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MoneyWeek on the Housing Bubble

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Another day, another article on the housing bubble. This is from MoneyWeek Magazine: Cash in as yet another housing bubble bursts.

The average borrowing burden of Canadian families now stands at 153% of disposable incomes, according to Statistics Canada. To put that in context, that’s almost as much debt as US households had taken on at the peak of their own housing bubble.

In other words, the warning signs are everywhere. Canada’s housing market is plagued by “overvaluation, speculation and over supply”, says Merrill Lynch. The Economist conducts a survey that compares house prices with the rents that property owners can charge. On this basis, Canadian residential property is overvalued by more than 70%. Even the central bank admits there’s a problem.

Read the full article here.

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jesse
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And yet people continue to buy; sales are better than in 2010 (and 2011 February and March sales were relatively high). I wonder if the federal government is willing to take a chance of another bullish year. FWIW I don't think they will.

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6 years 7 months ago
rp1
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@jesse: I think they'll let it run for as long as possible now. The country is already screwed. When Mark Carney resigns you'll know all hell is about to break loose.

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6 years 7 months ago
Anonymous
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Another from Moneyville.
http://ca.finance.yahoo.com/news/wealthy-barmaid-…

"owns" two homes in Niagra, 40k in equity, wants to buy another as her retirement plan.

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6 years 7 months ago
patriotz
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@DEFAULT NAME:

Houses in Niagara Falls are very cheap. They are actually a sensible investment. 5K down gets you this house for $450/month mortgage, give or take:

http://www.realtor.ca/propertyDetails.aspx?proper…

A relative of mine used to live a couple of blocks from this house, it's a nice neighbourhood.

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6 years 7 months ago
WFT?
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More MSM real estate warnings in the Globe:

"Bubble Trouble in Housing"

http://www.theglobeandmail.com/globe-investor/per…

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6 years 7 months ago
WFT?
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And still more warnings:

"Housing market shows further signs of cooling"

http://www.theglobeandmail.com/report-on-business…

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6 years 7 months ago
jumpin in
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On the radio this morning: the number of foreclosure x 10 in the Okanagan because people are underwater.

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6 years 7 months ago
Patiently Waiting
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@jesse: Agreed, if this was just a Vancouver problem, Ottawa would ignore it. But now the rot is infesting Toronto and spreading to various parts of the country.

The Conservatives are worried about low productivity as well as high personal debt levels. Its making Canada look bad and upsetting Canadian businesses that don't directly benefit from rising real estate prices.

All those condo towers are appearing within eyesight of Bay Street denizens. Relatively more than anywhere on Earth.

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6 years 7 months ago
patriotz
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@Patiently Waiting:

"The Conservatives are worried about low productivity as well as high personal debt levels."

As if their own strategy of inducing a national housing and consumer debt bubble to fool Canadians into thinking that we have "recovered" from the 2008 crisis does not underlie these problems.

The only thing the Cons have ever worried about is winning the next election. What will determine their actions now is whether they think that they can kick the can past the election one more time or that they'll have to bite the bullet now.

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6 years 7 months ago
N
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@WFT?:

"“Year-over-year comparisons in the national average price are expected to become volatile and may turn negative, reflecting average price developments in the first half of 2011 in Vancouver,” said Gregory Klump, CREA’s chief economist. “At that time, high-end home sales in Vancouver’s priciest neighbourhoods surged to all-time record levels, which skewed the national average price upward considerably."

I realize that this is just a preemptive excuse, but what does it say about the market in this city, if the claim can be made that a few sales here skewed the figures for the whole country?

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6 years 7 months ago
Patiently Waiting
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@patriotz: "The only thing the Cons have ever worried about is winning the next election."

I think its more complex than that. Why do think Mulroney and Trudeau played with fire by repeatedly opening up the constitution? Worked for Trudeau, but blew up in Mulroney's face twice.

Egos. Big Egos. Worried about their place in history.

And they also have to dance with the ones who brung them.

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6 years 7 months ago
Guy Smiley
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I like that second G&M article, but once again… did every newspaper do away with proof-reading:

Average prices were 2 per cent higher than a year ago at $348,178, the smallest year-over-year increase in the last year.

And i am the most handsome man sitting behind this desk (for the moment).

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6 years 7 months ago
Anonymous
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@patriotz: That's a $1.5Mill house in you know where.

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6 years 7 months ago
Makaya
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Now on CBC: Home foreclosures skyrocket in Kelowna Home foreclosures are skyrocketing in B.C.'s Central Okanagan in recent months, but local real estate agents disagree about who might be losing their homes. There are more than 170 court ordered sale properties on the market in the Central Okanagan — more than 10 times the number from three years ago. Real estate agent Jason Neumann says in the last 30 days alone, 60 new foreclosures were put on the market, and he calls it a disturbing trend. Neumann is worried the number of foreclosures will bring the overall market down, hurting anyone who wants to sell their home. "What do you tell your sellers that are not in foreclosure that are now up against something they didn't see coming. It's one of those things where the bank is going to have… Read more »
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6 years 7 months ago
fixie guy
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11 Patiently Waiting: Why stop at Trudeau? Blame Dief.

Occam's razor. The Cons, the party of business, presided over the greatest CDN bubble in modern history by offloading business risk to taxpayers. Harper isn't the victim here.

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6 years 7 months ago
pricedoutfornow
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@Makaya: This is what I'm seeing too, in Kelowna. I have several clients there as well as friends and acquaintances. The market is "horrible" as one realtor described it. It doesn't surprise me in the least, prices have dropped so much over the past 3 years. Someone I know bought a condo (presale) for $250k a few years back (2004 or 2003 I think?). Late last year, the neighbour sold their similar unit for $164k. It's assessed at $175k. Ouch. A few people have told me "I wish I'd never bought that condo/rental property/cottage." Everyone had this idea that "everyone wants to live in Kelowna" and all the existing residents were going to be rich. I went to a hockey game with a friend of mine who was greeted by his buddies with slaps on the back and high-fives after… Read more »
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6 years 7 months ago
Guy Smiley
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Elton Ash, the vice president of Remax Realty in Western Canada, says most of the foreclosed properties are from people who were trying to flip homes during the hot market a few years back.

Mmm. That felt like a big warm hug. Unfortunate though that many innocent victims will end up collateral damage.

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6 years 7 months ago
yvr2zrh
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Regarding averages. There have been some serious big transactions in Vancouver / West Vancouver in the past 4 weeks. There have been about 5-6 transactions over 8 million. This will skew the average for the month quite a bit. However, when you remove these top 5 transactions, we still have a trend of very slowly decreasing prices right now. You can see this in the Condo averages which continue to slowly tick downward. Imagine what an interest rate increase or credit tightening would do.

In the past 3 days there have been quite the large number of condo listings in Vancouver suddenly come to market – – many people now realize this is not going to end well.

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6 years 7 months ago
yvr2zrh
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#17 Guy Smiley

Well – since they were from flippers and not normal homeowners, then I guess these properties will have no downward pressure on the market. 😉

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6 years 7 months ago
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@Guy Smiley:

"Average prices were 2 per cent higher than a year ago at $348,178, the smallest year-over-year increase in the last year."

Well, the guy definitely does not know how to spell, but his logic is not as wacky as it seems. If you compare Jan 2010 to Jan 2011, Feb 2010 to Feb 2011, etc., you will get a year-over-year change for each month. If you compare these numbers to each other, it is possible to have one that is the highest or lowest in the 12 month period. To put it another way, "the smallest year-over-year increase in the last year" means the lowest monthly average with respect to the peak price for the 12 month period.

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6 years 7 months ago
patriotz
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@Guy Smiley:

"Unfortunate though that many innocent victims (in Kelowna) will end up collateral damage."

Not that many innocent victims I think. The whole economy is based on RE with a bit of agriculture and tourism, nobody working or speculating in RE is innocent, and I don't think the bust will hurt the last two. Indeed the workers will end up with cheaper housing.

The real innocent victims are the people who lost their industrial jobs (e.g. the truck factory) or simply left because they couldn't make ends meet. In other words, its the bubble that really has innocent victims, not the bust.

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6 years 7 months ago
nuxfan
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"Regarding averages. There have been some serious big transactions in Vancouver / West Vancouver in the past 4 weeks. There have been about 5-6 transactions over 8 million. This will skew the average for the month quite a bit. However, when you remove these top 5 transactions, we still have a trend of very slowly decreasing prices right now."

You can't remove the highest prices from an average and then compare it to another average that included high prices from that reporting period. Its not a very accurate comparison.

Haven't monthly region-wide averages been skewed by a few biggies for most of the past year?

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6 years 7 months ago
Patiently Waiting
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@fixie guy: Trust me, I'm the last guy to give the Conservatives any slack. Their policies certainly extended the bubble, but I suspect they are more worried about the long-term consequences now.

They probably have easily six or seven more years at the helm, so they might want to deal with the pain sooner than later. In 2019, they might actually be facing an opposition that can get elected to government (whether its a centrist NDP or renewed Liberals).

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6 years 7 months ago
Anonymous
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@patriotz: "The only thing the Cons have ever worried about is winning the next election "

Yes, good thing the Liberals never succumbed to that worry. And Lord knows, the NDP absolutely never worry about winning. Good analysis.

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6 years 7 months ago
Patiently Waiting
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Re Brokanagan: When I was there last summer, I noticed a burned-out restaurant in Penticton. I asked a local about it, and they indicated there's been a lot of mysterious fires lately. Well, not mysterious, everyone there knows damn well what's going on.

Latest "mysterious" fire:
http://www.youtube.com/watch?v=SO1cO0NqjJk

Owner says "he is devestated" 😛

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6 years 7 months ago