‘Time Magazine’ Asks Bearish Questions About Our RE Market; Canadian Readers Indignant

[Image from Time Magazine]

“For some time during and after the financial crisis, it was fashionable to point to Canada as a paragon of fiscal and regulatory prudence. …
For the past year or more, Canadian officials have nervously watched as household debt levels has risen to worrying heights, fueled by increased mortgage borrowing. …
Just like in the U.S., housing prices in Canada steadily rose in the decade immediately preceding the financial crisis, soaring 198% over ten years. They dipped slightly during the global recession, but bounced back quickly between 2009 and the beginning of this year, fueled in part by a low interest rate policy the Bank of Canada put in place to nurse the Canadian economy through the global economic slowdown. Real estate prices have risen so high, in fact, that many housing analysts believe the bubble is about to burst. Housing economist Robert Schiller told CBC news in September, “I worry that what is happening in Canada is kind of a slow-motion version of what happened in the U.S.” …
Indeed there are signs that the party is already over. Due in part to efforts by the Canadian government to strengthen lending standards, home prices in Canada nationwide dipped year over year in October, and declined in many of the key local markets as well, according to a recent report in Reuters. ”With cooling evident in several major cities, speculation has turned to whether the slowdown will be a soft landing or a crash,” the report said. …
A report from the CMHC released yesterday stresses its health and ability to stay solvent in the event of a downturn, and the conventional wisdom is that the Canadian real estate market will go through a rough patch and nothing more. But anybody who was paying attention during the American housing crisis can remember similar assurances, which turned out to be just plain wrong.”

– excerpts from ‘Oh No, Canada! Are We Watching Another North American Financial Crisis Unfold?’, Christopher Matthews, Time Magazine, 30 Nov 2012

The majority of comments below this article, as of 2 Dec 2012 p.m., are noteworthy for indignant hubris. When one sees terms like “laughable” and “little doubt” being used to describe positions, one should be particularly vigilant. Also interesting that the author and the publication are accused of sensationalism and “trying to generate a tempest”:

“I find this article to be almost laughable.” – SwiftrightRight

“There are no liar loans – no masses of new construction sold to people who used to live in apartments for no money down. Because everyone who holds a house holds equity of at least 20%, as opposed to the millions in the US who held equity of zero, there is not going to be a raft of abandoned mortgages even if the market does turn down significantly.” – Lord Byng
[Wrong. Everyone who owns a house does not have “equity of at least 20%”. -ed.]

“Time is trying to generate a tempest here. Some Canadian housing markets are overheated – Toronto, Vancouver – but this is generally concentrated in the absentee condo buyer class. Our tighter standards (actual proof of income, a credit history, you know, actual standards) pretty much guarantee that if house prices do fall, it means some people will [live] in their houses longer before selling.” – rpratt039

“Just last week we heard that Canada’s Central Bank Governor Mark Carney had been enticed to go over the pond and try to save the British economy. For the first time a foreigner is going to head the venerable Bank of England. That tells us about the current state of the Canadian economy and the man who had stewardship over it. Sure we are having a hiccup right now but the underlying economy is very sound.” – PonnTharmaratnam
[Tenuous logic. -ed.]

“There is little doubt that if left to its own devices, Canada would continue on the path of fairly stable economic growth. However, we must bear in mind that more than a little of today’s economic turmoil is rooted in subjective human psychology as well objective economic performance. … For this reason it is regretable that this writer, hoping for the career advancement that would come with writing a sensational piece, chose to strike out in this journalistic direction. I would recommend more substantial topics for future articles.” – sverry7
[Yes… Let’s discipline Chris when he comes up in front of the committee, shall we? The audacity! -ed.]

“The very notion of Canada having a real-estate collapse similar to the American one is highly laughable.” – K.Navaratnam
[What percentage of this individual’s net-worth is in Canadian RE? -ed.]

20 responses to “‘Time Magazine’ Asks Bearish Questions About Our RE Market; Canadian Readers Indignant

  1. Time using a quick quip at the end a la “remember the LAST time they said that” ignores the in depth analysis that points to a reversion but that does not mean US redux.

    Shiller said slow motion version of the US. What did he mean here? He didn’t say delayed, he said slow motion, but maybe he meant delayed.

    • I interpreted him to have meant ‘delayed’.

      And, agreed, we won’t look exactly like the US.
      “All happy families are alike; each unhappy family is unhappy in its own way…”
      Having said all that, bubble implosions are usually more similar than they are different.

  2. Real Estate Tsunami

    The Economist warned about 6 months ago about the overheated Canadian RE.
    Now it’s the Time.
    When will the Canadian media clue in?
    The party is over! This time there will be no Chinese investors coming to the rescue, as slow GDP growth in China will force them to play it safe.

    • Actually I think the major media have been doing a pretty good job of analyzing our housing market lately. Late to the party perhaps but the uber bullish spin is mostly gone now. That was not always the case of course but in the past few months there seems to have been a real change in sentiment amongst our writers writers and broadcasters much to the dismay of many employed by the Real Estate industry.

      • Yeah, agreed. Macleans, G&M… have asked bearish questions.

      • Real Estate Tsunami

        But they all still quote the BS from the usual BCREA talking heads.
        No media outlet is going into the trenches and counting the casualties.
        But you are right, I seems that overall the media has started to notice.

  3. Terminalcitygirl

    These commenters are delusional.

  4. The commenters show just how much the typical beliefs on RE is still engrained in our culture. Sure, my decision not to buy does make a little bit more sense now to more people then a year ago, but most still blindly buy whatever they can afford (which is less now then prior to the new mortgage rules). I still think those of us that at least see the risks and possibility of a 40-50% decline are few and far between. Us bears are still on the endangered species list, if you will.

  5. The leverage game to fill the Canadian velocity trough during the international market slowdown 2009+… as an amateur chart watcher, I believe that theory anticipated a return and an upswing in US productivity right about now. Five years ago US had 124 or so trading partners, China 70. Today that is reversed.
    Inflation is here, but the productivity isn’t. Maybe some in shipping. There’s been a major sales drop for our number one customer. I doubt many know what will happen in the next few years. This reader is:
    – Not going into debt, unless it’s to meet customer orders
    – Not buying real estate with the intention to flip and not in a market so inflated it makes negative news in a US major.
    – In the market, but outside the LM. Costs are too high here if I’m not going to live in it.
    Thanks for the reads.

  6. Where does this 20% down delusion come from? My own doctor told me a couple years ago that the Canadian housing market is safe because “you need 20% down up here to buy a house.” It’s like nobody ever heard of the CMHC, of 5% down for first-time buyers, of cash-back mortgages equating a -2% (yes, that’s a minus sign) down payment. Where does this fallacy come from? Mulroney reduced the CMHC-mandated down ayment from 10% to 5% for first time buyers… in 1992. That’s 20 years ago. Before that, it was 10%. I don’t even remember the last time a first time buyer required 20% down. The 1970s maybe? Yet the “Canada is safe because they all put 20% down” myth persists.

    • Plenty of people have a perception of housing and financing that’s frozen in time from the last time THEY were borderline for financing. I’ve seen plenty of RE agent sites that claim you need 25% down to avoid CMHC insurance. I don’t even know when the minimum changed from 25% to 20% (anyone?), but I’m pretty sure it was before most of these agents got their websites…

  7. The denial in those comments is shocking. Most bearish news stories in Canadian media have a mixture of comments, including many bearish comments that acknowledge the market here is in trouble. It seems that the Time article has rubbed some Canadians the wrong way. I think Canadians get their backs up when they are being called out by Americans. These Canadians are essentially insisting that Canadians are superior and smarter than Americans, Spanish, Irish, etc. The irrational hubris of Canadians makes me embarrassed to be Canadian. Whatever happened to the days when Canadians used to be reserved, humble, polite and have an understated quiet form of patriotism?

    • “Whatever happened to the days when Canadians used to be reserved, humble, polite and have an understated quiet form of patriotism?”

      You mean as in..
      “How can you tell if someone is a Canadian?” … “He’s the guy who says ‘Thank You’ to the bank machine”.
      “How do you get fifty Canadians out of a swimming pool on a blistering hot afternoon?” … “You say “Okay, everybody out of the pool, please”.”

      Seriously, at some point (1980s? much earlier?) the above Canadian behaviour came to be seen as a ‘problem’. Perhaps some people have over-reacted. Also, with our emphasis on multiculturalism, perhaps we’re all going to have to embrace an increased range of ways of expressing patriotism.

    • I think Canadian hubris and excessive nationalism are much more recent than the 1980s. I remember when he was Prime Minister in the 90s, Jean Chretien talking about understated Canadian pride. It seems Canadians became these nationalistic pricks with inflated egos in just the past few years. I bet there is a correlation between the real estate bubble and Canadians’ overinflated egos. Our fictitious paper real estate equity has gone to our heads. We are bombarded with headlines about how great we are. Canadian banks are the envy of the world. Canadian dollar to become IMF reserve currency. Iceland to adopt Canadian dollar. Canadians average net worth surpasses Americans. Mark Carney to become head of Bank of England because of his excellent stewardship of Canada. The very fact that we avoided the real estate crash that took down the Americans in 2008 is seen as testament to our economic prowess. Canadians have become so full of themselves in just the past five years.

      • outsized outward acts of egoism a mask on abyssal insecurity? … big bad trouble a brewing … no wait … probably just normative narcissism … no worries

      • The the chip on Canadians’ collective shoulders regarding any criticism from an American source is older than I am, and I’m in my 40s. It just might be as old as Canada itself. And Chretien never passed on an opportunity to tout our inherent superiority vis-a-vis the US. Canadians in general have always been quick to boast about our modesty, just as we’ve been slow to grasp how self-contradictory that boasting is. In that, nothing has changed.

        Your last two sentences are entirely correct. The only thing that has changed recently is that the US has fallen on hard times while we’ve thus far remained relatively unscathed. Most of us have spent our lives watching their economy out-perform ours (as it did consistently between 1960 and 2001), and predictably the sudden role-reversal has gone to our heads. Such a development tends to bring innate boastfulness and arrogance closer to the surface, espeically among the nouveau riche home-equity junkies who feel awfully clever about their new found affluence. However, as I and other housing bears argue, that little problem is about to be “cured”. With our consumer credit and housing bubbles about to burst simultaneously, I suspect we’ll rediscover that distinctly Canadian habit of boasting about our modesty. Indeed, we may have little else to go on for awhile.

    • Real Estate Tsunami

      Anon, “irrational hubris”. Yeah like during the Olympics.
      Anyone, still know any Canadian who won a gold medal.
      And don’t forget, Best place on Earth and Most liveable City.
      Arrogance comes before the Fall.

  8. I am in Courtenay. One of the commentators mentioned that a few places such as Toronto and Vancouver are overheated but the rest is ok. He should come here. Average household income, high fifties. Average house, $330,000. Ratio: 5.7, or “seriously unaffordable”.

    Not to mention HELOCS. I know of one fellow, modest income and $300,000 in debt, with about $75,000 HELOC. Part was used to buy Harley motorcycle. So of course he is a “HELOC’S ANGEL” . Perhaps one of your more imaginative types could design an “inlaw biker gang” patch showing say a banker with deaths head passing out loot to biker. You get the idea

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