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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gokou3
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gokou3

Japan 1990s, HK 1997-2003, US 2006-, Ireland 2007-, Australia 2011-.. are all examples of real estate markets that have reached Vancouver levels and then gone flat — NOT.

patriotz
Member

“monthly payments won’t get into distress territory even by the time rates peak in about three years.”

Monthly payments are already in distress territory, i.e. far above rental value and far above normal % of incomes – at today’s interest rates.

That is the fatal – and obvious – flaw in all the “prices won’t go down unless interest rates go up” arguments.

goodLuck
Guest
goodLuck

good luck trying to get HAM to pay off mortages if their properties are underwater. they will simply abandon the properties and leave the country.

they have one foot here and one foot back home. send their kids and wife here for free school and healthcare. if it no longer makes economic sense to have a foot in vancouver/toronto they will simply pick it up and put it down somewhere else and all of u will be left with the bill.

Patiently Waiting
Member
Patiently Waiting
@goodLuck: How quickly will CMHC pay for mortgages of people who flee the country? They will certainly have a lot of questions for the lender, about how they lent money in these circumstances. In the end, CMHC is insurance, and they don’t pay unless all the “i”s are dotted and “t”s crossed. BTW: And Dyer, 44, used his fraudulent identity to buy a $402,000 Vancouver condo in 2010 and a Chilliwack townhouse for $348,000 in 2008, according to property records obtained by The Sun. Both units were still listed Friday in the B.C. Land Title Registry as being owned by “Woolworth,” even though the purchaser — Dyer — has been handed over to U.S. authorities on his outstanding child molestation convictions. Dyer’s first property purchase in B.C. appears to be the Chilliwack townhouse in the 5800-block of Cowichan Street. He… Read more »
Patiently Waiting
Member
Patiently Waiting

test (my last comment went into moderation)

Patiently Waiting
Member
Patiently Waiting
@goodLuck: How quickly will CMHC pay for mortgages of people who flee the country? They will certainly have a lot of questions for the lender, about how they lent money in these circumstances. In the end, CMHC is insurance, and they don’t pay unless all the “i”s are dotted and “t”s crossed. BTW: And Dyer, 44, used his fraudulent identity to buy a $402,000 Vancouver condo in 2010 and a Chilliwack townhouse for $348,000 in 2008, according to property records obtained by The Sun. Both units were still listed Friday in the B.C. Land Title Registry as being owned by “Woolworth,” even though the purchaser — Dyer — has been handed over to U.S. authorities on his outstanding child molestation convictions. Dyer’s first property purchase in B.C. appears to be the Chilliwack townhouse in the 5800-block of Cowichan Street. He… Read more »
VCI Admin
Admin

Spam filter was set to hold any comment with two or more links in moderation, upped that to 3 just in case the @reply is counted as a link.

patriotz
Member

@Patiently Waiting:
“How quickly will CMHC pay for mortgages of people who flee the country? They will certainly have a lot of questions for the lender, about how they lent money in these circumstances.”

What the borrower does after default is irrelevant. What’s relevant is the qualifications of the borrower at the time the mortgage is made.

I think this whole “flee the country” stuff is overblown anyway. A permanent resident can just declare BK just like anyone else without jeopardising his immigration status.

Anonymous
Guest
Anonymous

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

It could be different here- but who would bet on it. What’s the payoff for on a flat market?

Patiently Waiting
Member
Patiently Waiting
Here’s another reason stay away from condos as the market weakens. Saw this on Greater Fool about an unfinished condo complex in Alberta that’s been declared unsafe, resulting in homeless tenants and owners declaring bankruptcy: “A December inspection by fire officials found the fire alarm system was not up to code, firewalls had been damaged or removed, and an exterior staircase had to be condemned. The unfinished, second phase of the building had been effectively abandoned and left unsecured. An order to fix the problems was ignored, so fire officials issued the evacuation order last week.” A comment on the story: “From what we are told here and on the TV, although not said, the developer is bankrupt, or near bankruptcy. That would explain the development not being finished, the apparent shortcuts taken, the parking lot no paved. With the… Read more »
Patiently Waiting
Member
Patiently Waiting

@patriotz: But if they do opt to flee the country, it raises red flags that should cause the CMHC to look closer at the initial qualifications.

Patiently Waiting
Member
Patiently Waiting

@patriotz: BTW remember the stories from Dubai:

http://www.nytimes.com/2009/02/12/world/middleeast/12dubai.html

Sure we don’t have debtor’s prison, but I could see people fleeing financial ruin anyhow.

Anonymous
Guest
Anonymous

ugh why did I watch that Cam Good video…

He’s hell bent on on changing Vancouver just to fatten his slimy wallet

Anonymouse
Guest
Anonymouse

Has anybody got any good sources for historical price graphs in other countries/cities? I’m finding it hard to prove/disprove the “flat market fantasy” one way or another for lack of available stats.

Patiently Waiting
Member
Patiently Waiting

@Anonymous: This video: http://vimeo.com/31916836

Freaking hilarious. A bunch of nobodies in the crowd with sly looks on their faces, thinking they hit the big time. Little do they know…

registered
Member
registered

Arseneau is playing the ‘poor folks’ blame card with that analysis. The Americans blamed those who borrowed on Ninja terms – ignoring the centuries of safe practices in the mortgage industry that made the results oblivious, at least when you can’t off-load the risk to unsuspecting MBS buyers – for taking down the housing industry through defaults. He completely ignores that when the market grinds to a halt, even if it’s flat, lenders will be much, much less prone to gamble and qualifications will tighten dramatically, taking the buyer pool with it and bringing demand back to rational levels. When that happens it won’t matter who is still being able to carry that inflated mortgage, things won’t stay flat for long.

N
Guest
N
@Anonymous: “A flat market could happen in Vancouver, just because it hasn’t been seen anywhere doesn’t mean that it can’t happen.” Actually, I don’t think this is true. A certain number of people always have to sell (death, divorce, relocation). In a market where renting a place out will not cover mortgage payments, the number of people who have to sell is higher than in normal markets. At the same time, the motivation to buy into a flat market is lower than the motivation to buy into a rising market. There is no fear of being priced out forever, and no promise of future gains. People may still want to buy but they will want to buy LESS than they did in the rising market. Less motivation necessarily means lower prices. As soon a prices start to go down, the… Read more »
N
Guest
N

“…by the time rates peak in about three years”

What on earth allows him to foresee when rate will peak?

McLovin
Guest
McLovin

Can someone please post Feb month end inventory for the past 5 or 10 years?

How are we doing vs history?

Curtis Gresko
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Curtis Gresko

This website is awesome. pure and simple

space889
Member
space889
Anonymous
Guest
Anonymous

@N:

@N:

“At the same time, the motivation to buy into a flat market is lower than the motivation to buy into a rising market…”

Sorry, for your argument (against the possibility of a flat market ) to be valid a flat market needs to exist.

patriotz
Member

@Anonymous:
“Sorry, for your argument (against the possibility of a flat market ) to be valid a flat market needs to exist.”

No it doesn’t. That reasoning is made in mathematics all the time, i.e. assuming that something can exist leads to a conclusion that it cannot exist.

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.

yvr2zrh
Member

Random question for the group. Did anyone hear of any imminent changes to lending rules or changes that just occurred? I received an interesting call today from an industry insider that said news had just been announced – now I can not find anything or see that anyone that would have cared has drawn attention to this. The news was very interesting and would definitely take significant liquidity out of the system and was also consistent with the Gov’t goal of stopping this debt bubble.

paulb.
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paulb.

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