The Housing Bubble

The London Free Press reports from Canada. “The latest indication the region’s economy is finally recovering from the 2008 recession came Tuesday when London-St. Thomas realtors released figures showing they’re on a hot streak, chalking up their best July sales since 2007. London-St. Thomas Association of Realtors president Jim Holody said the year got off to a slow start but has had a ’strong recovery’ with nearly 1,000 homes sold each month since May. Holody expects the sales surge to continue through the summer. ‘As long as interest rates don’t take a jump, it’s a good party,’ he said.”

The Toronto Star. “At a recent Toronto briefing by two senior mutual-fund managers with Fidelity Investments, the subject of inflation, interest rates and market bubbles came up. After 68 months of central bank interest rates at or near zero in North America and Europe, increases seem to be a year or two away. Inflation is modest but showing signs of stirring. Ontario is Canada’s inflation hotspot, where the provincial rate stood at 3 per cent in June.”

“Critics have been predicting a Canadian housing market crash since the U.S. housing bubble burst. Last week Fitch Ratings added its voice, saying Canada’s real estate market is as much as 20 per cent overpriced. Still, Toronto prices continue to rise. David Stockman, U.S. President Ronald Reagan’s budget director, said in a recent blog post that by telegraphing their intentions to keep rates low, the world’s central banks are pursuing financial instability. That’s because they are removing the element of risk that keeps speculation in check.”

“‘Financial markets have become casinos in which speculative bubbles are guaranteed to build to dangerous extremes as the central-bank-driven financial inflation gathers force,’ he wrote. ‘That’s where we are now. Again.’”

The Globe and Mail. “Consumers in Alberta and British Columbia are taking on a surprising amount of debt, much of which stems from high home prices. And there are signs that Canadians are placing less of an emphasis on saving, with reasonably healthy stock markets, rising home prices and low interest rates bolstering their confidence. Realtors in Calgary say there is some evidence that the pace of home price growth is stalling as more supply comes onto the market. ‘Following two years of annual increases and several months of monthly gains that exceeded 1 per cent, unadjusted benchmark prices appear to be levelling off,’ Ann-Marie Lurie, chief economist at Calgary’s real estate board, stated in a press release.”

The Suburban. “Verdun borough Mayor Jean-François Parenteau recently agreed to build only social housing on a municipally-owned lot on Gaetan Laberge instead of a larger project containing both condos and social housing. (There’s) a waiting list of 22,000 people for social housing while there’s a glut of condominiums for sale. ‘Quebec, New Brunswick, Nova Scotia and PEI each have more than a year of inventory to absorb,’ wrote Robert Kavcic, a senior economist with BMO Financial in June. ‘In most cases, those are decade highs that exceed even levels seen at the height of the Great Recession.’”

The Leader Post. “The group behind Regina’s first co-housing development is discovering that the idea is harder to sell than expected. The project has been delayed over negotiations with the contractor, while sales of the units have been sluggish. So far, 12 of the 27 units have been sold. The group had hoped to sign away 85 per cent of the units before construction began. ‘Equity members’ place a $35,000 down payment on their condominium. The units range in price from $275,000 to $530,000. ‘We are at the moment really trying to attract young families with children. We’re a little weak on that age cohort at this point,’ said Ruth Blaser, who joined the project in January.”

The Star Phoenix. “A surge in new properties listed on the MLS in July has led to the highest number of homes for sale in Saskatoon since 2008. The average price year to date was up three per cent to $356,800, due in part to an increase in homes selling at the higher end of the market. Home sales between $500,000 and $750,000 were up 40 per cent compared to last July while a total of nine sales between $750,000 and $1 million was almost double that of July 2013.”

“‘I don’t believe we are in a situation where the market is experiencing a correction, but rather it seems the long awaited summer weather has buyers opting for vacations instead of house hunting,’ Jason Yochim, executive officer with the Saskatoon Region Association of Realtors said in a statement.”

The Surrey Leader. “Lower Mainland real estate prices have hit new all-time highs, at least for detached houses. But townhouses in the Fraser Valley were up just 0.2 per cent to $298,500 and benchmark condo prices have fallen 3.6 per cent from July of 2013 to $194,700. Fraser Valley Real Estate Board president Ray Werger said condos are ‘a different story’ – they dropped as much as 16 per cent in Abbotsford over one year – but now offer ‘tremendous opportunities for buyers.’ Condo prices have also dropped 18.6 per cent in Squamish,14.7 per cent in Whistler, and 2.2 per cent in Maple Ridge.”

The Financial Post. “At their ages of 55 and 51, Dan and Martha, have hit a series of bumps in their road to retirement. A construction manager for a large company, Dan brings home $5,250 a month. Martha, a metallurgist, was laid off from her job last year. They are spending $6,127 a month to sustain their way of life, eroding savings they will need for retirement. They have an investment property purchased in 2012 that generates rental income insufficient to cover its mortgage and line of credit.”

“‘This couple has done everything right,’ says Benoit Poliquin, a financial planner in Ottawa. ‘Their problems are Martha’s layoff and the cost of carrying their rental property. Martha could add income from another job to keep the rental unit afloat, but that would be working to subsidize a bad investment. The alternative, which I favour, is to sell it and increase the security of their retirement cash flow.’”