MoneyWeek on the Housing Bubble
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.
This post was submitted by Scott.
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February 15th, 2012 at 12:39 pm
@DEFAULT NAMEe: lots of new restaurants in gastown cause the kitchens in the Woodwards building are too small to use, ha ha ha
February 15th, 2012 at 8:54 am
@WFT?: "Other parties worry about other things like the good of the nation, in addition to winning."
OMG! Do you really believe that? Just because any particular party in power doesn't subscribe to your particular version of what's good for the nation, somehow they're not acting according to their own particular version of what's good for the nation – they're only trying to get re-elected?
February 15th, 2012 at 8:26 am
@DEFAULT NAME: "For example, on Robson street between Granville and Bute, how many non-chain restaurants can you think of?"
A restaurant could not survive on Robson in this area even if packed 100% The rent is too high. The chains are probably still there because they have an old lease at a lower rate. They will move too at some point when the lease expires.
February 15th, 2012 at 8:22 am
@WFT?: "Other parties worry about other things like the good of the nation, in addition to winning."
Yes sure. I don't see your federal Liberals or NDP speaking out against the housing bubble or policies that support it. Either they are too dumb to understand what is going on or they are not doing what is good for the nation. It is the NPDs responsibly as the opposition to speak out against bad policy is it not? Not a peep from them on this but they have no issue opposing every other policy. Why are they not calling for higher down payments and tighter CMHC policies? They are just as much to blame with their silence and would do no different if in power.
Speaking of doing things for the good of the nation look no further than the Federal NDP who has a new priority to cater to Quebec kind of like the Bloc did. Is that for the good of the nation? How about the provincial NDP who give the unions massive contracts when in power. Is that for the good of the nation or province? It is all about getting elected and catering to those that fund the party (unions or business) and to keeping the base that vote for it content. Any party that does anything different does not get elected.
February 15th, 2012 at 7:57 am
@patriotz: "As if their own strategy of inducing a national housing and consumer debt bubble"
The Liberals induced it. The Cons kept it going.
February 15th, 2012 at 7:04 am
@DEFAULT NAME:
How so? Greed IS innocence, in the sense that innocence = hoocoodanode. Maybe you should expand on your assertion. It is humans' unique ability to be rational, ignore their base emotions and instincts, and consciously undertake a course of action.
February 15th, 2012 at 6:18 am
@DEFAULT NAME:
How many new restaurants can you think of in Gastown?
February 15th, 2012 at 6:15 am
When you look at Vancouver, there is no doubt that people are stretched to the max. For example, on Robson street between Granville and Bute, how many non-chain restaurants can you think of? When people need to cut back on expenses, dining out would be among the first. Every time I come back from vacation at various places, I am shocked to realize again and again how stale/dead Robson street has become over the years. It seems that the only thing a lot of people can afford these days are lattes, cheap sushi, burgers, and pizza (not a good kind).
February 15th, 2012 at 5:56 am
oh ya, great time to jump in, and "beef up" your portfolio
http://www.canadianrealestatemagazine.ca/news/ite…
February 15th, 2012 at 5:11 am
innocense and greed are mutually exclusive
Maybe. But the fear of getting priced out forever from listening to the 'professionals', the CREA and the CMHC isn't. Many people who bought at stupid prices are in no way greedy.
February 15th, 2012 at 4:46 am
@WFT?:
I find political rhetoric tiring and useless, but that one made me laugh. Thanks, keep up the good work!
February 15th, 2012 at 4:38 am
@Patiently Waiting: "Latest “mysterious” fire"
Lots of red flags with that one.
February 15th, 2012 at 4:31 am
@nuxfan:
They have, but not nearly as much as you might think. The recent spate of high price sales is unusual, particularly relative to the volume of sales in lower segments. Regardless, unless there are something like 95th percentile stats available, we should keep comparing like to like, removing outlier sales in the notes on the margin.
February 15th, 2012 at 4:29 am
innocense and greed are mutually exclusive
February 15th, 2012 at 4:24 am
The Canadian Housing Bubble even made the front page in a relatively obscure place like Bangor, Maine.
http://www.greaterfool.ca/
February 15th, 2012 at 4:23 am
@patriotz:
Always something that escapes the flagwaivers and cheerleaders. The damage is done during the bubble, as resources are misallocated towards the bubble activities, and a larger and larger share of the economy depends on it.
February 15th, 2012 at 4:05 am
@N:
Klump didn't see anything being skewed in 1st half of 2011 when prices were going up. Metrics always change to suit agenda.
February 15th, 2012 at 3:56 am
@DEFAULT NAME:
Jeez learn to read. Take lessons along with Troll. Patriotz said that "only thing" the cons worried about was winning. Other parties worry about other things like the good of the nation, in addition to winning.
Our "stellar" bank regulation that is the envy of the world was a Liberal creation. The cons, did not worry about economic health so they blew the biggest RE bubble in Canadian history. They did that stunningly irresponsible thing because the "only thing" they cared about was winning. They cared about nothing else.
February 15th, 2012 at 3:53 am
@DEFAULT NAME: Yup, if anything the innocent victims are the taxpaying renters who were smart enough to not buy on the way up.
But they will sure be paying their share on the way down when the Feds start to bail out the sinking ship.
February 15th, 2012 at 3:50 am
#10 @N: "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?"
It says that these people never do math. Ever.
February 15th, 2012 at 3:41 am
@Guy Smiley: "Unfortunate though that many innocent victims will end up collateral damage."
There are no 'innocent victims' in any of this. Everyone had/has a choice.
February 15th, 2012 at 3:41 am
#22 nuxfan
good question – I do agree. However, if you go back over the past 36 weeks, there were not really any transactions over $5 million. So when looking at the overall trends leading into January, and then you suddenly have $20 million sale in a period of few unit sales, you get a magnified skewing effect. High $ single transaction in slow volume period makes the absolute average skewed. Wben I track this, I don't take it out when looking at actual data but I do take it out just to see what the trend is without as I would say individual transactions over $10 million are not really part of the overall market.
When the numbers come out for this month, the average on SFH will be higher than January but we may see another 1% fall in the average on the Condos.
February 15th, 2012 at 3:40 am
@pricedoutfornow: "More foreclosures will come, I’m sure of it. It’s going to be very very sad."
No it's not sad! They made their choice – they need to get over the repercussions! The downside of gambling is that sometimes, more often than not, there's a loss; people need to get over the loss part – or don't gamble.
February 15th, 2012 at 3:35 am
@N
I suspect you're right on that. Looking at this CREA graph of natiional prices, even with a mild increase that YOY figure is likely to go negative very soon, probably in the next report.
February 15th, 2012 at 3:28 am
@N: You're right. It is possible to track the year-over-year average (a single data point) for as long as you want.
@Makaya: I'm with Ash over Neumann on this one.
The myopia is startling. What about those looking to buy?!? Will lower prices not help them?
February 15th, 2012 at 3:26 am
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"
February 15th, 2012 at 3:26 am
@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.
February 15th, 2012 at 3:20 am
@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).
February 15th, 2012 at 3:11 am
"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?
February 15th, 2012 at 3:07 am
@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.
February 15th, 2012 at 3:05 am
@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.
February 15th, 2012 at 2:58 am
#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.
February 15th, 2012 at 2:48 am
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.
February 15th, 2012 at 2:45 am
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.
February 15th, 2012 at 2:34 am
@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 he revealed that he'd just bought a condo (for a huge price). Buying real estate was akin to purchasing a winning lottery ticket.
More foreclosures will come, I'm sure of it. It's going to be very very sad.
February 15th, 2012 at 2:13 am
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.
February 15th, 2012 at 2:05 am
Now on CBC:
Home foreclosures skyrocket in Kelowna
And I thought RE only goes up? That's what realtors told me. They are the experts, they know better…
February 15th, 2012 at 1:57 am
@patriotz: That's a $1.5Mill house in you know where.
February 15th, 2012 at 1:29 am
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).
February 15th, 2012 at 12:40 am
@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.
February 15th, 2012 at 12:37 am
@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?
February 15th, 2012 at 12:33 am
@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.
February 15th, 2012 at 12:22 am
@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.
February 14th, 2012 at 11:53 pm
On the radio this morning: the number of foreclosure x 10 in the Okanagan because people are underwater.
February 14th, 2012 at 11:47 pm
And still more warnings:
"Housing market shows further signs of cooling"
http://www.theglobeandmail.com/report-on-business…
February 14th, 2012 at 11:41 pm
More MSM real estate warnings in the Globe:
"Bubble Trouble in Housing"
http://www.theglobeandmail.com/globe-investor/per…
February 14th, 2012 at 7:09 pm
@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.
February 14th, 2012 at 5:26 pm
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.
February 14th, 2012 at 4:02 pm
@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.
February 14th, 2012 at 2:55 pm
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.