- from ‘The Economist’, 2-13 Feb 2012 [hat-tip 'anonymous guy']
Results: 65% ‘Yes’. 35% ‘No’
From the readers’ comments below the poll:
“There will be a correction in the larger markets (Toronto, Vancouver) to be sure, but unless interest rates spike (not likely), it will be a softer landing (maybe 5%-10% drop). After that, prices will probably stay flat for a while. Canadian lenders have been relatively more responsible than their American counterparts over the years, and so quality of mortgage loans are better.”
- ‘SHDN’
“I live in Vancouver, and I make a top-5% salary, and buying my very-nice-but-not-fancy current house in the suburbs at current prices would give me cold sweats at night.
I look around, and I cannot understand how any normal human being entering the market can afford a house. I ask real-estate agents how this can keep on going, and they tell me it’s all Asian money.
It just can’t continue. All we can hope for is a soft landing.”
- ‘pun.gent’
Et tu Economist? No wait they were bearish back in 2005.
My answer: no.
Not “waiting” – it’s already happening. It’s over, the ugly lights are on.
Except there are no soft landings.
Thank you Canis. Not enough people seem to realize yet that there is no such thing as a soft landing when housing bubbles end. If anyone can name one, do it.
A hard landing, to be quite specific, means there will be a period of negative growth. That is also known as a recession. Canada therefore is on track for a period of economic growth that falls below zero GDP expansion. That is a hard landing.
Any damn fool out there who tries to perpetuate the myth that somehow we will continue on with GDP growth of 2,3 or 4% during a housing correction is a realtor, a liar or a bank economist.
Anticipate instead several quarters of sub par growth, rising unemployment reaching above 10%, tightened lending, a rash of foreclosures and business failures and a very sour economic and social mood.
It is a period of jobs stress and anxiety if you are overleveraged or insecure in your work. It is also a period when consumers suck in their gut, stop spending so freely and the collective effect usually makes matters worse as we travel from feeling positive about our personal economic outlook to feeling quite negative.
@Farmer – well, that depends on how much of the economy is housing based… is it really as much as all that in YVR (it may well be – I’ve been away from Canada for so long now I couldn’t tell).
If I recall, over at the Economic Analyst, there was a set of figures for how much of the Canadian economy was directly or indirectly involved in housing. Something like 21% rings a bell.
The author had some graphs comparing the US versus Canada that showed we are in even deeper shit than the Americans were. When housing goes South the layoffs start in construction, with retailers like Rona, then move to the banks, brokers, insurance, law and of course realtor’s themselves. Really, very little of the economy is not affected once a correction gains traction.
Of course, the layoffs cause extra stress by increasing government payments for EI while simultaneously reducing the flows of cash to the consumer economy. More layoffs result and the damn thing becomes self feeding as consumption declines further and foreclosures increase.
It all gets ugly fast. Then people “get it”.
Until then it is pointless trying to give the long winded explanations of how things come apart to the uninitiated before the event actually happens. These people don’t want complicated answers to problems. They want sound bites. For example, “buy now or be priced out forever” is the realtor sound bite.
How the hell can you offer an objection to that and do it in so few words?
I just say “it will work until it doesn’t” or ‘good luck with your purchase”.
There are many threats today that can cause the bubble to pop and create a hard landing. Whether its the EU, rising unemployment, rising interests, withering demand causing inventories to skyrocket, tightening of lending rules, offshore investors backing off, and overbuilding. All these threats will become a reality. It’s a matter of when and if they all happen at the same time.
Lots of room for downside surprises; very hard to imagine possible upside surprises.
Is there any intersection between real estate bubbles and soft landings?
The maddening thing is there seems to be no end of money coming from Asia. I’m seeing more and more sold signs on the west side, and my realtor says it’s all offshore money. Slower than last year but it’s still going on. I’d like to see some stats on sales on the west side….
It’s true; there seem to be a good number of high end sales; ‘Sold’ signs fairly common on the west-side.
What the actual numbers are, however, we’ll have to wait and see.
At the very least we can say that some are still buying.
http://www.robchipman.net/2012/02/05/last-weeks-real-estate-sales-stats/
Westside sales: 23
The constant drumbeat around businesses shying away from Vancouver because of its high prices and low salaries is probably the best chance there is of other levels of government (the provincial one) taking action. These days the argument needs to be about the long-term business climate and how cancerous high prices are to a properly-functioning economy.
So if you do decide to write your MLA or MP, I would suggest focusing on the business climate. Focusing on families unable to live beside incumbent older generations doesn’t hit home, it provides little tangible or actionable except as an emotional argument. If I were someone of influence (which I’m not) who is reading the comments on this blog, there’s some food for thought for your garden.
That just gave me a thought Jess. Has anyone out there seen any data on elementary or high school enrollments? If Vancouvers high prices really are having an impact on family formation then those numbers should now be dropping. It would be a lagging indicator of course but it might offer clear evidence of how the high cost of home ownership has distorted something so basic as the production of children. That leads me to question whether Vancouver might end up with one of the greyest populations in the country as this bubble winds down and growing families flee for better opportunities elsewhere.
Anyone?
The VSB publishes enrollment figures, but I don’t think it tracksprivate school enrollment.
The census should break down age demographics and compare to say Surrey to get an idea of how the % school age has changed.
The same phenomenon hit SF, wherefamilies with kids move away from urban environments. I’ll do a bit of digging and reportback if I can get the dataset.
there have been stories on the radio about need for fewer schools in Vancouver, and more in Surrey
@Farmer:
Good idea. Here’s a nice link:
http://www.btaworks.com/2010/11/18/public-and-independent-school-enrollment-growth-and-decline-in-burnaby-coquitlam-richmond-surrey-and-vancouver/
Plenty of good quotes there:
-Surrey has the only public school enrollment to grow as Vancouver, Burnaby, Richmond, and Coquitlam shrunk by four to seven percent.
-Average birth rates in the region are at record lows.
Even housing costs are acknowledged:
-The decline in public school enrollment may not necessarily be attributed towards just the student outflow into the independent system and the user fragmentation of primary and secondary education, but also the effects of changing demography and
housing costs and type to restrain the growth of the total number of families with children and number of children in Metro Vancouver.
Thanks all. I suspected there might be something there so the evidence makes a case. We should be able to project into the future as well that the city will be less youthful and therefore a poor bet for some types of retailers. It is a given that older populations are much less likely to be part of the consumption economy. It is a sad statement of the times that so many families traded in children for mortgages.
Lower mainland elementary schools are packed with tight enrollment due largely to immigration. Surrey, Langley, Burnaby – anywhere from 50 to 85% new and recent immigrants. The Vancouver housing mania has really helped non-Asian household formation in Calgary.
Well that sounds racist Airdales but I won’t judge. If those are the facts then perhaps that is the truth. We all need to get past the idea that we cannot discuss how immigration is impacting society. Lets not forget though that the Federal Government made an attempt to address this issue already by limiting the number of investor applicants to Canada. The idea was to blunt the argument that foreign money was pushing native born Canadians out of their communities (Vancouver). There still seems to be a lot of resentment though as overseas money seeks a safe home with or without the passport that used to come with a million dollar investment.
It’s always the race card to those people who don’t have on the ground experience or are too scared to acknowledge the facts. How often do you pick your kids up from elementary school in the lower mainland?
Immigration in Canada is 200,000 per year and 80% settle in either Toronto or Vancouver area. Put that in your pipe and smoke it or is that too racist for you. And, It’s no secret that white people are leaving Vancouver and moving to Calgary but to you that’s racist and I suppose all my new neighbours are as well.
Do you live in any of the above cities or are you just some farm-chair critic looking from the outside?
What I heard was that the bilateral trade agreements signed during the PM’s trip have spurred some westside buyers in anticipation of the arrival of more investors. The gravy train will not stop anytime soon, so they believe.
OT but pertaining to Vancouver wacky real estate..
MLS®: V908782
Selling agent: Jenny Wong
Then google “Jenny Le Wong” to pull out tonight’s story.
looks like a messy debt-vorce
“The average price of a Canadian home has doubled since 2002…” – http://www.economist.com/economist-asks/are-canadian-house-prices-bubble-waiting-burst
Coquitlam home price in 2002 = 350k
Coquitlam home price in 2012 = 600,000*
Following calculated at 4.8% average annual mortgage interest rate over the last ten years
average assessment value over ten years $475k
taxes %0.5/yr = $2375 **
qualifies for homeowner grant: taxes-($570) = $1805/yr
reno, maintenance, levies $300/m conservatively
$42000 / amount of principal paid in ten years, approx. 12% after compounded interest.
17500 / down payment @ 5%
219092 / ten years payments
18050 / ten years of tax
36000 / ten years of maintenance
Sale price: $600000
Total cost: ($290642)
Principal still owed: ($308000)
—————————————————
Balance $1358
ROI = .4% or less than half percent
Upon sale of your $600k home, the bank presents you with a cheque for $42,000 of spent money and asks if you’d like to go another round. The greater value of the property, the more you will be harvested by the bank.
“…affordability levels still look reasonable in most parts of the country outside of British Columbia and pose a minimal THREAT to housing demand (Read- minimal threat to ongoing con jobs)… the Vancouver-area market continues to be a major exception, with sky-high property values in upscale neighbourhoods making it both extremely unaffordable and the most at risk of a downward correction.” – http://www.rbc.com/newsroom/pdf/HA-1125-2011.pdf
Boom or bust, paying compound interest on a mortgage loan (leveraging a long term investment) is perhaps the stupidest thing a human will do in their lifetime. I’ve met very few home-owners, just home-owers. However, with $140,000 month to month increase right now on a West Side home, it’s very tempting to play a little Texas Hold’em with some charming Mainland Chinese before the crash.
Total cost ($290642) invested in gold since 2002 would now net: $1,380,549 up 475%
Total cost ($290642) invested in silver since 2002 would now net: $1,828,138 up 629%
Total cost ($290642) invested in honey since 2002 would now net: $392,366. up 35%
____________________________________
Data:
http://www.realestatevancouver2010.com/market.html#averageprix (an excellent site to induce vomiting)
http://www.canequity.com/mortgage_rate_history.stm
http://www.ifitbreaks.com/interest.htm
http://www.mikeshafie.com/propertytax
http://goldprice.org/spot-gold.html
http://www.honey.com/nhb/industry/industry-statistics/
http://www.statcan.gc.ca/pub/11-516-x/sectionm/4057754-eng.htm
* Quick scan of realtor.ca listings for modest sfh in Coquitlam.
** Tax oddity: you must pay property tax on the principal portion you own, as well, you must pay the property tax on the bank’s portion. If you default, the bank has held their portion of the property tax free. In any other partnership, you’d split the cost.
soft landings… LOL
It’s like hoping for a fully blown african civil war to end through peaceful dialogue…. Won’t happen. The falldown will be simmetric to the ramp-up. A grotesque fully blown credit/mortgage orgy will only end with a grotesque fully blown bubble explosion…until the trend returns back to the norm. The charts are out there people…the facts are out there, and you are just choosing to ignore them. Unfortunately (for you) ingnoring the problem won’t make it disappear. Bubble psychology at its best people….absolutely every single aspect covered: from the “it’s different here”, passing through the “this is the BPOE and there’s a land shortage”, continuing with the “boatloads of immigrants coming to buy houses” and finally, with the end of the road approaching, a little bit of doubt surfaces…. “prices will plateau and then soft land”. You people are funny
And by the way… yesterdays post about people choosing the house over the 1.8M cash… so so sad. Oh the unawareness… Double face palm moment… Quadruple face palm if I were Goro…
Let’s see if I can repeat the standard lines*:
Well readers of the economist don’t know about Vancouver. Look north, there are mountains, west the ocean, south the US border, so there is no more place to grow. Besides, millions of people came to the olympics and once they saw Vancouver from the plane, they knew they had to buy RE here. Also, the number of millionares in the world and specially Asia is greater than the population in Canada and they all want to move here for the lifestyle, unique in the world. This is also a city in transition to become a first class city, so prices must reflect that ….
Can I get my RE license now ?
* Joking, for new readers, although the mantras, sadly, are real.
Economist – …”average price of Canadian home has doubled since 2002″
If you made the minimum deposit and paid compound interest at the average of 4.8 percent over the last ten years — You Lost Money. Period.
“…affordability levels still look reasonable in most parts of the country outside of British Columbia and pose a minimal THREAT to housing demand (Read- minimal threat to ongoing bank con jobs)… the Vancouver-area market continues to be a major exception, with sky-high property values in upscale neighbourhoods making it both extremely unaffordable and the most at risk of a downward correction.” – http://www.rbc.com/newsroom/pdf/HA-1125-2011.pdf
Dear VREAA, I made a long winded post detailing this which got lost in space. Please delete it. My above statement is more concise. Thank you for all you do.
Vancouver isnt a bad place to live. But dont pretend that these hordes of Asians see it as anything but a stopping of place to make money before they exit with their money to the USA. Canada is an easy country to get into if you have money, hence its popularity with the Asians who are fleeing the slums they live in with the money they have scammed. But Canadians cont care, just so long as they can sell their houses.