- chart from Kevin at saskatoonhousingbubble, referred to at VREAA 28 Dec 2012, headlined by popular request. Thanks Kevin and UBCghettodweller. Kevin adds: “The housing bubble that popped in the early 80′s was in Western Canada while Central and Eastern Canada were not affected. The housing bubble that popped in the early 90′s was centered in Toronto and area while the west was still recovering from the 80′s. Today, in 2012, it looks like the housing bubble is spread throughout Canada but to differing degrees.”
I would be curious to know what caused Toronto prices to spike in the late 80′s…………….
In a word, yuppies.
The world started to find out what a cool place Toronto was for the first time. The RE market, ahem, “overreacted” a bit.
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Dynamite Graph.
kaboom Vancouver RE.
It is a very interesting chart. Kevin had posted it some time ago on his site which I pop in to check on from time to time. He has done some very good analysis on the Saskatoon and Saskatchewan markets that is applicable to bubbles everywhere and I recommend it.
In relative terms Saskatoon is one of the bubbliest of Canadian cities. Price changes were dramatic there. When I dropped in to look in 2003 there were corner rental lots (with house) selling on the West side of the city for as little as 10,000 dollars. Seven short years later they could not be had for 150k.
The average home price almost tripled in many neighborhoods and the wealth effect made Saskatchewan boom in a way that made the rest of the country envious while rising resource demand and prices compounded the effect of rising wealth and incomes.
It is why they currently have the lowest rate of unemployment in the country and amongst the highest average incomes per capita. But it is also a story that will see a correction when resource prices drop and as credit is more formally withdrawn during that part of the comng cycle.
Or up, up, and away – “escape velocity”
Ditto [Dynomite!Kaboom!]… With thanks to Kevin…
And, to augment the graphical, a wee metaphorical pictorial…
http://tinyurl.com/ane7j6k
VREAA is going to love this one..
The Leader Post – Aug 29, 1981: Vancouver Real Estate Agent Likes The Action
"I've gone the opposite route. I've involved myself with leveraging."
Yes, there once was a time when leveraging was considered going opposite from the herd. Luckily for this agent, today he's taken his old speculative ventures into astrology.
—-
Although some things seem similar to the 1980s, today's rates at ZLB is more in line with financial repression seen during the 1940s. Unfortunately, we don't have home price data going back that far to compare prices to other assets, however, if one takes enough time to sift through StatCan's archives and re-adjust dollar values, there are some very useful historical datasets that could be stitched and plotted for a 'zoom out' view on historical market conditions. One example is shown here looking at annual investment in residential structures. Chart
We have a long ways to go.
I wonder if that is the same guy who was posting here not so long ago warning of Mars in Retrograde and Sun signs telling us Vancouver was due for a crash? Vreaa asked him to keep the Astro-babble to himself and stick to the topic and since then he has been very quiet.
When 2012 is over, I will add to the new prices to the graph
It is just one argument us bears can use in housing bubble debates
, but a good one. The graph does not take into account interest rates, down payments or even changes in living standards.
Also, using the start date of 1980 was close to the peak of the housing bubble in western Canada. If I had stats back to the mid 70′s, a time of more normal real estate prices, todays peaks would be even higher on the graph, especially the western cities.
I am loath to use affordability to justify prices, only because it has been a poor long term justification for current prices.
OK, I’ve got a little story that should strike fear into the hearts of any speculators.
In the mid-90′s, I moved to Ottawa for University and ended up ‘rooming’ with a retired couple. They needed to take on a renter because they had a bit of a “hole” in their finances. This was due to a bad bet they placed on the condo market a couple of years earlier.
Now, look at the chart above again. See the massive rise in Ottawa prices around 1990? That is exactly when they bought, just as they retired, thinking that it would provide a more secure retirement. Then, you can observe the correction into about ’95-’96? That, coupled with rising condo fees, taxes and the ubiquitous “special assessment,” sent their dreams and cash flow crashing back down to earth. They couldn’t sell the place and had a hard time finding renters.
The upside was that, as snowbirds, they also wanted a renter to help take care of their primary residence during the winter months and generate some income. They only charged $325/month (including a garage stall and all utilities) for a full house while they were away for 6 of the 8 months of the school year. And, they were less than a 10 minute walk from the university. Boy, those were the days.
The last I heard from them was in 2002 when they still owned the condo and had lost a ton of money on the poorly built place with repairs and numerous empty periods but were still stuck with an illiquid investment as they got further into their retirements.
Sometimes it is just better to rent!!!
It is interesting that Vancouver had a soft landing from 1994 to 2001 – something that some posters have said is impossible.
Of course they can always retort with the circular argument that it wasn’t a bubble because there wasn’t a crash after it.
I said the same thing here:
http://vreaa.wordpress.com/2012/03/27/infographic-argues-for-a-soft-landing-just-because-it-is-in-the-form-of-a-tintin-book-doesnt-make-it-true/#comment-32404
That’s a “soft landing”? We’re always told it’s steady prices and income catch-up/inflation. I don’t see such a thing in the chart: I see price reversal.
This is an inflation-adjusted chart. In nominal terms the price drops between 1994 to 2001 (Vancouver) were not large.
Soft landing means that the “froth” is blown off and prices do NOT overshoot to oversold conditions. A CRASH is when the price drop overshoots the trend rate to the downside.
Notice how the price in real terms in 2001 is significantly higher than the base of the bubble (in 1991). A true CRASH should give back all of those gains (in real terms).
The other thing to note about a bubble is how, even recognizing that a bubble exists, no one really knows when and how it will end. Here is some advice a VAN RE bear might have given:
2003: We may be in a bubble
2004: We are in a bubble; sell now.
2005: Bubble alert: SELL NOW!
2006: Dangerous bubble – SELL NOW!!
2007: We’ve plateaued!
2008: HA! I TOLD YOU SO!
2009: Get out now while you still can
2010: (Confusion/Dang govmint!)
2011: Mammoth bubble! You are all in danger
2012: Get out now! Your last chance!
2013 This will be the final total end; really for sure.
The reality is that, at any given point in time, there is a probability that a crash is imminent and that probability is always greater than 0% and less than 100%.
Good point Robert. Vancouver has been running so hot for so long it is hardly a wonder people began to think it would never come to an end. But who ever gave a moments consideration to the idea that Vancouver (of all places) would blow the biggest bubble on the planet next to Hong Kong!
Don’t know who did and didn’t at the time, but it is ALWAYS worthwhile reflecting on the possibilities of extreme outcomes.
The hard lesson is that when you are in the middle of a bubble there are two things you can’t say and be right:
1) this will never end
2) it can’t possibly go on much longer