“Let me be provocative and say that our real estate bubble has the same fundamental problem as the one in the U.S., which exploded gloriously, kicking off the financial crisis.” …
“The proof is in the pudding. For the 150-year period starting in 1800 and concluding in 1950, real estate prices followed a flat trend, which put them, overtime, in line with the general inflation trend. Then, starting in mid-1970s, throughout the western world, this underlying trend ended. It was replaced with a price appreciation trend in excess of the underlying inflation trend and, for the first time in measured history, developed a multi-decade trend divergence between income and price.” …
“Considering the average Canadian consumer has the highest debt-to-earnings ratio in the OECD (155%), there are many reasons to question the underlying assumptions of the Canadian banking system.”
- Mike Brock, ‘The hidden Canadian housing bubble’, his ‘Full Comment’ article headlined at National Post, 4 Oct 2011
Hidden to many, but not to us. Right, readers?
Another expose getting MSM space, things may be changing.
Note the vitriol from the bubble-deniers in the comment section of the article. “Hogwash”, etc.
- vreaa
“there are many reasons to question the underlying assumptions of the Canadian banking system.”
The vast majority of bank loans are underwritten by the government one way or another. If prices do end up falling, it will be taxpayers and homeowners who will eat the majority of losses. From what I see banks would take a bit of pain from iliquidity of low-ratio foreclosures, but nowhere near as much as US banks took. Most of the loans will be pawned off on CMHC (and taxpayers) before they explode.
There are changes coming with Basel III accounting rules but those aren’t for another couple of years. Banks may institute them before the deadline and this will have some dampening effect on capital provisions for mortgages. More may need to be done to ensure future bubbles won’t get out of hand.
If you don’t like what you’re reading, write your MP.
I just had a convo with an investment guy at a big 5 bank who was explaining to me there was no property bubble. Perhaps the “high end” was overpriced but properties under $800K had simply seen appreciation consistent with 5-7% investment returns over the past decade. Those weren’t his exact words but close… I told him we would have to agree to disagree. Clearly he hasn’t read the National Post today.
A lot of the “investment guys” still don’t see the bubble.
Remember that most of them are herd-followers (they have to be to get positions in large organizations) and will only agree that there WAS a bubble after it has popped.
Witness all the stock analysts now saying, “we’re 20% off, this must be a bear market!” (fat lot of good that did them over the last 3 months; and probably just in time for a bounce). Rear-view-mirror commentators.
Clearly the poor fellow isn’t paid to think very hard, he’s paid to convince clients he knows what he’s doing. Read “City Boy”. My guess: he’s likely on what they call the “sell side”.
Thanks for the reminder of “City Boy” Jesse, I’ve been meaning to look him up since watching the CBC Meltdown doc some time ago…
I used to love reading his column in one of the free London papers. Check out the archive on his web site.
I too have found the bank experts always don’t seem to see what is coming, my theory for this is that their bonus depends on not seeing reality for what it is, plus most of the money they mange is not theirs but their clients, the worst case scenario for them is they get fired. I really think all you need to be a banker is a nice suite and good looks.
Kramar guy from CNBC with the stupidest show on TV was explaining the herd behaviour of money managers buy saying that. If you are money manager and there is even a short rally in the market or a bubble you can’t afford not to participate because if you don’t participate at the end of the quarter/year when you send your statement to your client you have to explain to them why you did not perform as well as the rest of the market which was dancing while the music was playing in the famous words of the citi group CEO. Of course if you don’t beat the market benchmarks you get fired by your clients. It was one of the few times that Kramer made sense.
Spot on.
Money managers have far more incentive to keep you as a client than to attempt to help you perform better than the herd.
Never ever listen to any advice from a mortgage originator – they don’t give a hoot about you – they are bonused on the value and number of mortgages that they originate. Originators are not the banks’ risk managers either – at least they’re not supposed to be but, given the meltdown of the world’s financial system, who knows these days.
never forget. No matter how much anyone says (brokers, traders, etc…) they can pick stocks, they cant (except for buffet i guess). Time after time its been proven that a monkey throwing crap at the financial page can pick stocks just as well if not better.
etfs anyone?
The comment section of these articles are always interesting to read. Lots of people self convincing themselves that we are not in a bubble…
Here is one (see the mention of lack of land in Vancouver, love it!):
“Quite frankly I say this article is nonsense and here is why I say it is nonsense.
First the historical perspective. Yes, for over 150 years housing prices have tended to follow inflation, but things have changed. The first is that in the last 20 to 30 years “convenient” land, that is land convenient for getting to work has disappeared in most housing markets. In places like Vancouver there is the natural barrier called mountains. In places like Southern Ontario it is caused by every increasing larger cities with their surrounding suburbs that just due to size and congestion, make commuting expensive in cost and, more so, in time, not to mention that artificial barrier to land, the Green Belt. These costs are being reflected in higher land prices within easy commuting distances. Consequently, convenient land is in short supply while the demand, ever increasing population keeps expanding demand. The first rule of economics is that restricting supply while increasing demand causes the price to rise. This is no bubble, just a normal market effect.
Second. Canada’s sub prime market is, in a word, minuscule. All mortgages lent by scheduled lenders must have minimum equity levels and must be serviceable by the borrower. Unlike the US we don’t have non-recourse mortgages. That means it is not costless for Canadians to walk away from their mortgage obligations.
Third. We don’t have a government policy of encouraging sub-prime mortgages as existing in the US where Congress used Fannie Mae and Freddie Mac as a social policy tool to make and insurance sub-prime mortgages to identifiable groups.
Debt levels. Yes, we have debt, but we also have the assets to cover these debts. Even spend thrift governments, like McGuinty’s in Ontario, is making noise about eliminating the deficit. Quebec may be another matter.
So, can we expect a slow down in house sales, and maybe even some decline in prices? Probably. Will we suffer the same fate as the US? No”
A different spin on the ‘land’ argument: Phoenix has lots of land but RE prices there skyrocketed in spite of that.
The ‘experts’ have some serious ontological/epistemological issues to resolve, Boyz&Girlz. Accordingly, as regards their prognostications – be wary. Very, very wary.
We are rapidly approaching the point at which things go ‘Fractal’/”BlueSky”.
For further insights/or just for the sake of scholastic fun, click over to RT.com and search on the keyword, “Wallerstein”.
With all due regard to the quants, Metaphysicians and philosophers are more likely to yield accurate ‘FortuneTelling’ in the current environment (NoteToEd: Recently collected ‘gold star’ from BeardedMan in StarSpangledTopHat).
PS – I would so vote for Jesse. Even if, or only because, he satisfies the primary criterion for election to high office… He don’t want it. Bonus points for MoralCompass, too. ‘Nem’ has seen the ‘sausage factory’ of civic/provincial/federal politics from ringside – and it sure ain’t pretty.
A strange marketplace where power, personal advantage and political survival is the predominant motivator vs. the ‘public good’. We live in hope though.
If anyone’s going to run on a proletariat serf pitchfork-wielding slate, it should be a “none of the above” campaign. Worked for Brewster, and I’d want some of that New York wastrel spirit permeating the civic scene.
My recommendation is a campaign stop at the always-busy UBC Apple Festival, handing out free samples of King Of Thomkins County.
Nemesis you mean you don’t believe in the power of machine learning
http://www.ml-class.org
Oh ye, defender of Garth “sell your house and buy my financial services” Turner:
“Read my books. I have consistently recommended a gold position – ideally of about 5% with consistent profit-taking to maintain that position. Had you followed this, you would been a happy person. I am. — Garth”
http://www.greaterfool.ca/2011/09/30/commodities-2/#comment-126597
“My consistent position has been to maintain a 10-15% gold position. Just never buy it when there’s a lineup. — Garth”
“http://www.greaterfool.ca/2009/12/17/economic-forecasting/#comment-54182
Like the wind thee changes thine advice.
Be that as it may, I say unto you, if the market is up tomorrow, buy with both hands.
Debt levels. Yes, Greece has debt, but they also have the assets to cover these debts. Asset values are not set in stone whereas debt endures. Furthermore, it’s unreasonable to expect debt service costs to always decline. Commenter: wake up and smell the fire!
But Jimbo says there’s no bubble! (http://ca.reuters.com/article/businessNews/idCATRE7943T320111005)
Just lots of Asians that want to invest here. I’m glad he and Carney are so on top of things.
Wow. Reminiscent of Bernanke circa 2005.
Thanks, Lear, will headline.
It’s “the Asian people”. Brilliant.
Also: