The Post-2009 Global Housing Bubble – “$1,050,000 will only buy a tiny house that is merely “livable” in Vancouver, where median real-estate prices are an astounding 9.5 times median household income.”

“After the cataclysmic mid-2000s housing bubbles in the U.S. and European PIIGS nations, one would think that the world would never allow another housing bubble to rear its ugly head again. Unfortunately, this thinking is completely wrong. Since 2008, the world has openly embraced new housing bubbles with astounding vigor in complete defiance of all lessons taught by the Global Financial Crisis.” …

[Amongst accounts of about 16 RE bubbles, the following:]
“Canada’s Housing Bubble
Canada is experiencing a classic bubble economy that is driven by a commodities export boom (which is part of the commodities bubble) a massive housing bubble that is larger than the U.S. housing bubble was at its peak, a consumer debt bubble and global “hot-money” investment inflows.
Canada’s bubble economy is driving a U.S. export boom that has helped the U.S. economy recover from the Great Recession – this is just one of the many reasons why the U.S.’ recovery is actually a “bubblecovery.”
Canada’s housing bubble is now nearly 40% larger than America’s bubble at its 2005 peak. Price-to-rent ratios, a common real estate valuation measure, are flashing clear warning signs of a bubble as well. Even the IMF is warning of a Canadian housing bubble (but seems to understate the extent of the bubble and its risks as “official” organizations tend to do).
Vancouver homes are now pricier than NYC homes, thanks partly to Chinese investors. $1,050,000 will only buy a tiny house that is merely “livable” in Vancouver, where median real-estate prices are an astounding 9.5 times median household income.” …

“The world is experiencing a massive Post-2009 Housing Bubble that will pop and finish where the U.S. and PIIGS housing bubbles left off in 2008. The global economy has “recovered” from the Great Recession on the backs of more housing bubbles – this is why I call the recovery a “bubblecovery.” Believe it or not, the Post-2009 Global Housing Bubble has the potential to grow larger due to global central banks’ incredibly stimulative monetary policies that have been implemented as a response to the Global Financial Crisis. When this epic pan-country housing bubble finally pops, it could conceivably throw the world into a devastating depression.”

– from The Post-2009 Global Housing Bubble or Housing Bubble 2.0, Jesse Colombo, at Stock Market Crash!, undated article

25 responses to “The Post-2009 Global Housing Bubble – “$1,050,000 will only buy a tiny house that is merely “livable” in Vancouver, where median real-estate prices are an astounding 9.5 times median household income.”

  1. Well it’s a good thing Canada’s largest trading partner has taken most of its lumps.

    • Incredibly wealthy real estate mogul with serious insomnia

      Keep dreaming, bears – what’s it been, 4 years since 2008? Next stop, $2million avg for SFH – buy now or miss out on this once in a lifetime opportunity, losers.

  2. It’s interesting that with the strength of the resource and energy rich Alberta economy that average real estate prices in Calgary and Edmonton have stayed virtually flat for the past 4 years. Yes sir, sounds like a commodity bubble to me. I think Canada’s problem RE markets are just symptoms of the global credit and China bubbles that now dominate the global economy.

    • Calgary is not doing well at all right now; drilling is down, market cap of juniors is in the tank, things aren’t all rosy in the land of oil.

    • Most people forget Alberta is more “gassy” than “oily”. Nat gas prices are still in the dumps.

  3. I findi it hard to believe that the housing bubble in Canada led to a US export driven recovery….I mean wow… we punch above our weight class.

    • agree…i also have trouble following that argument…

      • The article exaggerates and comes to unfounded conclusions. It is not amongst the better ones we have seen before. It just irritated me to be honest.

    • The author cites several Canadian bubbles, not just housing. Commodities, consumer debt, etc. All these bubbles artificially boost balance sheets and the CAD, which is huge for U.S. exporters. Canada imports way from from the U.S. than any other country.

  4. Interesting to see all the commenters on this article calling bull shit.

    CIBC downplays likelihood of U.S.-style housing crash – Business – CBC News http://www.cbc.ca/news/business/story/2012/10/30/cibc-housing-tal.html

    • In general I agree that we will not see a US style meltdown here. We need to keep in mind though that the current debt burden of mortgages and lines of credit combined that were gleefully handed out by the banks have effectively eaten away a large share of our consumption economy. Benny is white-washing here as a spokesman for one of the big lenders who played a pivotal role in issueng excessive amounts of money to an unsuspecting public.He knows better too and frankly I do not put much stock in this analysis.The future looks quite fragile at the moment and there are far too many destabilizing factors in play for anyone to conclude that debt levels are manageable except through the lens of recency bias. The fact is we are badly overleveraged at a very risky period in our history and especially with regards to financial turmoil elsewhere in the globe. Has Benny forgotten how deeply indebted Ontario is for example or how poorly some of the Provinces are faring? Our cumulative debt picture at all levels of government combined with private debt places Canada closer to the bottom of the pack than the top. We are kidding ourselves to be bragging that is certain. Another point not addressed is that Canadians cannot expect the bailouts that Americans received if we do land in jeopardy. Multi year EI payments, food stamps for a huge percentage of the population, energy grants, mortgage buybacks, saviour loans and tax gifts etcetera etcetera. Nobody here expects the Bank of Canada to come riding to the rescue if the economy is troubled with that institutions own version of QE and bond buying programs. And then there is the issue of recourse versus non-recourse mortgages and the absence of tax write offs Canadians will not enjoy. In short, we are in a much more vulnerable position if housing prices take a serious tumble.

      • Cyril Tourneur

        “In short, we are in a much more vulnerable position if housing prices take a serious tumble.”
        Luckily we won’t take a serious tumble….Right?
        (uh-oh!)

      • Exterminate Everyone Over Forty

        Will all of you debt hawks explain to me exactly how else government entities can go bankrupt other than through high interest rates?

      • Ill-considered foreign military adventures are far and away the leading cause of sovereign default, Exterminate… Say, you don’t happen to have a Dalek, do you?…

      • Financial systems go bankrupt at low interest rates, not high ones. Banks pay for bad loans by writing more good loans. Governments need more revenue to pay for old promises. Both are possible with an expansion of credit, and for precisely this reason austerity is self-defeating.

        In the early 1980’s, the Latin American debt crisis made the US financial system temporarily insolvent. Paul Volker kept everyone mum. As inflation subsided, interest rates were lowered and credit expanded, and banks were able to cover the bad debts. Households paid for this, but there were no obvious bankruptcies after the original defaults.

        A similar thing is being attempted now, but with much less success because interest rates are already low and people are choking on debt. Governments and central banks will take higher inflation any way they can get it. The problem in the US is that real incomes are falling so inflation acts like a tax on consumer spending. No way out of that hole. The government will default, most likely on its social programs.

        In Canada we avoided a housing bust by massively expanding debt. Writing new loans to cover old ones. Sadly, I do not think this will work. Our expansion of credit didn’t rebalance the economy, it made the pre-existing imbalances worse. I don’t see how we can avoid a bust.

      • Some good points there RP1. What concerns me is the combination of potentially destabilizing factors that have rarely been seen together before. Low interest rates during a period of very high indebtedness where assets are overvalued leads on the list of concerns. Secondly, far too much of our economy currently revolves around real estate, construction and the sales of goods related to housing and new builds.This particular vulnerability tells us unequivocally that unemployment will rise as housing cools. How significantly is not yet clear and is difficult to predict but there will be costs if housing prices fall too quickly with unemployment leading the way. Thirdly, we are in a period where our export markets are coming under stress due to the cooling economies of the US, Europe, Japan and China. So even as net personal consumption is expected to decline as the housing market cools off we will likely continue to experience a deficit in foreign income inflows. Indeed we have now posted 15 consequtive quarters on our current account balance that are in the red. Second quarter 2012 came in at a dismal 16 billion. Looking at past Canadian housing busts we also note that these came at considerable cost to the public, particularly at the Federal level where a combination of declining revenues and increasing expenditures drove a long period of deficit spending before action was finally taken to reign in the accumulating debt. Keeping in mind that we are a consumption driven economy and taxes like the GST are essential to balancing the books we can predict easily that net income will decline as assets wither in value and the consumer becomes more stressed. Lower spending by default results in thinner revenues and this is a direct outcome of our past dependance on the expansion of credit to keep the economy bouyant. I disagree with the estimates for growth issued by both the bank of Canada and the IMF. These are too rosy in my opinion and do not take into account the current heightened risk level our economy faces. I anticipate they will be revised downward over the coming quarters.

  5. wonder how fema flail-fest faring about now? and will it flavor the pretend democratic process … http://tinyurl.com/97do3mv … conspicuous absentees – lol …

  6. Deep thought : if a hurricane like Sandy had it in Vancouver, the media would trip over themselves analyzing the effect of the storm on housing prices. In NY : zero stories about Sandy + RE.

    • Of course! what else is there to talk about? There are mentions of housing bubble in Canada in the media (conventional media and otherwise). I think housing bubble in Vancouver has different dimensions. It is so much larger than every else that you cannot miss it. Consider the following listing in Vancouver West for 2.35 million:

      http://www.realtor.ca/propertyDetails.aspx?propertyId=12258200&PidKey=1587241489

      I have seen this property a couple of months ago when they had an open house. The building is worth nothing. It is in Original condition. Although well-kept for its age, you are really walking into a set from Mad Men. It is sold at land value. If land price for an average city lot (6852.54 sq. ft.) in a good neighborhood is 2.35 million (i.e., $340 /sq.ft), then you can imagine price of a new house in this neighborhood. Not something that “we” (minus 0.1% of population) can afford.

      And, this is not in a particularly rich neighborhood. It used to be an upper middle class neighborhood. Not anymore. Since no amount of mortgage can help a family with an income equal three times province’s median to buy this place (assuming 3 x 70,000 = $210,000 income and 40% TLS, the maximum mortgage is going to be $1,680,000 roughly, and they need $620,000 down payment to just buy the lot to build it), I can safely conclude that money must have come from somewhere else; and that makes Vancouver bubble special.

      Sigh…

      • West Coast Woman

        I find your description of this property offensive – “house is worth nothing”.

        That house is built out of old growth fir and oak – quality woods that you can’t even buy today. For less than 100k, that house could be renovated for energy efficiency AND to look as new as any of the so-called luxury condos being built today.

        Furthermore, the house is 10x more solid and safe than any of the crap they’re building today. Example: FIRE. It would take at least 30 minutes to burn through to the upper floor of this house, while the new builds burn up in 5 minutes. Example 2: Earthquake. These older homes are structurally sound and will likely withstand any major earthquake in this area. However, the building codes were changed in the late 1980’s and most of these new McMansions will have major structural damage in the event of an earthquake (IF the people can get out of them).

        Perhaps the reason some people complain about affordability in Vancouver is because they can’t understand you can never build affordable housing, you can only find affordable housing if you learn to protect and re-purpose older structures.

      • WCW, that may be but you can bet these buyers have zilch interest in the joys of an older home. Give’em a faux limestone clad McMansion, and the more carriage lamps the better!

  7. Hong Kong’s Property Fumble
    A case study in how not to respond to capital inflows.
    http://online.wsj.com/article/SB10001424052970204840504578086161276151532.html?mod=googlenews_wsj

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