“Nicole Austin, 31, and her boyfriend, Jim Varlas, know the mania all too well. The couple decided to sell their downtown Toronto condos and buy a house in Markham, a suburb north of the city. They moved in with Varlas’s parents and started shopping around for a house with a budget of $400,000. “Either the homes in our price range were really outdated and hadn’t been touched since the 1970s, or they would need to be renovated,” Austin says. They upped their budget to $500,000 and bid on three homes. They lost all three in bidding wars that pushed prices up as high as $575,000. “In some cases we knew what the house was worth and there was a certain point where we’d just walk away because it was getting ridiculous,” Austin says.
Earlier this month, the couple settled on a new build, paying “in the mid-to-high 500s.” But Austin says taking on a larger mortgage than expected was a fair tradeoff for finding a house in their chosen city. The couple say they expect prices to crash, but that doesn’t matter much since they plan to be in their home for at least 10 years.”
– from ‘Time to panic about the housing market; Why is everyone ignoring this unfolding disaster?’, by Tamsin McMahon, Macleans, 28 Feb 2012
The entire article is a ‘must-read’. Startlingly bearish for such a prominent, mainstream publication.
This issue’s cover was previously archived here.
“Here in Canada, we patted our backs for not falling into the same trap, and basked in the spotlight as the world’s new beacon for financial stewardship. It’s a compelling narrative that has been promoted by the federal government and the Bank of Canada as they encouraged Canadians to spend their way through global economic turmoil.
But pry through the pocketbooks and bank accounts of the average Canadian and the country looks remarkably like the America of 2005—or even worse by some measures—complete with record house prices and unprecedented debt.”
“Since 2008, Canada’s ratio of debt to after-tax income has exploded. By the third quarter of 2011, Canadians owed an average of $1.53 for every dollar they brought in, up 40 per cent in the past 10 years and just below where the U.S. was before its housing crash. By the end of 2010, the average homeowner had just 34.3 per cent equity in their home, the lowest level in two decades and a 20 per cent drop in just four years.”
“There’s also a sharp rise in home ownership rates, which at about 68 per cent of Canadians mirrors closely the 69 per cent at the top of the U.S. bubble.”
All of the dots are laid out so obviously now, but it’s still extremely painful for most to draw the logical conclusions.
People ‘know’ that this is a bubble, but they refuse to really accept what that means.
Fantasies of mild pullbacks satisfying the ‘bubble gods’ abound.
Speculative manias only end when the excess is wrung out, when prices drop to levels supported by fundamentals, and, usually, there is overshoot to the downside. For Vancouver RE, this means price drops of 50%-66%, perhaps even more.