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 ]