April 30, 2015

The Ingredients You’d Expect To See In A Bubble

Reuters reports on Canada. “Bank of Canada Governor Stephen Poloz said it was not unusual to see an overvaluation in home prices given the market’s long rally but reiterated the country was not in the midst of a housing bubble. The central bank has estimated the housing market is overvalued by 10 percent to 30 percent. Poloz said that is a by-product of the sector’s strength since the global financial crisis, partly fueled by low interest rates. But Poloz said the sector is not in a bubble, noting that the bank has not seen the highly speculative behavior that is characteristic of such a scenario.”

“‘If we were all buying a second or a third condo with confidence that it was going to rise in price, and sell it to someone else, that would be one of the ingredients you’d expect to see in a true bubble,’ Poloz said. He added that the bank does not see ‘truly runaway pricing’ in the market.”

From CTV News. “A Vancouver home is raising eyebrows for its narrow size and gigantic price tag. The remodelled home in the city’s pricey Point Grey neighbourhood is only 3.6 metres (12 feet)-wide and approximately 945 square feet in size. When Vancouverites were shown a video of the home most agreed that it was quite nice. Their tone quickly changed, however, when they were told that the sellers were listing the home at $1.35 million. ‘And it’s that small? No,’ one woman said, appearing shocked. The narrow Point Grey home sold in just seven days.”

Business in Vancouver. “Pity the owners of multiple homes in Metro Vancouver: it is getting tougher to find conventional residential financing once they own more than five properties in the world’s second-least affordable market. ‘On Monday, another major bank pulled back their policies to only allow for five rental properties maximum, instead of having no limit to the number of rental properties. The move mirrors what most major banks are currently doing right now,’ Vancouver mortgage broker Kyle Green of Mortgage Alliance stated in a memo to clients. ‘It wasn’t too long ago that some of our clients were able to acquire 70 to 90 properties through major banks without too many issues,’ Green told BIV this week.”

From CBC News. “Calgary’s new condominium market has slumped to sales numbers not seen since 2010, a new report says. In the first quarter of 2015, sales totals were down 61 per cent compared to the first quarter of last year, the Altus Group market update says. And so far this year sales are 53 per cent lower than the average over the past five years. One reason sales are down from recent years is that fewer investors are buying condos to rent out. ‘Sales launch activity is substantially weaker than the past few years with investors having effectively exited the market for the time being,’ the report says.”

“The available inventory of new condominium supplies is up to over 2,700 units, the highest level since 2008.”

The Bonnyville Nouvelle. “The cost of a barrel of oil was slashed in half in the fall of 2014 resulting in Alberta’s natural resource sector shedding 20,000 jobs and crippling the provincial economy. The dramatic drop in oil prices had a domino effect on many aspects of the economy with the housing and rental market taking a huge hit. According to local realtor Iris Scherger the housing market hit ‘rock bottom’ in March with the number of houses on the market vastly outnumbering the amount of interested buyers. ‘We have a whole lot more sellers in ratio to buyers,’ said Scherger. ‘The buyers are holding back, they are in fear.’”

“The price of real estate in Bonnyville has dropped about 10 per cent over the last year with the supply outweighing the demand. While the situation here is bleak it isn’t as bad as it is in Cold Lake. ‘In ratio to what Cold Lake has in inventory to buyers they are a lot worse off,’ said Scherger. ‘If they don’t have a pick up in buyers in the next two months, they are going to see a 15 to 18 per cent reduction in price (from last year).’”

“The biggest surprise for Scherger throughout this whole market downturn has been the number of landlords who are selling their rental properties and getting out of the market. ‘I can’t believe how many of the rental properties went on the market; the ones where they have suites or they were accommodating five or six bedrooms for the renters,’ said Scherger. ‘That was a surprise. Landlords are actually selling their rental properties.’”

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Comment by Ben Jones
2015-04-30 03:03:40

And it wouldn’t be a bubble without the old light switch reference:

‘The last one was a slowdown; a correction where there were a lot of layoffs and contracts ended but there was still core work going on in the background,” said Scherger. “This time it was like a switch went off and it was shut down. It was more drastic in shorter term and blindsided us.”

Comment by GuillotineRenovator
2015-04-30 10:49:17

They’re very lucky right now, crude oil is back to $60 per barrel. That is GOOD MONEY.

Comment by Housing Analyst
2015-04-30 11:18:37

Not quite. And down 45% Since last year.

Comment by Ben Jones
2015-04-30 03:04:32

‘A wave of land speculators led by mainland Chinese buyers is snapping up old Burnaby rental apartment buildings, driving per door prices above $350,000 and razing the units for high-rise condominium construction. Burnaby has no restrictions on tearing down low-cost rental apartments and building condominiums in their place. Last year, the suburban city issued 419 demolition permits and are averaging 34 per month so far in 2015.’

“Ninety-five per cent of the buyers are now from China,” said Ben Williams, a broker with Burnaby-based London Pacific Property Agents Inc., which specializes in assembling and selling multi-family sites. Williams, working with Bill Goold, principal of Re/Max Bill Goold Realty, have sold the majority of Burnaby’s apartment buildings in the past few years.’

‘Investors are attracted by the math. Even with per-buildable-foot prices of $120 to $140, money can be made if the condo and rental markets remain heated.’

“I have 1,000 buyers looking for apartment sites,” said Goold, a specialist in multi-family sales. He said it is not uncommon to have 15 buyers lined up for an open house. “We are seeing multiple bids.”

Comment by Housing Analyst
2015-04-30 03:06:35

Reno, NV Sale Prices Plunge 9% YoY


Comment by Jingle Male
2015-04-30 15:30:44

from the link…..

The median home value in 89511 is $501,900. 89511 home values have gone up 11.2% over the past year and Zillow predicts they will rise 6.0% within the next year. The median list price per square foot in 89511 is None. The median rent price in 89511 is $1,600,

Comment by Housing Analyst
2015-05-01 02:04:32

“The median rent price in 89511 is $1,600,”

Yes Jingle_Fraud. Rent is half the cost of buying.

Once again….

Why buy a house when you can rent it for half the monthly cost? Buy after prices bottom out for 65% less.

Housing is cratering again.

Comment by Ben Jones
2015-04-30 05:44:13

“Mark Carney was almost a lot more eloquent [than Poloz], and I had a much better understanding of where things were going,” Jivan Sanghera of Dominion Lending Centres Home Capital Solutions told MortgageBrokerNews.ca. “It’s almost a situation where in some cases they use these policy announcements to influence the market and other times, when it’s time for the truth to be told, it’s a much more factual scenario.”

‘The criticism comes after the governor of the Bank of Canada assured Canadians the housing market is not currently in a bubble, despite his belief that housing prices are 10-30 per cent overvalued.’

‘It may be too little, too late, though. The Bank of Canada may have scared some potential homebuyers away with earlier warnings that seem to have now been softened.’

‘According to Poloz, skyrocketing real estate prices aren’t being fueled by speculation – a practice accused of inflating investment bubbles – but by consumer demand. “This is one of the byproducts of what we’ve been through. It’s not something that happened simply by itself,” he said. “It would be very unusual to have that and not have a degree of overvaluation.”

Comment by snake charmer
2015-04-30 06:58:29

People like Mark Carney and Stephen Poloz are the reason why few people in democracies have any confidence in their political and economic leaders anymore. Although I’m not sure individuals like that are the cause or the effect. This is starting to take on the appearance of a fable, with the moral being that greedy people and inept leadership have a chicken-and-egg relationship.

Comment by GuillotineRenovator
2015-04-30 11:02:40

These political hacks lead the lemmings off the cliff. When a few of the lemmings survive and call them to the carpet, they disappear or respond with “no comment” when asked to answer to their absurd practices which set the fools up like bowling pins in the first place.

Comment by Professor Bear
2015-04-30 20:41:08

“…despite his belief that housing prices are 10-30 per cent overvalued.”

It will retrospectively turn out to have been a bubble once housing prices have collapsed to a 10-30 per cent undervalued level.

Comment by Ben Jones
2015-04-30 05:48:42

‘Winnipeg has an oversupply of condominiums, and builders need to scale back construction to allow those unsold units to be absorbed, says the head of the Canada Mortgage and Housing Corp. CMHC president and CEO Evan Siddall said Wednesday a surge in condo construction over the last few years has led to a historically high level of unsold units in the city.’

“In Winnipeg, there has been a level of condo construction, particularly in the core, that suggests to us that there is some capacity in the system that needs to work its way through.”

‘He said as long as house prices don’t take off — and there’s nothing to suggest they will — and builders slow the pace of new construction, there should be no reason for a major market adjustment.’

‘He told the more than 450 delegates access to stable, suitable and affordable housing not only helps build stronger communities, but also a more stable financial system. “Much of the media coverage has focused on topics like household debt levels and house-price overvaluation,” he said.’

“But I believe there is a need to have a broader conversation about housing. We need to reflect on why housing matters — why it is important on so many levels and how it can be an effective tool to achieve broader social and economic policy objectives.”

‘He said he’s seen how much good housing matters to those who have struggled to obtain it.’

Comment by Combotechie
2015-04-30 05:49:20

“The dramatic drop in oil prices had a domino effect on many aspects of the economy with the housing and rental market taking a huge hit.”

How about the debt that financed all of this? Did it, too, take a huge hit?

No? You mean it’s still there?

Everything took a huge hit in price - which is the same thing as saying as everything took a huge hit in value - except the debt that backed the price, that backed the value; The debt that backed it all, it didn’t suffer, it didn’t take a huge hit - not yet, at least.

But it just might, the debt just might take a huge hit as did everything else in this localized economy, except the debt won’t necessarily be localized. Even if the debt is located thousands of miles away tucked in, say, somebody’s pension account then it still will be directly affected by what goes on in the local economy that determines the price of things (which means the value of things) that backs the debt.

Deflation, it can really be a bitch.

Comment by GuillotineRenovator
2015-04-30 11:03:47

Oil prices are rocketing back up. All of the talk now is that high prices are coming right back, that the crater was just a minor blip.

Comment by Housing Analyst
2015-04-30 11:19:59


Comment by Professor Bear
2015-04-30 20:48:16

There are lots of governments of oil-dependent exporting countries which would just love to see that rocket continue to head back up into the stratosphere.

As usual, the question gets down to whether government intervention will trump fundamentals.

Comment by Ben Jones
2015-04-30 05:52:51

‘The complaints against Ottawa’s tightening up on permits for temporary foreign workers has so far come mostly from Western Canadian restaurateurs, business associations and politicians. But opposition could catch on a lot more widely if homeowners were aware that the federal government’s crackdown could drive down residential property values.’

‘That’s because part of the glue still holding Canada’s relatively robust housing market together might just be non-permanent residents whose numbers have swelled to all-time high, according to a new report.’

‘Benjamin Tal, deputy chief economist with CIBC World Markets Inc., isn’t ready to predict a housing crash if the government continues to get tough on temporary workers, who make up half of Canada’s non-permanent residents, but he cautions policy-makers to proceed slowly with changes.’

“It’s not an insignificant element in the mosaic we call the housing market… especially in the rental market,” said Tal. “You can assume many of these people rent and [that affects] investors and the condo market.”

Comment by snake charmer
2015-04-30 07:03:31

I’m amazed economist Benjamin Tal isn’t writing the Chinese Politburo, “cautioning policy-makers to proceed slowly with changes.” Don’t extradite looters and fraudsters or throw them in jail, the mosaic we call the Canadian housing market depends on them. They are the glue!

Comment by Ben Jones
2015-04-30 07:21:04

They are getting goofy. From another link, not Tal’s:

‘Much of the media coverage has focused on topics like household debt levels and house-price overvaluation,’ he said. ‘But I believe there is a need to have a broader conversation about housing. We need to reflect on why housing matters — why it is important on so many levels and how it can be an effective tool to achieve broader social and economic policy objectives.’

Like keeping you out of bankruptcy court? Living high on the hog driving around “down south”?

Do they have a Canadian saying for taking an ass-pounding?

Comment by rosie from the north
2015-04-30 11:27:40


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Comment by snake charmer
2015-04-30 08:09:04

Below is another reason to proceed slowly with changes! Be careful Canada!

“A prominent Vancouver property developer has been identified as a Chinese corruption suspect who is wanted by Interpol, the South China Morning Post can reveal.

Photographs of businessman Michael Ching Mo Yeung, the president and CEO of Mo Yeung International Enterprise, match Interpol’s photo of fugitive Cheng Muyang, who is sought by the People’s Procuratorate of Qiaoxi district in Shijiazhuang, Hebei province, for graft and concealing and transferring illegal gains.

Cheng, 45, is the son of Cheng Weigao - a powerful official who served as party chief of Hebei and later chairman of the local people’s congress. Cheng Weigao was investigated for corruption and subsequently expelled from the Communist Party in 2003. He died in disgrace in 2010.”


Comment by Ben Jones
2015-04-30 05:58:27

FB advice columns:

‘A significant number of Ontario households are facing a problem that they thought they would never encounter, a foreclosure or power of sale of their property.’

‘The Bank of Canada has recently stated that Canadian household debt levels are now close to an all-time high. A number of organizations including the International Monetary Fund have stated that the Canadian housing market is probably in a bubble stage with the housing market is overvalued by as much as 30 per cent, with most of the bubble occurring in Vancouver and the GTA markets. The real estate market in Alberta is taking a nose dive due to falling oil prices and foreclosures will certainly increase in this market.’

‘There are some significant differences between a foreclosure and power of sale that homeowners should be aware of…In most cases, the home owner would like to stop the legal process and keep their home. The best way to stop a power of sale or foreclosure is to pay off any amount requested by the lender or their lawyers. The problem with this is that most homeowners do not have the cash to pay the lender.’

‘If your property has little or no equity, your best option may be to give the keys to the lender’s lawyer and vacate the house.’

Comment by Oddfellow
2015-04-30 06:54:49

Jingle mail in Ontario? That’s not the oil patch.

Comment by Ben Jones
2015-04-30 07:06:03

‘Winnipeg, Montreal and Moncton are grappling with a surplus of unsold condo units driven by a surge in new construction and a dwindling supply of first-time buyers in the wake of Ottawa’s decision in June, 2012, to limit mortgage insurance to amortization periods of 25 years or less from 30 years.’

‘The downturn has been most painful in Quebec, where the boom in condo construction started in 2011 and 2012 as young buyers, armed with cheap mortgages, flocked to the housing market. Roughly a third of Quebec buyers had taken out mortgages with 30-year amortizations – and that number rose to 40 per cent in Montreal, Mr. Cardinal said. He calculated that the change was the equivalent of raising interest rates by one percentage point.’

‘Similar problems have plagued markets such as Moncton and Halifax, according to a recent housing market forecast from Re/Max. In Regina and Saskatoon, the number of unsold housing units hit a 30-year high, Canadian Mortgage and Housing Corporation said, the majority of them condos.’

‘Winnipeg has also seen a surge of new condo construction since 2012 as builders rushed to cater to new immigrants under Manitoba’s provincial nominee program and retirees looking to downsize and spend their winters down south.’

‘Montreal in particular has been grappling with a glut of unsold condos for the past two years as builders haven’t scaled back their plans in the wake of softening demand. The city had a backlog of nearly 3,000 unsold condos last year, yet condo starts in Montreal rose 19 per cent, defying analyst expectations for a slowdown in new construction.’

‘There are now nearly 20 condo sellers for every one buyer in Quebec City and downtown Montreal, well above the long-term average, said Hélène Bégin, chief economist at Desjardins Group. In Gatineau, near Ottawa, condo prices have fallen 14 per cent, as stricter rules and federal government job cuts have sapped the confidence of new buyers.’

‘Yet despite a rising stockpile of unsold units, prices in Montreal’s condo market haven’t fallen, rising 1 per cent last year, in large part because developers are choosing instead of offer generous incentives instead of price breaks. “Instead of taking $10,000 or $20,000 off the price, they’re offering to furnish it with the whole washer, dryer, dishwasher, stove and fridge,” said real estate agent Mike Abatzidis of Re/Max Du Cartier.’

‘Desjardins’ Ms. Bégin expects to see a slowdown in new construction this year if the city is to avoid a serious downturn in its condo market. “If we don’t, the adjustment will be just more painful,” she said. Not everyone agrees. In downtown Montreal, a joint venture backed by Chinese investors recently broke ground on one of the city’s most ambitious condo projects, a two-phase, 800-unit project known as YUL Condominiums.’

“This is a world-class city which is still not seen as a condo market,” said Steve Di Fruscia, CEO of Tianco Group, the Vancouver-based company developing the project with Montreal’s Brivia Group. So far the project is 50-percent sold, but Mr. Di Fruscia says he confident the city’s glut of unsold condo inventory is merely the short-term growing pains of a city whose condo market is still developing.’

“We are very bullish on Montreal,” he said. “We think it’s a great time to plant seeds. We are very hungry for some more real estate in the city.”

Comment by Ben Jones
2015-04-30 07:11:31

‘A new report by condo research firm Urbanation suggests Toronto’s condo market has become more renter friendly due to a glut of supply and shifting demographics. Although the number of units rented in the first three months of 2015 grew by 11 per cent compared with a year ago, the report says new listings shot up by 21 per cent as a slew of newly completed condo units came on the market.’

‘Meanwhile, average rents grew at a slower pace and even declined in some neighbourhoods — perhaps a surprising development in a city where the booming real estate market continues drive up already sky-high prices for homebuyers.’

‘Urbanation senior vice-president Shaun Hildebrand says population growth among people in their 20s and 30s, who comprise the bulk of the city’s renters, has slowed.’

‘Despite the fact that competition between landlords to fill condo units has gotten tighter, Hildebrand says he doesn’t expect a significant uptick in vacancies. Lower mortgage rates mean that investors who have purchased condo units in order to rent them out will have more flexibility to lower their rental rates, he said.’

‘The statistics come just as the rental apartment market is poised to spike, after stagnating for the past decade while developers focused on building condo towers. Urbanation says eight rental buildings containing a total of 2,458 units are currently under construction in the Greater Toronto Area, with another 34 projects containing 6,723 units proposed. That’s a 75 per cent increase over the number of rental units developed over the past 10 years.’

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Comment by Oddfellow
2015-04-30 08:55:15

I wonder how many houses and condos there are per person in Canada.

Comment by Professor Bear
2015-04-30 20:53:21

‘If your property has little or no equity, your best option may be to give the keys to the lender’s lawyer and vacate the house.’

Not sure if this site has any useful advice for Canadians?


Comment by Colorado Renter
2015-04-30 06:22:24
Comment by Housing Analyst
2015-04-30 06:47:38


Denver, CO Housing Demand Plunges 11% YoY; Prices Slide Lower


Comment by Puggs
2015-04-30 08:53:40

Being a home owner for over 18 years I can attest to the fact that I’m barely above water after purchase, depreciation, upkeep and taxes. I don’t even want to think about the loses had I bought within the last 10 years! The wild card will be property taxes, paying rent to the county!

Comment by Professor Bear
2015-04-30 20:55:47

Our landlords can empathize with you, especially since they bought in 2004 and the Zestimate just recently realigned with the 2004 sale price!

Time will tell whether the Echo Bubble collapses before they can sell for enough to repay their note.

Comment by Can_Bubble
2015-04-30 10:15:27

‘Pity the owners of multiple homes in Metro Vancouver: it is getting tougher to find conventional residential financing once they own more than five properties in the world’s second-least affordable market. ‘On Monday, another major bank pulled back their policies to only allow for five rental properties maximum, instead of having no limit to the number of rental properties. ‘

So, with five (or six) national banks, and many smaller banks, it’s still possible for a creative and ambitious entrepreneur to own and rent out 30+ properties. Oh dear.

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