April 30, 2015

The Ingredients You’d Expect To See In A Bubble

Reuters reports on Canada. “Bank of Canada Governor Stephen Poloz said it was not unusual to see an overvaluation in home prices given the market’s long rally but reiterated the country was not in the midst of a housing bubble. The central bank has estimated the housing market is overvalued by 10 percent to 30 percent. Poloz said that is a by-product of the sector’s strength since the global financial crisis, partly fueled by low interest rates. But Poloz said the sector is not in a bubble, noting that the bank has not seen the highly speculative behavior that is characteristic of such a scenario.”

“‘If we were all buying a second or a third condo with confidence that it was going to rise in price, and sell it to someone else, that would be one of the ingredients you’d expect to see in a true bubble,’ Poloz said. He added that the bank does not see ‘truly runaway pricing’ in the market.”

From CTV News. “A Vancouver home is raising eyebrows for its narrow size and gigantic price tag. The remodelled home in the city’s pricey Point Grey neighbourhood is only 3.6 metres (12 feet)-wide and approximately 945 square feet in size. When Vancouverites were shown a video of the home most agreed that it was quite nice. Their tone quickly changed, however, when they were told that the sellers were listing the home at $1.35 million. ‘And it’s that small? No,’ one woman said, appearing shocked. The narrow Point Grey home sold in just seven days.”

Business in Vancouver. “Pity the owners of multiple homes in Metro Vancouver: it is getting tougher to find conventional residential financing once they own more than five properties in the world’s second-least affordable market. ‘On Monday, another major bank pulled back their policies to only allow for five rental properties maximum, instead of having no limit to the number of rental properties. The move mirrors what most major banks are currently doing right now,’ Vancouver mortgage broker Kyle Green of Mortgage Alliance stated in a memo to clients. ‘It wasn’t too long ago that some of our clients were able to acquire 70 to 90 properties through major banks without too many issues,’ Green told BIV this week.”

From CBC News. “Calgary’s new condominium market has slumped to sales numbers not seen since 2010, a new report says. In the first quarter of 2015, sales totals were down 61 per cent compared to the first quarter of last year, the Altus Group market update says. And so far this year sales are 53 per cent lower than the average over the past five years. One reason sales are down from recent years is that fewer investors are buying condos to rent out. ‘Sales launch activity is substantially weaker than the past few years with investors having effectively exited the market for the time being,’ the report says.”

“The available inventory of new condominium supplies is up to over 2,700 units, the highest level since 2008.”

The Bonnyville Nouvelle. “The cost of a barrel of oil was slashed in half in the fall of 2014 resulting in Alberta’s natural resource sector shedding 20,000 jobs and crippling the provincial economy. The dramatic drop in oil prices had a domino effect on many aspects of the economy with the housing and rental market taking a huge hit. According to local realtor Iris Scherger the housing market hit ‘rock bottom’ in March with the number of houses on the market vastly outnumbering the amount of interested buyers. ‘We have a whole lot more sellers in ratio to buyers,’ said Scherger. ‘The buyers are holding back, they are in fear.’”

“The price of real estate in Bonnyville has dropped about 10 per cent over the last year with the supply outweighing the demand. While the situation here is bleak it isn’t as bad as it is in Cold Lake. ‘In ratio to what Cold Lake has in inventory to buyers they are a lot worse off,’ said Scherger. ‘If they don’t have a pick up in buyers in the next two months, they are going to see a 15 to 18 per cent reduction in price (from last year).’”

“The biggest surprise for Scherger throughout this whole market downturn has been the number of landlords who are selling their rental properties and getting out of the market. ‘I can’t believe how many of the rental properties went on the market; the ones where they have suites or they were accommodating five or six bedrooms for the renters,’ said Scherger. ‘That was a surprise. Landlords are actually selling their rental properties.’”

Bits Bucket for April 30, 2015

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