# Housing bubble about to burst?



## carverman (Nov 8, 2010)

Canada's house of cards?


> Put another way, *real estate now makes up close to 13 per cent of Canada’s GDP, compared to less than 10 per cent for energy*.






> Because, for all the talk of Canada being an energy superpower, we’ve clearly shown that our greater strength lies in buying, selling, renovating and renting houses and condominiums. The economy certainly relies more on what gets built above ground than what lies beneath. Back in the 1990s, the manufacturing and energy industries were larger than the real estate sector, but, over the years, they’ve changed places.


*Should house prices actually crash, then we’re looking at a crisis far worse than anything oil prices could inflict.
*

www.macleans.ca/economy/realestateeconomy/canadas-housing-market-and-then-there-were-two/


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## none (Jan 15, 2013)

I'm fully into the 'who the hell knows' category.

All I know is that belief is a powerful thing. Housing has been so disconnected from fundamentals for so long that everyone (besides Canadian homeowners) is surprised by this. Like I said, belief is a powerful thing.

A similar thing happened with the NASDAQ tech bubble. People were shorting it far too early and lost a load of cash as a result but it did crash down eventually. 

One thing that is absolutely true is there are many home owners, I'd day even a critical mass of them, that couldn't survive if interest rates went to 5%.

One scenario I see that could happen is that if the American economy does continue its recovery they increase rates (to avoid their own housing bubble) which could force Canada to raise ours just to keep up unless we want a $0.2 dollar.

Anyway, doesn't matter. Even at current interest rates renting my modest place is far cheaper than owning (and helps me sleep at night).

I wouldn't mind buying a house in 2018 when hopefully (for me) a good chunk of this housing mess has sorted itself out.

Of course, I live in Victoria which is about 8% down from peak so maybe our correction won't be as large.

I see it ending in a pretty sad way - anyone who bought pre-2005 (or something) will be fine and will have just lost phantom equity, however, all those young adults who got pushed into buying a house by their parents will have this financial black spot on their neck for a life time. It can be pretty hard to recover from a 100-200K loss (at worst)


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## marina628 (Dec 14, 2010)

People seem to forget to get a mortgage you have to qualify for the 5 year posted rate which currently at TD is 4.74% while variable is at 2.25% right now so rates can increase a full 2.5% before today's buyers will not be able to pay that mortgage.In some markets such as the Toronto condo market it definitely makes sense to rent than buy unless you are sure you plan to spend the next 5-10 years living in the same place.We are in position to pay cash for a condo for our daughter to live in but we elected to have her rent as when you factor in the maintenance fees , property taxes and insurance our money will make more elsewhere.


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## sags (May 15, 2010)

If interest rates go up on mortgages, they likely will go up on the other debt homeowners are servicing as well.


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## Ag Driver (Dec 13, 2012)

Give me a moment, and I will tell you exactly when the housing bubble will burst.


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## sags (May 15, 2010)

LOL...........Finance Minister Joe Oliver says there is no housing bubble.

If we can't trust Joe............who can we trust ?


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## carverman (Nov 8, 2010)

sags said:


> LOL...........Finance Minister Joe Oliver says there is no housing bubble.
> 
> If we can't trust Joe............who can we trust ?


Mybe Joe has his own crystal ball that is giving him future predictions?

After all he did work for Merrill Lynch, Nesbitt Thomson, director of the OSC Securities Commission and CEO of IIROC...and he of all finance ministers should know.


http://business.financialpost.com/2...canadians-not-buying-houses-they-cant-afford/



> Our educated opinion is that growth in house prices in Canada will moderate. *If we are wrong, and price growth remains strong or accelerates, we may need to look to macro-prudential counter-weights to avoid excesses*. As I said, we are currently evaluating them."


Hmm..'macro-prudential counter-weights"....sounds like a lot of hogwash disguising the fact that they
really don't know what is going to happen.

http://www.huffingtonpost.ca/2014/09/23/canada-housing-bubble-cmhc-evan-siddall_n_5864066.html


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## Beaver101 (Nov 14, 2011)

carverman said:


> Mybe Joe has his own crystal ball that is giving him future predictions?
> 
> After all he did work for Merrill Lynch, Nesbitt Thomson, director of the OSC Securities Commission and CEO of IIROC...and he of all finance ministers should know.
> 
> ...


 ... LOL! Nothing to make him sound so educated as to spew a bunch of heavy-duty-sophisticated-sounding words. 

Just jack up the mortgage rates and watch the housing market start shaking.


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## Toronto.gal (Jan 8, 2010)

carverman said:


> *'macro-prudential counter-weights"*....sounds like a lot of hogwash disguising the fact *that they really don't know what is going to happen*.


Exactly because of the latter that they need the former, i.e. the prudential tools to limit shock. :biggrin:


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## carverman (Nov 8, 2010)

Toronto.gal said:


> Exactly because of the latter that they need the former, i.e. the prudential tools to limit shock. :biggrin:


Yes, they know what they are doing...the instructions are very clear..as in doing the hokey-pokey..

"You put your right hand in, You put your right hand out,You put your right hand in, And you shake it all about,
You do the hokey pokey, and you turn yourself around...That what it's all about." :biggrin:




> ONE does not need to look back far in history to see the economic damage an asset-price bubble can wreak. However, the question of how to prevent these bubbles remains contested.





> But monetary policy is a blunt tool. *If a central bank raises interest rates to restrain asset prices it may increase unemployment, and risk an outbreak of deflation*—as was the case recently in Sweden. T*he smarter alternative to this sledgehammer approach is to introduce targeted rules to reduce instability across the financial system. These are known as macroprudential regulations *(in contrast to microprudential regulations, which protect individual consumers or firms). What do these rules look like in practice?





> The overall efficiency of these tools, however, is still uncertain. Spain’s use of "dynamic provisioning", an accounting technique designed to build up capital buffers in good times, did not stop the banking system from requiring a bail-out. And credit markets are closely interconnected, so restricting the market for mortgages may affect business credit in unintended ways. *Although bubbles look obvious with hindsight, predicting them is tricky. *


http://www.economist.com/blogs/economist-explains/2014/08/economist-explains-1


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## hboy43 (May 10, 2009)

Hi:

I sold my rental house in Ottawa back in 2011 (2010?) and was happy to be free of it. I read recently that Ottawa prices have receded back to 2012 levels, so I am looking lucky so far with the sale. I held it 4 or 5 years after moving out to the bush and those years were the only ones (maybe 2 or 3 before too) that really made me any money in the ~20 years I owned the place. Even then it was only a 1 or 2% PA over inflation for the 20 years. In my 30 years as a home owner I have certainly never seen 8% PA forever like those lucky sods in Toronto and Vancouver the last 10 or 15 years.

I think RE is way overvalued in a few places and I base this on two facts: house price:family income ratio of ~ 10 in places when a more historic number would be 3 to 5, and interest rates soooo very low. Do I think it will all come crashing down? No idea, "the market can remain irrational ...". All I can do is not buy RE in these markets and be on the lookout for any secondary and tertiary effects that might affect my investments.

Consider a dentist making a 1/4 mil a year. Sure he can afford a house in Van or To, but what about his 5 or 6 employees making $30 or $50K/year. Where do they live? In the long run it just does not make sense and should correct itself, but who knows when or how that might happen.

In the mean time all the RE fans get to pat themselves on the back, and say how RE will always and forever be a better investment than stocks, in the comments of the G&M and National Post. The same folks and their opposites go at each other in the comments of every RE article (or even tangentially a RE article), one side never convincing the other of anything. All good fun.

hboy43


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## Cal (Jun 17, 2009)

Good for you on the sale. I find many people are wealthier due to the increase in valuations of RE, however many do nothing to harvest that wealth.

As a generalization, I find that RE is not as easily cash flow positive as it once was, and I personally use that 'metric' to determine whether RE is overvalued or not.


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## the_apprentice (Jan 31, 2013)

Well done hboy!



Cal said:


> I find many people are wealthier due to the increase in valuations of RE, however many do nothing to harvest that wealth.


In their defence, real estate has continued to be the most profitable investment in the past years; at least since I've been alive! I've seen neighbours, acquaintances, and friends all try to time the market and have either liquidated into cash or sold expecting a crash. After the sale of their home their advice to others was to hold onto the property as their net worth slowly deteriorated after the sale. They lost out on a few hundred thousand dollars by trying to time the market.

It's hard to argue what the best option is, but _to each his own_.


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## Davis (Nov 11, 2014)

Here are some articles that make convincing arguments for there being a housing bubble about to burst:

http://www.cbc.ca/news/business/be-very-afraid-of-the-canadian-housing-bubble-1.1155126 The Economist, Canadian Business, the Wall Street Journal, Maclean's, 2012

http://thetyee.ca/Opinion/2009/10/22/BubbleWillBurst/ The Tyee, 2009
 
http://www.canada.com/ottawacitizen/story.html?id=04fe6225-ae78-4e70-84e0-6d340844ab01 -- Merill Lynch's prediction, 2008 

http://runningofthebulls.typepad.com/files/canadian-housing-bubble.pdf Schulich School of Business, 2010

http://privatewealthmagazine.ca/housing_bubble.html Private Wealth Magazine, 2011 

I'm sorry that the articles I've selected are not very recent (but I think you will get my point here).


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## carverman (Nov 8, 2010)

Davis said:


> Here are some articles that make convincing arguments for there being a housing bubble about to burst:
> 
> http://thetyee.ca/Opinion/2009/10/22/BubbleWillBurst/ The Tyee, 2009


Whew! that's a lot of reading..however..I gleaned a paragraph of note from one of the links...



> If that sounds like sub-prime mortgages, it should. Sub-prime is any loan below prime. If a bank refuses you a loan, and CMHC gives you one, the loan is sub-prime. As Lepoidevin says in his warning letter, *"Every single U.S. lender specializing in sub-prime has gone bankrupt. The largest sub-prime lender in the world is now the Canadian government.*"


One point here...if the Harper gov't is still around in 2-3 years time and the BOC starts to raise interest rates again..(Joe' Oliver's 'macro-prudential economics/counter-weights), 
implemented to stem off the overheated real estate market in some larger centers...that could be the very pin that starts it all as the latecomers will have taken on too much debt.


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## Woz (Sep 5, 2013)

marina628 said:


> People seem to forget to get a mortgage you have to qualify for the 5 year posted rate which currently at TD is 4.74% while variable is at 2.25% right now so rates can increase a full 2.5% before today's buyers will not be able to pay that mortgage.


That's only true if you go for a variable rate with less than 20% down or a fixed rate with a term less than 5 years. In the latest quarter 86% of the loans insured by CMHC were fixed rate so for the vast majority of borrowers, they’re qualifying at the discounted rate.


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## My Own Advisor (Sep 24, 2012)

Smart move hboy43, re: "I sold my rental house in Ottawa back in 2011 (2010?) and was happy to be free of it."

The housing crash, if it will ever happen, IF, won't affect Canadians who have been diligent about killing debt and have their mortgage almost put to rest. People who are mortgage free and debt-free probably do not care for the most part what will happen. They have to live somewhere and it might as well be a debt-free home.

The housing crash will impact those poor souls the most in VAN, TOR, CAL and MTL who believe RE is a path to riches; severely leveraged. They might be house rich asset poor now but it could get worse, house poor and asset poor. 

Time will tell I guess!


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## none (Jan 15, 2013)

I don't totally agree. I have a few colleagues who are sitting on their houses here in Victoria b/c prices are still below the 2010 levels - even though they bought in 2000. Anything from peak feels like a loss to them.

Also, If I had a paid off house worth 600K and then 2 years later I could only sell it for 200K I would be pretty bummed. Losing out on a 200K tax free gain is a pretty sweet boat to miss.


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## sags (May 15, 2010)

As a long time home owner, who never paid less than 7.9% interest and didn't see any major rise in home values, I sometimes wonder how people can resist cashing out and banking the big pile of free money.

But how do you time the market ? When is a person convinced enough is enough ? It is easy to look back and say " I should have sold when...."

If it was a sure thing that people could sell today and buy a better home for half the money in a couple of years, everyone would be selling.

But we can't get next year's newspapers today.


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## KaeJS (Sep 28, 2010)

I don't even think there will be a crash yet.

I think we have a few years at minimum before this even starts.

What's going to cause the crash? People who can't afford to buy houses will just rent from the people who can buy... Is it expensive to own a home? Maybe. But 2 people on an average salary should have no problem affording a home. That's why houses are not going to decrease in price. Anyone pulling in 80k+/year for family income can afford a house. Maybe not a million dollar Toronto home, but they will find a way to make it work.


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## Eclectic12 (Oct 20, 2010)

sags said:


> none said:
> 
> 
> > ... Also, If I had a paid off house worth 600K and then 2 years later I could only sell it for 200K I would be pretty bummed. Losing out on a 200K tax free gain is a pretty sweet boat to miss.
> ...



Then too ... there's work to moving and if one is choosing to rent until prices are better, there may be several moves involved.


Cheers


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## off.by.10 (Mar 16, 2014)

Eclectic12 said:


> Then too ... there's work to moving and if one is choosing to rent until prices are better, there may be several moves involved.


Add kids and it's even less interesting. They might loose friends, have to change school, etc or you severely restrict your choices to stay in the same area. Having a place to call home with the possibility of staying there 20+ years is valuable to some of us. Unless forced to do otherwise for work (unlikely in our case), we're paying off our house and likely staying there until it feels too large, market be damned. It's a place to live, not an investment.


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## the_apprentice (Jan 31, 2013)

KaeJS said:


> I don't even think there will be a crash yet.
> 
> I think we have a few years at minimum before this even starts.
> 
> What's going to cause the crash? People who can't afford to buy houses will just rent from the people who can buy... Is it expensive to own a home? Maybe. But 2 people on an average salary should have no problem affording a home. That's why houses are not going to decrease in price. Anyone pulling in 80k+/year for family income can afford a house. Maybe not a million dollar Toronto home, but they will find a way to make it work.


Also, many millennials do have financial support from parents if necessary. Seems like the younger generation is positive towards being a homeowner and real estate prices rising, meanwhile the older generation is very cautious and fearful.


I always thought that a "crash" would happen if:
*My definition of a "crash" is a 15% decrease in price, specifically in Ontario.

1. Interest rates rise and/or
2. Oversupply (specifically from the downtown Toronto condo market)


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## none (Jan 15, 2013)

off.by.10 said:


> Add kids and it's even less interesting. They might loose friends, have to change school, etc or you severely restrict your choices to stay in the same area. Having a place to call home with the possibility of staying there 20+ years is valuable to some of us. Unless forced to do otherwise for work (unlikely in our case), we're paying off our house and likely staying there until it feels too large, market be damned. It's a place to live, not an investment.


It's an investment whether you want to call it otherwise or not.

It's a tremendously value able asset that can appreciate or depreciate in value. You're stuck with it.


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## Parkuser (Mar 12, 2014)

I went to an Ottawa mall-optometrist recently, to get new glasses. Instead of talking about my deteriorating vision he spent most of the time talking about building and selling luxury houses. He was, or wanted to be, a RE developer on the side. The only problem is, apparently banks will not finance, so you need cash. 

To me it is a sign of the peak, when an optometrist is more concerned with the RE than with his job.


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## peterk (May 16, 2010)

the_apprentice said:


> Also, many millennials do have financial support from parents if necessary. Seems like the younger generation is positive towards being a homeowner and real estate prices rising, meanwhile the older generation is very cautious and fearful.


I think this is an often overlooked aspect of this charade of a housing market, and the entire economy as a whole. Boomer parents are desperately trying to prop up their children who are floundering to get a career started. All the reports of young people only being able to get part time jobs and low paying jobs, but you don't see any actual suffering of millennials. How can this be? Boomers are just beginning retirement, are at the end of their careers and at peak earnings, their stock holdings are high, and their home values have shot through the roof! They no doubt feel they can "afford" to help their kids out. 

Fast forward 10-15 years from now, the same people are now retired, not earning income, the stock market has been through another major decline (and hopefully recovery?) and the value of their house is 10-30% lower than it was a decade earlier... Let's see who's willing then to give so generously for their kid's or grandkid's down payment, or pay their rent for a couple years while they're "getting started".

Older people giving more and more money to their children is a huge issue in the sense that it's masking and hiding the negative impacts that the poor economy has had on young people, and is propelling governments and corporation to continue on like everything is perfectly fine while the western world is crumbing around us.


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## Eclectic12 (Oct 20, 2010)

peterk said:


> ... Boomers are just beginning retirement, are at the end of their careers and at peak earnings, their stock holdings are high, and their home values have shot through the roof! They no doubt feel they can "afford" to help their kids out.
> 
> Fast forward 10-15 years from now, the same people are now retired, not earning income, the stock market has been through another major decline (and hopefully recovery?) and the value of their house is 10-30% lower than it was a decade earlier... Let's see who's willing then to give so generously for their kid's or grandkid's down payment, or pay their rent for a couple years while they're "getting started".


I'm not sure how accurate the "not earning income" is going to be ... never mind if a house value drop of 10-30% is going to be significant compared with owing a house for 20+ years.

Then too, according to Stats Can - the 2012 Canadian family net worth in 2012 was $243,800 - up almost 80% from the 1999 median net worth of $137,000. For those approaching retirement (age 55 to 64) the median net worth jumps to $533,600.

Principal residence is supposed to account for 1/3 of assets, where the $1 trillion of debt that is mortgages is almost unchanged from 1999. Right behind the principal residence is private pension assets representing 30.1% of the total value of assets. About 7 in 10 Canadian family units had private pension assets in 2012, the same as in 1999 and 2005. 

http://www.statcan.gc.ca/daily-quotidien/140225/dq140225b-eng.htm


Then there's the inheritances to consider.
http://www.thestar.com/business/per...0/baby_boomers_set_to_inherit_1_trillion.html


Never mind that the smarter ones like my parents/aunts/uncles are already passing on after-tax dollars to avoid it being included in their estate.


It would seem there's going to money for a while yet.

Cheers


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## Eclectic12 (Oct 20, 2010)

off.by.10 said:


> Add kids and it's even less interesting. They might loose friends, have to change school, etc or you severely restrict your choices to stay in the same area.
> 
> Having a place to call home with the possibility of staying there 20+ years is valuable to some of us...
> It's a place to live, not an investment.


IMO it also depends on the growth ... the Americans I worked with in 2000 in Rockville, Maryland were smart as they were talking about buying for $300K then four or five years latter getting an assessment for $550K to $600K and selling to move farther out.

With that kind of growth ... the work becomes worth it ... from what I've seen so far, there hasn't been anything close to tempting me to take on the work.


Cheers


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## carverman (Nov 8, 2010)

peterk said:


> Fast forward 10-15 years from now, the same people are now retired, not earning income, the stock market has been through another major decline (and hopefully recovery?) and the value of their house is 10-30% lower than it was a decade earlier... Let's see who's willing then to give so generously for their kid's or grandkid's down payment, or pay their rent for a couple years while they're "getting started".


Some one has predicted that in "The Great Bust Ahead"..saying that the current economy will change as the baby boomers retire , and they have less money to spend in general.. certainly as they head for LTC facilities towards their last years.

But now, there is also the reverse mortgage schemes are becoming more popular and capitalize on baby boomers refinancing their home equity to be more generous to help out their kids.... and maybe grandkids , or spend it now while they able to.



> Older people giving more and more money to their children is a huge issue in the sense that it's masking and hiding the negative impacts that the poor economy has had on young people, and is propelling governments and corporation to continue on like everything is perfectly fine while the western world is crumbing around us.


This is what the author mentioned in the great bust ahead.



> Obviously, a thousand middle-aged people earning and spending $50,000 a year are going to have a vastly different effect on the economy (GDP) than a thousand 15 year-old teenagers spending an allowance of $1,000 a year. According to data published by the US Bureau of Labor Statistics the group with the biggest spending historically is the 45-54 year-olds. This makes total sense.
> 
> They are at their peak earnings with huge matching expenditures to support teenagers, sons and daughters at college, their biggest mortgage, their best cars etc


http://economyincrisis.org/content/...-to-create-the-greatest-depression-in-history


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## peterk (May 16, 2010)

Eclectic12 said:


> About 7 in 10 Canadian family units had private pension assets in 2012, the same as in 1999 and 2005.
> 
> 
> 
> ...


Some income yes, but certainly not nearly as much as their employment income. And the gen X coming up behind the boomers certainly haven't had the same extent of house appreciation nor pension security.

Whether there will be money for a "while" or not isn't my main point though. I'm not sure what the timeline is. The point is that there is a growing number of young people in rich western countries that have little or no money-making potential, and that if they didn't have the boomers as a safety net things would be dire. I don't know if things will improve for young people's job prospects, maybe; But I do know that boomer money will run out definitely. Maybe we won't see the effects after 10 years, it might be 30, but either way **** may hit the fan if one day western nations wake up and discover that half of the 40 year olds work part time jobs for a pittance, and all the money made by the boomers is gone.

I'm not saying this issue is leading to a disaster, just that it's a compounding factor in a struggling economy that I don't think gets discussed very much.


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## CPA Candidate (Dec 15, 2013)

I see a slow leak, not a bubble bursting, with a moderate decline in prices in many regions. I know in Winnipeg, housing prices fell 1% in 2014. They'll probably trend slightly down to flat for several years to come. Balance in the market will be achieved gradually.

I think it should be noted that when it comes to principal residences and instances where a person plans to always own a house somewhere in the same region, there really is no economic gain or loss. If you make money selling on your current house and move to another house, you are just rolling your gain over into a more expensive market, and vice versa. This is the primary reason the tax act does not tax capital gains on a principal residence.


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## none (Jan 15, 2013)

I think the slow leak or soft landing would be the worst outcome. What this would effectively do is spread the losses around so those that bought in with irrational exuberance are subject to lesser loss and those that did not ultimately pick up the slack. Not terribly fair but no one said life was fair I suppose.


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## sags (May 15, 2010)

People should be careful if they are planning their future, and their kid's future based on phantom equity.

If home prices start to decline, the lenders will tighten, and HELOCs, reverse mortgages and other forms of borrowing against home equity will become unavailable.

Much of the problems in the US were due to lenders refusing to lend. There are still millions of Americans stuck in their homes in underwater mortgages.

I remember reading on US mortgage discussion websites, people complaining that their kids were in University when the bank pulled the plug on their HELOC.

Often the HELOC limits were lowered or the limits were reduced in lock step with monthly payments. The banks used home prices in areas to determine lending in that area.

Problem is interest rates just went down to all time record lows for a 5 year fixed mortgage at BMO and TD have already matched it.

Government policy (BOC lowering interest rates) continues to drive mortgage costs lower, qualifications easier and increased prices and debt loads.


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## Cal (Jun 17, 2009)

In a way it is funny how cheap lending drives the market more than actual prices, or unemployment.....


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## new dog (Jun 21, 2016)

Who will live in the suburbs if millennials favour cities?

http://www.zerohedge.com/news/2017-04-24/who-will-live-suburbs-if-millennials-favor-cities

I know they are talking about the US but will this be an issue here? Rents are really high in the cities and so is the cost of buying. Will boomers have a problem selling for the high prices as they themselves move closer to the city or into assisted living.


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## none (Jan 15, 2013)

I have read that millenialls really are not into owning houses as much as the older generation. Really all it takes is a drop in demand and POP. (high interest rates would help too).

Why no as well? Seems (admittedly I've said this before) the majority of big gains have already been extracted from the market so what's the point?


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## new dog (Jun 21, 2016)

The article does go on to say that if millennials have enough kids that could change things. Also if there is another massive world wide QE effort then who knows how high real estate could go. Of course a bubble POP could easily be the first thing that occurs and then could still be followed by all in QE.


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## Pluto (Sep 12, 2013)

sometimes I think it is different this time, and there will be no bubble burst....then I realize that is momentary insanity, or is it? 
clearly prices in TO have to stop going up at rates higher than income growth. but stopping going up doesn't prove it will crash 20-25%. 
What has to happen to keep this afloat? 
1. Well population growth is a factor moving the prices up, so what if the population in the area stopped growing, but didn't go down either? 

2. And what if interest rates stayed low? In order for that to happen, inflation needs to stay low. 
If that happened, the RE market might just plateau and muddle along without any burst or crash. 

I suppose what would most likely end this party would be a recession. In that case there would likely be a temporary net migration out of TO, vacancy rates rise, demand for homes decline a bit...and the market tumbles until the net migration out of town reverses. 

I guess my theory is: if there is no recession, there will be no crash.


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## WGZ (Feb 3, 2017)

new dog said:


> The article does go on to say that if millennials have enough kids that could change things. Also if there is another massive world wide QE effort then who knows how high real estate could go. Of course a bubble POP could easily be the first thing that occurs and then could still be followed by all in QE.


-Millennials are having fewer kids.
-Not driving till later ages, not buying new cars.
-Overall better with their money (well, aside from tech/internet now being a "need" which leads to huge spending all in itself...this probably even replaces car spending unless living in the 'burbs where it is necessary)
-Access to a wealth of information/news/social media etc. when it comes to finances...and everything else. Those that take advantage of this and filter through to the good information out there can benefit immensely.

Then there's the bigger picture: the uncertainty of international security and political stability in the world and how that might impact economies in ways that haven't been since the WW2 era...add on top all the complexities of today's world = who the hell knows what will happen. Even if no new "Great War" breaks out, we have overpopulation to deal with. Pentagon already has a think-tank trying to solve the problem of "future dystopian mega cities".

http://foxtrotalpha.jalopnik.com/leaked-pentagon-video-about-the-future-of-megacities-is-1788420948

Avoiding the big cities might be a good thing. *tinfoilhat*


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## carverman (Nov 8, 2010)

Pluto said:


> > sometimes I think it is different this time, and there will be no bubble burst....then I realize that is momentary insanity, or is it?
> > clearly prices in TO have to stop going up at rates higher than income growth. but stopping going up doesn't prove it will crash 20-25%.
> 
> 
> ...


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## AlwaysMissingTheBoat (8 mo ago)

Figured I'd bump this thread since the housing bubble is as close to bursting as it's been in a long, long time, and yet Benjamin Tal, deputy chief economist at CIBC, doesn't expect a collapse. 


“[Interest rate hikes] will not be enough to bring the [housing] market down to where it belongs,” he stated. 

The other major roadblock he anticipates is a lack of adequate housing supply for newcomers to Canada. 

The projected influx of immigration to Canada will only exacerbate the country’s housing crisis as construction of units which could house these newcomers is nowhere to be found, he said. 

“By any stretch of the imagination, this is not the end of the (housing) crisis. This is just the beginning”, he said. 









Real estate: Canada's housing crisis is just beginning, economist says - BNN Bloomberg


The recent cooldown in Canada’s housing sector doesn’t mean prospective homebuyers can look forward to affordable shelter in the future, according to one Bay Street economist.




www.bnnbloomberg.ca


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## sags (May 15, 2010)

Who are these immigrants arriving to Canada with $300,000 in their pocket for a down payment and the ability to qualify for a $1 million mortgage ?


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## sags (May 15, 2010)

Affordable, affordable, affordable........single family homes........is what Canadians want and need.

They don't want high rise condos or luxury apartment rentals. They want affordable single family homes.

The private industry will never supply them. It is up to the government to go into the business of providing single family homes.

Buy or expropriate land, service the land, put in foundations, set up a sales office and sell factory made homes to be set on the foundations.

Eliminate all the profit taking middle men who drive up the final price.

It isn't rocket science to build subdivisions.


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## james4beach (Nov 15, 2012)

I still think we've been in a crazy housing bubble (driven by near 0% interest rates and crazy CMHC + BoC stimulus) but it might be breaking now.

Big Six banks' price targets slashed by Bay Street analyst

I've warned about this for years. Canadians loaded up on so much debt (especially mortgages and HELOCs) that it was inevitable we'd see problems in a slowdown. The analyst in this article is expecting higher debt servicing costs and loan losses at the banks

​“We expect debt servicing costs to increase to a record high in 2023 and expect (provisions for credit losses) to accelerate and potentially peak in 2024 with inflationary pressures, rapidly rising rates, and provisions for performing loans under IFRS 9 likely pulling forward the recognition of (provisions for credit losses),” D’Souza said in an Oct. 4 note to clients.​​D’Souza added that over the medium term, Veritas is forecasting a high single-digit decline in adjusted earnings among the Big Six banks.​​
The higher interest rates will really hurt the banks. Borrowers are hurting and it's only a matter of time before they begin to struggle paying their debts. Additionally, this has become a bad environment for taking out new loans, and there's going to be a reduction in new loan origination. The banks have enjoyed a crazy "credit boom" over the last 13 years and I seriously doubt it will be continuing.

I still hold bank stocks, they're fine in a diversified portfolio but I wouldn't want to concentrate into banks or REITs in this environment.


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## sags (May 15, 2010)

Neither a lender nor a borrower be.


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## prisoner24601 (May 27, 2018)

AlwaysMissingTheBoat said:


> Figured I'd bump this thread since the housing bubble is as close to bursting as it's been in a long, long time, and yet Benjamin Tal, deputy chief economist at CIBC, doesn't expect a collapse.
> 
> 
> “[Interest rate hikes] will not be enough to bring the [housing] market down to where it belongs,” he stated.
> ...


I think that continued lack of supply is over-stated as an argument for avoiding a housing market downturn. Tal's own research references data (see chart) that shows Canadian building has exploded over the last 20 years and now exceeds the number of new household formed. He goes on to say that the data is flawed but I wasn't persuaded by his arguments and agree we should look at the new census data when available as he suggests.

This Bank of Canada analysis points to an increase in the market share held by investors and decrease in first-time buyers. The business case for owning one or more rental properties becomes less attractive as increasing interest rates increase mortgage costs and bite into landlords cash flow. Lower cash flow and less price appreciation from real-estate coupled with a higher risk-free return offered by alternative investments like GICs may cause downward pressure on prices as investors bail and first-time buyers cannot fill the void due to affordability concerns.


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## Covariance (Oct 20, 2020)

james4beach said:


> I still think we've been in a crazy housing bubble (driven by near 0% interest rates and crazy CMHC + BoC stimulus) but it might be breaking now.
> 
> Big Six banks' price targets slashed by Bay Street analyst
> 
> ...


I'm not really bullish on the sector, but provisions for loan losses just mean lower EPS on paper, and lower taxes. Their cash flow stays the same. True losses only happen when people stop paying their mortgages and they end up with less than the outstanding mortgage on the disposition. Unless there is a complete meltdown I see this as unlikely on Bank's mortgage book. Quite simply, their regulator (OSFI) has pushed them to be more conservative and stress test. The equities that are really at risk are the lesser tiered mortgage issuers and non-banks.


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## Covariance (Oct 20, 2020)

prisoner24601 said:


> This Bank of Canada analysis points to an increase in the market share held by investors and decrease in first-time buyers. The business case for owning one or more rental properties becomes less attractive as increasing interest rates increase mortgage costs and bite into landlords cash flow. Lower cash flow and less price appreciation from real-estate coupled with a higher risk-free return offered by alternative investments like GICs may cause downward pressure on prices as investors bail and first-time buyers cannot fill the void due to affordability concerns.


WOuldn't lower prices solve that? Maybe they need to be a lot lower I don't know, but the only thing market forces wouldn't solve is a mismatch in type or location.


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## james4beach (Nov 15, 2012)

Covariance said:


> I'm not really bullish on the sector, but provisions for loan losses just mean lower EPS on paper, and lower taxes. Their cash flow stays the same.


I don't think it will be that mild. Cash ends up getting directed to derivative losses in this kind of situation (same thing happened in 2008-2009) and the banks also have to boost their capital position.

These are very leveraged institutions. Even small losses suck up cashflow in various ways, margin calls, counterparty payments, etc. Perhaps I'm being overly pessimistic but I do expect cashflow to be affected.

When is the bank fiscal year end? It's pretty soon I think. That should mean they will start paying out massive bonuses and salaries to drain money out of the banks, before the problems hit.


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## Covariance (Oct 20, 2020)

james4beach said:


> I don't think it will be that mild. Cash ends up getting directed to derivative losses in this kind of situation (same thing happened in 2008-2009) and the banks also have to boost their capital position.
> 
> These are very leveraged institutions. Even small losses suck up cashflow in various ways, margin calls, counterparty payments, etc. Perhaps I'm being overly pessimistic but I do expect cashflow to be affected.
> 
> When is the bank fiscal year end? It's pretty soon I think. That should mean they will start paying out massive bonuses and salaries to drain money out of the banks, before the problems hit.


Perhaps. But my comments and the OP referenced article were in reference to their mortgage book.


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## TomB16 (Jun 8, 2014)

When I got into real estate in 1991, the market was about to crash. Prices were at record highs. It was clearly unsustainable.

... And so it has been every year between then and now.

Guess what... Prices should be at record highs, most of the time. There will be the odd crash but success is in ignoring the subjective balloon juice and operating your life/business as best you can.

Looking for the deal of a lifetime to get rich quick is not the path to success. It has been proven an infinite number of times and yet nearly everyone is looking for the quick buck, regardless of how long this has caused them to fail.

We made out extremely well but we could have purchased at any peak, prior to a decade ago, and done very well.

Think long term and you will be ok.


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## doctrine (Sep 30, 2011)

AlwaysMissingTheBoat said:


> Figured I'd bump this thread since the housing bubble is as close to bursting as it's been in a long, long time, and yet Benjamin Tal, deputy chief economist at CIBC, doesn't expect a collapse.
> 
> 
> “[Interest rate hikes] will not be enough to bring the [housing] market down to where it belongs,” he stated.
> ...


Limited housing supply is highly over-relied upon as a reason for high prices. Think about it rationally instead of "they aren't building any more land". Canada is still building what, 250,000+ units yearly for a maximum of 500,000 immigrants a year, worst case scenario? No problem fitting on average 2 per unit - there is no shortage of rooms for people to sleep in. Heck, there are millions of properties, even if just apartments/condos, with just one person living in them. With enough economic incentive, say like a $5000 a month mortgage on an average property before utilities, taxes, and insurance, you can fit a lot of people into the existing housing base. You can live in a crappy old house for a long time with superficial repairs. There are plenty of scenarios where housing prices come down a lot more. Maybe it doesn't happen, but I wouldn't mortgage myself to the limit betting against it. Canada's current housing market does not work at 5% mortgages.


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## nathan79 (Feb 21, 2011)

Here are some markets I've been following.


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## Money172375 (Jun 29, 2018)

sags said:


> Who are these immigrants arriving to Canada with $300,000 in their pocket for a down payment and the ability to qualify for a $1 million mortgage ?


I don’t know their names, but there are lots of them. I routinely had students from China bring six figure amounts in cash to the branch upon their arrival. This is in downtown Toronto.

now living about 90 mins outside Toronto in a semi-rural area. Closest city is growing. All the new restaurants are owned by immigrants….mostly south East Asian and middle eastern.

IIRC, new to Canada mortgage applicants only need 10% down For properties valued at 1 million or less. I’m sure poster mortgage u/w could confirm/clarify.


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## Money172375 (Jun 29, 2018)

james4beach said:


> I don't think it will be that mild. Cash ends up getting directed to derivative losses in this kind of situation (same thing happened in 2008-2009) and the banks also have to boost their capital position.
> 
> These are very leveraged institutions. Even small losses suck up cashflow in various ways, margin calls, counterparty payments, etc. Perhaps I'm being overly pessimistic but I do expect cashflow to be affected.
> 
> When is the bank fiscal year end? It's pretty soon I think. That should mean they will start paying out massive bonuses and salaries to drain money out of the banks, before the problems hit.


Curious? What’s a massive bonus? are you talking exec level? Or below exec? Folks in securities/trading? 

IIRC, TD bank pays their bonuses in January.


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## james4beach (Nov 15, 2012)

Money172375 said:


> Curious? What’s a massive bonus? are you talking exec level? Or below exec? Folks in securities/trading?


Well anyone with big bonuses. I don't know the breakdown of where most of the bonus money goes, but I'd assume top executives and department heads.

Banking people are pretty smart, so they can see the writing on the wall. They are probably siphoning as much money out of the bank as they can before conditions turn sour. When conditions turn bad, investors and regulators are less willing to permit large bonuses.


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## MrBlackhill (Jun 10, 2020)

Canada is one of the top countries for net inflows of HNWIs.

People think HNWIs will flee Canada due to taxes. Not the case.

In 2018, Canada had a net inflow of 4,000 HWNIs. Compared to 10,000 for USA and 12,000 for Australia, the only two countries with higher net inflows than Canada.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> People think HNWIs will flee Canada due to taxes. Not the case.


That's really just a fear tactic used by conservatives in various countries. Wealthy people have homes, families, and business ties. They don't just get up and leave.

Yes there may be the rare wealthy people who goes to Guatemala or something, but most of them are going to live in wealthy and stable countries that have similar tax regimes.


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## james4beach (Nov 15, 2012)

Some Friday fun ... here's an interview with famous wealthy entrepreneur and crypto promoter, John McAfee.

He left the US to live in Belize, but after an incident where he might have murdered someone, he moved to Guatemala.


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