The Housing Bubble

The Business News Network reports from Canada. “The real estate markets in Vancouver and Toronto are at it again, positing record sales and double-digit price gains. That’s pushed the benchmark home price up 23 per cent to $815,000 in Metro Vancouver, and the average home price up 12 per cent to $688,181 in the Greater Toronto Area. At National Bank Financial, analyst Peter Routledge has raised concerns about the ‘price insensitive’ foreign buyer. In a note earlier this year, the bank says it’s observing ‘accelerating outflows of hot money from China.’ While not all of it lands in Canada, ’some of it does and much of it finds its way into the housing markets of Vancouver and Toronto.’”

“So what takes the price insensitive buyer out of those markets? Routledge said he anticipates China will take steps in the ‘near future’ to stem currency outflows. ‘Our concern is that this hot stimulus could abruptly and unexpectedly turn cold, and force the price of homes in (Vancouver and Toronto) down,’ he wrote.”

The Calgary Herald. “City building permit values plunged by 67 per cent in the first two months of this year compared to the same time in 2014, just before the oil price crash. That’s also a 33 per cent drop from 2015 and doesn’t bode well for property tax payers who pick up the slack to maintain Calgary’s revenue-neutral mill rate system, said a member of city council. It’s all a reflection of a contracting city economy hit by the oil price slump and the caution that comes with that, said city Coun. Ward Sutherland.”

“‘In the past, developers would build quite a few homes in advance, now they’re building on immediate demand,’ he said. ‘It’s simple economics — you won’t pay that outlay if no one’s buying … it’s really a paradigm shift in the housing industry.’”

Dow Jones Newswire. “Brokers in Calgary are reporting that sellers have been offering a wide range of incentives to buyers, including a Tesla in one case. Many prospective buyers are retreating to the sidelines in that city, brokers say. ‘I haven’t got a buyer in real estate right now who isn’t petrified to even buy,’ said Keith Crawford, a Calgary- based realtor with Century 21, adding buyers aren’t sure if prices have hit a bottom.”

From CBC News. “The latest numbers out from one Saskatoon real estate company suggest the market is flush with brand new condominiums, and that is driving the price down. The number of new condominiums currently for sale in Saskatoon is up 35 per cent over last year, according to the report by Royal LePage. The average price for a condo is $226,186 right now. That’s 10.1 per cent less than last year. ‘New units resulting from condominium development projects that started two years ago are now coming onto the market and generating a spike in inventory,’ said Norm Fisher with Royal LePage.”

The Star Phoenix. “The ongoing economic slowdown continues to put pressure on Saskatoon home builders, who have reined in construction and could face significant challenges if the commodities market doesn’t rebound. Chris Guérette, who took over as CEO of the Saskatoon and Region Home Builders Association earlier this year, said the downturn has already affected the city’s ‘tremendous’ number of builders. Between 25 and 30 went out of business last year, bringing the city’s total to about 125 — well below the 2011 peak of 200, she said.”

“‘It gets tough and now the builders that thought they could do something — or were really successful because the market allowed for that — now they’re realizing that, ‘Oh, this is not going to be so easy,’ Guérette said.”

From Maclean’s. “In recent months, Fitzpatrick’s Auctioneers in St. John’s has seen its yard fill with trucks, snowmobiles and assorted toys their owners couldn’t afford. Down the road, at Traders Buy/Sell/Lend, Les Paul electric guitars line the floor, while a glass jewellery case is thick with gold chains of the sort seen on rappers and professional baseball players. Much of the stuff comes from Newfoundlanders laid off from jobs in Alberta, Erick Mathiasen, a buyer for the store, tells Maclean’s.”

“Things are different in Conception Bay South, a once-modest bedroom community about 10 km to the west. There too, tracts of attractive new homes went up during the boom along the community’s heights and ravines—along with bars, restaurants, an arena, a town hall and a spanking new firehall to serve the expected influx of residents.”

“These days, dozens of those homes sit waiting for buyers, and confidence is in short supply. Driving through an area known as the Upper Gullies, local resident Tim Kelly points to a row of tidy-looking homes that have languished on the market for four months. ‘There would have been bidding wars on half of them even a year ago,’ he says. ‘Now I don’t know if any of them are selling.’”

“The weight of these facts hits Kelly hard. His employer of 22 years, Acan Windows and Doors, had been going all-out to supply a residential construction boom fed by oil money. But the company was sold in a leveraged purchase to a smaller competitor when business slowed in 2014, and then the oil bust hit. Faced with a cash crunch, Acan shut down last November, throwing Kelly and 70 others out of work.”

“In retrospect, Kelly regards the building spree as a classic case of irrational exuberance—something to which Newfoundlanders may have been particularly susceptible. To many, thrift was a cultural habit born of necessity, says Al Antle, executive director of St. John’s-based Credit Counselling Newfoundland. But when oil-related income began pouring in, and interest rates plunged, they joined their fellow Canadians in spending with a vengeance. ‘We borrowed to the max, bought houses and used [equity in] their homes as ATMs, often to buy an extra car or new toy,’ says Antle, who finds himself counselling people with six-figure incomes. ‘But we were only doing what was expected.’”