Mainstream Crash Concern Rising – “A Softer Demand Environment For Housing Will Be Unleashed”

You drive over this patch of road daily, oblivious of the risk, until bingo!… who could have known? [Sinkhole photo from Vancouver Sun 12 Dec 2010]
I’m sure you all get the metaphor.
Well, a growing number in the mainstream are coming around to ‘getting it’, too.
The following extracts from articles in the G&M 12 Dec 2010; G&M 13 Dec 2010a

The ratio of household credit market debt-to-personal disposable income hit a record 148.1 per cent in the third quarter.
Bank of Canada Governor Mark Carney said last week that the growth of household debt, which has outpaced incomes, has deepened the vulnerability of the household sector.
The ratio of debt to assets is the second-highest in the G7.
“The trend is still that debt accumulation is faster than disposable income – and that is a worrisome trend over the long haul,” said Pascal Gauthier, senior economist at TD Bank Group. “We should look at this before we reach extreme levels, but the question is, what are extreme levels?”
78 per cent of respondents said they think they have the capacity to borrow even more.

Home ownership rate in Canada is at a record high of about 70 per cent – that’s a bit more than at the peak in the United States.
Home prices are also at record levels and the market is overvalued.

Economists Derek Holt and Gorica Djeric want the central bank chief to update markets on the outlook for housing:
“We still subscribe to the view that house prices face downside risks although the exact timing is uncertain.”
“In our view, low rates for a long time translate into concerns about transferring even greater volumes of homebuyers out of the future into the present.”
“[In future] a softer demand environment for housing will be unleashed.”

Interesting mix of euphemism and metaphor.
You don’t ‘unleash’ ‘softer demand’, you unleash the ‘hounds of hell’.
We’re not heading for a soft landing, we’re heading for a crash.
More are doing the math and realizing this. -vreaa

And from a second G&M article today (G&M 13 Dec 2010b) –
The Bank of Canada has kept borrowing rates low for longer than many economists had expected, offering a steady stream of fuel to the housing market and consumer spending. But in the process, Canadian debt levels have risen to troubling heights.
Gordon Nixon, chief executive officer of the Royal Bank of Canada, the country’s largest bank, said “We are clearly at the limit”; “You do not want significant growth in consumer debt.”
The average debt per household, including mortgage and credit card debt, hit a high this year of $96,100.
Fairfax Financial CEO Prem Watsa is among the influential voices pointing to the impact of soaring debt on the broader economy. Not only are Canadians overleveraged, primarily with mortgage debt, low interest rates have prompted speculative buying that is artificially inflating housing prices, he said.

In February, 2010, Finance Minister Jim Flaherty announced measures designed to make it harder for mortgage borrowers to get in over their head.
But those measures fell short of what some bankers wanted, namely a significant reduction in the maximum allowable amortization period of new mortgages or a substantial broad increase in down payments.

[ Yeah, as we wished for and predicted HERE. -vreaa]

11 responses to “Mainstream Crash Concern Rising – “A Softer Demand Environment For Housing Will Be Unleashed”

  1. Home ownership rate in Canada is at a record high of about 70 per cent – that’s a bit more than at the peak in the United States.
    Home prices are also at record levels and the market is overvalued

    I really wish we could all stop calling someone owning a mortgage a “homeowner”.

    You do not own the home you’re living in. The bank does, to a rather big margin for most people.

    I would really like to see Statscan show us how many properties are completely free of any mortgage / lien. I have the feeling the 70% may lose a zero in there.

  2. It is good to see Carney is finally with the program. Clearly we are at the end of this cycle. While we have gone pretty much sideways for the better part of 6 months the proof is in the pudding. 2011 is going to be a tough year.

    • No one is going to listen to Carney until he raises interest rates, the majority of people don’t understand compound interest and opportunity cost or basic economics, the only thing they understand is how much is my monthly payment. Without an increase in interest rates the market will not correct.

      What really bothers me is that people don’t understand that the low interest rates has been factored in to prices. A couple of years ago I looked at a house on Waterloo and 11th street with an asking price of 1.3 million and I asked the real estate agent how this price could make sense, he said oh it has a basement suite rented to three students for $1750 a month which can support about 400K of the mortgage. You can not get a good deal in real estate since the agents advising sellers will know what the market will bear, you can always lower the asking price if a house does not move, but you can’t increase it once you have serious offers.

      • No one is going to listen to Carney until he raises interest rates

        They should have never crashed the rates in the first place.

        But now that they have: I hope he’ll keep it there for another year, after that crank it up to 20%, I will be debt free and very cash flow positive and I welcome the returns on even a simple savings account.

  3. 4SlicesofCheese

    At least people won’t be able to say they were not warned now.
    Although it really is too late for most people, especially people who bought in the last 2 years.

    Finally got my friend to consider selling.
    Bought in 07 and originally shut down all my advice of getting out based on the asians, different here, always goes up etc.
    He finally sees now and said he will be happy if he breaks even, but at the same time he says moving is such a hassle….

  4. I am going to buy in Fort Nelson in the next month. I am a bear, and I am relocating for work. The cost to buy up there is roughly 300k for a nice family home. It cost more to rent than it does to pay a mortgage. I do think that the prices are still high up there, but the local economy does support those prices because there are lots of high paying jobs. If any of you know anything about the RE up there please let me know. We meet with a local RE agent next week.

  5. Just came across your blog…and I’m glad I did. There is too much smoke and mirrors and lies in the media about real estate, and not enough sites like yours. I set up my own site to help spread the truth.
    It’s sad that more and more people are getting trapped in the property bubble, and everyone will end up paying in the end (even those of us that can’t afford to buy). The message has to get out, and the more of us that comment on the bullsh1t reports released by real estate agent associations etc. the better.

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