Even with all the recent warnings of a housing bubble that is no longer limited to just Vancouver and Toronto, you’ll still find lots of media coverage that dismisses bubble talk or explains it away as an ‘ownership premium’.
It’s not difficult to see why this is – there are thousands of people who’s incomes depend upon the housing market.
Whether its condo marketer Bob Rennie or a random realtor, they all have their day to day income tied to the health of the real estate market and conveniently are given ‘expert’ status and quoted by the local media.
That makes an article opener like this all the more shocking to newspaper readers:
Is there a housing bubble in the Lower Mainland? Housing zeppelin is more like it. Bubbles, after all, are soft and cute and harmless. Zeppelins, conversely, hurtle into the ground, spewing flaming wreckage in all directions. And that’s precisely what we’re about to witness in Metro Vancouver.
..At least that’s what Mark Carney and other Bank of Canada officials have said according to this article, yet they’re refraining from being more specific.
Meanwhile the Organization for Economic and Co-operative Development (OECD) is urging Canada to start raising interest rates in the fall and keep on raising them to stop an inflating housing bubble and reign in inflation.
The OECD, a high-powered economic research group backed by contributions from its 34 rich country members, offers a scenario: An increase in the benchmark rate of a quarter of a percentage point in the autumn, and similar increases each quarter through to the end of next year, leaving the benchmark overnight target at 2.25 per cent.
That still would be low by historical standards, yet, according to the OECD, likely a big enough increase to cause prospective homeowners to think twice before buying at current inflated prices. However, the OECD’s recommendation comes with a risk.
The Federal Reserve Board has made a conditional pledge to leave U.S. rates extremely low until the end of 2014. Following the OECD’s path could create an unprecedented spread between Canadian and U.S. interest rates, which would put upward pressure on a Canadian dollar that many say already is too strong.
Oh, and the OECD made this same recommendation a year ago and was ignored. So I wonder how Carney intends to bring the days of ultra-cheap money to an end?
“CMHC estimates that roughly 25 per cent of condominiums in the Greater Toronto Area are sold but sitting vacant — shades of Miami at the height of its collapsed condo bubble in 2007. Other analysts say the 25 per cent figure may be too low.
“This is the ghost city phenomenon,” Mr. Holt said.
Condo developers in Eastern cities such as Toronto, Montreal and Ottawa, appear to be rushing to sell and build units before interest rates start to climb, and the market crashes.”
But if you visit that link you’ll no longer find that text and the headline has been changed to “Housing starts shoot higher on back of condo boom” (although as of this writing the URL still shows the original title). Why the dramatic change in tone?
So if there’s a housing bubble in Canada who is to blame? Some people blame foreign buyers, some people blame local buyers. Some people think sellers are to blame and some people think the government is to blame. From the National Post:
Many analysts are becoming increasingly concerned that some cities — notably Toronto, Vancouver and possibly Calgary — are in the midst of their own U.S.-style housing bubble. A document written by the country’s financial regulator and obtained earlier this year through an access to information request, expresses concern over the “emerging risk” of Canadian loans that “have some similarities to non-prime loans in the U.S. retail lending market.” Bank of Canada Governor Mark Carney continued tosound the alarm as well last week over the growing level of household debt, while maintaining the overnight lending rate at a near-record low level of 1%.
The question remains as to why prices in Toronto and Vancouver — where the economy is stagnant — are rising so fast, and not in cities like Edmonton and Saskatoon — where the economy, and population, is booming.