Canadian Housing Bubble

[Chalengr]

I think this paper has convinced me that there is a MAJOR bubble forming in Canadian real-estate. I'm not sure how accurate the data is, but if it is accurate, then Canada has some trouble on the horizon. For those of you in Canada i really think you should take the time to read this (it's an easy read):

http://www.scribd.com/doc/28454918/C...Housing-Bubble

Originally Posted by Chalengr

I think this paper has convinced me that there is a MAJOR bubble forming in Canadian real-estate. I'm not sure how accurate the data is, but if it is accurate, then Canada has some trouble on the horizon. For those of you in Canada i really think you should take the time to read this (it's an easy read):

http://www.scribd.com/doc/28454918/C...Housing-Bubble

I was starting to get concerned about this. Some of the prices I've been hearing about in the past few months have been surprising.

I think there may be housing bubbles in a number of places as Americans continue to flee an increasingly pervasive governmental complex.

I remember reading a Canadian job listing. They were so tired of Americans seeking relocation to Canada that they told us not to bother trying.

I was seriously going to move to Canada if Rudy Giuliano got elected. All he seemed to talk about is terror. He got rich from his terrorist rhetoric.

Condos in the Dominican Republic costs more than duplexes in much of Florida these days.

[Chalengr]

An average Vancouver household (that is a family of usually two income earners, not a single person) spends over 70 cents of every pre-tax dollar they earn on house ownership costs. Deduct unavoidable taxes, and this amount would rise to nearly 100 percent of an average household income in Vancouver
- An average Toronto and Montreal household spends over 57 and 47 of their pre-tax income on house ownership costs, or nearly 80 and 70 percent of their after-tax income respectively


Wow!
Imagine a 1% increase in mortgages rates! Households are already in so much debt. I swear this is just like pre-US bubble! Exactly the same

In 2007 the Harper government allowed the CMHC (Canada Mortgage and Housing Corporation) to dramatically change its rules. The down payment requirements were reduced to zero percent and the amortization period was extended to 40 years. These changes were included in the first Conservative budget in May of 2006.

THIS SOUNDS FAMILIAR!

These changes certainly promote home ownership, as many people who would never dream of having a house can finally buy it. It is good for them, as they finally can afford a property of their own. It is good for the market, as large injections of new buyers into the market creates extra demand and drives home prices higher. It is good for lenders, as they can issue mortgages to a larger population and earn higher profits. It is good for politicians, as they appear as prudent financial managers. It is good for everyone, until the rates begin to go up. And when the music stops, the lights go off.

[Chalengr]

http://www.nytimes.com/2010/03/20/bu...sing&st=Search

Originally Posted by Chalengr

These changes certainly promote home ownership, as many people who would never dream of having a house can finally buy it. It is good for them, as they finally can afford a property of their own. It is good for the market, as large injections of new buyers into the market creates extra demand and drives home prices higher. It is good for lenders, as they can issue mortgages to a larger population and earn higher profits. It is good for politicians, as they appear as prudent financial managers. It is good for everyone, until the rates begin to go up. And when the music stops, the lights go off.

This is made worse by the short terms of Canadian mortgages. Very few are longer than 5 years.

[Chalengr]

Originally Posted by Anonymouse

This is made worse by the short terms of Canadian mortgages. Very few are longer than 5 years.

it'll be interesting to see what happens once Mark Carney decides to increase rates! I'm guessing pretty soon, since rates really can't go any lower...

or stay this low much longer

[ElDucky]

In Ontario I agree there is a bubble. Vancouver prices have always been high. The rest of BC was quite high and crashed pretty hard in 2008-2009. Not sure what to make of Alberta. The boom there happened in 2005-2007 and prices have come off a bit.

They don't need higher rates to cool things down. Shorter amortization and higher down payments will work too. They did switch to 5% down and 35 years, rather than 0% and 40 years. They never should have left 25 years though.

I don't know why we can't get long term mortgages. In the US you can get 30 year mortgages arond 5%. In Canada anything above 10 years is 9%.

I personally would be glad to see prices come down. I own a relatively cheap condo, which I can pay off before the mortage is due (10 year mortgage was cheap at the time), plus the household income is over 3 times what it was when I bought the place. I'd be glad to lose 100k on this tiny place if it meant the million dollar houses dropped to half of that (other impacts to the economy notwithstanding).

[Fish Actuary]

Originally Posted by Chalengr

An average Vancouver household (that is a family of usually two income earners, not a single person) spends over 70 cents of every pre-tax dollar they earn on house ownership costs. Deduct unavoidable taxes, and this amount would rise to nearly 100 percent of an average household income in Vancouver
- An average Toronto and Montreal household spends over 57 and 47 of their pre-tax income on house ownership costs, or nearly 80 and 70 percent of their after-tax income respectively


Wow!
Imagine a 1% increase in mortgages rates! Households are already in so much debt. I swear this is just like pre-US bubble! Exactly the same

In 2007 the Harper government allowed the CMHC (Canada Mortgage and Housing Corporation) to dramatically change its rules. The down payment requirements were reduced to zero percent and the amortization period was extended to 40 years. These changes were included in the first Conservative budget in May of 2006.

THIS SOUNDS FAMILIAR!

These changes certainly promote home ownership, as many people who would never dream of having a house can finally buy it. It is good for them, as they finally can afford a property of their own. It is good for the market, as large injections of new buyers into the market creates extra demand and drives home prices higher. It is good for lenders, as they can issue mortgages to a larger population and earn higher profits. It is good for politicians, as they appear as prudent financial managers. It is good for everyone, until the rates begin to go up. And when the music stops, the lights go off.

I've seen this post elsewhere. The thing that puzzles me is that this seems to have been the case for 15+ years. Vancouver is a very expensive place to buy a home, but a big chunk of this seems to be the number of helicopter residents in the city. There are a lot of people from Honk Kong and elsewhere who've bought property in Vancouver but work elsewhere in the world where they can make substantially more money. It seems like another point that's in play is that space to expand is somewhat limited. You've got mountains on one side, the ocean on another and cities on the remaining sides. It's not like Calgary or Edmonton or Toronto where you can just keep on replacing the farmland on the outskirts of town with more houses. Basically, single family homes in the city are an endangered species as the only way to add housing to the city is by tearing down blocks of houses and building up.