“I’m surprised that everyone else is so surprised to hear anyone talk about a housing bubble” – “Canadian RE 2021 worse than U.S. bubble at 2006 peak” – David Rosenburg

“I’m surprised that everyone else is so surprised to hear anyone talk about a housing bubble…”

“Housing prices went up 17% in a year where underlying wage growth is stagnant…”

“I called the bubble in the US in 2005-2006… I was looking at price to rent ratios, I was looking at price to rent ratios… household exposure to RE… I’ve got news for you… the numbers in Canada now are worse than they were in the US 13 years ago”

[asked about colleagues who say there is a “bubble in calling bubbles in Canadian RE”] “Bubbles can go further than you think, but they don’t correct by going sideways…”

“I listen to… Stephen Poloz [BOC governor]… it’s like listening to Ben Bernanke in 2006 when he told everybody “Oh, don’t worry… house prices nationwide never go down“..

“Bubbles can last a long time, but we’re in a very unstable situation”.

excerpts from economist David Rosenberg’s Bloomberg interview, 24 March 2021

24 responses to ““I’m surprised that everyone else is so surprised to hear anyone talk about a housing bubble” – “Canadian RE 2021 worse than U.S. bubble at 2006 peak” – David Rosenburg

  1. Seeking Knowledge

    Always wanted to be the first to leave a post to hopefully start a discussion 🙂 I’m dumbfounded at the Van RE market. Just when you think fundamentals will finally kick it…nope! I guess when people want something bad enough, they’ll find a way to get it (FOMO?) I’m more of a bear but I didn’t sell in the past decade, nor have I bought. I am a little envious of some of my bull friends who has made truck loads of money in RE but since I didn’t take the risk, I don’t deserve the reward.
    Interesting to see what happens in the next few years…but that’s what I said in 2009 and look what happened.

  2. West Coast Happy

    I have been reading VREAA for a year or so and I am surprised that some are still calling it a bubble and referring to detachment of housing prices from local economy (a.k.a fundamentals). It is not a bubble and local economy has little to do with RE prices in Greater Vancouver. The fundamentals are now global and this will not change any time soon. Buy what and where you can afford, and definitely before the immigration and travel gates open again. Interest rates are not rising and prices are not dropping for the next few years.

  3. West Coast Happy

    Well, I think it will depend on how much the rates rise over what period of time… Per the example in the article, if the rate increase is from 1.39 to 1.54 the mortgage payment increases by just over $400 per year (on a 530,000 mortgage). It is not that hard to manage that. Even with rising interest rates many potential buyers have already locked a low rate or can still lock it at around 2% and will benefit from these rates for the next 5 years. After that, either continue enjoying low rates for if they can’t manage a significantly higher rate, they will sell and still be ahead. With the rate increase creeping up just a couple of points a quarter or so, I do not see the house prices falling. The prices will stabilize (hopefully) and RE will appreciate by 2-5% a year. Those who buy now at ‘reasonable’ market prices will be ahead in 5 years.

  4. Credit will now tighten. As liquidity goes, so goes the market.

    https://www.greaterfool.ca/2021/04/09/is-that-it/

  5. West Coast Happy

    @ Keith
    This is just a slightly tighter stress test. It may cause some buyers to drop out of the race or adjust their goals but I do not see how it’s gonna affect RE prices in the long run. Besides, the new rules will not get into effect until June 1. With such an advanced warning, just watch what will happen between now and June. Even if the prices stabilize or drop a bit in the summer (5% max, based on the past trends), I think it will be temporary. Buyers will eventually recover and adjust, again, based on what we have seen in the past.

  6. I take your point that attempts to tighten liquidity, taxes etc. have not yet crashed the market. Action continues to be taken. Eventually something will take effect, perhaps quite dramatically. We haven’t seen the action that crashes the market yet, but it doesn’t mean it can’t happen. Government is known for getting things quite wrong. Any attempt to “normalize” the market has the potential to go too far… it wouldn’t be the first time.

  7. @west coast happy

    No doubt that the Federal government has acknowledged their plan to use the “wealth effect” of juicing domestic RE prices as an informal stimulus package for the middle class.

    They will do absolutely everything in their power to keep inflating this asset class for as long as possible. It’s a “free” bailout, in which they can create trillions in wealth for the Canadian middle class through no action other than keeping rates and lending standards low.

    Question you need to ask yourself is “how long can they keep this up”.

    Can it keep going during your expected ownership timeline?

    For most Canadians, expected ownership timeline is the rest of their lives. Or at least the rest of their working lives

    If the answer is “no, they can’t keep rates and lending standards below zero for the rest of my ownership timeline”, then that means that your investment will underperform at some point.

    (Notice I didn’t use the word “correct”, but we both know that’s what I mean.)

    Can you handle having a single, illiquid, 7-figure asset in your portfolio that is guaranteed to see a major decline at some point during your ownership cycle?

    I can’t. Not now, and not 10 years from now. That would gut my family’s finances at any time.

    My second response is about averages. The federal government will keep real estate going on average across the country, no doubt.

    But if the $500,000 houses that are currently selling for $1,500,000 in Vancouver simply stop selling….Justin is going to have nothing for you but a tiny violin.

    Voters and taxpayers will now allow a bailout or special exemption for the owners of multi-million-dollar properties. It will never happen.

    So remember that when rates finally do rise, and those Vancouverites who suddenly can’t service their million-dollar loans exit out of necessity, the remaining owners are going to be bag holders.

    This is not hypothetical: Rates must be increased.

    Why? Because 1/3 of all the money ever printed in human history was printed last year! If you think that is not going to produce rampant inflation at some point, you are smoking better lettuce than me.

  8. I am stuck in moderation

  9. @west coast happy here is a shortened version that is not stuck in moderation:

    No way this can continue for the duration of your ownership timeline, unless you have found a way to own housing for a finite period and then get out when prices start to normalize.

    Justin won’t be able to bail out the owners of multi-million-dollar properties, so when rates normalize you will be on your own.

    Agreed that this “wealth effect” stimulus will continue for as long as the gubmint can carry it on.

    But what I don’t agree is that that period is indefinite.

    1/3 of the money ever printed in human history was printed last year. It all went somewhere — stocks, gold, bitcoin, NFT’s, real estate speculation.

    Pretending that no inflation will result and therefore rates will never need to increase is not realistic IMO.

    Rates up = forced rush to the exits

    53% of Canadians currently self-report as being $200/month from insolvency.

    30% self-report as spending more than they make now.

    The day that money costs more is the day that this merry go round stops.

  10. @Burnabonian I do not disagree with your logic. I just think that there are additional underlying factors that keep the RE prices up. Be it FOMO, unexpected Covid payments that gave some folks more money that they had in pre-Covid times, shift in employment conditions (city folks pushing prices up in suburban and rural areas), supply vs. demand, interest rates, etc, likely a fun mix of all of the above and then some.
    I just have hard time to believe that the government will want to shake it. I thought they would announce some substantial measures to curb RE market in today’s budget but that did not happen. The 1% foreign owner tax for underused or unoccupied properties will not have a huge effect. And in the meantime, RE is a huge part of GDP. What can you replace it with? I think the government will aim for a soft landing (as in the income catching up to the prices) rather than harsh measures.
    On another note, I drove on Cambie street (Vancouver) last weekend and was shocked by the number of developments going on (Oakridge, Langara Gardens). It made me thinking it may actually be possible for Vancouver to build itself out of the housing crisis in the next 10 to 15 years!

  11. Government is not some Almighty power that can orchestrate markets. It carries influence but it’s limited. This thing is way out of anyone’s hands at this point.

  12. Thing is it was dying right before COVID hit. Sale prices were falling off a cliff, across most markets and most strata, and properties were selling at well below assessment. The “Vancouver Real Estate Flip Flops” Twitter was having a field day.

    Nobody remembers that because COVID hit and wiped our collective memories. But I do.

    Recall that COVID is one of an unfortunate series of blips that have forced \rates to go lower than they have been in 5000 years of recorded history: 9-11 originally, then the GFC with never ending QE cycle, then this.

    All of them spaced out over the relatively short period of the last 20 years.

    Morons in Canada bought into the “housing can only go up” self-fulfilling prophecy, and made it happen by throwing trillions in borrowed money at an asset class. It’s a self-reinforcing cycle that can and will definitely continue unabated as long as it’s possible.

    But that’s the thing. It’s not possible for it to continue indefinitely, or even for decades more, for every reason.

    What reasons?

    Because a tree cannot grow to the sky — $400k houses doubled to $800k which doubled to $1.6MM. But there’s just no way for that to keep going.

    Because money cannot possibly stay this cheap forever, due to inflation and also the consumer debt loads caused by low interest.

    Because Dustbin Turdeau cares not for the paper millionaires on the wet coast, who are a tiny group and who don’t vote for him anyway.

    When the chips are down, the sitting PM at the time will pander to the Quebec and Ontario vote as he must. And he will let Vancouver’s “self-made” RE kingpins twist in the wind. At the end of a rope they wove themselves.

  13. Comprehensive reply stuck in moderation.

    Short answer is NFW can this continue during the period in which you expect of plan to own real estate.

    When it ends, and it will, you don’t want to get caught out.

  14. Hi Burnabonian,

    Always appreciate your perspective. Totally agree that Canadian RE is insanely overpriced and ripe for a correction. I’ve been a RE bear since 2010, and refuse to buy into the madness here in the LML. But, against all common sense, it has continued to inflate more and more and more – bad news just keeps people hunkering down in the comfort of RE they are willing to pay any price for.

    So, while we’re right to be bears, we’ve lost out on being able to live without the dictates of a landlord. (No pets, we’re selling so you have to move, your rent will be 40% higher in the new place).

    I’m furious that all govts of Canada have supported RE speculation at the expense of a healthy diversified economy.

    At this point, I’ve lost hope that the LML will ever have that well-deserved (and needed!) crash – I’ve continuously underestimated the determination of govts to keep the party going. Now, after even surviving a pandemic, I cannot foresee anything that within the next decade would collapse it. Our currency is so devalued now that I could even believe another doubling of prices yet. (But I still won’t buy, because I couldn’t sleep at night while carrying so much debt).

    I feel like eventually, possibly decades from now, the worldwide mispricing of risk for the last 20 years will cause many fiat currencies to collapse under the load of accumulated unrepayable debt, interest rates to skyrocket, and a Greater Depression, but finally a correction to Canadian real estate prices. Who’s going to have any money to buy then, though?

    Canadian RE is now TBTF, and our govt will do absolutely anything to prop up prices, endlessly indebting our future generations to save current owners. Only when this country has borrowed the last possible penny and no one will lend us any more (buy our bonds) will the whole thing collapse. But in the meantime we all have to live with massive inflation that the government refuses to recognize, in support of the 70% of voters that cannot have their biggest asset lose money.

    Starting to really dislike this country and the corrupt people of all parties who run it…

    • “Hey! quit stealing my moves!”
      (Agree with pretty much everything you’re saying here..)
      Exasperating, no?
      Everytime things get worse, prices go up.. we saw it after 2008 when we got massive liquidity that we didn’t need…
      If the Big One hit, and half Vancouver’s buildings fell down, RE would likely double or triple in price (federal bail out, insurance payouts, reconstruction boost to economy, loss of land, earthquake tourism, etc etc).

    • Agreed and I am furious too.

      I’m not so sure about currencies “collapsing”, however.

      I think the expected outcome is unfortunately much more sinister.

      I think that when economies get really, really out of whack, and particularly when they get over their heads in sovereign debt, there is only one possible outcome: War.

      Hence all of a sudden the western world is very interested in blaming a foreign superpower for COVID again.

      Mere months after the same political actors and talking heads downplayed the origin and agreed that it must have come from bats or some such thing.

      (Bats which happened to live a matter of steps from the world’s foremost Bat Coronavirus research facility, coincidentally.)

      The facts haven’t changed but the “official narrative” has done a 180. That’s where i think all of this comes back down to earth — with a cold and/or hot war, cancellation of sovereign debts, emergency measures enacted, and a metric f-fon of Materiel production to juice the economy.

  15. The pandemic has given us the economic outcome that so many refuse to concede. Record volume of real estate sales, record real estate prices, record stock markets, and record levels of food bank clientele. Income inequality has worsened, wealth inequality has worsened and an even smaller working, professional and small business middle class.

    • We’re heading towards a “Socialist Utopia” now. ;b

    • Let me fix that for you:

      “The pandemic has caused 1/3 of the currency ever printed in human history to be printed in a 12-month period. And handed out to fcktards, hedge funds, and middle class families.

      Consequences have included $60,000 Bitcoin, S&P off the charts, houses off the charts, F-150’s selling for six figures. People plowing this money into anything and everything. As expected.

      Where it goes from here, once they turn off that tap and the world realizes how much debt it is in, is not known by any person alive or dead.”

      This is a stimulus package without calling it a stimulus package.

      It had to be done to protect us from the collapse of society and a return to a second medieval era. But FCK me if I don’t trust anyone stating that they know the likely outcome, and that THEIR chosen investment vehicle is definitely safe.

  16. People here aren’t mentioning debt monetization…… When Nouriel Roubini is talking about that as happening in the western world, you know it really is an ongoing possibility. If the US continues going down that path, Canada will have to follow. We are already there with negative real rates and all of the talk of “average inflation targeting.”

    While Vancouver RE has had booms/busts, the funny thing is that, in doing so, it has always followed global trends.

  17. Very comparative focuses you dropped here for the readers and fan-followers. The housing bubble points and the worst situation to Canadian you delivered with practical information was really remarkable and praiseworthy. I personally in search of custom home builder in Toronto area. But truly this was a knowledgeable read and experience.

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