Canada house price crash a certainty

Happy day after the new mortgage rules come into effect!

Even before these rules were announced we saw a ‘softening’ in the Vancouver real estate market.

Prices have drifted down as of late and sales are at an all-time-low and inventory keeps growing.

..Yet there are still those that believe ‘it’s different here’.

We saw housing bubbles grow all around the world and pop one by one, but we went through the same steps of pumping up cheap credit to build the house of cards higher.

Check out this post on Alphahunt about Why a Crash in Canadian House Prices is Certain.

What’s amplified our current RE cycle is that credit was steadily made cheaper & easier throughout the boom period – and especially when the RE market suffered in 2008. After finally waking up and seeing the monster they helped create, the Gov’t is making lending rules stricter. Lending practices should not have been made so loose to begin with. And their meddling in 2008 only delayed the inevitable bust.

Today, we’re still at extreme unaffordability and there is no such thing as a ‘soft landing’ or ‘small correction’ for Vancouver RE. Any asset that has seen a price rise of at least two standard deviations above long-term valuation ratios has always mean reverted. If the Vancouver RE market did not return to the normal multiple of income and rent, it will be the first time in history. You can’t binge drink and avoid the hangover. Timing the start of the hangover is always challenging, but what we know with high probability is that there will be a hangover.

 

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Anonymous
Anonymous
8 years ago
patriotz
8 years ago

@ScubaSteve:
“Personally, I am hoping for a slow, long bubble burst that lasts maybe 3-4 years, like we saw from 1980-1984.”

The early 1980’s Vancouver bust was one of the fastest ever seen in Canada or the US – from nominal top to nominal bottom in less than 2 years. Real bottom was after another 2 years as nominal price remained flat.

Far faster than anything seen in the current US bust.

Makaya
Makaya
8 years ago

@Vote Down The Facts: Between capital loss, transaction costs, condo fees, property taxes, debt servicing and opportunity costs, $500k looks about right to me…

Anonymous
Anonymous
8 years ago

@Patsan: “Brokerage accounts covered by CIPF (not CDIC) insurance up to $1 mil for separate accounts.”

Not for GICs bought from a bank through a brokerage.

Anonymous
Anonymous
8 years ago

@Patsan: “check the size of the banks comparing to CDIC assets and think again.”

The government of Canada has unlimited capacity to print money.

Bo Xilai
Bo Xilai
8 years ago

More bad publicity about construction standards during the “boom”… Poor Olympic Village getting more (well-deserved) bad press…

For Vancouver Real Estate, when it rains, it pours…

http://fullcomment.nationalpost.com/2012/07/10/brian-hutchinson-vancouver-suffers-condo-leaks-of-olympic-proportions/

Vote Down The Facts
Vote Down The Facts
8 years ago

@Makaya:

I see Garth doesn’t even bother to show his working any more (probably because he consistently over-estimates carrying costs whilst under-estimating revenues, and getsripped to shreds in the process by some of the commenters ), so it’s not straightforward to see how he arrived at the $500k loss…

Patsan
Patsan
8 years ago

Brokerage accounts covered by CIPF (not CDIC) insurance up to $1 mil for separate accounts.

On a side note, if you think that CDIC can cover your assets in case of RBC or TD insolvency, check the size of the banks comparing to CDIC assets and think again.

Anonymous
Anonymous
8 years ago

@CDIC ins: “For example if I have 30K in LRSP and 85K in RRSP, would they both be covered under CDIC or is it only 100K of combined deposits are covered.”

It depends on where your deposits are and it is for cash only. If both are in the same bank in cash or GIC then it is 100K combined. However if you have them in a brokerage like Royal Direct or TD Waterhouse for example you can buy GICs from different financial institutions and each would have its own 100K max insurance. Credit unions have no cap but are insured by the province which theoretically is not as safe as CDIC.

Joe_Blown_Away_By_High_Housing_Costs
Joe_Blown_Away_By_High_Housing_Costs
8 years ago

Very hard hitting article on Robson Street just appeared in the Vancouver Sun. Bramham is practically trash talking Robson in the Van Sun…

“There’s nowhere near the population base or wealth in this city to support many high-end retailers. Besides, Vancouverites’ fashion choices tend more toward Lululemon and Mountain Equipment Co-op.

So, our fashion street is anchored by Winners, the discount fashion retailer, and a blank-walled building that’s been derisively likened to a toilet bowl — which is soon to be vacated by the retreating Sears.

The city has done its preeminent shopping street no favours.”

http://www.vancouversun.com/life/fashion-beauty/Bramham+Robson+Street+sure+Champs+Elysses/6914127/story.html

Anonymous
Anonymous
8 years ago

@gokou3: “I think the bleak situation on Robson indicates…”

There really isn’t a bleak situation on Robson. The landlords have just become too greedy and are asking too much rent. When leases expire that were signed 10 years ago stores are closing down because their lease rate is quadrupling. If the landlords didn’t demand so much, every space on Robson would be leased.

It is kind of like looking at the place for rent on Craig’s list for months on end. It does not mean it is a bleak rental situation in Vancouver, it just means the landlord is asking too much.

Vote Down The Facts
Vote Down The Facts
8 years ago

@CDIC ins:

Why not ask your financial institution? I think the answer depends in part on the type of investments you have – e.g. mutual funds are not covered.

gordholio
8 years ago

Hi guys and gals: Been awhile since I posted. I somehow don’t feel as compelled to comment about real estate when I’m not feeling all snarly about it. And it’s hard to feel all snarly about it when reality has finally set in and the crash has commenced. Can’t say that every blessed person here didn’t try to warn ’em. I wonder how the higher-ups over at GlowBULL “News” feel these days, knowing they helped steer thousands of people into disaster? I will comment on People’s Trust. We put a bunch of our money there when we sold our house in 2010. Maxed out the TFSAs and put the rest in their high-interest savings account. A bit old school in that they don’t do online banking and they’re best reached by a – gasp! – telephone, but I don’t mind… Read more »

JR
JR
8 years ago

@frank: You lost me at First Nations. When you are a very small group of persons living off an incredibly large and bountiful land, everything you do is sustainable, no matter how you do it.

fixie guy
fixie guy
8 years ago

108 frank Says: “Do you really think HAM represents Chinese culture??”

My apology, I didn’t realize you checked the bank accounts and nationalities of the visor wearing Asians being disparaged. I further mistook the cultural preference for fair skin, as do many apparently, for common across all strata of their culture.
Please continue.

gokou3
gokou3
8 years ago

@Joe_Blown_Away_By_High_Housing_Costs: I think the bleak situation on Robson indicates that there aren’t as many HAM (or spending power of the general population) as people thought.

A friend used to work at the F-man shoe store. She said there are a lot of traffic on Robson, but that doesn’t translate to sales very well. She later moved to the South Granville store and the sales were much higher there. In short, Robson as a a retail location is overrated.

Anonymous
Anonymous
8 years ago
CDIC ins
CDIC ins
8 years ago

Hi guys

I am not sure if this is the right forum for this, but in any case I will try my luck. I have a question about CDIC insurance. Is LRSP (Locked-in RSP) covered under RRSP for CDIC or it has its own CDIC coverage. For example if I have 30K in LRSP and 85K in RRSP, would they both be covered under CDIC or is it only 100K of combined deposits are covered. Any referal link would be nice to have.

jesse
8 years ago

All this talk about return on equity of Vancouver housing got me searching online a bit. I found this: http://blogs.ft.com/martin-wolf-exchange/2011/09/25/what-do-the-banks%E2%80%99-target-returns-on-equity-tell-us/ According to a FT article last week, Lloyds’ bank has a target return on equity of 14.5 per cent. Banks like to argue that this is the level of return on equity they need to earn, in order to gain funding from the markets. Naturally, remuneration is linked to achieving such objectives. The question, however, is whether such objectives make any sense. The brief answer is: no. Forget banks, for the moment. What would you say if someone offered you an investment with a promised real return of close to 15 per cent? You might say: “How much can I buy?” Alternatively, you might say: “What is the catch?” Sensible people must take the latter view. If you thought that… Read more »

ScubaSteve
ScubaSteve
8 years ago

VHB your stats are great stuff. Thanks.

This is a tough, TOUGH month to call. No one can call it. Sales could be up because of the mortgage rules, and a last minute rush, or they could be up because of all the massive price drops. I am predicting we will see prices drop again, but narrowly. Personally, I am hoping for a slow, long bubble burst that lasts maybe 3-4 years, like we saw from 1980-1984.

Anonymous
Anonymous
8 years ago

stupid bears are still crunching the numbers!

VHB
VHB
8 years ago

July norms year sell list sell/list 2001 2618 3504 74.7% 2002 2670 3929 68.0% 2003 4023 4447 90.5% 2004 3019 4785 63.1% 2005 3652 4107 88.9% 2006 2732 4370 62.5% 2007 3873 4924 78.7% 2008 2174 7104 30.6% 2009 4114 5061 81.3% 2010 2255 4138 54.5% 2011 2571 5097 50.4% Mean 3064 4679 65.5% median 2732 4447 71.3% Maybe I shouldn’t have said “highish”. Sales at 2500 would still be 3rd worst in last 12 years. I do think we have a decent chance of coming in under 2008’s 2174 if there is indeed a drop-off in the 2nd half of the month. Most interesting is new listings. Normally, listings drop off quite a bit from June to July. Not this year. We’re on pace to get more than June. In fact, we’re on pace to blow through the highest… Read more »

fixies suck
fixies suck
8 years ago

@fixie guy:

You’re right. How much ground up tiger p-nus should I use to get my mojo back?

VHB
VHB
8 years ago

Jul-2012 Total days 21 Days elapsed so far 6 Weekends / holidays 4 Days missing 0 Days remaining 15 7 Calendar Day Moving Average: Sales 119 7 Calendar Day Moving Average: Listings 276 SALES Sales so far 710 Projection for rest of month (using 7day MA) 1782 Projected month end total 2492 NEW LISTINGS Listings so far 1686 Projection for rest of month (using 7day MA) 4146 Projected month end total 5832 Sell-list so far 42.1% Projected month-end sell-list 42.7% MONTHS OF INVENTORY Inventory as of July 10, 2012 19140 Current MoI at this sales pace 7.68 MoI is under 8 again because sales projections are looking highish. We’re on pace to beat June sales–that doesn’t happen often. But, if there is a post 25yrAM sales drop off, then sales in the 2nd half of July could drop off a… Read more »

Joe_Blown_Away_By_High_Housing_Costs
Joe_Blown_Away_By_High_Housing_Costs
8 years ago

“While the Colliers report showed most retail areas in Canada saw increases in new lease rates, Vancouver’s Robson Street saw the sharpest decline in the country”

http://www.vancouversun.com/news/write+obit+Robson+Street+just/6913657/story.html