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Baby, we got a bubble!?

cp-rbc-housing-affordability-q4-2015.png
 
Similar writeup in the Toronto Star.

Bank of Canada warns Toronto real estate boom not sustainable
Don’t expect prices to keep surging at current pace in Vancouver and Toronto, central bank warns

URL: https://www.thestar.com/business/20...rection-in-toronto-vancouver-real-estate.html

Some notable Bank of Canada statements:
  • "The severity of the risks associated with a sharp correction in real estate prices in Vancouver and Toronto as well as from household financial stress has risen."
  • “In this risk scenario, a severe recession in Canada generates a sharp increase in unemployment across the country that places many highly indebted households under financial stress and causes a broad-based correction in house prices.”
  • “This chain of events would strain the financial system and the real economy. Such a scenario might unfold if a large negative demand shock hit the Canadian economy, but the probability of this risk occurring remains low.”
  • “This suggests that prospective homebuyers and their lenders should not extrapolate recent real estate performance into the future when contemplating a transaction.”
  • “The overall level of risk to Canada’s financial system is largely unchanged from six months ago. While household vulnerabilities have moved higher, the ongoing economic recovery in Canada means that the overall risk remains the same. The Canadian financial system is resilient and functioning effectively.”
 
They can warn all they want...foreigners will not be stopped from buying here until Toronto i no longer the flavour of the month.

As long as the supply remains low, the prices will rise..I don't see a change, really. At least not with single family homes.
 
TheKingEast said:
They can warn all they want...foreigners will not be stopped from buying here until Toronto i no longer the flavour of the month.
Click to expand...

I agree. Economists and other financial experts keep harking back to the fundamentals, as if natural market forces of supply and demand and local affordability were in play. They are, but the craziness is due to (likely) a massive influx of questionable foreign cash. Of course, everyone has been looking the other way while pocketing their cut, so like everything else fuelled by greed, it has gone unchecked and has reached (or is about to reach) critical mass.

I keep hearing people talk about how Canada is so great, especially Vancouver and Toronto, that these prices are justified. They love our weather (hah!), our schools, our peaceful disposition, etc. I think it's all a simple means to an end, and that the big money doesn't give a toss about these cities or this country aside from how useful they are for tucking away loot. Once the politicians start to turn the screws, or they find another country where it's better to hide their cash, you'll see some major ripples.

But there's a lot of slop yet to be slurped up by the pigs running the racket.
 
The only things that can stop this market now are a bad recession or a sharp raise in interest rates.

I'm not advocating for this, but I always believed they could also cool the market if they opened up some of the greenbelt land in the GTA. But I'm not so sure about that. Even homes way out of the city seem to be over-priced.
 
narduch said:
The only things that can stop this market now are a bad recession or a sharp raise in interest rates.
...
Click to expand...

Unfortunately, neither of those scenarios would bode well for us individually or for us and our economy as a whole. We could potentially be range-bound for a while until larger (i.e. global) market forces come into play.
 
James said:
Unfortunately, neither of those scenarios would bode well for us individually or for us and our economy as a whole. We could potentially be range-bound for a while until larger (i.e. global) market forces come into play.
Click to expand...

I agree with you.

That's why I think its insane when people say they are hoping for a crash so they can get it. If there's a crash many industries will be affected and it will be ugly for the economy overall.
 
The longer we continue this charade of being the money laundering leader of the world, the worse the crash will be when it comes. Not if...when.
 
People in China are raising the prices of their homes so they can borrow more. With this borrowed money they send an employee of theirs over to a western country like Canada along with money for a down payment for a home and monthly they pay the employee just enough for the mortgage while the employee gets to live there for free.

Shenzhen last year experienced a 50% rise in home prices and they are still increasing to this day. My uncle just recently sold his 1.25 million rmb home he bought 10 years ago for 4.75 million rmb. Now this was just a 3 bedroom unit in a condo that did not even have an elevator! You had to walk all the way to the 9th floor each and every day. The size is approximately 900 square feet and the location is far from the city center but close to a subway.

A user recently said here that the lack in transit in Ontario actually adds to the supposed bubble. After they expanded the metro in Guangzhou, Shenzhen etc housing prices everywhere near the subway started to rise to the levels of the CBD. So either way transit improves or not, housing I think will continue to go up, just much more rapidly if transit improves.

The main cancer to all this is not low rates or foreign speculators. Its instead looking at housing as an investment.
 
narduch said:
I agree with you.

That's why I think its insane when people say they are hoping for a crash so they can get it. If there's a crash many industries will be affected and it will be ugly for the economy overall.
Click to expand...

Yea it's really low level thinking. A crash will hurt a lot of people and not just homeowners. It will affect many of us directly and indirectly.
 
The 2008 financial crisis hurt most Americans. However, nobody is out there saying "wow, I wish that bubble never popped and we kept handing out NINJA loans!" The problem is not the bubble popping, it's the bubble forming in the first place. The bigger the bubble gets, the worse it will be for everybody. It would be far better to have it pop tomorrow than a few more years of this.
 
At this point, the housing issue has been acknowledged by some of the banks, the OECD, numerous politicians (including Trudeau), and many others. About the only one who won't say there is a problem, is Christy Clark.

It will be interesting to see where this goes if there is political backing, which has been lacking so far.

Trudeau speaks up:

Banks speak up:

OECD warns:

SFU Centre for Public Policy releases a very informative report: Vancouver’s Housing Affordability Crisis: Causes, Consequences and Solutions:

Christy Clark sees no issue:
 
Fundamentally housing pricing isn't about affordability, it's about supply and demand. The reason for the high prices in Toronto and Vancouver is because we aren't building housing, and the infrastructure to service it, fast enough. People want to live in Toronto and Vancouver so filling the units will never be a problem. If there was ever a housing glut we can just open the crack in the immigration door a little wider and we would have a zero vacancy rate again.

The real problem is that the economics of "the American Dream" - that is buying a house at thirty, having it paid off by fifty and retiring at sixty-five to travel the world, is not a sustainable model anymore in many urban markets. I suspect those people talking about "cooling" the market are really using it as a code that means tipping the playing field so baby boomers (read voters) get a larger piece of the pie, at the expense of REITs and international investors.

Of course the other side of the housing cost vs. income equation that no one is talking about is income. If society/the government wanted to fix the problem without interfering in the market they could raise wages so everyday people could compete with foreign investors on a level playing field.
 
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howl said:
Fundamentally housing pricing isn't about affordability, it's about supply and demand. The reason for the high prices in Toronto and Vancouver is because we aren't building housing, and the infrastructure to service it, fast enough. People want to live in Toronto and Vancouver so filling the units will never be a problem. If there was ever a housing glut we can just open the crack in the immigration door a little wider and we would have a zero vacancy rate again.

The real problem is that the economics of "the American Dream" - that is buying a house at thirty, having it paid off by fifty and retiring at sixty-five to travel the world, is not a sustainable model anymore in many urban markets. I suspect those people talking about "cooling" the market are really using it as a code that means tipping the playing field so baby boomers (read voters) get a larger piece of the pie, at the expense of REITs and international investors.

Of course the other side of the housing cost vs. income equation that no one is talking about is income. If society/the government wanted to fix the problem without interfering in the market they could raise wages so everyday people could compete with foreign investors on a level playing field.
Click to expand...

Affordability will always factor into housing because it is a driver of demand. If people can't afford something, it drives down demand. I really want a Mercedes G-Wagon but I can't afford it so demand is one less person than if it was cheaper. If Canadians can't afford housing in Toronto or Vancouver, they can't/won't buy it.

What evidence do you have that there is a shortage of housing? It may be the case, but I haven't seen anything that shows that household formation is running way ahead of housing starts. I would be interested in what you have seen in this regard.

You're also making the assumption that people will always want to move to Toronto and Vancouver. That may not be the case. There was a time when people thought the same thing about the U.S. and in 2008 we saw how that ended.

How can "society/the government" raise wages? Odd comment. If the government could just snap their fingers and raise real wages, of course they would do it.
 
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