Canada's 'housing bubble' deemed close to bursting

[milomilo]

Originally Posted by whatnext

...Pundits can bicker over the differences between the U.S. and Canadian housing booms or whether we are indeed experiencing a bubble, but one simple parallel points to a startling problem: We are building a lot more houses than we really need. From 2006 to 2011, Canada’s population grew by 3 per cent while housing stock grew by 7.1 per cent...

http://www.theglobeandmail.com/report-on...g-on-oil-and-the-loonie/article28083772/

If that is true, then it's awesome. How could more supply of housing for the population ever be a bad thing? Unless you happen to have put far too much money into a house as an investment rather than a place to live.

[dleung]

Originally Posted by whatnext

What makes it better than houses that mimic the character of the neighbourhood they are in? Wilson's house does everything "urbanists" are supposed to hate, most notably putting forward a cold blank face on the streetscape. Plus bare concrete is always a gloomy choice for a city with dark, wet winters.

The cold blank face seen in the photo is facing a side alley where the underground parking entrance faces. The part facing the street is a hedge wall, similar to most large SFHs in exclusive neighbourhoods. You are holding this suburban house to a higher standard of urbanity than you would if it were a traditional style. 99% the houses here are the 2nd, or 3rd redevelopment on the same site... who decides on when the character of an evolving neighbourhood should be frozen at a particular point in time?

[someone123]

Originally Posted by whatnext

...Pundits can bicker over the differences between the U.S. and Canadian housing booms or whether we are indeed experiencing a bubble, but one simple parallel points to a startling problem: We are building a lot more houses than we really need. From 2006 to 2011, Canada’s population grew by 3 per cent while housing stock grew by 7.1 per cent...

http://www.theglobeandmail.com/report-on...g-on-oil-and-the-loonie/article28083772/

Importantly the author also pointed out that household sizes did not decline during that period. If households were still shrinking that would explain the increased number of units.

I agree with pretty much everything in that article. I think Canada's in a really weak economic position now, and that there was too much false confidence in Canada after 2008. In order to do well over the long term Canadians need to start up innovative businesses in Canada and there needs to be lots of meaningful R&D. Not enough of that is happening, and the housing bubble is actually undermining it by making two of the main cities here less attractive. If Vancouver were affordable it would probably be able to compete much more effectively with the Bay Area, which has all sorts of its own drawbacks, but as it stands I understand why so many people move there.

I wonder if we're in the Wile E. Coyote phase right now as we wait for things like oil to go back up to previous levels. The problems with younger people earning less and taking on more debt are also going to take decades to play out. There might be some real carnage over the next 10-30 years as the inflated peak earnings of the baby boomer generation evaporate and the new generation in its "prime" turns out to be dominated by poor service industry workers who can't afford anything or save for their retirement. It's going to get interesting if Canada follows a naive approach and taxes the hell out of the working poor to pay for pensions and super expensive health care for a huge cohort comparatively privileged seniors.

[whatnext]

Originally Posted by someone123

Importantly the author also pointed out that household sizes did not decline during that period. If households were still shrinking that would explain the increased number of units.

I agree with pretty much everything in that article. I think Canada's in a really weak economic position now, and that there was too much false confidence in Canada after 2008. In order to do well over the long term Canadians need to start up innovative businesses in Canada and there needs to be lots of meaningful R&D. Not enough of that is happening, and the housing bubble is actually undermining it by making two of the main cities here less attractive. If Vancouver were affordable it would probably be able to compete much more effectively with the Bay Area, which has all sorts of its own drawbacks, but as it stands I understand why so many people move there.

I wonder if we're in the Wile E. Coyote phase right now as we wait for things like oil to go back up to previous levels. The problems with younger people earning less and taking on more debt are also going to take decades to play out. There might be some real carnage over the next 10-30 years as the inflated peak earnings of the baby boomer generation evaporate and the new generation in its "prime" turns out to be dominated by poor service industry workers who can't afford anything or save for their retirement. It's going to get interesting if Canada follows a naive approach and taxes the hell out of the working poor to pay for pensions and super expensive health care for a huge cohort comparatively privileged seniors.

Yes, we're almost where we were before the Great Recession. The commodity boom created a blip, but the economic fundamentals haven't changed since Chretien was PM.

In related news, Canadian housing starts fell unexpectedly in December:
http://www.theglobeandmail.com/report-on...arts-fell-from-november/article28105104/

[kora]

Canada Risks a Housing Bubble
Wall Street Journal
Jan 20 2016

"In Toronto and especially Vancouver, which has joined the ranks of the world’s most expensive cities, the debate over how to handle soaring home prices has come to center on the role of foreign buyers. Foreign real-estate investment that is speculative, in addition to helping to push up prices, can pose an additional risk because it may be more mobile and subject to capital flight, leading to increased volatility, Canada’s national housing agency has said."

[cornholio]

Well I am speechless in regards to Vancouver. Things are so fucked up its not even funny anymore. It cant keep up for ever, eventually cracks need to start forming. The alternative is increased brain drain, crime, racism, resentment, etc. Economically though Canada is in a really bad position, 2016 will be worse then 2015 and it will take years to iron out all our problems on the economic front. It will be interesting how that all plays out. As for me I actually got some loose change and might buy a crack shack in Windsor, first time I have considered buying property in Canada in a while. Low dollar, decent rents and vacancy rates, and cheap house prices along with a new bridge and some jobs coming back after many years makes it a pretty guaranteed win over the next 5 years.

[ssiguy]

In Vancouver the local economy and housing prices have long been operating in complete isolation.

Vancouver's economic health is very much more dependent on dictates from Beijing than Ottawa.

[north 42]

Originally Posted by cornholio

Well I am speechless in regards to Vancouver. Things are so fucked up its not even funny anymore. It cant keep up for ever, eventually cracks need to start forming. The alternative is increased brain drain, crime, racism, resentment, etc. Economically though Canada is in a really bad position, 2016 will be worse then 2015 and it will take years to iron out all our problems on the economic front. It will be interesting how that all plays out. As for me I actually got some loose change and might buy a crack shack in Windsor, first time I have considered buying property in Canada in a while. Low dollar, decent rents and vacancy rates, and cheap house prices along with a new bridge and some jobs coming back after many years makes it a pretty guaranteed win over the next 5 years.

Good idea, our housing prices have been rising quite a bit lately, and are forcasted to rise between 6 and 7% both this year and next.

[TorontoDrew]

For all you "THE BUBBLE IS ABOUT TO BURST" crowd here you go.

LOL: How many times have we heard this now? http://www.cbc.ca/news/business/cmhc-housing-prices-risk-1.3422284

Personally I hope it's true because I'm looking to buy soon but I know it's not gonna happen.

[Nathan]

Some of the analysis for Regina is quite odd at times... There was overbuilding in 2012-2014, which led to a softening in prices and low housing start-rates in 2015. This much is definitely true and is a healthy development on the whole (the 2015 market reaction). There was also a dire rental vacancy situation for those years (<1% availability), which led to a concerted effort to increase the supply. It's now risen to a healthier 4% or so.

However, this natural market re-balancing that occurred is treated as a sensationalist double negative in media and reports/analyses. "Overbuilding in Regina!! Serious risk of collapse!!!"... Followed by "Housing starts way down in 2015!!!... Demand has plummeted!!!... Serious risk of collapse!!!"

Along with: "Rental vacancies have ballooned!!!... The sky is falling!"

Previously, headlines read "Rental supply low, rents skyrocketing, people forced to live in their cars!"

Reports basically say unless you have perfect growth matching an acceptable long term trend, you're in trouble.

[lio45]

Originally Posted by TorontoDrew

For all you "THE BUBBLE IS ABOUT TO BURST" crowd here you go.

LOL: How many times have we heard this now? http://www.cbc.ca/news/business/cmhc-housing-prices-risk-1.3422284

Personally I hope it's true because I'm looking to buy soon but I know it's not gonna happen.

Out of curiosity, did you also "know" that the Sunbelt "bubble" was not going to burst...?

[geotag277]

Originally Posted by TorontoDrew

For all you "THE BUBBLE IS ABOUT TO BURST" crowd here you go.

LOL: How many times have we heard this now? http://www.cbc.ca/news/business/cmhc-housing-prices-risk-1.3422284

Personally I hope it's true because I'm looking to buy soon but I know it's not gonna happen.

Just for fun it would be interesting to see who can pull out the earliest article from mainstream Canadian media called out a housing bubble.

This very thread started in 2011 with an article from 2011 crying the sky is falling.

Here's one report from August 2010:

https://s3.amazonaws.com/policyalternati...ffice/2010/08/Canadas_Housing_Bubble.pdf

While the prospect of a bubble has been downplayed by the Bank of Canada, a number of economists have warned that Canada’s housing market is overvalued, which is bankers’ conservative way of suggesting a housing bubble may be afoot.

2009:

http://www.thestar.com/life/health_welln...in_store_for_housing_market_in_2009.html

Economists missed calling the real estate decline by a wide margin, to the point that last month the Bank of Canada warned ominously that many Canadians were in danger of losing their homes if the economic crisis gets worse.

Another 2009:

http://www.nationalpost.com/opinion/columnists/story.html?id=734ff73e-1f8c-4bfd-b3de-5e468913e8be

2005:

http://www.canada.com/national/nationalp...?id=33dddb8e-b351-4a48-a31e-2d61e515e7fa

As prices and affordability creep higher, economists argue that demand should fade. Whether it fades in one big whoosh or in a slow drip is impossible to tell but may depend on how quickly interest rates rise.

One common thread among all the articles is a bunch of overpaid economists spouting off their theories which inevitably are wrong. There is a reason the "Nobel Prize" for economics is not considered a real prize.

[lio45]

From memory, no one spoke of a bubble in my neck of the woods before the GFC in 2008 that sent interest rates to the floor and made real estate double in value overnight. Then yes, some people started to doubt the fact that these new crazy-high values should simply be accepted as the new normal. On the other hand... if the global economy has reached a point where it won't grow any way but slowly, maybe these interest rates are the new norm, which would make these new prices (which seemed bubbly at first, in the sense that they'll fall as soon as interest rates return to mid-noughties levels) the new norm as well.

I agree with you, it would be interesting to see where exactly in a place like Vancouver (where prices have arguably been out of whack with metrics like wages and rents since a long time, but the market's been continuing its steady and irrational march upward) started to be deemed a bubble. Late 1990s, probably.

[whatnext]

Originally Posted by geotag277

Just for fun it would be interesting to see who can pull out the earliest article from mainstream Canadian media called out a housing bubble.

This very thread started in 2011 with an article from 2011 crying the sky is falling.

Here's one report from August 2010:

https://s3.amazonaws.com/policyalternati...ffice/2010/08/Canadas_Housing_Bubble.pdf



2009:

http://www.thestar.com/life/health_welln...in_store_for_housing_market_in_2009.html



Another 2009:

http://www.nationalpost.com/opinion/columnists/story.html?id=734ff73e-1f8c-4bfd-b3de-5e468913e8be

2005:

http://www.canada.com/national/nationalp...?id=33dddb8e-b351-4a48-a31e-2d61e515e7fa



One common thread among all the articles is a bunch of overpaid economists spouting off their theories which inevitably are wrong. There is a reason the "Nobel Prize" for economics is not considered a real prize.

The problem is that a lot of outside commentators don't get the extent Chinese money is underpinning Canada's two largest housing markets. American economists really don't understand the scale of it. By all other economic fundamentals the bubble should have burst long ago. But when you have a massive, steady stream of largely unregulated grey money flowing into housing, you get the situation we are in now.

[gentlepuppies]

http://www.cbc.ca/news/business/cmhc-housing-prices-risk-1.3422284

It looks like the latest thinking from CMHC is that there's a bigger risk of bubble in Toronto than even Vancouver... could that be true?

[whatnext]

Originally Posted by gentlepuppies

http://www.cbc.ca/news/business/cmhc-housing-prices-risk-1.3422284

It looks like the latest thinking from CMHC is that there's a bigger risk of bubble in Toronto than even Vancouver... could that be true?

I love how CMHC (a government agency) just glosses over the Vancouver problem with: It pointed to the city's low vacancy rates and the predominance of high net worth buyers, saying demand will remain strong.

I'm surprised they don't feel the same for Toronto, as a lot of the Chinese money is at play there now.

[Drybrain]

Originally Posted by gentlepuppies

http://www.cbc.ca/news/business/cmhc-housing-prices-risk-1.3422284

It looks like the latest thinking from CMHC is that there's a bigger risk of bubble in Toronto than even Vancouver... could that be true?

CMHC says that Toronto's employment growth and incomes aren't sufficient to support the huge increases in prices and construction. Which is probably true, but Vancouver has only very slightly higher incomes, and slower employment growth, than Toronto (overall they're very similar).

So what's Vancouver's X factor? I guess people will say foreign investment, but is that not a thing in Toronto too?

[gentlepuppies]

Vancouver actually has lower reported incomes, though that's not really indicative of "net worth".

[TorontoDrew]

Again, this thread is the most comedic read on the forum.

Canadian real estate market outlook 2016
Don’t expect a bubble to burst in this status quo environment
http://www.moneysense.ca/property/canadian-real-estate-market-outlook-2016/


And lio45 the Sunbelt and the Golden Horseshoe have almost nothing in common when it comes to real-estate and economics. So I don't know whet your getting at.

Still waiting for this 10 year old bubble to burst. LOL.

[Nathan]

Originally Posted by gentlepuppies

Vancouver actually has lower reported incomes, though that's not really indicative of "net worth".

"Net Worth" can be a problematic metric to use to support real estate prices as Net Worth includes the value of a home less the mortgage outstanding. It forms a recursive relationship if it is used to justify high home values.