The other CA bubble – Canadian housing bubble ripe for popping. Vancouver real estate increased by 142 percent from 2002 to 2011. Average detached home in Vancouver costs roughly $1 million while the median household makes $67,000 per year.
In the last few years I’ve noticed that many of the cable finance and housing shows highlight families in Canada. Shows that talk about debt or home buyers are usually focused on families in Canada which is rather odd given that we are here in Southern California. Yet the funny thing about these shows is that they rarely identify that they are in Canada although I recognize locations like Vancouver. If one simply tuned into the show it would appear that a bubble was still going on in the states. This is probably the point. After all, the cable shows focused on flipping houses or making quick bucks on real estate started going off the air yet another bubble was still going on up north. Obviously these shows had an audience otherwise they would not be on the air. Now the focus is on the Canadian bubble and American audiences can swim in the nostalgic dreams of the glory days of domestic housing. Yet the shows rarely mention their location as if English-speaking families and cookie-cutter condos and homes are so easily interchangeable that they will fool an audience. Yet one thing the shows fail to acknowledge is that the Canadian housing bubble is even more pronounced than that in the United States.
Canadian housing bubble set to burst
Let us first get one thing out of the way; the Canadian housing bubble will burst. Just like real estate bubbles in Ireland, Spain, England, and the United States real estate bubbles do burst. Timing is always hard to predict but undoubtedly these bubbles pop because they are fueled by easy and hot money. Even at the apex here in California arguments were bandied around regarding foreign money, low interest rates, and other nonsense trying to support a ludicrous bubble. Once the ego was put on the shelf and the credit markets imploded, the housing market came crashing down. Canada seems to be where the United States was in 2007. Let us examine a couple of charts:
Source: World Housing Bubble       Â
The U.S. housing market peaked in 2006 and it looks like Canada is five-years behind the curve. The rise in Canadian real estate is simply unjustified. Household incomes in Canada have not come close to keeping pace with real estate values in each respective market. Take a look at the insane Vancouver market:
Real estate values in Vancouver have shot up by 142 percent since 2002. There is absolutely no justifiable reason for this except for massive speculation. Let us look at household incomes for this area:
The median household income in Vancouver is $67,550 yet the average detached home price is above $1 million. That is simply madness and even makes the California housing bubble look modest in comparison.
Internal warnings of a bust are already running rampant:
“(CBC) The influx of multi-unit builds has led some economists to warn of overbuilding in the Canadian housing market, which could leave a glut of unsold homes on the market in the case of a downturn.
A downturn in demand would also likely lead to an easing of Canadian home prices, which The Economist magazine recently declared are about 25 per cent overvalued.
Interest rates are not expected to increase in the coming year, but analysts noted that Canadian households are already at record high debt levels, and the growth of both jobs and income has stalled.â€
Canadian households are in deep debt just like U.S. households. Even some of the “financial rescue†shows highlight Canadian families that suffer from the same delusions as many American households. You see the same patterns that led us into this crisis:
-“I can’t give up our home!†– a person in massive debt who really can’t afford their home
-“But we can’t give up our condo!†– trying to buy a $600,000 condo with a $60,000 household income
-“We are doing fine.†– a family in deep credit card debt and a negative net worth
It is little wonder why television programmers have merely swapped out American families for Canadian families. The pattern is the same and aside from a few glances at Canadian cash, these families are replicating the same debt hunger of American families during the bubble heyday.
And while it’s fairly obvious  the Canada real estate bubble is going to pop, still, if you’re financially able, there are a few things one can do to increase the value of the home. For instance, remodeling, or perhaps purchasing security alarm cameras to protect the home and family. The web holds a vast amount of information on these matters if you’re curious.
Canada bubble locations use same bubble logic as peak U.S. locations
The bubble talk is similar in locations with major bubbles like Vancouver. By the way, I think Vancouver is a great place but it is in a major bubble. A lot of hot money from outside has inflated values:
“(The Province) Cam Good, president of The Key, a Vancouver-based real estate marketing firm that caters to Asian buyers, said that about 60 per cent of the estimated 1,500 condos he sold this year, in Vancouver and Toronto, were to Chinese buyers.
While an October report by Royal LePage recorded a 16.9per-cent price increase of a standard two-storey house in Vancouver ($1.142 million) compared to the same time last year, local realtors and experts think restrictions are the last thing Vancouver’s market needs.
The report, which defined Vancouver as composed of the city’s east and west sides, West Vancouver and North Vancouver, pegged the average price of bungalows and condominiums at $1.02 million and $513,500, respectively.â€
Patterns like this are short-term just like Japanese buying in California during a previous bubble. These bubbles will burst because any housing market is going to be supported over the long-term by local households and what they can afford. These short-term speculative bubbles simply become landing grounds for hot money. The home price-to-rent ratio is already absurd in Canada:
Source:Â Gluskin Sheff
While many in Canada and places like Vancouver would like to deny a real estate bubble it is rather obvious to most outsiders. The bubble will burst and is looking very close to reaching a peak already. All the arguments and justifications were played out here in California as well. This is something that is very familiar especially now that we enter year five of the housing market crashing here in California. And just like the U.S. fringe markets pop first:
“(The Globe and Mail) What drives the housing cycle up, inevitably drives the market down as well. Builders in the multi-unit segment are currently responding to elevated home prices and robust pre-construction sales. Anecdotal evidence suggests the vast majority of pre-construction sales are to investors who intend to sell the units on completion or rent them out. As these condos in the construction pipeline are completed, this inventory of units will be dumped on to the rental and/or re-sale market just as sales momentum and housing demand ebbs. Our estimates indicate there will not be enough renters in Toronto to occupy these units as they are completed. As a result, some investors will be left holding vacant units. Since most investors are unlikely to hold onto negative-carry investments without a reasonable prospect of price appreciation; this will put downward pressure on home prices. We have already seen this dynamic play out in some smaller markets on Canada’s west coast where prices have corrected 15 per cent.â€
Welcome to your housing peak Canada. The good news is that things will continue even after your real estate bubble pops. In fact from data I have seen and stories I have heard, many of those harmed by the current real estate bubble are your local families who are unable to purchase without going deep into debt.
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121 Responses to “The other CA bubble – Canadian housing bubble ripe for popping. Vancouver real estate increased by 142 percent from 2002 to 2011. Average detached home in Vancouver costs roughly $1 million while the median household makes $67,000 per year.”
Not only Canada but even India is going through the bubble. Over there home prices have gone up by 200%.
Ken,
200% is a low number. Many areas in the big cities of Delhi/Mumbai/Bangalore have seen 3-4x gains in home prices and 7-8x gains in land prices in just 10 years. Tons of apartment complexes where the builder says that everything has been sold out, but only about 30-40% is occupied. The rest have been bought by investors. Generally they buy when the apartment is half finished and so far have been making an easy 30-40% profit by selling when the apartment is ready. Last year was difficult. Mortgage rates went from about 7% to about 11% due to rate hikes. Sales are down almost 30% YoY, but prices are mostly flat or rising !! Mumbai (Indias biggest city) reportedly has an inventory of almost 48 months.
The Canadian housing bubble did burst in 2009. In provinces such as Alberta there was a huge correction. The bubble just hasn’t burst in Vancouver yet.
Actually, the bubble did “deflate” in 2008. A house kitty-corner to us started at $760,000 in the spring of that year, and didn’t sell till the fall, in the range of $690,000.
I have no doubt that real-estate is overpriced, and that the amount of speculation indicates a bubble.
The question is whether the landing will be soft, or hard.
Mark Carny has come to Britain to escape the bursting Canadian housing bubble
not such a good choice for the bank ofEngland after all
An article in the May 26th New Yorker Magazine address the Vancouver boom. Asians are buying as a hedge and they are rationally over paying. Potentially losing 20 percent is nothing compared to potentially losing 100 percent in Beijing or Tehran. The same thing with the Venezuelans buying in Miami or Russians buying in London. Local fundamentals don’t come into play when foreigners are looking for political and social stability.
I am not surprised that Canada has a bubble, but why are lenders willing to lend to people who are likely to default? Aren’t the financial institutions regulated in Canada? And, who is going to bail out the banks when they start losing billions?
all risky mortgages are insured by government, no risk to the bank
It’s called the Canadian Mortgage and Housing Corporation (CMHC). It is Canada’s version of Fannie and Freddie. The Canadian taxpayers will be on the hook for the coming mess.
Canadian banks have even copied zero-down, exploding ARMs! Right now you can get 7% cash back with 5% down (i.e. -2% down payment). on a 5 year fixed at 2.99%.
http://www.rbcroyalbank.com/mortgages/cash-back-mortgage.html
You mean…insured by the taxpayers.
Michael, you’re wrong. 5% cash-back (or higher) does not go for 2.99%
1. In Canada most mortgage holders are on 5-year mortgages. When interest rates go up, there will be massive problems.
2. In Canada, you can’t just walk away from a negative equity situation.
So probably there will be a generation struggling in debt slavery when they find they can’t sell their homes easily.
Sure u can walk. Transfer all other assets into someone elses name, then stop making payments. You will actually end up with free housing for about 1 year before they kick you out.
We love watching Income Property, Property Brothers, and Property Virgins. We laugh through most of the shows, for no one told Canada that their prices are unrealistic and unsustainable. You can tell its Canada by the ending of each show, or berfore hand by the snow on the ground or the fact that they are dressed with heavy coats. Income property is where you spend a minimum of 25K by renovating your basement and renting it out for $1,400! Yeah, right. Hahahaha. Good luck. Deeper in debt and a basement you can’t rent out. Property Brothers explain each show why you have to buy a $700,000 handyman duplex to get the house you want. Apparently $700,000 is not enough for a brand new single family home in Canada. Hahaha, right! Property Virgins is where you are shown homes in freezing cold Canada that are nearly 1 million which you can’t afford. So, you settle and buy a row house for $500k. For the price these people are paying as down payments, they could buy for cash a whole house in Florida. Now I have a place in Naples, Fl, and we always look for car plates, hmmm, lets see, New York, New Jersey, Illinolis, and Canada. My favorites are Rolls and Bentley with Canadian plates, such a long drive. So many Canadian plates in Naples, Fl, which was one of the top 10 bubble towns 5 years ago. This just can’t end well. What’s next, a housing bubble in the North Pole!? 🙂
I like watching those shows as well, but you forgot one other Holms inspection. It’s quite obvious that the participents are canadians if you listen to the pernounciation of words like “HOUWSE”. I must admit I thaught Sandra Renomatto from Property Vergins was adorable even if she was a bit over the top at times.
I don’t get what the point of this is – except clearly envy and jealousy.
And don’t forget Candice Olson’s high end interior design show to help you get into even more debt by choosing over the top finishes and custom materials. And Sarah’s House presents the same high end design too. But at least she explains to her viewers how to cut costs by using vintage pieces with luxe fabrics to achieves the stylish magazine-look…
Yeah, the reason there are so many Canadian Bentleys is because Canadians spent in excess of $15B last year on American underpriced real estate. Nice try, pal.
Good point. Most of the Canadians buying condos in FL now use their home equity for it. The average Canadian household is leveraged over 150%, and although the talk is that they’re paying down their credit cards, they’re switching their debt to home equity, which has had artificially low rates feeding the frenzy for over 3 years. It’s gonna be tough when those rates are finally raised 2%.
The entertaining part is “there is no US style bubble”. True! It’s one that’s all Canadian.
We have a magic housing market in NZ also. Albany an ordinary suburb of Auckland, median house:
Dec 2001 – 314K (median household income 49.9K, ratio 6.3)
Dec 2007 – 630K – a quick doubling in 6 bubbly years (income 65.4K, ratio 9.6)
Dec 2011 – 640K – stuck on a permanently high plateau! (income 74k, ratio 8.6)
Basically, everyone in NZ is on a variable rate balloon note. Keeping house values from falling in nominal dollars is a matter of national security as it would cause all the banks to fail. Can you imagine how many years of very slow (nominal) wage inflation will be required to achieve a reasonable price/income ratio? Maybe twenty? There is no hope here. We can flee across the Tasman to – more of the same! This region is nothing but rent and mortgage serfs. We are a defeated people.
Facts are that a home needs to cost 2-4 X annual earnings, else there’s a potential for a big crack up. In the good ole daze 2.5 X earnings was magic, but then we’re in an era of trickle down, offshoring and international finances and we are no longer a manufacturing economy, nope, we’re a services economy….you know, serving and flipping burgers at McDognuts, room cleaners at tte lcoal hotel. Live is good!
@Nick Handle
“but why are lenders willing to lend to people who are likely to default?”
Because in Canada mortgage risk is socialized (loan with less 20% down are insurde by gov. CMHC). Banks are encourage to lend as much as possible to as many as possible, they take 0 risk. The taxpayer does.
You should add that the current Conservative Government stoked the fire repeatedly since 2006 by messing with the old mortgage rules, including the 0/40 schtick which launched the whole market into the stratosphere.
Using the term socialized is problematic.
Anyways, yes the Govt did stoke the file and QUICKLY poured water on it by reducing these exotic loans within 12-24 months. No more 35 yr / 0 down etc.
Dr. HB can you do a piece on how SFR is financed in different countries? I think it is relevant to understand if or when a bubble will pop if it is in a country where you pay cash or where 40% or 20% down is the norm. As far as I know, we are the only country that ever offered 0% down financing for a home purchase and we still have 3% down tax-payer guaranteed financing.
Is the financing in Canada fixed or variable? Is the financing from private investors/banks? How much equity can be stripped on what terms? I think all of these factors would be relevant in an apples to apples comparison.
Nick,
The Canadian banks are FULLY insured against mortgage defaults by the CMHC, a crown corporation. The banks are not on the hook for anything.
Also, the Federal Gov’t has been messing around with down payment requirements and changing mortgage amortization periods over the past number of years.
It will not end well. The media, the banks, the Bank of Canada, government agencies and the the RE cartel are now in “cover your ass” mode.
It is NOW finally correcting as it should. The Bank of Canada and other institutions should have let it pop LONG ago.
They are trying to slow it down. They got rid of 40 and 35 year mortgages, and increased downpayment requirements for additional properties (not your primary home).
It’s probably not enough, however, as people seem to keep going deeper and deeper into debt.
Banking/Mortgage, Real Estate Sales, Real Estate Legal Services, Adverstising (Newpapers and Print material), Canada Post, Renovaton/Construction Trades, Designers, Big Box Store/Hardware industries, AND don’t forget the associated government taxes from all of this economic activity (HST, Land Transfer taxes, property taxes etc) would all suffer if Government actually acted repsonsibly in this area. Instead, we all encouraged to borrow against the future, and those industries mentioned above will all make enough money to secure thier futures, while the oridinary citizen who bought into the ever ongoing dog and pony show will be left holding the bag, unless they were able to get out of it in time. Asset Bubbles always end badly…. eventually. But in the meantimem, a lot of people in associated businesses can make a lot of money.
Canadian banks assumed little if any mortgage risk between 2007-09. It ALL went directly to CMHC and therefore directly on the backs of Canadians. The myth of strong banking in Canada is because of manipulative smoke and mirrors.
I once wrote to you Doc, about the RE bubble bursting in Thailand @ 2007-2008, and you replied you were surprised to hear it.
Actually, it was because of the bubble in the US that condos seemed so cheap in Thailand @ 2001-2004, the easy money in US tossed around, and many taking holidays here and buying for retirement purposes down the road (and I think same for RE bubbles in Britain and Canada) that fueled the overseas buyers of condos here in Thailand (foreigners cannot own land, or houses, although they can own 49% of a business, and be director, and the company can buy a house….but then they must make a profit in 2 years, and keep 5 full-time Thai employees on payroll), which drove up prices of condos here, and fueled a huge building frenzy in Bangkok for expensive condo buildings. I mean, really expensive condos with 1500 sf, 4 bd, 3 bath w/balcony pool…yes pool, in each condo. That bubble fooled a lot of people all over the world.
And when the bubble in US and Britain burst….so did the sale and prices of condos in Thailand. I’d guess @ 20-30% from peak in 2007. Plus longer time on market for those that do sell. There is not a lot of Press about it…but if you look closely, there are articles about “business leaders” (read Bankers and RE brokers), petitioning the government to assist in “making conditions better for R.E. sales….” Extend and Pretend the world over it seems.
But, I still think those getting ready to retire, with decreased equity in their paid-for homes in US, can still use that diminished amount, and buy a nice place in Thailand (no property taxes, and for most condos, @ $500-$1000/year in Common Area fees), along with the good and inexpensive health care, food prices (if you eat Thai), and recreation.
$50,000 gets you a very nice condo in good location, @ 800 sf, 1 bd/1 bath, kitchen, pool, security, easy and cheap access to public transportation and hospitals here in Chiangmai. I think you may find a few for less…like $35,000 in not quite premium locations….but everywhere is safe in Chiangmai. I walk the streets 24/7 without a worry. There are no “bad areas” as long as you behave yourself. MYOB, and they mind theirs.
$100,000 can get you a very nice 3bd/2bath, @ 1200 sf. $10,000 grand gets you a 500 sf Studio, still very clean and safe locations, w/ security (all Thai condos and apartments must have tv monitoring, key card entrances and guards by law) , up to @$35,000 for top Studio location.
And heck, you can rent a house downtown, w/yard, fence, good locations…for maybe $120/month. I expect to see a large influx from western aging countries soon. A retiring couple from US, that both worked and are collecting S.S., and maybe a pension or two? Can live VERY well on that income in Thailand, much better than in US.
Seeing more and more retired French and German couples moving in lately.
Btw: that cost a tidy $25,000 deposit in Thai bank for the Retirement Visa for those over 50. But you get it back if you decide to leave. There are other visa options available.
Automatic Earth website has been talking of the looming bursting of the Canadian Real Estate bubble for quite some time now…great articles.
Hi! your info/knowledge about Thailand is quite interesting to me as I just returned from a 5 week 1st time holiday from there. I was in Bangkok,Pattaya,Chiang Mai,Phuket/Patong,Koh Phi Phi,and Krabbi. Farang you seem to have a good working knowledge about real estate in Chiang Mai,are you familiar with what’s going on in any of the other cities i listed above??? Farang is there a couple of good web sites that talk about real estate,visa’s ect.. for foriegners that you are aware of??? I spoke with some realtors on my trip in Pattaya and Phuket/Patong and they are saying the market there hasn’t really turned down as there is a lot of demand from foreigners and return on investment continues to grow between 8 to 11% for condo’s in good areas near the beach. Farang any thoughts on their claims?? Farang thanks! for the response…..Farangatang from Canada
I’ve wondered why the bubble in Canada is so huge for a long time. They don’t even have nice weather. It will be interesting to see what happens when all these other people finally do pop.
Your an idiot. House pricing aside, I live in Vancouver and the weather in spring and summer is probably the best in the world! In winter it can be wet and cold but that is what the Whistler is for. BTW: Vancouver is less than 2 hours from Seattle. Does the weather get really bad as you drive up the I5? I also beleive Minnesota is colder than Toronto – Why do American’s live there?
Whatever…Vancouver weather sucks. Our spring weather is terrible. We get nice weather for maybe 2 months of the year.
Vancouver spring and summer are the best in the world???? Are you for real? In the last 2 years we had no spring or summer. Don’t go around spreading BS. Last year April-July it was 9C-16C and freezing rain with no sun! How can anyone in their right mind consider this the best spring and summer weather in the world? One thing is to like Vancouver and quite another is to be delusional. Vancouver weather is one of the worst in the world. We have no summer or spring to speak of. 2 weeks of 21C don’t count.
What a bunch of hooey. Last spring was the coldest in BC in 75 years.
So, what exactly is nice weather? Tornados? Hurricanes? Mudslides? Massive floods? Sorry, we rarely if ever experience any of those events in Canada. Plus our summers can be just as hot or hotter than yours can. Only 3 months of the years can really be cold. Pity your pathetic American education.
Oh – and housing prices are high as our unemployment is low unlike yours. If that changes and rates go up, that could cause the bubble to burst in some regions.
You are completely insane or delusional,,,I live in Hamilton and we experience flooding, some tornadoes and what not!!! You idiot live on another planet!!
What’s next, a Haitian housing bubble?
Good one! But seriously, we need to ask ourselves what the hell is going on here? What is the end game to those in charge? Why are developed countries going through housing bubbles and sovereign debt crises? Why are these things are going on in the US, Canada, England, Ireland, Italy, Spain, Greece, Australia, New Zealand? Why are they not happening in Guatemala, Zimbabwe, the Philippines, Haiti? Is this somehow transferring wealth from developed nations to poor nations? Is it leading to a one world government? Is it some kind of social engineering experiment? Is it really as simple as just housing bubbles, coincidentally in the more desireable countries to live in around the world?
The answer is pretty simple. The financial industry wants to make unreasonable profits. So it runs ponzi schemes.
The western industrialized countries you mentioned decided to print money and cheap interest rates to create artificial wealth while the 3 (turd) world countries you mentioned didn’t. Any wealth they got from the west was stolen before it went to their central banks.
Since western countries stopped producing and generating wealth through exports we simple lost the game. Anyone bought gold lately? Hang on to it.
@DG
“It will be interesting to see what happens when all these other people finally do pop.”
I think what will happen to us in Canada is the same as everywhere else: painfull deleveraging.
It’s real shame though because this bubble was entirely “made by government”, it could have been easily avoided and all the money from Canada resource surplus could have gone to more productives investments.
But idiots short term thinking politicians figured otherwise…
There is no housing bubble in Canada. You Americans just don’t understand what is happening up here. Vancouver is a world unto itself for 2 reasons:
First: They have run out of land in the city. Vancouver is located on a triangle . At the south end is the border. On the east there is salt water. On the north-east are the coast mountains. There is lots of reasonably priced suburban housing east of the mountains if you are willing to make the commute.
Second: There are lots and lots of wealthy Chinese who see Canada as a safe place to put their money when they get it out of China and a lot of that money is buying real estate in Vancouver. Many Chinese send their kids to university there and the kids live in the houses and condos that they buy. These people usually pay cash so there won’t be a foreclosure problem.
In the rest of the country we have a situation very different from that in the US. We never abandoned our cities. The romance with the suburbs ended in the mid to late sixties and people started moving back to the inner cities. Yes, we have suburban developments but for the most part, they are populated by people who can’t afford to live in the inner city. But the inner cities have only so many houses, so there are bidding wars for houses there.
A personal note. We bought a very nice older home in an inner city neighborhood in the early seventies. It has gone up tremendously. Many of the small homes in our area go for around $500K and are torn down to make way for million dollar homes. One of the new homes in our area recently went up for sale – asking price $850K and it sold within 2 weeks – you can get the same house in deep suburbia for $299K. Buyers are paying for location, location, location.
Nonsense. Even the prices in places such as Kelowna bubbled like crazy and there and the population is only 2% Asian there. But don’t worry. You bought your house in the 70’s. You’re rich Rich RICH!
Your post sounds exactly like arguments I used to hear that there was no housing bubble in Orange County, California…the “their not making any more land” argument (ocean on one side, mountains on the other), the “wealthy immigrants” argument (Asians with suitcases full of cash will continue buying condos, houses because of the schools, safe place to park money, etc., i.e. Irvine), those “less affluent” minions priced out to suburban sprawl developments, they must commute into OC to work and enjoy Paradise. You might want do a little research on what happened to prices in good old OC….
Every kind of bubble is manipulated. The media contributes to the boom and the bust. If you look back on Vancouver’s real estate, history repeats itself and similar things were said. You don’t need to worry b/c you bought early but it is going to affect a lot of people and change the dynamics of this city. The stress is palpable from people not being able to buy and the stress of major dept. Later the stress will come from being under water and increasing interest rates and cost of living. This will change the dynamics of Vancouver for a long time.
While Vancouver is an extreme, Canadian housing is bubbling all over. Speaking to a decently well employed professional based in Montreal he relates the story that everyone’s home is going up but almost no one in his neighborhood could afford to buy their homes today based on their incomes. Does that sound familiar?
Agree, the only people that can afford to pay the prices are walking in with ‘equity’.
“It’s different here.”
Sigh. No it isn’t. It’s not different anywhere.
I remember this stage of ignorance here in the USA back in 2005 2006.
” I’m worth millions but my credit card is maxed and I don’t have even $5 in my wallet.”
Wow! did you read the article? You are exactly what they are talking about. “Vancouver is special, it’s different bla bla bla.
actually, a correction is happening as we speak. Sales have dropped off a cliff and listings exploding. Panic will start to kick in soon. I dont expect a US style correction, but a sizable correction that could potentially destroy the financial lives of many that bought in the last 3-4 years. Long time home owners that have leveraged their homes to purchased investment properties will also be affected. Eve realtors at this point are unsure of the future. They say that out of fear. Vancouver itself has little land, true. But did Vancouver population really grow that much in 10 years? the answer to this is massive speculation, cheap money, and the fear of being priced out. Isnt that what happened in the US Dr. Bubble?
You do realize that “wealthy Chinese” are able to buy homes in Vancouver thanks to their massive stimulus and bubble, right?
Wait until that one blows…
Come on David, you sound like my friends in California, I have lived in Canada for 28 years and then I left when I was 28 for the US, I have been here for 14 years and have property both in Canada and Arizona. I am working in Southern California since 2005 and the mania I witnessed both in Southern California/Nevada and Arizona watching housing going up 200% to 300% in a few years including my house which went up almost 400% and I have lost the “artificial housing equity” back to what I paid for the price 10 years ago.
I have friends in Toronto and Vancouver that talk like you and just as California talked about the Japanese buying up housing in California in the early 90s obviously didn’t work…
Your in a severe bubble especially Vancouver and Toronto and don’t want to face the reality as they said in the US housing will never goes down, so don’t give us the excuse Canada is different/Banks don’t work the same as the US some of that is true, but regardless when people don’t have the down payment, lose their job, oh ya if the average Canadian is 120% in debt then they have joined the US, debt ridden and things will adjust now how much is what you will have to wait for… trust me it is coming …. it’s just like the US just part #2 and the stories will continue “it wont happen here” funny to hear it again … at least I have the perspective from both Countries not just one …. just keep buying more property and use up all your equity everything is fine ;}
The Canadian housing bubble has been building for a long time and the red flags have been evident for quite a while. A lot of it is because of the tar sands boom, which might be rather fleeting, but in any case the wages and salaries do not support the outrageous prices, as the good Doctor has pointed out.
An entire market dependent upon 5-year ARMs and loans 8X the borrower’s incomes is rigged to blow, that’s all. I only wonder it’s taken this long.
If tar sands are making Canadian’s rich then why is the Edmonton and Calgary real estate not ballooning like Toronto and Vancouver’s. Edmonton and Calgary’s real estate crashed in 2007 along with the USA and these 2 cities in the province of the tar sands have not fully recovered to their peaks.
Crazy stuff. I watch HGTV sometimes, and there are a couple of shows (Sell This House, My First Sale, etc) which show distressed home owners/mortgage renters. A couple of times I was surprised to learn the show was taped in Canada, in 2008/2009, when real estate tanked until emergency rates were brought in and lending restrictions practically eliminated entirely. Lots of sad stories from that bleak one year period, and that was just a mild 10% dip. Prices and debt up sharply since then.
Canadian banks are well protected against mortgage losses here. CMHC, Canada’s government mortgage guarantor, co-signs all high ratio mortgages (less than 20% downpayment). Low ratio mortgages are made by banks using their own stricter lending criteria, and of course have more of an equity cushion. Still doesn’t protect home owners from rising interest rates.
Also, unbeknownst to most, Canadian banks have already been bailed out! when government meddled in the MBS market a couple of years ago. The cost was to the tune of $69 billion (~$700 billion when scaled to US proportions). The total injection of money to the banks is nearly $200 billion.
http://www.actionplan.gc.ca/initiatives/eng/index.asp?initiativeID=39&mode=7
http://www.wellingtonfund.com/blog/2010/12/02/canadian-bank-bailout-total-touches-186-billion/
http://www.globalresearch.ca/index.php?context=va&aid=12007
http://canadauncut.net/facts/the_banks.php
http://rabble.ca/columnists/2011/11/bailed-out-any-other-name-canadian-banks-got-plenty-help
http://www.pacificfreepress.com/news/1/6148-ottawa-misleads-on-canadian-bank-bailouts.html
Tons more. Canadian and global media again hard at work reporting the news you don’t care about.
I’m in Vancouver & have been watching this insanity. That 146% increase is understating things for the City of Vancouver itself rather than the metropolitan area: the SFH in Vancouver proper that I’m renting has tripled since 2002 and is now worth over a million dollars for an old-timer. And incomes? Not so much.
Australia is a mirror image of Canada. There is a resource boom happening to sustain the bubble prices, but once China stops buying the dirt to make the plastic thingies that the rest of the wold wants…. POP!
I spent some time in the Pilbara last year. I don’t know if most folks in the US realize how utterly dependent on resource exploitation Australia is. While it can’t go on forever, though, in the short to intermediate term the iron economy probably can keep Aussie currency and housing prices high while the rest of the world sinks.
Canada is flush with oil, so the government doesn’t care. They will sell us oil till the cows come home, and pay off their debt one day. In the mean time the fat cat bankers who rule the world will pocket more fortune at the expense of the masses. More redistribution of wealth. Maybe they should get a tax cut to create “jobs” with all that glorious profit.
Canada if they were smart is actually in good shape for the future, oil, and water wise (if they are wise).
Maybe the US should invade? We gotta do something….
“Maybe the US should invade? We gotta do something….”
F* off. At your peril. We’ll be waiting.
It’s a joke. Just like Southpark beating up on Canada all the time.
Come on Boombust,
You and I both know that Canada is indefensible. Not only could the US grab key infrastructure right away, but we’ve been flooded with so many third world immigrants that the citizenry doesn’t have your sense of patriotism.
All the US would have to do is ban food exports to BC anyhow. We’ve mown over so much of our limited farmland that BC would starve quickly if it were not for US agriculture. We traded in farms for golf courses and subdivisions full of Chinese immigrants.
But Vancouver is really different. You cannot apply traditional economic supply/demand logic here. There will be planeloads of Asian investors bringing piles of cash to buy homes after Chinese New Year!
Well – – we’ll just have to see. The stats coming out for the first half of January show that sales are down 50% on a seasonally adjusted basis and that listings are coming on stream at an all-out record pace. Sellers are holding out now but once you start to see people who are up 300-500% start to say they will accept less to sell – this market will fall fast. There is no evidence of significant Chinese money being here over the past 6 months (unlike last Spring) and China has its own problems now.
I will agree that it is different here – but even the Vancouver premium has become unsustainable. 50% decreases in value in 36 months are now a very strong possibility.
50% off will be a sweet deal. But if that happened, I don’t think people our buy because they have no job. There will be more crime and more shootings.
50% off will be a sweet deal. But if that happened, I don’t think people could buy because they have no job. There will be more crime and more shootings.
I updated that chart you are using. Forgot it was still kicking around.
http://worldhousingbubble.blogspot.com/2012/01/case-schiller-vs-canada-and-vancouver.html
We heard all this same bullshit before…”they are not building anymore land, the Japanese will own Hawaii and the entire west coast, blah, blah, blah.” Sounds like the Canadien government is aiding and abetting this bubble in a big way. Just like every bubble in history of mankind, this will not end well. When home prices far exceed local incomes, it’s only a matter of time before the laws of math rule the day again.
Good luck trying to get this through the skulls of Canadians. I know, because I’ve tried recently. Many continue to live in a world of superiority over what we went through down here. Their banks are better, default rates low, etc. they use all of these arguments to try and explain away the most important argument, which is by looking at a picture of the parabolic increase in home prices.
famous words Peter Schiff addressed to room full of mortgage “professionals” in 2006. “if you own property, sale it, that is if you can find buyer.” I speak with countless people who bought a home, rode up the bubble, sold the home just to use the artifical bubble inflated proceeds to buy another infalted asset. Dr Housing bubble, while taking a CE class, i almost laughed out of my chair. Dodd Frank says a loan term can not exceed 30 year term, “unless” the property is located in a high cost market then a 40 year term is allowed. ok, this can not be any clearer that the Congress and Fed is and will prop-up certian markets. they are doing the same with high balance FHA and Conventional loans. your So Cal market will be infalted untill the last minute, i am sure the congress and FED will do everything in thier power to support those markets as showen with Dodd Frank and high balance FHA. mark my words, next will be grant funds, no mony for FHA down payment of 3.5% the Federal government will issue you a forgivable grant/lien….just watch.
I know I’m a glass-half-full guy, but I don’t see anyway out but a massive global default and total destruction of the world financial order. I wonder how many are thinking “we must be near the bottom. Should I jump in?” We’re probably already past the point of no return, so party on Garth, party on Wayne…
You’re not alone. Multiple nations credit ratings cut, simply print more money to buy more worthless debt, financial markets soar almost daily no matter what news is released…yeah, must be Mom and Pops raiding the mattress to buy stocks. One in seven Americans on food stamps, stubbornly high UE, 40% of Americans have less than 10K saved for retirement. Gas prices creeping up; I’m getting that 2008 rainy day feeling again.
I agree. It’s all going to end badly. There is too much debt and not enough money in the world to pay it all back.
I have some inconvenient truths for the “it’s different here” crowd. Prices in Toronto have fallen steadily since May of 2011 and losses are accelerating. I draw your attention to real facts – Page 25 of the Toronto Real Estate Board December report. Average price sits at $451K in December ’11 vs. $485K in May ’11
http://www.torontorealestateboard.com/market_news/market_watch/2011/mw1112.pdf
What’s that? Things will pick up in the new year? Unfortunately, First half of January has been a disaster with prices now sinking to $444K.
http://www.torontorealestateboard.com/market_news/release_market_updates/news2012/nr_mid_month_0112.htm
Even Vancouver is falling off a cliff! Average detached home now at $1,064K vs. over $1,200K in May.
http://www.yattermatters.com/2012/01/vancouvers-average-home-price-freezes/
Now, average real estate prices have declined year over year in Vancouver (701K in Dec 2012 vs $689K in 2012). My condolences to anyone who bought in the last 12 months!!
My advice would be to not wait around to be told by the main stream media that the real estate bubble has popped in Canada. Find out the facts for yourself.
must be the weather…..
On that same page 25 of the TREB Dec report you can see the same effect in 2010 as you have mentioned in 2011. It looks like a seasonal thing to me. Every month in 2011 is higher than every corresponding month in 2010. Even $444k in Jan 2012 is higher than the $425k in Jan 2011 which is higher than the $408k in Jan 2010. Careful how you interpret statistics. Looks like you were cherry picking here.
For Pete’s sake! Every self respecting Conservative knows………………………..
The reason there was a world wide housing bubble was because of Carter! The Community Redevelopment Act had a rider that required all trading partners of the United States to “lend money to people who couldn’t afford it”.
So you see…..Carter not only caused the housing bubble in the U.S., but caused a global housing bubble.
Well, the other lesson learned from the US bubble is that the home builders were a great short — which Canadian names should we be looking at?
i agree that canada is due for a correction but every location is different.
vancouver is much different than other cities in canada. it’s one of the most sought after cities to live in, in the world. especially for the millions of chinese who aspire to move there. the vancouver market doesn’t care about what the average wage is when the chinese are buying non-stop. there are well over a million millionaires in china and that number continues to climb up. unless the chinese market crashes, i do not see the vancouver housing market changing much.
another point to remember is that vancouver is a coastal city and there is no more space to build in it. to give you an idea of the size of city of vancouver; vancouver’s is 115 km2 in size, while los angeles is 1302 km2. land and space are quite valuable. the only growth we see are detached homes being replaced with condos.
i’m still not sure how california can be compared to vancouver when one is a state and the other is a city nestled in a small piece of land with no room to expand. then there was the comment about ‘japanese buyers’ in california to draw a parallel to the chinese buyers in vancouver. the japanese, in general, were not looking to migrate. they were looking to invest their money in cheap property. the chinese are migrating in record numbers to vancouver and are still buying the million dollar homes. the chinese immigration backlog is well above 100,000 and again, most are looking to migrate to vancouver.
all said, vancouver’s land value is what’s going to keep the prices up. condos in vancouver will most likely come down in price but the million dollar homes in vancouver are here to stay.
I’m sure all these wealthy Chinese people with suitcases full of money have some financial sense, they are buying in that bubble market to catch the wave and make money. If there is no more appreciation and likely a decline in prices, why would they want to park their money there? Is it the weather, the fresh fish, the clean air? This is typical herd mentatlity, when the herd gets spooked…bad things happen quickly. Your local yocals who bought at the peak using 8x income will probably be the first to fold, after that it’s people who want to get out and still make some money…the decline will accelerate from there. Throw in a banking or economic crisis and it’s game over!
Like one of the other poster said, we’ve seen this before in Orange County, CA. If you went to any local restaurant in 2005 and told people their home would soon be worth 25 to 50% less, they would have thought you were insane. After all, OC has the best climate, beautiful beaches, plenty of high paying jobs, the most beautiful women, great entertainment, centrally located to everything, etc, etc, etc. It was all a facade, people were blinded by greed and common sense was thrown out the window. This sounds exactly like the delusional bubble mentality that is taking place in certain parts of Canada currently. My advice is be careful, that is a ticking timebomb ready to go off! I wouldn’t want to be anywhere near when that thing blows!
I would be cautious about over hyping the Canadian economy. They sold off their gold long ago. The Canadian Dollar (the ‘Loonie’, they call it) is backed by USA dollars. In other words, backed by thin air. Once their housing bubble pops, their biggest industry, forest products, will be much smaller.
The infamous tar sands are marginally economic, if one ignores the environmental damage related to production and transport.
The dollar and the Loonie appear to be relatively strong, since they trade off the Euro. But they are both steadily losing their buying power with respect to most goods and services.
Chinese won’t buy anymore, they love to gamble but they hate to lose. I play Pai Gow with them all the time, they HATE losing
The mainlanders will end up leaving after a few years. I know a family that was here for 10 years that moved back to China. The young love it here. But the older ones, don’t like it here because they aren’t used to Canada and don’t speak English.
Hi Alex,
Can you point us in the direction of your 100,000 backlog data? I’m assuming you’ve found some stat at a Canadian immigration website, which states that 100,000 Chinese have applied for Canadian visas/citizenship (or the equivalent).
My questions concerning such are: what are the income/social breakdowns of these 100,000 people? Is it more like 25,000, four person families (25k times 4 people = 100k)? Are all of the families millionaires, or just the top 10% or so? What is the median and average income (and standard deviation) of each of these families or individuals? And are all 100,000 people going only to Vancouver or will some be going to Toronto, etc…? Is this 100,000 backlog something extraordinary or have there always been 100,000 Chinese trying to get into Canada? That is to say, is there a strong positive correlation between increasing Chinese immigration requests and the increasing Vancouver property values? Are all 100,000 people looking to buy a home, or are a significant percentage wanting to rent?
i don’t remember exactly where i saw the 100k number, but it was a CIC stat report from china’s visa office. here is a link to the latest report on the overall backlog in 2010. we have over 300k applicants waiting in the backlog from around the world and that’s just the skilled workers.
the hong kong visa office has over 16000 investors waiting for their investor applications to be processed.
http://www.torontosun.com/2011/10/07/immigration-backlog-keeping-millionaires-out-of-canada
There are about 16,400 millionaires alone in Hong Kong, Jim Versteegh, a federal immigration program manager at the Canadian consulate in Hong Kong, said about classified numbers released this week.
Versteegh said there are about 22,491 millionaire investors worldwide who’ve applied and are waiting to come to Canada.
They’ll bring about 77,800 family members with them.
http://www.cic.gc.ca/english/department/media/releases/2011/2011-02-13.asp
“Last year, the backlog of people who applied before the Action Plan was drawn down to 335,000 applicants, which represents close to half the number of people who were awaiting a decision in 2008,†said Minister Kenney. “I’m very pleased that a higher number of admissions in 2010 means that more people are now out of the lineup and well on their way to beginning a new life in Canada.â€
one more thing to take into consideration is that, in many cases, a large number of people, sometimes more than 1 family end up living in the homes and so this makes it easier for even the middle class chinese to purchase homes in vancouver. this is another reason why pretty much every new detached home in vancouver built will have at least 1 extra suite.
reason why the chinese love vancouver are:
– the climate. most actually prefer the cloud and moderate temperature to sunny and warm
– the large chinese community
– the already established economic ties between british columbia and china
– the highly rated schools
– the canadian politics
– mountain, water and beaches, all within a short distance
doom and gloom might be sexy but blanket statements in the above article should be discussed and dissected.
again, i do see corrections happening around canada; specifically in the prairie provinces and it will continue in ontario, but there are many variables involved with vancouver and the big variables are the value of land and the migration of foreigners who want to be in vancouver.
Yeah – how do you ‘short’ a bubble, without having to work within the constraints of equity option trading (REITs, builders, etc…)? That is to say, how can you create a situation where you profit from a bubble collapse, without having to predict its time table. I don’t go near options….
I’m online today searching for information on Socal real estate. This is how I found this article. Coincidentally, I own and live in Vancouver BC, and thinking of using equity in my home to buy property in orange county as investment! Interesting to read this. I have been concerned about leveraging the equity in my home in case it disappears.
Concerned? Of course you are. Buddy, sell your home now. Rent a place and use some of that $ to buy your Cali home. In 3 years or so, buy back into Van at a discount.
This article has some good arguments but misses a key point (one of the most important) – you can’t compare the Canadian housing market to the US and it’s negligent to do so. When the Canadian housing market inevitably “bursts” (corrects), it won’t be nearly as bad as the US crash in 2008 primarily for the reason that Canadian lenders (banks) are heavily regulated. Canadian borrowers don’t have the ability to access interest-only mortgages, reverse amortizing mortgages, etc. This is the primary reason for the magnitutde of the US housing crash – many borrowers in the US had no equity in their homes to begin with. So when housing prices fell, their loans were quickly and substantially underwater overnight and it made more sense for them to walk away than battle through it, resulting in defaults. The effects of these defaults were passed through to US financial institutions and investors (many of whom were misled into investing in securitized mortgage products of which the risks weren’t properly disclosed, and then borrowed further against those products). In Canada however, borrowers have to have at least 5% down (it may seem small but makes a huge difference) – giving them much more cushion in the event of a correction, resulting in not nearly as many defaults and the subsequent “death spiral” that we saw in the US. We could see a correction this year, especially if China has a tough year, but it will be in the realm of 5-10% because of the fact that it won’t “spiral” as it did in the US. Plus unemployment isn’t as high (even if incomes are stagnant) and isn’t likely to skyrocket as it did in the US in ’08. Canada will be fine.
Buddy, we had 0/40 mortgages in 2007. That was quickly dumped when the Feds saw the risks. Now we are at 5/30 mortgages. 0/30 can still be possible with the new rates that came out this week. With up to $20k cash back on a $400,000, you can take that $20k for a down payment. Sub prime is well and alive in Canada!
It’s all fun and games until the interest rates go up 2% and you need a refi.
Foreign money in California may not be a major factor but it is in Vancouver. My daughter’s school is approximately 30% students from Mainland China whose families have purchased houses in the neighbourhood in the last few years. The house we rent was sold to a fellow from Shanghai and the four houses next to us have sold to people from China in the last two years. Our house is a 60 year old 1800 sq ft. bungalow which sold for $1.8 million. It probably would not be considered a foreign or offshore absentee owner in any of the studies that have been done because all the property tax and other documentation and paperwork is sent to our address and we hand it over to the new owner’s agent.
A recent study said that the offshore ownership problem is not that big because only a small percentage of those documents were being sent to addresses other that the property in question. Our situation shows how that research method is flawed.
California is a big place. Vancouver is small. Relative to the size of the Vancouver real estate market, the well of Asian money is bottomless. These buyers are not looking to flip or even necessarily move to Canada, they just want a relatively safe place for their suddenly earned millions. If prices crash 50% (never happen) that is still better than losing it all to the government. China is a communist country and they do not trust their government to keep its hands off their new money.
There is already a large Chinese community in Vancouver so it is not the same as moving to San Diego. Anyway, there is no way the bubble here will burst as it did down south. We will certainly see a drop, but if it is more than 15-20% I will be shocked and pleased. Our family is in the 96% of family income in Canada and we can’t hope to own even a modest home in most of the city. The other families like us in the neighbourhood that do own homes bought them in the late 90s, early 2000s, before this insane inflation took hold. Double Dr. households would not be able to comfortably afford those same houses at today’s prices.
Also, while the Vancouver CMA median family income is only $67,000, the $1million average price refers to Vancouver proper and not the metropolitan area as a whole. For Vancovuer proper, incomes are higher but the house prices are still relatively insane.
There are several facts that people are missing here when you are looking at the Canadian housing market.
I can only speak for Vancouver and not the rest of Canada.
Firstly, our tax system does not allow us to deduct any mortgage related payments, we cannot deduct the interest portion nor any of the principal from our personal taxes. This forces us to pay down the mortgage. I recall I made a visit to Orange County in 2003, people borrowing against the equity in their homes to purchase their BMWs, their Mercedes, etc. Then in turn by refinancing their mortgage, the BMW in part becomes a tax deduction. If we choose to buy the exotic car, that is either because we are a Doctor, a real estate agent or a drug dealer – no word of a lie. That means you have the disposable cash and income to afford such a toy.
Secondly, we cannot jointly file our taxes, spouses pay their tax based on their own income earned, there is no income splitting, although the government has indicated that this will come, but only when the federal deficit has been eliminated.
Thirdly, the median income statistics may not be a reflection on overall home ownership. Yes, the Vancouver market is out of reach for the majority of the people, but somehow I think that the majority of people in the median income bracket more than likely rent, or have purchased their homes before the great ascent in prices. The rental market in Vancouver is very tight and that is also becoming priced out of reach of the average Joe. And yes, some people panicked, and jumped on board the ship without thinking. However, these people are a small minority and the foreclosure rate in Canada is nowhere near what it is in the US.
Forth, historically, Canada’s unemployment rate was higher than that of the US. However, in recent years, the Canadian Unemployment Rate is now lower than that of the US. Meaning that a greater percentage of Canadians are working than Americans. When people are working, they are earning an income, not exactly rocket science. Some of these people will purchase homes, the majority will rent. All the jobs that were lost due to the “great recession†in Canada have been recaptured.
Fifth, there was a price correction in Vancouver in 2008 – 2009, it was not as pronounced as the fear mongers made it to be, but there was a correction, but people continued to buy and sell. When referring to other coastal towns in British Columbia, what was discovered was this was expected due to the Olympic Games. There was a build up in price on properties, the property values went up, but this year the property values fell, by the exact same amount that they were inflated due to the Olympics. No real gain nor no real loss. Prices are where they were prior to the Olympic announcement. The winners were the sellers before the Olympics and the losers were the people trying to sell after the Olympics.
Sixth – Location – Location – Location. Vancouver proper is on a peninsula. It is surrounded by water and bridges, in order to get to Vancouver from the majority of the suburbs, you need to cross a bridge. A few have made the observation correctly, there is no more room to build. The only way is through an increase in density. The free standing home is highly sought as you have land (and that is what you are paying for, the land, not the structure) , however, there is a surplus of Condos on the market. In the Fraser Valley, where there are a lot of people who work in Vancouver, but they need to come into town via a bridge, are not only facing long commute times (there is only one freeway that cuts through Vancouver Proper), but there is talk of tolls on publicly funded bridges, this would probably have a lot of people who do work in Vancouver to rethink their living arrangements as this is viewed as another form of taxation. Public transit to and from those areas is poor at best.
Also, Vancouver has, in the last few years, consistently placed in the top 5 of the world’s best cities on earth to live in. If you think this has no bearing on foreign investment, then you are kidding yourself.
Seventh, There is a huge influx of people from Asia and South East Asia with money dropping into the Vancouver housing market. This began in the early 1990s. It started with people in Hong Kong, worried about what was going to happen to Hong Kong when Mainland China was going to take over. Nothing happened. A prudent person would have expected all those people from Hong Kong to pack up and sell, well, that happened in 1999. Price growth continued. There are a lot of millionaires from Mainland China moving their money into the Vancouver, and from India. See, there is a little rule in our immigration laws that state that if you have a substantial amount of money to invest in Canada, you can by-pass the immigration lines. Canada is viewed by the international community as a safe haven for your money, and we are generally, more accepting of people from other cultures and nationalities than others. So it makes sense for them to park their money here. Where do they park it? In real estate, and over the last 3 years, people from China have been buying houses, sight unseen. This is in part is driving up housing prices in the city.
Eighth, there was no subprime mortgage in Canada. Canadian banks have very strict rules about who the lend money to for houses. You do have to come up with 20% to 25% down payment. If you do not have that then the CMHC will provide insurance to the bank, however, imbedded in your mortgage payment, is your payment to the CMHC. As far as 0% down mortgages, you need to have a squeaky clean credit history, you cannot have one blemish on it.
These are a few facts that are muddled in the numbers. Is the real estate market in Canada over priced, in Vancouver? Yes, it is. Is there a correction coming? Probably. Will it be catastrophic? Doubt it, probably in the 10% – 15% range, but nowhere near what the US market went through. However, most people are in the housing market for the long term, and it is in the long term where sustained growth happens, even in the stock market.
“Eighth, there was no subprime mortgage in Canada. Canadian banks have very strict rules about who the lend money to for houses. You do have to come up with 20% to 25% down payment. …..As far as 0% down mortgages, you need to have a squeaky clean credit history, you cannot have one blemish on it. ”
You just contradicted yourself.
You said that one requires 20% down, then admitted that there are 0% down mortgages.
One most certainly does NOT require 20% down. We also had 40 year amortizations for a while, and indeed there were institutions making extremely risky loans. BC’s credit unions are particularly exposed, from what I recall.
There’s a slight misunderstanding here. Less than 20% down mortgages are allowed and I think the writer might have lead you to understand inadvertently that mortgages with smaller down payments don’t exist. Not so, but anything less than 20% must be insured by CMHC.
There are a few other points. The Canadian market was never as over built as the US market. It’s my understading that there was massive speculation in the American market and massive overbuilding in certain regions.
Also, in granting mortgages the normal consumer must meet the debt service requirements. Mortgage payments must not exceed more than 32% of gross combined household income which I believe also includes property taxes and total household debt servicing must not exceed 40% of combined gross income. Having the downpayment alone is not enough to acquire a mortgage in Canada. You are required also to have the capacity to service the debt.
This point leads to another point. Canada does not have a large minority population which under normal circumstances did not have the wherewithal to enter into home ownership. I am talking of course about the large African American population whose desire to become homeowners was actively supported by two presidents, namely Clinton and Bush2. Its understandable that lenders in the US would start to tailor their products to this underserved market particularly when that market had the blessing of US politicians in good times. Its also understandable when an economy starts to collapse the marginal wage earners are the first ones to lose their homes.
Having said this, I hope that Canadian housing prices do go down because there is a segment of the population that would enter the market if housing was more affordable.
I believe this was mentionned elsewhere, that if you default on mortgage debt in Canada, a borrower can’t simply turn in the keys and walk away from your obligation. Once the requirements of the lender have been satisfied and if there is an outstanding balance the borrower is required to pay the outstanding. Why bother leaving a home if you have to end up paying rent AND a residual mortgage payment? It makes no sense to leave. Also Canadian lenders are surprising forgiving and accommodating in troubled times. Or at least they have been. A veteran banker of my acquaintance now long gone said that if they necessarily forclosed on every property in Saskatchewan during the depression, they would own half the province.
Americans are quick to point out Vancouver and Toronto, but they also have markets whose values have remained robust, namely Washington, New York, Boston & the Pacific Northwest. I’m sure Americans can think of other pockets.
Finally mortgage default in Canada is still considered slightly shameful, an admission of failure and generally something to be avoided. Most importantly, in Canada, living in an unheated camper by the beach when its -40 is not an option.
Excellent points and comparison of tax situation. Another major tax difference between our two nations is that principal residence gains are entirely sheltered (tax free) in Canada and we have no estate tax. I am in my early 40’s and both my husband and I were raised in the lower mainland (suburbs of Vancouver). My mother-in-law just sold her house for which she paid $13,500 in the 60’s to off-shore buyers who paid $1 million, without even looking at it. They will likely tear it down and build a mcmansion. My parents (teacher and nurse) bought and paid off two fourplexes and their principal residence throughout my upbringing which they have slowly sold off over the past ten years. Translation, my husband and I will inherit millions of tax free money to pay off the debt that is disproportionate to our income levels. The multi-generational transfer of wealth is already occurring for long time Vancouver residents. We currently have $2 million of real estate assets with $600,000 of debt because we have bought and sold principal residences tax free riding out the wave. Are we in for the shock of our lives – I’m not convinced. It will take a massive correction to take the value of our real estate down to where it is worth less than what we paid for it. Dollar for dollar, I am thankful for every cent we invested in real estate and kept out of the financial markets. We didn’t use our equity for consumer spending but rather used our cash flow crunch to reduce our consumption while we took on fully variable mortgages at rates below 5% and paid them off quickly with every spare penny.
I am not saying that Canadians are not due for a significant real estate correction but I am saying that it is impossible to compare Southern California to Vancouver. Our Canadian banking system is entirely different and was the model globally for weathering the economic crisis in 2008. Our immigration patterns are incredibly different. SC is struggling under the weight of a massive unplanned immigration (both legal and illegal) of Mexican poor. Vancouver is willingly adapting to a sustained and planned immigration of mostly wealthy immigrants.
Maybe the doctor should change the channel and stop watching decorating shows and start watching the Canadian show “till debt due us part”.
Good and accurate points. In addition, I was in Hong Kong for a week last March. I had an occasion to look at a couple of high rise condos for sale. One was 1100 square feet(SF), priced at $4 million Canadian ($7 Million HK). Another was 1400 SF and listed for $7 Million Canadian. These units were without bedroom closests, they had small kitchens that did not allow for sitting to eat in them, with no dishwashers or full stove/oven combinations, and no parking. They were also in 90 storey buildings with no balconies. So one can see that a million dollar home/house/condo in Vancouver/Toronto is an exceptional deal, and people from Asia see our market prices a real bargain even if Canadians cannot afford these crazy prices.
One other point, during my 2 week stay in Hong Kong and Beijing, I did not see the tops of most of the buildings due to unbelievable pollution…deadly, in fact.
Ok Jim, you got me. Only one bank offered the 0% down, and that was TD. But as I stated, you needed a squeeky clean credit history. No, you do not need 20% down but if you do not have it, your mortgage payment goes up due to the CMHC insurance that you need to pay. However, I do not recall a 40 year amortization period, we had a 35 and that was repealed a year ago and the maximum is now 30 years. Also the government reduced the amount of equity you can use from 90% to 80%.
If you are worried about credit unions, I hear old man Potter is paying 50 cents on the dollar. But the Bailey Brothers may have something to say about that.
Another thing that are not in the numbers is the underground economy. I am sure most Canadians here and our American friends would agree that we in Canada are heavily taxed. This has spurred an underground economy. And when preparing your income tax return, called a T1 in Canada, you are supposed to include all your income and assets, world wide. How many Asians do you think enter an amount in this box?
I think Gern said it it best. I am one of those house owners in Vancouver proper, but the only way I was able to afford it was to climb the property ladder over the years.
It’s not the total amortization time, it’s the leverage. 5-7% cash back financing is common, meaning houses are being bought for 0% down.
http://worldhousingbubble.blogspot.com/2012/01/canadian-subprime-mortgage-offers.html
A 20% downpayment means the mortgage is leveraged at 5:1
A 0% downpayment means the first months payment becomes the denominator and you are at 186:1 leverage.
The Real Estate industry is scraping the bottom of the barrel with offers like these.
Btw, according to the CAAMP surveys more than 30% of mortgages were refinanced into those 35 and 40 year 0% down mortgages during the year they were available. Those will need to be refinanced in 2013, and if interest rates are not still at the bottom of the barrel, there will be some seriously hurting households at that time who will be refinancing after having paid off negligible principal.
Prices in Vancouver have increased 142% since 2002.
This is true, however, prices peaked in 1995 (with the influx from Hong Kong) and then deflated slowly and steadily in real terms until 2002. So taken over the longer period since 1995 the price increase of the place I own is more like 130% over 16 years.
After inflation in real terms this is more like 100% or less which is quite in line with historical norms in the Western world. My aunt bought a $800K house in the UK in the 70’s for $76,000. That ‘bubble’ is still waiting to burst. Prices do go up and stay up, esp. considering inflation, roughly in line with GDP growth.
Yes the high end of the market in Vancouver is nuts and has gone up a lot more than it should, and there are many modest Vancouver houses that are expensive and higher than they should be, but Vancouver has always been ‘overpriced’, at least for the last 40 years, much to the dismay of other Canadians who want to move there. Many of them are still waiting 40 years later for prices to ‘normalize’.
And every decade another bunch of doomsayers turn up, like on this blog, and tells us we don’t know what we’re doing.
I can’t tell you you’re wrong. But you are no more than half right.
“The last 40 years” you speak of Peter has everything to do with demographics as seen from this Canadian age pyramid comparing now to 1970.
http://i42.tinypic.com/5np74.png
Immigration may help soften the blow slightly over the next twenty years, but to fill this looming demographic void Canada would soon require in the millions of immigrants per year, which is impossible.
Bubbles (overvaluations) always follow similar price paths as seen from this fine collection of 9 recent bubbles – Vancouver included http://i.imgur.com/K8947.png
I understand the stress & debate when governments encourage them in certain areas. So it’s best to simply learn how to recognize and cultivate them, than trying to fight herd instinct.
I think the U.S. situation was exacerbated by low interest rates (subprime) that then were jacked up six months or a year later. As well people were into remortgaging their homes to get ready cash which made it a bigger problem. Then you had crooked real estate appraisers overvaluing property.
Lot’s of people buying in Vancouver are buying for cash I suspect or else have substantial investment money in reserve. They sold a house somewhere else and bought in Vancouver. If prices collapse in Vancouver it will just reduce the value of their estate and not affect the carrying cost of their property.
The other thing is, when are interest rates going to take off and how fast? Many predict that event will be a long time in coming.
For sure some new homebuyers will get caught and people who are currently flipping properties in a hot market will get hurt.
We went through that in the early nineties as well.
But, excuse me, it will be nothing like the mess the U.S. recently inflicted on itself. Canadians are more level headed. We don’t see ourselves as being invincible.
In some places in Canada maybe but not in Montreal. For the past decade we had an increase but we are just catching up vs the rest of the country. I guess it’s safe to invest in real estate there.
I’ve lived in Vancouver my entire 47 years. I’ve owned 4 properties. I’ve traveled extensively around the globe. So what.
Let’s be honest Vancouverites. The weather in Van is some of the worst weather anywhere. It has been minus 3 or so for the last week. Now it’s freezing rain. It will continue to rain fairly steadily until May or even June or July as it did last summer. The weather sucks. Please don’t retort with “the best weather in the world” because it’s actually some of the worst.
What do we do in Vancouver? What do we manufacture? Where is the industry? The sad truth is that other than a couple of small companies we don’t manufacture anything.
Vancouver has quickly become a service industry town.
We buy and sell stuff to each other like houses and this does not create long term sustainable employment.
Our children will graduate from university and if they aren’t selling real estate then they will have to work at Earle’s singing happy birthday to customers.
The city is crawling with gang activity.
We are forced to compete with Chinese money to buy a home. I had to earn my money through hard word and being competitive. I wasn’t able to manufacture using slave labor paying little to no taxes.
Soon your local Starbucks will close, the won’t be able to keep employees around because where is someone who earns minimum wage going to live in Vancouver and if they have to cross a toll bridge to get to work forget it.
I have lived and owned in Kitsilano since 1993. It was a vibrant busy place back then but now on a Saturday or Sunday evening west Broadway is a ghost town.
I counted 21 lease signs on various commercial buildings on one street in Kitsilano. I actually spoke with an owner who was packing the last of her things into her car from one of these closed businesses and I asked her why she thought business is so slow? She didn’t hesitate and said “no one has any disposable income because they have spent it all on their house”
Don’t be so negative on Vancouver. It doesn’t rain every single day and there are only a couple of gang related shootings each week! There are plenty of coffee shop jobs around.
I have heard for over 25 years how Vancouver-area housing prices are in a bubble, and that people should never buy there. I moved here 20 years ago after university. I rented modestly, saved up $80,000 for the down payment, and nine years ago I bought my house in a nearby suburb (35 mins to downtown and no bridges/tunnels to cross) with a mortgage payment less than the rent I was paying.
I stayed out of debt, gradually increased my mortgage payments as my salary increased, and applied my tax refunds to my mortgage principal. I just renewed my mortgage with another 5 year fixed rate, and my house will be paid off when it is over. 14 years after I bought, I will be mortgage free. I hate debt; I pay cash for everything. If I can’t afford that BMW, I don’t buy it. I am not wealthy, I am a single income earner. Most couples here with 2 incomes take home more than me. No, I can’t afford to live in a big place in Vancouver; so what? I can’t afford to live in a big place in Manhattan either.
My house has more than doubled since I bought it, but when we have an inevitable correction, it seems unlikely to wipe out ALL my equity and put me below water.
My point is… if I had listened to people saying not to buy, I would still be renting, waiting for some magic day to buy into the market. But I still have to live somewhere. And soon, I will be living here rent-free and mortgage-free.
The market has been a bit slow this month. Definitely similar to January 2011. Not as many families of realtors at our Chilren’s Christmas party in December. A lot of realtors left the business in 2011.
The housing bubble was simply caused by currency devaluation by our respective governments. Loosened lending laws allowed banks to print money and flood the market with cheap dollars. The rest has been a sham. China wouldn’t cut the yuan so our governments bastardized our currencies and made us all housing millionaires. What a travesty.
From 2000 to 2010 in Canada
# Total household debt has exploded by 135% between 2000 to 2010.
# Mortgage debt has exploded by 131% between 2000 to 2010.
# Consumer debt has exploded by 146% between 2000 to 2010.
# This is at a time when the average weekly wage increased by 30%
And the average house price in Canada increased from $163,000 to $339,000.
For 2011 the average house price has increased higher as well as debt while incomes have basically stalled at the same pace with inflation.
But it is probably not proper to lump the whole real estate market in Canada into one housing market, as we all know that even though most major cities are in a housing bubble, each city entered the bubble phase at different times.
http://saskatoonhousingbubble.blogspot.com/2012/01/did-all-canadian-cities-enter-bubble.html
The Canadian Gov. did bail out our banks by feeding the money through the CMHC (canadian mortgage and housing) this is like insurance that a person must buy if they don’t put 10% down on a home. The Canadian Gov. brags to the rest of the world that our banks are strong but this really isn’t the case….the heavily controlled press in Canada does not report such things.
I’ve been watching this balloon getting huffed up for years! Thank you for saying what you do! Run for cover, ’cause when she blows…
I remember being in Toronto in the late 80’s and every waitress was a real estate maven. Condos everywhere and as I drove out to Mississauga, I wondered who was going to buy all those half-built condos. I think that was 1988…
Now look at Toronto. The skyline is one big crane forest.
When clowns like the clowns I know in Barrie can buy and flip houses, putting in bogus patios, piss poorly built decks, sticking in illegal rentals into the basements, (Drive around Barrie and see the strangely out of place side doors on all the houses on the hill! They’re bogus apartments.) as they all struggle to keep up with the music, looking for a chair to grab, when it stops, it’s gonna be a nightmare when it does. And it always does.
Zero down loans, for white trash has created this mess.
You’ll see prices get sawed by at least 30%. Do the “Gozintas” like my dad the mathematician developed. You know, 2 goes inta 4 twice! Yup. The second somebody says, “I’m not paying $500000 for this piece of #$%^!!” and it catches on… Pop!
All of these so-called home owners are no more than 2 pay cheques from living on the street. One layoff, for the DINKs–Double Income, No Kids–or a shingle job that they can’t cash for, and they’re done!
Run for the hills. Sell now to some sucker and get out!
•∆•
V-V
great info on Canadian Real Estate here:
http://www.greaterfool.ca
I was just in Toronto after three year absence. My God, it was crane city! An endless sea of condo towers in various stages of completion. One of the couples I was visiting were carrying on about their neighbourhood and how the townhouses across the street ( merely foundations at this point and sloppily constructed in my opinion) had sold out in two days! So naturally I asked, Do you think Toronto is in a property bubble? No. They were thoroughly convinced there was no bubble, the demand for condos was real and not speculation.
I asked that question many times over the weekend. Nobody believed Toronto was in a property bubble.
Good luck Toronto!
It sure looks like a bubble here in Vancouver until you physically check out asset/income ratios in places I have visited in the last 2 years like Shanghai, Cambodia , Columbia.
So is Southern CA real estate market is better than Vancouver now in 2016?
I am trying to network with folks who have deep rooted property investments in India/USA/Canada, i own properties in India & USA and now eyeing the vancouver market.
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