February 11, 2014

Nothing Keeps Going Up Forever

The Globe and Mail reports from Canada. “Canada’s home building industry suffered a setback as the year kicked off, with home construction on the decline and pointing to a lower level of activity. ‘It wasn’t a good start to the year for residential construction with this below-consensus report for January. The decline in [multiple-unit building] shouldn’t be surprising considering the accumulating inventories of unsold condos in some parts of the country. Considering the plunge in residential building permit applications towards the end of last year, it’s unlikely that we’ll get a quick rebound in starts in the current quarter,’ said Krishen Rangasamy, National Bank Financial.”

From CBC News. “It looks like Prince Edwards Island’s housing construction boom is grinding to a halt. Analysts say when it comes to housing starts- P.E.I. will see the lowest this year in the past five years. The downward trend is happening after some record high years. From 2008 to 2012 there was a construction boom that was helped by a provincial nominee program which brought 10,000 new residents to P.E.I. ‘As we are seeing, those in-migration levels decline, the requirement for new housing is going down,’ said Jason Beaton with CMHC.”

“Richard MacCallum, with MacCallum Electric, knows construction is slowing down. After several great years, he now often works just a few days a week with his electrical business. ‘The two young fellas I have working for me here, it’s going to make a big deal to them because I don’t have the work right now,’ he said. ‘Probably go west, that’s probably the trend, you know, if you can’t put food on your table then it’s time to head west,’ said MacCallum’s son Alex.”

The Edmonton Journal. “When work stalls on construction projects, there is little the City of Edmonton can do except ensure the site is not dangerous or too unsightly. That may be cold comfort for residents who live near the Glenora Skyline condominium development. The project has halted construction while its backers restructure financing, leaving two storeys of bare concrete floors and columns and a crane that rises high above the plywood boarding surrounding the site. While the developer insists the project will go ahead, neighbours complain the idle site is an eyesore.”

“‘Certainly, it is stalled, but I’m hoping and expecting it will resume before too long,’ said Scott Mackie, manager of the city’s current planning branch. ‘We’re going to continue to monitor it and keep an eye on the site and try to work with the owners to get things going again.’”

The Ottawa Sun. “New numbers from the Ottawa Real Estate Board show that the average price of a one-story resale condo was down 6.9% in January compared to a year earlier. Meanwhile, the Canada Mortgage and Housing Corp. has predicted that new condo starts in the city will drop by more than a third to 1,750 units this year. Some projects have already been put on hold because hundreds of finished units sat on the market, according to CMHC.’

“‘From a builder’s perspective, any cooling is a bad cooling,’ said John Herbert of the Greater Ottawa Home Builders’ Association. But it’s no surprise. ‘We’ve been expecting this to happen for a while,’ Herbert said. ‘The condo market not only Ottawa but in Toronto and other areas of the country has been hot. A correction was expected.’”

The Calgary Herald. “Investment in Calgary’s office market cooled in 2013 after a period of multi-year growth, says a new report by Avison Young. The commercial real estate firm’s report said the overall transaction volume for the six asset classes (office, retail, industrial, multi-family, industrial land, and residential land) in 2013 reached $2.3 billion, comprising 359 sales. Volume was down significantly from 2012 when $4.4 billion over 493 transactions took place.”

“Susan Thompson, business development manager of real estate for Calgary Economic Development, said the pace of the city’s economy slowed down a little bit in 2013. ‘We had a pretty good level in 2012. Nothing keeps going up forever and if you look at the long-term trend, 2013 is pretty much bang on the 10-year trend. So there’s nothing wrong with what happened in 2013,’ said Thompson. ‘It was just coming off that really hectic, fast-paced volume that we set in 2012.’”

The South China Morning Post. “Immigration Department data obtained by the Post suggests there was a backlog of more than 45,000 rich Chinese waiting for approval of their applications to move to British Columbia as of January last year. The queue of millionaires at Vancouver’s doorstep has major implications in a city where housing is rated the second-least affordable in the world, behind Hong Kong. Census data shows 96 per cent of all recent Chinese immigrants to British Columbia live in greater Vancouver and the proportion among the wealthy is even higher.”

“Kerry Starchuk is a lifelong resident of the Vancouver satellite city of Richmond, the most Chinese city in the western hemisphere and a favoured destination of wealthy mainland Chinese. She fears the potential impact of the visa queue. ‘Money is taking precedence over everything,’ said Starchuk, who has campaigned for increased English signage in Richmond. ‘It’s taking over the social fabric, Canadian culture … You can see [the wealth disparity] in the houses that are being built - it’s no longer a single-family home, it’s a mansion with gates and security.’”

From CanIndia. “A staggering 25 percent of buyers of homes and apartments costing $2 million across the GTA are foreign investors. In Montreal foreign investors account for 50 per cent of home buyers while in Vancouver they make up 40 percent. Just last week TD Bank CEO Ed Clark worried about the increasingly large debt load Canadians are taking on to buy expensive homes. He also said Canadians would face a lower standard of living as an increasing portion of their income will be spent on housing.”

“Because foreign investors are snapping up high-end homes, it is forcing Canadian buyers to seek out relatively less expensive good homes in desirable neighborhoods which can now cost $799,000 and up. The absurdly low rate of interest has given buyers the confidence and buy homes at prices they would baulk at if interest rates were 7 per cent. Buyers are getting into bigger homes based on the assumption that interest rates will stay low for a long time and, more crucially, the value of their real estate investment will continue to rise exponentially.”

“The fact that credit is so easy to obtain and so cheap should make Canadian buyers pause, but it is making them careless. Homes are being used as ATM’s. It is a bit of a Catch-22 situation. Because real estate is the only lucrative avenue for investments, too many are willing to pay too much, when interest rates rise it will instantly lead to a real estate crash. That’s when foreign investors will put up their homes for sale and flee leaving behind a trail of disaster. Many Canadians will then be stuck in homes they cannot afford and may be forced into distressed sales.”

From CTV News. “With the average seasonally adjusted price of a home in Vancouver sitting at $825,000, many Vancouverites are turning away from the dream of home ownership and choosing to rent instead. The Black family used to own an 860-square-foot condo in North Vancouver, but moved after they had their second child and the space became too small. ‘Once the two kids come along and you know, people living above and below you, no outdoor space, we even have two cats, and it was evident they were finding the place too small,’ said Kristy Black.”

“A bigger family home cost too much money, so the Blacks decided to rent their dream home with a yard for the kids instead. ‘Once we looked into renting then we saw that it was just about the same as what we’re paying in mortgage. Sure, we’re paying someone else’s mortgage, but at the same time it allows us to have what we need right now for our family,’ she said.”

“Tom Davidoff, an economist at the University of B.C., did the same thing. He sold his Vancouver home and rented a property, and invested the equity in the stock market. Davidoff says the money tied up in a home is not earning the interest it could be and renting means you don’t have to pay property taxes, maintenance fees or costly home repairs. ‘I think the safer play is perhaps not necessarily own the home. It’s a single asset and the one thing your mother also told you is don’t put all your eggs in one basket,’ said Davidoff.”




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49 Comments »

Comment by Whac-A-Bubble™
2014-02-11 06:53:27

What goes up, eventually goes back down.

Comment by Housing Analyst
2014-02-11 06:55:24

With housing prices in a big massive debt fueled bubble, the “goes back down” part is a real painful bumpy ride.

Comment by Whac-A-Bubble™
2014-02-11 09:01:48

It should prove quite enjoyable for spectators to watch, though.

 
 
Comment by Blue Skye
2014-02-11 09:49:36

“leaving behind a trail of disaster”

That’s unusually negative talk for a Canadian.

 
Comment by GrizzlyBear
2014-02-11 13:23:43

The duration is what is so shocking. Never in my life would I have dreamed that we would be where we are at this point in time, looking at massively inflated bubble prices this late in the game. Perhaps this will be a century long bubble.

Comment by Housing Analyst
2014-02-11 13:30:22

The beast is starving.

Comment by GrizzlyBear
2014-02-11 13:53:34

The masses are starving. The eCONomy on the local level is in dire straits.

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Comment by snake charmer
2014-02-11 14:59:26

I’ve been bubble-sitting for 10 years now. It got tiresome awhile ago, but I’ve reached the acceptance phase. We have reached a complete ideological dead end.

Comment by Ben Jones
2014-02-11 15:48:12

What’s not mentioned very often is a lot has happened. In the US, some say $9 trillion dollars were wiped out a few years ago. The GSE’s were forced into receivership. Many lenders no longer exist. Reports say 25% of US loans are underwater. There are millions of HAMP/HARP loans. And of course, lower incomes and high unemployment are still with us.

The Irish economy was almost crushed. Same with Spain. I’ve read that there are 3 million housing units in Beijing that aren’t using electricity.

So it’s not like nothing has happened. I can’t say how it will play out. But if it’s anything like what we’ve already experienced, it won’t be pleasant. This is why I was flabbergasted when Bernanke decided that higher house prices were going to save the economy. And 14 major central banks went along with him. Now we can see a few central banks and governments that have chosen to pop their bubbles to various degrees; New Zealand, Singapore, Hong Kong, Norway, etc.

One thing I do know; if these are bubbles we are watching, they will burst by definition.

‘Local Economy Suffers After Afghan Housing Bubble Bursts’

‘The housing bubble in Afghanistan was created by the influx of international organizations and their thousands of workers over the last 12 years. As countries pull out of Afghanistan, rent prices are tumbling, vacancies are soaring and sales have flatlined.’

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Comment by GrizzlyBear
2014-02-11 17:40:18

Pick up some sweet dealz in Afghanistan.

 
Comment by Housing Analyst
2014-02-11 18:06:25

Deep dark pools of debt, synthesized, re-insured, synthesized again… It’s still there. Enlarging, widening and deepening. Remember the 60Minutes piece about the quants and CDO’s? It’s that 10x.

 
 
Comment by Shoeguy
2014-02-12 13:29:56

Join the club, my friend. I was 30 years old in 2006, watching things spin out of control and crash. Things seemed to calm down just a bit at the end of 2012 so we thought it might be a good time to finally look at purchasing….then we got a 20% increase in prices and 1% rise in interest rates just as soon as we started looking.

So now here I am, 37, and watching the second housing bubble in a decade repeating itself almost verbatim.

Really really frustrating when all you want is an affordable house in a neighborhood with a nice school to simply LIVE IN.

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Comment by Whac-A-Bubble™
2014-02-11 06:54:27

“Tom Davidoff, an economist at the University of B.C., did the same thing. He sold his Vancouver home and rented a property, and invested the equity in the stock market. Davidoff says the money tied up in a home is not earning the interest it could be and renting means you don’t have to pay property taxes, maintenance fees or costly home repairs. ‘I think the safer play is perhaps not necessarily own the home. It’s a single asset and the one thing your mother also told you is don’t put all your eggs in one basket,’ said Davidoff.”

Some people getting. Most of them not so much.

Comment by azdude02
2014-02-11 07:19:05

Id rather own real estate than stocks in companies that cook their books and squander company money on insiders. The last thing they are looking out for is shareholders.

How much equity will be left when SHLD files for bankruptcy?

U stock people sure like to cherry pick.

A genius is a rising stock market?

Comment by Bill, just South of Irvine, CA
2014-02-12 22:08:14

LOLZ “cooked books” I heard that since 2000. My net worth was $400,000 back then. About $380,000 in stock mutual funds. Now my net worth is above $1.74 million, $1,000,000 in stock mutual funds and stocks.

These cooked books have a great aroma and I’m enjoying the feast!

BTW the dividends are great too.

 
 
 
Comment by Ben Jones
2014-02-11 08:03:09

‘If you reside here in Vancouver, you will have seen the large ‘Rennie’ name posted outside up and coming developments and various real estate ventures. “Failure is an option, it’s okay. If your not failing, you’re not trying” -Bob Rennie’

‘Kyle Parker and his wife Yumi Imano were among the first to move into a new condo in Vancouver’s Olympic Village after 2,100 athletes vacated the neighborhood specially-built for the 2010 Winter Games. For years, they counted few neighbors as many of the 600 units in the ocean-front community on the edge of downtown and a stone’s throw from the city’s Olympic Stadium remained unsold and vacant.’

“It was really quiet, like a ghost town,” Kyle told AFP.’

‘Canada aimed to prove that it could host the Games on the cheap — $7 billion versus the record $50 billion spent by Russia to host the 2014 event which opens in Sochi on Friday — and not end up afterward with a litany of unused sports facilities and other white elephants.’

‘Four years after the Olympic flame was extinguished, however, the Olympic Village on reclaimed former industrial land, boasting fresh and eco-friendly designs, stands out as a bungled project that threatened to bankrupt the city.’

‘Realtor Bob Rennie, who was tasked with marketing the condos, blamed the 2008-2009 global economic downturn and an undercapitalized developer which the city was forced to underwrite (to the tune of $1 billion), followed by a media storm over burgeoning costs, and politicians refusing to take any blame for initial missteps.’

“It was bad management, and just bad luck that (construction started) just before the condominium market collapsed,” said Geoff Meggs, a city councillor.’

Comment by scdave
2014-02-11 08:13:31

Ben…From yesterday on the question of price in the Central Valley of California vs Dallas…I through out the idea it being about Jobs with my nephew as one example…You countered saying aren’t there jobs in Dallas..??

I guess what I should have said is “Jobs that people want to keep”…It may also be a desire to stay in California for what ever reason..In my Nephews case, he will be able to retire with a nice fat government pension in 7 more years at the ripe old age of 50…

Comment by Ben Jones
2014-02-11 08:18:28

‘a desire to stay in California for what ever reason’

Every bubble has a bubble justification (or 3). Let’s look at Calgary. So they have oil and gas jobs. As does Dallas. It’s negative 3 degrees F at this time in Calgary. But check out the house prices in Calgary!

Vancouver makes the bay area look cheap. Why?

Comment by Housing Analyst
2014-02-11 08:23:51

Because the bay are is 300% more overpriced than Vancouver.

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Comment by Ben Jones
2014-02-11 08:34:34

The comparison is interesting. Both on the ocean, not really that far apart. Yet house prices are much higher in Vancouver. I doubt wages in Vancouver are higher. My point is that logic doesn’t apply to a mania. It is useful to stop and ponder these comparisons about Manteca/Ripon versus Dallas, etc.

 
 
Comment by Whac-A-Bubble™
2014-02-11 09:06:01

“So they have oil and gas jobs. As does Dallas.”

As does North Dakota. As does California. As does Alaska.

And the list goes on

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Comment by In Colorado
2014-02-11 14:30:45

Vancouver makes the bay area look cheap. Why?

Because Canadians are nuts?

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Comment by JingleMale
2014-02-11 18:19:42

The more open immigration policy let’s the rich Chinese import suitcases of money to buy real estate.

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Comment by cactus
2014-02-11 09:38:46

he will be able to retire with a nice fat government pension in 7 more years at the ripe old age of 50…”

sweet !! tax all the H1B visa engineers in silly valley who will work 60 hours a week until they drop dead to pay for it.

I heard ( on NPR this am ) they want to build a island off the shore of Ca to house Engineers who can’t get work visas , they can be close to silly valley and work without visas or green cards.

free labor and trapped on an island its a VC dream !!

Comment by Arizona Slim
2014-02-11 16:09:05

A friend’s son said that the programmers on ships thing was happening in the 1990s. They were brought to the US (or near it) to work on Y2K programming projects.

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Comment by taxpayers
2014-02-11 08:31:34

Jan 1, 1928 15.51 p/e
Jan 1, 1927 10.89

are stocks cheap?

Comment by azdude02
2014-02-11 08:42:12

when you fudge the earnings part any company can look cheap.

just wait till the smart money determines the party is over and the headlines start turning negative. No one will have seen it coming.

Comment by Ben Jones
2014-02-11 08:45:47

‘China won’t let its Ponzi scheme crash… yet’

‘Jeff Saut of Raymond James says the threat of contagion is real, which is why the Chinese are unlikely to let it happen. “The fact that they would let one go into default could cause a domino effect that could spill over. A few years ago there was only 200 WMPs now there’s over 200,000 wealth management products.”

No one could see it coming?

‘there was a backlog of more than 45,000 rich Chinese waiting for approval of their applications to move to British Columbia’

‘A staggering 25 percent of buyers of homes and apartments costing $2 million across the GTA are foreign investors. In Montreal foreign investors account for 50 per cent of home buyers while in Vancouver they make up 40 percent.’

Comment by Blue Skye
2014-02-11 10:01:34

200,000 Golden Elephants!

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Comment by snake charmer
2014-02-11 08:53:01

I have not been to Prince Edward Island, but from reading about it I was under the impression that the island’s economy was based on lobster fishing and potato farming — our professional hockey team once had a player from there who was nicknamed “Spuds.” Did the 10,000 new residents come to take jobs in residential construction? Can someone from Canada straighten me out on this?

Comment by Blue Skye
2014-02-11 10:00:10

It’s an interesting dynamic when the demand for housing is from people there to work on building housing. Like Phoenix.

Comment by rms
2014-02-11 22:41:13

“It’s an interesting dynamic when the demand for housing is from people there to work on building housing.”

+1 Feeds itself like the firestorm that was WW2 Dresden.

 
 
 
Comment by Whac-A-Bubble™
2014-02-11 09:00:48

“A staggering 25 percent of buyers of homes and apartments costing $2 million across the GTA are foreign investors. In Montreal foreign investors account for 50 per cent of home buyers while in Vancouver they make up 40 percent.”

Have foreign investors traditionally taken up this large a share of high-end home purchases in Canada? If not, what are the chances that upwards of 25 percent of buyers in the $2 million+ range will continue to be foreigners? If this doesn’t continue, what will happen to prices when it stops?

Comment by Blue Skye
2014-02-11 10:03:04

What happens to a moon rocket when the fuel stops.

Comment by Housing Analyst
2014-02-11 10:10:35

I think a massive crater results.

 
 
Comment by In Colorado
2014-02-11 14:33:28

If this doesn’t continue, what will happen to prices when it stops?

It’ll depend on how many try to sell.

 
 
Comment by snake charmer
2014-02-11 09:03:27

“Kerry Starchuk is a lifelong resident of the Vancouver satellite city of Richmond, the most Chinese city in the western hemisphere and a favoured destination of wealthy mainland Chinese. She fears the potential impact of the visa queue. ‘Money is taking precedence over everything,’ said Starchuk, who has campaigned for increased English signage in Richmond. ‘It’s taking over the social fabric, Canadian culture … You can see [the wealth disparity] in the houses that are being built - it’s no longer a single-family home, it’s a mansion with gates and security.’”
_______________________________/

I appreciate that locals can see the social changes caused by a global housing bubble, even if their leaders refuse to do so. The country happily is risking citizens’ financial security in order to accommodate a class of wealthy foreigners whose wealth derives from corruption. Yay. How long do you think that’s going to last?

Comment by In Colorado
2014-02-11 14:35:49

I guess they expect the po’ folks to move to whatever is Vancouver’s equivalent of the Inland Empire, from where they will have long commutes to low paying jobs serving their foreign overlords.

Comment by Dr. Zen
2014-02-11 23:56:13

Yup, its the Fraser Valley and Surrey.

Great that single mom’s have to commute over an hour each way to their shiatty service sector jobs just so corrupt Chinese commie capitalists (never thought that phrase could ever make sense) can enjoy their million dollar downtown condos paid for by evading taxes and taking bribes while slave driving Foxconn workers into making our iPhones 10cents cheaper.

Ain’t global Fascism grand?

 
 
Comment by rms
2014-02-11 22:49:35

“I appreciate that locals can see the social changes caused by a global housing bubble, even if their leaders refuse to do so. The country happily is risking citizens’ financial security in order to accommodate a class of wealthy foreigners whose wealth derives from corruption.”

+1 Great Britain was swamped with well-paid U.S. GIs prior to the Normandy invasion, and they bought everything from fancy cars to innocent ladies. The locals didn’t like it either.

 
 
Comment by Puggs
2014-02-11 17:02:38

“It’s a single asset and the one thing your mother also told you is don’t put all your eggs in one basket,’ said Davidoff.”

But that’s what you just did Hasslehoff. Not only that - you also just bought high instead of low. Didn’t mommy ever tell you ALWAYS buy LOW!

 
Comment by Can Bubble
2014-02-11 17:22:26

I have a good friend who grew up in Kitsilano, Vancouver. He figures that 80% of his high school graduating class from 1992 have left Vancouver. Chinese immigrants priced out his generation.

Comment by tresho
2014-02-11 17:51:51

If Vancouver has any public school system remaining, they can start taking in Chinese students from overseas & charge them $$$ in tuition. Might as well profit from the dislocation.

 
 
Comment by doom
2014-02-12 08:55:25

” the safe play is not towards home ownership”???

Get a clue, the play for 2014 is for lenders to target renters into homes since refinancing is declining.

A more balance market or slight drop in prices means 2014 will bring more traditional buyers in, also more sideline renters come back, and investors will be out, this is good news overall.

Comment by Housing Analyst
2014-02-12 13:05:24

With housing demand down to 1997 levels, people fleeing homeownership like the plague and housing prices falling, we’ll see how 2014 plays out.

 
Comment by Bill, just South of Irvine, CA
2014-02-12 22:05:17

Get a clue, the play for 2014 is for lenders to target renters …

What are they going to do about me? Follow me around in my paid off (since 2006) Toyota economy car and finally pull out an uzi and force me to sign a contract to buy?

 
 
Comment by Italian/Swiss
2014-02-12 12:00:17

I live in Naples, FL. Canadians are everywhere. Talking to them about a housing bubble in Canada is like talking to Americans about a housing bubble in 2005: Denial, which borders on hostility if you mention it out of concern. My initial impressions of Canadians are people who suddenly got some money and now think they are smart and sophisticated. Similar to Americans during the last bubble:think Las Vegas. The fact that housing can be in a bubble in a place like Canada is about as crazy as Tulip Mania. Meanwhile down here in Florida a new bubble has started. With 10,000 Baby Boomers retiring everyday and getting a new found source of money to leverage, namely Social Security, we are getting the overflow, and new construction targeting Baby Boomers is underway, everywhere. Home Depot and Bed, Bath, and Bankruptcy stores are packed again, ala 2003. Boomers will be retiring till 2030. I expect housing here to be crazy for another 10 years, and then the deluge, slow at first 2025, then downhill. Generation X taking Boomers place is half the size and a quarter of the money. The Demographics after Boomers are unspeakably depressing.

Comment by Housing Analyst
2014-02-12 13:03:16

The boomer retirement/move to ____(fill in the blank) is over and it’s not coming back.

 
Comment by Bill, just South of Irvine, CA
2014-02-12 22:03:32

Demographics rule. It’s the hard wrench of reality (to steal a line from Neil Peart).

But many people will not want to know that and throw their life savings away on a depreciating stucco box (or loft overlooking the gulf…)

 
 
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