Canada's 'housing bubble' deemed close to bursting

[swimmer_spe]

Originally Posted by Architype

Except the cause and effect could be reversed.

The 2008 recession was caused by a housing issue. The problems from it are still felt around the country. Now, imagine that, but on steroids. That is what I am seeing as a real possibility.

[Truenorth00]

Originally Posted by swimmer_spe

The 2008 recession was caused by a housing issue. The problems from it are still felt around the country. Now, imagine that, but on steroids. That is what I am seeing as a real possibility.

In 2008, the US had a massive oversupply of housing. There were cities which had built half a decade's worth of supply.

Canada does not have the same problem. We have a shortage of housing.

[swimmer_spe]

Originally Posted by Truenorth00

In 2008, the US had a massive oversupply of housing. There were cities which had built half a decade's worth of supply.

Canada does not have the same problem. We have a shortage of housing.

We didn't have that problem then either and it still hit us hard.

[Architype]

Originally Posted by swimmer_spe

The 2008 recession was caused by a housing issue. The problems from it are still felt around the country. Now, imagine that, but on steroids. That is what I am seeing as a real possibility.

In the U.S. it was because of sub prime loans and an oversupply, lowering equity and causing defaults. When demand is lowered, value declines eventually. When we have shortages of housing such as in Canada it should cause more demand and inflation. I think if we continue to have inflation as a concern, we can't have a recession.

[thewave46]

Originally Posted by Truenorth00

In 2008, the US had a massive oversupply of housing. There were cities which had built half a decade's worth of supply.

Canada does not have the same problem. We have a shortage of housing.

In the US, it was the oversupply combined with the fact that oversupply was sold to large numbers of people who couldn't make the mortgage payments. As long as the music kept going and people kept buying houses, it worked. When people started defaulting, it all came apart, because there was no person to pass the buck to.

In Canada, falling prices will allow people who have been priced out to enter the market. These are people who've been on the sidelines. It will limit the catastrophic damage. There won't be streets of foreclosed homes, because there's tons of demand still pent up. All those younger and middle-aged people who've been priced out now may have a chance to get in. The country is adding ~400,000 people per year. Unemployment is very low. Demand for Canada's exports is high.

Cities aren't building homes like it's the 1950s and '60s for a bunch of reasons. One notices that the perimeter of Vaughan hasn't moved much in the past 15 years, despite massive growth in the GTA. In the late 1990s, it seemed as if Vaughan needed a new northern interchange every time I was headed to Toronto on the 400.

Some people are very gleeful to burn it down though. "Let's wreck the economy so houses can be cheap!" Uh, no, I did the early-to-mid 1990s, thanks. I feel no compulsion to go back. If I want to relive the 1990s - baggy pants and all - I'll rewatch Friends on TV.

[thewave46]

Originally Posted by swimmer_spe

We didn't have that problem then either and it still hit us hard.

When the world's largest economy does a splat, we get caught in it, regardless of the fundamentals here.

[Truenorth00]

Originally Posted by swimmer_spe

We didn't have that problem then either and it still hit us hard.

Do you remember 2008? It really didn't hit our housing market all that hard.

[north 42]

Originally Posted by Truenorth00

Do you remember 2008? It really didn't hit our housing market all that hard.

It sure as hell did here in the Windsor area and Southwestern Ontario.

[swimmer_spe]

Originally Posted by Architype

In the U.S. it was because of sub prime loans and an oversupply, lowering equity and causing defaults. When demand is lowered, value declines eventually. When we have shortages of housing such as in Canada it should cause more demand and inflation. I think if we continue to have inflation as a concern, we can't have a recession.

Check what was happening in 1929. You may see that similar things were happening.

Originally Posted by thewave46

In the US, it was the oversupply combined with the fact that oversupply was sold to large numbers of people who couldn't make the mortgage payments. As long as the music kept going and people kept buying houses, it worked. When people started defaulting, it all came apart, because there was no person to pass the buck to.

In Canada, falling prices will allow people who have been priced out to enter the market. These are people who've been on the sidelines. It will limit the catastrophic damage. There won't be streets of foreclosed homes, because there's tons of demand still pent up. All those younger and middle-aged people who've been priced out now may have a chance to get in. The country is adding ~400,000 people per year. Unemployment is very low. Demand for Canada's exports is high.

Cities aren't building homes like it's the 1950s and '60s for a bunch of reasons. One notices that the perimeter of Vaughan hasn't moved much in the past 15 years, despite massive growth in the GTA. In the late 1990s, it seemed as if Vaughan needed a new northern interchange every time I was headed to Toronto on the 400.

Some people are very gleeful to burn it down though. "Let's wreck the economy so houses can be cheap!" Uh, no, I did the early-to-mid 1990s, thanks. I feel no compulsion to go back. If I want to relive the 1990s - baggy pants and all - I'll rewatch Friends on TV.

The perimeter of Vaughan is not a good read. Remember, they put in the green belt in just north of that city. Drive around Durham for starters and you are seeing areas fill in and expand north that 20 years ago was nothing but farms. Drive north of the Green Belt and, you see places like Bradford and Barrie filling in.

Originally Posted by Truenorth00

Do you remember 2008? It really didn't hit our housing market all that hard.

Yes, I do remember. It did hit our economy hard.

[samne]

Originally Posted by swimmer_spe

Yes, I do remember. It did hit our economy hard.

The Economy took at big hit in 2008-2009, but housing not so much.

Difference this time is housing is a much much larger share of Canada’s economy right now.

[thewave46]

Originally Posted by swimmer_spe

The perimeter of Vaughan is not a good read. Remember, they put in the green belt in just north of that city. Drive around Durham for starters and you are seeing areas fill in and expand north that 20 years ago was nothing but farms. Drive north of the Green Belt and, you see places like Bradford and Barrie filling in.

The fact remains: The number of units constructed is below the demand, especially in high-demand regions such as the GTA.

As government continues to limit the construction of certain styles of housing and the construction labour market would be unable to respond meaningfully even if those restrictions were loosened, prices will remain elevated.

[swimmer_spe]

Originally Posted by thewave46

The fact remains: The number of units constructed is below the demand, especially in high-demand regions such as the GTA.

As government continues to limit the construction of certain styles of housing and the construction labour market would be unable to respond meaningfully even if those restrictions were loosened, prices will remain elevated.

The 2 can be true. Explosive growth is happening, but it needs to happen even more explosive. They could add double the units in the GTA each year and in 5 years, it would still not keep up to demand. Mind you, if all companies that have jobs that did allow you to work from home make it a permanent policy, then what is needed is a whole country approach to the growth. This means things like better internet access in rural areas.

[whatnext]

Originally Posted by samne

The Economy took at big hit in 2008-2009, but housing not so much.

Difference this time is housing is a much much larger share of Canada’s economy right now.

And it got that way thanks to the Bank of Canada and governments of both major parties.

[ssiguy]

An economy that is addicted to real estate is like any other addiction and God knows BC has been shooting up for 30 years.

Swapping real estate and turning a blind eye to money laundering is a quick fix for your economy but like all addictions it comes with a very heavy price. The addiction begins to take over your life so that you can't live without it. An addiction is when you go from taking the drug to feel good to taking it to stop from feeling bad and this is exactly what has happened to our real estate focused economy.

Getting off that drug is very difficult and can cause a lot of pain but over the long-term that once addicted person {or economy} will be far better off.

[thurmas]

Bank of Canada just raised interest rates again as predicted. Will be interesting how the real estate market goes after this one.

[yaletown_fella]

My controversial take: We overtax the building of new homes (including purpose rental and secondary units) , and undertax the primary ownership of houses. If you dont want to raise taxes on primary homeownership, the only alternative is cutting government services.

[yaletown_fella]

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.

I'm guessing you are gen X or younger?

Most Canadians are older and do not have the risk tolerance.

If your average retiree had all of their savings put in Cathie Woods ARKK Innovation Fund and Bitcoin (like CNBC was encouraging people to do a year ago) , they would be totally wiped out now!

Raising interest rates substantially higher than inflation should be the goal. A portfolio of 45% GICs and 40% canadian dividend payers and blue chip value stocks would be my personal ideal(the rest being precious metals, gold miners and some higher risk assets)

[swimmer_spe]

Originally Posted by thurmas

Bank of Canada just raised interest rates again as predicted. Will be interesting how the real estate market goes after this one.

Probably a lot of noise and not much else. We need to see them sustain the rise for real change to happen. Let's see what next year looks like compared to now.

Originally Posted by yaletown_fella

My controversial take: We overtax the building of new homes (including purpose rental and secondary units) , and undertax the primary ownership of houses. If you dont want to raise taxes on primary homeownership, the only alternative is cutting government services.

Another thing I'd like to see is 75% of the full tax rate on vacant land based on similar zoned properties. No longer will it be cheaper to sit on it and wait.

Originally Posted by yaletown_fella

I'm guessing you are gen X or younger?

Most Canadians are older and do not have the risk tolerance.

If your average retiree had all of their savings put in Cathie Woods ARKK Innovation Fund and Bitcoin (like CNBC was encouraging people to do a year ago) , they would be totally wiped out now!

Raising interest rates substantially higher than inflation should be the goal. A portfolio of 45% GICs and 40% canadian dividend payers and blue chip value stocks would be my personal ideal(the rest being precious metals, gold miners and some higher risk assets)

I don't want to sound cruel, but I do not care about retirees. They had their opportunities to grow their wealth.

[MonkeyRonin]

Originally Posted by yaletown_fella

My controversial take: We overtax the building of new homes (including purpose rental and secondary units) , and undertax the primary ownership of houses.

I think that's a fair take. Here are the current development charges in Toronto, and the proposed (49%!) increase for 2022:


https://twitter.com/itsahousingtrap/status/1513938131569057792/photo/1


Obviously, those costs are then passed on to the consumer; while property tax rates are amongst the lowest in North America. Being that buyers of new condos are generally going to be less wealthy than owners of existing SFH properties, it does come across somewhat as a case of the middle class & new buyers subsidizing the wealthy & incumbent homeowners. A 50% property tax increase for them would certainly never even be considered at the very least.

[Gresto]

I have no quarrel with taxing the hell out of SFH teardowns and McMansion rebuilds. In fact, they should be taxed much more, if not banned outright. New builds should perhaps bear less of a burden, while, yes, existing homes should shoulder more realistic rates.