“Nicole Austin, 31, and her boyfriend, Jim Varlas, know the mania all too well. The couple decided to sell their downtown Toronto condos and buy a house in Markham, a suburb north of the city. They moved in with Varlas’s parents and started shopping around for a house with a budget of $400,000. “Either the homes in our price range were really outdated and hadn’t been touched since the 1970s, or they would need to be renovated,” Austin says. They upped their budget to $500,000 and bid on three homes. They lost all three in bidding wars that pushed prices up as high as $575,000. “In some cases we knew what the house was worth and there was a certain point where we’d just walk away because it was getting ridiculous,” Austin says.
Earlier this month, the couple settled on a new build, paying “in the mid-to-high 500s.” But Austin says taking on a larger mortgage than expected was a fair tradeoff for finding a house in their chosen city. The couple say they expect prices to crash, but that doesn’t matter much since they plan to be in their home for at least 10 years.”
- from ‘Time to panic about the housing market; Why is everyone ignoring this unfolding disaster?’, by Tamsin McMahon, Macleans, 28 Feb 2012
The entire article is a ‘must-read’. Startlingly bearish for such a prominent, mainstream publication.
This issue’s cover was previously archived here.
Excerpts:
“Here in Canada, we patted our backs for not falling into the same trap, and basked in the spotlight as the world’s new beacon for financial stewardship. It’s a compelling narrative that has been promoted by the federal government and the Bank of Canada as they encouraged Canadians to spend their way through global economic turmoil.
But pry through the pocketbooks and bank accounts of the average Canadian and the country looks remarkably like the America of 2005—or even worse by some measures—complete with record house prices and unprecedented debt.”
…
“Since 2008, Canada’s ratio of debt to after-tax income has exploded. By the third quarter of 2011, Canadians owed an average of $1.53 for every dollar they brought in, up 40 per cent in the past 10 years and just below where the U.S. was before its housing crash. By the end of 2010, the average homeowner had just 34.3 per cent equity in their home, the lowest level in two decades and a 20 per cent drop in just four years.”
…
“There’s also a sharp rise in home ownership rates, which at about 68 per cent of Canadians mirrors closely the 69 per cent at the top of the U.S. bubble.”
…
All of the dots are laid out so obviously now, but it’s still extremely painful for most to draw the logical conclusions.
People ‘know’ that this is a bubble, but they refuse to really accept what that means.
Fantasies of mild pullbacks satisfying the ‘bubble gods’ abound.
Speculative manias only end when the excess is wrung out, when prices drop to levels supported by fundamentals, and, usually, there is overshoot to the downside. For Vancouver RE, this means price drops of 50%-66%, perhaps even more.
- vreaa
I’m just waiting for the grovelling retraction from Macleans magazine once Rogers Communications head honchos realize what the magazine minions have published.
LOL … one more minions’ story to regale us.
http://www.cbc.ca/news/technology/story/2012/02/27/science-class-ethics.html
Won’t be any. Macleans is late to the party. Canadian Business ran their own bubble headline more than a month ago. Doubt it hurt their ad revenue any. They know that when RE tanks, much of their ad revenue will dry up anyway. Running a bubble cover won’t affect that much.
this is the most fascinating aspect, imo. all involved should have understood the risks by now. yet, even as smoke is evident all around, there is no panic for the exits. takes me back to comments kyle bass previously made about the lehman moment. people have been conditioned to believe something will bail out their recklessness.
Everyone rush for the door!!! Oops, too late.
I found the following post by cooljoe at catanet.net interesting:
I have been a homeowner now for 14 years, in the same home. Was it easy to buy even back then when average home prices were over half what they are now, no. We had renters in the basement for 7 years helping us make do, owned old vehicles that had no payments, didn’t go on vacation at all and were very tight on the budget. It was the best move we ever made, hands down. We are now getting ready to build a new house that has more room and is more of a “dream” house for us, because of the equity we have where we are now. If we had rented during that time I just can’t see us being in this position now at all. It really interests me how people are now thinking it is better to rent rather than buy real estate. My parents and Grandparents all grew up knowing that you buy a house and own it. In the 80′s I even remember us losing our house and having to rent for a time when interest rates were up in the 20% range. But even after going thru that my parents will tell you that owning a home is better than renting. It’s all about making sacrifices for what you want.
(Italics my own)
Link here (sorry for not imbedding the link):
http://forums.castanet.net/viewtopic.php?f=23&t=38597&sid=3afd80ebc7f3c9617387f0437dc502e8&start=45
Cooljoe starts off OK. Then (in italics) he makes two critical errors in thinking:
1) He assumes the advantages of home ownership as they existed 15 years ago still apply today.
2) He feels that even though his parents “lost our house”, (and presumably faced financial ruin) in the early 1980s, it still wasn’t a bad decision, just bad luck and bad timing.
Error #1 is a common misperception for which one can be forgiven, especially if one’s own real estate experience has been positive. It’s sloppy, lazy thinking, but forgivable.
Error #2 is not forgivable. The unwavering, inflexible belief that home ownership is always a better option than renting betrays a distorted, corrupted relationship with real estate; an almost cult-like devotion to home ownership. And unfortunately, it exemplifies the mindset of the majority of Canadians. It is a mindset in dire need of correcting. I believe that will happen soon. It won’t be pretty.
ranter,
Even though you’ve foolowed up with your own comments, you’re just pouring salt into renter wounds by posting this anecdote
“Renter wounds.”
I’d rather be wounded by rent than killed by mortgage debt.
“Pouring salt into renter wounds” – I guess by that logic all renters wish they could go through the character building experience of having their home foreclosed and getting evicted. Those stupid renters in the U.S. who never got caught up in the real estate mania must sure be jealous of all the home-equity junkies declaring bankruptcy and scouring the garbage bins for aluminum cans.
Formula1 – You tell Ranter, “The next time opportunity knocks don’t turn out your lights and hide behind the couch.”
It will be you who will be turning out the lights and hiding behind the couch once foreclosure proceedings start.
Typical herd behavior. Do not even try changing it.
I do quite well financially (and reason being that I use more than 5% of my brain for important decisions in life), and rent for one-third of what I would pay to own. People are so dumb.
DO NOT BUY in this environment.
Ask people in States, or Ireland or Spain and they will tell you.
Same here. I learned never to obligate myself for something I couldn’t pay for in cash. Life is good. I choose to work.
Maybe his parents made a “rent-or-buy” decision when rates were 20% and renting came up cheaper, he doesn’t say they had no money to buy. If this is the case, he could learn a thing or two from them in that often it makes sense to own vs. rent but in a crashing market, renting is better.
He says his parents “lost our home”. To me, that means they bought it, coudln’t pay for it, and became insolvent as a result. Yet they still “grew up knowing” that owning is better than renting. Always.
We currently rent (by choice waiting for the bubble to burst !!) and the only people encouraging us to buy are our realtor and our mortgage broker…hmmmmm!!!
of course the price advantage of 14 years ago does not exist now. The price advantage of today will exist 14 years from now in 2026. The anecdote will only serve to incite anger and frustration for those who could not or did not purchase many years ago.
Forumula1′s philosophy:
When amongst lemmings, do what the lemmings do.
ranter,
The next time opportunity knocks don’t turn out your lights and hide behind the couch
I have no intention of doing so. And I’ll be in a position to take advantage of said opportunity, because my assets will be liquid – not tied up in some McMansion worth 30% less than I paid for it. People who bought any time during the 1990s were smart. Those who bought since 2005…. not so much. I’ll wait until 1990s conditions return (and they always do – recessions are as normal as growth periods, we always seem to forget) and then I’ll buy a house. A nice one. No, I am not expecting 1990s prices to return, just 1990s conditions (slightly higher interest rates, higher unemployment and many people losing their houses). When the lemmings zig, Ranter zags.
I’d love to see a graph of prices from 1998 to now extrapolated out to 2026… How expensive would that hypothetical 2026 SFH be?
search Mike Ruppert – Collapse & Peak Oil for a good indication.
Somebody has drawn up that exact chart, EG, to make a bullish point (!).. will post.
F1 – think you just wrote that prices will be flat to down for the next 14 years but i’ve never been able to follow your logic anyway. “Prices are at least twice as high as they were 14 years ago and I could barely afford it then but today it’s still better to buy than rent (only because continual price increases will bail me out) “.
No, F1 means that in 14 years time, today’s prices will look as attractive as prices 14 years ago look today.
.
F1 is on record as saying he’s not expecting prices to drop more than 10%-15%.
And, of course, he is strongly advocating that such a dip should be ‘bought’.
“The price advantage of 14 years ago does not exist now. The price advantage of today will exist 14 years from now in 2026″
————-
I think this is where your logic breaks down Formula. Your assumption is that housing prices will increase more or less continuously for the next decade and a half.
What we are witnessing in countries all over the world is the exact opposite.
Instead of housing price growth there has been a massive deflation in asset values. Stimulus and easing in the US were designed to offset a very clear trend to devaluations and deflation that had the potential to send them directly into nothing short of a depression as equity wealth evaporated, savings rose and the velocity of money became quite sluggish. Employment rose sharply then and competitive pressures were forcing wages down. It was a terrible setup for an economic nightmare as GDP was dropping and business’s closing their doors.
Given Canadian demographic trends I believe what you will be seeing in ten or twelve years time is the bottom of this current period of excess we have in our country. It will easily take that long to delever all the debt that has accumulated during our credit bubble. It could even take longer to reach a final trough.
Please consider that US home prices got shaky in 2006 and here we are, fully six years later and there is still no bottom in sight. R/E corrections can run a decade or more. There is an inventory of more than 3 million homes that are unsold and family formation is nowhere near the levels that existed during the peak years (that means that the kids are living in the basement still instead of getting married and striking out on their own). It is fair to anticipate another few years of losses before the excess supply is mopped up and prices begin to stabilize, never mind actually rise again.
Sorry Formula, but you are going to lose a great deal of wealth if you believe that we are in a bottom now and home price inflation will make todays prices look cheap to the folks of 2026.
This is the top. It is time to get out of the market and deploy financial resources elsewhere.
home price will be at least 2x today prices in 2026. This is a slower paced gain than the past 10 years, but still a substantial increase.
We’ll have some value to shed here soon but prices will once again start marching upward soon after a shallow bottom. The trick is to recognize the opportunity to buy when it presents…if you know this market then you’ll know what values to expect.
f1, i love you man! don’t ever change.
ps. when vreaa says buy the dip, he/she means in the food market.
You are a funny guy. I think you actually believe what you write. Anyway, I will show you with some charts and numbers why you are wrong. This might be new for you……ready?
http://ftalphaville.ft.com/blog/2012/02/24/893181/when-household-formation-growth-returns/
Take a look at the comparative chart showing the level of household formation over the past few years. Notice they are dropping? This is a big problem and here is why.
The group most likely to be first time home buyers come from the very groups that have ceased forming new households. These are young people. By coincidence they have been hit hardest by the high levels of unemployment in the US.
That is a bad thing.
It means that it will take much longer than most pundits predict for the excess of housing supply to be absorbed and this is something that must be done before fresh demand will kick in and prices actually rise again.
In Canada, with almost 25% of our economy directly or indirectly involved in real estate we are particularly vulnerable to a housing downturn and rising unemployment. We are more exposed than even the Americans were. That means we will also see demand drop and housing supply increase as rising unemployment due to a correction materializes.
So I went looking for a backgrounder on US “housing formation” data for you and came up with the link to an article that will do the trick. I am using the US as my model natch because we have not actually had our correction yet.
http://www.marketwatch.com/story/straight-talk-about-the-housing-market-2012-02-29
And that is why housing will take years to recover once the correction has completed. OK. your turn. Prove prices will rise.
Damn Chubster, I love dip! Now I have to go out and buy chips because your dip comment is like a bug in my head.
(OK. your turn. Prove prices will rise)
“Metro Vancouver is projected to add
1.2 million residents for a total
population of 3.4 million by the year
2041. The combination of population
growth and demographic factors
would require about 574,000
additional housing units to be built
over that period”
metrovancouver.org.
BTW, your housing formation chart is from the US…wrong country
Quite aware I am using US data and charts. As I already pointed out, this is necessary as Canada has not yet seen its bubble burst. The closest I can come to illuminating why our own correction will be long and slow is to offer a near comparison.
Now as far as estimates of the number of incoming residents to Vancouver is concerned I have my doubts. Those are just predictions and without knowing who has made them or what agenda they are promoting it is harder to argue. As I understand it there was a net loss of population this year,…. no increase at all.
A quick google search immediately turns up an article refuting your thesis and states that Vancouver has only experienced a 4% population growth since 2006 according the most recent census information. See the following short article by Erica Bulman published February 8th.
http://vancouver.24hrs.ca/News/local/2012/02/08/pf-19357286.html
But put up your own source and I will take a closer look.
I thoroughly refuted F1s “population” argument several months ago. Some people just don’t learn…
Vancouver will grow at a slower pace than outlying areas – we simply have no room to grow. The fact that we have little room to put a growing population only serves to add upward pressure to prices. Isn’t that what’s been happening here?
This city needs leaders who’ll make the hard decision to add real density (subdivide oversized lots, approve townhouse and rowhouse developments, rezone RS lots of >5000sqft to RT, approve multi-family development along every major street). Until then prices on detached with outdated and inefficient zoning will continue to rise.
not my population projections El Ninja – but I welcome you to share other professional projections on what our population will grow to in the next 30 years.
Well I finally got around to reading some of the report you were referring too, Formula. Unfortunately there are a few really big holes in it and one of those are the assumptions for employment going forward. Recall that it is jobs that attract people to most cities and Vancouver is no different unless you assume all the new buyers will be rich HAM. The problem here is that the report does not give much consideration for the existing bubble in prices nor the outcomes that follow the pop. Employment prospects are already poor in many sectors and incomes below the national average. How much worse will it be as unemployment rises and house prices fall? I am sorry to say that there must be some other attraction than a “great environment” for the estimates of growth to pan out. It is much more likely that population will remain flat following a bust and it could remain there for many years before real net growth resumes again. I can address the whole issue of supply too if you like as that also plays a significant role in demand for new units.
Speaking of population growth, Ben Rabidoux has offered proof of life this evening with a post on this very subject. I miss the days when he was posting this stuff for free all the time, but a guy’s gotta eat!
http://theeconomicanalyst.com/content/population-growth-will-not-prevent-candian-housing-bubble-going-bust
herein lies the difference between the condo and detached markets.
Not only are we not gaining any supply of detached homes, we’re diminishing our supply every year to redevelopment.
Condo market is a different animal, which I’m not motivated enough to comment on
thanks for the link nobody – I was able to find this comment about bubbles and comparison countries around the world. We’re always compared to countries that have experienced large corrects, but never to the countries that have not, notably Finland, New Zealand, Austria, Belgium, Brazil, France, Israel, Sweden, etc.
http://australianpropertyforum.com/topic/9424587/1/
“home price will be at least 2x today prices in 2026″
I don’t think so. If I personally thought that was likely, hey count me in on the next wave of commercial purchases. I’ve got some fav retail space in mind. However, I don’t believe the fundamentals have changed. International currency devaluation will soon render our trade surplus a liability. Watch for real US GDP in July. I’m surprised a lender is even putting money out there with leverage so high and interest so low. Oh right, the buyer pays for insurance. I would prepare for that tiny, one in a billion chance that taxes increase or lenders pullback.
http://www.lse.co.uk/FinanceNews.asp?ArticleCode=iy2odj2s99c1jyr&ArticleHeadline=More_Chinese_buy_property_abroad__Colliers
If only 40% of foreign owners are Chinese mainlanders, who are the other 60%? Americans? English? Goes to show the racism and HAM scare-mongering is unfounded.
I can give you some numbers for the U.S. There isn’t much on Canada, which given the small currency is crazy. If I were the Canadian gov, I’d track this closely.
Florida is the hot spot, especially among Cubans, Haitians and Colombians.
• California comes in second behind Florida with 12 percent of all home purchases made by foreigners with most coming from Mexico, the Philippines, China, India, and Vietnam.
• Texas is No. 3 with 9 percent of home purchases attributed to foreign residents. The most homebuyers came from Mexico, India, Vietnam, China and the Philippines.
• Arizona is the fourth biggest market for foreign investors with 6 percent of all purchases coming from out-of-country buyers. Mexico, Iraq and India, were among the most likely to buy homes there.
from here
“Why is everyone ignoring this unfolding disaster?”
Because people have cried “wolf!” once too often, perhaps. People who said the market would crash after the Olympics, when the HST was introduced, when CMHC rules were tightened, etc, etc.
Well…the 2010 Olympics (plus those best place on earth commercials) sent a message to the world (and china) that vancouver is open for business (and accepts laundered money)…much like SETI is broadcasting welcome to earth to some passing “Battle LA” aliens
That would be true if the Liberal government had the guts to actually run those ads outside of BC! They didn’t. Those best place on Earth ads were run in BC only, not even Canada wide.
But Vancouver is pretty famous in China from TV series and the fact that Canada wouldn’t send you back to China no matter how corrupt you are as long as you have a few millions in Cdn banks.
why bother paying for ads when you can stick it in youtube
I prefer this:
Its like a beautiful coma.
Thanks SR! I had never seen one of those ads. I actually thought all the BPOE references were just some kind of internet joke until a few weeks ago.