The Flat Market Fantasy

It seems that everywhere around the world that house prices lept up quickly there was always someone predicting a ‘plateau’.  The idea that even if the market is overpriced the correction won’t come in the form of a crash, but instead property prices will stay flat and wait for income and rents to catch up.  This prediction is of course being applied to the Canadian real estate market as well:

Matthieu Arseneau, a senior economist with the National Bank, likes mortgage payments as the best yardstick. That’s because the evidence tells him that the rise of interest rates from today’s bargain-basement levels will be moderate. Based on this, he thinks it’s silly to foresee a housing crash, since monthly payments won’t get into distress territory even by the time rates peak in about three years.

That’s why Arseneau dismisses apocalyptic talk about a housing crash in Canada. As a cautious analyst, he doesn’t rule out any scenario absolutely, but Arseneau said Monday that this one is awfully unlikely: “I think there will be no collapse unless there’s a worldwide recession and credit crisis.”

Of course these comments regard the Canadian real estate market, not the Vancouver market specifically.  Can anyone name any real estate markets that have reached Vancouver levels and then gone flat?

Full article at the Ottawa Citizen.

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Leonila Scheinost

There is certainly only 1 boss. The customer. And that he can fire everybody inside company through the chairman on down, simply by spending his money some other place.
In the event the career you have chosen has some unexpected inconvenience, console yourself by reflecting that no career is without one.


“At any rate, in economics as opposed to mathematics, something being possible in the short run and being possible in the long run are different things.”

My point is that a flat market is possible– even for a short time –regardless of an absence of examples. Just because an events probability is small in your model doesn’t mean it can’t happen. If the event probability is small the consequence of it happening is going to be difficult to determine because there will be little historical data. It’s a rare event.

The Vancouver market simply hasn’t behaved how anyone here (including myself) has thought it would, and I wouldn’t, at this point, completely eliminate any possibility, regardless of what the present situation looks like.


@ZRH2YVR: Interesting changes. Hopefully CRA and CMHC are in cahoots when HAM now has to verify an international income for the mortgage, but then claims none of it for income taxes


@ZRH2YVR: i thought you were moving to iran to take a double raise in salary? no?

Bilbo Bloggins

Exactly, you need a rising market in order for the party to continue.
Flat prices won’t do it. In fact you probably need 5 to 6% nominal per year to keep this bubble inflated.

Bilbo Bloggins

Matthieu sounds like Custer… underestimating the enemy


Jesse –

I agree- This party is coming actually. Current model basically says it will happen in March. Could be as early as 2 weeks from now but likely 3 or 4 weeks. Wow – is it that time of year already?

The real test will be if the market dies so fast that we then manage to go up past the 2008 levels. My current models do not show this as listing volume will likely slow with a poor market without a credit crisis. The test of whether this is a slow or fast crash is our inventory on September 30 – – – the end of the buying season – – and the season at which those who had to sell and could not – set the new price level for the market.


@ZRH2YVR: I’m not in the industry but I do know that large mortgages are approved without verified income as long as the LTV is low enough. OSFI completed its review of the financial system late last year and “continues to monitor”, code word for “the banks got caught making suspect loans not in the best interests of Her Majesty’s Government and we’re going to stop it”.


@VMD: We’ll soon need a “crossover” party, where inventory surpasses the 2009 level, making it the highest periodic for-sale inventory in close to a decade. That looks be on track for March or April, but who knows, it might not happen (like 2010’s inventory run-up fizzling mid-year); the market has a lot of randomness!


OK – just had a few minutes to get some of the insight. I don’t know all the mortgage processes that currently exist but this change sounds interesting. Whoever really understands how this works can correct me. Somehow, previously, as long as you put down enough on a purchase, the mortgage would be approved without the need to show any income to support the mortgage. This encouraged borrowing in many ways. You could show up in town (let’s say from China) with $X and as long as that was X% of the mortgage, the rest could be advanced without the need to show income. As a homeowner who had large unrealized gains, you could go get a HELOC and it would be approved as long as the appraisal came in to support it – regardless of your ability to service… Read more »


@ZRH2YVR: Yes, changes to how loans are accounted, with countercylical capital and a bunch of other changes, are coming. It might be nothing but if I’m right and it’s not, it will be game over within a couple of years.


Thanks VanMD!

Are those numbers after the expirations drop off?

If so I would expect it to be hard to stay above 15,000 for month end.


@ReadyToPop: I can see the amortization change (just for optics sake and it will not make a very significant change versus a 30-year amortization), but I see no other changes,” says Pocock. “I know there are rumours of increasing the minimum down payment from 5 percent to 10 percent but many industry associations are fighting to prevent this. No kidding those “industry associations” are against 10% down payments. That’s because there is a HUGE difference between moving from 30 to 25 years and moving from 5% to 10% down. With a 5% down, lots of first time buyers will still be able to afford a house, even at 25 year terms, because they can still get a 5% cash-back loan from the banks. If the down payment increases to 10%, it’s unlikely the banks will offer 10% cash-back mortgages (since… Read more »


Anyone see the Joker?


Wow. That would be huge… and long overdue. Would hurt consumption but is a necessary medicine before the debt bubble gets ridiculous. Will greatly diminish the ability of amateur specuvestors to get a downpayment and end many “bank of mom and dad” downpayments. Moreover, I know several families who live off an ever-expanding expanding HELOC to make ends meet. They will have to go into Kraft Dinner survival mode or sell to downsize.

If this goes ahead the market will tank a LOT faster.


Wow, this is getting fun.

Some great comments.

Rule changes .. pls keep us updated on anything else you hear….



Feb month-end inventory history:

2011: 11925
2010: 11346
2009: ~14500
2008: ~11500
2007: ~10500
2006: ~8000
2005: ~10500 

* 2009 and earlier inventory data were estimated from Agent Will’s (or paulB’s) previous inventory charts.
* paulB’s daily inventory level tends to be slightly higher than REBGV’s month-end stats.
* We should expect Feb 2012’s total inventory to be 23-24% higher than last Feb’s.


I am not referring to 30—>25 being the new restriction – that had been speculated for months. This was serious – It the complete removal of a segment of borrowing from the market which is insurable and a complete change (possibly under OSFI) of what will be allowed to be lent and how the bank will be required to assess the borrower. Without going into details – the days of the HELOC as we know it could be numbered.


The speculation is Flaherty will, at the minimum, reduce the amortization period to 25 years from 30 years and possibly raise the minimum down-payment from 5%, potentially to 10%.

Tighter mortgage regulations expected



“I saw on Garth Turner’s site a few days ago that he had heard that Flaherty was going to axe the 30 yr ammortization and go back to 25, but that it was not official yet.”

I think Garth is speculating. That doesn’t mean he’s wrong, just that it’s his guess.


Copied from paulb’s data.

 Date   Listing  Price(+-)  Sold   Inv    Inv(+-) 
Feb 1     305      74        38   13368	
Feb 2     251      64       155   13447    79
Feb 3     249      56       122   13548   101
Feb 6     325      82       113   13691   143
Feb 7     281      70       140   13793   102
Feb 8     516     138       214   14013   220
Feb 10    234      63        94   14108    95
Feb 13    314     106       133   14187    79
Feb 14    281      85       147   14273    86
Feb 15    254      60       112   14365    92
Feb 16    252      94       110   14411    46
Feb 17    225      84       148   14436    25
Feb 20    317     133       141   14526    90
Feb 22    239      96       135   14664   138
Feb 23    222      67       108   14709    45
Feb 24    220      88       112   14775    66
Feb27    294      129       107   14931   156
Total   4779     1489	   2129          1563 

anonymous says: A flat market could happen in Vancouver, just because it hasn’t been seen anywhere doesn’t mean that it can’t happen.

the condo market here has basically been flat for five years. four years ago i came on this site and predicted that in 2012 prices would be basically the same as they were at that present time. the usual clowns said that was an impossibility, and are still saying the same thing now. moral of the story- the market can potentially be flat, down or up, demand/supply and the macroeconomic parameters will dictate.


@ZRH2YVR: I saw on Garth Turner’s site a few days ago that he had heard that Flaherty was going to axe the 30 yr ammortization and go back to 25, but that it was not official yet.


“We have a construction boom; they have a bust,” said Abigail Fulton, vice-president of the British Columbia Construction Association…

And with those words we seek to hire construction workers from Ireland. Considering Paul’s numbers from tonight which is indicative of the overall trend, is it just me, or is the construction industry totally out of touch with reality?

If you’re coming here from Ireland to scoop up a job in consutruction, you might just be leaping from the frying pan into the pot, boyo.

Animal Spirit

ZRH2YVR – sounds like internal information from a single – if true, signficant and not public knowledge (I couldn’t find anything on-line), then interesting questions are raised. Could be pure speculation of course.

Can anyone else find anything?