Canada's 'housing bubble' deemed close to bursting

[leftimage]

Originally Posted by flar

Everyone thinks they're middle class in North America. Sorry, but if your parents paid for you and your sister's educations and condos, you are not a typical family.

You're right that the term middle-class is way too elastic to have much worth. I have always perceived middle-class as floating around the average income mark (give or take 15%)

I should have been more forceful in my explanation. We ARE a typical middle-class family, as per average household incomes in Canada. Their incomes reflected the average.

Like I said, my parents helped us. They paid for less than 50% of our condos (in my case less than 30%) but I won't deny what a HUGE help this was, especially in regards to the mortgage approval process. What I'm saying is I would have been renting for a decade out of university before having the credit rating/salary required to buy. In this particular case, the savings go beyond the amount given. Even if only 1/5 people in my generation experience similar gains for similar reasons, the effect economic effect on the country will be substantial.

I'll concede that house prices and the cost of education are much more fairly adjusted to income where I am (Montreal) than in Vancouver, or Toronto to a lesser extent.

[ssiguy]

The issue with real estate and any impeding crash for Canada is disingenous.
Talking about a crash for Canada is like asking what the weather is going to be for Canada today................it's too big and diverse for that kind of general question.
Real estate, like the weather, is a very local affair. Some parts of Canada have a good equalibrium, some under valued, and some over valued.
Toronto will definately have a correction of possibly 10% to 15% but ground zero will be Vancouver, Victoria, and most of BC.
The "average" price of home in Greater Vancouver {not just the city itself} is now a jaw dropping $1,150,000........a whopping 69% increase in the last 39 months. There is now not one single house for sale in the city of Vancouver for under $600k............not one.
This in a low income city and a low income province with Western Canada's highest unemployment rate. Also, unlike Toronto ands Alberta, Vancouver's population growth has plunged as it is down 50% in the last 3 years and BC now has a population growth rate slightly less than the national average. In everyone of the last 4 quarters BC has had a negative interprovincial migration figure. BC also is now getting fewer international immigrants than was the norm. This made worse by the fact that the people leaving are mostly the young and educated who know that BC and especially Vancouver is no longer a financial option for them.
Figures this year are ominous.......there are now 16,500 homes for sale in Greater Vancouver, a record high and that does not include homes in Surrey/Fraser Valley. Sales are down 30% from last year and the sales/listings inventory is it's worse in this millenium including 2008.
BC residents are awash in mortage debt as well as having the highest general personal debt levels in the country and the most expensive cost of living even when excluding real estate. BC is ther only province with a negative savings rate and has had a negative savings rate every single year this decade...........BCers are broke and getting broker.
I definately could see not a correction but a complete collapse of the market as the , mostly Chinese, investors begin to realize that the market is falling and will put their homes on the market on mass.
BC are not only the most mortgage ladden but also where more likely to take out the Zero down /40 year amortization mortgages of a few years ago. Those who have been paying for the last 5 or even 10 years have little equity and when house prices fall dramatically they will find themselves in a massive negative equity situation.
If the average Montreal house of $270,000 drops in value by 20% then thats about $55k. A loss no one likes but most would stay and live with it. In Vancouver however, if the average house drops by 20% that's a loss of $230k.........no one will tolerate that especially because far more Vancouverites took out the longest possible mortgage and used the banksters 5% cash back......they have no equity in their home yet will owe $230k more on their home than it's worth. People will begin to simply walk away and houses will flood the market.
Many markets are based on need, demand, income, and population growth but none of those things have any significance in Vancouver. Vancouver's housing market is based on pure speculation and no longer has any correlation with the local economy or demographics.
When a housing market is based on speculation like the stock market and not sound fundamentals then it can boom but can bust even faster.

[osmo]

The whole "chinese" factor IMO is a overblown stunt proped up by the RE players and the media. Nobody can get a concrete number into how much their money influences prices. Some estimates say only 5-10%, which is not much. I agree that RE is heavily local and some markets are complete stink shows like Kelowna. I do believe price corrections will be seen across the board simply because the majority of Canadians leveraged them selves to deep. Just by numbers how can Babyboomers expect to come out of RE in the clear? Whom will by there homes when they represent such a large block of wealth I won't be ad even if al m peers did numbers don't add up. RE ad the media will point to "immigration" and "chinese money" but last time I checked when my parents moved here from overseas the last thing we did was buy a home lol. So with that the speculative money that has been pouring in well eventually like all speculative plays burn out. The truth is that a major correction stands to hurt Canada more-so than it did America. Places like BC have 30% of their economy tied to RE. Canadas GDP has RE taking up 15-17% - far from small numbers. The USA never was close to those levels aside from banana states like Arizona and Nevada.

Assets can't rise at the levels forever. I am young but I do remember Bre-X and Nortel and the stories told of how delusional people were to think they would stay bullish for ever.

I agree tho that its impossible to gauge when prices will fix them selves. The Govt is to chicken to act on the mess it created. Buyers have been making it known what they feel about the market as sales have been have been negative in the majority of CDN centers - yet prices still rise? Places like Kelowna and Victoria will indeed get hit the hardest (and first IMO) then you just have to play it by ear market to market. To cool things down eventually Carney will have to act on what he has been warning about (household debt levels are to high) and tweak interest rates, or Fed regulators will have to step in. There is talk that regulators will put foward a rule that if your home is in negative equity you won't be able to re-finance unless you pay the difference. They want to end double loans that are common in goofy markets. Its a drastic (Emperor Harper will likley try and weaken it) but much needed play tho to cool things off.

[MolsonExport]

Assets can't rise at the levels forever. I am young but I do remember Bre-X and Nortel

The former had no real assets (except for a few con-men drunkards), and the latter was widely speculative and based on cooked books.


Do they not teach how to construct paragraphs at school? Not trying to be a grammar snob, but my eyes hurt trying to read some of the rambling postings of late.

[osmo]

Originally Posted by MolsonExport

The former had no real assets (except for a few con-men drunkards), and the latter was widely speculative and based on cooked books.


Do they not teach how to construct paragraphs at school? Not trying to be a grammar snob, but my eyes hurt trying to read some of the rambling postings of late.

Its my mobile. I cringed a little reading it myself again just now.

You could almost say RE does both. For example the Toronto RE board has changed the way they report sales now. They are twisting numbers around to appear more favorable, plus the public still has no ability to do prudent research on MLS as valuable archived info is blocked to the public.

I'll clean up my posts above.

Question. With Bre-x did they have fake mines? What was their main Con?

[Pavlov]

Originally Posted by osmo

Question. With Bre-x did they have fake mines? What was their main Con?

If I recall correctly, the basis of the con were fraudulent geology reports that vastly overstated the amount of gold in their properties.

[Blader]

Originally Posted by Reesonov

If I recall correctly, the basis of the con were fraudulent geology reports that vastly overstated the amount of gold in their properties.

AFAIK, their results were 'salted'.

[freeweed]

Originally Posted by Blader

AFAIK, their results were 'salted'.

Yup, basically the samples they claimed were "full of gold" had very little or none naturally. It was all added to fool investors.

Comparing Bre-X and our current housing situation shows a complete lack of economics. The only thing the 2 have in common is that they both have dollar signs involved. Well, so does hockey, so I guess if the Flames missed the playoffs that means Canada's housing market is about to collapse.

[whatnext]

Let me give you Exhibit A, as proof of a bubble. Read the listing very carefully:

http://www.clairrockel.com/RecentSales.php/Details/343#viewdetail

[The Gibbroni]

Regardless of what happened in the U.S., the only thing keeping this ponzi scheme going are rock-bottom interest rates. The longer Carney avoids the inevitable, the more warped this insanity will become and the more severe will be the unavoidable crash. Fundamentals were thrown out the window a long time ago.

[The Gibbroni]

Originally Posted by leftimage

You're right that the term middle-class is way too elastic to have much worth. I have always perceived middle-class as floating around the average income mark (give or take 15%)

I should have been more forceful in my explanation. We ARE a typical middle-class family, as per average household incomes in Canada. Their incomes reflected the average.

Like I said, my parents helped us. They paid for less than 50% of our condos (in my case less than 30%) but I won't deny what a HUGE help this was, especially in regards to the mortgage approval process. What I'm saying is I would have been renting for a decade out of university before having the credit rating/salary required to buy. In this particular case, the savings go beyond the amount given. Even if only 1/5 people in my generation experience similar gains for similar reasons, the effect economic effect on the country will be substantial.

I'll concede that house prices and the cost of education are much more fairly adjusted to income where I am (Montreal) than in Vancouver, or Toronto to a lesser extent.

leftimage, you remind me of many people that I went to school with. You assume that most parents either pay for school or buy condos or provide a car or pay for the year off or.. whatever. The reality for a great many people doesn't really jibe with your reality and it will not be the reality of an increasing number of people in the future.

[freeweed]

Originally Posted by The Gibbroni

leftimage, you remind me of many people that I went to school with. You assume that most parents either pay for school or buy condos or provide a car or pay for the year off or.. whatever. The reality for a great many people doesn't really jibe with your reality and it will not be the reality of an increasing number of people in the future.

I think you misrepresent what he said. His parents helped him out financially, which is extremely common these days amongst the middle class (using "average income earners" as the definition for that). Of course not everyone is in this boat, but for right now, plenty are.

If you guys think it's just low interest rates driving prices right now - consider how many tens/hundreds of thousands of kids are basically being put into houses on their parents' dimes each year. It's a huge influx of cash into the market and it shows no signs of slowing. And it ain't just a small percentage - these are regular, average, median-income folks. Which is a huge chunk of our population. And we have 20-40+ years of boomer retirements/estate transfers to deal with.

[flar]

Strangely enough, I don't know any of these kids whose parents bought them houses (or helped pay). Except for my cousins, whose father was a very successful sales executive with a chemical company (i.e., not middle class).

Of course, my anecdotal evidence is not proof. However, I tend to see the largest chunk of our population as Walmart shopping families who spend most of their paycheques on mortgage and car payments.

[MolsonExport]

^and good ol' student debt. 10+ years now and counting...just 9 more to go!

[240glt]

Originally Posted by flar

Strangely enough, I don't know any of these kids whose parents bought them houses (or helped pay).

I don't either... and my parents certainly could have help me if they wanted to but chose not too (I got quite a bit of help with my post-secondary education, though) Like most of the people I know, I scratched and saved my 5% down for my first place.

I thing the term "middle class" is a bit misconstrued on this forum. From being here a while, it's pretty obvious that SSP has a high volume of trust fund/ silver spoon kids on it

[red-paladin]

Originally Posted by 240glt

...I thing the term "middle class" is a bit misconstrued on this forum. From being here a while, it's pretty obvious that SSP has a high volume of trust fund/ silver spoon kids on it

When I read years ago about the people that never went east of Boundary street, I started to realize that.
I'm the one who would benefit from a real estate price crash, as I don't think I could ever afford a house in Burnaby at the current prices... but I still don't think it's going to happen as fast and as sharp as described.

[suburbanite]

I'm just hoping the crash happens in four years when I finish school so I can pick up a nice condo in Toronto for cheap.

[osmo]

Yeah a good chunk of my friends have had their 'rents pay for school and fork over a chunk of the down payment. In past times I would have no issues with it but these parents (boomers) have very little saved for retirement and as I understand you gotta help your kids out but I feel it should only be if your own situation is shored up. I do know my folks would WANT to help me if I was in a tough financial spot but a mortgage is not a right. I would not want my folks to jeopardize their retirement money just so I can get a condo full of stainless steel.


The biggest perversion that RE/MLS/Realtors have done is sold the lie that a house is a right and rent is a waste. Last time I checked food was not a waste and neither is shelter. If the opportunity exists to get in an see appreciation then it makes perfect sense. But not now. Ideally young people should be getting in when its low - not high. Rent has become a bargain in most Cities as fees/taxes have been rising. Rents have risen to and in some markets like Regina you see a squeeze in rents were costs mirror the GTA. But overall if your slick with numbers you can easily rent a home for much less then it would be to purchase.

[freeweed]

Originally Posted by 240glt

I thing the term "middle class" is a bit misconstrued on this forum. From being here a while, it's pretty obvious that SSP has a high volume of trust fund/ silver spoon kids on it

While your observation may in fact be true, having your parents contribute to your financial situation is incredibly different than being a trust fund or silver spoon kid.

It's simple math. Go find the average incomes in an area, find the median - bam, there's the centre of the middle class. And yes, regardless of what everyone's anecdotes say, these people by and large help their children out financially. Some to the tune of a few thousand bucks towards school, some buy their kids a car, and some help out with a downpayment.

I hate to burst some bubbles here, but if you're barely making your mortgage payments and mostly shop at Wal-Mart, you're probably not middle class in most regions of the country. Especially if you're in this situation and you have adult children (ie: in your 50s).

[240glt]

^ and somewhere between the Wal-Mart shoppers and those who can afford to buy their kids a condo is what was formerly known as middle class. I guess as income gets redistributed, definitions are bound to change as well.

I wouldn't argue that helping kids out financially is a bad thing.... quite the opposite in fact. My parents' investment in my education has benefitted me greatly... I guess most of the people I know had varying degrees of financial assistance with that (and my dad co-signed my loan for an '83 Celica way back when I was in grade 11... but I paid it off!) But I know very few people (IE peers) who have had more than a few grand kicked in by their folks to help with a down payment.

This is really inconsequential anyways... I was just floored at the fact that someones' folks kicked in 30 or 50% of the cost to buy a condo... and we figure that "middle class" people do that for their kids. Wow..