Canada's 'housing bubble' deemed close to bursting

[Coldrsx]

What does the market in Canmore, AB look like when it comes to who can qualify for 'affordable housing'...

'CCH’s vital homes program increased its gross household income threshold from $147,423 to $250,000 at the start of the year to broaden who can apply for Town-owned affordable housing.'

[Coldrsx]

Here's hoping we see a few more rental towers move forward in 2023.

https://chrischornohos.com/purpose-built-rental-development-trying-to-keep-up-with-demand/

[casper]

Originally Posted by whatnext

I think it s useful every so often to post graphs like this, reminding people just how out of touch with ordinary Canadians' incomes our housing prices are:

Source: Daniel de Mellis on Twitter

So someone updated the data to reflect end of 2022 instead of end 2020. It peeked and is coming back down almost as quickly as it went up.


Source: Twitter: https://twitter.com/Karl_Schamotta/status/1616430704069312514/photo/1

However the more interesting graph would be this one comparing real real estate prices:


Source: Twitter: https://twitter.com/CanadaRecord/status/1616613195199692801

[Truenorth00]

Canadian household debt service ratio has been lower than rising rates would suggest due to the dynamic of extended amortizations as variable rate borrowers near their "trigger rate". The drop in principal repayment in Q3 was nearly as large as COVID mortgage deferrals in Q2 2020

Of course what's delayed today simply has to be repaid tomorrow, and that's the real rub. "Trigger rate" dynamics set up payment shocks down the road, not today.

https://twitter.com/BenRabidoux/status/1617349707965288448?t=RFO6K6nnQfAZ_oYgdiAGxQ&s=19

And this is why rates aren't dropping till 2024. At least not substantially anyway. Tiff Macklem is out to correct the spending habits of a few people who hasn't been living large on their HELOCs for took long.

[Truenorth00]

We're number one! With our housing bubble....

https://twitter.com/d_demelis/status/1617352896521310214?t=NDBBW8xM6hliTfNdWftBkA&s=19

[Innsertnamehere]

I mean the "no bubble" countries on that list are mostly low to no growth countries where plummeting rural values offset increasing urban values.

You can pick up rural properties in Spain for pennies. Nobody wants to live there, and people are flocking to areas like Madrid where prices are much higher.

Japan we all know is actively shrinking, Italy has the same problem as Spain with high internal migration rates to the north, and Germany sees a similar pattern with people moving from the east to west, leaving behind worthless rural real estate.

Even the US sees a more limited model of this with many parts of the country having older, depreciating real estate which offsets higher growth areas. For every $50,000 house you can pick up in Toledo, there is a $3 million shack in San Jose.

Canada is all growth, all real estate markets have growth pressures, which puts pressure on prices. There isn't really a Toledo or East Germany / Sicily equivilant. Everywhere has growth pressures which means all real estate has to perform at maximum value. It's the same story in New Zealand and Australia, which have seen similar price pressures.

[Truenorth00]

Keep rates above 4% for another 2 years and we'll find out how much is real demand and how much is asset price inflation driven by loose monetary policy. To paraphrase Steve Eisman, way too many people mistake leverage for genius. The US is now correcting hard:

https://finance.yahoo.com/news/mortgages-down-55-us-lenders-100000026.html

I doubt Canada will be immune like 2008.

[casper]

Originally Posted by Truenorth00

Keep rates above 4% for another 2 years and we'll find out how much is real demand and how much is asset price inflation driven by loose monetary policy. To paraphrase Steve Eisman, way too many people mistake leverage for genius. The US is now correcting hard:

https://finance.yahoo.com/news/mortgages-down-55-us-lenders-100000026.html

I doubt Canada will be immune like 2008.

We are going into the correction. So no, we are not getting out of it.

However I think we are on a different path than the US. The US has all these small lenders and some of them will be in trouble. In Canada we have big banks that are to big to fail.

[suburbanite]

Originally Posted by casper

We are going into the correction. So no, we are not getting out of it.

However I think we are on a different path than the US. The US has all these small lenders and some of them will be in trouble. In Canada we have big banks that are to big to fail.

There's a lot of private mortgages outstanding in Canada, Ontario specifically has some of the highest private lending rates.

[Truenorth00]

People just don't understand how different 2023 is from 2008 in Canada. "Brampton loans" and private mortgage syndicates weren't really a thing in 2008. And the worst part is that we have no idea how much of the market is 🞵🞵🞵🞵 🞵🞵 with these.

There's a lot of private family lending that nobody has a clear view on. For example, parents who gave their kids a downpayment from their own HELOC who now might not be able to afford the interest payments now and may be pushing their kids to bail them out. Or maybe the kids were paying interest and now can't because of job losses. Etc

It won't take much to flush out most of this bad behaviour. Just a sustained period of rates over 3-4% will have most of these folks capitulating in due course. And right now, I see a lot of hopium and copium. A lot of folks who are banking on rates going back to down to pre-pandemic levels by the end of the year. They don't just need a cut in rates. They need a complete reversal in policy of the US Fed and BoC. When that doesn't happen, we'll start seeing capitulation or just outright failure.

[whatnext]

Originally Posted by Truenorth00

People just don't understand how different 2023 is from 2008 in Canada. "Brampton loans" and private mortgage syndicates weren't really a thing in 2008. And the worst part is that we have no idea how much of the market is 🞵🞵🞵🞵 🞵🞵 with these.

There's a lot of private family lending that nobody has a clear view on. For example, parents who gave their kids a downpayment from their own HELOC who now might not be able to afford the interest payments now and may be pushing their kids to bail them out. Or maybe the kids were paying interest and now can't because of job losses. Etc

It won't take much to flush out most of this bad behaviour. Just a sustained period of rates over 3-4% will have most of these folks capitulating in due course. And right now, I see a lot of hopium and copium. A lot of folks who are banking on rates going back to down to pre-pandemic levels by the end of the year. They don't just need a cut in rates. They need a complete reversal in policy of the US Fed and BoC. When that doesn't happen, we'll start seeing capitulation or just outright failure.

Yup:

Private Lenders Serve Borrowers Power of Sale Notices as Interest Rates Bite, Home Values Plummet
January 18, 2023 6:13 AM

Private mortgage lenders in the GTA are beginning to feel the heat of rising interest rates. So much so, in fact, that borrowers with private mortgages who cannot keep up with their payments are being forced to sell their homes— a legal term referred to as the Power of Sale process.

The seven consecutive rate hikes in the past year have sparked concerns that an increasing number of homeowners are falling behind on their mortgages. Although mortgage delinquency rates are still relatively low, it takes months before the lagging indicator starts flashing red. “Whatever you see happening right now today is something that started nine months ago,” and “this is just the very beginning of the problem; we’re not going to see the real impact of the problem until May, June, July,” explained Toronto mortgage broker Ron Butler.

Unlike foreclosures— which became synonymous with the the 2008 financial crisis, during a power of sale, the mortgage borrower still owns their home, but the private lender of their mortgage will step in to force a sale of the property, usually in circumstances where the client is unable to continue making mortgage payments....

https://thedeepdive.ca/private-lenders-s...interest-rates-bite-home-values-plummet/

[Truenorth00]

Organized crime has sold 30 GTA homes without the knowledge of homeowners. Title insurance could at risk in the GTA if this trend keeps up.

https://www.cbc.ca/news/canada/toronto/o...gages-without-owners-knowledge-1.6719978

But .... Something.... Something.... Canada 2008.

[ssiguy]

Private lenders make up a disproportionate amount of mortgages in the expensive markets like Toronto and BC because CMHC only provides mortgages of "only" $1 million. In Greater Vancouver there hasn't been a $1 million house for sale in 4 years. This is just the beginning of the crash as most people have yet to renew their mortgages at today's much higher rates.

Update on Surrey...............there have now been a whopping 2 new SFH builds sold this month. Not bad for a city of only 550,000.

[swimmer_spe]

Originally Posted by casper

We are going into the correction. So no, we are not getting out of it.

However I think we are on a different path than the US. The US has all these small lenders and some of them will be in trouble. In Canada we have big banks that are to big to fail.

That phrase needs to be removed from the lexicon. Let them fail. Let them all fail. Just like housing needed this correction, the business world needs a correction.

Originally Posted by Truenorth00

Organized crime has sold 30 GTA homes without the knowledge of homeowners. Title insurance could at risk in the GTA if this trend keeps up.

https://www.cbc.ca/news/canada/toronto/o...gages-without-owners-knowledge-1.6719978

But .... Something.... Something.... Canada 2008.

I am still trying to understand how if you legally own a home how someone can sell it who legally does not.

[whatnext]

Originally Posted by Innsertnamehere

I mean the "no bubble" countries on that list are mostly low to no growth countries where plummeting rural values offset increasing urban values.

You can pick up rural properties in Spain for pennies. Nobody wants to live there, and people are flocking to areas like Madrid where prices are much higher.

Japan we all know is actively shrinking, Italy has the same problem as Spain with high internal migration rates to the north, and Germany sees a similar pattern with people moving from the east to west, leaving behind worthless rural real estate.

Even the US sees a more limited model of this with many parts of the country having older, depreciating real estate which offsets higher growth areas. For every $50,000 house you can pick up in Toledo, there is a $3 million shack in San Jose.

Canada is all growth, all real estate markets have growth pressures, which puts pressure on prices. There isn't really a Toledo or East Germany / Sicily equivilant. Everywhere has growth pressures which means all real estate has to perform at maximum value. It's the same story in New Zealand and Australia, which have seen similar price pressures.

Sure, like economic powerhouses like Germany?

[Coldrsx]

Canmore's cost of living is the highest in Alberta. So how do people make it work?

According to the Bow Valley Job Resource Centre, average wages sit at $20.75 per hour — a considerable gap from the $32.75 per hour cost of living the Alberta Living Wage Network suggests Canmorites should earn to live comfortably.


Current Canmore MLS® stats indicate an average house price of $1,023,658

Current Canmore MLS® stats indicate an average detached house price of ~ 2.1 million

https://www.cbc.ca/news/canada/calgary/canmore-cost-of-living-1.6719421

[Wigs]

I thought Banff had the highest cost of living in Alberta

[hipster duck]

Originally Posted by Coldrsx

Canmore's cost of living is the highest in Alberta. So how do people make it work?

According to the Bow Valley Job Resource Centre, average wages sit at $20.75 per hour — a considerable gap from the $32.75 per hour cost of living the Alberta Living Wage Network suggests Canmorites should earn to live comfortably.


Current Canmore MLS® stats indicate an average house price of $1,023,658

Current Canmore MLS® stats indicate an average detached house price of ~ 2.1 million

https://www.cbc.ca/news/canada/calgary/canmore-cost-of-living-1.6719421

I don't think this is as much of an emergency as housing unaffordability in a major city.

The low wages reflect the overwhelming dominance of seasonal hospitality workers. Most of these workers are young and in an independent stage of their lives where they're very flexible when it comes to where they live, and for how long. Crowding into a house with 10 other roommates is a feature, not a bug. They're the friends you make and go partying, mountain biking or snowboarding with before you go back to Australia in 6 months. Signing a one year lease on a 1 BR apartment with in-suite laundry and modern appliances is less appealing for people in this group, even if they had the money.

[casper]

Concerning. Some are predicting the market downturn may last until 2025.

You have to ignore the sensational language calling it a crash and bubble. But otherwise the article looks to have some detailed analysis.

https://betterdwelling.com/canadian-real...until-2025-as-indicator-flashes-warning/

[Coldrsx]

Originally Posted by Wigs

I thought Banff had the highest cost of living in Alberta

Nope. Housing is actually cheaper there due to the need to reside, although very similar.