The popping of the Canadian bubble

Another day another Canadian housing bubble story,  this one in the star.

Some of the themes may be familiar to you.

High debt loads,  out of whack ratios for debt to income and rent to buy variables.  Government guarantees.

Etc.

Housing in Canada is unaffordable. International experts are unequivocal in their concern, and Canadian lawmakers are taking measures to deflate slowly rather than crash. Ironically, only Canadian homebuyers seem to think the market is sustainable. Sale prices are still rising. So when does it all start to unwind? Right about now.

Since the Great Recession, the Canadian economic model has basked in international reverence for its conservative banks and rich commodity sector. So when Wall Street rumblings about a Canadian housing bubble started becoming louder about a year ago, as a card-carrying Canadian, I took notice.

Read the full article here.

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frank
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frank

” Furthermore, CMHC guaranties $600 billion worth of Canadian mortgages, the equivalent of the entire Canadian federal debt.”

Someone should really got to jail for this.

Pdub
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Pdub
I have been travelling for a while and noticed that another favourite pillar of the bulls – the wealthy foreigners who are flocking to Vancouver – has now crumbled. Credit is tightening in a lot of emerging markets and that new emerging global middle class is finding it is not quite as rich as it thought it was, as demonstrated by the middle class unrest in Turkey and Brazil. Emerging markets have been getting slaughtered so wait for more of those $1.5 million Vancouver condos owned by “wealthy” foreigners to be put up for sale as they scramble to adjust to their new reality. Some people might also add China and its recent credit issues to my list but as we all know China has nothing to do with Vancouver’s bubble -either through direct investment or indirect capital flows –… Read more »
Many Franks
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Active Member
Poloz’s first move, surprising nobody, is to do nothing. Interest rates, bond market ignored [at your own risk], are going to stay the same for a while. But the story does lay out the narrative, if accidentally: Governor Poloz acknowledged that consumer, or personal, debt is what kept the Canadian economy humming. But he urged homeowners and other individuals to do the arithmetic to manage their debt. In other words, he was differentiating between good debt and bad debt. Good debt is an investment that grows in value or generates long-term income. Taking out a mortgage to buy a home is usually good debt. In short, we presume that housing speculation works, encourage consumers to participate in it, and make the economy dependent on that process. (If the speculation part doesn’t work, incidentally, the rest still does — but the… Read more »
Democrass
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Democrass
The bank of canada on real estate: By most accounts, Canada’s housing market is experiencing a soft landing, rather than any U.S.-style crash. Home sales did plunge after Finance Minister Jim Flaherty’s new mortgage rules last July, though prices continued to climb in most regions, albeit at a slower pace. The effects of that now appear to be easing. “Residential investment is projected to decline further from historically high levels … reflecting lower rates of new construction as previous overbuilding is addressed … thus contributing to a more sustainable path for the housing sector,” the Bank of Canada said. “Recent increases in fixed-term mortgage rates will also provide a degree of restraint,” it added. The central believes consumers will continue to be cautious, and hold the line on spending, though it sees the possibility of Canadians ramping up their purchases… Read more »
Turkey
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Turkey

Whisperer’s daring exposé of the Mayor’s conspiracy to whatever continues unabated.

I’ll say it again: this is a waffle-stomping, carny-dating, crocks-and-socks stupid story. If it won’t die until we’ve gawped and whispered for a while longer, let’s get it over with.

Son of Ponzi
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Son of Ponzi

#4
” although some variations around the trend is to be expected amid a contructive evolution of household imbalances”.
Tired of the BS coming from the Central Bank!
It’s like saying it will be raining, with clouds and sunshine.

Right
Guest
Right

WRONG

You bears are so wrong.

5 year Bond yields have crashed 15% lower since their recent highs. Now at 1.67% as I type vs over 1.92 a few weeks ago.

Where is all that chatter now?

Clean Off...
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Clean Off...

http://www.thestar.com/business/2013/07/17/bank_of_canada_keeps_interest_rate_at_1_per_cent.html

Poloz held the bank’s trend-setting overnight rate at 1 per cent and signaled that consumers and homebuyers need not worry about borrowing costs shooting up anytime soon

…because when it hits, the blow is going to come so hard it’ll knock the debtor’s head clean off, so why worry? Mortgage = Suicide Pact

Hopefully, before some of the victims go out, they’ll pay a visit to that realtor or banker and settle up for the ruinous financial advice. Hey @Harvey, have you given out much self serving advice lately? LOL!

Whose making money?
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Whose making money?

Mortgage rates have not moved down. They have moved up. The 2.79% 5 yr will never been seen again.

hardy har
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hardy har

@Right

It’s the ‘real’ interest rate that matters for prices. Here are some ’80-’84/’11-’15 parallels that may help:

* inflation rate sunk
** nominal interest rates fell in half (alongside prices!)
* gold tumbled
* Boomer/Echo household formation peaked now plunging

Many Franks
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Active Member
Rize Alliance Properties puts on its most ironic hat and plays the hipster: “Each using character and materials that we found in Mount Pleasant, so using black brick and then coloured brick on another building and then the tower itself was inspired by a piece of art we found.” Vollan is adamant the complex, big enough for 500 residents, is now perfect for the neighbourhood. “This wouldn’t fit anywhere else in Vancouver — the colour, the randomness — this is a Mount Pleasant building.” “The lobby is, like, decked out with a bunch of old ghetto blasters we got at the Salvation Army,” Vollan continued, “and one of them even came with a Herp Albert cassette in it. It’s going to be awesome.” Vollan, fidgeting with a paper Bean Around The World cup before returning it to his canvas knapsack,… Read more »
Joe Mainlander
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Joe Mainlander

Cheap money fuelling demand is one half of the problem. NIMBYism restricting supply by spending two years arguing about a building being 10 or 12 stories or the podium being 3 or 5 stories, are the other half of the problem.

Pull back the cheap money. Bring on the supply. Hipster or not.

patriotz
Member

@3:

Good debt is an investment that grows in value or generates long-term income. Taking out a mortgage to buy a home is usually good debt.

And in the very same paragraph:

Most people consider buying house to be a good investment because you expect your house to increase in value over time, at least enough to negate the interest you have paid.

That is the definition of a speculative bubble.

patriotz
Member

“NIMBYism restricting supply by spending two years arguing about a building being 10 or 12 stories or the podium being 3 or 5 stories, are the other half of the problem.”

They why are both statistics and market rents telling us that supply has been outpacing actual demand?

Best place on meth
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Best place on meth
BMO Senior Economist Robert Kavcic gets all smug and excited about recent home sales: http://www.marketwire.com/press-release/canadian-home-sales-show-highest-quarterly-growth-since-2010-bmo-economics-tsx-bmo-1811129.htm?utm_source=buffer&utm_campaign=Buffer&utm_content=buffer6fb5b&utm_medium=twitter “These figures represent another body blow to the Canadian housing bears,” said Mr. Kavcic. “The June report leaves the second-quarter tally at an impressive 6.4 per cent above the previous quarter – the strongest performance since 2010. In fact, sales are now back to levels seen before the latest round of mortgage rule tightening took effect in early July, helped by very low mortgage rates through much of the spring.” That’s fabulous! The correction is over! Wait, what’s that next sentence? “Mr. Kavcic noted that the recent rise in 5-year fixed rates – now in the neighbourhood of 3.5 per cent versus sub-3 per cent just over a month ago – might have actually stoked sales activity in June, with buyers making their move before… Read more »
Democrass
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Democrass

@Pdub

You say:

“I have been travelling for a while and noticed that another favourite pillar of the bulls – the wealthy foreigners who are flocking to Vancouver – has now crumbled.”

How have you noticed this exactly? What information do you have to suggest that wealthy foreigners flocking to Vancouver has “crumbled”?

Son of Ponzi
Guest
Son of Ponzi

Poloz, Bernanke and all the other so-called experts really have no clue what to do.
So, like people lost in the forest without a compasss, they just keep on going in circles.
It’s a classic case of the blind leading the blind.

Democrass
Member
Democrass

PIMCO is predicting a 10-20% correction in national Canadian housing prices over a 5-year period, with much sharper declines in Vancouver.

Interestingly, even with that prediction, PIMCO thinks that the Canada shorts are too bearish. They predict that the housing correction will be an earnings event for the banks and not a solvency event.

The article gives PIMCO’s prerequisites for a US style crash which, according to PIMCO are not present in Canada.

http://business.financialpost.com/2013/07/17/pimco-says-investors-are-being-too-bearish-on-canada/

Son of Ponzi
Guest
Son of Ponzi

Demo,
It’s well known that agencies and government do not track RE purchases by offshore buyers, because of cultural sensitivities.
So, obviously, we are left to resort to anecdotes.
And from my contacts in the Asian community, it is pretty clear that the wealthy Asian buyer no longer factors prominently in the Vancouver RE market.
They’ve pretty much moved on, or gone home.

Son of Ponzi
Guest
Son of Ponzi

# 18.
All RE is local, and therefore an article about Candian housing prices is general, is not applicable to Vancouver or Richmond.
RE prices in Vancouver and Richmond have risen much higher than the Canadian average, and are therefore much more likely to correct significantly.

Pdub
Guest
Pdub
Good question Demo. And of course I have no “precise” evidence wealthy foreigners are no longer flocking here. However, I have observed the world is going through some pretty dramatic changes recently and much of it is related to the availability of cheap capital. I believe the large flow of capital out of emerging markets into certain investments, such as Vancouver RE, has been driven by the extraordinary availability of cheap credit to wealthy individuals in many emerging economies. That is now changing as capital markets recognize emerging markets are not the great investment they seemed a few years ago. When credit conditions change many people inevitably discover their wealth was based more on cheap credit than on sustainable fundamentals. As a result they will adjust their behaviour and I expect buying or owning a Vancouver condo will be a… Read more »
C.Junta
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C.Junta

@frank #1
“Someone should really got to jail for this.”
Well-loved. Like or Dislike: Thumb up 32 Thumb down 1

Nice try. I wonder who voted it down – Carney, F or Kinsley?

gokou3
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gokou3

““Mr. Kavcic noted that the recent rise in 5-year fixed rates – now in the neighbourhood of 3.5 per cent versus sub-3 per cent just over a month ago – might have actually stoked sales activity in June, with buyers making their move before their lower rate contracts expired. “That could set the stage for another cooling off period this summer.”

Oh, just pulling some future demand forward.”

In retrospect, this shouldn’t have been surprising. I remember seeing the same phenomena when F pulled back easy mortgage rules for the past couple years.

As in the previous few times, this won’t last.

gokou3
Guest
gokou3

“PIMCO is predicting a 10-20% correction in national Canadian housing prices over a 5-year period, with much sharper declines in Vancouver.

Interestingly, even with that prediction, PIMCO thinks that the Canada shorts are too bearish.”

So predicting a wipeout of most new homeowners’ meager home equities is not too bearish? I am getting flashbacks of the bubble vs balloon arguments.

Franziska
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Franziska

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I don’t know the reason why I am unable to subscribe to it. Is there anybody else having the same RSS problems? Anybody who knows the answer can you kindly respond? Thanx!!

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