‘Housing Market In A Period Of Transition’: Canada
The Calgary Sun has this report from Canada. “The bubble watch is on in Calgary. According to a report released by TD Economics today, the city could be experiencing a housing bubble. ‘The market is so overheated at the moment and new home supply so tight that a bubble may be forming, or could easily develop,’ said TD’s Housing Bubble Watch. ‘The speed of the rise in prices is troubling and cannot be sustained.’”
“‘There is no question that the recent dramatic price gains in Calgary and Vancouver are unsustainable and that these urban centres are vulnerable to significant moderation, including the possibility of a pullback in prices,’ said the report. ‘If prices continue to rise at a close to 40-percent rate, affordability will quickly become a problem and fear of being priced out of the market may encourage hasty decisions,’ the study said.”
From CBC News. “On the whole, housing activity in Central and Atlantic Canada has cooled down without a price correction, but the Western cities are ‘flashing warnings signs,’ the bank said. On Thursday, Statistics Canada cited the cooling housing market as one of the reasons why economic growth slowed to an annualized rate of two per cent in the April-to-June quarter.”
“‘The dominant trends in housing markets outside of the West have been weaker unit sales, greater new listings and more moderate price growth,’ author Craig Alexander said.”
The Globe and Mail. “‘There is no disputing that Canadian housing markets have been booming in recent years with extremely high levels of starts, sales and price gains in many markets,’ economists Craig Alexander and Steve Chan said. ‘However, TD Economics has consistently argued that Canada’s real estate markets have generally lacked the degree of speculation that dominated past boom-bust cycles and the excesses have been far less than those evident than in the United States.’”
Inman News. “Monthly increases in sales activity in July in Nova Scotia and Prince Edward Island were more than offset by fewer transactions in all other provinces, particularly in Alberta, Ontario, and British Columbia, the Canadian Real Estate Association reported. A seasonally adjusted total of 39,319 homes were sold via MLS in July 2006.”
“Seasonally adjusted new MLS listings reached 67,292 units in July. This represents the second highest monthly level on record for new listings, and the highest level in more than 15 years, the association reported.”
“‘The national residential market is now more balanced than it has been at any point in the past five years due to a marked increase in new listings in Alberta, and the return to more normal levels of sales activity in British Columbia and Alberta,’ according to the announcement.”
“‘Transactions continue to return to more normal levels of activity and new listings are still rising, so the resale housing market remains in a period of transition,’ said Gregory Klump, chief economist for the association.”
The Province from British Columbia. “There are finally some clouds on the horizon for B.C.’s high-flying economy, courtesy of a stumbling U.S. economy, Jock Finlayson, of the B.C. Business Council said yesterday. U.S. consumer confidence slumped in August to its lowest level this year, according to the U.S. Conference Board.”
“Finlayson said if the downturn gets ugly, it will hit the B.C. economy and may force a rethink on economic growth here. ‘It is the single-biggest risk out there for our economy,’ he said. ‘It will depend on just how long and protracted this downturn is.’”
“‘We are already seeing the impact on the lumber market, with significant price drops from the deteriorating housing market in the U.S.,’ he said.”
“The CanadaWest Foundation’s latest B.C. Economic report..says the economy is ‘in very good shape’ and growth will be bolstered by strong construction activity. But it also takes note of the faltering U.S. housing market and says the forestry sector will face a ‘very challenging” time along with tourism that faces the challenges of high gasoline prices, a strong Canadian dollar and tougher border restriction for U.S. visitors.’”
A couple of links to add. here is the comments on the Globe story - check out the readers uncovering Peter Simpson the CEO of the Vancouver Homebuilders Association trying to pump the market!
Also, here is a link to the TD Bank report.
The story in Canada is very regional - BC and maybe Alberta are bubbly; the rest of the country much less so.
Really? You mean they are no longer seeing bidding wars in Toronto and Montreal, and prices have returned to pre-bubble levels? Without having read a single news story about those towns in a few years, I am nonetheless skeptical…
Montreal has actually didn’t have that much of a rise - probably because Quebec’s economy isn’t especially strong. As for Toronto, prices have pulled back (around 30K for the median house since April), but they have yet to see a yoy decrease. IMHO this is about to happen. The bidding wars, however, have stopped and a lot of my friends are worried that they are about to see the same drop in the market that occured in the early 90’s
I talked to a veteran Halifax NS realtor who is watching for a pullback. I predict prices will fall in all Canadian cities. The bubble was everywhere but it just paused in some places…before it deflates. Vancouver will be the most interesting to watch, though.
Whoopee - first digs!
There was a WSJ article about Calgary yesterday. It seams there not so much of a housing bubble, per se, but a massive influx of oil sands-related employees. There really is not enough housing - article talked about construction workers with wads of cash living in tents. Housing, or so it would appear, is serving its traditional, ancillary function - as housing, not an investment.
Hey, when it’s “different,” you gotta call it like you see it.
It’s not different.
I live in Calgary. lots of speculation. Fear of “being priced out forever” Strong economy for sure, but unsustainable price rise of 50% in one year. oil sands are 8 hours north of Calgary, so while net migration is up, lots of hype is driving sales here in the city. There is also no shortage of land. This year alone, 20,000 new homes have started being built with a population of only 1M
Banks have started offering 40 year mortgages because most first time buyers completely priced out of market…. sound familiar?
You ever watch that PBS show about the American DJ from Phoenix who gets a gig in Calgary?
I think they’re being charitable about what it’s like there.
As long as they don’t run out of Molson’s or Carling.
Well I’ll be damned. The paper laid it out as gen -u - wine supply and demand imbalance.
Thanks for the report from up north - that’s what we come here for!
Calgary is surrounded by prairie on three sides - but is constrained by mountains to the West. But the mountains are what, 100km away? So, essentially unlimited land. The constraint to new building is labour.
I think this makes the calgary thing unsustainable in the long run - as soon as the labour market slackens a bit and they are able to build, then will builld enough supply to last a long time. The long run constraint in Calgary is the cost of building, not the cost of land.
This sounds a lot like western Colorado. There is a frenzy here in housing construction driven in part by the natural gas exploration and drilling. I am assuming that the other part of the frenzy in housing construction is the housing bubble itself. My question is how well do the drilling jobs pay over the long term and how long will they last. Will they be enough to keep the bursting of the housing bubble at bay?
1 - are unsustainable and that these urban centres
2 - are vulnerable to significant moderation,
3 - including the possibility of a pullback in prices,’
Ah Ha! 3 Strikes and YOU ARE OUT!
Couldn’t you have come up with a hockey metaphor?
Three penalties, and you are out of the game?
It’s the end of the 3rd period - game over!!!
Hat trick!
Someone said ….
If a lender went with stated income and did not use due diligence to verify statements by borrowers they could be in for a shock. The next shock will come when in the foreclosure proceedings the lender requires 1099 or tax returns and it is found that the borrower had inflated the income numbers even though they signed that this was accurate.
Can anyone spell “Bank Fraud” with a capital FBI?
Acutally we have laws to cover this. Due to Enron, Anderson, Worldcom, etc etc we have Sarbanes Oxley. Part of the SOX 404 testing many corporate CEO/CFOs have signed on to state they have reviewed for internal controls. These internal controls would have to cover the above mentioned. Such as approved corporate policies and procedures covering ‘due diligence to verify statements by borrowers’ and many other things. If such controls have been bybased or ignored then you have a major problem on your hands.
So, if and when, we start to see a major spill in losses and a outraged shareholder meeting, you can bet many heads are going to roll. This is a powerkeg thats about to blow. I would not want to be next to one.
This is not my bailiwick at all, just curious, when a bank makes a “stated income” loan, it’s just that, “stated income.” It seems to the bank would only be in hot water if it did not perform due diligence on a “verified income” loan. But hey, what do I know?
“It seems to the bank would only be in hot water if it did not perform due diligence on a “verified income” loan.”
From my experience they are required to do due diligence. There are banking regulations in addition to SEC requirements. Yea they are deep water. We could see first convictions under SOX regulations.
This is not my bailiwick at all, just curious, when a bank makes a “stated income” loan, it’s just that, “stated income.” It seems to me the bank would only be in hot water if it did not perform due diligence on a “verified income” loan.
I don’t fraud on a bank’s part in making a “stated income” loan, as long as this little detail is fully disclosed to shareholders, the SEC and loan purchasers. But then again maybe the defendant’s counsel will want me on the jury…..
“Can anyone spell “Bank Fraud” with a capital FBI?”
I doubt it.
“as long as this little detail is fully disclosed to shareholders, the SEC and loan purchasers”
Why wouldn’t it be, you really don’t think these people are in the blind do you.
Let’s send them to Corcoran and give them Charley Manson as a cell mate?
Also not my baliwick, but I think what Larry is getting at is not that the bank has committed fraud (the borrower has), but that under SOX a corporation has an affirmative obligation to put in place internal financial controls, and that CEOs and CFOs certify (just by signing their 10Ks and 10Qs) that such controls are in place and are adequate. So, the question is whether banks have been violating SOX by giving stated income, no-doc, NINA type loans without actually having some type of controls in place (e.g., random audits, etc.). Interesting question.
I guess delusion knows no borders. The only RE I own is in Canada. Thank god I don’t owe any money on it.
they arn’t making any more land in Canada!
lol
wonder if the igloo will ever becoming a hot commodity
But just think! McTundras all the way to Alaska.
Oh, no - Calgary is prarie-locked.
Nice to see a little insight into the Canadian side of the bubble. The Vancouver (B.C.) market should have tanked years ago but thanks to the Greenspan School of Hairdressing we followed the global trend. We have just had our slowest July in 3 years and are waiting for Aug’s analysis. We always trail the US so it may take another year before the writing is on the wall. I recall a friend of mine telling me that Schiller had commented once that Vancouver was the mother of all bubbles. Bring it on I say, as I gleefully pay next months rent!!!
I read a very good and detailed report a few months back (wish I could find it) concluding that Canadian real estate is actually bubblier on average than US real estate because its population is more urbanized. Canada is actually like a string of pearls running east to west. A series of highly urbanized (relative to the US) metropolitan centers strung together along the US border by rail lines and the TransCanada (with some exceptions like Edmonton). The population is not all fanned out like in the US.
Case #1: couple combined income more than 200K (lawyer and dentist), sold house on 2002 has equity around 300K but sill rent.
Case #2: sold a pay off house on 2003 with 500K cash in hand, still rent.
Case #3: Engineer from foreign country bought 850K house on 2003 with zero down.
Case #4: Engineer form foreign country three year ago, bought 450K house on 2004 with zero down.
Case #5: Engineer from foreign country four year ago bought 650K house on 2005 with zero down.
Why people with lot of cash won’t buy and people with a little cash can afford very expensive houses.
why are you posting under my nickname? I’ve been using it here for over a year now - please use something else.
“Why people with lot of cash won’t buy …”
I guess that if the situation is similar to Netherlands, people who sold a few years ago with lots of cash in hand are priced out by now. So maybe it’s not just that they don’t want to buy, maybe they can no longer afford to buy and would have been far better off if they hadn’t sold then. Keep in mind that if you buy with lots of cash, YOU bear the risk of a RE downturn and not the taxpayers (like with all the FB’s). In some countries a historic decline is needed to make housing affordable again for people who use their own cash for the purchase of a home ;-(
Vancouver has begun to contract. The August numbers will show a significant YOY decline in volume. Prices are also weakening.
Vancouver has begun to contract. The August numbers will show a significant YOY decline in volume. Prices are also weakening.
Affordability is decent across the country, requiring 20% - 25% of income to buy a home, except it is atrocious in Vancouver / Victoria because in order to buy a median house it requires 50% of the median income.
Most of Canada is not in a bubble situation because we don’t have all those fancy and crazy debt products like in the US. Most people who buy a home in Canada amortize over 25 years and have a fixed rate for 5 years.
In Vancouver and Victoria, phsychology has driven the market up because the people who live there are deluded into thinking that they live in paradise on earth or something (I live in Vancouver - I know it ain’t paradise - we have rain for 6 months a year, horrible traffic, and who cares if the winter olympics are going to be here for two weeks in 2010).
Vancouver is a unique place.
Lots of people from all over the world come and retire here. They have heeps of dough to invest and didn’t like the 1-2% of the Greenspan years (yes we do follow US rates liek a poodle) so they bought real estate, quite happy to get pathetic returns (3-4%) since the capital appreciation was huge.
Now they can get 4.25% in a year fixed and no hassle, or 5.25% on US dollars….so as soon as the capital appreciation stops they will be running from RE into CDs.
We are almost there.
Great to hear Vancouver’s stumbling.
Just over the border in WA. people blame the Canadians for running our prices up (!!). Guess the Californians are a little too far away so Vancouverites become the target.
People from WA. would NEVER overpay for a house you know!
Anyway, RE falling at the same time in both places can only help everybody’s situation.
Seattle Price Drop,
Don’t be under the impression that our markets are intertwined. They’re not. Yours does what it does and so does ours. The money does NOT flow over the border and induce run-ups or busts.
Amazing that the whole leaky condo fiasco in British Columbia has been swept under the rug. There are still shoddily build condo developments that need massive repairs from the LAST boom cycle 10 years ago and here they are building more. I guess those that choose to ignore history are doomed to repeat it, eh?
there was an article in the WSJ about Alberta Canada and the real estate shortage in that area due to high oil prices and investments in tar sands field development.
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