Category Archives: Canada

How the boom ends: whimper or bang?

So we’ve gotten to the point where it’s pretty unanimously agreed that real estate in Toronto and Vancouver is over-valued and due for a correction.

The question now is what sort of an end to this housing boom we will be looking at.

Will this be an explosive toppling of values, a market that runs head first into a wall, or will it be a simple slow leak for years and years?

..And which would be better?

You can add David Rosenberg to the list of people that say ‘whimper, not bang‘.

His latest comments fall into the ‘not a bubble, a balloon’ camp:

“Prices are starting to deflate by 0.8% YoY, though more like air coming out a balloon slowly than a giant pop,” wrote Rosenberg Tuesday in his morning note.

“It is gradually becoming a buyer’s market with the inventory of unsold homes rising to six month’s supply, which is at the edge of a balanced market.”

Of course most of that drop nationally is being driven by Vancouver where everything is falling fastest.  What remains to be seen is whether the current drop will remain even or accelerate.

Chinese buyers move to the USA

If you’re wondering why we haven’t heard as much about wealthy chinese buyers lately as prices drift down in Vancouver, maybe it’s because they’re moving to the USA.

“California has always been popular with Asian buyers,” he told beyondbrics. “But whereas before it was mainly buyers from Taiwan, Hong Kong and Japan, now we are seeing more mainland buyers visiting.”

Reasons for purchases vary, say those who have dealt with overseas Chinese buyers. Some are buying because they want to emigrate or they have children who will go to school in the US. More and more Chinese millionaires are looking to settle in the US or at least secure residency rights.

 And why would they be buying in the US as opposed to Canada?
Others buy because the numbers add up: the renminbi is relatively strong against the US dollar and property prices are cheap compared to Australia or Canada.
But it’s not supposed to work like that!  Wealthy people aren’t supposed to look for good deals..
Are they?
Read the full article on ft.com

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.

 

We want a nice housing bubble

I’m so sick of hearing realtors and mortgage brokers complain about the new CMHC rules.

The government isn’t really bringing in some tough new restrictions, they’re simply rolling back some of their bubble incentives.

The Feds clearly wanted to juice housing and that’s what they got.

Bank of Canada governor Mark Carney says the No. 1 risk to the Canadian economy is a housing bubble. Good grief! How on earth did rock-stable, good-banking, solid-regulating Canada end up on the edge of a possible real estate crisis? Simple. In Canada as elsewhere, housing is a political business policymakers find irresistible. There’s always some government policy — low interest rates, first-time home-buyer incentives, high-ratio mortgages, mortgage insurance, capital gains exemptions, interest deductibility — available to government agencies to bolster the feel-good business of home ownership.

It’s a global phenomenon, from Ireland to Spain, from Britain to the United States. Housing bubbles — rocketing prices following by plummeting prices — are not new to the world economy. The last decade, however, has left an unprecedented trail of housing price chaos and disaster. The similarities from one country to another are unmistakable.

We saw what was happening in the states, and still the government moved amorts from 30 to 40 years and flooded the housing market with money. Where did they expect this to lead?

No more 30 year mortgages.

..well that headline is a little misleading, you’ll still be able to get a 30 year mortgage but you better have a big down payment. No more 30 year mortgages for CMHC insured mortgages.

The country’s biggest banks were caught off guard on Wednesday night as the Department of Finance prepared to clamp down on mortgages by reducing the maximum amortization for a government-insured mortgage to 25 years from 30.

Ottawa will also limit the amount of equity that can be borrowed against a home to 80 per cent of the property’s value, down from 85 per cent.

The moves are designed to cool the housing market and limit the record levels of personal debt Canadians have amassed in recent years. Figures from Statistics Canada show the average ratio of debt-to-disposable income climbed to 152 per cent, up from 150.6 per cent at the end of 2011. A rise in interest rates or further job losses could put some households at financial risk, endangering any economic recovery.

So we’ve come circle with mortgages going from 25 year, cranked all the way up to US bubble style zero-down 40 year mortgages and then ramped back down over the last few years to a maximum 25 year amort. It will be very interesting to see what this does to some of Canadas overpriced markets.