It’s Not Something That’s Going To Happen
News 1130 reports from Canada. “Canadian Association of Accredited Mortgage (CAAMP) Professionals president Jim Murphy says housing prices in Vancouver, Calgary and Toronto have jumped 8.2 per cent over the last year, yet 55 per cent of homes bought across Canada were by people buying for the first time. Murphy says that’s largely due to record-low mortgage rates, which should continue for the short term. ‘We saw one of the major banks… for example, this week announcing a five-year fixed for less than three per cent. These are unheard of numbers.’”
“‘I don’t think any economist is predicting that rates are going to rise any time soon,’ he tells us. But Murphy notes nationally, there are storm clouds on the horizon, with the report stating housing starts will have dropped 20 per cent by the end of next year compared with 2011 and 2012.”
The Regina Leader Post. “The federal housing agency, Canada Mortgage & Housing Corporation (CMHC) recently announced that it is launching a study to better understand how much the Bank of Mom and Dad is backing the purchases of young home buyers. Ted Tsiakopoulos, a regional CMHC economist, stated, ‘It may explain some of the gap between what’s fair market value and what people are paying, especially in the Toronto market where bidding wars and fierce competition continue to drive up house prices,’ Tsiakopoulos went on to say, ‘It’s hard to get at, but it could explain a lot on the overvaluation front.’”
“Traditionally, economists have tended to focus on house prices compared to income, prices compared to rents, and the impact of low interest rates to better understand the ups and downs of the real estate market. According to CIBC deputy chief economist Benjamin Tal, ‘The data is critical. It could be a market driver we’re not aware of. This transfer of wealth may be generating demand that otherwise wouldn’t be there.’”
The Canadian Press. “About half of Canadian homeowners recently polled believe they’ll still be in debt by the time they retire. Doug Conick, president and chief executive of Manulife Bank of Canada, says those who are not confident that they’ll be able to pay off all their debts by the time they retire should put a plan in place sooner rather than later. ‘Debt is a tool that Canadians can use to improve their standard of living and purchase assets over the long-term,’ said Conick. ‘Still, people need a strategy to manage debt.’”
The Star Phoenix. “Low interest rates and favourable economic circumstances are keeping substantial numbers of first-time home buyers entering the Canadian housing market. But the market is slowing in most of the country. ‘While the national market may look healthy, activity in the Greater Toronto Area (including Hamilton), the Greater Vancouver Regional District and the Calgary area is skewing the numbers high,’ said Will Dunning, CAAMP chief economist. ‘In the rest of Canada sales activity has weakened and house prices are flat, and even falling in some communities.’”
From Yahoo Canada. “Despite warnings of bubbles about to burst in Canada’s major real-estate markets, there’s another side to the story: in some parts of the country, prices are actually falling. Saskatchewan has been the hardest hit lately, according to the Canadian Real Estate Association’s MLS Home Price Index. Markets in other parts of the country have seen drops in home prices as well.”
“‘We have seen price increases only in major cities and not in smaller markets,’ says Oswald Jurock, real-estate investor. ‘In the Okanagan, the Koonetays, Vancouver Island, and the Sunshine Coast, there’s been between 20 and 30 per cent for last three years in price decline. It’s not something that’s going to happen; it’s already happening.’”
“Each market has unique reasons to explain decreases in index and prices, but in Regina, analysts say overzealous developers take some blame: they’ve built too much, too fast. Jurock says it’s no surprise that some markets have cooled. ‘Markets have gone up relentlessly for a long period of time, and there always comes a time of equilibrium,’ he says.”
Daily Commercial News. “According to Canada Mortgage and Housing Corporation, total housing starts in the Saskatoon Census Metropolitan Area are forecast to moderate to 2,880 units in 2014 before declining further to 2,835 units in 2015. ‘With an elevated volume of complete and unabsorbed homes in inventory, local home builders will be reluctant to quicken the pace of housing starts this year. In addition, a moderating pace of employment growth and net migration will move housing starts lower this year and next,’ said Goodson Mwale, CMHC’s Senior Market Analyst for Saskatchewan.”
“‘Given that spec homes comprise more than 90 per cent of single-detached units in inventory, this will prompt a slower pace of starts this year and next,’ noted Mwale.”
The Province. “This summer the enormous flow of Chinese money into Vancouver real estate could quickly reverse with wealthy investors rushing to sell, according to the controversial analysis of an expert from Hong Kong. In a recent analysis, Ian Young noted that in March 2014, just weeks after the federal government announced cancellation of the Immigrant Investor Program (IIP), average prices for detached homes in Greater Vancouver dropped by a monthly record of 11 per cent from February 2014.”
“Young says the IIP was ‘the most popular scheme in the world for millionaire migrants’ from China to protect their wealth against fears of social and political upheaval at home. ‘The fear among Chinese realtors is that people will just liquidate their assets,’ Young said. ‘Last year one of the top real estate agents in the city, who is Chinese, told me when this program ends she won’t be selling homes in Vancouver anymore.’”
“Brent Toderian, Vancouver’s former top planner, says the city should be gathering data and ‘asking the right questions’ about real estate investment. ‘I have had (condo) developers say to me frequently that projects are as high as 90 per cent purchased by investors, but there is a disconnect with what (the city and developers) tell the public,’ Toderian said. ‘It’s a mistake to get fixated on whether the investment is foreign or not.’”
The Globe & Mail. “Montreal’s downtown is getting a big booster shot of new condominium development. Maybe too big a shot. Following the pattern in Toronto, Montreal is now a city with far more sellers than buyers for condo units. And the downtown could be reaching saturation levels. The latest statistics, from March, indicate there were 3,000 units under construction in the downtown, said Hélène Bégin, senior economist with Desjardins Economics.”
“The ratio of sellers to buyers in the area has reached 17:1 and condo prices stagnated in the first quarter, she said. ‘There are a lot of construction cranes. The downtown is the hot spot,’ she said.”
“Mathieu Collette, who heads a research team focused on the condo market at Altus Group, said downtown condos in Montreal tend to attract two demographic types: baby boomers, including empty nesters, and young professionals. It’s important to make the distinction between different zones in the downtown, said Mr. Collette. The eastern part is not as hot as the western sector, he said.”
“‘Some projects have been for sale for a long time and they have not attained the 60-per-cent threshold [generally viewed as the go-ahead to build]. They’re at risk of not being built,’ he said.”
‘Monthly cost of Metro Vancouver home eats up 82 per cent of typical income’
‘The standard Metro Vancouver condominium, however, saw its average price decline about one per cent to $391,500 in the first quarter, bringing its affordability measure down 0.6 points to 40 per cent.’
‘It is a trend being seen in other big cities such as Toronto, and less so in Montreal, where the push to build “more up as opposed to out (into urban sprawl)” is resulting in bigger inventories of condominiums relative to houses, Hogue said.’
‘That’s also the observation of Vancouver realtor Tom Gradecak, of Westside Tom Gradecak Realty, considering the numbers of multi-family housing projects being built in the city.’
“The condo (market) is most reliant on the local economy, local buyers, local sellers,” Gradecak said. “Houses, a big part of their appeal is to Mainland (China) type buyers. They want a single-family house.”
Odd that Chinese people are more partial to houses. I keep reading articles about entire Chinese families living together in small apartments. I figured they liked it.
Or maybe it’s just not really true that most Chinese people are well-off now. Maybe most of them are extremely poor, and only the extremely wealthy can afford a single-family house, and they all know that it’s time to run away.
The streets of Vancouver are paved in gold and everyone wants to live with 9 months of rain and drizzle.
On a serious note, the fact that Vancouver housing prices have been able to maintain their high wire act for so long is nothing short of miraculous. It is hard to wrap ones mind around.
A letter to the editor:
‘I recently read an article that the average house costs over a million while the average hously income is around $70,000.. I have lived in a few cities. I have built successful friendly relationships in all of them. The interesting thing about Vancouver is every friend I connected with here, except for a few, are also from another country or city (Peru, Australia, Sweden); and the few are from the more down to earth outskirts of port moody/ Coquitlam. Not to say there are zero decent people in your city, just more not than are . Attending university and being around Vancouver youth regularly led me to 3 descriptive words for them: Over-privileged, uninviting, and un-realistic.’
Some comments:
‘I was born and raised in Vancouver. The real Vancouverites are not snobby. A lot of the people I grew up with in Vancouver no longer live here. If you want a house, you have to move to the suburbs. For that reason, you will not find in Vancouver a lot of the people who were actually born and raised here. It was awesome growing up in Vancouver, but now there are way too many people and it is way too expensive. Vancouver was the best city, but not anymore.’
‘Haha, sounds like sour grapes, because you can’t afford to live here. You want expensive housing? You should try San Francisco. Rent in Vancouver is dirt cheap in comparison.’
The last comment sounds like something Liberace would say. Our very own Hoover from Vancouver.
Sounds a lot like San Francisco, very few natives are left AND it was a great place to grow up years ago…but it was an entirely different place then, housing (renting or buying) was generally affordable to anyone with a decent job. I’ve met people in S.F. that have lived there for several years and if they learn I’m a native will say I’m maybe the second or third they have met. I left nearly 20 years ago and have no regrets, visit several times a year and that is enough.
I think SF is fun to visit for a few days, but I cannot imagine living there. The crowds and congestion would leave me miserable.
There are parts of S.F. that are uncrowded and not congested, especially on the west side of town…but theses days I see it as being a lot like Manhattan, a good place to be if you are making big $$$ or on a career path to do so, if you are in the arts, possibly a Trustafarian, etc….however if you are a worker bee like many not so much.
Yes, of course the person is “sour grapes”. Asset bubbles tend to ruin things for people, resulting in sour grapeiness.
‘According to the Bank of Canada, the average selling price of a home in Vancouver is now nearly 11 times the average Vancouver family’s household income, a multiple similar to those seen in Hong Kong and Sydney.’
‘Garossino says The New Yorker article is a prime example of a city dealing with this issue head on. New York is one of the most expensive places on the globe to raise a family but those families are critical to the success and running of a city. If real estate prices become so far out of reach, the impact can be profound and long-lasting.’
“I’ve been watching what has been happening in Singapore, Hong Kong, London, New York,” she says. “This is a boiling issue in these cities but has been remarkably suppressed in Vancouver which is almost the poster child for the phenomenon largely because charges of racism have suppressed and stifled this very important debate.”
‘Developers are loathe to discuss the connection between rising property prices and foreign ownership, and Garossino says when she raised the issue of home affordability during her unsuccessful run for city council in 2011, she was accused of racism for suggesting wealthy global buyers may have a lot to do with it.’
“Those interests are pushing back hard against any kind of concentrated discussion about the issue of capital flight, and they pushed back in a very illegitimate way by attacking the motives and interests of the people raising this issue.”
‘Forbes magazine recently published this as part of an article on global real estate prices. “Everyone knows about the high-end condos and houses in the likes of London, New York, Beverly Hills and Vancouver selling for outrageous amounts to price-insensitive BRIC (Brazil, Russia, India, China) buyers (only to sit eerily empty thereafter like the land of the living dead). According to Jeff Meyers of Meyers Research, in Irvine, CA, over 80% of the sales over the past year were to Chinese buyers. Not coincidentally, Fitch Ratings claims Irvine’s Orange County is the most overpriced county in the country. ‘(Forbes, May 20, 2014)’
‘What Garossino wants is, at a minimum, an open dialogue about the issue, similar to what is happening in other cities with the same foreign ownership issues.’
‘But that is only going to happen if politicians dare to rock a boat full of wealthy, local property developers and realtors.’
“Despite warnings of bubbles about to burst in Canada’s major real-estate markets, there’s another side to the story: in some parts of the country, prices are actually falling. Saskatchewan has been the hardest hit lately, according to the Canadian Real Estate Association’s MLS Home Price Index. Markets in other parts of the country have seen drops in home prices as well.”
What other side? Isn’t price decline the telltale sign of a bursting bubble?
realtoRs will say anything to make it sound like there isn’t a bubble. One guy even argues that there can’t be a bubble because no one is able to predict the exact day of popping. These people are wasting their breath because only the true believers fall for stuff like that.
Since all mortgages in Canada are adjustable, what’s going to happen when rates go up?
Or will the Canadian central bank keep rates low no matter what?
Doesn’t much matter considering the losses are already built in.
I think it matters a lot.
With long-term fixed-rate mortgages, the effect is primarily to decrease volume; fewer owners would sell-to-buy, as at the higher rate, their affordability is much lower in a different house, but is unaffected in their existing house.
With shorter-term (5yr) fixed periods, the effect is also an affordability reduction on owners who stay in their existing home.
A market without “investors” will have lower volume but that will not be upward pressure on prices.
Some percentage of dwellers will always need to move for compelling personal reasons.
‘Last year one of the top real estate agents in the city, who is Chinese, told me when this program ends she won’t be selling homes in Vancouver anymore.’
Won’t the foreign investor brigade need to hire realtors to help them race to the exits before outright price collapse?
The Chinese government is trying to block news from getting out, I’ve read. This got through:
‘Ifeng reports that a property in Guangdong that sold for between ￥16,000 and ￥21,000 per sqm was cut to ￥9800 to ￥12,500 per sqm, or 40% off. Existing homeowners were so angry that they locked the gate of their development and did not allow and sales people or customers access. This didn’t stop sales though, with about 75% of the units available already sold. One man who paid ￥16,000 per sqm in 2012 is angry that more attractive riverside apartments were not on sale back then, and now they are being sold at a much lower price. The gate of the development is blocked by police and homeowners; homeowners check every person’s identity card to make sure they are residents before letting them in. Sales agents have resorted to using nearby restaurants as sales centers.’
‘The reporter contacted the company by phone, finding the discussion of this property’s price cut was taboo. They only said that the price was cut ￥1000 or ￥2000 yuan to make up for some poorly done or unfinished furnishings.’
I can’t recall any stories of civil unrest during the first leg down of the U.S. housing bubble, aside from guys leaving live pigs locked inside their foreclosure homes and such.
Things are getting serious over there. I was going to do a China post today, but many of my sources have gone missing from the internet:
‘Chinese advocacy group GreatFire.org has reported that the Great Firewall of China is being used to block access to Google services ahead of the twentieth anniversary of the Tiananmen Square protests. Google has not noticed an issue at its end, according to a report on Reuters, but the group is sure of the block and the reasons behind it.’
“The 25th anniversary of the Tiananmen Square incident is coming. This highlights another fierce battle in the war between China censorship authority and information flow,” GreatFire.org said in a blogpost. “Google started to encrypt search by default in China in March and currently nearly all users will be redirected to the encrypted version automatically. But prior to the anniversary of Tiananmen incident, GFW (Great Firewall of China) began to severely disrupt Google search by disrupting TCP connections to Google IPs.”
And this:
‘Since former CCTV deputy director Li Dongsheng was sacked, the finance channel director Guo Zhenxi, current CCTV director Hu Zhanfan, and 100 CCTV staff members have been taken in for questioning. Some were since arrested. Commentators analyze that the anti-corruption campaign has spread from the Central Politics and Law Commission to the Propaganda Department. It is a further purge of the Jiang Zemin forces within the regime.’
‘Sources in Beijing revealed to an overseas Chinese website that almost all CCTV hosts are millionaires, and managers have at least 100 million yuan in personal assets. While CCTV cannot be shut down, the significant figures such as the station director Hu Zhanfan have been detained for investigation.’
‘Hua Po, Beijing political analyst: “The regime mouthpiece has been the hardest hit by corruption. CCTV, in particular, transferred assets to Zhou Yongkang when Li Dongsheng was the former deputy director. Xi Jinping intends to control the power of the ‘pen’ by conducting a cleaning purge of the media.”
‘Hua Po: “A number of high officials from the mouthpiece have committed suicide recently. There might be more ‘suicides’ or imprisonment. I don’t think Xi Jinping can tolerate the mouthpiece becoming an independent kingdom.”
“Things are getting serious over there.”
It’s a $23 Trillion hand grenade ready to go off.
I can’t recall any stories of civil unrest during the first leg down of the U.S. housing bubble
I know a guy who lived and worked for several years in Taiwan. He told me that layoffs were rare and it wasn’t unusual for laid off workers to riot and vandalize their ex employer’s property.
Americans are used to grabbing their ankles. It’s a way of life here.
we have guns- remember the Koreans on the roofs in the LA riots
plink-plink
That’s because Americans have a relatively better legal system.
relative better
What was I thinking?
we have guns- remember the Koreans on the roofs in the LA riots
plink-plink
What if the rioters have guns too?
Won’t the foreign investor brigade need to hire realtors to help them race to the exits before outright price collapse?
Doesn’t that assume that ordinary, low wage Vancouverites will/can buy those overpriced shacks?
At least if you have a mortgage and are suddenly underwater you can walk away (back to China?) and let the bank deal with it. But if you paid cash and there are no buyers then you either take a bloodbath or you sit tight, and wait (and hope) for the next bubble.
I have some Mexican friends who make their money building shopping malls in Mexico. Quite some time ago they purchased a vacation home in San Diego (in Encinitas). They never seemed too concerned with the rise and fall of prices in San Diego. They didn’t panic and try to dump the house when prices collapsed in the 90’s, nor did they play the trade up game when prices rose. They were rich enough that the house was just a luxury, like the Benz they kept in the garage and drove only a few weeks each year. They didn’t think of it as an investment. I don’t know why some people like having vacation homes (they owned several, all paid for), but they seemed to like collecting houses.
like the Benz they kept in the garage and drove only a few weeks each year. I have an old truck I keep like that. Once I made the mistake of simply keeping its battery alive with a trickle charger & putting some fuel stabilizer in the tank, but not running it. When I started it for the first time in 2 months, the engine caught immediately, followed by a loud scream from under the hood, a cloud of brown smoke and a loud “bang” - followed by nice quiet humming of the engine and the red ALT light coming on. I shut it down & checked, the serpentine belt had shredded after the alternator had frozen up & refused to turn. WD40 and a wrench freed up the alternator, which I later tested & found nothing else wrong with it. I figured just moisture and not running it caused corrosion somewhere.
Maybe they have a go-fer to actually start that Benz up & run it around the neighborhood every week or so. I wouldn’t trust a vehicle not exercised regularly, to run reliably.
Perhaps you should keep your old truck in a humidity controlled garage!
Those Chinese ppl are probably planning on moving to Canada.
‘While listings did rise in May, the Calgary Real Estate Board reports overall inventory levels are down about five per cent from last year. CREB’s Chief Economist Ann-Marie Lurie states while market conditions continue to favour the seller, improving supply has helped ease some of the tightness in the market.’
‘As for prices, the unadjusted price for a single family home in Calgary is now pegged at just over $504,000 which represents a 10 per cent increase over the same period a year ago.’
‘A new record in terms of the sale of million dollar-plus homes was also established; sold signs went up on 94 such properties, breaking the old mark of 83 established back in May 2013.’
From the article above:
‘The average MLS® price in Saskatoon is forecast to increase 2.8 per cent to $341,300 in 2014 and rise 2.1 per cent to $348,600 in 2015…After 1,580 single-detached starts in 2014, a further reduction to 1,560 units is projected for 2015.’
“Given that spec homes comprise more than 90 per cent of single-detached units in inventory, this will prompt a slower pace of starts this year and next,” noted Mwale. Despite the moderation, single-detached starts will remain elevated by historical standards’
So they’ve got a growing inventory, 90% of which is speculative, and they are still building over a thousand houses?
I looked up the oil patch maps. Saskatoon is a couple hundred miles east of the nearest active oil sand deposits, and a couple hundred miles south of the nearest potential (spexploration) oil sand deposits. That is, it’s not really in the oil patch. Why are these houses out in the frozen boondocks more expensive than the DC burbs?
For the same reason Winnipeg prices went out of sight- it’s a mania, not something driven by economic fundamentals whatsoever.
“it’s a mania, not something driven by economic fundamentals whatsoever.”
OK, but manias are an accepted fundamental concept in economics.
Get over your contortionist self. The established definition of a mania isn’t a market fundamental.
‘manias are an accepted fundamental concept in economics’
I have a degree in economics. In one advanced class, the text book had one page on the Japanese real estate/stock bubble. It was really just a mention.
Winnipeg is the Paris of the Canadian Midwest.
Because Saskatoon sits on probably the biggest heavy oil deposit in the world in one place. Husky have been refining there since the very early 1900s and are leaders in the development of recovering that heavy oil which can sometimes look as hard as granite.
Canada has four types of in situ oil deposits - tar sands, heavy oil, conventional oil, offshore gel. Gel could be the largest deposits of them all.
Canada also has massive coal, uranium, hydro potential, wind, tidal, etc. spread across the country and being developed.
Lots of jobs - but not everywhere.
Interesting point earlier about parents helping their kids with purchase price. I have done that and had virtually no influence on how much they paid - wasn’t worth the argument. I think there is merit to prices being higher than they should be because of parental assistance.
I grew up in the Texas oil patch during two (close together) booms. The workers didn’t have expensive houses. Maybe the executives did, but the oil field guys and gals couldn’t have afforded the equivalent of these prices. And this is the median, meaning there are just as many that are more expensive. Saskatoon prices at these levels makes no more sense than Manteca CA prices being higher than Dallas.
Husky have been refining there since the very early 1900s
Thanks for mentioning that. Lot of formerly middle class people in Wyoming who are no longer middle class due to Canada nationalizing Husky and pulling out of Wyoming. Made it a much different place to grow up afterwards compared to before. It’s a sore spot for a lot of people.
Houses depreciate rapidly.
What are your losses to depreciation?
tile and stucco dont deprciate enough to worry about.
Even when falling off the backup?
Does Canada have institutional investors too?
I met an elderly couple on the Rideau last year who were cruising down to Kingston Ontario to “help” their sons. The boys were buying houses to rent and were up to 400.
Were these people loaded?