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The Masked Tulip

Did Canada Just Pop It's Housing Bubble?

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Not around here.

I'm still amazed they're selling all the flats they're throwing up near us.

It's different in Canada,

Thankfully we dont have the same central bankers here as we do in Canada. blink.gif

Edited by TheCountOfNowhere

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House-humpers...

Canuckistan

April 1st, 2014

Mortgage guys face a brutal spring. The big banks are chasing market share and revving up for a rate war. A shortage of listings has squeezed prices higher and throttled sales. Yet borrowers are facing stagnant incomes, with down payments dropping. It all means to make a deal, lenders are forced into cut-rate offerings just so buyers can afford the mounting debt.

What a mess. What a danger.

Yesterday I wrote about liquidity. Hope you made notes. The balance sheet of most Canadian families continues to worsen, making me happy the bulk of my net worth is not in a house. For the next minute, just think about some sobering news.

First, Canadians are making less money than they were in 2008. Median family income is lower than before the recession and savings have decreased. Yikes.

continues: http://www.greaterfool.ca/2014/04/01/canuckistan/

A selection of the comments. Is there anything in that theory house sellers are scared to sell? I thought they were just complacent/stubborn and expecting more HPI. With bubbles, very few asset/stock-holders Very few get out at top of the market, and the majority hold all the way down to value-low.

~ Exactly. People don’t want to hear the truth. They just tune out. Doesn’t change the facts, however.

~ I am getting so sick of this crap. The debt pigs seem to be getting further ahead while the prudent savers are falling further behind. What a bizzaro world we live in!

~ Active listings are below historic levels precisely because prospective sellers fear buying. Would you buy your own house today at market price? — Garth

~ Almost got my coworker mad enough to fight me today. It was totally innocent on my part. I know he was in banking before so I asked him why he has four mortgages? That led to bickering and then outright fuming and if I hadn’t stopped I bet we would have scuffled. I asked him if it makes sense that real estate will always appreciate in value. He said yes. Then I asked him if that means that the dump I just sold would one day be worth a million dollars. He said no. So then I said “I thought you said it would always increase in value” and then he was like “people can afford a million dollar mortgage because the wives also work now.” And then I countered with “in that case in twenty years the kids will have to work too!” Then he said I was a f@&$ing moron and didn’t understand anything. I’m cool with that. I’m also cool with being right. I’ve actually never seen anything that will enrage a guy faster than this topic. I was accused of calamity howling by some of the other guys buddy whined too about it. I guess it comes down to fear. No one wants to admit that the worst is ahead because they’re in a delightful slumber. Fed and stuffed with things and self importance. Comparing designer nooses. “Mines got a view ! Mines got granite! ” Its a noose…

~ I used to get in those kind of fights with co-workers about religion. The real estate bubble is no different. you can’t convince them otherwise no matter what you say, their convictions are irreversible until the bubble actually bursts.

~ There is no shortage of listing in Ottawa. In fact there are twice as many listings now as three years ago. Hundreds of homes listed for 600K and more in the suburbs are not selling. Many have been on the market now for three to four years with no one knocking on the door……. Condos are just as bad. Hundreds for sale, but no takers….. will the market improve? for the seller, no. Prices will crash, eventually, when owners realize there is no way but down….

Soon after that peak, the market crashed utterly, spectacularly. At a routine auction, the greater fool refused to show up and buy. Within days, the panic had spread across the country.

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I'm very wary of statistics relating to 'historical averages'. The historical period is crucial of course but, beyond that, I bet they're not global historical averages. They should be, because price/income and price/rent are already locally adjusted.

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I don't think we're quite there yet here in the True North. It's the same as Britain really in that there's no external factor to push things over the top. Interest rates are low, the economy is doing reasonably, population growth is high and mortgages are plentiful. We're lacking the insanity of help to buy and there's no real shortage of building land (geographical issues in Vancouver aside) but, otherwise, it's pretty similar.

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From the table it's possible to see at a glance why Osborne gave Con Carney the job and why Carney doesn't think there's a bubble. The UK is overstretched but Canada is twice as bad as the UK. The UK economy would have been far better off overall if they'd given the job to one of the US, German, Japanese or Italian central bankers etc.

Diversity you know.

Edited by billybong

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I don't think we're quite there yet here in the True North. It's the same as Britain really in that there's no external factor to push things over the top. Interest rates are low, the economy is doing reasonably, population growth is high and mortgages are plentiful. We're lacking the insanity of help to buy and there's no real shortage of building land (geographical issues in Vancouver aside) but, otherwise, it's pretty similar.

Interesting point about the land - are you implying that there aren't any real planning restrictions in Canada?

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So where do the figures come from that UK is only 25% above average for house price/salary?

I thought we are about 5 times and the average is about 3.5 times which would put us 43%over.

5.4 and 4.1 according to this which gives 32%:

http://www.telegraph.co.uk/finance/personalfinance/houseprices/10548795/2013-house-price-rises-home-owners-made-1131-a-month.html

The size of the current bubble is moving the average ratio upwards.

Background:

Ratio went down to 2.3 in 1993

London is currently around 8

http://www.economicshelp.org/blog/5568/housing/uk-house-price-affordability/

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Interesting point about the land - are you implying that there aren't any real planning restrictions in Canada?

There are planning restrictions but they're nothing like as severe as the ones in the UK. In already built up areas the controls are strongest but, out in the sticks or on the edge of towns, you can more or less do what you want within the building regs from what I've seen. There's certainly none of the land-banking BS going on.

edit:

Some house building stats here:

http://www.statcan.gc.ca/pub/11-402-x/2011000/chap/construction/construction02-eng.htm

A bit out of date but ~200K per year for a population a bit over half that of the UKs. I'd guess that the average size would be meaningfully bigger too.

Edited by TheBlueCat

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Interesting point about the land - are you implying that there aren't any real planning restrictions in Canada?

[/quote

I was looking out of interest at some new homes on the edge of the edmonton built up area (nothing for the next 1000 miles!) $700-900k for a tiny plot with a 3bed on it. Similar plot size as most UK new builds (actually had a front garden too, but no room to sides/tiny back garden)

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I was looking out of interest at some new homes on the edge of the edmonton built up area (nothing for the next 1000 miles!) $700-900k for a tiny plot with a 3bed on it. Similar plot size as most UK new builds (actually had a front garden too, but no room to sides/tiny back garden)

Edmonton isn't cheap, partly because of the resource boom going on in Alberta in general but also because it's a long way from anywhere. Having said that, you can get a decent house in a nice burb for ~450K. E.g.

http://www.realtor.c...Key=-1811961955

Plot sizes don't seem to be particularly big in Canada on the whole but I think that's more due to a lack of demand rather than land costs from what I can tell. Gardens are much less enticing when they're frozen solid for 8 months of the year.

edit:

Also meant to say that, when I said Canadian stuff was usually bigger, I was talking about the internal space mainly and the number of bedrooms. Having said that, the size of new build flats have been coming down in recent years.

Edited by TheBlueCat

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Housing correction could cause another Canadian recession warns Bank of Montreal.

Julian Beltrame, The Canadian Press
Published Thursday, April 17, 2014 3:11PM EDT
Last Updated Thursday, April 17, 2014 7:16PM EDT

OTTAWA -- A sudden and sharp correction in the housing market could have a devastating impact on the Canadian economy overall, enough to trigger another recession, says a new Bank of Montreal report.

The analysis by senior economist Sal Guatieri finds that even a 10 per cent correction -- what many would call a soft landing -- could sap as much as one percentage point from gross domestic product growth, or basically halve the current growth rate.

The findings stems from an analysis on the contribution of the brisk housing market on the Canadian economy between 2002 and 2007, when prices rose five percentage points faster than incomes.

According to the BMO, the rapid escalation in home prices and construction added 0.56 percentage points to annual growth during those six years, and "lifted household wealth, confidence and borrowing ability."

But now, with home values at or near record levels throughout the country and many economists predicting some kind of correction, the opposite scenario would unfold from a price and accompanying construction drop.

"This suggests a moderate correction could have a meaningful slowing effect," Guatieri says in a report issued Friday.

"Based on our model, a 10 per cent decline in prices and construction reduced annual growth by one percentage point, with the two channels contributing equally. Given underlying growth of just over two per cent, prices and construction would need to fall more than 20 per cent to spur a contraction."

Guatieri adds that given the record levels of household debt accumulated by families, the negative impact of a correction could even be worse than the bank's models project.

On Wednesday, Bank of Canada governor Stephen Poloz said while a housing correction remains a risk to the economy, the most likely outcome was for a "soft landing."

The central bank took comfort in the fact price increases had moderated and that household debt levels had stabilized -- while remaining elevated -- at 164 per cent of disposable income.

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I was actually quite shocked when I did a search across Canada recently and couldn't find a house for sale under $10,000. I think I had to go up to $12,500 for the cheapest one that wasn't a mobile home.

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House-humpers...

This guy's Canada Real-Estate/Money/Economy blog is worth following. 'The Greater Fool'

His latest entry (12 May 2014), and from there, links to other recent entries: http://www.greaterfool.ca/2014/05/12/the-bete-noir/

If you have the bulk of your net worth in a house, if you lack cash reserves or have a honking big mortgage, pay attention. As I’ve been saying here for a long time, deflation is the bête noire you should lose sleep over, not the buy-now-or-buy-never trash talk of the housing industry.

... Deflation is bad because demand trails supply, making money more valuable but reflecting slack in the economy. So in Canada, for example, when you have 29,000 job losses in one month with reduced wage gains, despite historically low interest rates and after five years of government deficits, you have to wonder. Where’s this puppy headed?

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Plot sizes don't seem to be particularly big in Canada on the whole but I think that's more due to a lack of demand rather than land costs from what I can tell. Gardens are much less enticing when they're frozen solid for 8 months of the year.

Yes. I spent much of a day last autumn raking up the leaves from my girlfriend's mother's lawn. Then it was covered in snow until the beginning of this month.

We intentionally went for a house with a relatively small garden for that reason, though it's probably still 4,000 square feet or so.

Can't vouch for the rest of Canada, but I've been crazy busy most of this year so far in my day job and will be until at least the end of the year.

Edited by MarkG

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Yes. I spent much of a day last autumn raking up the leaves from my girlfriend's mother's lawn. Then it was covered in snow until the beginning of this month.

We intentionally went for a house with a relatively small garden for that reason, though it's probably still 4,000 square feet or so.

Can't vouch for the rest of Canada, but I've been crazy busy most of this year so far in my day job and will be until at least the end of the year.

being crazy busy could be a sign of severe margin compression.

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being crazy busy could be a sign of severe margin compression.

Always ready with the upside perspective Bloo. :unsure:

Edited by Sancho Panza

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Always ready with the upside perspective Bloo. :unsure:

I dunno about upside or downside, but I like to look for the alternative explanation.

I have a few friends in the service of the Public Sector, having seen job cuts actually happen, the remaining people now seem to see a rise in the number of managers and a therefore a rise in the amount of work.

It seems that to cut costs and meet demands, a way is to cut out front line and manage the situation with more pressure.

In the Private sector, working your nuts off is great for those on a pay for results deal, but for the general salaried staff, it just means more work as the business meets the new lower demand competitive market.

Superficially, an observer within the organisation could conflate being really busy with continuing success...for the individual, this might prove to be the case, but for the organisation, maybe not so.

Just like the housing market, up to 2008, mortgage sellers were choc a bloc with work....what they saw was a boom...what was actually happening was the opposite from a systemic point of view...it broke.

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being crazy busy could be a sign of severe margin compression.

Don't think so, we've been hiring on a regular basis for the last year or so. Much more than I expected.

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Don't think so, we've been hiring on a regular basis for the last year or so. Much more than I expected.

could also be your competitors are gone.

could also be you really are on a roll.

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Gov Bank of Canada making light of recent 30% overvalued reports...

http://www.cbc.ca/news/business/stephen-poloz-says-up-to-30-overvalued-housing-big-risk-to-economy-1.2867184

http://www.bloomberg.com/news/2014-12-10/bank-of-canada-sees-elevated-risk-from-home-prices.html

http://www.reuters.com/article/2014/12/11/canada-cenbank-idUSL1N0TV0SD20141211

Greater Fool's latest blog entry... in one part he's referring to the loonie touching a 5 yr low against the dollar*, with his 'perfect storm' - although others believing the debt to be happy older smiles. (*July 2014, 1 USD buys 1.06 CAD. ~ Current (approx), 1 USD buys 1.55 CAD.)

Realtor® DNA

December 11th, 2014

[..]As you probably know by now, real estate agents are the absolutely last people on the planet to realize when housing is about to blow up. A realtor’s idea of diversifying is to purchase another condo. They believe it’s a great time to buy when prices are rising. And when they’re falling. Or stable. They think liquidity means plumbing. It’s hopeless.

Right until the very moment when America found itself circling the drain of a massive housing crisis, the National Association of Realtors was saying everything was okay. It was a great time to buy. And then, poof. Within two years, real estate nationally had lost 32% of its value and the middle class was done like dinner. Realtors who had told people to ‘buy now or buy never’ were learning how to cook fries.

I thought of that this week as realtors in places like Edmonton, Calgary and Kelowna were telling local reporters that houses there are bullet-proof. They might actually believe it. They’re not inherently evil, just really confused.

..in full http://www.greaterfool.ca/

Perhaps some analysts and rare EA going against 'the truth', but always another EA to sing the protected HPI... don't worry.. buy buy buy.

House prices set to fall, Calgary real estate consultant warns
Lower oil prices could contribute to a downturn in the market

CBC News Posted: Dec 10, 2014


[..]“There could well be individuals in Calgary in 2015 who find themselves with a house valued at less than what they paid for,” he said.

[..]But Century 21 realtor Miranda Moser is cautioning clients not to worry too much. "It's still too early to tell what is going to go on,” she said. “It's still busy, we're still getting a ton of people from other provinces moving in. I've had three referrals from two other provinces just within the last week."

http://www.cbc.ca/news/canada/calgary/house-prices-set-to-fall-calgary-real-estate-consultant-warns-1.2866966

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Greater Fool's latest blog entry... in one part he's referring to the loonie touching a 5 yr low against the dollar*, with his 'perfect storm' - although others believing the debt to be happy older smiles. (*July 2014, 1 USD buys 1.06 CAD. ~ Current (approx), 1 USD buys 1.55 CAD.)

I think you mean $1.15, not $1.55...

And yeah, if oil stays at this level (or drops further) it should certainly hit Alberta's house prices.

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I think you mean $1.15, not $1.55...

And yeah, if oil stays at this level (or drops further) it should certainly hit Alberta's house prices.

Oops, I misread it ~ thanks ~ yes... $1.15.

I had one eye on a story about Banff... strong Summer tourist numbers (although maybe fewer spending in the gift shops), and found myself wondering how all the ski resorts/slopes keep finding tourists to be packed each season.

The Town of Banff is cracking down on homeowners who illegally rent out their homes to tourists.

Parks Canada’s eligible residency regulations for the townsite prohibit homeowners from using their residences as second homes and leasing them to recreational users.

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