Canada's 'housing bubble' deemed close to bursting

[goodgrowth]

Originally Posted by thewave46

When the Bank of Canada (and other western central banks) slashed rates as COVID started, they essentially did expand an asset bubble. The economy wasn't in recession in early-mid 2020 because of an economic cycle phenomenon, it was in recession because large sections of it were ordered closed by government. Creating a pile of money with no way for the economy to absorb it (more money chasing fewer goods) led to the ~30% rise in house prices over two years. How directly it led to the inflation we see today - a more multi-factor phenomenon - is up for debate, but as a policy tool, it seems a misguided move in hindsight.

This also makes me question whether you could really implement a UBI without having inflation problems.

[casper]

Originally Posted by WarrenC12

Wages are not going up with inflation. 8%? I wish.

If that were happening you'd see minimum wage at $18 this year, $20 next year.

In BC minimum wage is tied to inflation. The adjustment is automatic. Will be $15.65 on June 1st.

[Truenorth00]

Originally Posted by thewave46

When the Bank of Canada (and other western central banks) slashed rates as COVID started, they essentially did expand an asset bubble. The economy wasn't in recession in early-mid 2020 because of an economic cycle phenomenon, it was in recession because large sections of it were ordered closed by government. Creating a pile of money with no way for the economy to absorb it (more money chasing fewer goods) led to the ~30% rise in house prices over two years. How directly it led to the inflation we see today - a more multi-factor phenomenon - is up for debate, but as a policy tool, it seems a misguided move in hindsight.

You forget that this is all global and BoC does not act alone. What do you think would have happened if BoC didn't cut rates? Also, the goal of central banks is to front run events. It's way too late to cut rates when the recession has started.

Also, inflation is not just about interest rates. Go back to first principles. What is inflation? Too much money chasing too few goods. Lower interest rates are just one way we ended up with too much money. Fiscal stimulus was the other. Meanwhile, the supply shock reduced the supply of goods. How the economy would cope with mass closures and supply disruption was really not understood in March 2020. The Central Banks were right to cut rates. Governments were right to offer assistance. Yes, they could have fine tuned these policies. But that is hindsight.

Housing affordability is a tough issue. Let's not forget that the banks and government arranged substantial forbearance to bail out mortgagees. There was also an eviction holiday for renters. None of that has to do with the BoC's monetary policy. But it contributed to housing inflation. It's easy to criticize these in hindsight. But at the time would we be willing to risk a whole lot of families ending up on the street?

[thewave46]

I am still more curious if very low interest rates actually create real economic growth or just the illusion thereof (i.e. they create asset bubbles). By real economic growth, I mean technological and productive enhancements that produce long-term dividends for an economy. Some of the most innovative eras in history have been characterized by higher interest rates.

Whereas non-productive asset bubbles create the appearance of growth, but at the end of the day don't do much, except burn a bunch of people when they deflate.

[casper]

Originally Posted by thewave46

I am still more curious if very low interest rates actually create real economic growth or just the illusion thereof (i.e. they create asset bubbles). By real economic growth, I mean technological and productive enhancements that produce long-term dividends for an economy. Some of the most innovative eras in history have been characterized by higher interest rates.

Whereas non-productive asset bubbles create the appearance of growth, but at the end of the day don't do much, except burn a bunch of people when they deflate.

The technological and productivity growth comes from companies investing in new equipment. Low interest rates are one way of making the business case stronger for doing these types of upgrades.

There are other ways to do this as well. BDC is one of the banks owned by the federal government. It does a lot of that type of financing either directly or by guaranteeing loans through commercial banks. It would be a more direct tool to use.

[lio45]

Originally Posted by 1overcosc

And a beautiful natural setting, too. Kingston is the regional centre for an area that is very rural and wilderness-y; while we have typical Ontario towns to the east and west, once you go more than 20 minutes north of Kingston, it's all lakes, forests, and hills everywhere and not a single village with more than 500 people. If you like camping, hiking, canoeing, that kind of thing, Kingston is probably the best city in Southern Ontario for access to that stuff.

Slightly off-topic, but the reason the Canadian Shield offers better "camping, hiking, canoeing, that kind of thing" possibilities than Southern Ontario does is precisely because it's actually not Southern Ontario.

At least, not with my definition of Southern Ontario (under which Ottawa, Cornwall, etc. are in Eastern Ontario and not Southern Ontario).

I realize there exists a definition of Southern Ontario that is "everything in Ontario that isn't firmly Northern Ontario", but I don't find it very useful.

Southern Ontario to me is pretty obviously that triangle wedged between the lower three Great Lakes, where you have flat and fertile soil and deciduous forests dominate, and where most Ontarians live. It's a pretty distinct region.

[lio45]

Originally Posted by casper

In BC minimum wage is tied to inflation. The adjustment is automatic. Will be $15.65 on June 1st.

You can be both correct. Minimum wage doesn't push all wages up automatically.

I'm 100% sure Canadian incomes in general won't match, let alone outpace, the inflation rate of the average household's annual bill.

[casper]

Originally Posted by lio45

You can be both correct. Minimum wage doesn't push all wages up automatically.

I'm 100% sure Canadian incomes in general won't match, let alone outpace, the inflation rate of the average household's annual bill.

It is not going to be exact or the same for everyone.

Minimum wage in the provinces that tie it to inflation will follow lock step. There would obviously be a lag.

For union workers, the inflation rate is going to be a critical factor at the negotiation table. Will it be exactly inflation? Probably not, but it will be close.
That lag there may a few years as many of these contracts locked in increases for 3-5 years out.

The non-union positions are going to be more driven by market conditions. It is a tight job market just now. Employers will be under pressure to increase wages.

As wages go up, employers are going to be under increased pressure to re-engineer work processes to reduce head count. It is not surprise that McDonalds piloted self-serve kiosks in Europe years before introducing them to North America due to higher labour costs.

[Gresto]

Originally Posted by casper

In BC minimum wage is tied to inflation. The adjustment is automatic.

Same in Ontario.

[SignalHillHiker]

Same here as well, every April it's increased - but it's based on the percentage increase in the national Consumer Price Index, which is always lower than our provincial one, and also the initial starting wage prior to these automatic increases was locked in quite low. Current minimum wage here is $13.20.

[rbt]

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[swimmer_spe]

https://www.cbc.ca/news/canada/sudbury/sudbury-josh-keyes-house-buyers-remorse-1.6461379

I saw this and I am hoping this will cool the markets too. This is what happens when you don't have normal conditions on your purchase, like having a home inspection.

[whatnext]

Originally Posted by swimmer_spe

https://www.cbc.ca/news/canada/sudbury/sudbury-josh-keyes-house-buyers-remorse-1.6461379

I saw this and I am hoping this will cool the markets too. This is what happens when you don't have normal conditions on your purchase, like having a home inspection.

LOL, they couldn't afford a house in Vancouver so the next best thing is Sudbury?

[swimmer_spe]

Originally Posted by whatnext

LOL, they couldn't afford a house in Vancouver so the next best thing is Sudbury?

Basically.... The thing is, bidding wars are happening. In my area, a house went $110k over asking! That is insane!

[SignalHillHiker]

Over the past few months there has been a noticeable increase in the listing price of working class rowhouses here - I'd say the overall average has shifted from around $225K to $250K, and the frequency of steals under $200K has declined a lot since I bought in October. I only notice this because I was obsessively checking the listings a dozen times daily the four months I was looking, and I haven't yet broken the habit

But I think things are starting to slow down again. There have been multiple, turnkey, working class rowhouses listed recently for only a few grand more than I paid in October...



Whereas for a while there, almost all of the options looked more like this:

[thewave46]

Originally Posted by swimmer_spe

https://www.cbc.ca/news/canada/sudbury/sudbury-josh-keyes-house-buyers-remorse-1.6461379

I saw this and I am hoping this will cool the markets too. This is what happens when you don't have normal conditions on your purchase, like having a home inspection.

Originally Posted by whatnext

LOL, they couldn't afford a house in Vancouver so the next best thing is Sudbury?

It is easy to hate on this couple. They literally made about every big mistake one could make while purchasing a home/relocating to a city. They decided to go all-in on moving to a new place, bought sight unseen, overpaid in a city that doesn't have a ton of limitation for growth, and did not include a home inspection as a condition.

There's a lot of garbage houses out there. I have walked though many of them. Cracked foundations, wet basements, sketchy wiring, 'Let's butcher an old home' additions, bank repos, and the 'rented to substance-abusers' special. I must have walked through twenty homes over the course of my purchase.

However, while reading the article, my heart kind of goes out to them. They admit their expensive mistakes, and mostly are trying to warn others not to make the same ones. They're unhappy, but not excessively whiny.

But yes, warning is the key here. I get the pressure/worry of buying a home, and the intangible 'I gotta get anything before I am shut out' feeling. Admittedly, the best choice for the couple would have been to move to Sudbury and rent for a year. For all the mantra of 'Renting is a waste of money' drilled into our skulls, it allows one a way out after a year, no muss, no fuss. That's a huge advantage. It is better to rent, get the feel on the ground if one likes the city, then decide to view homes locally to find what one wants.

From the article, he is originally from Kapuskasing, so relocating to Sudbury does make some sense.

[Architype]

Originally Posted by SignalHillHiker

Over the past few months there has been a noticeable increase in the listing price of working class rowhouses here - I'd say the overall average has shifted from around $225K to $250K, and the frequency of steals under $200K has declined a lot since I bought in October. I only notice this because I was obsessively checking the listings a dozen times daily the four months I was looking, and I haven't yet broken the habit

But I think things are starting to slow down again. There have been multiple, turnkey, working class rowhouses listed recently for only a few grand more than I paid in October...

[IMG]https://i.postimg.cc/02wC1qF4/cheap.png[/ IMG]

Whereas for a while there, almost all of the options looked more like this:

[IMG]https://i.postimg.cc/QdZJXyrd/expensive.png[/ IMG]

The working class row houses are, after all, of limited supply & in a confined area. If they aren't making any more of them except for a few new townhouses (in the city centre), theoretically the price will increase more.

[Rollerstud98]

Originally Posted by SignalHillHiker

Over the past few months there has been a noticeable increase in the listing price of working class rowhouses here - I'd say the overall average has shifted from around $225K to $250K, and the frequency of steals under $200K has declined a lot since I bought in October. I only notice this because I was obsessively checking the listings a dozen times daily the four months I was looking, and I haven't yet broken the habit

I’ve been addicted to realtor.ca for a lot of years! Slowed down a bit after I bought my current house 4 years ago but I still check it multiple times a day to see what’s going on.

[swimmer_spe]

Originally Posted by thewave46

It is easy to hate on this couple. They literally made about every big mistake one could make while purchasing a home/relocating to a city. They decided to go all-in on moving to a new place, bought sight unseen, overpaid in a city that doesn't have a ton of limitation for growth, and did not include a home inspection as a condition.

There's a lot of garbage houses out there. I have walked though many of them. Cracked foundations, wet basements, sketchy wiring, 'Let's butcher an old home' additions, bank repos, and the 'rented to substance-abusers' special. I must have walked through twenty homes over the course of my purchase.

However, while reading the article, my heart kind of goes out to them. They admit their expensive mistakes, and mostly are trying to warn others not to make the same ones. They're unhappy, but not excessively whiny.

But yes, warning is the key here. I get the pressure/worry of buying a home, and the intangible 'I gotta get anything before I am shut out' feeling. Admittedly, the best choice for the couple would have been to move to Sudbury and rent for a year. For all the mantra of 'Renting is a waste of money' drilled into our skulls, it allows one a way out after a year, no muss, no fuss. That's a huge advantage. It is better to rent, get the feel on the ground if one likes the city, then decide to view homes locally to find what one wants.

From the article, he is originally from Kapuskasing, so relocating to Sudbury does make some sense.

I looked at 5 houses and did 4 home inspections before I removed conditions on the first one I bought. Trust me when I say that without those inspections, I would have been stuck with houses that are virtually unsellable. With my current house, the inspection found stuff, but it was stuff that was not that scary.

[Nashe]

Originally Posted by swimmer_spe

I looked at 5 houses and did 4 home inspections before I removed conditions on the first one I bought. Trust me when I say that without those inspections, I would have been stuck with houses that are virtually unsellable. With my current house, the inspection found stuff, but it was stuff that was not that scary.

Inspections are a good idea, but people shouldn't think of them as "guarantees". They're good at catching stuff that is VERY visible (or just sometimes oddly done) but it's nearly impossible to catch not-yet-leaking foundation cracks behind finished walls, for example. If you can't afford a home inspector at LEAST take someone though who has dealt with major home repairs or renos before. They've likely found a lot of the "gotchas" themselves. I've seen actual inspections quibble over tiny details (bracings that were technically improper but that were easily fixed and had been stable for 40 years+) but miss other things that were much more costly to repair.

Doesn't help that the "home inspection business" is... kinda wild wild west a lot of times.