“Are we literally living in a bubble? And when it bursts, will it get as ugly as it did south of the border? Here’s where the most recent speculation is pointing:
Yes, we’re in a bubble, and it will probably pop soon.
The signs of a bubble are unequivocal. At 13 years and counting, Canada’s current housing boom is one of the longest-lasting in the world, the Bank of Nova Scotia noted in a recent report. The real price of Canadian homes has increased by 85 per cent on average since 1998. Prices stagnated in 2008, at the height of the financial crisis, but they were back on the rise again as soon as 2009, when they grew by nearly 20 per cent, according to the Canadian Real Estate Association.
Meanwhile, Canadian household debt set a new record last year. On average, the debt burden of Canadian families stands at 153 per cent of their disposable income, according to Statistics Canada. That’s almost as much debt as American households had at the peak of their bubble.”
…
“The scary part is that, by most accounts, 2012 is going to be the year when housing prices start heading south. The housing market is already showing signs of weakness. Despite a rebound in December, housing starts fell in the last quarter of 2011. And in some smaller markets on the west coast, condo prices have already declined 15 per cent, according to Merrill Lynch. The bank predicts that prices nationwide will slip by five per cent this year in the best-case scenario. A spike in unemployment could trigger a 10 per cent price drop.”
…
“No, it won’t be “housemageddon.”
The good news is that, in all likelihood, our bubble won’t go KABOOM! Instead, we seem to be in for a painful but not devastating pop. That’s because only certain parts of Canada are in a bubble. Overcrowded markets in B.C. and Ontario may be close to busting, but many other areas of the country remain very affordable. The very same survey that ranked Vancouver most-unaffordable-city after Hong Kong rates Canada the third most affordable country, after the U.S. and Ireland.” …
“Most likely, then, the Canadian market will let the air out gradually. As inelegant as that sounds, it’s good news.”
- excerpts from ‘What happens when Canada’s housing bubble pops?’, Erica Alini, 26 Jan 2012 [hat-tip Potato]
Well, hard to get more mainstream, or more definite, than that.
All of the signs of a speculative mania were very definitely present by 2006-2007, but the MSM were silent about it then.
Now, 5 years and tens-of-thousands of overextended buyers later, it is even more glaringly obvious that the bubble is present, so the media ‘warns’ of this. What do they expect the record high number of homeowners to do about this now?
The MSM are rear-view commentators, and their articles have little predictive capacity. Like all other mainstream commentary recently, this Maclean’s piece is overly optimistic in its price-drop predictions.
—
Note ‘Maclean’s’ is calling for a soft landing. All those predicting a slow gradual reconciliation of prices and the fundamentals (which are currently far, far below prices) have to answer one big question:
Who do they imagine these buyers will be, who will step in and buy, in an orderly fashion, all the way down?
Who will, essentially, step in and bail out current owners, with promises to pay banks a stream of money for the rest of their lives, at these still very elevated prices?
And, while they’re pondering that, ask them for historic examples of speculative manias that have resolved with a soft landing. (There aren’t any.)
- vreaa
you left out a couple of key points from the article. You must have been sleepy when you posted
“Secondly, even in areas where there is a bubble, not all sectors of the market are equally inflated. Concerns about overvaluation and oversupply mostly regard the condo market, which has been the main engine driving the boom. Construction of single-family homes, on the other hand, “has already landed softly below its long-run average,” Merrill Lynch notes”.
“Most importantly, however, Canada’s pop won’t bring down the entire financial system, as it did in the U.S. That’s primarily because subprime mortgages are virtually non-existent in Canada, and government guarantees on mortgage insurance act as a buffer protecting the banking sector from housing market downturns”.
Awesome, glad my tax payer dollars are there to protect the banking system. Sounds pretty much like the States to me, except the decision for me to pay for the banks mistakes was made before the event rather than after it.
In a representative democracy, that’s arguably more fair.
Does this mean you agree with the rest of the article as well F1? Do you think we are in a bubble that is going to pop? Slowly contract? The article calls out BC as being “close to bursting”…do you agree?
I think this market is due for a pause and some contraction in the order of 10-15% for detached and 30% for condo/attached. The detached market will then continue its climb while the condo market stagnates for a few years.
Beg to disagree.
We note your standing prediction that SFHs can’t possibly dip below 15%-off.
The truth is that SFHs will fall just as much as condos peak to trough.
“Why, surely land is finite and SFHs are more desirable?”, we hear you ask..
Yes, but that exclusivity, that desirability, has been bid up during the speculative mania…. it’s caused people to overextend the prices of SFHs that much more…. it’s been ‘priced in’, and more.. and, it’ll all reverse during the implosion.
Sure, SFHs will always be more desirable than condos, and at the bottom they’ll still cost more than condos (naturally).. but the percentage drop peak-trough will be similar for all property types (50%-66%).
And another thing:
All market sectors are attached at the hip.
When one sector plunges 30%, the others will buckle badly…
If the condo market crashes, the SFH market will freeze.
“subprime mortgages are virtually non-existent in Canada”
BIG LIE!
oh, because my buddy’s that work as goddamn GOLF COURSE COOKS can totally afford their 600k mortgages
Not sure how one defines “sub-prime” but we see examples here every day of people taking out loans that are two big to handle, juggling multiple money-losing properties, barely able to make interest-only payments. Maybe they aren’t “subprime” by some precise definition, but those loans will go south just the same. The fact that Canadians take out short-term loans that must be refinanced makes them much more dicey. The odds of interest rates being even lower 3 to 5 years from now are basically nil.
The “backed by the Feds” argment is identical to the one made in the States. Down here, people were literally saying that exact same thing. So decide how much faith to put in that.
The government guarantee doesn’t cover lines of credit. LOCs will bankrupt homeowners, and the banks.
Money quote (literally): “Canada’s pop won’t bring down the entire financial system … government guarantees on mortgage insurance act as a buffer protecting the banking sector”
Taxpayer-funded government guarantees protecting private banks. I’m sure that will be fun to explain during an election time to voters who’ve seen their net worth collapse. Good times!
elections?? that’s what proroguement is for
Nice “zing” at the end …. =)
Surprisingly, a lot of people don’t know that our banking system has already been bailed out.
http://www.wellingtonfund.com/blog/2010/12/02/canadian-bank-bailout-total-touches-186-billion/#axzz1kgMxE2US
We are doing the same thing as the US so how different can our outcome be?
“I’ve never seen a soft landing in 53 years, so we have a ways to go before this levels out. I have to prepare the company for the worst that can happen.”
- Angelo Mozilo, CEO of Countrywide Financial, 2006
lol that’s hilarious – where did you find that??
Whenever I read analyses like this, those that separate the condo market from SFH, I wonder: How many condo owners are people who want, nay fully expect, to be SFH owners? How many SFH owners are expecting to sell to move-up buyers who built equity in a condo or two?
I’m planning on buying SFH, stepping in for bitter strata-fee payers who are stuck with no equity, no buyers and cramped quarters. That said, I don’t believe that the 30% of Canadians who rent are like me — I suspect the vast majority of them are financially incapable of buying. I think most of the country (with the capacity) is either fully invested in real estate, or overinvested. I’m annoyed, but patient.
Pockets of the lower mainland will pop (eg Richmond, Van West, West Van, and condos in most areas). The other areas, will deflate unless interest rates skyrocket.
Van guy ->
Interesting. There are some here who see as resilient some of the areas you see as particularly vulnerable!
The truth is that, when RE spec manias pop, peak to trough, almost all sectors end up declining pretty much the same %.
They’ll sometimes take different paths to get there (eg periphery first), but usually meet up at the destination fairly neatly.
What I’m noticing in a lot of these new MSM bubble articles is they feel the need to claim we don’t have subprime mortgages in Canada (HAHAHAHA) and reassure their readers that it won’t be as bad as America, as if it has to be that bad to be worth worrying about.
We’ve got an entire generation of homeowners who will have to experience a housing crash for themselves before they’ll believe it’s possible.
exactly
nothing makes one concerned for the future of our country quite like riding the nightbus out of vancouver at 2am – an entire generation of shitheads.