Canada's 'housing bubble' deemed close to bursting

[misher]

Originally Posted by casper

The Vancouver Sun article quotes indicates a correlation but not a causal relationship.

The Canadian Western Economy is still very much dependent on natural resources. For the last decade or so China has been a key driver in commodity prices.

Last time we cut rates because of an economic crisis real estate went crazy (08 and 15). I expect the same to repeat here. Those talking about how real estate will follow stocks or how the economy will affect it forget that the exact same things were said then but didn't prove true. Cheap debt is king when it comes to real estate. We only have to look at what happened last time to predict what will again happen this time. Real estate looks like a lot more attractive investment once interest rates drop because monthly rents being paid are the same but the cost aka monthly mortgage payments are much lower. We have been talking about a lack of supply across Canada and this is going to light it on fire. Plus this virus is similar to past ones and two drugs that are already out have treated it in lab tests. So I expect this to be solved by April which is traditionally when the race starts.

To give you an example (very rough math here), $400,000 at 1.99% is $1691.88 monthly. Every 0.5% less means $100 less a month in payments. We've gone from our 2.7% rate to 1.99% which means we're making owning a home around 8% cheaper for someone already. Likely we will see that 1.99% drop even more making it about 10% cheaper. This is a massive change to the investment picture. Suddenly housing prices can increase 10% with today's rents and still have the same return on investment. We also have the stress test dropping meaning you can now qualify for about 4% more money. We may also get the Liberal first time home buyer bonus by April. It will be a bloodbath.

[misher]

Interestingly enough, if you correct for inflation Vancouver real estate stayed stable until interest rates were cut down to 0.5% in 2015.

[misher]

Emigration from Hong Kong appears to have risen by 24%. Not a "massive" increase but noticeable. Not sure how true it is but article states that they are selling their homes at a 5-10% loss to flee quicker which means Canadians or PR's with big money are coming here.

The desperation is reflected in the number of applications for “certificates of no criminal conviction”, a necessary document for emigration applications, which surged by almost 24 per cent in the first two months this year to 4,377 from the same period last year, according to the Hong Kong Police Force.

Applications for the certificate jumped 41.4 per cent to 33,252 last year, and they could surge by 25 to 30 per cent this year amid the gloom, according to John Hu, founder and principal consultant at John Hu Migration Consulting.

https://www.scmp.com/business/article/30...le&utm_source=Twitter#Echobox=1583284206

[misher]

Interest rates cut 50 points to 1.25 with the BoC indicating they may do more. Time for the market to get insane.

Several domestic factors are also weighing on first-quarter growth, including rail blockades, winter storms, weaker than expected business investment and a teachers strike in Ontario, the bank said.

https://www.bloomberg.com/news/articles/...tands-ready-for-more?srnd=premium-canada

[p_xavier]

House prices in Montréal are up 24% YoY... https://www.lapresse.ca/affaires/economi...-fevrier-dans-la-region-montrealaise.php

[MonkeyRonin]

I've been thinking it for a while now, what with the ramp up in development & gradual price growth, but this is just more evidence pointing to Montreal being where Toronto was about 5 years ago - at the precipice of inaffordability and massive real estate speculation & appreciation.

I don't think the market there will ever get to quite the same level of insanity as Toronto or Vancouver (larger rental stock, lower growth, better transit/less congestion, and fewer impediments to sprawl should help things), but the days of comfortably affordable Montreal are probably at their end.

[vanman]

Unfortunately you are probably right.

I've always been in awe of the relative affordability of Montreal considering the urbanity of the city. In most places attractive dense and walkable cities are also incredibly expensive.

[Dengler Avenue]

Maybe we just need another separation talk to bring the price down.

[yaletown_fella]

Originally Posted by misher

Interest rates cut 50 points to 1.25 with the BoC indicating they may do more. Time for the market to get insane.



https://www.bloomberg.com/news/articles/...tands-ready-for-more?srnd=premium-canada

These interest rate cuts are pure evil.

It's like they want to screw over savers and further inflate asset prices.

The coronavirus was actually an excuse for an overdue market correction, it's not in turmoil.

[misher]

Originally Posted by yaletown_fella

These interest rate cuts are pure evil.

It's like they want to screw over savers and further inflate asset prices.

The coronavirus was actually an excuse for an overdue market correction, it's not in turmoil.

I do agree that we should have rates of a minimum of 3-5%. However I understand why they had to cut rates.

Canada has to follow the US. For several very important reasons.

That being said, our economy was going down in late 2019 even before the protests or the virus. Even with out those two we were anticipating a cut of 0.25 in March. The Canadian economy is underperforming. And cheap housing is a lot less important that keeping people employed. I know a lot of people talk about housing but likely in the bank of Canada’s considerations it’s not even in the top 5. It really doesn’t matter how much homes are because rents don’t rise with prices and most people can downsize or find ways to reduce housing expenses as long as they are still employed.

[milomilo]

Originally Posted by yaletown_fella

These interest rate cuts are pure evil.

It's like they want to screw over savers and further inflate asset prices.

The coronavirus was actually an excuse for an overdue market correction, it's not in turmoil.

You'd rather the BoC had its mandate changed to benefit only "savers", to the detriment of the entire economy? You can debate whether central banks' priorities are correct, but calling the BoC doing what it is told competently "pure evil" is ridiculous.

[whatnext]

Originally Posted by milomilo

You'd rather the BoC had its mandate changed to benefit only "savers", to the detriment of the entire economy? You can debate whether central banks' priorities are correct, but calling the BoC doing what it is told competently "pure evil" is ridiculous.

With a rapidly aging population dependent on savings, what the BoC has done may not be evil, but it sure is stupid. Central banks everywhere messed up bigtime by depressing rates for too long.

No wonder those lucky enough to own their home take out reverse mortgages in record numbers. If you're a senior renter, you're fucked.

[milomilo]

You should probably write a paper, as you appear to have greater knowledge of how the global economy works than the entirety of economic academia. Nobel prize for whatnext!

[ReeceZ]

Originally Posted by misher

Canada has to follow the US. For several very important reasons.

Why? Is there some sort of mandate that we must replicate every single move or policy that they do? Are we striving to truly become America Jr.?

[lio45]

Originally Posted by MonkeyRonin

I've been thinking it for a while now, what with the ramp up in development & gradual price growth, but this is just more evidence pointing to Montreal being where Toronto was about 5 years ago - at the precipice of inaffordability and massive real estate speculation & appreciation.

I don't think the market there will ever get to quite the same level of insanity as Toronto or Vancouver (larger rental stock, lower growth, better transit/less congestion, and fewer impediments to sprawl should help things), but the days of comfortably affordable Montreal are probably at their end.

Those days ended 10+ years ago, I'd say.

(And "massive appreciation", I sure wouldn't say no to that )

[whatnext]

Originally Posted by milomilo

You should probably write a paper, as you appear to have greater knowledge of how the global economy works than the entirety of economic academia. Nobel prize for whatnext!

LOL, economic academia. We all know how reliable that can be.

How Did Economists Get It So Wrong?
By Paul Krugman

[milomilo]

Originally Posted by ReeceZ

Why? Is there some sort of mandate that we must replicate every single move or policy that they do? Are we striving to truly become America Jr.?

No, but whatever economic conditions the US is facing are likely to be what Canada is facing also. And there's exchange rates to worry about, if there was a higher interest rate in Canada, there's going to be more demand for CAD and thus a stronger currency, which we may not want.

Plus probably a heap of other considerations that neither you are I are educated enough to appreciate.

But sure, if you thinking it's just a desire for Canada to be subsumed into American hegemony makes you feel better, then it's your right to do so.

Originally Posted by whatnext

LOL, economic academia. We all know how reliable that can be.

How Did Economists Get It So Wrong?
By Paul Krugman

Well write that paper then, seeing as you know so much. Before you start though, be aware that central banks actually don't set interest rates just to let grannies get a little bit more out of their savings. If you think that is wrong, start telling the whole world, because it would be groundbreaking.

To be perfectly honest though, your analysis is likely about as valid as me looking out the window and saying there is no global warming because there is snow outside. You are ignorant, even if you don't think you are.

[whatnext]

Originally Posted by milomilo

No, but whatever economic conditions the US is facing are likely to be what Canada is facing also. And there's exchange rates to worry about, if there was a higher interest rate in Canada, there's going to be more demand for CAD and thus a stronger currency, which we may not want.

Plus probably a heap of other considerations that neither you are I are educated enough to appreciate.

But sure, if you thinking it's just a desire for Canada to be subsumed into American hegemony makes you feel better, then it's your right to do so.



Well write that paper then, seeing as you know so much. Before you start though, be aware that central banks actually don't set interest rates just to let grannies get a little bit more out of their savings. If you think that is wrong, start telling the whole world, because it would be groundbreaking.

To be perfectly honest though, your analysis is likely about as valid as me looking out the window and saying there is no global warming because there is snow outside. You are ignorant, even if you don't think you are.

Somebody piss in your tea today?

The theory low interest rates will stimulate anything runs out of steam when rates have been too low for too long. Even someone as simple as you should be able to see that. They should have learned from Japan, which has been stuck there for decades.

[milomilo]

No I just don't like it when people proudly display ignorance. I'm not going to pretend that I am an expert on the subject, but I understand enough to know that things are more complicated than the one thing you are assigning importance to. If the BoC had raised rates as you think they should, then that theoretically would have lowered GDP growth, thus making us poorer, which makes us better off how? We don't have a universe simulator to go back and test that, but if you believe all central banks are wrong, you probably should write a paper with all your work.

[CityTech]

A drastic hike in the interest rate would bring with it severe deflation, given that our currently low rates are already keeping inflation below 2%.