‘Doomed’? – “Home prices in Canada are now double what they were in the 1970s in real terms. Historically, over the very long term, real home prices tend to be flat.”

“Home prices in Canada are now double what they were in the 1970s in real terms. Historically, over the very long term, real home prices tend to be flat.”
– from ‘CANADA IS DOOMED: Three Signs The Country Up North Is Screwed Beyond All Recognition’, Josh Barro, Business Insider, 17 Jun 2013

34 responses to “‘Doomed’? – “Home prices in Canada are now double what they were in the 1970s in real terms. Historically, over the very long term, real home prices tend to be flat.”

  1. You're sore, not hurt.

    Business Insider has a certain vernacular that includes plenty of ‘dooms’
    The deal on Canada is very simple. ONE pillar is keeping the country up..OIL. OIL prices are manipulated so that important non-oil infrastructure can be built. We have been waiting patiently for planets to align, then we can announce Keystone.

  2. If, nationally speaking, we’ve collectively ‘DoubledDown’ on housing… there are, paradoxically, an awful lot of people who weren’t invited to the partay…

    [CBC] – 30,000 Canadians are homeless every night: 200,000 Canadians are homeless in any given year, national report says

    http://tinyurl.com/lmu6vqo

    [NoteToEd: QuelleSurprise.]

  3. china will save us-its ok

  4. Double doomed. China is slowing down.

    • Speaking of “something to watch”… and this is just a silly hunch mind you… but I wouldn’t be at all surprised to see an anxious line up or two outside ICBC’s branches this morning. That would be the Chinese bank, not the other place.

      • Ralph Cramdown

        It would have to be. Since there’s one broker for ‘the other place’ for every four residents of BC, the lines can’t get very long. When BC’s speculative real estate bubble meets its end, you can all fall back on what you’re good at — selling each other car insurance.

      • ICBC isn’t the same thing as ICBC.
        One insures the other ensures.

      • Much like BCCI, some ICBC branches are strictly for ‘SlimCustomers’…

        http://tinyurl.com/p3kz2p3

        [NoteToEd: It’s an architectural joke. But I think it works on other levels.]

    • UBCghettodweller

      Could someone please fill me in on what other measures the Chinese government still has left that they can enact to stimulate their economy?

      Everything seems to show that the government has been wringing the throttle wide open for the past decade or so. Are the stimulus measure exhausted?

      • The government can print money and use it to buy domestic products and then throw them into the sea so that they don’t flood the market.
        What can go wrong?

      • As ‘stimulating’ NakedOfficials go, there’s no denying that Lei Zhengfu of ChongQuing’s BeibeiPrefecture worked hard to achieve his youTube notoriety… Indeed, as ‘FullThrottle’ performances go – he’s practically peerless. Nevertheless, poor Zhengfu is looking a tad exhausted these days.

        I suspect that has something to do with the CCDI’s clampdown on lavish banqueting in his hospitality suite…

        DearReaders, your Quote ‘O TheDay.

        “I was merely performing my duties.” – Lei Zhengfu

        [ChinaDaily] – Suspect in sex tape scandal denies charges

        …”Ten government officials and general managers of State-owned enterprises in Chongqing were sacked in January for their involvement in the sex videos.”…

        http://tinyurl.com/n8hpsed

        [NoteToEd: I just know there’s a, “How many CorruptStateOfficials does it take to make a SexVideo?” joke in there somewhere.]

  5. ” over the very long term, real home prices tend to be flat”

    Heresy but:
    http://www.calculatedriskblog.com/2012/12/lawler-on-upward-trend-in-real-house.html

    Drilling into Shiller’s analysis reveals a few assumptions that, if reanalyzed, have house prices increasing faster than inflation. Not to say Canadian prices aren’t above where they should be, but with deference to the esteemed Josh Barro who I love following on twitter, I would at least consider that they may not fall as far as is indicated by long-term CPI.

    Caveat: “house prices” aren’t the same as “condo prices”.

    • Although his “liberal” use of “quotes” drove me to distraction, this analysis makes a fair amount of sense being that it appears to me that available credit is hugely predictive of house prices, and mortgage credit has been made more available in turns over the past 100 years – and down payments less onerous. Of course that’ll increase real prices.

      That said, and there must be a ceiling. Because the rent possibly generated is capped by the rest of the economy, and at some point, the cost of money becomes a limiting factor.

    • Maybe CPI is just off. I’ve always been suspect of the “inflation numbers” given by governments… if “defined” inflation is lower than actual inflation, it will show up in things that track inflation I would imagine.

      • The point Lawler was making is that there is uncertainty in Shiller’s analysis. CPI does NOT measure apples-apples, never has. On that note real rents have been dropping for a generation. Does that mean that rents are going down in real terms? It turns out they aren’t.

        On a broader topic, people with CPI-linked fixed income are often under a misunderstanding of what CPI is all about. It does NOT grant you right to remain in place or maintain your current habits. It requires you to adapt. If you want a plan that maintains your standard of living as it is, without substitution, you will need gains that outpace CPI.

  6. Real Estate Tsunami

    China saved the Canadian economy in 08/09.
    Now we have to pay the piper.

    • It is if we assume that the overseas Chinese home buyers were majority at that time and the main driving force of the housing bum. But if they were only an ignition – like 10-20% – and the rest were speculative Canadians, then Canadian economy was saved by the rising mortgage debt of the Canadian homeowners (and it is kind of supported by the stats?). I would not say it “was saved” though, just the can was kicked down the road.

  7. VREAA et al:
    Check this out.
    http://saltspringrealestateagent.com/market-report/
    Read the subsections, save them, savour them so to speak.

    • And now it’s down. I have some archived, the main page I linked to and the high-end report. Anyone have the mid and low end?

  8. http://www.cbc.ca/news/canada/british-columbia/story/2013/06/19/bc-vancouver-trump-tower-deal.html

    If I had to name the partner developer, not knowing anything about the project, I would be right.

    File this under “the shark hath been jump’d”.

    • I doubt this will end well. This may even be featured in a future Postcards From the Blast Radius feature (as the project in its previous life was…lol). Honestly, this guy should have hung up his skates many years ago and quit when he was ahead.

  9. Should we also start tracking the interest rate trend and how it affects the world, Canada, and thus the Vancouver RE?

  10. At last!… some ZestyZen, DearReaders. Although it will hardly come as a surprise to most here – Canadians apparently spend more time thinking about RealEstate than they do sex. Or hockey!… Shocking, isn’t it?

    [CBC] – Canadians obsessed with real estate, poll suggests: Self-described real estate obsession highest in Toronto at 47%, survey indicates

    http://tinyurl.com/neu3bye

    [NoteToEd: Alas, once again – WestCoastSlackers have been bested by their EasternCounterparts.]

    • Ralph Cramdown

      Push polling. The recently changed Zoocasa ad in a bus shelter near me says “I’m obsessed with [my neighbourhood’s name] real estate!”

      As to Vancouverites’ self-reporting being less obsessed than here, would a fish claim to be obsessed with water?

  11. Interesting post on Canadianmortgagetrends.com about the challenge of getting loans approved under the new guidelines. It is very interesting to see who they call AAA clients and the comments by their readers:
    http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2013/06/new-challenges-for-borrowers-and-brokers-alike.html

    To put this last guideline into perspective, take the example of Mr. & Mrs. Smith. Both have been employed full time in salaried jobs for 3 years. Each earns $60k/year. They have credit scores over 800, a car loan with a $500/month payment and a $15k unsecured credit line with $75/month interest-only payments. Add to that RSPs worth $150k. Dream clients, right?

    In 2012, the Smiths easily qualified for a $640k mortgage when they purchased their $800k family home in the suburbs. Their mortgage agent got them a great rate of 2.89% for a 5-yr fixed with Lender ABC. And it was amortized over 35 years to improve cash flow while their daughter was in university.

    The Smiths recently approached their mortgage agent to inquire about refinancing. Their application was strong, with a loan-to-value of only 75%.

    In 2012, the Smith’s GDS/TDS was 29/35, so their mortgage agent never expected any approval challenges. The agent prepared the refinance application for $680k and requested a new rate to be blended with the Smith’s existing rate of 2.89%. Then today’s new reality hit everyone.

    Under the new rules, these applicants will no longer be approved. Here’s why:

  12. Introducing .. The Blue Jay Indicator.
    .. a leading indicator… for the astute investor… (trade mark pending)

    In a nutshell, this is how it works: When the Toronto Blue Jays are playing poorly, the Canadian economy is humming along… When they play well, the economy is sick.

    Did you see the Teams management about face, last winter? They get the word: go out and spend the big coin, for the big lineup! Was quite fast, no? Guess what? This was by design, from instructions HIGH UP the food chain. “We must have Circus for plebes, distraction from their financial problems. Problems like a freight train”

    More on the Blue Jay Indicator(tm) later.
    Enjoy the Orioles/Jays game!
    9 in a row?

  13. From 1900-1982, the US stock market delivered zero real returns (excluding dividends):

    http://www.multpl.com/s-p-500-price/

  14. I think what needs to be understood right now is that global credit is suddenly drying up. That does have repercussions for Vancouver real estate and there is certainly the hint of deflation in the narrative. Tighter credit and rising rates will make the coming year a difficult one for borrowers especially if they have been struggling with payment histories. Renewal time could be very stressful. The advent of genuine risk in China due to outflows of capital meanwhile is significant in how it may impact real estate prices there and by virtue on our shores. Let us not forget also that if bonds continue their declines a negative wealth effect will come into play further reinforcing fears in real estate markets. There is a chill coming that is sourced beyond our borders and cannot be contained by policy led initiatives. Of note is that a strong correction in equities will dampen enthusiasm for risk particularly if unemployment rises or pension portfolios are hard hit. This will be an interesting year no doubt.

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