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.
This post was submitted by popgoesthebubble.
Click here to view all comments chronologically
February 22nd, 2012 at 9:22 am
I think people have a problem defining “local real estate”. Does local mean certain parts of the city, the city as a whole or the entire province/state?
I find that if you look at a micro real estate market, you realize that it is more what really goes on in that market, as opposed to what goes on in the country as a whole, that drives prices up or down.
To illustrate, if a small city has a huge automotive assembly plant and that plant would shut down it would have a greater effect on the real estate of that city, since people would end up losing their jobs, and in result making it impossible for them to keep up with mortgage rates. They might have to look for jobs elsewhere and leave the city. Something like a 1% increase in interest rates won’t have such a drastic effect on the real estate market. People need a place to live and they will still pay that increase. The only time when the real estate market will be affected on a large (macro) scale is when something extreme is to occur globally. For example; if a war is to take place or a few countries suffer from an economic crisis.
I stand by my argument and agree with the author, Real estate is and always will be local. But hey, I am a realtor so my answer is without question BIAS.
February 13th, 2012 at 1:14 am
I agree with the author that all real estate prices are local. Calgary and Alberta Real Estate Market in 2011 shows that there was a steady increase with controlled selling and buying in other parts of the country. Toronto is not far from becoming what Vancouver already is. I hope that people will pay more attention and listen to people like Garth Turner before they buy any real estate property.
February 9th, 2012 at 10:48 pm
@fixie guy:
"What’s especially egregious is the proclaimed party of free market capitalism is using the socialist technique of underwriting financial industry risk using individual taxpayer money"
CORPORATIST technique. The socialist technique would be to nationalise the financial industry. Socialise profits, socialise risk.
Free enterprise is of course privatise profits, privatise risk.
February 9th, 2012 at 9:47 pm
It doesn't matter which party does it, only the seated government has the power to manipulate the market (only temporarily and always temporarily) by distorting traditional lending requirements. They all share some blame, it just happens the Cons currently hold the bag and did the most damage. What's especially egregious is the proclaimed party of free market capitalism is using the socialist technique of underwriting financial industry risk using individual taxpayer money. Not only do we not get any of the benefits of a true free market, we get to pay for the down side. World historical hypocrites.
February 9th, 2012 at 6:57 pm
@DEFAULT NAME:
Governments which introduce or continue policies which inflate RE prices are responsible for any overvaluation that happens during their tenure.
You cannot blame the Liberals for the impact post-2006 of policies that they introduced and which the Cons continued. They were not written into the Constitution. When the Cons made financing even easier that was an explicit endorsement of the previous loosening. They could have gone the other direction without even passing any legislation.
You can certainly blame the Liberals for any overvaluation 1993-2005 (only Vancouver was clearly in bubble territory that period), just as you can blame Mulroney's PC's for 1984-1993 (the Toronto bubble of the late 1980's). And so on.
"The buck stops here".
February 9th, 2012 at 4:45 pm
@DEFAULT NAME: "So 40 year mortgages with 20% down = bubble? Doubt it"
The biggest issue is zero down payment. When people don't have to save anything to buy a house and the government insures almost all of the risk then conditions are ripe for a bubble. Note that zero-down continues today because any bank will lend you the 5% "down payment" for the CMHC.
In 2006, I'm not sure if you are aware of this, but the CMHC was the "real estate speculation underwriting agency". If you wanted to invest in property, you could put nothing down and deduct the entire rent from the mortgage payment to determine your debt service ratio. I'm not kidding. This allowed practically infinite leverage with all risk insured by the government. The change occurred after the conservatives were elected, and it persisted for two years until 2008.
February 9th, 2012 at 2:58 pm
http://www.valuewalk.com/2011/12/pivot-capital-q3…
Pretty thoughtful 12 page report outlining the complete and utter unsustainability of the great China bubble. Cole's notes version = massive leverage -> attempt at government control -> emergence of shadow banking system to keep real estate/infrastructure bubble afloat -> final crushing collapse under its own weight now in progress.
Required reading for anyone hoping to be taken out of real estate hock by well heeled HAM types.
February 9th, 2012 at 2:51 pm
Looks like some bitter realtard is voting everything down
February 9th, 2012 at 2:41 pm
@patriotz: ….As the master himself put it:
http://www.amazon.com/All-Real…..amp;sr=1-1
TItle of the book: All Real Estate Is Local: What You Need to Know to Profit in Real Estate – in a Buyer's and a Seller's Market
Skip the book! I'll tell you what you need to know: buy low, sell high. If you follow that rule (nobody else in Vancouver has) you'll be fine.
February 9th, 2012 at 2:09 pm
Canadians. We're so far behind we think we're first!
There is only so much Carney can do to shield bad real estate trades from price discovery. Taking comfort in hiding behind central bank smoothing could go very wrong if inflation targets are lowered to match public sentiment on fairness to other asset classes, savers, renters etc. Eventually the government will feel pressure from the money confiscated from Peter to subsidize Paul's delusional spending spree on double and triple priced homes.
Let's be clear. Anybody buying today is paying double the value of shelter even in New Brunswick. This is a dislocation in the economy that will be corrected. Hence the term "correction". It is height of humor to hear comments to the effect that correction is bad or impossible or even undesirable. The price is incorrect! Creating more loans isn't going to change the fact that prices have doubled for no apparent reason.
There is one more thing to consider about Canada. If money can't buy rationally priced property in Canada or lawfully accessible property is not available the US because of 9/11 police state regulations, CAD$ could chase property in China or elsewhere that has real free trade with Canada.
February 9th, 2012 at 2:05 pm
@frank: Who was in power in 2003?
From the CMHC website Q and A:
http://www.cmhc-schl.gc.ca/en/corp/faq/faq_006.cf…
February 9th, 2012 at 2:02 pm
@frank: "If you dont think doubling the CMHC capacity to underwrite mortgages is a big deal, then you need a math lesson."
You need a history lesson. The Liberals took the ceiling off the CMHC insurance so people could take out million $ mortgages with insurance.
February 9th, 2012 at 2:00 pm
@rp1: "You’re correct about starting the bubble, as for less impact…"
So 40 year mortgages with 20% down = bubble? Doubt it. The Cons changes were window dressing. Maybe it doesn't go as fast and as far, bit no way it stops in 2006 after what the Liberals put in place.
The Cons have nearly reversed everything they did and the bubble is still inflated. Change the things back to the Liberal era with 20% down and put a cap on CMHC insurance and the bubble would be deflated in 12 to 18 months.
February 9th, 2012 at 1:55 pm
February 2012 data
Average Sales 112
Total Sales 782
Average Listings 275
Total Listings 1927
Average sell/list 41%
Days in month 21
Days elapsed 7
% days elapsed 33%
Expected sales 2,346
Expected listings 5,781
Max daily sales 155
Min daily sales 38*
Max daily listings 325
Min daily listings 249
February 2011 data at same point in month
Average Sales 149
Total Sales 1044
Average Listings 281
Total Listings 1966
Average sell/list 53%
Days in month 20
Days elapsed 7
% days elapsed 35%
Expected sales 2,983
Expected listings 5,617
Max daily sales 210
Min daily sales 93
Max daily listings 350
Min daily listings 227
February 2011 month end data
Average Sales 157
Total Sales 3,140
Average Listings 282
Total Listings 5,648
Average sell/list 56%
Days in month 20
Days elapsed 20
% days elapsed 100%
Expected sales 3,140
Expected listings 5,648
Max daily sales 219
Min daily sales 81
Max daily listings 350
Min daily listings 227
Previous sales volume
1999 1634
2000 1634
2001 1781
2002 3008
2003 2760
2004 3066
2005 3068
2006 2941
2007 2859
2008 2676
2009 1480
2010 2350
2011 3097
* likely a computer glitch caused a delay in reported sales to cause unusually low sales day
February 9th, 2012 at 1:36 pm
@DEFAULT NAME: " Those changes started the bubble and it was well underway by the time the Cons made any changes which I would argue had much less impact."
You're correct about starting the bubble, as for less impact…
Go to:
http://housepriceindex.ca
Click on Calgary, Edmonton, Victoria, or Vancouver, and note the rate of increase in 2006-2007. The conservatives were elected in January of 2006, and government-backed zero down mortgages were introduced that spring. 40 year amortizations where added that fall.
February 9th, 2012 at 1:29 pm
@DEFAULT NAME:
If you dont think doubling the CMHC capacity to underwrite mortgages is a big deal, then you need a math lesson.
February 9th, 2012 at 1:15 pm
@fixie guy: "Flaherty and the Cons didn’t expect Canadians to take advantage of the greatly eased access to lenders their policies inentionally created?"
Actually it was the Liberals who got rid of the 20% down payment rule and took off the cap on CMHC insurance. Those changes started the bubble and it was well underway by the time the Cons made any changes which I would argue had much less impact.
February 9th, 2012 at 12:31 pm
51 patriotz Says: "The problem does not really lie with Flaherty and the Cons, but with John Q. Greedbag Homeowner."
Flaherty and the Cons didn't expect Canadians to take advantage of the greatly eased access to lenders their policies inentionally created? Wonder why they did it then. Or is everyone who bought over the last half decade a 'greedbag'?
Some may accuse those crushing the theatre door for acting in a predicatable human manner, most still blame the one yelling 'fire'.
February 9th, 2012 at 11:19 am
You guys (and gals) are awesome. I just got back from a California road trip and couldn't stop myself from checking the site several times while we were away. Gotta keep an eye on the insanity, dontcha know.
Stayed several nights near the Monterey Peninsula, and several more in Palm Springs. In Monterey, you can buy a wonderful home, overlooking the hyper-dramatic coastline and just a couple minutes from Pebble Beach, for less than $2 mil.
It was my first time there, but it BPOEs the BPOE to death. There's this sweet litle area they call 17 Mile Drive. It essentially hugs the golf courses (PB, Spanish Bay, etc), and it's as pish-posh as they come. The coast there is stunning. Massive waves crashing against the shore, huge rock outcropppings mixed with pure sand beaches, one of the world's preeminient golf courses at your door, wildlife out the ying-yang, and a $9.50 charge to non-residents just to put their vehicles on the Drive. Granted, a full-blown, world-class palace will cost you several million more, but $2 mil (heck, even $1 mil if you don't need opulence or a view) gets you in.
In a nifty sidebar, we met a woman while walking along on the beach who just happened to be the manager of the PB pro shop. She spotted my SLR and asked if I'd take a few shots of her dog. I did, and she responded by letting us tour the course, free of charge, in a golf cart. Now I'm no golfer but, dang, what a facility and what a course. It looks even more awesome in person than it does on TV.
We then swung over to Palm Springs, where you don't have to spend much more than $100,000 for a decent condo in a decent neighbourhood. $250,000 gets you a pretty SFH in a pretty spot. And $20 gets you a case of 30 Budweisers.
I note in my absence there have been many more telling signs of a deflating housing market. Funny, I talked to a few people while we were away about RE up here. And not one of them could conceal their shock. "Really?" "Vancouver?" "Are you serious?" Down there, we're just a blip, I'm afraid. A wet, dark blip that only now is beginning to learn its lesson.
Anyway, sorry for the rambling post. I haven't been here for awhile and just wanted to point out how much *more* absurd – if that's possible – this thing is when viewed from the outside.
February 9th, 2012 at 11:12 am
I freaking love it! Sink you biatch! Sink you biatch!!
February 9th, 2012 at 11:07 am
"…41% sale/list is very weak for February."
That's because it's over. Finally.
It had to happen,and everyone knows it.
February 9th, 2012 at 10:57 am
@paulb.: 41% sale/list is very weak for February.
February 9th, 2012 at 10:45 am
2 days, sorry forgot. Skiing at BigWhite
New Listings 516
Price Changes 138
Sold Listings 214
TI:14013 Party on!
February 9th, 2012 at 10:35 am
@chilled:
Wow you know your classic Detroit.
FMC put out a lot of Ford/Mercury twins like the Maverick/Bobcat. In the same equine/feline menagerie were the Mustang/Cougar. Remember the twitching tail lights?
February 9th, 2012 at 10:29 am
@Mississauga Condos:
As the master himself put it:
http://www.amazon.com/All-Real-Estate-Local-Selle…
February 9th, 2012 at 10:23 am
@jesse:
It's local, but it spreads from area to area like the cold virus
February 9th, 2012 at 10:19 am
@patriotz: "The problem does not really lie with Flaherty and the Cons, but with John Q. Greedbag Homeowner."
That is true for so many things. For the most part politicians do what is popular, not what is right. People are for the most part afraid of change and not informed on what is the right thing to do.
February 9th, 2012 at 9:54 am
@Mississauga Condos: " Real estate is and always will be local"
"Real estate is local" is one of my favourite and entirely useless platitudes of all time.
February 9th, 2012 at 9:37 am
from larry:
Vancouver East & West*
New Listings – 73
Back On Market Listings – 0
Price Changes – 15
Sold Listings – 23
Vancouver All Areas*
New Listings – 229
Back On Market Listings – 3
Price Changes – 72
Sold Listings – 85
February 9th, 2012 at 9:05 am
@Mississauga Condos: Then why the pan-Canadian HPI?
February 9th, 2012 at 8:53 am
@patriotz:
"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."
I did not know this, I always thought it was the Mercury Bobcat, you know, ❛that frisky critter, the pick of the litter, Bobcat – Mercury Bobcat!❜
February 9th, 2012 at 8:42 am
Point number 2 is key. Real estate is and always will be local.
February 9th, 2012 at 7:50 am
Li Dongzhe, one of China’s most wanted economic fugitives who has been hiding out in North Vancouver for the last six years, has returned to his homeland and turned himself in, Beijing’s Ministry of Public Security has announced.
Li, 47, who will face trial for an alleged billion-yuan banknote fraud, arrived in Beijing from Canada last week, the ministry said.
The ministry declined to comment on whether Li will face fresh charges or the death penalty and on whether other fugitives related to the same case, including Li’s brother, Li Dongue also believed to be in the Vancouver area, will be brought back.
The ministry did mention however, third brother and infamous blog-site provocateur, Li Kai Shing, was not welcome back in the homeland and was expected to remain in vancouver.
February 9th, 2012 at 7:35 am
@MadasHell:
If the public at large here were really discontented with rising house prices, as the news item says the Chinese public are, every political party at both the federal and provincial levels would be advocating policies to squelch this bubble.
The problem does not really lie with Flaherty and the Cons, but with John Q. Greedbag Homeowner.