BBC – “Will Canada’s housing bubble burst?” – “We want our home, we want to plant our feet”; “A bubble driven by psychology and cheap credit.”

“This [Toronto] suite is currently listed for 2 million one hundred thousand dollars.”

“Amy and Chris Poole are looking for a more modest place in Toronto. They are currently living in a small furnished rental with their 2-year-old daughter.”
Amy Poole: “We want our stuff, we want to unpack our belongings, we want our home, we want to plant our feet.”
Amy and Chris have lost out on 4 offers and backed out of 3 others. They say competition at open houses is so intense they’ve seen things get physical.”

“Most economists agree that real estate values will almost certainly be higher in 20 years, so for a young couple looking to invest over the long term there’s really no bad time to buy, that is if there is something they can afford to buy.”

“[According to that argument] Toronto is the tortoise that has caught the hare, with real estate prices now in keeping with cities like New York and San Francisco.”

“But David Madani, of Capital Economics, isn’t so sure Canada can rely on slow and steady growth.”
David Madani: “We essentially think it’s a bubble, we think the market is being driven by psychology and being fuelled by cheap credit. So the market is borderline irrational. We see the sharp run-up in house prices relative to incomes, we see the run-up in household debt which is now just as high as it was in the United States, we see the same run-up in the home ownership rate, and finally we see the overbuilding.”

BBC, 22 May 2012

A measured and only slightly cautious piece. But this is the BBC and we don’t expect histrionics.
Interesting in a few ways.
Despite the state of the markets, we still have the urgent buyer psychology.
Again, we have cautious commentary from outside of Vancouver. Every time this happens we are painfully aware of the lack of bearish public voices from within our city. We’re apparently living in a zone of relative silence.
We agree completely with Madani. “A bubble driven by psychology and cheap credit.” Exactly. We would have added low rental yields as a more important fundamental than overbuilding, but the case is the same.
– vreaa

38 responses to “BBC – “Will Canada’s housing bubble burst?” – “We want our home, we want to plant our feet”; “A bubble driven by psychology and cheap credit.”

  1. The rental-yields issue is a big one in Toronto too. YOY increases in the average rent in Toronto are tiny (under 2%) while condos are going up by 7-8% per year. Investor participation in the downtown Toronto new condo market is estimated to be around 80%. No-one is making any money on their units unless they bought five years ago or put down 50%.

  2. confirms the view I’ve been holding for a long time now – that YYZ and YVR are WAY more expensive, proportionately, than London. Can’t last, as simple as!

    • I like the guy who starts comparing Toronto to London and New York, then sorta goes all like I suppose it could happen but i’m not seeing it. He sounded pretty frustrated and annoyed with the comparison, in a Canadian way.

  3. Should include, vreaa:
    “Most economists agree that real estate values will almost certainly be higher in 20 years, so for a young couple looking to invest over the long term there’s really no bad time to buy, that is if there is something they can afford to buy.”

    My brain is full of f*ck.

    • Agree, will pop it into the post, thanks.
      Some of the middle bit so familiar couldn’t bear listening twice…

    • Yellow Helicopter

      This quote makes me irrationally angry. Arrggg!

    • perhaps was disclaimer_insert in order to attain broadcast status … for the informed, preface: most_economists_agree –> bs_alert … hey, bulls vs bears by their tie colors – yay!

  4. You’re all forgetting that this is the BPOE, and we have an endless and rising stream of wealthy immigrants banging at our door. Unlike selfish, superficial Canadians, these folks value their families, so they buy homes instead of renting. Also, they’re not building any more land, don’t you know? I mean really, what else is there to it? Hurry up and get your RE groove on, or be priced out forever.

    • From the Sideline

      While this may be the best place on earth, your arguement is weak.
      Wealthy immigrants don’t have to work, and good economics of a city keep the value of RE up in tough times as you can’t depend on people who do not yet live here for expected growth. They are also smart with their money and won’t be investing once the market shows a guaranteed loss.
      Canadians do value their families, but unfortunately many have listened to RE agents like yourself and gotten drunk on free money.
      Local spectulators have borrowed money against borrowed money expecting to be able to rent out studios for $1300 a month in the future. Local young speculators like yourself who have never seen anything but profit from RE are about to see what’s up.

    • You’re SO right! We’re SATURATED – no SUPERSATURATED!!! – with immigrants who love their families so much they spend any amount of money to provide them a home. Not like the US where the immgrants are family hating losers. I mean YVR is growing at almost 1% per year!!!

    • I moved to here 15 years ago and saw about 80% of my friends (and I had lots of friends, and they are very wealthy in Canadian standard) went back to Asia due to lack of good job and expensive living in Vancouver. Most of their parents don’t live here, again, due to high living cost and lack of good jobs. My friends value their family, just like Canadians, so they went back to be with their family for a better future.

  5. 4SlicesofCheese

    “The high costs are driven by a perfect mix of record low interest rates, LACK OF INVENTORY and a stable economy. ”

    “The city is also home to more high-rise building projects than any other city in North America. ”

    Um what?

    • Lack of inventory in the detached / semi-detached segment, for sure — this is a major driver for prices here. When it comes to high-rises, demand is driven largely by investors, so it’s hard to make a comparison.

      • 4SlicesofCheese

        Population has been fairly stagnant so not sure what is the cause of lack of inventory compared to similar sized cities elsewhere. Vancouver and Toronto are different?

        The average price/sq ft for condos is still completely out of wack regardless of the state of detached.

  6. Marc Faber interviewed this week and talks on the subject of Canadian real estate overpricing. His specific comments start at 12:30.

    • hah! haven’t been to howestreet in ages … when did danielle park start doing these? … needs ear-ring to be more like mr. clean … sharp, maybe black shirt instead though … d, eric king newsworld also source of like interviews w/ less noise, if you’re not there already

  7. I thought I’d share something that happened at my CIBC branch today. I noticed that every single teller had a large flyer on the desk in front of them with “Are you a renter? Are you tired of paying off your landlords mortgage? Are you tired of paying more for rent than a mortgage payment? etc etc”.

    To top it off, before leaving the teller asked me if I would like a mortgage…
    I said “no.”
    She said, “are you sure, we have great mortgage products here that can save you a lot of money and help build equity.”
    “Really, no.”

    First time that has ever happened to me in a bank, pretty disturbing in the midst of what is happening here to have that kind of push to a semi-random person walking up to a teller.

    • Tellers receive bonuses based on “products” they are able to sell – just like clerks at the Bay trying to convince you to sign up for a credit card. The Bay clerks get, so I’ve been told, $15.00 per customer they sign up – I have no idea of the percentage tellers get for flogging mortgages or RSPs.

      • I think the teller’s reward for successfully pushing mortgages, HELOC, credit cards, etc is – not being fired! They have some crazy quotas and failure to fulfill those quotas means no bonus and on the chopping block pretty fast. Lots more to take their places…

      • I used to work at The Bay as a sales associate and I can confirm we DON’T get paid for signing people up for the HBC credit card.

    • 4SlicesofCheese

      I was just at CIBC and was tempted to ask the “advisor” I was talking to about his take on the housing market, but I already knew the response so I didn’t bother.

    • They wouldn’t dare do that to me at TD. If so, I would close my account immediately and walk to their competitor. How dare any bank push a mortgage on their customers at this point in the housing crash cycle. Irresponsible.

  8. directly from today’s Georgia Straight…

    • Priceless. Or is that ‘Bidless’. 😉

      • bernanke testing new strategy variants …

      • It amazes me that the psychological effect of these types of images and stories (MacLean’s, G&M, etc.) hasn’t had a greater effect.

      • allen, look up monkey traps … why can’t they just let go? … it’s PERFECT … and if you thought thought the consequences of regular folks getting hooked on the easy credit juice was bad enough, apply that same logic govts and you begin to appreciate the scale of what’s coming

      • At least the poor Monkey will only lose a hand. 🙂

    • little pink houses for you and me

      • When you can’t afford to keep the StreetLights on… a few Doggies are the least Ben can do, Chubster.

        For the record, ‘Nem’ is a MotownSouth refugee… with StrongTies ThatBind on the other side ‘o TheAmbassador…

        Truly, it looks worse now than it did in ’67/’68… No s**t.

        Aside, ‘Nem’ knows what it’s like to behold Manhattan from TimeLife’s Avenue ‘O TheAmerica’s best CornerSuite. LongElevatorRide. BetterView. GreatPlaceToWork. StrangePlaceToLive.

        We always went ‘Greek’ for BreakFast. Sigh.

      • bonus – only just realized it’s long weekend … anyways, here a v-town exile turned mostly_left_coast_commuter … what does this remind me of? … oh, that’s right …

  9. unbaleebaba …
    ps. sir_nem, OT follow-up on yesterday’s hot dog thread in comment_purgatory … seemed to have acquired an eye for hotdogs, donuts and chinese oddities lately

  10. Nemesis:
    I’ve lost contact info…
    Contact me if geothermatherapy is desirable, or just a meet-up when ST coordinates coincide.

  11. Id never really thought much about the idea that in 20 years real estate probably will be worth much more than it is today, even in this bubble. Obviously wages would increase too so its not the same but still something to think about. Its like in the art world. 20 years ago a rothko sold for 80 grand and people were shocked at the price, last week it sold at sothebys for 80 million.

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