Canada's 'housing bubble' deemed close to bursting

[goodgrowth]

Originally Posted by ssiguy

Saw a BNN segment yesterday about Canada's declining real estate sector and it was very telling.

The realtor from Vancouver stated there is definitely a slow down in the market and prices could come down modestly over the next year and this was due primarily because of rising interest rates. So far so good.

Then he was asked how the developers would react in such a situation and he was very frank in that he can see developers not going ahead with many planned projects. Wait a minute. I thought we had a shortage of supply so wouldn't it be the best time to build when demand is lowering so supply would increase?

This is not a natural lack of supply issue but rather a very calculated and manufactured supply issue by developers to maintain low supply to guarantee ever increasing prices.

You realize costs scale for developers right?

It's as if homeowners are projecting their own absurd equity gains onto how it works for developers.

A developer can't build something with 1983's cost...it has to build it with todays costs.

[kwoldtimer]

Prices and sales down again in May, in K-W. Average prices now down 10% from peak in February.

[thurmas]

Bank of Canada will increase rates again June 1st so the market correction should be accelerated some more.

[ssiguy]

Originally Posted by goodgrowth

You realize costs scale for developers right?

It's as if homeowners are projecting their own absurd equity gains onto how it works for developers.

A developer can't build something with 1983's cost...it has to build it with todays costs.

Yes, I do understand that.

That said, in our most expensive markets it's not the house that costs the money but rather the land it sits on. As house prices decline so does the biggest cost to developers who want to build on it....the land.

[yaletown_fella]

Originally Posted by thurmas

Bank of Canada will increase rates again June 1st so the market correction should be accelerated some more.

I think the raising rates to 1.75% will be all thats needed to crash this overleveraged bubble economy.

Unfortunately any crash and increase in unemployment will be used as an excuse to go back to QE and push interest rates negative. This will only cause housing prices to futher skyrocket while we are in a stagflation environment. A very scary combination indeed

The BOC needs to scrap its goal of 2% inflation and set it to 0%. It needs to accept that allowing booms and busts , allowing rates to rise and letting leveraged households and businesses fail is integral to a sustainable economy. The idea that an economy can perpetually continue with 3% growth and 3% inflation year after year is pure nonsensical fantasy dreamed up by economists with no real world experience running a business.

We need to be planning for a stagnant/shrinking economy especially as the baby boomers die off and immigration slows as asia's standard of living rises and even eclipses many places in the west.

[casper]

Originally Posted by thurmas

Bank of Canada will increase rates again June 1st so the market correction should be accelerated some more.

i agree that is likely. Still sad and unneeded. Pricing are coming down on their own with the last increase. No need at all to increase the rate of decline.

I would be happies if the Bank of Canada were making modest adjustments, measuring the impact and then and only then making additional adjustments,

Dramatic and frequent changes are a bad thing.

[yaletown_fella]

Originally Posted by casper

i agree that is likely. Still sad and unneeded. Pricing are coming down on their own with the last increase. No need at all to increase the rate of decline.

I would be happies if the Bank of Canada were making modest adjustments, measuring the impact and then and only then making additional adjustments,

Dramatic and frequent changes are a bad thing.

What fantasyland do you live in? Housing is at least 30-40% overvalued minimum.

The Bank of Canada is bluffing. They have no intention to make housing affordable and cool off inflation. Once unemployment rises by a measley percent they will go back to 0% rates and QE.

.5% rate hikes is like trying to put out a forest fire with a bucket of water.

A deep recession and housing crash IS the cure but the BOC and feds are too cowardly to level with the people.

[ssiguy]

Interest rates should NEVER drop below 3% regardless of low inflation.

Very low interest rates create a perverted economic growth model............they encourage debt while simultaneously discourage savings.

[yaletown_fella]

Originally Posted by ssiguy

Interest rates should NEVER drop below 3% regardless of low inflation.

Very low interest rates create a perverted economic growth model............they encourage debt while simultaneously discourage savings.

Well said.

I felt sick to my stomach when, during spring 2020, the federal government announced the lowering of rates to zero as a measure of "bringing "relief" to Canadians"

My savings losing 15% of its value was supposed to bring me relief, apparently. That way I'd be prepared for the stagflation of 2022-2025

[casper]

Originally Posted by yaletown_fella

What fantasyland do you live in? Housing is at least 30-40% overvalued minimum.

The Bank of Canada is bluffing. They have no intention to make housing affordable and cool off inflation. Once unemployment rises by a measley percent they will go back to 0% rates and QE.

.5% rate hikes is like trying to put out a forest fire with a bucket of water.

A deep recession and housing crash IS the cure but the BOC and feds are too cowardly to level with the people.

I want stability in the market. I am not advocate for increased growth in the cost of housing. Idea case is hosing costs hold at 0% growth. They don't go down in value or up in value.. With inflation at around 5% after 4 years that gives you your 25% correction.

A deep recession and housing crash IS not the cure. It it the cause of an even worse economic situation that will negatively impact a large percentage of families in Canada.

Having the price correct slowly over 5 years is the ideal outcome.

[casper]

Originally Posted by ssiguy

Interest rates should NEVER drop below 3% regardless of low inflation.

Very low interest rates create a perverted economic growth model............they encourage debt while simultaneously discourage savings.

Why would we want to encourage savings in GIC or term deposits. Canadians should be investing in mutual funds or other growth oriented investments.

[swimmer_spe]

Originally Posted by ssiguy

Saw a BNN segment yesterday about Canada's declining real estate sector and it was very telling.

The realtor from Vancouver stated there is definitely a slow down in the market and prices could come down modestly over the next year and this was due primarily because of rising interest rates. So far so good.

Then he was asked how the developers would react in such a situation and he was very frank in that he can see developers not going ahead with many planned projects. Wait a minute. I thought we had a shortage of supply so wouldn't it be the best time to build when demand is lowering so supply would increase?

This is not a natural lack of supply issue but rather a very calculated and manufactured supply issue by developers to maintain low supply to guarantee ever increasing prices.

Then it is time to discourage the holding of land instead of development. One way to do that would be that the property taxes on vacant land be a certain percentage (50%-75%) of the nearest developed land. I am certain you start raising property taxes on that land, the developers will either develop the land, or they will get rid of it.

Originally Posted by goodgrowth

You realize costs scale for developers right?

It's as if homeowners are projecting their own absurd equity gains onto how it works for developers.

A developer can't build something with 1983's cost...it has to build it with todays costs.

They could stop building McMansions. They cold stop building 4000 sqft+ n postage stamp properties. That is why the costs have gone up. I'd bet that the developers have been building larger houses which is why they cost so much more.

Originally Posted by yaletown_fella

What fantasyland do you live in? Housing is at least 30-40% overvalued minimum.

The Bank of Canada is bluffing. They have no intention to make housing affordable and cool off inflation. Once unemployment rises by a measley percent they will go back to 0% rates and QE.

.5% rate hikes is like trying to put out a forest fire with a bucket of water.

A deep recession and housing crash IS the cure but the BOC and feds are too cowardly to level with the people.

Probably the most truest statement on here.

Originally Posted by ssiguy

Interest rates should NEVER drop below 3% regardless of low inflation.

Very low interest rates create a perverted economic growth model............they encourage debt while simultaneously discourage savings.

We are so used to zero, or near zero percent interest that we are scared of saving.

Originally Posted by casper

Why would we want to encourage savings in GIC or term deposits. Canadians should be investing in mutual funds or other growth oriented investments.

Why not have a variety of investment types that an investor could choose from?

[casper]

Originally Posted by swimmer_spe

Why not have a variety of investment types that an investor could choose from?

Parking money in a bank so the bank can loan it out is never going to generate any growth. At best it keeps up with inflation. Investing in business that generate revenue and employee people is a better solution.

One of the mistakes we made as a country a few years ago was providing tax benefits for Canadians to invest in foreign assets. We should have keep that in Canada and used it to encourage Canadian economic growth.

[goodgrowth]

Originally Posted by swimmer_spe

They could stop building McMansions. They cold stop building 4000 sqft+ n postage stamp properties. That is why the costs have gone up. I'd bet that the developers have been building larger houses which is why they cost so much more.

You talk as if developers can just build anything they want anywhere and not within the zoning rules and influence of locals.

What's the minimum lot size where McMansions are being built? Can the lots be subdivided? Could you get something like a duplex or triplex approved without there being a shitstorm from local residents?

[ssiguy]

An itsy-bitsy increase in interest rates like we have recently had sending the real estate market into a tizzy clearly exemplifies how completely over leveraged Canadians are and how our real estate prices no longer reflect local wages.

Ultra low interest rates are nothing but bad news for an economy. All they do is encourage investment in non-productive real estate speculation and house flipping. Half of Canada's economic growth since the 2008 recession has been due to the real estate sector which is why Canada's productivity levels and per-capita GDP has been steadily declining when compared to our Western peers.

[thewave46]

Originally Posted by swimmer_spe

They could stop building McMansions. They cold stop building 4000 sqft+ n postage stamp properties. That is why the costs have gone up. I'd bet that the developers have been building larger houses which is why they cost so much more.

Developers are profit-seeking businesses.

When buying a parcel of land to develop, they are going to maximize the profits from it. Since most parcels have a finite number of units that can be built due to zoning/underlying infrastructure, they will tend to build the most house one can on it.

Small houses tend to sell at lower prices, for the same reason small cars tend to have lower prices in North America. More size = more better here. Given that dynamic, building smaller homes makes no fiscal sense, unless the market for larger homes is tapped out, because small home = small sale price.

The most wasteful uses of space are huge lots with small homes on them. No-density SFH was only possible when cities were practically giving away lots in order to develop anything - dear God, anything - on them. So, one ended up with double lots on the cheap with no frills ranch-style bungalows on them. The early 1990s were not a fantastic time for this country.

[swimmer_spe]

Originally Posted by goodgrowth

You talk as if developers can just build anything they want anywhere and not within the zoning rules and influence of locals.

What's the minimum lot size where McMansions are being built? Can the lots be subdivided? Could you get something like a duplex or triplex approved without there being a shitstorm from local residents?

That is a bigger problem. If only there was someone that we elected that could change zoning laws......

Originally Posted by ssiguy

An itsy-bitsy increase in interest rates like we have recently had sending the real estate market into a tizzy clearly exemplifies how completely over leveraged Canadians are and how our real estate prices no longer reflect local wages.

Ultra low interest rates are nothing but bad news for an economy. All they do is encourage investment in non-productive real estate speculation and house flipping. Half of Canada's economic growth since the 2008 recession has been due to the real estate sector which is why Canada's productivity levels and per-capita GDP has been steadily declining when compared to our Western peers.

It shows more how close to the financial breaking point the average Canadian really is. Not just a question of miss 1 paycheck as Covid taught us, but see base interest rates rise by 1%. I hope the BOC and our current government have the strength to keep bringing it up by a few points over the next year or so.

Originally Posted by thewave46

Developers are profit-seeking businesses.

When buying a parcel of land to develop, they are going to maximize the profits from it. Since most parcels have a finite number of units that can be built due to zoning/underlying infrastructure, they will tend to build the most house one can on it.

Small houses tend to sell at lower prices, for the same reason small cars tend to have lower prices in North America. More size = more better here. Given that dynamic, building smaller homes makes no fiscal sense, unless the market for larger homes is tapped out, because small home = small sale price.

The most wasteful uses of space are huge lots with small homes on them. No-density SFH was only possible when cities were practically giving away lots in order to develop anything - dear God, anything - on them. So, one ended up with double lots on the cheap with no frills ranch-style bungalows on them. The early 1990s were not a fantastic time for this country.

This is where the whole "developer" way of building our cities went wrong. Some of the nicest neighbourhoods in the country are the post war boom areas.

[thurmas]

The market correction needs to happen. The economy is in a cancerous state and the rot of the phony real estate evaluation economy of the last 15 years needs to be cleared out so we can start fresh on firmer economic ground. The Canadian economy in reality should be similar to Japan and economic growth really is a thing of the past if the real economy was allowed to be shown in the light of reality.

[swimmer_spe]

Originally Posted by thurmas

The market correction needs to happen. The economy is in a cancerous state and the rot of the phony real estate evaluation economy of the last 15 years needs to be cleared out so we can start fresh on firmer economic ground. The Canadian economy in reality should be similar to Japan and economic growth really is a thing of the past if the real economy was allowed to be shown in the light of reality.

As much as I agree with you and I do hope it happens, I fear this market correction you speak of will cause the second Great Depression.

[Architype]

Originally Posted by swimmer_spe

As much as I agree with you and I do hope it happens, I fear this market correction you speak of will cause the second Great Depression.

Except the cause and effect could be reversed.