David Lepoidevin on BNN – “Yes, there is a Canadian housing bubble; The numbers don’t lie; We’re beginning to see cracks coming from my home town, Vancouver; If you do an Internet search for ‘boom’ and ‘soft landing’ there are no entries.”

“Where we are concerned is regarding the value of Canadian real estate. The lessons from the world have been that real estate has had greater implications than just the value of your investment properties.”

“In Canada if you look at the actual numbers, the numbers don’t lie. If you look at median real estate prices compared with those in the US, at their peak the median US housing price was $265,000. Today in Canada, the latest figures we have is $375,000 for the median real estate price transaction. So therefore we are 42% higher in Canada today that the US was at the peak. And we’re [about twice] the median price in the US today.”

“Many of the banks are more exposed [to the mortgage market] than they have ever been. CIBC has 50% of their loans in real estate. When we got into trouble in the early 1990’s, the average Canadian bank was about 13% exposed to RE, and we know we got into a heap of trouble then [with overexposed institutions].”

“The Canadian bubble has extended far beyond the US bubble. We’re beginning to see cracks in the system and the cracks are coming from my home town which is Vancouver, which may have been the epicenter of the bubble. A stand-alone house in Vancouver was over $1 million and still is over $1 million.
Reports are coming in that Asian money is slowing to a trickle. [Real estate prices in China are dropping.] The frenzy had spilled over into Vancouver almost as a suburb of China. [The money has stopped because the Chinese real estate market has slowed but also because the investor immigrant program has ‘shutdown’.”

“If we look at the percentage of jobs in actual construction (this isn’t realtors this is actually guys swinging hammers) … we can see that Canada, the red line, is way above not only where the US is today, but we are significantly higher at 7.5% compared with 5.5% in the US at their peak.”

“So we need to define whether there is a bubble and what I’m trying to point out to people is, yes, there is a bubble.”

“The myth in Canada is that real estate cannot go down unless there is a spike in interest rates. In the United States interest rates of 2% lower than they were when housing prices will almost double what they are today. So it wasn’t a spike in rates that caused house prices to go down it was a reduction in the availability of credit, tightening credit. We now have the first Canadian majority government we’ve had in 8 years and they are beginning to put the brakes on.”

“If we did an Internet search for ‘boom and bust’ you will find hundreds of examples in history, in various economies, of boom bust cycles. If you do an Internet search for ‘boom’ and ‘soft landing’ there are no entries. There are none. ‘Soft landing’ are the scariest words in investment history because they don’t happen. We are trying to engineer a soft landing in real estate just as the Chinese are. The NASDAQ bubble, the US housing bubble,The Canadian housing bubble… You will not find a soft landing.”

– excerpts from BNN interview with David Lepoidevin, VP & Portfolio Manager, Lepoidevin Group, 8 Jun 2012 [Hat-tip to 4SlicesofCheese]

Regular readers will recognize David Lepoidevin’s opinion as being very similar to our own:
– “Yes, there is a Canadian housing bubble.”
– The numbers show our bubble to be very large: comparable to that of the US, perhaps worse.
– Interest rates do not have to rise for the bubble to implode.
– It is not possible to orchestrate a soft-landing.
– The economic implications of the deflating bubble will be unfortunately broad, reaching beyond the immediate RE effects.
— vreaa

62 responses to “David Lepoidevin on BNN – “Yes, there is a Canadian housing bubble; The numbers don’t lie; We’re beginning to see cracks coming from my home town, Vancouver; If you do an Internet search for ‘boom’ and ‘soft landing’ there are no entries.”

  1. Renters Revenge

    “The myth in Canada is that real estate cannot go down unless there is a spike in interest rates. In the United States interest rates of 2% lower than they were when housing prices will almost double what they are today. So it wasn’t a spike in rates that caused house prices to go down it was a reduction in the availability of credit, tightening credit.”
    Thanks for posting this VREAA, great summary too.
    I would add that it was the end of the rope for affordability, combined with tightening credit, that undid the US RE market – and I feel this will be the biggest trigger for our market too. Prices go parabolic but incomes don’t – game over.

    • The devil’s in the details. Banks issued subprime to increasingly ridiculous customers (because there was no one else left). And those customers didn’t even make 3 months of payments. Because those mortgages were securitized by Wall Street, there wasn’t any real money or capital behind them. The system flat broke down in a hurry at that point. (Leverage is a b___ on the way down.)

      Subprime was the canary in the mine. It stopped the bubble cold. Canada, having much less ridiculous subprime, hasn’t had that shock to the system, and as the analyst in this interview points out, the bubble has run up much higher. (I would say, as a result.)

      So, yes, we ran out on the edge of affordability, but we did it with style and crass capitalism unleashed, thank you very much. 😉 Canada is doing it in a quaint quiet way.

  2. You saved me from transcribing that today. Thanks!

  3. Thai-born Chinese Canuck

    Bravo for David Lepoidevin for boldness and clear cut comment! At least he has the gut to say what he really thinks and is not afraid of loud boos from the audience, if his prediction is wrong.

    Thumbs down for Tsur Somerville. I am fed up with his always ambiguous comments and gutlessness. UBC should tell Mr. Somerville to his professorship Mr. Lepoidevin or close down the Centre for Urban Economics and Real Estate.

  4. Canada is stalling the correction. How? Keeping rates low, introducing the new HPI, keeping the 30 year amortization, and bullshitting to the public via msm. So it may take some time to reach Canadas major cities. The cracks have been noticable in BC but not enough for the public to really see. For the people that are regulars on this blog, we see the cracks clearly. The bulls don’t see this because they don’t want to hear or even see this problem. It’s like a religion. You believe what everyone else goes. I’m glad I’m part of the so called “doomer” group.

    • 4SlicesofCheese

      I just linked my friend, who sold his condo and started renting recently, the Globe and Mail article predicting a 15% decrease in price and he just laughed and 2 mins later sent me a link to a townhouse development in Poco where our other friend lives and says its very nice place and its a great price.

  5. Joe_Blown_Away_By_High_Housing_Costs

    Vancouver as a suburb of China. I absolutely love that line!

  6. I never like hearing distressed anecdotes but here’s another. Two teachers (full time, part time) with 3 pre-school-age kids, mortgage, car broke down and they bought another (more expensive) one. Now grandmother is on 5 days/week (up from 3) daycare duty because 1) they lost a few days from the strike 2) the part-time teacher converted to full-time to make the difference. Gran’s in her late-60s, and she’s feeling the stress. This was because of a single random foreseeable event.

    I do not wish hardship on anyone but hardship is going to happen and this was, luckily, a barely manageable case. Imagine some slightly more severe distressed situation and instead of daycare being the casualty of rebudgeting it’s the mortgage into an illiquid housing market. The lines of defense will be increasing earnings (more hours), borrowing from parents, borrowing from the bank, liquidation of assets, and finally…

    • Why people don’t must move is beyond me. There are teaching jobs to be had in the interior. And prices are a lot better.

      I’m not a native Vancouverite, and really have never claimed to be one (although I lived there for nearly a decade). The one thing that has always been painful to me as an outside observer is the BPOE blinders that most of them wear. It’s stunning, frankly. By my estimation, at least 90% of them couldn’t fathom moving somewhere else in the province, let alone beyond provincial boundaries.

  7. says Lepoidevin who lives in a 2.1M home in West Vancouver.

    Always got to take these public comments (from financial executives who have a vested interest in the market) with a grain of salt. Gotta ask yourself…what’s his angle? I’m sure he’s calculated that he can gain more from a downturn than to continue competing at current price levels.

    • Ad hominem – address the argument, not the arguer.

    • “competing at current price levels.”

      Hmmm what does that mean exactly??? You think he’s looking to buy more RE??? His biggest investment, i’m guessing is his job, i dont think he really gives a **** about the RE around him, since he already owns a house.

    • formula1 -> Whereas, if he were renting, you’d say… What?
      We’re seeing a pattern in your arguments: Whoever makes a bearish prediction must have an ulterior motive… Right?
      It must make it very difficult for you to weigh any arguments on their merit alone.

    • When the argument doesn’t fit, attack the motives of the messenger. Have you considered a senior advisory role in politics?

    • 4SlicesofCheese

      Put down the tin foil hat and step away from the computer.

    • IMHO all the upper level bulls have to realize (and may be already have realized) that at some point they can gain more from a downturn – the banks, realtors, builders etc. want to market to be active even at the lower price level instead of coming to a full stop. They might already think to themselves – lets it crush, go down, stabilize at tome lower point and start to be attractive/affordable for more players than now. He may be have a RE investment that he is going to loose some value on but on the other hand he has a job that he is concern about. When people turn the blind eye to stats, the stats are not going to disappear – they are going to chaise them and punish for being stupid and non-professional.

      • “at some point they can gain more from a downturn”

        Even more to the core, shudder to think that buying at lower prices is favourable to buying at higher prices. Internal torment worthy of a Palme d’Or.

  8. Thanks to those Mainlander idiots (MLs), chinese people in other parts of the world dont even want to be called chinese…but I digress 😛

  9. Outrageous! HooCoodaNode!… Sched1 Chartered CDN CountingHouse predicting YVR/YYZ declines… (we might quibble about how much/far, how fast – but for a major CDN bank, this constitutes heresy/apostasy)… Enjoy.

    [G&M] – Toronto, Vancouver house prices to sink 15% over 2-3 years, TD warns

    “Toronto, Vancouver prices forecast to sink – Toronto-Dominion Bank economists expect house prices in Toronto and Vancouver to sink by at least 15 per cent over the next two to three years.”…

    http://tinyurl.com/78f2c3v

  10. In a more civilized age this charlatan Lepoidevin would be excommunicated and burnt at the stake.
    The only recourse presently is for great leader Harper to introduce an anti-terror legislation that includes provisions for the indefinite detainment of real estate bears

    • Poor lonely troll no one to talk too…baby troll jesus is crying.

      • Whats your issue? You poor lonely pessimistic success hating renter? All you negative people all talking the market down to fulfill some sick twisted marxist perversion you want to realize for society.
        As dear leader Harper has muzzled any and all who dare to comment on any realities of the energy extraction business. So it should be for detractors of the Conservatives glorious vote-buying scheme of pumping up the real estate market with cheap credit to “enrich” the middlest of middle class high school dropouts and get them to vote conservative…errr i mean detractors of the great wealth creation for middle class families that home ownership provides our great land.

  11. Vreaa,

    I believe there was a post here regarding the project Trapp & Holbrook. The thread discussed the little interest in this project. I just saw an ad for this project and they’ve sold 70 units in the first weekend. So who is right here?

    [B@D@$$ -> No, that project has never been headlined here, to the very best of our recollection (and search capacity). It was mentioned once in a comment by 4SlicesofCheese [11 May 2012 at 11:49 pm] –
    Quote: “I just got a pamphlet in the mail from Trapp Holbrook in new west. They have the floor plans and some of the smaller 1 brs have that sliding door thing, but without a window. I thought you had to have a window to be considered a bedroom.”endquote.
    – vreaa
    ]

    • Because 20-somethings with 2 years in the job market are too slow to pick up that the train has left the station. If Bob Rennie, The Georgia Straight and Global TV says its so. It has to be, right?…right?.. please god let me be right otherwise i have just saddled my self with a soul crushing 25 year debt on an “investment” that may be underwater by as much as 30-40% by the time i take possession. OMFG what have I done!!!!

      • 4SlicesofCheese

        Speaking of Bob Rennie , did anyone watch (I could barely make it through the whole thing myself) his recent speech at the fairmont.

        I am para-phrasing but he said something along the lines of Peter Wall once told me that if you own Vancouver Real Estate, you have a winning lottery ticket. There are a bunch of great quotes from him in that speech.

      • Rennie’s still yapping? I guess Vancouver real estate doesn’t sell itself after all.

      • Renters Revenge

        “Peter Wall once told me that if you own Vancouver Real Estate, you have a winning lottery ticket.”

        Truer words have never been spoken – just make sure you remember to claim your prize.

    • They’ve sold or they’ve assigned?

  12. In other news, Americans have erased 2 decades of wealth accumulation:
    http://www.nytimes.com/2012/06/12/business/economy/family-net-worth-drops-to-level-of-early-90s-fed-says.html

    The highest rated comment is good too:
    “The reality is that the wealth from ridiculously inflated home valuations was a mere illusion to begin with, something Washington felt good about promoting, and something that Realtors throughout the US used to their advantage to fill their own pockets..They all knew it was not sustainable but like a stock that goes out of control because of some emotional response by the public, it will eventually deflate..Like we have today..The market value of a home is really what someone is willing to pay for it…That tends to be driven by what the homeowner paid for it (inflated or not)..So using soft or fluid data to pad ones new worth is not smart for a government, an industry (Real Estate), or a banking system..And surely not for a family because they are the ones holding the short end of the stick!”

    Don’t worry, Canadians, you’re immune to all this!

    • @Jeff, just clicked on the link from your name. Video is just awesome. “I never use my tongue on people..” Ahahaha. Just thought I’d let you know. =)

  13. I know a young couple who bought a condo assignment (for a 400k condo in Vancouver). The condo will be finished sometime next year. They are both moving to rural Alberta for a year or two to earn a lot more money to pay off the wife’s student loans for dentist school and the mortgage. They leased another car (SUV) recently so they can drive there. They are not going to rent out the condo when it’s finished because they wanted a new place. They have also extracted all their RRSPs (with maybe help from parents) for a down payment.

    In the discussion with the husband and family that followed, (as expected) they generally deflected, avoided or otherwise tried to bury their heads in the sand. If it wasn’t so sad, it would have been amusing. However, I came to observe a few things.

    1) They have no idea how the market is related.

    When I told them that house prices maybe down and listings where up the responses were:

    “I don’t care about house prices, of course those are going down, but condos are still going up or holding their value.” Huh??

    “The reason there are so many listings are that people are just seeing what they can get for their houses, they’re not trying to sell.” Uhh? Apparently it’s free to list. (Both in time and money.)

    2) They have no clear idea how debt works.

    The counter to “when prices correct to 50%..”, was that at that point, it would just be cheaper to “upgrade”. I was shocked. In a debt-equity relationship, when “equity” goes down, you first lose value in your equity, not in your debt. In fact, you never “lose” your debt. I used 5% down as an example, and he didn’t realize that at the end of 5 years, unless everything they both earn are paying for the mortgage, that a 50% drop would mean that they’re probably 30% underwater. They will have NO equity to “upgrade” if they can even renew their mortgage. At this point, he disregarded that and went back to his example of how if his condo was worth 200k, he could still…

    3) They use (select) anecdotal evidence only with no statistics or any other information to back their opinions.

    Sometimes these pieces contradict themselves — I don’t see how they could not see it.

    “My friend works at the RBC and approves of mortgages. There’s a lot of cash only buyers from China.” … I thought cash-only meant they didn’t need a mortgage…

    And of course the standard “housing prices always go up”. Anything that shocks them, just gets deflected and any statistics are ignored and rationalized by some made-up opinion.

    4) They don’t understand the relationship between “home” and “equity”.

    “We don’t see this as an investment. We plan to stay there long term, at least 5 years. If you want to start a family, you will have to buy a place, you won’t be able to time it.”

    Yup, the standard arguments. It’s almost like they all have the same script. Anyhow, I wasn’t cruel enough to break it to them, but they ARE using it and treating it as an investment. If not, they would not talk about using the “equity” in the condo to upgrade. At the end of the day, they do plan for their place to have “value” in it. Otherwise, what’s wrong w/ renting? (See next observation…)

    5) Any alternative is impossible.

    No no no… no talking about renting. “Well, if I were to rent, I’ll have to deal w/ having to find a new place when the landlord kicks me out. That’s a hassle and represents time. And time is money.”

    I really wish no one coined the “time is money” bit, it’s always misused. Time represents sweat equity (maybe) which maybe translates into money.

    I was also not cruel enough to point out that the inconvenience of renting is probably a lot lower than the inconvenience of being homeless, but I kept it zipped.

    I’ve shown them graphs and blog entries and videos already. I’ve done my good turn already. I don’t expect them to change their minds on the spot, I am just hoping it’ll give them something to reflect on — that doesn’t fit in their current world view. Perhaps that difference might mean being poor compared being homeless.

    It’s as jesse or vreaa said (not sure which), but speculative mania can turn regular people into crazies…

    • It was vreaa. Looks to me like they aren’t listening to you because they don’t see you as an authority. It’s nothing personal. You can do something like work on your rhetoric and get their attention; just me — after I do that I take a shower.

      • Here’s an alternative approach. I changed the start page of my sister’s browser to point to Vreaa. She doesn’t know how to change it back. At least this guarantees that she gets a small dose of useful news every day. =)

      • Jeff ->
        hahaha
        You are too kind… (to this blog, not necessarily to your sister.)

    • “I don’t care about house prices, of course those are going down, but condos are still going up or holding their value.” Huh??

      land appreciates. Everything else including the structure on it depreciates.

      • “land appreciates”
        …in the long run, it was recently heard to be said. Nothing, almost nothing, indeed hardly anything, can shake that immovable adage.

      • Land appreciates.
        Yes, but not necessarily in a straight line.
        (agree with jesse)

      • what does it mean land appreciates? if just sit there and stare at it for long enough, does that make it more valuable? it only becomes more valuable if you spend to put improvements on it and/or if some process, such growth of a local economy, increases demand. land can depreciate too – typical result of post-boom economic shrinkage.

      • “what does it mean land appreciates? if just sit there and stare at it for long enough, does that make it more valuable?”

        Yes.
        All you need to do is look at Vancouver historical photo history to know this is true. The pace of development here is off the charts.

        miss604.com has some wonderful photos of histsorical Vancouver. You’ll have to scroll through a lot of her archives to find them.
        miss604.com is the complete opposite of this site. Positive, energetic, historical, factual, etc.
        http://www.miss604.com/2010/09/vancouver-history-aerials.html

    • I hear you Lurker. I used to think people were just idiots but then I started noticing that some of them were actually analytical and well educated. They all offered the same damn pat answers though and rebuffed the argument against ownership with the same dismissive one liners. Just the fact that people from all walks of life are thinking along the same lines despite the short circuit in mental processing is fascinating to me now. So I would start conversations by saying how bad an investment a home was today just to hear the same repetitive rebuff. To me it was hilarious (and everyone thinks they are so unique….don’t make me laugh!!). But lately people are agreeing with me and some are taking a keen interest in the observations I offer. They actually want to see the graphs and charts. Crazier still, they ask for websites to check it out. I am sure the worm has turned and sentiment is now moving in the opposite direction. This is a whole new experience.

      • You’re absolutely right @Farmer. Most of these people are educated and analytical.

        However, they are illiterate. Both financially and perhaps even politically. They get all their information about those things passively; from radio, TV, previous beliefs, and other people.

        So trying to break their passive knowledge is introducing them to cognitive dissonance (yes, I just learned that term — was trying to find an adage about how “you can teach someone anything as long as they have no idea how to do it, but you can’t teach the simplest thing to anyone if they already think they know it”).

        It’s uncomfortable and not something they want to address at the moment. It’s much easier (and blissful) to be ignorant. They roll their eyes when you talk about P/E ratios (or Price-to-Rent indexes).

        I too am largely financially illiterate. My parents do not understand financials besides bank accounts and long term deposits. They too think house prices will go up forever. I too would have been one of those idiots.

        Fortunately for me, at the time, I was never able to afford to get in. But at the same time, I always felt something was amiss so I went looking. If it wasn’t for blogs like this one that uses evidence and statistics, I would never have been educated (or convinced). But since then I have learned a tremendous amount about many things related to RE and investment, so my hat tips to all of you (including the counter-point) for the privilege.

        (Although I’m still finding my way around financial literacy… =))

    • yltnboomerang

      Lurker, I’ve given up trying to convince people. When the topic turns to real estate I’ll listen first and if the view is your tragic bull argument my response is simply: “you don’t want my opinion as it is drastically different from yours therefore we should pick a new topic”. I’ll get confused looks and perhaps a request to explain at which point I may offer “I’ve Based my opinions on numerical analysis removed from emotion and feel that a crash is inevitable; if your idea of a discussion is trying to convince me I’m wrong then there is no point continuing as I have given up trying to change mind and will not change mine; buyer beware.”.

      Since taking this stand I’ve avoided many heated arguments and no longer discuss real estate with my extended family; when my mother starts to bring it up I just ask “do you really feel like getting into an emotionally draining argument right now?”. If that doesn’t work and she keeps going I just say “this argument never ends with me in tears”. Of course I get the odd expletive but hey, better than tears!

  14. Gotta love it when people don’t put the y-intercept at zero on their graphs.

  15. Pingback: Weekly News Links: | The Retiring Boomer™

  16. …and its been 2 years since the doom and gloom scenario above was posted….and prices just keep going up…

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