Canada's 'housing bubble' deemed close to bursting

[suburbanite]

Noted economist Swimmer has seen his own shadow this spring and so we can now declare there is no possibility of an upcoming recession.

[LightingGuy]

Originally Posted by suburbanite

Noted economist Swimmer has seen he own shadow this spring and so we can now declare there is no possibility of an upcoming recession.

[Truenorth00]

Technical definition of recession: two quarters of contracting GDP.

We might be heading there. But nobody really has a crystal ball, or they'd be loading up on options to get rich. It's very possible that we don't have a recession. Could just be in for several quarters of flat growth.

Recessions can also happen without significant drops in employment or wages, etc.

[suburbanite]

Originally Posted by Truenorth00

Technical definition of recession: two quarters of contracting GDP.

We might be heading there. But nobody really has a crystal ball, or they'd be loading up on options to get rich. It's very possible that we don't have a recession. Could just be in for several quarters of flat growth.

Recessions can also happen without significant drops in employment or wages, etc.

Exactly why googling the definition of recession and then declaring everything is normal is rudimentary. We may never actually see a consistent two quarter decline in GDP. That doesn't mean that declines in real wages and productivity growth aren't going to hamper us for years. We are setting ourselves up for severe long-term structural issues that the central bank can't stimulate their way out of.

[Truenorth00]

Originally Posted by suburbanite

Exactly why googling the definition of recession and then declaring everything is normal is rudimentary. We may never actually see a consistent two quarter decline in GDP. That doesn't mean that declines in real wages and productivity growth aren't going to hamper us for years. We are setting ourselves up for severe long-term structural issues that the central bank can't stimulate their way out of.

Yep. Nobody really has any real idea what is going to happen. And the long term issues are probably more concerning than a few quarters of contraction and a slight rise in unemployment. I would rather have 2-4 quarters of contraction than a decade of flat growth.

[swimmer_spe]

Originally Posted by suburbanite

Noted economist Swimmer has seen his own shadow this spring and so we can now declare there is no possibility of an upcoming recession.

Finally, someone respects me...

Originally Posted by suburbanite

Exactly why googling the definition of recession and then declaring everything is normal is rudimentary. We may never actually see a consistent two quarter decline in GDP. That doesn't mean that declines in real wages and productivity growth aren't going to hamper us for years. We are setting ourselves up for severe long-term structural issues that the central bank can't stimulate their way out of.

Call it what it is, not what you want to say it is.

We haven't had normal in about 5 years. Even then, that can be debated.

[suburbanite]

Originally Posted by Truenorth00

Yep. Nobody really has any real idea what is going to happen. And the long term issues are probably more concerning than a few quarters of contraction and a slight rise in unemployment. I would rather have 2-4 quarters of contraction than a decade of flat growth.

A return to pre-2008 traditional business cycles would be a welcome change. Imagine asset prices actually being allowed to fall after a historic bull market! Instead we now live in a post-recessionary world where monetary policy will ensure that the lines only go up (even if its by 0.2% per year).

[LightingGuy]

Layoffs during a recession tend to start in construction and manufacturing as these sectors are very directly influenced by interest rates.

Building permits are down ~30% across the country and continuing to trend down. Once current projects are completed, we won't have enough work for all the construction workers. (source)

Manufacturing layoffs will go side by side, as the reduction in projects will reduce demand for material.

Anecdotally, this has already started with businesses that I know.

Construction employs roughly 7% of the Canadian workforce (source)

Manufacturing employs roughly 10% of the Canadian workforce (source)

I don't expect a 30% reduction in headcount across construction and manufacturing, but 10% sounds about right ... so 270,000 people.

These people are going to spend less, which will lead to the service sector declining and eventually laying people off as well.

[casper]

Originally Posted by LightingGuy

Layoffs during a recession tend to start in construction and manufacturing as these sectors are very directly influenced by interest rates.

Building permits are down ~30% across the country and continuing to trend down. Once current projects are completed, we won't have enough work for all the construction workers. (source)

Manufacturing layoffs will go side by side, as the reduction in projects will reduce demand for material.

Anecdotally, this has already started with businesses that I know.

Construction employs roughly 7% of the Canadian workforce (source)

Manufacturing employs roughly 10% of the Canadian workforce (source)

I don't expect a 30% reduction in headcount across construction and manufacturing, but 10% sounds about right ... so 270,000 people.

These people are going to spend less, which will lead to the service sector declining and eventually laying people off as well.

This is where the feds can step in with aggressive construction of social housing. When the private sector steps up to the plate and starts building again the government can ease off on their own housing projects.

We do have a major problem with the lack of housing. Having construction workers sitting home collecting EI when they could be building homes is something that should be avoided.

[LightingGuy]

^^ This is actually partially how I see us exiting the recession, with a shift towards massive residential construction. It's going to tak a couple of years though. In anticipation of this I've shifted my business over the last year to be less exposed to industrial, and have some of the best options for residential. It's speculative and I could be wrong.

[WarrenC12]

Originally Posted by casper

This is where the feds can step in with aggressive construction of social housing. When the private sector steps up to the plate and starts building again the government can ease off on their own housing projects.

We do have a major problem with the lack of housing. Having construction workers sitting home collecting EI when they could be building homes is something that should be avoided.

Yep exactly. Will the Feds? Maybe. I think some Provinces have more likelyhood of doing this.

It also frees up construction for big infrastructure projects governments can bankroll.

And of course, a reduction in all of these costs will start making projects look attractive to large private developers with deeper pockets.

[1overcosc]

Originally Posted by Truenorth00

They were foolish to promise 3% by summer. That was done so that they could then pledge a "pause" in rate increase. That caused housing to run, partly driving this increase. They have to accept that they need to stop making monetary policy with one eye on the housing market.

While it's good that we're down to 4%, being a third higher than their own interim target and double the official target is not a huge success. The longer inflation is elevated, the greater the risk. And the clock is ticking here.

I think we need an inquiry into the BoC - they've done a pretty crappy job of fulfilling their mandate these last few years.

[swimmer_spe]

Originally Posted by suburbanite

A return to pre-2008 traditional business cycles would be a welcome change. Imagine asset prices actually being allowed to fall after a historic bull market! Instead we now live in a post-recessionary world where monetary policy will ensure that the lines only go up (even if its by 0.2% per year).

You want the return of businesses over spending so that they need to be bailed out?
You want the banks to over lend to the point where too many people are underwater with their mortgages?

Originally Posted by LightingGuy

Layoffs during a recession tend to start in construction and manufacturing as these sectors are very directly influenced by interest rates.

Building permits are down ~30% across the country and continuing to trend down. Once current projects are completed, we won't have enough work for all the construction workers. (source)

Manufacturing layoffs will go side by side, as the reduction in projects will reduce demand for material.

Anecdotally, this has already started with businesses that I know.

Construction employs roughly 7% of the Canadian workforce (source)

Manufacturing employs roughly 10% of the Canadian workforce (source)

I don't expect a 30% reduction in headcount across construction and manufacturing, but 10% sounds about right ... so 270,000 people.

These people are going to spend less, which will lead to the service sector declining and eventually laying people off as well.

What about other sectors that are crying for qualified workers? In the skilled trades that are not tied to construction, and in the medical fields, they are crying for workers. We are having a market correction, no doubt.

Originally Posted by 1overcosc

I think we need an inquiry into the BoC - they've done a pretty crappy job of fulfilling their mandate these last few years.

Who could lead it that would be impartial enough that PP and his attack dogs won't tear down?

[ssiguy]

There are many ways Ottawa could bring down housing prices and increase rental availability and they have all been talked about before.........wealth taxes, flipping taxes, seriously clamping down on money laundering, a massive reduction in immigration, barring foreign ownership, banning all companies from owning residential real estate, and more rent-to-own schemes.

The problem with this is that Ottawa doesn't want to reduce housing prices to anything even remotely reflecting income levels and nor does it want more rentals. Since Harper {and in BC since 1990} Canada has been building it's economy on housing and now a major retreat from it would pound the economy and crush government revenue. We have built a Ponzi-scheme economy based upon the drug of real estate which is both highly unproductive {which is why we continue to lose ground on the productivity front}, a horrible waste of financial and labour resources, and results in growing levels of income and especially wealth inequality................BC exemplifies this beautifully.

The sad part is none of the main parties have any intention of correcting our highly dysfunctional and productivity suppressing economic model. The situation right now is horrifying and will continue to get worse no who matter who is in power.

[someone123]

In theory government could get involved in a counter-cyclical way and provide work in the construction sector as the economy slows. It could be great to shift construction from investor buyer condos to basic rental stock.

In practice I'm not sure they have any plan to do this and have not built up any capacity or expertise in this area.

Many of the areas crying out for workers are not actually paying, meaning that either they are crying wolf or they're just not that productive and cannot viably pay. As I have said before I have a lot of job openings at my place. I will hire highly skilled workers at minimum wage to do many different jobs.

[LightingGuy]

Originally Posted by ssiguy

There are many ways Ottawa could bring down housing prices and increase rental availability and they have all been talked about before.........wealth taxes

I know you're talking about real estate, but if this happens we will see a flood of money leave the country. This is precisely why the world needs Swiss bank accounts and Bitcoin ... so that poor people and governments can't steal the wealth that successful people created. I will happily pay my fair share of income tax. I will not pay a wealth tax.

[SpongeG]

on the radio on my commute home they were talking about housing and a report from RBC in May says that Canada needs to be building 800,000 units of housing a year until 2030 just to get where we should be. Canada is only building about 220,000 per year.

Is it possible?

also with the interest rates going up and costs going up a lot of smaller to middle-size developers are having problems and projects are not happening or they are trying to sell them onto larger developers according to the guest they had on.

They also mentioned what a barrier the long process can also be to get anything going. Some of the issues they raised were the public consultation process, the guest had been to a hearing event and there was a project proposal that was currently an empty parking lot (in downtown Vancouver) and had been for 10 years just sitting and of 100 or so people who attended and spoke only about 15 people or so were in support, the rest were against because oh no not a tower! or too much shadow, too much noise, too many people, etc. the usual nimby stuff. Another project had to lose 3 floors of housing because people complained that the proposed height would create a shadow in an alleyway. And they were wondering how we move forward with such a long process that seems to often give in to the nimbys and get housing built. THey said the process needs to change and needs to be rethunk.

[Truenorth00]

Originally Posted by LightingGuy

I know you're talking about real estate, but if this happens we will see a flood of money leave the country. This is precisely why the world needs Swiss bank accounts and Bitcoin ... so that poor people and governments can't steal the wealth that successful people created. I will happily pay my fair share of income tax. I will not pay a wealth tax.

The best way to do this is simply to charge a land value tax. All your other assets are safe. And you really can't evade that one tax.

[WarrenC12]

Originally Posted by Truenorth00

The best way to do this is simply to charge a land value tax. All your other assets are safe. And you really can't evade that one tax.

Yep LVT solves a lot of problems. And the revenue can be offset by lower personal income taxes.

[Xelebes]

Problem is that most landowners already pay a land value tax. It's called property taxes.