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Canada's Housing Bubble Will Burst
- briga 9y agoIn other news, the sky is blue.
- mfringel 9y agoRight now, where I am, the sky is grey. When there's a really big storm coming in, it's an even darker grey. The sky is, in fact, sometimes blue, but would your statement about Canada's housing bubble be untrue on a cloudy rainy day?
- fnbr 9y agoI completely agree. In Vancouver and Toronto (and to a lesser extent, Edmonton & Calgary), housing prices are raising at ridiculous rates, while income is largely stagnant. I have multiple friends who've bought houses in terrible condition with 5% down because that's all that they can afford. If interest rates increase at all they're in massive trouble.
- analyst74 9y agoEdmonton & Calgary have both seen moderate price correction (~10%) since 2014.
- guardiangod 9y agoThe article makes the argument that US and Canada shared similar house price trajectory till 2005, then diverged significantly. The argument has merits, but can there be other arguments? Such as US and Canada are becoming dissimilar economically, or a change in real estate desirability in the eyes of foreign investors? If looking at the past price data can predict the future price trend, the stock market would be a very different beast altogether.
- alacombe 9y agoAlso, there is space constraint. Eg, Vancouver: everything which can be built has been built. South, it is blocked by the US border, north by the mountains and native lands, west by the ocean. The only option really is east, though, it directly translate into crazy commute time. Combine this with one of the best weather conditions in Canada (mild winter/summer) and high asian immigration, and that's a recipe for [very] high prices.
- hiphipjorge 9y ago> South, it is blocked by the US border There's a long stretch of land between Vancouver and the US border (30 min drive maybe?) with mostly empty land. Am I missing something?
- alacombe 9y agoYes, it's farm land. But still, the closest "rural" areas beside Delta is about 1h travel from downtown.
- guardiangod 9y agoYeah, the lack of high-capacity bridges across the rivers. The house prices in that 30 minutes worth of land (I live in it) are also approaching $1 million. The only reason they don't go higher is because of commuting. The newly elected provincial government has just announced they will suspend the construction of a new bridge; many condo and houses to the south were built with the assumption that the bridge will open and make the southern suburb much more attractive. For whatever reason, the mayor of Vancouver and its immediate surrounding satellite cities (Burnaby, Richmond, etc.) are fighting hard to not expand the road system. Instead they are 'pushing' for better mass (not rapid) transit between the out-rim suburb and the core cities. I don't know if they are sincere in reducing traffic, but this has an knock-on effect of keeping the house prices in the core cities much higher than otherwise (eg. a rapid transit thru that 30 minutes worth of land.)
- desdiv 9y ago
- bryanlarsen 9y agoThe question isn't if it will, the question is when & how. It's very easy to predict a bubble popping, it's a lot more difficult to predict when. "The market can stay irrational longer than you can remain solvent" - Keynes And the other question is how. Sometimes bubbles deflate slowly, for example in our market house prices in $ terms were basically flat between the late 80s and the late 90s. That's a definite decrease in real dollars, but nothing like the chaos that the same decrease would cause happening instantaneously. The third question is whether just Toronto & Vancouver will pop, or whether it will affect the rest of the country.
- deleted 9y ago[deleted]
- notadoc 9y agoAnd so will the current USA housing bubble in western states and a handful of other trendy locations where housing has far exceeded the realm of affordability by median income standards.
- brink 9y agoI live in Grand Rapids, and just sold my house for a price that I never would have bought it for.
- stevenwoo 9y agoWhere are you going to live next?
- notadoc 9y agoI would bet it still sold in the realm of affordability though. Out west we have many completely average mediocre homes selling for 10x-25x regional median income levels, which is beyond absurd when historically an affordability marker is somewhere from 1.5x-3x.
- triangleman 9y ago>Here is a harsh truth about homeownership: Over the long haul, it’s hard for homes to compete with the stock market in real appreciation (Robert Shiller quote) >By contrast, real home prices should decline with time, except to the extent that households shell out some money and plow back some of their incomes into maintenance and improvements, because homes wear out and go out of style. Wow, I never really thought of it that way. I guess I implicitly understood that buying a home was, at best, a hedge against inflation. But it also seems like a good investment. But it's not, really, in the long run, unless you are "timing the market" and buying into an area with long-term population growth.
- RangerScience 9y agoThe building's worth goes down, but the land's worth goes up...?
- Xcelerate 9y agoYep, this is what happened with my grandmother in West Meade (next to Belle Meade). The land has appreciated drastically, but most new buyers in the area just tear down the existing houses to build something new. It's kind of sad, really.
- alacombe 9y agowhich doesn't mean that the building was worthless, at best, it mean that the new building is expected to be worth more than the old one. With the current easy access to credit, why not ?
- ng12 9y agoI used to live close to this house in Palo Alto: http://valleywag.gawker.com/hoarders-house-in-palo-alto-is-on-the-market-for-1-8-m-1648912478 http://valleywag.gawker.com/hoarders-house-in-palo-alto-is-o... $2m plus the cost of a full teardown for maybe two thousand square feet of flooded land.
- IshKebab 9y ago
- galonk 9y agoNon-clickbait headline for this article: "Canadian housing prices will continue to go up until they don't"
- cletus 9y agoSo I have two issues with this post. 1. It needs to separate out Vancouver and the rest. Vancouver is its own bubble of self-perpetuating nonsense propagated by Chinese money. 2. The article states shares are better because companies can plow money back into the business, which completely misses the point because price rises aren't pure speculation. There is a HUGE labour cost in housing such that housing prices track inflation (particularly wage inflation). And that's the real value in property investment in periods like the 1970s that saw really high inflation. What's more land represents a largely non-renewable resource. Take Manhattan as a fairly extreme example. They're not making more land to put things on. Other cities like Chicago, LA and especially Atlanta can basically spread forever. But even in those cities, inner city land is irreplaceable and finite. Now I'm not saying Canada isn't in a bubble or that bubble won't burst. But the author takes a naive stock-centric view of things.
- alacombe 9y ago> It needs to separate out Vancouver and the rest. Vancouver is its own bubble of self-perpetuating nonsense propagated by Chinese money. Not just Chinese money, see my comment below. To summarize: 1) best climate for Canada, 2) bounded north, west, and south, 3) land already developed, 4) high immigration
- huhtenberg 9y agoActually it _is_ mostly due to Chinese money and the fact that Vancouver is the closest Canadian metropolis to Hong Kong, which jump-started the Vancouver bubble in 1999.
- davidw 9y ago> best climate for Canada The Okanagan valley seems like it might merit that title as well, being fairly dry and sunny (sagebrush and wine growing!) https://en.wikipedia.org/wiki/Okanagan https://en.wikipedia.org/wiki/Okanagan Looks nice! https://goo.gl/maps/nWS4Stwc1WT2 https://goo.gl/maps/nWS4Stwc1WT2
- geoka9 9y ago
- anth1988 9y agoBeen hearing this since 2008. Still waiting.
- deleted 9y ago[deleted]
- goalieca 9y agoI hope it crashes because I want to buy a house.
- justnoise 9y agoWell you'll never get your wish if you keep wishing for that! While it's a small sample size, I keep on hearing of friends who want to buy a house but are waiting for the current "bubble" to deflate a bit. Combine that with a limited supply in popular metro areas, a larger percentage of young (and old!) people renting and you get demand that will likely last a while (yes my personal sample size of N is small). As the renting population ages and sees themselves flushing thousands down the pipe every month, more renters will be saving up war-chest sized nest eggs to make the plunge into home ownership. I suspect that'll prop up prices for a good while. If you want to buy a house, I don't think you can count on another great downturn to make popular locations more affordable. More likely it'll take an increase in supply or some major change in our lives to push people out of cities. Cue popular rant on housing density
- cpncrunch 9y ago>limited supply in popular metro areas Is it really a limited supply, or just speculators buying them and not bothering to rent them out? Vancouver has 25000 empty homes.
- justnoise 9y agoIn the case of US cities (sorry, I don't know about research that covers Canadian cities) research shows it's a limited supply and failure/inability to grow that makes popular cities expensive: https://www.buildzoom.com/blog/cities-expansion-slowing https://www.buildzoom.com/blog/cities-expansion-slowing Edit: They key section of that study is the section called "Expensive cities and expansive cities"
- baybal2 9y agoI hope it will!
- jtwebman 9y agoI am sorry the house you buy that you live in is not an investment it is a liability. Real estate is only an investment, and a very good one, when you are buying property that you then rent out. Then the leverage helps you out as long as you have renters and rents go up or stay the same. The price of the home matters far less in that case until you are ready to trade up. I am sure at this level though inverters are having a much harder time finding real estate that is cash flow positive.
- gsylvie 9y agoBerkshire Hathaway just invested $400 million into the Canadian alternative mortgage market, as well as providing a $2 billion loan at 9%: https://www.forbes.com/sites/nathanvardi/2017/06/22/warren-buffett-rides-to-the-rescue-in-canada-with-1-8-billion-investment-in-lender-home-capital/#2a304f49d0bf https://www.forbes.com/sites/nathanvardi/2017/06/22/warren-b... This alone should prevent any bubbles from bursting in 2017. Especially if Home Capital Group starts lending again (see: https://www.linkedin.com/pulse/government-need-make-some-drastic-change-ameera-ameerullah https://www.linkedin.com/pulse/government-need-make-some-dra... ). Edited to note: $2.5 billion is probably not really a significant amount as far as the Canadian mortgage market is concerned (e.g., around ~700 houses in Vancouver's good neighbourhoods), but the fact Warren Buffett is behind this should calm nerves and cause the lending taps to re-open a bit in the subprime markets that are so key to the bubble. The government backed Canadian Mortgage and Housing Corporation (CMHC) won't sell default insurance for mortgages over $1 million CDN.
- lubujackson 9y agoOne counter to that is Buffett doesn't try to time the market, he finds stable, productive businesses and buys in. Housing might collapse but in 10-15 years he will be profitable. Most homeowners aren't looking at things with the same perspective.
- gsylvie 9y agoYeah, and frankly the deal doesn't really look that reassuring to me. HCG had already negotiated a 9.5% loan on the $2 billion CDN (around $1.5 billion USD). Buffett is letting them refinance that loan down to 9% and he's buying some stock at a 30% discount. But the general market will not look that closely at the details, and will just be reassured by the Buffett brand name.
- mabbo 9y agoWhile yes, there is a serious bubble going on here in Toronto, it's also important to note the complex causes. Canada has something like 240,000 immigrants per year, and half of them come to the Toronto region- or 10,000 people per month. Then you add in the thousands of Canadians who are moving to the city as small towns and suburbs stop being attractive. There's a greatly increased demand for housing here. But supply is tricky. Toronto is full, land-usage-wise. There's something like two small parcels left (Downsview Park and I forget the other place) where there is honest-to-goodness undeveloped land. Apart from that, all new homes are in the suburb cities around Toronto. This means all new housing supply in the city is from building up and other densification- which is moving too slowly. The suburb cities are also growing like mad, but the infrastructure to support all that growth isn't there, causing smaller price booms nearby any Go-train station. But that's just the start. High demand, low supply caused housing prices to rise- leading to speculators buying second homes to flip, which shrinks the supply. It leads to people buying homes they don't want, at prices they can barely afford, because they plan to sell it in 3 years for a profit. The bubble inflates. So why pop now? Ontario passed laws saying foreign buyers have to pay an additional 15% tax. And foreign buyers were a large chunk of sales. The latest numbers say sales are down something like 50% or more. Prices will start to sink soon. When the Bank of Canada finally raises interest rates to prevent total catastrophe on the exchange rate, things will really get wild. In Canada, most mortgages have to be renegotiated every few years- how many of them are going to have homes worth well less than their mortgage with rates so high they can't afford to make payments? That leads to a 2008-USA style pop. It's going to be a bumpy ride... Edit: also worth noting, this is just Toronto. Vancouver has some similar dynamics. The rest of Canada may not have a housing bubble at all- they'll just have to deal with the economic fallout of this mess.
- asdf33323 9y agoYou forgot to note that Vancouver has returned to all time high prices in all housing types 6 months after their tax. http://www.mikestewart.ca/wp-content/uploads/2017/06/Vancouver-Real-Estate-Price-Chart-from-January-1977-to-May-2017.png http://www.mikestewart.ca/wp-content/uploads/2017/06/Vancouv...
- 9y ago
- paulpauper 9y agoYeah but the Canadian dollar has lost 30% of its value to the US dollar since 2013
- sdm 9y agoIt's more that the US dollar has gained 30% on the Canadian dollar. The Canadian dollar has been relatively stable compared to most currencies while the US has been actively propping up the USD higher. You can't just compare two currencies -- you have to look at the whole market to have a reference point.
- linkregister 9y ago> the US has been actively propping up the USD higher What does that mean?
- colefichter 9y agoSounds like a reference to quantitative easing.
- linkregister 9y agoIt must be a misunderstanding, since we both know QE reduces the value of a currency.
- colefichter 9y agoYeah, I have no idea. Just taking a guess at what the poster above was hinting at :)
- acchow 9y ago> By contrast, real home prices should decline with time, except to the extent that households shell out some money and plow back some of their incomes into maintenance and improvements, because homes wear out and go out of style. But the majority of the value of homes in expensive cities (i.e. SF, New York) is actually the real estate it sits on.
- saghm 9y agoStupid question from someone not well-versed in economics/finance: is it even still considered a "bubble" if it never bursts?
- cm2187 9y agoOne thing that should scare anyone holding expensive assets (stocks, real estate) is that even though US interest rates have started to rise, the size of the federal reserve balance sheet hasn't even started to reduce [1]. Quantitative easing is still turned to 11. When the Fed starts pulling liquidity out of the markets (which they are discussing starting to do later this year), I suspect a lots of these asset classes are going to deflate, not just in Canada. [1] https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
- maelito 9y agoFrance's housing bubble will also burst
- mahyarm 9y agoI thought it would pop over 10 years ago too, look how wrong I was.
- purephase 9y agoAgreed. I sold in Toronto nearly 4 years ago believing that the end was nigh. Stupidest decision of my life. 4 years appreciation on that property is likely another 200-300k that I walked away from. Should have rented, rather than sell.
- diogenescynic 9y agoSo will the Bay Area's. Incomes aren't keeping up with property values and eventually property values will have to adjust. Property values are derivative of incomes. I'm not sure when or how, but it's not possible for it to keep going up forever.