Marketwatch Features Canadian RE – “It’s a crazy, crazy market”; “We just wanted to get in as soon as possible.”

Excerpts from ‘Housing Booms North of the Border‘, marketwatch.com, 29 Mar 2011 [hat-tip Don] –

“Alex Kuzhel, a 27-year-old, first-time buyer, closed on a two-story home north of Toronto this month, after losing out in several bidding wars. He put down just 5% on the C$400,000 purchase price, all that he could afford. He and his wife earn more than C$100,000 a year. In addition to his 30-year mortgage, he is paying down an outstanding student loan and a car loan. “We just wanted to get into the housing market as soon as possible,” he says.”

“David Madani, Canada economist at Capital Economics, an independent research consultancy based in London, says Canadian housing prices could be in for a 25% drop in the next three years, a correction he says is warranted by the now-inflated ratio of house prices to income. House prices have risen to almost 5.5 times disposable income per worker, well above the long-term historical average of 3.5, he says. “We’ve been through a fairly hefty housing boom over the last 10 years, and the next three years is going to be an unwinding of that,” Mr. Madani says.”

“One of the things buoying Canada’s market is a global trend that has seen Asian—particularly Chinese–buyers snap up homes in places from Europe to Australia and to Canada, particularly on the West Coast. Chinese buyers have stampeded in to Vancouver and to Toronto, two of Canada’s hottest markets.Cam Good, a real-estate marketer in Vancouver, said he has sold 700 homes in the Vancouver area so far this year, 60% of them to Chinese immigrants. “That’s probably consistent for the whole market,” he said. “They’re the biggest group for everybody.” Mr. Good has seen so much business out of China that his company, The Key, opened an office in Beijing last month and is planning another. One of his strategies is to arrange chartered jets to bring potential buyers from China.”

“In the hottest markets, like Toronto, bidding wars are common. On a recent day, half a dozen agents for would-be buyers converged on a quiet residential street in the Toronto borough of East York. A 1,200-square-foot, semidetached home, listed at C$449,000, sold for C$526,000 that night. “It’s a crazy, crazy market,” says Sylvia Smith, a realtor with Re/Max Premier Inc. in Toronto.”

“The debt-to-disposable-income ratio for Canadian households rose to 148.9% last fall, according to Canadian government statistics, surpassing American borrowing for the first time since 1998. At the same time, the Bank of Canada has recently pointed out that the amount of home-equity loans has risen as much as 170% in the past decade and now represents about 10% of overall household debt.”

“Canada’s market is not in the midst of a bubble,” says Sal Guatieri, senior economist at BMO Capital Markets.

[We’ve pretty much heard all of this before, some of it looks like ‘churnalism’ (the Cam Good paragraphs seem verbatim from CTV or CBC or the Sun or the Province… where exactly…?). But the Alex Kuzhel anecdote is new (and thus it scores the bold typeface). Twenty-seven yr old FTB; “wanting to get into the housing market ASAP”; 5% down; $400K mortgage; other debts; now infinitely leveraged to RE (net-worth less than zero, ‘value’ of condo $420K). Bubble is alive and well. Imagine if/when that TO condo crashes 40%, they’ll be about 200K in the hole. We barely need to point out that the Kuzhels are another example of speculators disguised as fresh-faced, clean-scrubbed, well-meaning young citizens. Gamblers!
And Sal Guatieri is still wrong. We’ll archive his statement (again) in the Bubble-denier sidebar. – vreaa
]

11 responses to “Marketwatch Features Canadian RE – “It’s a crazy, crazy market”; “We just wanted to get in as soon as possible.”

  1. While it’s perhaps true that Alex Kuzhel and his wife presently earn more than $100K/year I wonder if that income is very stable, and whether it would qualify as sufficient under the lending standards that existed fifteen years ago.

    Why would he go to York University to become a Sales Consultant at a Hyundai Dealership? http://forums.redflagdeals.com/2011-sonata-pricing-announced-853702/8/#post10498116

    • Kateryna Erkalova

      He went to York University in order to become a professional Sales Consultant. In University he obtained superb financial, analytical, business consulting skills, etc. Unfortunately, nowadays, it is really rare to meet professional people in this business, and high personal and professional qualifications of Alex Kuzhel make him to stand out among other sales consultants.

  2. Village Whisperer

    Ahhh… I came here to add Sal Guatieri’s comments to the bubble denier’s list… but you are already aware.

    • Thanks anyhow, Whisperer.
      We greatly appreciate it whenever anecdotes/quotable_quotes are brought to our attention, please keep them coming.
      On a related note, we recently updated the ‘Bull Hubris’ sidebar post with a claim by a poster at RE Talks that detached houses in Vancouver need to double in price to reach fair value, and that prices will ‘explode’ [upwards] in the next 5 months.

  3. “Canada’s market is not in the midst of a bubble.” – Sal Guatieri, BMO Capital Markets Senior Economist

    “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!” – Upton Sinclair

    • Yeah. A lot of bright folks are dumbed by context.
      See the latter part of ‘Inside Job’ for some great illustrations of the Upton Sinclair premise.

      • Polly Pollyanna

        was that not a fantastic documentary?

        i was floored that was even made and accepted mainstream.

        apparently, (some) people want real answers.

  4. Of special thematic interest… 😉

    [AlterNet] – When Facts Are Not Enough: Treating Mass Psychosis

    …”Psychotics literally hate reason and thought for if one has to engage in rational thought, one then has to face the true, underlying reasons for one’s immense psychological pain. As a result, they choose unconsciously to run away from pain by avoiding thought altogether. This helps to explain why facts alone are insufficient to dislodge someone from strongly held positions. Without dealing with the underlying emotions that undergird our beliefs, facts and counter-arguments only serve to strengthen a person’s beliefs.”…

    http://tinyurl.com/47qxybb

    and, in view of 02MAY/MapleSyrupRepublic, see also….

    The Political Brain: The Role of Emotion in Deciding the Fate of the Nation – Drew Westen

    …”The Political Brain is a groundbreaking investigation into the role of emotion in determining the political life of the nation. For two decades Drew Westen, professor of psychology and psychiatry at Emory University, has explored a theory of the mind that differs substantially from the more “dispassionate” notions held by most cognitive psychologists, political scientists, and economists”…

    http://tinyurl.com/4jv7r8s

  5. Finally, a compelling, fact-based, empirical/scientific explanation for the ‘event horizon’ that is YVR RE [note from ‘Nem’ – for those of you with access to a ‘WayBack Machine’, EventHorizon was my prior/initial moniker on lovable rogue, Rob Chipman’s ‘BestRealEstateOnEarth’ blog]…

    It’s the ‘gravity’, stupid. 😉

    [BBC] – Gravity satellite yields ‘Potato Earth’ view

    “It is a highly exaggerated rendering, but it neatly illustrates how the tug we feel from the mass of rock under our feet is not the same in every location.”

    http://tinyurl.com/63zc7mo

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