Opinion from Mike Shedlock – “I am now confident the peak in Canadian housing insanity is finally in.”

This from one of the highest traffic economics blogs in North America. We agree. -vreaa

‘Mish’ (Mike Shedlock) at his blog globaleconomicanalysis.blogspot.com, 6 Jul 2010

“First comes volume, then comes price; Canadian housing peak is finally in.

Housing Collapse Cascade Pattern

  • Volume drops precipitously
  • Prices soften a bit
  • Inventory levels rise slowly
  • High-end home prices remain relatively steady for a brief while longer
  • The real estate industry tries to convince everyone it’s “business as usual” and homes are affordable because rates are low
  • Bubble denial kicks in with media articles everywhere touting the “fundamentals”
  • Stubborn sellers hold out for last year’s prices as volume continues to shrink
  • Inventory levels reach new highs
  • Builders start offering huge incentives to clear inventory
  • Some sellers finally realize (too late) what is happening
  • Price declines hit the high-end
  • Increasingly desperate sellers get creative with incentives, offering new cars, below market interest rates, trips, etc
  • Gimmicks do not work
  • Price declines escalate sharply at all price levels
  • The Central Bank issues statements that housing is fundamentally sound
  • Prices collapse, inventory skyrockets, and builders holding inventory go bankrupt

Some of those may happen simultaneously or in a different order, but the whole mess starts with a huge plunge in volume.

I am now confident the peak in Canadian housing insanity is finally in.”

6 responses to “Opinion from Mike Shedlock – “I am now confident the peak in Canadian housing insanity is finally in.”

  1. Mr Shedlock seems to forget about many other important factors that are connected with housing collapse. The pattern he describes might be correct in certain circumstances, but I don’t think this is the case in Canada.

    Elli

    • Elli -> Please elaborate. Why is Canada not vulnerable to such a housing meltdown?
      I note that you are a Toronto realtor. Do you not see the RE bubbles that exist in our major centres such as Toronto and Vancouver?

  2. Some of these dont quite work…

    “High-end home prices remain relatively steady for a brief while longer”

    West Van seems to be fairing the worst of any market right now.

    Also, many of these things already happened in 2008, and then the market came roaring back. Something which he either ignores or is unaware of.

    • The market came roaring back in 2008 because the BOC printed a couple hundred billion dollars and dropped interest rates to zero so that the public would keep buying real estate. Although a person is generally smart and rational, people are stupid and frequently act irrationally. The BOC gave them a means to bid up housing prices and so they did. Keep in mind this had nothing to do with value or demand, there is not really anything left that the Fed can do to keep house fom crashing this time, since interest rates are pretty much zero and the canadian public is leveraged to death. China is as much a factor as Japan was in the late 80’s – enough of a reason to drive fear and convince locals to buy more RE, but not enough demand to float the market.

  3. Cdn RE will get final shot in the arm as rates are cut, much to everyone’s delight. Everyone has already factored in the HST in BC, but what happens if this tax is only temporary? Word on the street is that the banks are now loosening (not tightening) lending standards. ie. income verification being scrapped, people using various loopholes to dodge 20% DP req for investment properties etc. I think Mish is correct, but he may be a little early on his call. Ultimately, this will end badly…just like in the US. You think we would have learned something by now?

  4. It won’t collapse for sure…at least not in Toronto. 60,000 new jobs in Ontario for just the month of June. Hiring in the banking sector has picked up quite a bit, along with legal and accounting. Even manufacturing rose from the dead. The new grads are finding decent jobs and they are moving away from their parents.

    It is healthy to listen to words of caution from others. Without them, the market cannot climb a wall of worries….Toronto market should begin to pick up again in September in a healthy sustainable way.

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