, when prices are artificially high for any reason (including low interest rates), the free market will eventually come in and produce more supply, eventually lowering prices. The argument only appears valid because of the length of time it takes the housing market to respond to… Read more »
patriotz
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@Yalie:

"But why do low interest rates only inflate the price of houses? Why don’t we also see more expensive cars, TVs, electric bread slicers, and rubber chickens?"

Because people don't buy cars, TVs, electric bread slicers, and rubber chickens with the expectation of selling them for more later.

Asset bubbles are ALL about expectations of selling for a gain. Low interest rates fuel them because they make it less expensive to hold assets with low earnings.

patriotz
Member
"Lenders have recourse to go after people in Canada and there’s less subprime" The Big Lie of the Canadian bubble deniers is that the US is non-recourse. In fact 3/4 of states (including Florida) are full recourse like Canada and in other states loans are sometimes recourse (in California only the original mortgage is non-recourse, any refi, HELOC or 2nd is recourse). http://www.forecloseddreams.com/recourse_states And then we have the Big Non Sequitor of "subprime". This is simply an industry term which had little to do with the economic soundness of the loan (and a lot to do with whether a borrower with the same income was black, for example). The magnitude of price declines in various US markets had very little to do with the amount of "subprime" lending. What they had a lot to do with was – surprise –… Read more »
Anonymous
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Anonymous

@patriotz

it was worse there tho, no? Maybe not a lot, but a little at least…

Londonernow
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Londonernow

I would argue that cars are expensive. Anything that we have been able to finance with little to nothing down (no "sweat" equity needed) have gone up disproportionately and are well over historical norms. That would be houses and cars and also education (in the US).

registered
Member
registered

These articles never explain why a decade of increases bringing prices to multiples of historical real mean are economically justified and sustainable. Best focus on the brush instead of the forest.

patriotz
Member

@Londonernow:

"I would argue that cars are expensive."

Not expensive enough to make the automakers profitable.

I don't think cars have gotten more expensive in real terms. For example, the Ford Maverick was the cheapest car in Canada in 1970 for $2500. That's equivalent to $14,802.96 today. The Hyundai Accent costs $13,199 and is a much better car (actually anything made today is a much better car than a Maverick).

Anonymous
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Anonymous

Here is five real reasons real estate would not crash. Unfortunately none apply to Canada and certainly not Vancouver.

1. Interest rates are at higher than average levels and are expected to decline over the next 10 years.

2. It is cheaper to own than rent.

3. Prices are at historically very affordable levels compared to incomes. Real estate has not crashed in similar circumstances ever anywhere in the world not even in places such as the US.

4. Lending standards have always been high. They require a 20% down payment and proof of income.

5. Real estate investment in rental properties produces a great yield of 8% or more so inventors will always buy.

When all of these apply we will be at bottom and safe from a crash.

NoNo
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NoNo

they are just giving the other side of the argument. no need for all of you to get your panties in a bunch.

Best place on meth
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Best place on meth

From an article posted in the previous thread:

Vancouver, meanwhile, is flush with wealthy immigrants, many of whom do not work. Indeed, wages in Vancouver do not correspond at all to the city’s high housing costs. The city is popular, but not especially productive.

http://fullcomment.nationalpost.com/2012/02/08/br

Wonderful economy we have, dependent on corrupt parasites from Locustland.

Bailing in BC
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Bailing in BC

@Londonernow:

The difference between real estate and education, and cars is that except in very rare cases (vintage for example) no one buys a car with the expectation that it will make them rich. In the case of real estate and education, many people are willing to sacrifice significantly now for a pay back that may (or may not) be there in the future. The problem we have is, people have lost a sense of proportion of the risks involved in speculating of future returns.

Bailing in BC
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Bailing in BC

@Yalie:

As a contrarian investor, I am long on rubber chickens. It is an overlooked segment of the market and deeply undervalued. When was the last time a shoe shine boy recommended rubber chickens to you? Exactly! With low interest rates now is the time to get in before the world recognises what a safe haven rubber chickens are in these turbulent times. Don't miss the boat. You heard it here first.

Anonymouse
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Anonymouse

Which other worldwide real estate markets are currently in a bubble? Does anybody have a list? Of all of them, which one has been the most resilient? Is there a market which has technically been in bubble territory for well over a decade?

Londonernow
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Londonernow

If cars are not expensive enough to make automakers profitable then they've got a cost issue. Also I think that you need to compare the increase (or non-real increse as mentioned by Patriotz) in the price of cars since 1970 with other consumable goods. What has the price rise (and quality increase) been in televisions or computers since 1970 compared to cars?

Anonymouse
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Anonymouse

@patriotz:

"The Hyundai Accent costs $13,199"

Try walking into a Hyundai dealership with $13,199 and walking out with a car. It won't happen. Shipping, post-delivery inspection, taxes, etc. That $13K car probably costs closer to $17K.

patriotz
Member

@DEFAULT NAMEe:

"Shipping, post-delivery inspection, taxes, etc."

Which were also added to the $2500 list price of the Maverick.

Didn't think of that did you?

Anonymouse
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Anonymouse

@patriotz:

"Didn’t think of that did you?"

Yes. Unfortunately I've no idea what these costs were in 1970. Perhaps you can enlighten me.

Guy Smiley
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Guy Smiley
@B.i.BC – ingenious strategy! just a small bit of research returned this at topcommodities.net commodities – natural rubber chicken prices forecast 2012 ; ANRPC in its latest report said imports from China during January to February surged 63% for natural rubber chicken and 118% for compound rubber chicken compared with the same period last year. ANRPC had earlier estimate that global rubber chicken production could reach 9.5 milllion tonnes this year, up by about 6.3% from last year’s 8.9 million tonnes. “I believe rubber chicken prices will remain firm for quite some time until supply recovers, possibly by early 2012.” Apart from the buoyant demand and drought-ridden supply, he said other factors influencing the rubber chicken market included the weakening US dollar, volatility in yen and the increasing crude oil prices. Members of the ANRPC countries account for about 94%… Read more »
patriotz
Member

@DEFAULT NAMEe:

Why don't you enlighten me on what they are the Hyundai first? You're the one who brought it up.

But I would think they would be about the same proportionately, except for the GST which wasn't around then. There was the MST, but that was bundled into the list price.

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