“Little was heard of housing bubbles in Canada up to about a year ago. Now, predictions of crashes are on the front cover of Maclean’s and other publications. One might wonder if we are talking ourselves into a housing miasma, even though the fundamentals don’t point to one.” …
“…some media sources are now painting a dire prognosis for Canadian housing. It brings to mind the 2012 paper, “What Have They Been Thinking? Home Buyer Behavior in Hot and Cold Markets,” written by Mr. Shiller and co-authors, Karl E. Case and Anne Thompson.
The paper looks at press coverage leading up to the U.S. housing collapse and documents the increasing frequency of articles depicting U.S. housing as a bubble. June of 2005 was particularly busy, with cover stories in the Economist, Barron’s, and Time Magazine.
Mr. Shiller and co-authors argue the prominence of the bubble theme produced “a turning point in public thinking” that led to prices turning down, beginning in 2006. A similar point was made by Mr. Shiller in a 2006 paper, in which he wrote: “there are reasons to suspect that the price changes … are related to public swings in opinions rather than fundamentals.”
Could Canada similarly be talking itself into a housing crash (possibly followed by a financial crisis and years of stagnation)?”
- from ‘Is Canada talking itself into a housing crisis?’, Larry MacDonald, Globe and Mail, 22 Jan 2013
Actually, the fundamentals point to a speculative mania and the increasing talk of bubbles is very appropriate. Sometimes a bubble is a bubble.
Besides, a large, broad, healthy RE market would never crash based on unfounded chatter.
For someone to suggest, in 2013, that the US housing collapse was the result of baseless sentiment change is ridiculous, and to use a US parallel to attempt to argue for Canadian housing strength is more ridiculous still.
No surprise, however, to see pleas to ‘Stay Calm and Carry On’.
When all is said and done, some will blame media hysteria for the RE market collapse.
Regarding this series:
There is only one BIG reason for falling prices in Vancouver RE: the speculative mania is over.
That is all you need to know to explain the price action that will play out over the next few years.
On the way up we had people attributing price strength to all sorts of bizarre and invalid causes: the Olympics, running out of land, etc. On the way down we expect similarly bizarre arguments for price drops; commentators will offer many erroneous theories as to why prices are falling. We’re already beginning to see them, and the crash has barely commenced.
We’ll collect them; please submit new examples you come across. – vreaa
“Built into this situation is the eventual and inevitable fall. … Something, it matters little what – although it will always be much debated – triggers the ultimate reversal.”
– John Kenneth Galbraith, in ‘A Short History of Financial Euphoria’
#1 – Climate Change Caused The Crash
“Prices will continue to fall, as outside buyers from other Provinces such as Ontario, Alberta and Manitoba finally realize that climate change has now become an important issue in British Columbia. What was once an enviable temperature and small secret now has become a drag, as the winter, spring and summer months are now cooler and wetter than before.”
- thinkandact, commenting at the Globe and Mail, 2 Aug 2012
#2 – The Conservatives Attacked The Vancouver Housing Market And Caused The Crash
“The reality is that because banks also own investment dealers, their CEOs would prefer to see more Canadian money flowing into the equity markets rather than into real estate. … I wouldn’t be surprised if Prime Minister Stephen Harper, a trained economist, has been influenced by a Zambian-born economist in crafting mortgage-amortization policies that may kill the Vancouver housing market and create significant hardship.”
- Charlie Smith, Georgia Straight, 3 Aug 2012
#3 – Vancouver RE Bears Caused The Crash
“The common theme I see in your “anecdotes” is YOU! There is no shift in the “general mood”. YOU are the catalyst bringing down the mood among your friends. I can only hope you don’t have too many friends, or you will singlehandedly bring down the market.”
- ‘Anonymous’, at VCI 21 Aug 2012, in response to ‘Makaya’ posting two stories of people becoming bearish on the Vancouver market
#4 – An Invisible Force Caused The Crash
“An invisible force has guided Buyers and Sellers of Vancouver homes. An unprecedented number of Sellers have listed their homes for sale while at the same time many Vancouver home buyers have decided that they are ‘not buying now’. This collective behavior is often called a ‘murmuration’. It is fair to say that human behavior is at times shaped by invisible forces which lead us to behave in ways that may not be in our best interest.”
- ‘Invisible Force Guides Buyers and Sellers of Vancouver Real Estate?’, Larry Yatkowsky, 13 Sep 2012
#5 – Tightening Of Mortgage Rules Caused The Crash
“The real key thing for the [weakening of the] ownership markets was the reduction in the maximum amortization from 30 years to 25 years.”
- Cameron Muir, chief economist at the BCREA, ‘Mortgage rules exacerbating B.C. housing sales slump’, Vancouver Sun, 17 Sep 2012
#6 – Toronto Bankers Caused The Crash
“According to several people, it appears that Toronto bankers are far less keen to underwrite projects unless developers can pony up more money up front to justify the risk.
So no matter how much the city tries to encourage the construction of homes for sale to middle-income home buyers, it won’t happen if financiers aren’t prepared to open up their wallets to developers. “The banks are holding their feet to the fire,” Cameron McNeill, president of MAC Marketing Solutions, revealed.”
- ‘Toronto bankers put the squeeze on Vancouver real-estate developers’, Charlie Smith, Georgia Straight, 11 Oct 2012
#7 – Talk Of Bubbles Caused The Crash
“Little was heard of housing bubbles in Canada up to about a year ago. Now, predictions of crashes are on the front cover of Maclean’s and other publications. One might wonder if we are talking ourselves into a housing miasma, even though the fundamentals don’t point to one.”
- ‘Is Canada talking itself into a housing crisis?’, Larry MacDonald, Globe and Mail, 22 Jan 2013