Canada's 'housing bubble' deemed close to bursting

[lio45]

Originally Posted by thebasketballgeek

Maybe Canada is lying to us and bringing many more immigrants then we are lead to believe. Cause every province grew by a ridiculous amount in a quarter for their standards. I mean 362k people in a quarter means Canada could be growing by more then 1 million per year.

Those numbers aren't normal. Quebec growing at an annualized rate of +225k per year for example, has got to be an illusion from quirks in the data (like, the entirety of the year's immigrants got processed during that quarter for some technical reasons, or something like that).

[casper]

Originally Posted by thebasketballgeek

Maybe Canada is lying to us and bringing many more immigrants then we are lead to believe. Cause every province grew by a ridiculous amount in a quarter for their standards. I mean 362k people in a quarter means Canada could be growing by more then 1 million per year.

Over 1M per year would be impressive. My guess it is just post Covid delays caused a large number of pre approved people to
Finally move. To Canada.

It is a good experiment if can absorb 1M then that may set a new target going forward. We do need the people.

[swimmer_spe]

Originally Posted by casper

Over 1M per year would be impressive. My guess it is just post Covid delays caused a large number of pre approved people to
Finally move. To Canada.

It is a good experiment if can absorb 1M then that may set a new target going forward. We do need the people.

One thing we can't ignore is the fact that some could be births.

[casper]

Originally Posted by swimmer_spe

One thing we can't ignore is the fact that some could be births.

I have not seen any analysis if the COVID restrictions caused more births or less. You change the dynamics of how couples interact for two years there has to be some impact. Just don't know what direction it would go in.

We know the federal governments moves to target child poverty and providing more subsidized daycare should remove barriers to having kids. May be to early to see anything coming out of that.

[yaletown_fella]

We should see significant downwards pressure when the stupid money crowd who bought in the Covid bubble are forced to sell when they come up for renewal and can't afford to renew. Thats assuming the BOC holds rates where they are til at least 2026.

Theres also a realtor cartel element that hasnt accepted some of the downwards pressure. Ive seen lots of misleading classified ads with headline prices that are lower than the listing price in the ad.

[Truenorth00]

The real stupid money is already going through Power of Sale proceedings. Talk to any lawyer or realtor. They'll tell you these are picking up. Particularly those that are flippers. Paid over asking. Carrying costs skyrocketed. Construction costs up. Meanwhile selling into a market where prices have tanked. There's listings out there that are halfway through a reno because these folks have run out of runway.

I don't think the bottom is 2026. Too long. This isn't the 90s. You have apps on your phone now that tell you exactly how much the neighbour sold for. I expect panic this summer when Spring isn't the recovery a lot of sellers expect. From FOMO for buyers to FONGO (Fear of Not Getting an Offer) for sellers. You'll start seeing prices drop month over month then as desperate sellers work hard to exit. If there's a small rate cut, maybe a bull trap in there of a few weeks. At these rates, buyers can only afford 2016/2017 prices. Sellers can rationalize it, however they want. But that's the math.

[goodgrowth]

Originally Posted by lio45

These numbers are hard to believe, unless you assume it's almost a lie to say that the population changed by +60,000 from July 2022 to October 2022, and that in fact the actual population change was more like +15,000. (If that's it, then that's totally believable, and the numbers are "normal".)

It would be nice if they were more careful with their words. Ontario growing by more than +150k per quarter would be adding more than 600k residents every year at that pace.

Immigration flows are not even throughout the year....higher flows in the summer, lower in the winter.

So given our immigration quotas these numbers seem believable for that quarter imo.

[VANRIDERFAN]

Originally Posted by Truenorth00

The real stupid money is already going through Power of Sale proceedings. Talk to any lawyer or realtor. They'll tell you these are picking up. Particularly those that are flippers. Paid over asking. Carrying costs skyrocketed. Construction costs up. Meanwhile selling into a market where prices have tanked. There's listings out there that are halfway through a reno because these folks have run out of runway.

I don't think the bottom is 2026. Too long. This isn't the 90s. You have apps on your phone now that tell you exactly how much the neighbour sold for. I expect panic this summer when Spring isn't the recovery a lot of sellers expect. From FOMO for buyers to FONGO (Fear of Not Getting an Offer) for sellers. You'll start seeing prices drop month over month then as desperate sellers work hard to exit. If there's a small rate cut, maybe a bull trap in there of a few weeks. At these rates, buyers can only afford 2016/2017 prices. Sellers can rationalize it, however they want. But that's the math.

I'm looking to rent a house in Ottawa this spring/summer. I noticed there is a pile of new homes for rent, especially south of the Airport and other new developments as well.
I wonder if there is a lot of speculators out there who are trying to get anything for their investment.

[Innsertnamehere]

Originally Posted by Truenorth00

The real stupid money is already going through Power of Sale proceedings. Talk to any lawyer or realtor. They'll tell you these are picking up. Particularly those that are flippers. Paid over asking. Carrying costs skyrocketed. Construction costs up. Meanwhile selling into a market where prices have tanked. There's listings out there that are halfway through a reno because these folks have run out of runway.

I don't think the bottom is 2026. Too long. This isn't the 90s. You have apps on your phone now that tell you exactly how much the neighbour sold for. I expect panic this summer when Spring isn't the recovery a lot of sellers expect. From FOMO for buyers to FONGO (Fear of Not Getting an Offer) for sellers. You'll start seeing prices drop month over month then as desperate sellers work hard to exit. If there's a small rate cut, maybe a bull trap in there of a few weeks. At these rates, buyers can only afford 2016/2017 prices. Sellers can rationalize it, however they want. But that's the math.

A drop to 2016/2017 prices would require a full bottoming out of the entire real estate market at this point. Those kinds of prices would completely destroy new construction. It's just not going to happen. New construction is already being throttled at a time when population growth is at record highs.

I wouldn't be surprised to see prices return closer to early 2020 pricing, but 2016 pricing? Absolutely not.

[lio45]

Originally Posted by Innsertnamehere

A drop to 2016/2017 prices would require a full bottoming out of the entire real estate market at this point. Those kinds of prices would completely destroy new construction. It's just not going to happen. New construction is already being throttled at a time when population growth is at record highs.

Exactly. It’s a “nobody goes there anymore, it’s too crowded” / “the cure for low oil prices is low oil prices” situation.

As prices go down, new construction all but ceases, and unless we stop the Ponzi scheme by shutting down immigration, the laws of supply and demand in a context of increasing population while almost nothing gets built anymore will necessarily keep prices decently high, even with high-ish interest rates.

[Coldrsx]

Stats Canada's labour force survey provides estimates of the working age population.

Edmonton, Alberta Jan 2022:1,213.6 December 2022: 1,249.3 = gain of 35,700 people

Calgary, Alberta Jan 2022: 1,277.9 December 2022: 1,314.3 = gain of 36,400 people

Statscan

[Truenorth00]

Originally Posted by Innsertnamehere

I wouldn't be surprised to see prices return closer to early 2020 pricing, but 2016 pricing? Absolutely not.

Anecdotal. But there's examples already:

https://twitter.com/Baystboy/status/1610273988281860097?t=seJgLE2XeAdFLDlEPI4WJg&s=19

It's math. At these rates, the average buyer cannot qualify for a mortgage that let's them pay more than 2016/2017 prices. Maybe 2018/2019 at best. So if you have to sell, you price accordingly. Otherwise, you can keep paying the carrying costs till rates drop or you come to your senses.

Originally Posted by Innsertnamehere

A drop to 2016/2017 prices would require a full bottoming out of the entire real estate market at this point. Those kinds of prices would completely destroy new construction. It's just not going to happen. New construction is already being throttled at a time when population growth is at record highs.

I don't see why you think new construction can't get screwed. It's already happening. Projects are getting terminated. Some smaller builders are and will go under. Again, just math. The pool of buyers who can qualify at 6-7% for 2022 prices is smaller. So either the builders have less sales or sell at lower prices where there are more buyers.

And yes, housing affordability actually gets worse in the early stages of a crash. Rents skyrocket because more people are forced to rent.

I don't get why people think this is crazy. This is what a real estate correction looks like. This country hasn't actually seen one since the late 80s. So this will be a new experience for some. But this is what happens.

[Innsertnamehere]

Originally Posted by Truenorth00

Anecdotal. But there's examples already:

https://twitter.com/Baystboy/status/1610273988281860097?t=seJgLE2XeAdFLDlEPI4WJg&s=19

It's math. At these rates, the average buyer cannot qualify for a mortgage that let's them pay more than 2016/2017 prices. Maybe 2018/2019 at best. So if you have to sell, you price accordingly. Otherwise, you can keep paying the carrying costs till rates drop or you come to your senses.



I don't see why you think new construction can't get screwed. It's already happening. Projects are getting terminated. Some smaller builders are and will go under. Again, just math. The pool of buyers who can qualify at 6-7% for 2022 prices is smaller. So either the builders have less sales or sell at lower prices where there are more buyers.

And yes, housing affordability actually gets worse in the early stages of a crash. Rents skyrocket because more people are forced to rent.

I don't get why people think this is crazy. This is what a real estate correction looks like. This country hasn't actually seen one since the late 80s. So this will be a new experience for some. But this is what happens.

yes - that's why I alluded to new construction already taking a beating.

My point is that as new construction dries up at a time of record population growth, affordability naturally won't return to "normal" levels. Either construction pricing drops significantly or supply is throttled until housing becomes unaffordable enough to finance new construction again.

It' won't be a fun process regardless, and will result in housing which continues to be substantially unaffordable.. but that's the nature of the market.

anecdotal evidence of listings being back to 2016 pricing ultimately isn't reflected in market statistics, which still has median house prices in the GTA at early 2021 prices. It still has a bit to fall, but I just don't see median house prices dropping another 30%. That would be down 50% from peak.

For what it's worth as well, the market has already shown surprising stability over the last 6 months. Detached prices have been basically flat in the GTA since July, and overall prices have declined only 3-5% since then, despite the record rate hikes occurring across that period. I just don't see another 30% price-drop shock hitting the market at this point.

[lio45]

Truenorth, I wonder if you have any examples of a real estate crash at a time of crazy high sustained population growth? I’m not aware of any, so there’s little precedent on which to make predictions.

The only logical prediction is that as new construction basically ceases while we continue to import 500k people per year into our urban centers, housing will remain in high demand, and the basic laws of supply/demand will prevent a real crash.

[casper]

Originally Posted by Innsertnamehere

yes - that's why I alluded to new construction already taking a beating.

My point is that as new construction dries up at a time of record population growth, affordability naturally won't return to "normal" levels. Either construction pricing drops significantly or supply is throttled until housing becomes unaffordable enough to finance new construction again.

It' won't be a fun process regardless, and will result in housing which continues to be substantially unaffordable.. but that's the nature of the market.

anecdotal evidence of listings being back to 2016 pricing ultimately isn't reflected in market statistics, which still has median house prices in the GTA at early 2021 prices. It still has a bit to fall, but I just don't see median house prices dropping another 30%. That would be down 50% from peak.

For what it's worth as well, the market has already shown surprising stability over the last 6 months. Detached prices have been basically flat in the GTA since July, and overall prices have declined only 3-5% since then, despite the record rate hikes occurring across that period. I just don't see another 30% price-drop shock hitting the market at this point.

Lumber (a major material in house construction) was at all time highs due to supply issues and demand in the US a year ago and has now come back down to normal.

The big issue now is going to be labour.

I know one small scale builder in Vancouver that is usually doing one house at a time. For his newest project he purchased an old house he was going to take down and replace with a new build. He is now just renting it out instead and waiting for cost of labour to stabilize. His biggest problem is finding sub-contractors that are not continually bumping their prices to attract people.

[Changing City]

Originally Posted by swimmer_spe

One thing we can't ignore is the fact that some could be births.

There's not much 'natural growth' in population at the moment; there was only a net 45,000 population increase in 12 months.

Between July 1, 2021 and June 30, 2022, there was an estimated 368,792 babies born in Canada. Over the same 12 month period there were 323,220 deaths reported in Canada.

[travis3000]

In the GTA the inventory is still very low. Like exceptionally low. Thats the final straw which is stubbornly holding prices IMO. If we reach a point where inventory rises, prices will retreat another 10% from current prices. That would take them down about 30-32% from the highs of Feb/March 2022.

So a 1.2 million dollar house a year ago would end up at 830K. Seems steep, but that same house in 2017 (another market high at the time) would have sold for 630K. Go back to 2015, and it would have gone for 420K.

So it really all is perspective. Even once this bubble "pops" , anyone who purchased before mid 2020 will not lose any money. Effectively the majority of the COVID gains will be eliminated.

[Truenorth00]

Originally Posted by lio45

Truenorth, I wonder if you have any examples of a real estate crash at a time of crazy high sustained population growth? I’m not aware of any, so there’s little precedent on which to make predictions.

The only logical prediction is that as new construction basically ceases while we continue to import 500k people per year into our urban centers, housing will remain in high demand, and the basic laws of supply/demand will prevent a real crash.

I don't have stories during times of particularly crazy growth. But I will say that the population didn't stop growing during the last crash in Canada in 89 or in the US in 2007. Also, we just saw record immigration intake in 2022. Did it stop home prices from sliding? Immigrants working for average or less than average wages aren't going to help the housing market. All they'll do is suppress wages and make affordability worse.

Personal story. My family moved to Canada in 1990. As new immigrants with no credit my parents rented a basement in Brampton. The people who we rented from couldn't afford the payments. They abandoned the house with us still living in it. The bank came to take reposession. My father explained that he had already paid the owner for 6 months rent and we had two months to go. The bank let us stay for two months. Why? 10% of the 40 house street was on power of sale. Another 5% was listed for sale. The bank didn't want squatters or looters and needed time to prepare for sale anyway (the owners ripped out fittings and appliances). I'm fairly certain most folks in this forum don't have that personal an experience of a crash. But that is what a real hard crash looks like at ground level.

Are we going to hit that kind of a wall? Hard to say. All I'll say is that there's a lot of people smiling and pretending right now. And this isn't going to go on indefinitely. Just look at the naivete of this guy:

[WarrenC12]

Originally Posted by lio45

Truenorth, I wonder if you have any examples of a real estate crash at a time of crazy high sustained population growth? I’m not aware of any, so there’s little precedent on which to make predictions.

The only logical prediction is that as new construction basically ceases while we continue to import 500k people per year into our urban centers, housing will remain in high demand, and the basic laws of supply/demand will prevent a real crash.

Don't forget unemployment is still at record low levels. I don't know where this goes, but there's lots of reasons that housing won't tank super-hard.

[Truenorth00]

Originally Posted by travis3000

In the GTA the inventory is still very low. Like exceptionally low.

Inventory is always low in the start of a correction. That's how these things work. Every potential seller who can wait has pulled their listing and is just waiting and praying for a better market. Eventually though, the game of chicken between sellers and buyers will end. Then comes the flood of listings.