Stacy Summary: I still reckon individual cities, like Vancouver, are due for a big bust, but this is another interesting piece from Jesse’s Cafe Americain.
Tags: canada · housing bust138 Comments
January 5th, 2010 by
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Couple of things. First, there is an express difference between what you would call housing and real estate in terms of equity.
Jesse might have an old chart to compare CDN/US prices, this one is updated every month:
http://www.gettingtechnical.com/01_home/market_commentary/can_en.html
The S&P TSX Real Estate Index declined along with all other markets, just look at this chart:
http://stockcharts.com/h-sc/ui?s=$SPTRE&p=W&st=2002-01-01&id=p31592049983&listNum=2&a=187720108
Peaked in 2007, and really crashed along with everything else. Very possibly the Canadian Real Estate Sector was heavily exposed to international commercial banking sector losses.
Canadian housing prices are well beyond housing prices in the U.S. even with the exchange, but getting that point across to anyone in Canada is like pulling teeth.
Here’s Flaherty, lying through his teeth:
http://www.bloomberg.com/apps/news?pid=20601082&sid=akkWGP9Sz5bw
2010 CRISES FINALLY REACHES DUTCH MAIN STREETS
According to The Economist Canadian House prices are still Overvalued +20.6 and even worse in the Netherlands +21.2
http://www.huizenmarkt-zeepbel.nl/images/CFN683.gif
If that’s true 2010 will prove to be the Real Crises year for some countries.
This seems to be the case fors the Netherlands were Unemployment increased 5,25% in 2009 (3,6% in 2008) but for 2010 8% Unemployment is expected and House Prices will continue to decline.
The IMF pictures a much diffirent picture about Canadian Over priced Houses though but are still “bearish” about the Dutch House Over Pricing.
http://www.huizenmarkt-zeepbel.nl/images/House_Price_Gap_CFN127.gif
But I know the IMF is wrong about the Netherlands cause it doesn’t adress the spesific Dutch Housing situation namely THE DUTCH HOUSING SHORTAGE SITUATION FOR MORE THAN 30 YEARS! I mean In October Dutch house prices were 5,25% lower than in in October 2008!? That’s not dramatic at all (yet).
But on Dutch Commercial Estate it’s a much different story where prices decreased 25% in the last two years. This doesn’t show in the books yet cause most investors don’t sell to keep the higher value on their books helped by the banks who provide these investors with postponed pay schedules. The Dutch Commercial Estate business Inflated and many offices never will be rented again even when the economy grows.
@ FranSix – The real estate sector in Canada is diverse. In my region: Fredericton New Brunswick (east coast of Canada), real estate prices are not “bubbleized” like they are in Western Canada.
Our home is a 5-bedroom, two storey, 3-bath bungalow that was built in 2000. We have a landscaped lot, swimming pool, an out-building, and garage sitting on 0.6 acre lot. It is on a municipal city water and sewage system and is close to schools and shopping.
What would that go for in Western Canada? Here it is worth about $175,000 max. When we bought it we paid $125,000. That was in 2001.
@ SG
I keeps me thermal gloves, thermal undies, and beaver-skin hat outs in me igloo.
Checked it again but coincidently the Dutch Unemployment (5.2%) is the same as the decline of House Prices (5.25%) over 2009.
There was and is a Canadian housing bust, but by the scale of the US and UK housing busts — it is statistically not that significant.
Canada was not lucky.
It was only a matter of
1. Regulation against sub-prime lending
2. Less securitizations
3. A different banking system, where banks held mortgages
4. A lot slower uptake on US and UK finance system innovations
5. Etc …
The lack of a Canadian housing bust is not helping my American friend that was born in Canada — his ability to by a house in BC’s outports is still limited due to the high costs of housing.
Someone better tell WL that Vancouver is the bubble of all bubbles waiting to pop. The guy is clearly delusional if he thinks Vancouver has sound market fundamentals. Some quick stats for you, it takes 2.7 incomes to qualify for a home in Vancouver, explain to me how that is sustainable ? Also as prices increase, wages are falling, and personal debt is growing at an alarming rate. BC has some of the highest taxes in the country and still needs billions to pay for the olympics. Where is that money going to come from ? From the poor taxpayers of course in the form of higher taxes since they don’t have a printing press in Vancouver. I am sitting here in Calgary watching our bubble starting to deflate, how is it no one in Van. thinks their property market is a mega bubble ?
Actually, in Canada, we did have a form of credit contraction in the Asset Backed Commercial Paper market, where the government bailed out brokerages who defrauded the public, and should have gone bust. But here we are, sometime later, with the government bailing out mortgages.
A housing bust would mean a relentless equity decline. So the property presently worth so much could very well be worth -30% some time in the next year or two. That’s what its about. With everyone signing variable interest rate mortgages nowadays, then the bust is not far off, as equity declines follow on interest rate hikes. The Canadian market is not unlike the Alt-A in that respect.
The conclusion that you can draw from the Canadian experience is that government backing serves no other purpose except to keep housing prices beyond the reach of most and to put these people on the hook once it all goes sour.
Graph update supression:
http://finance.yahoo.com/q/bc?s=CADUSD=X&t=3m&l=off&z=m&q=l&c=
It still says 21 DEC as of the time of this post.
NZDUSD
AUDUSD
Are up to date…
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The real estate sector in Canada is diverse. In my region: Fredericton New Brunswick (east coast of Canada), real estate prices are not “bubbleized” like they are in Western Canada.
==============
There are vast areas in Western Canada where there is no properties bubble:
BC:
Kamloops
Kewlona
Alberta:
Red Deer
Most of the prairie provinces have neborhoods in their major cities where there is no bubble, but all towns smaller than 100,000 people have no property bubble.
Ontario:
Sudbury, assumed
Soo Saint Marie, pending verification
The picture in Canada has been one of chronic unemployment, jaded government statistics, and deficits as far as the eye could see for many, many years. But for a short time, Canada was sitting on a surplus (mostly from cutting benefits to the unemployed – which they paid into – and was fully funded) and now sits on an immense deficit once again. (mostly from bailing out banks and brokerages that booked record profits on junk paper.)
But the banking sector is racking up profits and waxing holier than thou by “limiting” bonuses.
No different than anywheres else, I expect.
===========
Canadian housing prices are well beyond housing prices in the U.S. even with the exchange, but getting that point across to anyone in Canada is like pulling teeth.
===========
1. The houses have to endure crushing amounts of snow
2. Canada is more expensive to live in generally, heating costs notwithstanding — but indirect government costs are very low vs US’s that are now astronomical
3. The exchange rate issue may be dead as CADUSD may be in parity mode for a year
4. Canadians don’t have a tropical environment like the US (or UK or Spain) that is amiable to housing speculation — notice the BC housing bubble vs Manitoba … you buy a house to live in and that is that
5. Canada is a UK white colony, so long ago it was instilled in the populous that the colony must be profitable — so there is no intellectual mindset for large scale gambling or speculation
6. Canada is a functioning civil society, more or less — and the US is on the other hand in in a perpetual state of lawlessness … unhappy people gamble like drunken sailors
The question “Why was there no Canadian Housing Bust?” implies that its potential has passed. It certainly hasn’t. And to suggest that it has, is lunacy.
By the same token, the US has not experienced its housing bust yet either. Most people have absolutely no idea how devastating this rout will be when it comes.
We are in the third inning.
Canadians should refrain from getting all huffy about real estate bubbles as if it could never happen here, and point the finger at the US as some sort of immoral camp.
Remember, there has already been a serious real estate bubble and collapse in the early 90′s.
If your house hasn’t appreciated to well over 400k $CDN, then the equity in your home has fallen well behind inflation. Canada has been printing money to the tune of 13% or more YOY since 2002.
==========
“Brand affinity is clearly hard wired,” he said. “It is so fundamental to human existence that it’s not going away. It must have a genetic component.”
==========
Adam Smith never spoke about brands as far as I know, and their existence in general is still new (< 200 y) … but branding was known to be done by
http://en.wikipedia.org/wiki/Carthage
with its foodstuffs sold into Greece before that empire was crushed by the Romans.
The Carthaginian names were rendered into Greek chars … ! ! !
That said it is at best a commercial habit that has waxed and waned since Alexander the Great's time.
Is Windsor, Ontario a part of Canada , I think so, you can now buy a older well conditioned 3 bedroom home their in a good neighborhood for 50-60 G range. wow.
Also look for a 20% crash in the lower mainland of BC housing market shortly after the Vancouver Olympics end.
Windsor is being directly affected by the auto sector decline.
Links etc …
http://www.cbc.ca/consumer/story/2008/11/14/f-realestatemap.html
http://www.cbc.ca/consumer/story/2009/12/21/f-hire-home-inspector-real-estate.html
http://www.cbc.ca/canada/british-columbia/story/2008/11/14/bc-real-estate-values-fall-okanagan.html
http://www.cbc.ca/canada/british-columbia/story/2008/11/03/bc-vancouver-real-estates.html
http://www.cbc.ca/money/story/2008/12/12/f-pittis-bankofcanada.html
http://www.cbc.ca/money/story/2009/11/12/f-vp-pittis-world-weakest-currency.html
Take in a bit of history during the depression, and you will see that the attitude in Canada was that they would fare better than in the U.S. during that time, but in reality Canada was much worse off.
Now, Canada has nothing backing its currency as it had sold off all of its gold in 1994 to Goldman Sachs.
If anything Canada is in a very dire situation and must print money like its going out of style to prop up its economy. That spells currency failure.
==========
If your house hasn’t appreciated to well over 400k $CDN, then the equity in your home has fallen well behind inflation. Canada has been printing money to the tune of 13% or more YOY since 2002.
==========
Sadly, the FOREX rates for Canada have not been harmed by this…
The CAD @ 0.80 USD has worked in the past, but the US is now so prone to hyperinflation and general FOREX value implosion that even with the crummy and suspect practices of the central bank are of little use…
I would have hoped that the 2007 Finsec crisis would have slowed money printing, but so far it probably has not done so.
Its interesting to note that the Japanese Yen has been in a massive bull market for years, but nobody notices. They print money like its going out of style and have had Quantitative Easing for decades.
——————
The picture in Canada has been one of chronic unemployment, jaded government statistics, and deficits as far as the eye could see for many, many years.
—————–
Canada has always reported its UI figures differently, they are much higher as you are seeing realistic numbers.
Canada’s deficit spending vs Australia is not unusual for its population size or economic or productive assets.
Canadian “cumulative debt per person” is still probably orders of size smaller than the US’s — now at 700,000 USD per person.
The US has a 69,667% negative savings rate….
Ok, just so’s nobody thinks I’m prone to exaggeration, a house in 2002 worth ~$125k CDN would have to have appreciated to assuming a constant rate of 13% increase of money supply to ~$222k CDN.
So a house worth ~$175k CDN in that time has lagged inflation by a very significant percentage.
But the average housing price, considering all sales in Canadian centres, is past $400k CDN., propped up solely by legerdemain.
Jesse’s link to the Bailout Details in Canada:
http://www.socialistproject.ca/relay/relay25_dasilva.pdf
It maybe a “socialist” source, but the really one of few sources reporting on it in Canada:
“On November 12[2008[, the Department of Finance announced that it would buy up another $50-billion in securities by the end of the fiscal year through the CMHC as part of its Insured Mortgage Purchase Program (IMPP), bringing the total of the programme up to $75-billion. This was justified as part of the government’s efforts to maintain the availability of longer-term credit in Canada. Simultaneously, the government announced that they would indeed “guarantee…more than $200-billion to pay back new loans made to Canadian financial institutions.”
“The rich ruleth over the poor, and the borrower is servant to the lender” (Proverbs 22:7).
We were luckier to be a little behind the US top in housing. We lowered the interest rates a long time before we reached the top of the market. So we have delayed the reconing a little bit further. But make no mistake things are bad here as our factories pack up and leave Ontario and Canadas heartland.
Nothing is over-priced unless no one can afford to buy it. Vancouver, B.C. median house price far exceeds the median income.
The truth eventually boils down to the math. You can continue the charade for a while, through market momentum, but eventually, there has to be an adjustment.
I think all major Canadian cities are due for a Real Estate bust. Canada has not escaped the real estate speculation and price inflation that has hit most of the world’s major cities. This is primarily due to the tiny interest rates set by the Canadian central bank. Garth Turner, author of “A Greater Fool” has a daily blog that details the current craziness of Real Estate markets in Canada. You check out his blog at http://www.greaterfool.ca/
Yes, I think its not so much as a price decline in housing at the root of recession, but the lack of available credit to keep housing in turnover.
If you wish to peruse housing in any city in Canada, you can always refer to mls.ca, where they recently upgraded the searching of properties.
You get a very sharp, clear idea of what housing looks like and what it goes for in any particular city. Its for very certain that urban properties in major centres will retain more value than depressed regions, even though those major urban centres have suffered tremendous economic pullbacks.
Full Report: 2010 AND FINALLY THE CRISES REACHED DUTCH MAIN STREET by Youri Carma http://tinyurl.com/ychwlmh
The fact that Chriss Dodd is going to STEP DOWN…
shows that any politician with their fingerprints found on that stupid TARP bill and bail outs for Goldman Sucks and JP Morgan will be KICKED-OUT-OF-OFFICE!!!!!!
WARN CONGRESS TO STOP ALL BAIL OUTS IMMEDIATELY!!!
My favorite Canadian: Mike From Canmore [RIP]
Comments on the then recent stock market merger of Time Waner & ALO (A-hole).
http://www.youtube.com/watch?v=F1GUoQpkr0s
Don’t Bank on the Banks
http://www.sprott.com/Docs/MarketsataGlance/11_09%20Dont%20Bank%20on%20the%20Banks.pdf
- skip to page 4 to find out what really happened to Canada’s bank…they’re actually in much worse shape than I thought
http://thetyee.ca/Opinion/2009/10/22/BubbleWillBurst/
Few Canadians realize is that the housing market has avoided collapse (prices are down 32 per cent in the U.S.) because the Harper Conservatives directed the CMHC to change the mortgage rules to effectively make the Canadian government the biggest sub-prime lender in the world. What’s almost as alarming as this reckless policy is that no one in the financial media is talking about it, even though everyone knows the facts.
I was alerted to the scandal by David Lepoidevin, a financial advisor with National Bank Financial, in a warning letter to his clients.
The facts are that over 90 per cent of existing mortgages in Canada are “securitized.” That is the practice of pooling mortgages (or other assets) and then issuing new securities backed by the pool — MBSs, or Mortgage Backed Securities. That’s what happened with the sub-prime mortgages in the U.S. which (because the whole pool was so diversified) received triple-A ratings by the rating agencies. Losses around the world amounted to hundred of billions of dollars
This is the ticking time bomb Prime Minister Stephen Harper has tossed at the Canadian taxpayer. Why? So that he can maintain the fiction that he is a good economic manager and win a majority in the next election.
The problem is no opposition political party wants to expose the looming disaster and risk being responsible for a dramatic fall in house prices. As Liberal finance critic John McCallum told The Globe and Mail: “I don’t think we want the government to be rationing Canadian home-buying.”
The price of political cowardice will be very high. And in the end the housing bubble will burst anyway, putting taxpayers on the hook for tens of billions of dollars in defaulted mortgages.
http://thetyee.ca/Opinion/2009/10/22/BubbleWillBurst/
http://thetyee.ca/Opinion/2009/10/22/BubbleWillBurst/
Listen people… few Canadians realize is that the housing market has avoided collapse (prices are down 32 per cent in the U.S.) because the Harper Conservatives directed the CMHC to change the mortgage rules to effectively make the Canadian government the biggest sub-prime lender in the world. What’s almost as alarming as this reckless policy is that no one in the financial media is talking about it, even though everyone knows the facts.
I was alerted to the scandal by David Lepoidevin, a financial advisor with National Bank Financial, in a warning letter to his clients.
The facts are that over 90 per cent of existing mortgages in Canada are “securitized.” That is the practice of pooling mortgages (or other assets) and then issuing new securities backed by the pool — MBSs, or Mortgage Backed Securities. That’s what happened with the sub-prime mortgages in the U.S. which (because the whole pool was so diversified) received triple-A ratings by the rating agencies. Losses around the world amounted to hundred of billions of dollars
This is the ticking time bomb Prime Minister Stephen Harper has tossed at the Canadian taxpayer. Why? So that he can maintain the fiction that he is a good economic manager and win a majority in the next election.
The problem is no opposition political party wants to expose the looming disaster and risk being responsible for a dramatic fall in house prices. As Liberal finance critic John McCallum told The Globe and Mail: “I don’t think we want the government to be rationing Canadian home-buying.”
The price of political cowardice will be very high. And in the end the housing bubble will burst anyway, putting taxpayers on the hook for tens of billions of dollars in defaulted mortgages.
http://thetyee.ca/Opinion/2009/10/22/BubbleWillBurst/
@DN: That is not a “bailout”. The government is buying INSURED mortgages. If those mortgages had gone into default the banks had nothing to worry either way… they were either getting paid by the people who held them or they were getting paid by the insurance payout from CMHC.
All the government is doing by purchasing them now is freeing up capital in the banks so they can increase lending as a general economic stimulus measure. There is a large difference between stimulus measures and bailouts.
The Vancouver Real estate market screams foreign investors. I have lived in Vancouver my whole life. I have discussed real estate with analysts in Vancouver which have expressed a large presence of foreign investors. Since i am a plumber in new construction, i have also built houses for countless foreign investors. The real estate market seems to keep climbing, but nothing has happened to the wage. Buying a home in Vancouver is next to impossible unless you have an enormous income, you live rent free for a long period of time, or you have family money. Hopefully the bubble will bust so i can buy a home sometime in my life.