More Canadians sour on their Magnificent Housing Bubble.
Canadians have been gung-ho about their magnificent housing bubble, feeding it with an endless willingness to pay every higher prices, even as regulators and international institutions issued warnings, as short sellers began circling, as subprime liar-loan scandals made their reappearance, and as a generation was getting priced out of the hottest housing markets in Canada, the metros of Toronto and Vancouver, and as locals came up with an acronym to describe what has fired up the market: HAM – Hot Asian Money.
But the Vancouver housing bubble, the hottest even in Canada, hit rough waters in early summer. By July the first serious troubles appeared. Even as apartment prices soared 27% year-over-year and detached house prices 38%, overall sales plunged 19%, while sales of detached homes plummeted 31% [Vancouver Housing Bubble, Meet Pin].
Then on August 2, British Columbia’s notorious 15% transfer tax on home purchases involving foreign investors took effect. Preliminary data indicate that sales over the first two weeks in August plunged 51% year-over-year, with sales of detached homes down 66%.
And this flood of news on the Canadian housing bubble and speculations about a Canadian housing crash have now begun to slice into the previously imperturbable confidence of regular Canadians in their housing miracle.
The housing related part of the Bloomberg Nanos Canadian Confidence Index just had its worst spill in the history of the monthly data series, going back to May 2013: The percentage of the respondents who expected a decline in local home prices jumped from 12% to 20.5% in one fell swoop.
The percentage of those who expected home prices to rise dropped 2.3 percentage points to 41.4%, and the percentage of those expecting little change dropped 5.3 percentage points to 36.3%. Bloomberg:
The reading marks a change from almost unbridled consumer optimism in a housing market that has carried the Canadian economy since the 2008 global financial crisis, even as policy makers warn price gains in some cities are unsustainable.
That list of fretting policy makers, regulators, and other organizations now includes:
The IMF (January 2015), the Bank of Canada (most recently in June 2016), the Canada Mortgage and Housing Corporation (CMHC), which found “strong evidence of problematic conditions,” and the Office of the Superintendent of Financial Institutions (July 2016), which said that it would require smaller banks to stress-test their mortgage portfolios to ensure they could withstand a drop in Vancouver home prices of 50%.
Plus, warnings about record levels of household debt have been circulating for a couple of years.
So when Nik Nanos, Chairman of Nanos Research Group, commented on the soaring expectations of home price declines in the Bloomberg Nanos Canadian Confidence Index, he said it showed Canadians’ “increasing concern about the value of real estate.”
The monthly data didn’t exist during the Financial Crisis. The quarterly data available at the time showed that expectations of price declines soared by 24 percentage points at the end of 2008. But it was just a blip. Two quarters later, optimism was higher than before, and Canadian home prices resumed their surge, particularly in Vancouver and Toronto.
Canadians have been bombarded with news about their housing bubble and by warnings about a potential housing crash, and by even more numerous and vigorous counter-arguments larded with hype that everything was hunky-dory, that now was the best time to buy or else you’ll be forever priced out of the market.
This summer, famed short seller Marc Cohodes came out of retirement (he now raises chickens on a farm in Sonoma County, CA, and sells the eggs for a fortune in San Francisco) and jumped into ring with a number of interviews on TV and in the print media, and this too rattled some nerves – largely because it hit home.
“I think it’s a money laundering-induced market,” he said as we reported at the time. “Where the local politicians, or the BC Liberals, are kept or in cahoots with the real estate brokers, developers, lawyers, that angle. And they have sought Chinese money to keep the market propped up and it won’t last,” he said. “China has capital controls on, and Vancouver has become the money laundering mecca of either the world or North America, and something is going to change and change drastically.”
He’s shorting the housing market not by shorting the banks but by going after “alternative” lender – in US Financial-Crisis English “subprime” lender – Home Capital Group, the same company I lambasted over a year ago.
Despite industry assurances that the hottest housing markets in Canada, particularly Vancouver, will always remain hot, and that it is physically impossible for prices to decline in this miracle economy, Canadians are now becoming aware that those assurances have just been another load of industry hype. And a larger share of them are starting to grapple with a new reality – a reality in an over-leveraged, inflated housing market where prices have come to rest on the edge of a cliff.
In Vancouver’s once white-hot commercial real estate market, the hunt is now on for Chinese buyers as big institutional investors are trying to unload. Read… Suddenly Scared of Vancouver’s Commercial Property Bubble?
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.
I wish that would happen in California as well. Housing must go down and good amount. It’s ridiculous the price of housing here. After paying for Housing, bill and food… very few people have extra moneys for stimulating the economy…
All the people I know that have a new BMW or big truck or SUV that keep going sporting events and concerts where tix go over $100… these people live with their mommy or at grandma’s house… of course they can afford all these crap. they don’t have to pay nearly 50% of income on rent or pmts.
I truly hope that housing in California and the US softens for the good of the people and future generations.
Excellent news. Imagine that, affordable housing once again linked to the incomes of people. GASP, shock, horror!
The idea that owning a home creates wealth is absurdistan at it’s finest.
What is it with people and housing?
There is no ‘right’ for people to own a house. You work, save, stop going to eat out, don’t buy a flash car and buy a place that fits your budget. If you can’t afford a house in place x you move to place y.
By hoping that housing values go down you are in effect calling for people that own houses to see the value of one of their major assets to fall.
Gee, I see that wages in Mexico are really cheap…………I hope that wages in the USA fall for the good of the rest of the world’s people and future generations. How can Americans get so much money for doing the same job as those poor (insert cheap wage country here)………..
Not really hoping for that , but just pointing out how ridiculous the above post is.
You can do that for any other asset class or price of items.
We’re analyzing and reporting, NOT “hoping,” as you claim. Short sellers might be hoping. We’re not short sellers. We have no position in the Canadian housing market.
We’re looking at housing markets just like we look at bond markets, stock markets, and a number of other markets.
.
.
Wolf – you put a house/apartment in an LLP
and sell the LLP not the house/apartment
and avoid the transfer tax.
.
. Happening for years on end.
.
It is all part of the money laundering.
.
. And tax avoidance ( 15 % on foreign buyers where I am it is a much smaller per cent but still significant ).
.
. The Gov KNOWS this very thing has been happening for years – the Real Estate brokers lobby ( $$$$ ) against it and the government does nothing.
.
.
Love to see what is happening in Australia?. You just replace the city Vancouver with Sydney and Toronto with Melbourne. It’s like looking in a mirror with the article. The average 3 bedder in the suburbs of Sydney is now over $1million au. And the buyers? Chinese.
Wolf-
I was a long time shareholder of HCG(13 years, til 2013). I was a pretty informed shareholder during that period as well & had regular calls with upper management. HCG isn’t an alternative lender in the way that you’ve seen them south of the border. They do have pretty strict standards and are also quite shy about lending into markets that are seeing above average annual price increases – ie. Van and TO. They actually pretty much stopped lending into the Vancouver and Toronto markets a number of years ago, except in certain situations (read- very high down payments on properly priced units).
I’m surprised that Mr. Cohodes is trying to short the VanCity mkt via HCG. If he had done his research, he would know they have little exposure there, and of the exposure they do have, it’s pretty well protected against a big drop.
Bad brokers can take advantage of any lender if they know how. HCG caught the issue before it became a big problem and has cleaned it up. Wait till this crap washes out of the hidden dirty laundry at the big 5 Canadian banks and you’ll see some panic…..
I think he’s trying to short all the major metros in Canada and was using Vancouver as an example to make a point, though some of the other areas are not nearly as inflated as Vancouver and Toronto.
==> Mr. Cohodes, if you read this, you might want to chime in here … I hate to speak on your behalf when I don’t know what you’re trying to do. But make sure you sign in with an email that identifies you so that I know you’re not a fake :-)
I should also add that they also started scaling back on oilpatch lending a couple years ago as well…….
I agree with you that people should compete for houses and there is no entitlement to houses.
What I want to point out is that the bank industry and government subsidies turn a “should-be-healthy-competition” into a speculating wealth transfer machine and debt slavory machism.
The recklessness of this has done so much damage to the economy and people’s lives where it makes me feel that common people are in the arena killing each other to death by taking on debt while those loan makers just sit there, selling tickets and watching the show. After everybody’s blood is shed, al the competitors have to protect them by giving bailout packages.
That is what this “hope” is all about.
Exactly, and it’s the same almost everywhere in the west, to the point that ordinary money (savings) has lost any value when buying a home. Before you know it people on social security are bidding up prices of millionaire homes (we are nearly there in the Netherlands), that are unaffordable for those who have tons of savings (and who are at risk when the housing market crashes, unlike 90% of the current buyers that have no money to start with).
The whole housing market in the West has been turned on its head by rate manipulation, tax incentives, endless subsidies, Ponzi buyer protection etc. etc. – all at huge cost to those who did NOT buy.
In my country the housing bubble has been growing for almost 30 years now. Homes in the more attractive areas have increased in price by 1000-2000%, while average family income maybe doubled over the same period. Sinds 2008 mortgage payments have declined by 50-75% which is great for home-debtors, but there is no free lunch and all this free money for debtors is stolen by central banks and politicians from renters and savers.
This has to stop and the normal situation in the housing market has to be restored, it has to become a real market again where people pay for what they own/use and bear the risk for financial losses (instead of just enjoying the upside like it is now). Those with too much home (mortgage) for their income will get in serious trouble and I hope none of them get any bailout. We need to get rid of this damaging idiocy for good and only blood in the streets will teach them, or at least eliminate them from the market for a long time.
I think I misread your comment at first (when I left my reply). But I think I got it know. Sorry.
The problem is that prices are artificially inflated so those who work “regular” jobs, i.e. not those paid for by vulture capitalists, are priced out. Did you read the article? Do you have an inkling why prices are high? Doesn’t quite seem like it.
@ Lee. Whatever man. Nobody is entitled to anything in America. But the system is rigged and a lot of people will get hurt with bad debts.
Your analogy with Mexico is #%^! to say the least. Bubble, bubble… regular people can’t compete with groups of investors and loaded foreigners buying blocks of single family residences and then setting the rental prices on the market to meet their portfolios… when people in America are putting 3% or 5% down the situation will not end well. People borrowing from 401Ks for down-payments… that’s what’s happening in California. I don’t know where you are, or if your even in America or Canada… but it’s not looking good for the younger productive people to get in the buying…
Maybe there should a tax in the US too. Since we already know that it is NOT a free market anymore… so
Lee,
well i got a dose of reality for you bucko, when my entire industry was gutted and shipped to China to save a nickle a part i was told this was”good for America”
i haven’t been able to raise prices in almost 20 years and any job i could get now is about half of what i used to make. So there you go, what you posted is FACT and has happened.
oh and p.s. the best possible thing for young people IS A RESET of financial products, housing stocks etc. etc, I don’t know one person under 25 that can afford an American lifestyle.
Under 25 ? Try 35
Paying student loans and high rent plus tax and obmacare makes it very hard to save a DP for a 700k plus shack. Even if you make good money.
Ehawk,
i agree with you and to be honest i was going to say 30 but felt people like Lee would think i was exaggerating……sadly we are not.
as I’ve seen posted elsewhere, when asking boomers which one of their kids can afford the house they live in ALL OF THEM say “i couldn’t afford the house i live in on my current in come”. I’ve tried that experiment and gotten the same answer.
there is simply no future in North America
interesting, your life history makes an excellent point. BTW are you familiar with Iran’s recent (think 30 years) history? They were boycotted by the us (the West), obviously, but cleverly used tariffs and industry protections to foster their own capabilities. For example, their public engineering department is one of the best in the world. They produce their own pharamceuticals, steel and so much more, and all for a living wage.
The euphoria for ‘globalism’ we all thought was so great in the 50s seems to be petering out, as industries either consolidate around a market leader or go to the lowest bidders. There would be no need to ship good paying jobs to China/elsewhere with the proper import taxes in place. I think this ‘free trade’ thing has gone a bit too far ..
And no one has a right to guaranteed appreciation either. If you buy a house and can’t find a greater fool to buy it for more, that’s the breaks.
Also, as an American I of course value an American job more than a Mexican job. But house prices in California are pricing out other Americans. That should be a concern. It also hurts California because it means you have to pay workers a lot more than in comparable locales to compensate for the high cost of living. Which means loss of jobs.
Housing is different from other investments. You have to live somewhere. And rents track housing costs. If people working middle class jobs cannot afford housing, either renting or owning, that’s a problem fundamentally different than someone priced out of Facebook shares because they’ve gone up so much.
Also, if you truly believe no one has a right to own their house, you should support dismantling Fannie Mae and eliminating the interest deduction for mortgages. No reason the government should be subsidizing home ownership. I’d love to see where a truly “natural” housing market would price homes…
I have not seen much support for eliminating the interest deduction for mortgages in the US, but I have advocated this for quite a while. The Government and IRS have no business subsidizing citizens’ home purchases.
From my Libertarian perspective: I bought a modest home 21 years ago, and have owned it free and clear for nearly a decade. Nearby, multi million dollar mansions are being built along the Mississippi (in Minneapolis and St. Paul). The IRS gives those citizens who’ll take big mortgages a tax break, but I will not get a tax break as I choose to live within my means … in my paid for modest home.
Why does society think it is wise to reward those who buy expensive luxurious homes on debt over those who own their homes?
Yeah, I want a flat tax too, so we don’t punish success with ‘Progressive Taxation’.
In Vancouver, and elsewhere, foreign buyers and low interest rates have distorted the market. Housing should be affordable for the people that live there. And yes, the people that buy at the top, flip and buy investment homes should get burned and burned badly.
“There is no ‘right’ for people to own a house. You work, save, stop going to eat out, don’t buy a flash car and buy a place that fits your budget.”
Looking at the bigger picture, there is no ‘right’ for a handful of people to ‘own’ most of the earth either – free of that constraint everyone would indeed be able to own a house pretty easily.
There is nothing to say that people haven’t got the right to use the land as convenient, we live in a very strange exclusionary world that twists us into a wage slave existence for the benefit of the very few and unworthy.
Take a look at how much of the money you earn goed into food production and building costs – the rest is the fiscal drag of The System, which makes it’s defence rather nonsensical.
Been watching RE in Calgary. Chatting to a few RE agents, condos are getting knocked down 5-10%, still further to go. Owners are behind in mortgage payments, many by several months; they’re just sitting empty – they obviously don’t want to lose their property… but it’s starting to unravel. Of course, Chinese are now taking buying trips to Calgary, snapping up penthouses for cash.
.
,.
]Where I am you can be behind 2 years in payments
and the banks are reluctant to file foreclosure
they still must not want it on their books.
.
I have a friend who did not make a payment since September 2014
they just filed the foreclosure action now and it can EASILY take 2 years in the courts ( without a payment and the bank pays the property tax ) .
.
.
It can EASILY take 4 years to get it through the system, I have another friend it has already been 6 years, the house has STILL not sold.
.
.
I live close to Vancouver, 40 min. Real estate is a religion here, almost every piece of advertising space is plastered with the friendly face of a realtor, some with Chinese lettering. People are walking around dazzled by their property assessments. The faith in real estate is absolute. Prices are still climbing in my area with modest houses costing a cool 1 million. The price drops in Vancouver have not yet been noticed by the local denizens, houses selling a bit slower, but steady still. In the past few years Mercedes, Porsche, BMW, Audi, Infinity, Jaguar/LandRover dealerships sprung up all bunched together as if this little neck of the woods was somehow paved with gold. When the wealth effect gets ratcheted back and negative equity becomes more common, I bet people are going to get mighty bitchy…
Good comment, JZ.
Wolf, your article is once again in error. It stated, “Canadians have been gung-ho about their magnificent housing bubble, feeding it with an endless willingness to pay ever higher prices,”
Should read: “Some Canadians”, or “Many foolish Canadians”, or “Some deluded Canadians”…. (You get the point)
City living Canadians suffering from real estate-itis do not solely represent our country, people, or values. JZ said it well, that reckless policies helped create the mess. I would add that many people have forgotten their sanity. It reminded me of the Klondike Gold Rush. By the time everyone got on the bandwagon, those who struck it rich had already found the gold and staked the claims. Today’s laundered money investors forcing the housing hype are like the overnight brothel owners and store keepers selling supplies and dreams in 1896.
As you travel away from where the Chinese are laundering their money through housing purchases, the prices decline in direct correlation to distance. 25 years ago Germans forced up the prices of ranch property in the Chilcotin in a similar fashion.
I live a 2.5 hour drive west of Nanaimo. Nanaimo is just across the ‘pond’ from Vancouver, a 1.5 hour ferry ride, or 15 minute seaplane ride away from the inner harbour. Nanaimo prices are probably 25% of Vancouver’s. Our home and property would be priceless in Vancouver, perhaps $950,000 in Nanaimo, and has a resale value here, of perhaps $500,000. That includes 140′ of riverfrontage and an additional 16 acres of property zoned residential, but left in pasture and woodlot. The views are spectacular in all directions. I originally paid $110,000 for the riverfront property which included a home and shop.(2006) The 16 acres sold for $200,000 and is most likely worth less than I paid for it in 2008. However, at the time of purchase the same amount would have bought 2 city lots just a 45 minute drive away.
This is a big country with a diverse population. Not all of us are stupid with their home purchases.
regards
When I wrote the word “Canadians,” I instantly figured, remembering how you responded last time, that you’d take exception with it. And I totally understand. Not everyone is in the same boat.
I live in one of the worst cities in canada for real estate. I just received my Mpac review of my 3 bedroom townhouse and its sad. Not receiving the benefits of this hot market. Lol. It can be very affordable city if u needed it to be. Its a huge manufacturing town and we had the crap kicked out of us.
To help us all, would you mind sharing what city you are in?
I ‘m guessing Windsor. My son just got a great job there and the housing costs are actually affordable. He may very well buy a house there in a year or so after he has paid off his student loans (did co-op in engineering so takes an extra year but walks out with 2 years work experience and little to no debt) and built up a down payment.
Windsor is right. We were the auto capital of canada. I work in the auto industry so this is all important for me. Things have gotten a little better with the collapse of the canadian dollar. But the area isnt bad and very affordable.
Will the burst come to Australia? HAM is of plenty….
Are mortgages full recourse in Canada? I believe they are in OZ. lives could change dramatically when rates rise in the U.S., and external funding gets squeezed.
Great read about what was coming:
Greaterfool.ca
An here I am thinking we have such a problem in California with corrupt city and state governments. But wow, British Colombia and Vancouver take the cake! Money laundering on an international scale to the tune of billion every year. That’s hardcore.
Money laundering met with apparent indifference by Canada’s tax authority: Canada Revenue Agency. Its scale suggests something worse than mere bureaucratic incompetence: ugly and very unCanadian words, such as collusion and graft, spring to mind.
Ian Young of South China Morning Post has recently detailed CRA’s inaction,
http://www.scmp.com/news/world/united-states-canada/article/1989586/leak-reveals-secret-tax-crackdown-foreign-money-real
and its “vicious” reaction to leaks revealing same:
http://www.scmp.com/news/world/united-states-canada/article/2008684/canadas-tax-agency-out-blood-not-global-income
Oops, sorry! 1st link above is related, but it should have been this:
http://www.scmp.com/news/world/united-states-canada/article/2005794/canada-tax-chiefs-knew-foreign-moneys-big-role
“Canada tax chiefs knew foreign money’s big role in Vancouver housing market 20 years ago, leaked documents show, but they ‘ignored’ auditors’ warning
Team of investigators tried to raise alert about tax cheating after 1996 analysis found rich new immigrants dominated luxury property market, buying 93 per cent of homes in two cities, while declaring extremely low incomes”
I know several millionaires who’ve moved their entire family to Canada, they say it’s incredibly easy to hide their true wealth, they receive full benefits and social services from Cad government. It’s a joke really.
Our Australian housing bubble is now bursting, particularly appartments in Sydney and Melbourne.
It appears all those Chinese (dumb money) buyers of Australian appartments were lured into this speculative ‘get rich quick’ frenzy by corrupt Chinese Real Estate Agents.
These Chinese buyers purchased off the plan with 10% deposit that was lent to them by the Real Estate Agents brokers in China.
The balance was due after completion which could be 3 or 4 years down the line by which time the property was assured of at least a 50% gain in value.
As these Chinese buyers would never have the money to complete the sale, let alone repay the initial 10% deposit, they were assured that they could sell the appartment when complete at a profit of at least $200k.
Now that these Chinese buyers realise these capital gains are turning into capital losses, they are fleeing from their contracts by the thousands.
With many Chinese borrowing from Australian banks of recent due to the Capital controls imposed in China, they are defaulting on their loans and the Australian banks are now finding out that nearly all Chinese loan applications are fraudulent and have stopped lending to Chinese nationals.
Haha! As bad as Dubai, and they turned it into an art form.
I was recently reading about the downturn in Miami and started looking at listings in south Florida. I noticed that some of the homes formally being rented by the big corporate renters are now on the market. The properties are easy to identify because they are all upgraded with the same features. If the corporate renters are unloading houses they must need the cash. It could signal peak rent has finally happened.
ZeroHedge reported citing Bloomberg that the Chinese consul to British Columbia criticized the 15% tax by mentioning poor Chinese students who are now unable to cough up the extra cash for their multi-million dollar money laundering property purchases.
This is blatant incursion into the internal domestic politics, or does China think that British Columbia IS it’s internal matter?
In a number of cases when decision did not go their way, China has become quite irritated and vindictive. Take for example the decision to review the Hinkley Point power plant. The British government is the customer, and there was barely a noise from the other investor, EDF.
The corrupt Politburo officials need a backup plan for when things start going bad on the mainland!
Australia blocked the Chinese from buying a majority stake in Sydney NSW’s electricity grid and Chinese are crying like a shitty piglet. They really must think the Communist Party rules the world not just China
Toronto Real estate is getting lifted again due to vancouver 15% tax.
Everything below 1.5 mill is selling like hot cookie.
Reminder: Price of average Toronto house is now over 1.2mill and this is usually tear down post II world war small 2 or 3 bedroom house.
Entire neighborhoods are getting revamped with beautiful newly built homes priced anywhere between 2 and 5 millions. You can hardly walk any street and not see houses being renovated.
How long this will last nobody knows.
One thing though: If I wanted to live surrounded by Chinese I would move to China. Many people are selling for the same reason and moving to smaller cities around Toronto in search of peace and life it used to be.
Interesting article how China is suppressing freedom of press in Canada and the government turns a blind eye.
http://www.nytimes.com/2016/08/28/world/americas/chinese-canadians-china-speech.html
The bubble will continue to be inflated in Canada as long as Chinese can borrow money in China , invest in Canadian property and default on their Chinese loan after moving to Canada.
This is happening on a big scale and given China’s size will continue for some time. When you are getting free money, price is the least of your concerns. It is unfortunate for the locals that are priced out of their city, but I think if you can build a shoebox in the sky for 200k and sell it to some foreign investor for 1million, I say bring it on, we have a great money making market niche . Let the construction boom and make sure the Canadian banks are not doing smth stupid and the canadian taxpayer ends up footing the final bill, it is hard to resist easy money….
I too am a citizen of the world and a Canuck, and completely agree Canada should take full advantage of the exodus of corrupt Chinese cash escaping from China. It’s a dog eat dog world —- and they really do eat dogs in China. Ick.
It’s no worse than NYC selling once prized assets like the Waldorf Astoria to shifty Chinese buyers who will promptly turn the historic hotel landmark into condos (ie. escape plans for corrupt cash).
“It’s no worse than NYC selling once prized assets like the Waldorf Astoria to shifty Chinese buyers”
It is worse in Vancouver/Toronto, because:
1. the assets are fewer and cheaper, and
2. the buyers are more numerous and active, given Canada’s highly favorable immigration and tax environment for world’s rich criminals.
Asset bubbles may seem great for those that rejoice in the losses of others as they cannot afford a house themselves.
The loss in real estate values will have major negative implications worldwide.
It may forces mini depression in Canada.
Wealthy homeowners have funds to get thm through the hardships however millions of Canadians are living on credit what happens to those poor souls .
Sometimes be careful what you wish for a strong real estate sector creates massive wealth .
That moron christy Clarke blew Canada’s chance of becoming the new Switzerland . Real estate in BC was better than any bank and thanks to the inept premier of my dear province she has destroyed our economy , thank you Christie the ndp will be guaranteed a in because of your selfish piggish nature.
==> “a strong real estate sector creates massive wealth.”
There’s something you need to understand: when a house doubles in price, it’s not because the house doubled in size or became twice as nice… it’s because the DOLLAR lost half its value in relationship to housing. This is called “asset price inflation.” We’ve had a ton of it.
Among the other types of inflation are consumer price inflation, producer price inflation, and wage inflation of which we’ve had very little. What central banks have done is create asset price inflation. Inflation is not “wealth.” Inflation is the destruction of the value of money.
In August of 2006, The Economist chronicled “asset price inflation” in the US to a tee. They reported this stunning stat.: Total aggregate residential home value in US on 1 January 2001 was $14 trillion, and just five years later on 1 January 2006 it was $23 trillion!
How do you add 9 to 14 in five years on realistic appreciation and new construction? Of course, the answer is you don’t.
And more importantly, a “strong” real estate sector creates massive debt that has to be paid back some time, even though it is suggested that this will be postponed into the indefinite future. It is all money stolen from the future, used for unproductive purposes.
The NDP making a comeback in BC? Please say yes. I have fond memories of the NDP freezing and slashing university tuition fees – making it affordable. They can fund it with a mansion property tax, or something equally of social conscious.
As for the average Canadian with 160% debt to income ratio? Sucks to be them! My advice, get a Cad Government job, they’ll take care of you.
All bubbles create enormous paper wealth. Before making that wealth disappear many times faster than it was created. See the tech bubble of 1996-2001 for a recent example. 5 years up, and one very ugly year down. Or the US housing market of 2002-2008. True wealth is created by producing something of lasting value. Asset bubbles, on the other hand, rely on the same assets being repriced ever higher. Are you sure this represents an increase in wealth? Or is it just a Ponzi scheme fueled by cheap debt and laundered money?
Well put, Alistair. However, some fortunate people sold their modest houses in Vancouver for a fortune, just in time, and retired to Nanaimo where they bought beautiful homes for a portion of that with money left over to put in their retirement pots. This does not negate your points.
We’ve seen all this before. Stories from the ’80’s of Japanese roaming the streets of Honolulu with briefcases of cash, walking up to front doors and making cash offers. Xenophobic novels like Rising Sun and oblique movie references like the Nakatomi Towers in Die Hard. A few years later and they’re gone like a puff of smoke in the wind. The locals chuckle, pull the bags of cash out from under the bed and buy everything back for pennies on the dollar.
Behind the problem is the driver of rents.
In theory as interest rates fell, rents should have started to drop. Not necessarily on older buildings, but on newer ones financed at insanely low rates. But that never happened. rents kept increasing.
So where I live $1200 gets you a one bedroom apartment. But you can get a semidetached house for 280,000 for roughly the same payment (of course property taxes of an extra $200/month as well). So not out of line. But what really is out of line is the rent – and it pushes up the bottom end of the property market, and then everything above it.
Sorry, but rent is definitely not driving Canadian housing prices, especially in Vancouver. Rents have trailed far behind the increases in property prices. Try finding a cash-flow positive rental property in any major Canadian city today.
There are plenty of places you can cash-flow in Canada.
Windsor, for a start; although rents are low, sale prices are very reasonable (less than $200K for a decent house).
K/W is another – you can buy a freehold townhouse for $300K and rent it out for $1350 quite easily…about 4.3% return, after property taxes. If you buy with 25% down, you are getting a 17% cash-on-cash return, just as an example.
Where I live my house has been valued at £100,000. My wage would be £20,000 pa if I was going to work. I paid £1050 for my house and at that time my wage was £1500 pa. Work it out. The banksters are making a killing and laughing at society the world over. The enslavement of the race is now well underway.
The “elites” love their numerology “dates”.
Take a look at the calendar. When is next year’s G20 meeting, and where? Who is hosting? Their swansong no less!
Watch as Erdo’pig’ ruins the globalist love-in lovefest next Summer of Merks & Hitlery & TMay by unleashing as many refugees as he can muster to make 2017 the year the EU was broken.
One can only hope Madame Le Pen is also invited to this G20 gabfest to really shake things up with an urgent “Frexit” asap in 2017.
Just to put a finger on it – the date you’re after is 17-7-17. The most numerologically perfect date to ‘push the button’ on the “controlled” (lol – laughable, but they’ll try) collapse since, well, when was it again that the first credit event that signalled the oncoming GFC 1.0 happened?
Was it perhaps 7-7-7? Or was it 17-7-7? No matter – the die has been loaded folks – you have a year.
Interestingly, what was blamed for that credit event was the soaring oil price towards $150 per barrel.
On this occasion, from early next year, it will be the plummeting oil price that is blamed. It is only the US election cycle and the necessity of getting “our girl” Hitlery elected in November that is keeping the oil price up at the moment.
The minute the American Great Big Election show is over, the oil price will start to head south.
How far south? I believe it will crash under $10 per barrel and bring on chaos. Might not be under $10 for very long, but long enough to flush out a whole lot of “trash”.
You’ve been warned folks. You still have time……..
Canada seems like a really popular topic. Lots of responses
rather lots of anxious Canadians…
The foolhardy policies of the Bank of Canada leadership have been the key to this bubble, making Canadian real estate attractive to international speculators by crushing the value of the Canadian dollar. Low interest rates have an effect domestically at the same time as the monthly payment people have to pay on a mortgage allows them to buy at much higher prices, and so they do.
if the cost of $$ is 0% then the price of everything is infinite & canada’s home prices are low….
that is the end of the pig path the central banks have society on.
in a 0% world, money is the only thing that matters; integrity, ethics, social cohesion, work ethic, etc… all suffer.
$$ does not go with you when you leave this world; your experiences do…
Has Montreal made their pitch to the disillusioned Chinese shut out of Vancouver and Toronto? :)
Oh god. Property taxes and regulations in Quebec are a killer.
Wolf you cannot blame the increase all on the currency speculation and free market forces shoutdoor be allowed to dictate.
What right does bc government have to destroy wealth creation . Wealth has increased due to the real estate rise .
Perhaps Christie lay off 15 percent of her government as well . She is toast due to her lack off fiscal management. The real estate business bubble kept her in power.
Time for a change
And it was already explained to you that rising prices do not represent wealth creation. Rising prices – be they financial assets, consumer assets or consumer goods – represent inflation. Inflation is the opposite of wealth creation. Inflation first tranfers wealth, then outright destroys it. That second step was going to arrive sooner or later, whether Christie implemented her tax or not. At best, she just fiddled with its timing a bit.
If you honestly think free markets are what is driving the current global asset price bubbles, including Canada’s housing bubble, then there is much you simply don’t understand. Or you just don’t want to. Central banks purchasing trillions in financial assets, and keeping interest rates far below any reasonable level for 8 years, thereby intentionally creating asset price bubbles across the globe, represent a gross and unprecedented distortion of the free market. That market ain’t free, and you’re about to pay the price.
“If you honestly think free markets are what is driving the current global asset price bubbles, including Canada’s housing bubble, then there is much you simply don’t understand.”
Of course you are right: since 2009, credit creation has no antecedent in the economic history of developed economies to my knowledge. Uniquely Canadian factors have been looser mortgage regulation (e.g. 40 yr amortizations, albeit brief) and the ease of money laundering / tax evasion linked to an highly immigration-friendly environment. These have created an RE bubble that will almost certainly appear in future economic textbooks, if only as a footnote.
A real estate bubble is not wealth creation at all, it is debt creation and means economic destruction at a later time because the debts have to be paid. You cannot have housing prices rise forever relative to incomes (although countries like the Netherlands are trying to prove you can, with ever more desperate measures). A RE bubble steals money and resources from more productive sectors of the economy while producing exactly NOTHING.
Housing bubbles are just like those other bubbles from the past: the tulip bubble, the South Sea bubble, etc. They did not create any value (or only very little) and after the few years of newfound ‘wealth’ came a long period of dealing with the debt and economic destruction that these bubbles created.
oh ok so when real estate goes up due to a bubble it is monopoly money according to you guys
wealth creation is money . Bubbles create extreme wealth.
it has created a lot of value for those that profited from the bubble including myself and others that i know.
inlation is an increase in prices which is wealth creation.
let the free decide the outcome not the government.
we need in canada to change our socialistic thinking and
let markets dictate.
…inflation is an increase in prices which is wealth creation
We just finished explaining to you that it isn’t. And that the asset bubbles we’re seeing are not driven by free market forces, but by deliberate central bank manipulations of the value of money. You just chose to ignore all of it, and repeat yourself. That’s your problem.
But I see your motivations now. This bubble has benefited you, so of course anything that might end the gravy train is bad for you. Indeed, it must be difficult to see the fatal flaws in the system when one’s well-being and success are directly dependent on those flaws. If you’ve done well in real estate so far, maybe now is a good time to cash your chips in and walk away with a nice chunk of money. Or, you can keep arguing that the party must never end and completely ignore economic history. Let us know how that works out for you.
The free markets have spoken all asset bubbles are over Baltic dry index new low HaNJin shipping bankruptcy the free markets will allow for one more bumpl up to trap all the suckers before the final collapse of 2017. Yes the bubble has worked well for me.
Some interesting insights into the Toronto and Vancouver housing bubbles can be found here:
https://www.linkedin.com/pulse/toronto-vancouver-home-prices-verge-25-collapse-mark-petrov?trk=prof-post
In general, it appears that the bubble is certainly concentrated within the single-detached home sector, but this sector has also been responsible for lifting all other housing types.