“I’m American and planning a move to Canada and believe me, I’ll rent. I’ve seen this movie before. How some people keep saying that “it’s different this time” boggles the mind.”

“I’m American and planning a move to Canada and believe me, I’ll rent. I’ve seen this movie before. Record debt levels, low or zero down payments, long amortizations, prices screaming past any kind of wage growth, and absurd moral hazard conditions with the lending industry (everyone in Canada seemingly thinks that all the loans given out to people who couldn’t afford them in the US were perfectly within the rules, but that wasn’t the case, the banks just turned a blind eye and faked it during a period of “irrational exuberance”), just every factor in Canada seems to be what you’d see right before a crash.

I live in Boston, a very well protected city during the recession due to our medical, scientific, and educational economic core, and in particular, I live in a very posh area where no one defaulted and there weren’t any financial problems during the depth of the crash/recession, nevertheless, my condo at the low point was about $100K off from the high point. (My place dropped by about 1/3 at the low. EVERYONE got slammed.) If I would have sold when I saw the warning signs here (about 2007) I could have rented the exact same unit a floor above me and still be more than $30K in the black if I would have rented this entire time. When a correction hits, it hits everyone across the board and overshoot. People who think that only TO and Van will be effected are wrong. I’m planning to move to Sudbury, ON, a relatively remote place with limited economic opportunity, limited amenities, relatively low income levels, cold weather, and infrastructure problems, nevertheless, the prices there have probably doubled or more over the last five years. Just like in the US, if you give people access to cheap money, they spend it, quickly. And as to foreign investment, we had more then you do and those areas are some of the hardest hit because those foreign investors pull their money at the speed of light when things tend to go south.

I love Canada, I wouldn’t be moving there if I didn’t, but Canada has let itself go down the same path as the US and it kills me. Why so many Canadians look over to this side of the border and constantly tell themselves that they’re better is beyond me given that you keep repeating our history over and over again, be it a housing bubble, or torture, or bills which strip away privacy, or “tough on crime” legislation which has no effect other than to bankrupt the taxpayer, just on and on. How some people keep saying that “it’s different this time” boggles the mind.”

– this comment by ‘farrelli77’ at Globe and Mail 23 Feb 2012. 115-net ‘thumbs up’ at last count.

18 responses to ““I’m American and planning a move to Canada and believe me, I’ll rent. I’ve seen this movie before. How some people keep saying that “it’s different this time” boggles the mind.”

  1. Nations are figments of the peasant’s imagination. Bankers call borders ‘cattle guards’.
    Welcome, btw.

  2. Agreed. Some of us Cdns have our heads on straight- no debt, renters and ok with that, bit more of a European mentality in that it’s ok to be middle-aged and rent (esepcially in Vancouver!). The smugness of some people here, that it can’t happen… wow. It’s going to be one hell of a ride.

  3. That smugness seems to arise from a sense of invincibility. What so few realize is that you don’t have to make any error in judgment on a personal basis for real estate markets to turn against you.

    If your neighbors screw up, that’s good enough. Equity falls for all when the local prices go into decline.

    Far too many seem to think they made a brilliant decision in buying a home that increased in value. All BS. As if they did a lot of hard work. Delusional of course. There was no brilliance to making money (or large equity gains) by owning real estate during the past 10 years.

    A monkey with a dart and a map could have done just as well.

    That smugness will evaporate soon enough. As soon as people realize home prices can decline just as relentlessly as they rose. And for no other good reason than most of your neighbors could not control their lustful credit binging ways.

    • These pretzels are making me thirsty

      Truth be told..
      There seems to be this undercurrent of insecurity which translates into smugness and oft repeated refrain about being different or at least being better than the American.
      Americans or most other countries do not really care

      I have never seen so much chest-thumping about a city hosting WINTER Olympics. People do not even realize how ridiculous it sounds to the rest of the world.

      • That’s not surprising at all. Canada is mad for winter sports. Do you expect us to be all “whatever… no big deal”?

      • These pretzels are making me thirsty

        “That’s not surprising at all. Canada is mad for winter sports. Do you expect us to be all “whatever… no big deal”?”

        I do not see people in Salt Lake city, Nagano or many other cities that have hosted winter Olympics (I do not think that a vast majority of world can name 5) make a big deal out of it or start calling themselves “world class” city. Not even Calgary, which is a Canadian city.

        Vancouver is special. All hat and no cattle !!

  4. So far it hasn’t happened yet. I’m starting to wonder if it is different here…

    • Of course it is. Where else would that insanity last so long? And where else will the burst be as painful as here? Where else will we have such a good chunk of population losing most, if not all, of their equity in a very short period of time?
      Yes, Vancouver IS different. The entire world will say: what were they thinking? We’ll become famous again, but for something different than the olympics or the riots…

    • A recent children’s figure skating performance at Sunset brought in an inordinate number of BMW, Land Rover, and Mercedes. I watched it all while sorting through garbage looking for cans for deposit.

      This City is different all right. The kicker was the 7 series Bimmer double parked at the entrance. Any other town I’d say it was a drug deal.

  5. Yes mommy2, it has happened. The trend is in place in cities all across Canada already and some in BC are well ahead of the curve. This will migrate to Vancouver too in time. Sales to listings (as just one example) tell us the change is here now. Unfortunately, once a new trend is established (declining prices) it does not usually change course again until the cycle is complete. I am not referring to monthly or weekly gains or losses here but a secular change in asset consumption behavior and attitudes towards credit itself. That is what is changing and we now have little defense against the outcome which typically manifests in falling demand, rising supply and price declines accompanied by lower levels of consumption and rising unemployment. This will take years to work through. Certainly no fewer than the numbers experienced by our American friends and we do need to keep that in mind. Real estate cycles are long. The charts might mirror those generated by any other stock or bond but the time period is almost always spread across years. The correction is already here Mommy2, you just do not recognize it for what it is….yet.

  6. Flaherty and Carney warning about household debt? Don’t worry say the Sun. They know better of course…

    Debt-service ratio of 7.5 per cent suggests crisis talk overblown

    However, debt-to-disposable income is a flawed measure. In strict accounting terms, debt is a balance sheet item while disposable income would be found on the income and cash flow statements. This ratio compares apples and oranges. Besides, no one expects to pay off all outstanding debt with one year’s income.

    Roughly 80 per cent of Canadian debt is mortgage debt. On average, Canadians have 70 per cent equity in their homes. Americans had 45 per cent equity before the housing debacle.

    Since mortgages account for the lion’s share of Canadian debt, it makes sense to assess risk based on whether homeowners’ earn enough money to comfortably carry their mortgage debt.
    The danger zone for the debt-service ratio is 40 per cent and above; prudent lenders accept nothing beyond 30 per cent. But the estimated aver-age debt service ratio in Canada is far below either of these. It is – and you might find this hard to believe – 7.5 per cent. Craig Alexander, chief economist at TD Bank Financial Group, cited that figure in a radio interview Wednesday. So much for the crisis. Talk about the facts getting in the way of a good story.

    Clearly, the low debt-service ratio is a factor of abnormal interest rates – a temporary state of affairs. Nevertheless, economists warn that when interest rates rise, household bud-gets will be squeezed. Maybe more of a hug than a squeeze: If interest rates rise by one percentage point, the payments on a $200,000 variable rate mortgage will increase from $958.86 at the current rate of 3.1 per cent to $1,066.75 at 4.1 per cent.

    I like the $200K mortgage part… really entertaining.
    I would also love to read his articles once the shtf…

    • “I like the $200K mortgage part… really entertaining.”

      Yeah I guess he missed the story about the $600k basement suite sale. But he’s spot on if referring to buying the Porta Potty behind the lane house during the renos.

    • A 200k mortgage in California wouldn’t that be nice for a regular 3/2 house in… 1980 it was possible with double digit interest. And inflation ahhh the good old days …sigh

  7. Thanks Makaya. Seems Author Harvey Enchin has not done his homework. I am noticing this more and more lately. The basic idea gets delivery but the facts and percentages are all screwed up.

    Where did he get the number for typical US equity of 45% prior to 06?

    According to the Canadian Bankers Association (CBA), Canadians with mortgages currently have 66% equity in their homes while 68% of all household debt is mortgage debt and more than two thirds of us pay off all our credit card obligations each month.

    Who knew? I am guessing that the CBA has better data than the Vancouver Sun but we will do a little cross checking later to be sure of ourselves.

    As far as the argument against the debt to disposable income measure goes….what can we say? The measure is very common now and it is used to make comparisons between provinces and countries in order to draw conclusions regarding the strength of the consumption economy.

    Harvey got confused by failing to appreciate why we compare gross debt and net income in the first place. It is not apples to oranges at all. The figure gives us a representation of buying power and the ability to reinvest in the economy as the future unfolds.

    Maybe the Vancouver Sun should stop paying minimum wage for articles.

    • Harvey Enchin wrote a brainlessly reassuring column in the fall about what it costs to own a SFH, and why it costs no more (or hardly more) than renting. His worksheet included around $1000/year for upkeep of the house. I guess he has a paint/gutter/roof/drainage/plumbing/furnace/window fairy for the big jobs that have to be amortized over years. Zero credibility. When the day of reckoning comes, he will stand in the stocks.

  8. Scanned globe comments but could not find. Why move from posh Boston to Sudbury? Wtf.

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