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Canada's Housing Bubble Pops

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See http://www.moneyweek...bble-pops-64000 for discussion of how Carney "saved" the economy by pumping property and is getting out now when it finally starts to pop.

I actually wrote to my MP about Carney and he was very defensive of him, saying he'd saved the Canadian economy. I replied that all Carney had done was create a housing bubble and it looked like he was getting out just in time before it popped, but he would ruin (or rather further ruin) the UK economy in the same way. Think I might forward him that link, ta.

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I can't actually see that it has popped, on the cusp perhaps and we are further down that road than they are with stagnation since 2007.

So Canadian prices are in a bubble, no question about it. And now the bubble might be popping.

The first sign of an impending crash is falling sales. In Toronto, sales are down 40% compared with a year ago. That’s led the property pundits to start talking of a “soft landing”.

But this phantom soft landing goes against all past experiences of housing crashes. Like most investment markets, property prices are driven partly by momentum.

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I actually wrote to my MP about Carney and he was very defensive of him, saying he'd saved the Canadian economy. I replied that all Carney had done was create a housing bubble and it looked like he was getting out just in time before it popped, but he would ruin (or rather further ruin) the UK economy in the same way. Think I might forward him that link, ta.

Your MP sounds like a party line parrot.

Maybe that is why Gidiot hired the Canadian, i.e. for his incredi-bubble ability?

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Ha ha ha, the UK is really fooked now!

You have the 'Osborne Boom n bump' with this joker drafted in to help.

In a couple of years time (after the election) and interest rates start to rise*, the Irish bubble will pale in comparison.

*Europe have actually cut back and are working through their problems albeit slowly, the US has worked through a lot of its property woes. Rates are bound to rise from their historic 300 year low. The timing of this artificial boom is comical.

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Ha ha ha, the UK is really fooked now!

You have the 'Osborne Boom n bump' with this joker drafted in to help.

In a couple of years time (after the election) and interest rates start to rise*, the Irish bubble will pale in comparison.

*Europe have actually cut back and are working through their problems albeit slowly, the US has worked through a lot of its property woes. Rates are bound to rise from their historic 300 year low. The timing of this artificial boom is comical.

Basically we elected a bunch of idiots to run the economy.... and when they fecked the country economically we voted in another bunch of equally as stupid idiots to make things worse... You couldn't make it up...

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Basically we elected a bunch of idiots to run the economy.... and when they fecked the country economically we voted in another bunch of equally as stupid idiots to make things worse... You couldn't make it up...

That dumbocracy for you.

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Basically we elected a bunch of idiots to run the economy.... and when they fecked the country economically we voted in another bunch of equally as stupid idiots to make things worse... You couldn't make it up...

But the UK's relative decline is much, much older than that. I honestly believe the country never really recovered from the shock of WW2, but things had been going downhill for a long time before that. For a while we were able to disguise the fact with immigration, North Sea oil and periodic bouts of house price inflation, at least until diminishing returns overtook us. The final act of self-delusion was to re-imagine London as the world's financial services capital using borrowed money. Now the only thing left to come is the smack of hard reality.

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See http://www.moneyweek.com/investments/property/rest-of-the-world/profit-as-canada-housing-bubble-pops-64000 for discussion of how Carney "saved" the economy by pumping property and is getting out now when it finally starts to pop.

...huh Osborne is the clown who has lit the fuse for the start of the UKs 2013 bubble...will Carney haul him in ...?..although he was appointed by this 'bonfire' man ....I don't think he will ....anyway the reality of situation will make fools of them both unless they act now ...and we are all watching......... :rolleyes:

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I think the big problem over here is that the banks don't have to care. Mortgages with less than a 35% downpayment have to be insured, so the taxpayer is on the hook to bail them out if the borrower defaults. Mortgages with more than a 35% downpayment probably won't go into negative equity when prices do fall, so the bank will still get paid.

Of course if all those 'insured' mortgages have to be paid off, they'll have to run up the printing presses to cover them.

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I think the big problem over here is that the banks don't have to care. Mortgages with less than a 35% downpayment have to be insured, so the taxpayer is on the hook to bail them out if the borrower defaults. Mortgages with more than a 35% downpayment probably won't go into negative equity when prices do fall, so the bank will still get paid.

Of course if all those 'insured' mortgages have to be paid off, they'll have to run up the printing presses to cover them.

I do not know the details of Canada property market but if anything in the UK/US are to be extrapolation to the Canadian market, there are likely to be properties (especially commercial properties) that are 'valued' at C10million that suddenly becomes woth C3 million on foreclosure. 'Valued' is the key word...

Also, if the experiences with MBIA, MGIC are to come by... the insurances are only as good as the insurance (or reinsurance) companies (again I don't know how well they are capitalized)

p.s.: All UK mortgages less than 85% LTV was also insured,

http://www.ratehub.ca/cmhc-mortgage-insurance

says Canadian mortgages with less than 19.9% downpayment needs insurance (so not 35%, just 20%), so that is just 5% more margin then the UK scheme...

Edited by easy2012

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*Europe have actually cut back and are working through their problems albeit slowly, the US has worked through a lot of its property woes. Rates are bound to rise from their historic 300 year low. The timing of this artificial boom is comical.

This is the key point. We're way behind in dealing with the effects of the property bubble and will get absolutely hammered when the rest of the world starts tightening.

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But the UK's relative decline is much, much older than that. I honestly believe the country never really recovered from the shock of WW2, but things had been going downhill for a long time before that. For a while we were able to disguise the fact with immigration, North Sea oil and periodic bouts of house price inflation, at least until diminishing returns overtook us. The final act of self-delusion was to re-imagine London as the world's financial services capital using borrowed money. Now the only thing left to come is the smack of hard reality.

We are still in the last declining phases of the British Empire, if you want look at the Roman Empire as an example, some say it took four centuries for a full decline to take place, I think the UK decline has been accelerated greatly by modern factors post ww2.

The political elite are just care taking a slide that is not arrestable by any economic tricks or lies they have available, this is why the UK democratic process is such an obvious and overt sham with nothing more than a change of management and no real political changes are actually taking place. I imagine this is also why parties like UKIP actually scare the current status quo, because any offer of real change is likely to be embraced by the population just because it offers an alternative, any alternative, to the poison chalice on offer.

We also have no real economy, we don't make anything worth selling, we have no innovation, the biggest lie of all is that, like Rome, London will last forever as the center of everything, the shock will be great.

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When Carney takes up the reins, I am sure he'll be keeping an eye on how things pan out back in Canada. Who doesn't keep an eye out for updates about a former employer? If his reputation there is torn to pieces, maybe he'll follow a different line here from the one we're all expecting. He wont be immune from the news coming out of Canada (I was going to say that he wont be living in a bubble, but that's not the right analogy given he's moving to London...)

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But the UK's relative decline is much, much older than that. I honestly believe the country never really recovered from the shock of WW2, but things had been going downhill for a long time before that. For a while we were able to disguise the fact with immigration, North Sea oil and periodic bouts of house price inflation, at least until diminishing returns overtook us. The final act of self-delusion was to re-imagine London as the world's financial services capital using borrowed money. Now the only thing left to come is the smack of hard reality.

For two hundred yeas or more we exported our underclass to the colonies. This stopped the country getting overcrowded and raised the average IQ. Now we can't do that. In fact we are importing the dross of the world - for every doctor imported we get another 9 unskilled labourers or dole fodder. The character of the nation is changing in quite fundamental ways.

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x2.are prices down.no.moneyweek has been pretty wrong about UK property prices since it started.most ofm us on HPC have been.

Much as I'd like to see prices fall here, I'm inclined to agree. The lesson of the UK has been that you need forced sellers to produce a real fall. Whilst interest rates are low and stable and employment holds up, sales volumes can fall without prices doing likewise. It is interesting to see how a relative small tightening of the mortgage insurance requirements seems to have produced a pretty big slow-down in sales though, I wouldn't have expected the two to be so tightly coupled.

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But the UK's relative decline is much, much older than that. I honestly believe the country never really recovered from the shock of WW1 WW2, but things had been going downhill for a long time before that. For a while we were able to disguise the fact with immigration, North Sea oil and periodic bouts of house price inflation, at least until diminishing returns overtook us. The final act of self-delusion was to re-imagine London as the world's financial services capital using borrowed money. Now the only thing left to come is the smack of hard reality.

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Facts about canadian housing bubble:

Canadians owe $1.2 trillion in mortgage debt

Nominal price growth between 2000 and 2012 - 139%

Real price growth between 2000 and 2012 - 96%

Debt-to-income ratio - 165%

Real Income Growth between 2000 and 2010 - 8%

Nominal Rental Price Growth for 2-bedroom apartment - 35%

Charts Comparing US bubble vs Canada

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Much as I'd like to see prices fall here, I'm inclined to agree. The lesson of the UK has been that you need forced sellers to produce a real fall. Whilst interest rates are low and stable and employment holds up, sales volumes can fall without prices doing likewise. It is interesting to see how a relative small tightening of the mortgage insurance requirements seems to have produced a pretty big slow-down in sales though, I wouldn't have expected the two to be so tightly coupled.

Ireland tells a different story - very few forced sellers because they simply don't repo properties or declare debtors bankrupt. But 50% drop in prices.

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x2.are prices down.no.moneyweek has been pretty wrong about UK property prices since it started.most ofm us on HPC have been.

This was put out by Moneyweek over a year ago.

14 February, 2012

How to cash in as yet another housing bubble bursts

Canada’s house price bubble is set to burst

Canada is one of the few Western economies to have rebounded strongly from the Great Recession.

Indeed, in some ways it’s as if it never happened. Annual output has surged above the previous peak in 2008. The trade surplus in December rose to a three-year high. And all the jobs that were lost during the downturn have been recovered.

What’s more, Canada has managed to pull this off without spending money like mad. This year’s government budget deficit (the shortfall of tax revenues against state spending) will only be about 2.5% of GDP.

And in fact, the final figure looks set to be even better than official forecasts. Compared with the near-double-digit deficits that seem the norm these days, that’s quite remarkable.

There’s just one problem. The country has been inflating its own massive housing bubble. This could undo all the good work done elsewhere – and present smart investors with some profit opportunities…

House price mania has been a major feature of the global economy over the last ten to 15 years. Canadians joined the party several years later than their counterparts in other Western countries. The early-1990s recession was still taking its toll on the country’s dole queues, and also on its domestic property market, right through to the middle of the decade.

But as interest rates tumbled, Canada caught the bug just like everywhere else. And how. The ‘real’, ie inflation-adjusted, price of the country’s homes has increased by an average of 85% since 1998.

Sure, house values stagnated at the height of the financial crisis in 2008. But by 2009, property prices were back on a roll, rising by almost 20%. Canada’s current housing boom has now become one of the longest lasting in the world, says the Bank of Nova Scotia.

Indeed, Vancouver is the second-least affordable city anywhere on the planet, according to the annual report from the Demographia International Housing Affordability Survey 2012.

Like every other housing bubble, it’s been inflated by loose credit. Canadian household debt hit a new high last year. The average borrowing burden of Canadian families now stands at 153% of disposable incomes, according to Statistics Canada. To put that in context, that’s almost as much debt as US households had taken on at the peak of their own housing bubble.

In other words, the warning signs are everywhere. Canada’s housing market is plagued by “overvaluation, speculation and over supply”, says Merrill Lynch. The Economist conducts a survey that compares house prices with the rents that property owners can charge. On this basis, Canadian residential property is overvalued by more than 70%. Even the central bank admits there’s a problem.

In short, the country’s property prices won’t be able to defy gravity for much longer. Canadian lenders, including Toronto-Dominion Bank last week, are already lifting home loan rates to try to cool off the housing market. That’s seen prices start to drop in some areas – and there’ll be plenty more of that to come.

Canadian economic growth is slowing down

Why? Because despite its great recent export performance – boosted by a nascent recovery in the US – the Canadian economy overall is slowing down. Unemployment is on the rise again.

That means that even if the Bank of Canada can keep interest rates at their current low levels, Canadian households have no scope to take on any more debt. If the dole queues get any longer, many homeowners may struggle to keep up with their existing payments.

What’s more, as we’ve written about several times, the omens for commodity markets this year aren’t good. If China really does slow down as much as we expect, raw material prices could be set for a lengthy period in the doldrums.

As we explain here, the Baltic Dry index of shipping rates is also pointing to a drop in demand for raw materials. Again, this would be bad news for Canada’s export-driven economy. In turn, that would hit the country’s housing market even harder.

Short the Canadian dollar

Sounds familiar? If you’re a regular reader, it will be. Because we said something similar about Australia recently. And with the housing bubbles set to burst in both countries, our advice is along the same lines.

A country’s – or region’s – currency is a useful barometer of investor confidence: just look at the eurozone. The Canadian dollar (CAD) is also known as the loonie (after the picture of the common loon bird on the reverse).

As markets begin to ‘price in’ what slower Chinese growth really means for commodity prices, the loonie is likely to come under pressure. A housing market crash would drive it down much more.

One way to take advantage is to use spread betting. Here you can ‘short’, ie sell, the loonie against the US dollar. It’s risky of course – currency markets can be very volatile – so you might like to take some advice. If you haven’t already, sign up for our free email MoneyWeek Trader to learn more about spread betting tactics.

If you’re not keen on the trading risks, you can buy the ETFS Short CAD Long USD (LSE: SCDP) exchange-traded fund. This gives you a built-in short position in the loonie against its US equivalent. It’s still risky, and only suitable for taking relatively short-term positions, but it’s not quite as high-octane as spread betting.

Got a comment on this article? Leave a comment on the MoneyWeek website, here.

Until tomorrow,

David Stevenson

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Ireland tells a different story - very few forced sellers because they simply don't repo properties or declare debtors bankrupt. But 50% drop in prices.

Ireland also has an oversupply of empty houses though doesn't it? Surprisingly, given the space and minimal planning restrictions, Canada doesn't seem to have any ghost estates or empty apartment buildings - well, not so far at least.

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Surprisingly, given the space and minimal planning restrictions, Canada doesn't seem to have any ghost estates or empty apartment buildings - well, not so far at least.

Canada has high immigration by Western standards. It can absorb a lot of new houses without building ghost estates, and many of those immigrants bring large amounts of money with them so they can afford house prices here; that's one reason why Vancouver prices are so high compared to local incomes.

I've been surprised that most of the new houses near us have sold, but when you consider about 20,000 people moved to the city last year, that's maybe 5-10,000 new houses they need to support that population growth.

Of course if the Chinese stop buying our crap and the economy crashes, immigration will probably fall too.

Edited by MarkG

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  • 242 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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