Canada's 'housing bubble' deemed close to bursting

[Doug]

Originally Posted by Spocket

Manitoba's housing was seriously undervalued for years and with renewed , relatively strong population growth putting pressure on an already under-supplied market , I don't understand why you think that Man. (or Sask for that matter) is a bubble market .

Prices in MB and SK have risen at levels far above the long term trend. Stronger, but still unremarkable, population growth might account for some of that. The other contributors, namely low interest rates and people moving back from higher priced Alberta, are one time events.

[Doug]

Originally Posted by freeweed

If by "realistic" you mean "historical during the inflationary years of the 1970s/80s", then yeah.

I dunno, I think 4-5% interest rates are rather healthy, presuming the economy chugs along at an acceptable pace. Certainly is much easier to live these days compared to the years of near-20% interest rates. Talk about debt slaves!

Realistic means a prime rate more in the 5-6% range as has been the mean over the post-war years, not 1% as current. Low interest rates are not a good thing across the board. Low rates encourage speculation as they underprice risk.

[rbt]

Originally Posted by Doug

Realistic means a prime rate more in the 5-6% range as has been the mean over the post-war years, not 1% as current. Low interest rates are not a good thing across the board. Low rates encourage speculation as they underprice risk.

A much higher bond rate than the US wouldn't be good either as our dollar would go up even further.

This is one of those times that boosting the land transfer tax might be a good idea. Add a 5% LTT calculated at time of purchase but payable at time of sale. 1% is taken off for each year the property is held: 3% after 2 years, 1% after 4 years, and no tax after 5 years.

Revenues to be treated like Section 37 funds. That is, they are spent locally improving neighbourhood amenities like park spaces, community centres, libraries, etc.

Never happen but an interesting thought experiment.

[freeweed]

Originally Posted by Doug

Low rates encourage speculation as they underprice risk.

Risk that only really is a concern if and when rates rise... kind of a self-fulfilling prophecy, there.

[Denscity]

I dont think vancouver and specifically downtown is in that much trouble. Demand to live there is quite high and there is not a vast amount of empty inventory like other cities. Even the olympic village is filling up. Once again supply and demand.

[LFRENCH]

Originally Posted by freeweed

Calgary saw its bubble burst a couple of years ago. Detached housing went down a fair bit, but condos got destroyed. Not every city had quite the speculator influence we did, but it's still a huge factor that seems to cause perpetual instability in the condo market.

I have to agree about Calgary, there has been some more innovation in the housing sector in Calgary that has help lower some inefficiencies. While these are not rocket science and many regions also use them, Calgary is starting to slowly diversify its building stock away from one housing model.

meanwhile Vancouver and Toronto's housing prices have outstripped both wage growth and innovations...

[freeweed]

Originally Posted by Denscity

I dont think vancouver and specifically downtown is in that much trouble. Demand to live there is quite high and there is not a vast amount of empty inventory like other cities. Even the olympic village is filling up. Once again supply and demand.

There's a lot more than S&D going on in Vancouver. How the hell does the average person afford a $1,000,000 house there? It's not like salaries in Vancouver are 3-5x the national average. Demand only accounts for so much - when most people simply cannot afford the cost, there's a lot more going on.

I don't care how much people want to live there, it doesn't explain mortgage payments in the $5000/month range. Nor how most people are affording them. And that's not even particularly expensive. A million clams doesn't buy very much these days in Vancouver.

[someone123]

Originally Posted by freeweed

There's a lot more than S&D going on in Vancouver. How the hell does the average person afford a $1,000,000 house there? It's not like salaries in Vancouver are 3-5x the national average. Demand only accounts for so much - when most people simply cannot afford the cost, there's a lot more going on.

Many factors:

-General desirability of the city. Vancouver is a great city with a mild climate (for Canada) and would be pricey even if it had a healthy market, but not $1.2M for a shack.
-Low interest rates, as mentioned.
-Government-backed mortgage insurance makes risky loans cheaper than they could otherwise be.
-Foreign, particularly Asian, buyers.
-Crazy public perception of housing as a foolproof investment that is "free" because "you have to pay rent anyway". Not many people realize that it took until 2005 for Vancouver housing values to get back up to 1983 levels when adjusted for inflation. People here really will fork over 60% of their money to pay for housing and shrug it off because it's Vancouver.
-Limited number of houses on the market. Most people living in average houses bought them many years ago. Not many paid premium prices.
-Some people sell crazy overpriced houses and upgrade. They are being ripped off but they have to put up $500,000 or whatever, not $1.2M.
-Lots of people rent out basement suites.
-NIMBYism. The downtown peninsula has lots of highrises but they are not permitted in most other inner-city areas.

[MolsonExport]

loved the crackshack/mansion game.

[freeweed]

Originally Posted by someone123

-Limited number of houses on the market. Most people living in average houses bought them many years ago. Not many paid premium prices.
-Some people sell crazy overpriced houses and upgrade. They are being ripped off but they have to put up $500,000 or whatever, not $1.2M.

I think these two factors must be the case for most homeowners. Secondary suites only bring you so much money, and I don't care if people pay 100% of their income towards a mortgage - the average wage in Vancouver isn't anywhere close to $5000/month after taxes. Hell even with 35 year mortgages (now gone, we'll see what that does to most markets) you're still talking about a mortgage payment greater than most people's net income.

Calgary was labeled "unaffordable" when our average housing cost hit HALF of what Vancouver's currently is. And incomes here are at least as high as Vancouver's (likely a fair chunk higher, but I don't want to start a pissing match on that front). It's beyond belief to imagine how someone could move to Vancouver. Unless a lot of landlords are losing a lot of money on rent right now.

[someone123]

Most average people who find themselves in Vancouver and needing housing either rent, overextend themselves to buy a very small condo in a suburban area, or do the same to buy a small house in a less desirable (poor and far-flung) location like Surrey. Buying a house in Vancouver proper right now is just not possible for most.

Unless a lot of landlords are losing a lot of money on rent right now.

I am not sure what the rules are for apartments. It's possible that they're not allowed to convert to condos, because there's a reasonable number of still fairly affordable units in areas like Fairview (near Broadway and Granville). My last two apartments were both 2 bedrooms. The one in Fairview was $1140 + utils and the one in Kitsilano was $1600 + utils. I don't think that's very far off the norm for a desirable urban area in Canada. This is one sign that properties are overvalued. It's possible to imagine the house I rented half of for $1600 going on the market for $1.8M.

[Spocket]

Originally Posted by Doug

Prices in MB and SK have risen at levels far above the long term trend. Stronger, but still unremarkable, population growth might account for some of that. The other contributors, namely low interest rates and people moving back from higher priced Alberta, are one time events.

Yes and no .
Winnipeg's price hikes stemmed from pent up demand long before the economy went in the tank . The city and province had to fast-track a huge development in the SW of the city because there was a shortage of lots . That's going back around seven years so even if the move back from Alberta exacerbated the problem it clearly wasn't the only factor involved .
The population gains wouldn't fall into the 'boom' category , I'll give you that but you should remember that we're talking about a province that saw nearly static growth for decades . A %5 gain in population over a roughly ten year period is going to have an effect in prices one way or another .

As Freeweed pointed out , Winnipeg's average wages have not kept up with the price increases . Nevertheless , housing is still affordable as he stated which suggests that the prices can be maintained indefinitely at the current wage/cost ratio . This is not a flip market where people often buy homes they never have any intention of living in . In other words , this is not indicative of a bubble .

I would concede that a lot Winnipeg's price growth stems from policy rather than natural market forces such as supply and demand . Again though , it would be misleading to insist that said increases are evidence of any sort of bubble .

[logan5]

I don't know much about real estate, so Ill ask this. Isn't a bubble bursting pretty much the same as a price correction or the industry adapting to market changes? It seems there are plenty of people waiting to buy, but at an adjusted price.

[vanman]

Basically every 6 months some "expert", "thinktank", or other organization icalls for the collapse of the "vancouver housing bubble". This has been going on for the last 12+ years that I've followed real estate closely. Time and time again these so called experts are astonished at how Vancouver somehow defies all logic and housing prices continue to rise. With the latest global recession housing prices dipped 10-20 percent, with interest rates rising I wouldn't be surprised if we see another modest correction, but it's wishful thinking to think we're going to see prices drop 50 percent or more.

As for the rest of Canada I'm really not that well informed enough to have an opinion.

[ssiguy]

Winnipeg will ease back as will SK, St.John's . Winnipeg has had strong increases but it was very undervalues. It's strong immigration numbers and diversified economy will hold back any major correction.
Almost all areas of the country will see a retreat in numbers especially Toronto. I could see a 20 to 25% percent decline in the national numbers but BC is where the real blood will flow.
I think Vancouver should consider itself lucky if prices only drop 35%.
Think about it..........the average prices of a SFH in Vancouver is now $1.22 million and $900k in the metro area. A 25% decline in Vancouver will bring the prices down to just under aa million..................still extremely expensive by any world standard and the fundamentals aren't there.
It is a relatively low income city with an unemployment rate well above the national average, it has a relatively small middle class, it's population growth rate has plunged and BC is now the third slowest growing population in the country. BC now has a net outflow of migrants to the other provinces and international immigration is down a whopping 40% from last year and 70% from 2009.
A disproportionate number of migrants from other provinces in the last 10 years have been retirees who add little to the economy but drain government revenue. Few people with kids or young people starting out move to BC.
The real estate cartels will tell you repeatedly that it's not the Chinese who are warping the market but it's obviously true. Even in the Chinese papers they are stating that 30% of all homes in Vancouver are being bought by Chinese which does not include the Chinese who are already here.
The thing is that interest rates have remained low and for the Chinese investors they mean nothing as they come over with cash in hand. That is now going to change due to the feds changing the immigration laws effective tomorrow. It took everyone by surprise which is what they wanted as they knew if they gave a long period of gradually bringing it in it would cause prices to soar as the Chinese desperately try to get into the market.
The BC and especially Vancouver market is going to crash---------big time. Unfortunately it will be the average Joe who will suffer and the "investors" will simply sell and move.

[Denscity]

We've been hearing that forever. we'll see.

[Nouvellecosse]

The report predicts a fall in house prices by as much as 25 per cent over the next three years.

I don't think 25% over three years constitutes as a burst bubble. It may be a faster decline than you'd see in typical long-term movements, but I'd still just call it a correction. It's all about the magnitude, and I'd say something would need to loose at least 1/2, or at the least 1/3 of it's value within a few weeks to be a burst bubble

[vanman]

The BC and especially Vancouver market is going to crash---------big time. Unfortunately it will be the average Joe who will suffer and the "investors" will simply sell and move.

If Vancouver's market were vastly overbuilt, like Miami or Las Vegas, than I would have to agree with you. However, the reality of the situation is that supply barely satiates demand. Nothing is built here on spec, everything is presold before excavation even begins. Lack of supply combined with sustained immigration, limited developable land, rapidly increasing density, desirable climate, and stable economy are all factors that will continue to buoy Vancouver's market for the forseeable future, despite what all the doomsdayers claim.

[SpongeG]

Originally Posted by freeweed

There's a lot more than S&D going on in Vancouver. How the hell does the average person afford a $1,000,000 house there? It's not like salaries in Vancouver are 3-5x the national average. Demand only accounts for so much - when most people simply cannot afford the cost, there's a lot more going on.

I don't care how much people want to live there, it doesn't explain mortgage payments in the $5000/month range. Nor how most people are affording them. And that's not even particularly expensive. A million clams doesn't buy very much these days in Vancouver.

it can be done if u got on the property ladder in the 90's, but i don't know how people do it either

anyway there was an article not too long ago and one of the problems with this housing costs here is the city is losing talent/employees or not able to get them to move here - businesses want people and offer them jobs here but when the person to be hired factors in cost of living they turn down the job and a lot of younger people are having to leave the city, I know a few people who have moved to Calgary, they just can't afford it here, they are making the same wage in Calgary but with that wage they can buy a house or a townhouse in the city and not in a far flung suburb

there are tons of low paying jobs, and lots of people live at home until their 30's saving up for a down payment, but than again I just read an article that said they sold 4 Roll's Royce's in june so some people are having the money here

[SpongeG]

Originally Posted by someone123

Most average people who find themselves in Vancouver and needing housing either rent, overextend themselves to buy a very small condo in a suburban area, or do the same to buy a small house in a less desirable (poor and far-flung) location like Surrey. Buying a house in Vancouver proper right now is just not possible for most.



I am not sure what the rules are for apartments. It's possible that they're not allowed to convert to condos, because there's a reasonable number of still fairly affordable units in areas like Fairview (near Broadway and Granville). My last two apartments were both 2 bedrooms. The one in Fairview was $1140 + utils and the one in Kitsilano was $1600 + utils. I don't think that's very far off the norm for a desirable urban area in Canada. This is one sign that properties are overvalued. It's possible to imagine the house I rented half of for $1600 going on the market for $1.8M.

my friends visited a friend of theirs in montreal last summer - she rents in downtown montreal, a two bedroom apartment for $800 a month - they were both in shock cause it was so central and cheap