Christian Science Monitor – ‘Canadians Still Think Real Estate Has Nowhere To Go But Up’ – “I would say prices are hyperinflated. But for the price of housing to go down in Toronto, that I can’t see.”

Actor and broadcaster Jeff Douglas says he knows there are “more responsible” things to do than take on a mortgage he will likely have to pay until he turns 70.
But that didn’t stop him and his wife, interior painting contractor Ana Maria Diez, from charging headlong into the battleground that has become the Canadian real estate market.
Mr. Douglas and Ms. Diez fell in love with and purchased a 1,300-square-foot duplex in a middle-class west Toronto neighborhood last month for $632,000. Like an increasing number of Canadian buyers, they sealed the deal after duking it out with several other couples who also wanted the house. They placed no conditions on their contract and finally paid 112 percent of the original list price of $555,000.
“It was one of the last houses I think we’d have a shot at because the price of houses in Toronto goes up every week so it was definitely a now or never situation,” says Douglas. “At $625,000 ($632,000 inUS dollars) we feel like we got a bargain.”

Douglas and Diez may feel lucky. But house purchases like theirs are increasingly fueling concerns that, like their American neighbors a few years ago, Canadians are spending themselves into financial disaster.
“What we are seeing is the irrational exuberance that was present in the US,” says David Madani, a former Bank of Canada analyst now with the consultancy Capital Economics. “It has all the symptoms of a disaster waiting to happen.” …
Although buyers seems convinced that real estate prices can only go up, Mr. Madani, along with the International Monetary Fund, the Economist magazine, and various independent and bank economists, warns they are already overvalued by as much as 25 percent.

“If credit tightens tomorrow, the game is over,” adds Ben Rabidoux, an analyst with the US real estate market research firm M Hanson Advisors and the author of the website The Economist Analyst. “I think we will see a decade of stagnant returns and a stagnant economy.”

Still, Toronto real estate agent Melanie Piche says she expects real estate prices to continue rising.
“People see their friends, how much money they have made in real estate,” she said. “And there aren’t a lot of safe places to put your money right now. Where else can you make 10 percent?”
Jeff Douglas agrees, and said he thinks of his purchase as an investment, similar to buying into the stock market.
“I would say prices are hyperinflated. But for the price of housing to go down in Toronto, that I can’t see,” he said. “Simple supply and demand dictate that as long as the city continues to grow, there will be a demand for housing and that will keep prices up.”

– from ‘Canadians Still Think Real Estate Has Nowhere To Go But Up’, The Christian Science Monitor, 29 May 2012

“One of the commenters for a G & M article today accused housing bears of being “unpatriotic”. Because a housing correction is bad for the economy, therefore to hope for a correction is anti-Canadian.”
crankycorvid at VREAA 30 May 2012 7:59pm

Hey!.. who do these guys think they are at the Christian Science Monitor (and the IMF, and The Economist, etc, etc) dissing us Canadians for patriotically supporting our RE bubble in the face of all common sense?
Almost makes one want to drop interest rates further, or go on a rant about health care & immigration & BPOE, or go out and buy a six-pack of condos, just to give the market a boost and show them they’re wrong.
– vreaa

[PS: “Hope” doesn’t come into whether we have a “correction” or not.
Once a speculative mania runs rampant, the collapse is already built in, regardless of what various participants desire.

46 responses to “Christian Science Monitor – ‘Canadians Still Think Real Estate Has Nowhere To Go But Up’ – “I would say prices are hyperinflated. But for the price of housing to go down in Toronto, that I can’t see.”

  1. Word. The mistake is to think current prices are normal and sustainable. I can be reasonably confident they are not.

    The government has been shrewd in its handling of this crash. A Conservative minister will say were were told — and we were — and the Bank of Canada has been warning on household debt for a while now.

    Won’t prevent many from screaming murder. Dealing with addiction is hard.

  2. Readers may know Jeff Douglas as one of the co-hosts of “As It Happens” on CBC Radio.

    In any case, the idea that prices go up every week in Toronto is a bit ludicrous. The market has softened a lot since the early spring. Whether this is just seasonal or something bigger, places that would have gone in multiples back in April are now sitting on the market or only getting single bids.

    • Hope he’s paid well, because his wife’s interior painting business is going to disappear in a housing crash.

  3. In addition to Bill C-150, another trick the government used to slay the fertility rate beast back in 1967, was to merge the Armed forces. Bill C-243 came into effect February 1st 1968. This contentious bill divided loyalties. It made a military career risky for supporting huge families. Of course, this was the plan all along.

  4. relatedness = how about this instead of a laneway house or garage? …
    “Flush Japanese city builds world’s biggest toilet – Ichihara City says its 10-million-yen open-air stall will draw tourists like flies to … ”

  5. Anticipating an imminent spike in the ‘Repo’ market for high LTV YVR condos one savvy Italian furniture designer has come to the rescue of OverExtended TwentySomething CubicleCommandos EveryWhere… [NoteToEd: for only slightly more than the fabled YVR DogHouse – at last, a frugal alternative to renting with recreational possibilities]

    [BloomBergBizWeek] – Office Upgrade: The Pullout Desk-Bed

    “Some of these guys work 20 hours a day. I can see a lot of applications,” says Barth [Though sleeping in the office really can cut into time at home].

  6. After winning the Stanley Cup in 1962, 63, 64 and 1967, Toronto became the barren queen. After 1967, the NHL diluted their teams by 100%. It was Montreal that had the most success initially, courting the new maidens.

    Apologies for abstracting things a little much here, but Toronto was mentioned, and I can’t resist comparing high Canadian fertility years with TO Stanley cups, and the dearth, thereafter.

  7. “If credit tightens tomorrow, the game is over,” adds Ben Rabidoux, an analyst with the US real estate market research firm M Hanson Advisors and the author of the website The Economist Analyst. “I think we will see a decade of stagnant returns and a stagnant economy.”

    it’s the immigration stupid.
    Remove the tens of thousands that move to Toronto and Vancouver every year and I fully agree with Radidoux

    • People have a great deal of trouble buying assets that are falling in value, especially when they are falling from heights far, far above those merited by fundamental value.
      Immigrants are no different.
      We suspect you’ll be surprised by how good they are at making other plans as the mania unwinds.

    • Read Rabidoux’ website. If the increase in house prices are really due to all that immigration, why are rents basically flat?

    • 4SlicesofCheese

      You mentioned earlier to look at sub 900k market in East Van as a sign of how the market still has life, who do you think are the target market for those areas?
      The typical HAM territory (West Van, Van West, Richmond) are taking a beating in sales and price.

      And name calling, thats just pathetic.

  8. Toronto real estate agent Melanie Piche says she expects real estate prices to continue rising. “People see their friends, how much money they have made in real estate,” she said. “And there aren’t a lot of safe places to put your money right now. Where else can you make 10 percent?”

    Realtors who think they are financial advisors, and buyers who don’t know that “past performance does not guarantee future returns”.

    So sad.

  9. In my defence (I’m the Melanie Piche referred to in the article and the comment), I was actually responding to a question about why people get caught up in bidding wars and continue to buy even though the media is warning of a crash. My point was that people are spooked by the stock market and are watching their friends’ real estate assets appreciate, so they want to get in on the game. I certainly wasn’t giving financial advice. And in that 45 minute interview that was condensed into 1 sentence, I said that I expected prices to soften but not go down: 1-3% price annual increases would be much better for everyone.

    • Melanie -> Thanks for the comment.
      Did you say to the reporter: “Where else can you make 10 percent?”?

      BTW, 1-3% is not a ‘softening’, it would be the expected normal longterm appreciation on housing at current interest and inflation rates. (see Shiller et al).
      For Canadian RE to revert to such a longterm mean appreciation rate, it’ll have to correct severely first. About 25%-30% for the nation, about twice that for Vancouver (and, we’ve heard, some Toronto sectors).

    • 4SlicesofCheese

      Fear and greed are by far the worse things that should motivate you to make the biggest investment in your life.

    • Hi Melanie,

      Thanks for clarifying. My first impression from that snippet was that you were encouraging people to “get in on the game”. If that is not the case, and that you are simply observing that people want to “get in on the game” of their own volition, then I apologize.

      In any case, the conclusion seems to be that there is no shortage of momentum/lemming buyers who are tempted to buy, not because it is a sound financial decision, but out of envy of the people who bought several years earlier.

    • “1-3% price annual increases would be much better for everyone.”

      A 1-3% PA increase from here requires debt accumulation above what the Bank of Canada is comfortable with. ACBs go way up from here unless prices drop.

      (As a sidenote, not all prices are going up… in BC)

    • Melanie, yeah it’s not uncommon to have a long conversation abridged to a few quips. That’s the nature of journalism these days. Remember it when hearing experts give their opinions on the News at 6! It could be their views are a bit more nuanced than how they come across.

      If I might say so, “getting in on the game” seems like a systemic problem with what’s going on. But that’s just me, a grizzly grumpy old bear, who happens to be bullish too. I just don’t get quoted on that part! 🙂

  10. vreaa – I’m sure I did say, BUT was quoting our clients’ mindsets. I write about the market all the time – you might want to check out my blog for my real opinion on the market…and 4SlicesofCheese, I made that point just this morning in my blog….

    • Thanks, okay, I understand the finer point.
      But you’ll note it’s ambiguous in the article… it could just as easily be seen as you asking that (rhetorical) question.
      Perhaps you should ask the CSM to clarify and update.

    • Melanie, you claim that you are not trying to act as a financial advisor. But your blog says things like this:

      “Any slow down in the market would likely result from an increase in interest rates – so while the actual price of the house or condo may be lower, when you factor in the cost of borrowing, your carrying costs could be the same or higher.”

      That sure sounds like financial advice to me. And unfortunately your analysis is incorrect.

      • To be fair it’s more a statement of fact and opinion. There was no advice in there, only that which one infers.

      • Isn’t “offering an opinion that a negative consequence will occur if someone does not take action X” essentially equivalent to “advising someone to take action X”?

      • I offer opinions all the time, and have sometimes offered advice.

      • …though reading that blog post I think the line has become somewhat blurred.

        This is just me, but I would never use a Realtor to countenance on price or market movements. There is too much inherent conflict of interest.

        That post is riddled with market “opinions”. The problem is they’re worded in a careful, and might I say disingenuous, way to elicit visceral reactions from potential clients. I would hope prospective buyers get some lateral thoughts on the matter before taking the plunge.

        Some free “advice” for Realtors: don’t talk about market movements or price directions. Indicate the current state of the market if you will to indicate its relative strength or weakness on turnover and price flexibility — that’s fair — but stay away from the macro stuff. Based on experiences in all past real estate bubbles from around the world, you don’t know luck from skill.

      • 4SlicesofCheese

        Jesse nailed it, carefully wording statements clears the writer of any biased.
        There isn’t enough lateral or critical thinking involved on the readers part.

        I think the general public are not aware what it takes to become a realtor, and “professional” status they have given themselves does not help the matter.

        Speaking of realtors, heard a very interesting anecdote at work today.
        A coworker sold his place and had put a 30k deposit on a new place. The buyers agent took off with the deposit and my coworkers was not the only victim. Not sure what the details of the realtor is but thats a bold move. I will try to get his name.

      • Jesse, thanks for eloquently putting into words exactly how I feel about her blog posting.

      • 4, deposits are typically held in trust. Something doesn’t smell right.

      • 4SlicesofCheese

        @ jesse, that is what I thought.
        Not sure what their arrangement was but now he is has to get short term accommodations because he has to be out of his old place in a couple weeks.

  11. Visiting family in Toronto and my aunt told me a story about her old house her in the city. I have fond memories of the place because it had a great pool in the back we would swim in as kids. The house was beautiful, 4 bedrooms, a nicely finished basement, big dinning room and on a big corner lot. They sold in 1999 for $680k to move into a condo. Apparently they just learned that the same house sold for $1.5 million. And the guy who bought it is tearing it down. I don’t know what he could possibly be building that would be nicer than that house, or why he needs more than 4 bedrooms. But I imagine he’ll be in over $2 million before the dust settles. I didn’t get in to housing prices in Toronto, but they all listened intently as I described the gap between rents and home prices in Vancouver. My uncle, an accountant, recalls that Vancouver always got premium prices over Toronto but was surprised to hear that it was so much cheaper to rent in Vancouver then buy when interest rates were so low.

  12. For Melanie (I left this comment on your blog but am not sure if you will post it as it is waiting for moderator approval and it might not be good for your business to have the clients critically think about their house purchase decision). This is a response to Melanie’s blog post so it might seem slightly out of place here but none the less hope this contributes to the ongoing discussion.

    “balance your lifestyle needs with the current affordability with the uncertainty of the future”

    what? should we crown you the next omaha of nebraska? such insightful words with absolutely nothing to contribute that might help your clients. What is the current (un)affordability? How uncertain is the future? At least throw in some metrics. The affordability (when adjusted for present value of money) is at an all time low. The house ownership ratio is at an all time high. The future is very uncertain with the mess in europe and all. I can dig up numbers but I am not the one writing this blog post or providing advice. Also if you want to see what happens to real estate prices and how they can only soften to 1 to 3% going into the future might I suggest that you look at San Fransisco, Chicago, LA, Seattle etc and the property prices there did not just stagnate but actually crashed. People who thought they were priced out of the market in 2005/06 can easily buy back into the market but currently don’t want to and the house prices have yet to bottom after a severe correction.

    Your townhouse might have doubled in price over the last 13 years. Your other investments should have more than doubled in that same time period. Regardless you, as a realtor, should know that the house price today is not an indication of what the prices might be in the future. The prices could be higher, much higher or they could be lower or much lower as well. Looking at the price appreciation in the last decade is like driving a car while only looking in your rear view mirror. If you don’t drive a car like that then why base your home purchasing decision on historical information from the last decade only?

  13. I welcome comments on my blog – not sure why you thought I wouldn’t approve your comment? I think debate is good and people need to make their own decisions. Why such animosity towards me? You might want to check out some of my other blogs about the market: and ://

    • 4SlicesofCheese

      In your chicken little blog post you forgot the best advice, do not buy real estate.

      • I think Melanie offers some pretty good advice…but it may hit too close to home for most here:

        “Don’t Try to Time the Market
        We have clients who’ve been waiting for the crash for years now, and unfortunately, many of them have now been priced out of the market. They’ll likely continue to be renters. Trying to time the market is a dangerous game – you don’t know when the ‘right time’ to buy (or sell) has been reached, until it’s too late”.

      • 4SlicesofCheese

        In her most recent blog she talks about not letting fear or greed motivate you to buy.

        Now that is some good advice.

      • 4SlicesofCheese

        “you don’t know when the ‘right time’ to buy (or sell) has been reached, until it’s too late”

        Sell now or be price in forever 😉

  14. No animosity. Just an observation based on the “comment pending moderation step”. Just as you are able to infer than people will be priced out or have been priced out forever from the real estate market based on your own affordability and home price appreciation, I can infer that you would not have posted my comment. I was wrong and stand corrected about that.

    My own situation is that I did not buy a condo in downtown Toronto in 2005. Since then the condos have appreciated anywhere from 50 to 100%. But at the same time my actual net-worth has increased many-fold and all of it is liquid. So where I would have had to take out a mortgage to cover 80% of a 250,000 condo in 2005, I can actually go and buy that condo outright (even if it appreciated by 100%) and still have substantial savings left over. Have I been priced out forever? No. Would I go out and buy a condo because I can afford to? Not at this point where the rates are too high.

  15. You might be interested in my blog “What We Really Said” re: the above article….

  16. The growth of prices is inevitable. The Home Price Index is constantly growing because people are willing to buy. Just take a look at the real estate market in Toronto. Strong marketing towards single-person households causes the increased supply for condos, which are more affordable. And we all know what does the increased supply do…

    • This comment is posted on a very dated thread; and the “growth of prices is inevitable” and contradictory supply/demand statements reveals remarkable naivety regarding markets.
      [The link is to the site of a Vancouver Royal Le Page realtor; we can only imagine that this is some kind of automatic spam trying to attract traffic to that site].

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