Canada's 'housing bubble' deemed close to bursting

[ssiguy]

Prices continue to plunge in BC.
For the Fraser Valley median detached prices are now down $443k {-25%} since earlier this year's peak. Greater Vancouver is $325k {-16%} and Kelowna $325k {-23%}.

[casper]

Originally Posted by ssiguy

Prices continue to plunge in BC.
For the Fraser Valley median detached prices are now down $443k {-25%} since earlier this year's peak. Greater Vancouver is $325k {-16%} and Kelowna $325k {-23%}.

The Vancouver drop needs to be carefully monitored but is acceptable. The other two market are concerning.

More indication the Bank of Canada need to be less aggressive.

[Truenorth00]

Originally Posted by casper

More indication the Bank of Canada need to be less aggressive.

Why? Housing prices are not a mandate of the Bank of Canada. Inflation and employment are.

[casper]

Originally Posted by Truenorth00

Why? Housing prices are not a mandate of the Bank of Canada. Inflation and employment are.

Cost of housing is a major factor in the CPI. Housing and rental costs going up is a contributor to inflation. Housing starts is a significant factor to employment.

This should be an early indicators of where inflation and employment are going.

I am not concerned with housing costs going down. I am more concerned with wild swings.

[Truenorth00]

Originally Posted by casper

Cost of housing is a major factor in the CPI. Housing and rental costs going up is a contributor to inflation. Housing starts is a significant factor to employment.

This should be an early indicators of where inflation and employment are going.

Rent is going up. And as has long been debated, StatsCan and BoC treat owned homes as financial assets and don't include them in CPI calculation. So inflation will definitely not be going down all that fast, even with home prices dropping.

[casper]

Perhaps it is a bit to early to get concerned.

More reports and it is fairly clear from these graphs that the Toronto market is at the same price point it was this time last year. Transaction volume is way down.

https://financialpost.com/real-estate/housing-market-not-melting-down-statistics

[swimmer_spe]

Originally Posted by casper

Perhaps it is a bit to early to get concerned.

More reports and it is fairly clear from these graphs that the Toronto market is at the same price point it was this time last year. Transaction volume is way down.

https://financialpost.com/real-estate/housing-market-not-melting-down-statistics

The way I am reading this is that overall, the goal of cooling the market is happening. It also sounds like the worry of a crash is just a scare tactic and is not happening.

[casper]

Originally Posted by swimmer_spe

The way I am reading this is that overall, the goal of cooling the market is happening. It also sounds like the worry of a crash is just a scare tactic and is not happening.

I would agree with you on that. The sales volumes are down. Prices have eased a bit but are not in free fall.

[swimmer_spe]

Originally Posted by casper

I would agree with you on that. The sales volumes are down. Prices have eased a bit but are not in free fall.

Reality, that is what most people who aren't investors want. The problem is investors are not liking it.

[ssiguy]

The BoC has ONLY 2 mandates..............to keep inflation in check and to maintain the integrity of the currency. Any other financial or economic policy mandates are strictly the responsibility of the government of the day. They certainly always set the rates with an eye on how it will effect the wider economy but that is secondary.

The Bank must get a lid on inflation because it will go no where but up and unless it takes decisive action and if that blows the lid off our housing bubble or cause government debt payments to rise that is none of their concern.

The US Fed has more leeway than any other Central Bank because the US$ is the world's reserve currency. It will always have mild fluctuations but doesn't have to worry about a plunging value in it's strength. Right now the CDN$ is at about 78 cents which is not great but actually compared to most other major currencies it's holding up quite as well especially against the plunging Yen, Pound, and Euro.

A good deal of that strength is due to the BoC being far more decisive in it's interest rate hikes than those other jurisdictions. If it lets off the case the dollar will plunge and sent the inflation rate much higher as the price of our imports from the US soars.

[someone123]

A while ago I think I heard people talking about a 0.25% or 0.5% rate hike for this week but now I'm seeing more speculation about 0.75% or even 1%.

[Innsertnamehere]

I would be surprised to see 1% but am no economist.. inflation has clearly peaked already and gas prices continuing to plummet will keep putting downwards pressure on CPI. I just don’t see the need for such an outsized hike, particularly since BoC has always said it expects to peak out its rate at ~3.5%.. jumping right to it tomorrow seems overly aggressive given that inflation is declining.

Though then again, I’m no economist..

CAD is holding up well right now compared to the USD since it’s heavily oil influenced which is offsetting the effects of USD being extremely strong.

European currencies are generally very low right now as their economies are in trouble relating to energy access. The same reason their currencies are weak are causing the USD and CAD to be strong. Lack of energy is tumbling their currencies and sending oil prices up which is shoring up the CAD, while the uncertainty is sending people to USD as a safe haven sending it up against all global currencies. The fact that the CAD had remained relatively flat through Covid is a win in itself as the USD buying power against basically every global currency has increased significantly in that time (and so has CAD, other than against USD).

Now is the time to take a European vacation, everyone.

[rbt]

Originally Posted by Innsertnamehere

Now is the time to take a European vacation, everyone.

Hotels with demand control pricing (virtually anything in a popular location) automatically adjust for currency fluctuations. Rooms get priced at what the market will pay, and if there's some international tourist willing to pay extra, they charge it. If EUR drops 25% then hotel prices will be roughly 33% higher.

Local labour tends to be cheaper as local currency drops but travel uses surprisingly little of that.

It is, however, a wonderful time to travel to non-EURO based countries where Europeans typically travel. Locations like Tunisia ought to be cheaper than usual as their usual flow of German tourists will be reduced.

That said, Tunisia specifically is struggling at this time (food shortages among other things).

[Innsertnamehere]

I mean I’m sure that’s happening to some extent, but local demand almost always exceeds by several orders of magnitude international travel demand, so it still results in it being cheaper. Just anecdotally European hotels seems to be way, way cheaper than American hotels right now.

[Acajack]

Originally Posted by Innsertnamehere

I mean I’m sure that’s happening to some extent, but local demand almost always exceeds by several orders of magnitude international travel demand, so it still results in it being cheaper. Just anecdotally European hotels seems to be way, way cheaper than American hotels right now.

Yeah, my kids were in Europe this summer and they still can't get over why decent hotels in central Prague are cheaper than in Montreal, or even along some suburban boulevard in Gatineau!

[yaletown_fella]

Originally Posted by Truenorth00

Why? Housing prices are not a mandate of the Bank of Canada. Inflation and employment are.

Which brings me to an important question.
If the Bank of Canada was truly committed on maintaining an average of 2% inflation, shouldn't its goal for the next 4 quarters be 6% deflation, to even out the 8% inflation of the past year?

In this case I am taking the manipulated (artificially lowered by hedonics and owners equivalent rent etc) CPI inflation numbers seriously.

[theman23]

Originally Posted by Acajack

Yeah, my kids were in Europe this summer and they still can't get over why decent hotels in central Prague are cheaper than in Montreal, or even along some suburban boulevard in Gatineau!

Places like Prague have always been cheaper than Canada. Canadian hotels are ridiculously expensive, especially in places like suburban Gatineau.

[someone123]

Originally Posted by theman23

Places like Prague have always been cheaper than Canada. Canadian hotels are ridiculously expensive, especially in places like suburban Gatineau.

Are you telling me the $300 a night Richmond motels are not that expensive because Richmond is just that much more amazing than Prague? Why do you hate Canada so much?

[Acajack]

Originally Posted by theman23

Places like Prague have always been cheaper than Canada. Canadian hotels are ridiculously expensive, especially in places like suburban Gatineau.

OK maybe Prague is not the best example. Think of Rome or Paris then.

[theman23]

Originally Posted by Acajack

OK maybe Prague is not the best example. Think of Rome or Paris then.

Paris would be more expensive, but you generally get more options in European capitals than in Canada and the value has always seemed better. The $250 a night hotel you get in Gatineau won’t be the Hyatt after all.


With that being said, I’m seeing some really cheap options in the upcoming future in Gatineau so perhaps not the best example to use.