Does the Bank of Canada Think Real Estate Buyers are Suckers?

Some of you are under the impression that Bank of Canada Governor Stephen Poloz does nothing but sit around all day eating Doritos and watching The West Wing on Netflix, but you are sadly mistaken.

He also issues reports that freak out Realtors.

Consumer debt loads and house prices that could be as much as 30 per cent overvalued are the two biggest risks to Canada’s economy, the Bank of Canada warned in its semi-annual Financial System Review on Wednesday.

Yeah, but “up to 30 percent” includes zero percent over-valued too you know? Surely not everyone is overpaying for Canadian real estate.

The bank says it’s about 95 per cent sure that house prices have been overvalued by an average of about 10 per cent since 2007. That’s based on a new forecasting model the bank says it created, which incorporates existing data from private banks and other government institutions.

Huh. 95% Sure? really? I bet it’s all a’cause of those wealthy foreigners right?

And a lot of those inflated house prices are coming at a cost of rising debt loads. About 12 per cent of Canadian households are considered to be extremely indebted — which means they have a debt-to-income ratio of at least 250 per cent. That ratio has doubled since 2000, the report notes.

Oh.

But that’s ok because younger buyers are building equity right?

Young homeowners, the bank added, have become even more vulnerable to negative shocks to income and to higher interest rates.

Wow. What a buzzkill.

*For those who followed the foreigner link we would like to offer our sincerest apologies.  If you are a glutton for punishment, here’s a video of our prime minister singing Guns n’ Roses “Sweet Child o’ Mine“. If you watch the whole thing you earn a cookie! If you cut it off at 3:33 you have to go to work at a Tim Hortons in Fort Mac. You have been warned.

 

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Oracle
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Oracle

Australia”s jobless rate is at a 12 year high. Yet house prices are at a record high.

It’s Immigration and foreign investment in residential RE.

http://www.marketwatch.com/story/australias-jobless-rate-climbs-to-12-year-high-2014-12-10?dist=lbeforebell

Anyone disagrees is a troll.

southseacompany
Member
southseacompany

Poloz says market up to 30% overvalued. Meanwhile, local RE infomercials continue;
“Multiple bids, price jumps in Metro Vancouver’s hot housing market” Vancouver Sun

http://www.vancouversun.com/business/Multiple+bids+price+jumps+Metro+Vancouver+housing+market/10458195/story.html#ixzz3LbWsTsXW

Softy
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Softy

BNN Video: why there may never be a correction, especially in SFH. The supply of SFH is far lower than the demand and we are not adding supply in this sector.

http://www.theglobeandmail.com/report-on-business/video/video-the-canadian-housing-debate-why-a-correction-may-never-come/article22037697/

Westside Realtor
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Westside Realtor

I believe that they are desperate to get their message across to all market constituents.

They know that this is a massive bubble and it’s so extreme that they think bit needs to STOP NOW.

Perhaps they know that HAM are no longer buying on Vancouver westside. Must be.

WSR

bullwhip29
Guest
bullwhip29

@ #2

the shills at the Vanc Sun obviously had this boilerplate crap ready to print the moment the BOC comments hit the airwaves; surely global among others will be rolling out top of the hour features sponsored by remax et al too; cue the fluffy, reassuring CNBC type commentary from cameron muir or one of those faux wannabee market experts from BIV (publisher of the RE Weekly); its funny, i betcha the average chump out there wouldn’t recognize poloz on the street if they walked right into him

Many Franks
Member
bullwhip29
Guest
bullwhip29
RE: Vanc Sun article “The market is so hot that sales of single-family houses are still being listed across Metro Vancouver into mid-December, when they would have usually stopped by now before resuming in the new year…” If the market was so hot, these people wouldnt need/want to keep the “for sales” signs in place two weeks before xmas. If the market was so hot, these homes would have been sold in a matter of hours/day back in the spring/summer instead of growing a nice of coat of mildew over a dormant period of at least 12-18 months If the market was so hot, we’d be viewing actual footage of Bidding Wars: Vancouver Housewife Edition (complete with hissy fits, cat fights and bitch slapping) not reading about what is supposedly happening in the paper If the market was so hot,… Read more »
Bailing in BC
Member

I couldn’t bear the thought of the whole song so I just started at 3:33 all I can say is – YOU – EVIL – BASTARD!

VanRant
Member
VanRant

Re: #7 bullwhip
The houses that are selling are tear downs that the developer are snapping up, rebuilt and put back in the market 3 months later.

bullwhip29
Guest
bullwhip29
@ #9 true, but this isnt anything new. in fact, i know of a few that bought these, quickly renovated and tried to flip. this strategy inst working anymore as majority of buyers have no interest in anything more than the lot now. fwiw, many of the new builds i’ve seen having been sitting for a while (ie. > 6 mos) without any offers, so maybe this routine has played itself out too. personally i think it is a pretty big gamble jumping through all these hoops to essentially flip a more marketable home back into the market, esp with the bar being set higher and higher each day. the standard stucco’d vanc spec 2.0 with basic granite/st steel/cheap hardwood pkg are a dine a dozen now. to draw in the seriously monied buyers, you have to put something together… Read more »
history
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history

if you’re looking at today’s Vancouver Sun, the Right side of the newspaper shows the RE info-commercial masquerading as a legit story, and the Left side of the newspaper tells how liquor prices are coming down in BC liquor stores.

“Summary: Web users spend 69% of their time viewing the left half of the page and 30% viewing the right half. A conventional layout is thus more likely to make sites profitable.”

http://www.nngroup.com/articles/horizontal-attention-leans-left/

StupidityCheck
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StupidityCheck

The BoC must finally see the housing bubble can’t go on any longer. Of course, rather than admit they’ve been lying to us the last 7 years, they simply invented a “new model” so they can cover their a$$es.

It’s also nice to see them admit we’ve been right all along. Party’s over, B!B!B!, Softy, etc.

Royce McCutcheon
Member
Royce McCutcheon
I’m very curious to see whether this BoC statement will serve as the turning point towards the correction. I understand the (self-serving) logic of facing reality NOW, since there’s cover as oil tanks, Canadian markets fall, and the fit generally hits the shan (or something like that). The BoC knows it can’t hide from the bubble forever, so now is the time to risk using stronger language than other bodies that have pointed out the problem. They won’t get blamed for a collapse. But how significant is it that it’s the BoC 1) saying this at all and 2) saying that it’s really bad (i.e. as much as 30% across the country)? Will that carry any more weight with public sentiment or the media than other warning pronouncements from other agencies or individuals? And is it possible that the BoC… Read more »
Hello China!
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Hello China!

say hello to Laser Weapon System (LaWS)

https://www.youtube.com/watch?v=D0DbgNju2wE

Mortgageslave
Guest
Mortgageslave

Wow that VanSun arcticle is just filled with complete BS! Best line of it all:
“The supply side has definitely been affected,” Raven said. “A lot of people who are housing rich don’t know what to do with the equity except to keep it.”

Mabye because they can’t sell it for what they though?! What an Asshole this Raven is..

There are still Idiots our there that trust Real Estate agents and there wealth of education (13 weeks) with advice on Finances, Economics or purchasing overpriced assets.

Marco
Guest
Marco
The BOC sees the writing on the wall. Especially with regards to the oil producing Provinces. When the Fed raises their rates, probably in the second half of 2015 Canada is sure to follow. The BOC doesn’t want to be accused of not warning people. Higher interest rates will most definitely put a strain on house prices even in Vancouver. Foreign investors will not have an effect on higher interest rates locals will have to pay. Realtor propaganda in the Van Sun is just to calm the masses from what Poloz said about the 30% over valuation of Canadian real estate. Plain and simple. They certainly don’t want to see a wave of sellers and not enough demand. On the lines of what mortgageslave said @15. When did we start taking economic advice and or forecasting from real estate agents… Read more »
VMD
Member

our ex-immigration minister Jason Kenney just announced “One Step Closer to Building a Memorial to Victims of Communism in Canada’s Capital

official complaint or cyber-attack from certain countries in 3…

nufio
Guest
nufio

i doubt they will raise rates. What is the political advantage of raising rates? Most of the population have their savings in the house. It is not like there are savers being affected by low rates. The rates will stay low forever like in japan.
jmho.
Its not rising rates that caused the US bubble to pop.

elvince
Guest
elvince

@nufio: Political advantage? The BoC’s goal isn’t to get reelected. In theory it’s to keep inflation in check.

Already the loonie has lost 10% in 2014. If the Fed raise their rates and oil falls a bit more, we’re looking at another 5-10% drop in the CADUSD. Almost everything we use is imported and/or sold in a USD price. Prepare to pay more for most of the stuff you buy. From deodorant (made in US) to honda civic (made in canada but technically sporting a USD price) to flatscreen tvs (made in china, priced in USD).

Most people are not ready to see 5% inflation, and the BoC especially doesn’t want that. And overnight rates are really the only lever central banks can pull.

VanRant
Member
VanRant

@VMD

Politicians s are thinking of building a “Memorial to Victims of Communism” meanwhile people in Richmond were celebrating Mao’s birthday!

“Mass killings occurred under some Communist regimes during the twentieth century with an estimated death toll numbering between 85 and 100 million.” Wikipedia

specialfx3000
Member
specialfx3000

http://www.scmp.com/news/world/article/1658280/exclusive-canada-plans-forensic-audits-millionaire-migrants-finances

The new Immigrant Investor Venture Capital scheme will be here soon. There’s talk about new scrutiny measures but I guess it’ll just be added cost to bribe an auditor.

What’s also interesting are these quotes:

“approving about 50 applications per year”

“A report in the Wall Street Journal last month said the investment per applicant would be C$1 million to C$2 million, and that the target size of the fund would be C$120million, suggesting 60 to 120 applicants would be accepted.”

Mortgageslave
Guest
Mortgageslave
@19 Great point, As I stated earlier the BOC may have no choice in raising rates. Oil may continue it’s tumble and takes the dollar down with it. then the US rases it’s rates which will drive the CAD down more. We may have no choice to fight the freefall and stabilize our Economy. I stated this earlier in the week and the only argument was that our dollar was 60 cents back in the 90’s and we managed to make it through. Rates were alot higher back then (5 to 12%), so this argument was what one would call a moot point. Bottom line is it’s scary time to be a homeowner. Not for me personally but if I had a mortgage of 300k or more then it may keep me up at night…
inflation?
Guest
inflation?

If the loonie was going to tumble with oil, would it not have already tumbled? Forex markets are very efficient. Oil’s down 45% since summer, loonie not even 10% over the same timeframe. I see the loonie’s more likely to rise from here as oil stabilises. Disinflation is still the only concern, not inflation.

Marco
Guest
Marco

On Canada following the Fed:

“Canada’s central bank long has insisted its policy decisions are not directly influenced by the Fed’s actions, but market participants have always been skeptical. Mr. Poloz’s predecessor, Mark Carney, conceded in 2010 that there “are limits to the divergence that there can be between Canada and the United States.” Mr. Poloz acknowledged that while “theoretically” the gap between Canadian and U.S. policy rates “could be anything,” the Bank of Canada “never will be 100 per cent independent” because the Canadian and U.S. economies are so closely intertwined.”

southseacompany
Member
southseacompany
“Stuck on the sidelines. House hunter Melissa Hart now finds herself priced out of a market that just keeps climbing”, Toronto Star. http://www.thestar.com/business/real_estate/2014/12/11/stuck_on_the_sidelines.html “Melissa Hart didn’t have to hear it from the Bank of Canada. She knows first-hand that Toronto’s housing market is overvalued — maybe even as much as 30 per cent — just from scouring MLS listings every single day. Now the couple find themselves facing another grim reality. They may have inadvertently joined the ranks of renters-for-life.” ” Almost three years ago she started up a hugely popular blog, FML Listings, which used MLS Listings to chronicle — and comment on — “Ridiculous Toronto Real Estate” “Every time we saw something in our price range, it went for tens of thousands over asking or needed hundreds of thousands in renovations. By the end, even our agent was… Read more »
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