Tsur Sommerville, Time Machine – “Let’s not let the housing market be driven by a wave of cheap and easy-to-access money.”

While Canada’s banks are tightening lending standards in a move to avoid a U.S.-style housing correction, experts say Vancouver’s robust housing market isn’t expected to face a severe price correction.
Canada’s banks are in talks with the federal government about ways to curb mortgage lending in response to a “genuine concern” about the country’s housing boom and rising consumer debt levels, said TD Bank chief executive officer Edmund Clark.
“Household debt numbers are coming up to U.S. levels, so that is causing us a concern,” said Clark.

Although the Vancouver housing market may be out of equilibrium, a significant correction is not expected, said Tsur Somerville, director at the University of B.C. Centre for Urban Economics and Real Estate at the Sauder School of Business.
“I think there’s some concern that prices don’t get so far out of whack that there’s a substantial correction,” Somerville said. “All you have to do is look around and you’ll see that if [a substantial correction] does happen, that would be a real big problem. So let’s not let the housing market be driven by a wave of cheap and easy-to-access money.”
The Bank of Canada is trying to reduce the exposure to mortgage debt and put the brakes on the housing market without using “really, really big hammers,” like raising interest rates, Somerville said.
“The government has already taken steps to control mortgage lending through its regulations and I think there’s a wariness about tightening those too much, so they’re encouraging the banks to look at their mortgage book more closely.”

With immigrants still streaming in from China and elsewhere, and the city frequently rated one of the most livable on the planet, most experts see prices fizzling rather than imploding with a bang.
Vancouver price rises peaked at a stunning 19.8 per cent in 2006, dipped in 2009, and came roaring back with double-digit growth in both 2010 and 2011.
A house bought for $500,000 in 2001 would have fetched about $1.2 million a decade later, based on average price changes.
But the latest month-to-month figures show Vancouver prices fell in five of seven months from last June to December, including drops of more than 5 per cent in November and December.

– from ‘Vancouver’s housing market unlikely to face significant price correction: expert’, ‘Bloomberg, Reuters and Vancouver Sun’, 10 Feb 2011 [hat-tip MM]

“Let’s not let the housing market be driven by a wave of cheap and easy-to-access money.”
Well said sir! — if you’d made that statement 7 years ago, that is.
To hear this said now, suggesting we shut the door after the very last of the frail and decrepit horses have been dragged and shovelled out of the proverbial stable, is just simply beyond belief. “Cheap and easy-to-access money” is precisely what has driven the Vancouver housing market, since as far back as 2003 and very definitely since 2006. Thirty, 35, 40 year mortgages; ‘Emergency’ low interest rates; Very low down-payments; Cash back offers; No-income-verification loans; HELOCs as down-payments; Mispriced insurance care of CMHC; etc. Cheap money and easy lending is the stuff of which our bubble is blown.
The Vancouver RE market is, first and last, a speculative mania driven by locals overextending themselves with cheap borrowing. When it turns, there will be nothing but fresh air between these price levels and those supported by fundamentals, far, far below.
And, yes, that will result in “a big problem”.
– vreaa

Out of interest, here is a page from the UBC Centre for Urban Economics and Real Estate at the Sauder Business School website:

41 responses to “Tsur Sommerville, Time Machine – “Let’s not let the housing market be driven by a wave of cheap and easy-to-access money.”

  1. Lovely commentary, VREAA. Sir Tsur is as full of hot air as the RE bubble he perpertually claims doesn’t exsit.

  2. I don’t think I’ve ever seen a bigger publicity whore Tsur but it seems like even the most die-hard RE-pumpers are changing their tune. Now instead of “we-live-in-the-BPOE-and-everyone-wants-to-live-here-and-RE-only-goes-up” we hear “we-live-in-the-BPOE-and-everyone-wants-to-live-here-and-RE-is-not-going-to-go-down”. Wonder how long this will last before the “we-live-in-the-BPOE-and-everyone-wants-to-live-here-and-RE-is-only-going-to-go-down-a-little” starts. Personally I cannot wait until I hear “we-live-in-the-BPOE-and-everyone-wants-to-live-here-so-how-can-RE-be-down-50%”.

    Great find on the Sauder sponsors VREAA. Very illuminating. It seems like the RE-industry is all pervasive…kind of like a bad smell.

    • What’s up with the BPOE thing? Is that an actual saying in Vancouver or is it an inside joke? I don’t live there so I don’t get it.

      • These pretzels are making me thirsty

        Its true..the BPOE reference
        I have lived in some good and great cities in NA and have been in Van for only about a year.
        The delusion, self-gratification and sense of entitlement here is mind boggling.

      • These pretzels are making me thirsty

        BTW..BPOE stands for “Best Place on Earth”

      • You are kidding right? Like in Starbucks for coffee that is what people say? How about “Big Pile Of Ego”. Much more fitting. OK. I know that was juvenile. I am getting kicked off the site for sure.

        By the way, did Sherry Cooper sell her house yet? She missed the top by more than six months. That proves she is human you know. Some of you people will have to take back your words from before.

        Now I have to come up with something for BMO. Give me time.

      • And get THIS.

        I just read that BPOE is actually written on your BC license plates.
        Is that true? What a goofy province. Next year it will be BDOE (Biggest Dorks on Earth) as they try to live down the shame of being the major economic losers in the great real estate carnival on planet earth.

        And to think some of those fools held out for higher prices. BDOE!!!!

  3. I’m sure Tsur is unloading his RE investments now.

    Btw. Get selling NOW, if u need to sell your East Van home. There have been greater fool sightings as inventory is low for sfh.

  4. So funny! And the scary thing is that this guy is a professor of business and to many people are listening to him.

  5. Renters Revenge

    Why is Tsur the only “expert”? This is just such awful reporting. The media should have some culpability here with this kind of irresponsible drivel.

  6. They should put up the heading on their sponsor page…
    “No conflict of interest to see here, now go buy some real estate already.”

  7. I wonder what he will blame the coming implosion on.

    • Who knows, but you can be sure it’ll be described as “surprising” and “unexpected”.

    • Actually, we can guess with some confidence that the coming implosion will be blamed on an extraneous event of little consequence that has some superficial persuasiveness about it.
      Why does a 500 ton granite boulder perched on a cliff eventually fall off?
      A breeze? A raindrop? A butterfly?

      • Agree. I was in the US as it collapsed. So much collateral damage. Whether you hope for a major price correction of not, I believe it is inevitable now and so many Vancouverites will be hurt. Just sad.

      • john mf'ing galt

        its actually funny

        vancouverites are idiots

        at least, the ones who live here now are, anyways

        fuck em

        and their hipster trash or Jersey Shore/UFC watching offspring

    • The poor people who can’t afford a 2 million dollar house. Didn’t they leave?

    • I am still confident that after both the “bubble” theory and the “balloon” theory have faded away that most people will agree my “condom” theory is actually the most fitting metaphor.

      Like damned fools who tell me that a soft landing is coming are equally correct that their wife is only partially pregnant. Soft landings as most of us know do not exist. Not when GDP is this close to the wire.

      If anyone is not already aware, a hard landing is one that results in a recession and negative growth. You know, the same kind of growth that follows the bursting of a condom. It happens just seconds after the “oh crap!!” moment when you wished you were with your actual wife when it burst. Sorry Honey. Oh Oh.

      See why I am right now? Balloons are for Bankers. Much thicker.

  8. Comic, awful, and telling, that sponsorship page.

    Loved the “Too Late” graphic as well.

    Does it strike anyone as ironic that the RE industry is all-powerful here and yet so few people can find decent, affordable places to live?

  9. Someone out at UBC should really question whether this kind of sponsorship of research should be deemed a conflict of interest and ethically questionable, especially given that his salary is paid for by taxpayers!!! This really makes me furious!!!

  10. I don’t know whether to laugh or cry. The guy has zero credibility, and the media even less.

    There are so many things wrong here:

    1). That this article passes as balanced reporting
    2). That Tsur is in such a blatant conflict of interest
    3). That a publicly-funded university disseminates such nonsense
    4). That such a concentrated collection of interests influence our schools and the public discourse
    5). I could go on, but am feeling nauseas…

  11. My bet is the directive from the Department of Finance is that credit growth must wane. That is quite different from letting the market correct on its own after changing CMHC policy levers. There is most likely direct and constant oversight of bank loan portfolios.

    Something to watch for the remainder 2012. I don’t think it’s obvious yet but there’s a good chance banks are going to tighten access to mortgage loans and they’ll be tightening some loans more than others. One might guess what type — and where — these might be.

    • I wonder if this is the case, access to credit is obviously key to a healthy RE market. How does one go about gauging what is a sustainable amount of credit to issue for a particular market? Too much you end up in boom, too little you end up in bust.

      • The best way of making those decisions is a true free-market concerning credit risk… Let the lenders accept all of the benefits, and the downside risks, of the loans they extend. That way the lenders would have great interest in attempting to accurately analyze the market, as well as each borrower’s capacity to repay the loan. It’s not a perfect system, but it’ll be as good as we could get. Bubbles would be less common. The current system contains moral hazard… banks get the upside but are systemically insured against downside.

      • Perhaps that is the solution we will see come budget day if the government limits its exposure to further mortgage risk and shifts some of the burden back on the banks. They have had a free ride so far and have plenty of latitude to continue extending loans with guarantees. And where else will they do business anyway if they walk away on mortgages in Canada? The US perhaps? They will sure be welcome there. I hear credit is just about as short as creditworthiness.

  12. Is Sommerville still talking like an idiot about Real Estate (again)? I cannot honestly believe that a person with his education, privilege and authority in our system can espouse such fluff. He knows the charts. He has access to better data than most and yet he continues with the childish viewpoint that any damn fool can see is wrong. The guy knows better and knows too the strong contrary opinions of respected economists in this country (including those in the banking sector) and so I assume he is being misleading by choice. That is as charitable as I can be tonight.

  13. This reminds me of Bernanke’s admission the other day that the US economy might have to recover without a complete housing market recovery. It took him six years to realize that perhaps, just maybe, the housing market should be a product of the economy, and not the other way around.

    Had Bernanke made that comment five years ago, it would have been entirely relevant and correct. To say it now, as though it were some sort of revelation that just occurred to him, makes him sound positively dense. Tsur Sommerville’s utterings make him sound equally obtuse. It just goes to show you, some very successful people really do let their schooling get in the way of their education.

    • Judge for yourself based on who the Advertising sponsors of the Sauder School site are (see links above attached to the article). These are Polygon Homes, Canadian Home builders Association and the Greater Vancouver Home Builders Association for three. Gee, I wonder if any of them have an agenda to promote or an economic interest in real estate?

      I am sure I am mistaken in thinking that Mr Sommerville would be influenced in any way by those big companies. Let alone by advertising sponsorship, for surely that is ridiculous in this day and age where transparency is the name of the game.

      Is he not independent? We assume so. And who are those big outfits anyway??!! Just business’s. And what about independence of the education system and teaching that is non-biased an open to all?

      We all believe in that, right? Did I mention the Candy canes or Unicorns yet?

  14. Overall, prices were still up last year by about 5%. I used to be a hardcore bear but I changed my mindset this year in the hopes that in doing so I would witness an actual price collapse, (that seems to be the way my luck works). Somehow, I still get the feeling we won’t see any dramatic change happen this year either, just like the last 5 + years we were told things would implode.

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