Category Archives: Canada

RBC: No Toronto Condo Bubble

Royal Bank says everyone should stop worrying about the condo bubble in Toronto.

Policy makers in Ottawa and various economists just need to chill.

There is no Condo Bubble in Toronto.

Can someone ask them about Vancouver?

There are more condos under construction in Toronto than any other city in North America, and more residential building is taking place in the Greater Toronto Area than ever before.

Mr. Flaherty’s fears about overpriced real estate, and condo markets in particular, prompted him to surprise the market last month with new mortgage insurance rules that aim to take some of the wind out of the market’s sails. He’s trying to engineer a gradual slowdown of the market, fearing that otherwise it could crash at some point.

Mr. Hogue’s lack of concern about a bubble does not mean he thinks the market will boom, however. He expects condo prices to fall by perhaps 2 per cent to 7 per cent from their peak. He predicts that a two-tiered market could emerge, with condo prices softening while the market for single-family homes is resilient.

Full article in the Globe and Mail.

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?