Canada's 'housing bubble' deemed close to bursting

[jonny24]

Originally Posted by swimmer_spe

I bought a house in 2015 and sold it in 2020. In that time it nearly doubled. hat is crazy that it did that, but it did my family good. The 42% correction would stick it back around what I paid for it, but up what would be expected after 5 years. Thankfully for my family, we plan on never moving, at least till we end up either in a nursing home or in the ground.

Who this will hurt are the people who changes houses often, especially the ones who use their houses as a way to gain wealth. This correction might see people holing on to their houses longer to keep from selling at a loss.

Just wanted to clarify something - the 42% drop was in sales, not in value. Fewer homes sold, not homes sold for less money.

[Acajack]

Originally Posted by Truenorth00

That was crazy. I lump that all in with assignments in general. What I don't get is how people look at all that and think that there was no bubble and no mania in our market. This is also why I don't think this stops at a 12% decline. When bubbles pop, the fear grows just as quickly as the greed did.

This is the most prescient post in the past 24 hours here.

A whole bunch of "underwater" mortgages are what led to the American economy crashing down in 2008.

It's one of the single biggest factors on people's bottom line (the biggest after income really) and when you impact it, it has a cascading effect that ripples all across the economy.

I don't know if Canada will get that bad or not, but the lights on the dashboard are basically all red right now.

Back then we were told that Canada's legacy banking system inherited from prudent Scots is mostly what saved us from catastrophe, but I'm not sure that we've been that prudent since then.

[casper]

Originally Posted by Acajack

This is the most prescient post in the past 24 hours here.

A whole bunch of "underwater" mortgages are what led to the American economy crashing down in 2008.

It's one of the single biggest factors on people's bottom line (the biggest after income really) and when you impact it, it has a cascading effect that ripples all across the economy.

I don't know if Canada will get that bad or not, but the lights on the dashboard are basically all red right now.

Back then we were told that Canada's legacy banking system inherited from prudent Scots is mostly what saved us from catastrophe, but I'm not sure that we've been that prudent since then.

The US had more housing than it needed. When the bubble burst you were left with houses that became vacant.

The US did not have a stress test similar to Canada.

The US was full of very small banks that lacked any geographic diversification.

There are a host of factors that are going to drive us in a very different direction than the US. Will our prices drop? Yes. I don't the the US is a good projection of where we are going. I fear it will be painful and we have a bank of Canada that is being far to aggressive.

[lio45]

I don't know whether it's really thanks to the Scots or not, but a tiny yet massive difference is that in Canada, you are personally liable for your mortgage (except, if I recall, in Alberta?) so if you're underwater, you can't just choose to give the keys to the bank and walk away without having to declare bankruptcy personally.

So, the threshold where we'd see this phenomenon happen (with the snowball effect) is much easier to reach in the US than in Canada.

[suburbanite]

I wouldn't consider the banks negligent or malicious in the same way that we saw in the U.S. leading to 2008. The mortgages they've been giving out were perfectly reasonable in the interest rate environment that we'd been living under for over a decade. If you want to say that stress testing should involve the possibility that someone's interest burden will triple in the span of 6 months than no one is qualifying for a mortgage or buying a home.

[someone123]

Originally Posted by suburbanite

I wouldn't consider the banks negligent or malicious in the same way that we saw in the U.S. leading to 2008. The mortgages they've been giving out were perfectly reasonable in the interest rate environment that we'd been living under for over a decade. If you want to say that stress testing should involve the possibility that someone's interest burden will triple in the span of 6 months than no one is qualifying for a mortgage or buying a home.

I am not sure how true or common they are but there are lots of stories about banks in Canada failing to verify incomes and I'm not sure Canada even has a good system to do this. Anybody can fake a T4 printout or PDF.

Then on the down payment side a lot of people are getting the money as loans or gifts from others so it's not much of a demonstration that they had the capacity to save.

A while back there were stories about lenders advertising mortgages to students at UBC/SFU. I wonder how many people borrowed and then no longer live in Canada or have assets outside of Canada that won't be involved if they do declare bankruptcy.

[WarrenC12]

I think we will see much bigger drops than 12%. That's also a national average. The burbs that saw huge spikes since 2020 will also see the biggest declines IMO.

If we look back to the house crashes of the early 80s in Vancouver and late 80s in Toronto, that's what we're in for IMO. It took decades to recover in real dollar terms.

[Acajack]

Originally Posted by someone123

I am not sure how true or common they are but there are lots of stories about banks in Canada failing to verify incomes and I'm not sure Canada even has a good system to do this. Anybody can fake a T4 printout or PDF.

Then on the down payment side a lot of people are getting the money as loans or gifts from others so it's not much of a demonstration that they had the capacity to save.

In some cases they will even sell without any down payment, with a piece of paper signed from a family member that says they "gifted" them the money, when no actual exchange of money for this takes place. So basically the property is 100% financed.

Please don't ask me how I know this!

[someone123]

Originally Posted by Acajack

In some cases they will even sell without any down payment, with a piece of paper signed from a family member that says they "gifted" them the money, when no actual exchange of money for this takes place. So basically the property is 100% financed.

I am skeptical of the idea that Canada has an unusually solid banking system and no bad behaviour along the lines of what happened in other countries.

I think lio's point is correct; there is a higher bar for bankruptcies. And the federal government bends over backward to keep people from missing mortgage payments, e.g. cash conveyor belt to landlords during covid.

[someone123]

Originally Posted by ssiguy

A KPU 2018 whitepaper entitled "Protection Is Not Enough" did a study on the ALR and it was both shocking and sad. It found nearly half of all ALR agricultural land {ie not including places like Burn's Bog where agriculture is not viable} that 50% of the land was simply being unused.

I think this is just a reasonable or expected outcome. Although it's unclear exactly what people want out of this policy. If there's some kind of shock or local food shortage then I'm not sure the ALR can become fully operable in time, and there is no plan to subsidize uneconomical agriculture that uses up 100% of the land around here.

Productivity keeps going up while it depends heavily on chemical and industrial inputs, so a given piece of land can produce more and more food over time and there's likely less distinction between the best and worse land. Canada produces lots of the inputs. Eventually we will have factory farming for more and more products.

In practice the ALR is an emotional/NIMBY policy based around people wanting to keep nice-looking farmland around where they live. That's not necessarily bad, but the idea of building tons of strategic blueberry fields does not really make sense.

[goodgrowth]

Agriculture is a huge export business in Canada so some of the arguments about protecting farmland for domestic concerns are a bit dubious.

There is also the thing where a lot of Canadians don't even want to work in farming. How many times do you hear about TFW's in poor conditions on farms in Canada?

I think a portion "farmland protectionism" concerns are intertwined with general environmentalism/nimbyism similar to with greenbelts. It's basically vibes-based environmentalism based on appearance. If living looks like some sort of primitive localism like it's The Shire then that means it's more environmentally friendly.

[kwoldtimer]

Originally Posted by WarrenC12

I think we will see much bigger drops than 12%. That's also a national average. The burbs that saw huge spikes since 2020 will also see the biggest declines IMO.

If we look back to the house crashes of the early 80s in Vancouver and late 80s in Toronto, that's what we're in for IMO. It took decades to recover in real dollar terms.

The drop in K-C-W for detached houses has already exceeded 20%. July numbers will likely show a year on year drop in the average price of SFHs.

[someone123]

Originally Posted by goodgrowth

I think a portion "farmland protectionism" concerns are intertwined with general environmentalism/nimbyism similar to with greenbelts. It's basically vibes-based environmentalism based on appearance. If living looks like some sort of primitive localism like it's The Shire then that means it's more environmentally friendly.

Yep. I sometimes wonder if this is the most harmful force in Western and Canadian politics (anti-nuclear being a part of this umbrella as well). There are worse fringe groups to be sure but they have less impact, while the low information environmentalist crowd has had a big impact. They might be fighting for the #1 spot with low information globalists who by and large are probably the same people.

[ssiguy]

Originally Posted by WarrenC12

I think we will see much bigger drops than 12%. That's also a national average. The burbs that saw huge spikes since 2020 will also see the biggest declines IMO.

If we look back to the house crashes of the early 80s in Vancouver and late 80s in Toronto, that's what we're in for IMO. It took decades to recover in real dollar terms.

Desjardins is forecasting a 15% drop but I think that is also optimistic. Remember that these are banks that have a vested interest in making sure the housing market doesn't fall too much so don't expect honesty.

Of course real estate is local and I don't think you will see any significant falls in the Prairies, Quebec, or even AC with it's recent surges because all these areas have real estate that is still relatively in line with incomes. Ontario & BC are going to bear the brunt and BC more so over the mid/long term because so much of it's economy is based upon real estate at nearly twice the national average.

I don't see how any of the market in the 2 provinces will escape giving up at LEAST all of the gains of the last 2 years. I think BC will give up the gains plus 15 to 20% while Ontario gains plus 10 to 15% depending on the markets because Ontario wasn't nearly as expensive as BC before COVID.

When you consider the recent gains and you add on 10 to 20%, you are talking a 40 to 50% decline in prices in some markets.

[Innsertnamehere]

I doubt it’ll drop below pre-pandemic. Wages are up significantly since then as is inflation, even with higher interest rates people can afford more.

I wouldn’t be surprised if it drops to around where it was in early 2020 though.

[Wigs]

Originally Posted by niwell

I've mentioned this before but we were briefly looking at older cottage type houses in Crystal Beach, Niagara. 1,200 sq ft places on a postage stamp lot were asking upwards of $700k, yet were literally sold within the past 5 years for $150k or less. Some of these were three season only and not in great shape. I vetoed that area pretty quickly, unless we could find something in good shape closer to a real town centre.

good thing you vetoed it, and not just on price. The "townies" in Crystal Beach can seem like they came from an episode of Trailer Park Boys.
Not everyone of course, but enough that the area has had a decades long reputation

Nearby Ridgeway is so close but can seem like a huge difference with many less oddball types, that it shocks people. People in Fort Erie generally just seem slightly quirky lol

I could have helped you or put you in touch with people that know South Niagara in and out.
You could have bought a small "summer/getaway/investment" house really cheap in nearby Port Colborne/Wainfleet

Where did you and your wife/partner end up buying?

[casper]

Originally Posted by someone123

I am not sure how true or common they are but there are lots of stories about banks in Canada failing to verify incomes and I'm not sure Canada even has a good system to do this. Anybody can fake a T4 printout or PDF.

Then on the down payment side a lot of people are getting the money as loans or gifts from others so it's not much of a demonstration that they had the capacity to save.

A while back there were stories about lenders advertising mortgages to students at UBC/SFU. I wonder how many people borrowed and then no longer live in Canada or have assets outside of Canada that won't be involved if they do declare bankruptcy.

It is a bit more than a T4. Usually they want to the assessment document and in some cases a letter from an employer stating the person is in a permanent position with wages and contact info. Wearing the employer hat I had had calls from bankers calling to confirm an employee is employed.

[Acajack]

Originally Posted by someone123

I am skeptical of the idea that Canada has an unusually solid banking system and no bad behaviour along the lines of what happened in other countries.

Much of the rest of the world seems to think that Canadian real estate sector and the banking system that supports it are a quasi ponzi scheme.

I suppose that many Canadians would say those people are "just jealous".

[casper]

Originally Posted by Acajack

Much of the rest of the world seems to think that Canadian real estate sector and the banking system that supports it are a quasi ponzi scheme.

I suppose that many Canadians would say those people are "just jealous".

Perhaps. If that were the case why are the Canadian banks finding a lot of success in selling Canadian mortgages on the world market.

[Loco101]

Originally Posted by ssiguy

Desjardins is forecasting a 15% drop but I think that is also optimistic. Remember that these are banks that have a vested interest in making sure the housing market doesn't fall too much so don't expect honesty.

Of course real estate is local and I don't think you will see any significant falls in the Prairies, Quebec, or even AC with it's recent surges because all these areas have real estate that is still relatively in line with incomes. Ontario & BC are going to bear the brunt and BC more so over the mid/long term because so much of it's economy is based upon real estate at nearly twice the national average.

I don't see how any of the market in the 2 provinces will escape giving up at LEAST all of the gains of the last 2 years. I think BC will give up the gains plus 15 to 20% while Ontario gains plus 10 to 15% depending on the markets because Ontario wasn't nearly as expensive as BC before COVID.

When you consider the recent gains and you add on 10 to 20%, you are talking a 40 to 50% decline in prices in some markets.

It seems as though there will be a huge demand for housing for awhile. But I do agree that we will see prices fall by 20-40% in many areas that had the largest recent increases. Not a bad thing overall.