Garth Turner - Real Estate in Canada

[rb]

Cigarbutt, I'd say that generally we is us as a society. But more specifically the ones that we as the society put in charge to ensure our well being.

 

When you get into the weeds, things get more complicated and confusing. The regular person may thing that the Bank of Canada (due to its imposing name) should be on top of this. But BoC's job is mainly inflation. It's not to look after debt/asset bubbles, even though it takes an interest in such things.

 

Eventually the ones that took charge to reign in the madness was OSFI. Btw, I think that the new regulations that OSFI brought in are very much commonsense and the right way to go about it. But the average Joe has no idea what an OSFI is. To the average person OSFI is one of those agencies that you only learn exists when the aliens attack.

 

In regards to the comments about BoC raising rates back in 2011. I disagree. In 2011 it was clear that the economy needed low rates. It would have been stupid to raise them at that point. The hike rates argument back then was this: Let's have an economic crisis now so we don't potentially have an economic crisis in the future. That's madness. A better solution would have been this: keep rates low, implement the OSFI rules we put in place now along with a significantly bigger deficit. That would have been smart.

 

This brings us to the other point you've raised. The deficit. Yes we're running a deficit at the federal level. Yes, it'll be a round for a while. Given the situation that's ok. The reality is that Canada in a strong fiscal position. The debt to GDP ratio is around 30% (the US by comparison is over 100%). The deficit while not small, at 1.9% is fairly benign. Running deficits at this level will shrink debt to GDP. If you're attempting to delever households you don't do fiscal tightening. In fact, if households start to delever the right thing to do will be run up the deficit. No tax cuts either, full spending ahead.

 

In retrospect this is really a much better time to stop the debt party than back in 2011. The economy is somewhere in the neighborhood of full employment so there's forward momentum. More importantly the US economy is doing well. That means that we can partly export out way out of this mess. The ideal way this happens is that households start to delver, reducing household consumption. That gets offset by higher net exports and government consumption (read higher deficits). By the end we have a debt to gdp ratio in the 40-50% range and no economic crisis.

 

In practice that requires a pretty difficult balancing act. To implement you have to keep your eyes on the ball and spend huge amounts of political capital. I just pray that our leaders are up to the task. Especially when it comes to spending political capital and take the body blows that come with that.

[Cigarbutt]

^Thanks for the perspective and you wrap it up nicely.

Just in case for international readers, the public debt to GDP in Canada has an unusually high component of provincial debt which, in total, puts us in the OECD pack.

 

Sincerely, I hope you're right.

When thinking of the real estate picture in Canada, I don't use a Monte Carlo simulation (garbage-in-garbage-out, backward looking, underestimation of correlation between inputs etc) but use different scenarios.

I guess using scenarios is reasonable because our situation is somewhat bizarre especially when I read that Cardboard and yourself seem to be on the same side concerning the inappropriateness to raise rates at this point, which is really a head-scratcher.

In the event that the economy refuses to cooperate and/or austerity (oops! dirty word) becomes imposed, I want to make sure that I can contribute my fair share to our redistribution effort.

 

I'm also reading my fair share about Mr. Paul Volcker these days (his name is brought up not to argue about what he would do or suggest here but to underline the huge weight on public people's shoulders and their "political" capital). When he "caused" a recession, he was a hated figure and kept receiving car keys and others through the mail and it must have felt awful at the time. But he rose to the occasion and grew taller.

[Viking]

if rates are too low (especially when they are negative real rates) the result will be much more debt. The longer you wait to normalize rates the bugger the debt bubble gets. It then becomes impossible to raise rates to normal levels due to the impact it would have on all of the debt.

 

Canada is in a bit of a pickle. And add in the challenges currently facing Alberta and the oil patch and it certainly is hard to see how rates in Canada move much higher...

[mcliu]

The other problem is if rates in Canada are much lower than the US, there'll probably be significant capital outflows.

[alpha]

https://www.bnnbloomberg.ca/montreal-condos-lure-investors-but-many-are-losing-money-1.1177868

[Viking]

November real estate stats are out for greater Vancouver: https://www.rebgv.org/monthly-reports/november-2018

 

“The total number of homes currently listed for sale on the MLS® system in Metro Vancouver is 12,307, a 40.7 per cent increase compared to November 2017 (8,747) and a 5.2 per cent decrease compared to October 2018 (12,984).”

 

If inventory continues to grow at such a rapid pace (40%) it will get interesting to see what happens to prices... It certainly is not a pretty picture and the macro backdrop (rising interest rates, tighter lending standards, higher taxes, higher hurdles for foreign buyers, clamping down on Air BNB rentals etc) Will not help.

[Liberty]

https://twitter.com/alex_macdonald/status/1072951898569752577

 

[Cigarbutt]

^If I may add, CalculatedRISK (which was very relevant pre-GFC in the US), put a relevant piece this AM where he questions Mr. Schiller's assumptions concerning the level of the real estate index in the US now.

 

I would say that statistical analysis or theoretical models are optional when looking at the diverging paths depicted above.

 

https://www.calculatedriskblog.com/2018/12/a-comment-on-professor-shillers-housing.html

 

How far can this go?

It looks like Australia is starting to provide an answer.

[Cigarbutt]

Reason for this post: I’ve held a basket of Canadian banks in the late 90’s, did quite well (eg a quite rapid double with CIBC) but eventually put that result in the failure file (file #2 of 4: good result and bad process) because it was basically luck. I want to invest in Canadian Banks again but need to understand better what will happen to Canadian real estate.

 

Viking has elegantly suggested the possibility that we may somehow muddle through and that’s a reasonable alternative.

 

This post was triggered by a phone call and a one-page note.

 

I understand that a significant fraction of Canadians are hurt by rising rates and profiles obviously vary. A member of the extended family circle recently called me to ask advice about a topic unrelated to money or investment. Going to general talk (during which she offered unsolicited financial advice), it became quite clear that she had become financially stretched in the context of a recent purchase of a new (and quite expensive) car and as a recent owner of a nice condo. At the conclusion of the conversation, I made a mental note to prepare an answer that would not appear condescending in order to politely deflect an eventual invitation to participate in an Occupy-Wall-Street type of event in the future.

 

The one-page note (see below) shows how 1-the % of mortgage debt servicing to disposable income has remained quite stable although there are small peaks that help to define the concept of margin of safety and how 2-the composition of the mortgage payment has changed over time (principal and interest strip). However what the author considers to be a source of “strength” and financial flexibility may correspond, at least to me, to a terrible misconception if the value of the underlying asset bought and financed is overvalued. In some scenarios, the price obtained upon selling may be a relevant input and a source of significant hardship as the value of liabilities is much stickier than the value of assets. At least, that’s one of the lessons learned from the American Experience in 2007-9.

 

Putting the anecdotal and the statistical together

 

An amazing phenomenon that has occurred (in North America at least) is that consumers have responded to improved energy efficiency in cars and relatively cheap gasoline prices (despite environmental and high gas prices headlines) by buying heavier and more expensive cars. Can somebody explain that conundrum other than saying that “rational” people respond to prices? The same way, people have responded to ultra-low interest rates by buying larger and more expensive (and progressively overvalued IMHO) homes and this new era even prompted some (?5% of households) to buy a home when it would have been financially safer to rent one.

 

https://www.nbc.ca/content/dam/bnc/en/rates-and-analysis/economic-analysis/hot-charts-181214.pdf

 

What’s the point and why it may be relevant now?

 

People refer to the “hawkish tone” displayed by the Bank of Canada and describe the recent rise in rates as a “shock”. A link is provided below for historical perspective. If what has happened to the recent mortgage rate trajectory is found to be traumatic, the historical perspective helps to define the extent of the household leverage situation and the precarity of the residual margin of safety for many. The expression that comes to mind for the residual margin of safety is “peau de chagrin” which cannot be translated directly but which means that, at times, all you may be left with is sorrow.

 

https://www.ratehub.ca/5-year-fixed-mortgage-rate-history

 

This post is getting way too long but I looked also at the exposure to fixed and variable rates and the nature of Canadian debt, especially the mortgage debt that has a significant fixed component, which is felt to offer protection in a muddling through scenario but which may also happen to be a curse in disguise.

 

Disclosure: no long position in Canadian banks, yet.

[bizaro86]

This is certainly anecdotal, but banks have started to get conventionally financed properties back in Alberta. (Source: conversations with AB real estate lawyers with foreclosure practices). This is bad for them for two reasons: no mortgage insurance means they are on the hook for the full loss, and in AB conventional mortgages aren't recourse to other assets.

 

Interestingly, one lawyer I chatted with recently mentioned that BNS has been taking deed backs in lieu of foreclosure (basically short sales) in cases where the borrower comes to them and demonstrates they can't pay. While the other lenders proceed to foreclosure, which dings the credit report of the borrower but costs more and takes longer. Pros and cons to both methods from a lender point of view, but I thought the distinction was interesting. BNS has historically been the most aggressive with mortgages for rental properties in AB, which may be a factor as they likely have lots of conventional exposure to folks without an emotional connection to their property.

 

[KJP]

Reason for this post: I’ve held a basket of Canadian banks in the late 90’s, did quite well (eg a quite rapid double with CIBC) but eventually put that result in the failure file (file #2 of 4: good result and bad process) because it was basically luck. I want to invest in Canadian Banks again but need to understand better what will happen to Canadian real estate.

 

Viking has elegantly suggested the possibility that we may somehow muddle through and that’s a reasonable alternative.

 

This post was triggered by a phone call and a one-page note.

 

I understand that a significant fraction of Canadians are hurt by rising rates and profiles obviously vary. A member of the extended family circle recently called me to ask advice about a topic unrelated to money or investment. Going to general talk (during which she offered unsolicited financial advice), it became quite clear that she had become financially stretched in the context of a recent purchase of a new (and quite expensive) car and as a recent owner of a nice condo. At the conclusion of the conversation, I made a mental note to prepare an answer that would not appear condescending in order to politely deflect an eventual invitation to participate in an Occupy-Wall-Street type of event in the future.

 

The one-page note (see below) shows how 1-the % of mortgage debt servicing to disposable income has remained quite stable although there are small peaks that help to define the concept of margin of safety and how 2-the composition of the mortgage payment has changed over time (principal and interest strip). However what the author considers to be a source of “strength” and financial flexibility may correspond, at least to me, to a terrible misconception if the value of the underlying asset bought and financed is overvalued. In some scenarios, the price obtained upon selling may be a relevant input and a source of significant hardship as the value of liabilities is much stickier than the value of assets. At least, that’s one of the lessons learned from the American Experience in 2007-9.

 

Putting the anecdotal and the statistical together

 

An amazing phenomenon that has occurred (in North America at least) is that consumers have responded to improved energy efficiency in cars and relatively cheap gasoline prices (despite environmental and high gas prices headlines) by buying heavier and more expensive cars. Can somebody explain that conundrum other than saying that “rational” people respond to prices? The same way, people have responded to ultra-low interest rates by buying larger and more expensive (and progressively overvalued IMHO) homes and this new era even prompted some (?5% of households) to buy a home when it would have been financially safer to rent one.

 

https://www.nbc.ca/content/dam/bnc/en/rates-and-analysis/economic-analysis/hot-charts-181214.pdf

 

What’s the point and why it may be relevant now?

 

People refer to the “hawkish tone” displayed by the Bank of Canada and describe the recent rise in rates as a “shock”. A link is provided below for historical perspective. If what has happened to the recent mortgage rate trajectory is found to be traumatic, the historical perspective helps to define the extent of the household leverage situation and the precarity of the residual margin of safety for many. The expression that comes to mind for the residual margin of safety is “peau de chagrin” which cannot be translated directly but which means that, at times, all you may be left with is sorrow.

 

https://www.ratehub.ca/5-year-fixed-mortgage-rate-history

 

This post is getting way too long but I looked also at the exposure to fixed and variable rates and the nature of Canadian debt, especially the mortgage debt that has a significant fixed component, which is felt to offer protection in a muddling through scenario but which may also happen to be a curse in disguise.

 

Disclosure: no long position in Canadian banks, yet.

 

That historical decomposition of mortgage payments is interesting.  Nice example for those who believe the biggest factor in asset prices is the availability of credit.  In my experience, most people looking at big purchases (houses and cars) accept the salesman's logic of "What monthly payment can you afford?"  I don't think people understand the potential problems if they cannot hold the asset until maturity, just like they don't understand that there's an interest rate embedded in the lease they've been offered.

[SharperDingaan]

You might want to keep in mind that had Alberta NOT shut in production early this month, we would be reading about widespread mass lay-offs in Alberta today - and mass non-recourse mortgage foreclosures at the Sched-A banks by the end of March; with a number of o/g firms following shortly thereafter. Hence, most would think that at least some of the money going into those railcar purchases, has a BoC guarantee ;)

 

You might also want to remind yourself that Canada has reverse mortgages.

The borrower can borrow up to 60% of the equity in their property by taking receipt of a monthly 'reverse mortgage' payment. The premise being that if today's $1M of home equity declines to 400K by the time you're in your late 70's, the forced sale will clear your debts & give you the money to down-size to something smaller (& at a time when you really need to). If you then continue with the reverse mortgage, there will be near zero equity left by the time you're dead, & your heirs will essentially inherit nothing. A rude awakening for many heirs.

 

Problem is 'what if the value of the property suddenly drops 30% to 700K?, from the prior $1M'?'

Mom/dad get down-sized early, adult stay-at-home kids start getting evicted, & all those 700K houses suddenly start being listed for sale. What used to be a 'rarity' (& therefore higher priced) now becomes 'common' - reducing prices further.  However, most would expect that at least some of a Sched-A banks capital being used to keep these houses off the market, would have an OSFI/BoC 'understanding' ;)

 

There will not be a 'collapse'. Much more likely is a market driven 'controlled descent'.

But there will be quite a bit of forced 'reckoning', and of course - the social disruption that goes with it.

Versions of today's protests in Paris move to Vancouver, Calgary, and Toronto.

Change.

 

Not a bad thing.

 

SD

 

[Spekulatius]

My rule is to never invest in banks, if I don’t likely the macro environment in the future. banks are foremost macro bets, due to high leverage and to some extend market perception. They will do poorly, if credit spreads start to rise or the macro environment takes a hit. that’s why I don’t invest in British banks (prior to Brexit) or the like. A lot of times, it has been said that it’s priced in, but in my experience, it never is.

[SharperDingaan]

Always keep in mind that banking in Canada is an 'oligopoly', that operates at the pleasure of her majesty.

Her majesty has also been in the thieving busines since at least the 1500's, and is very 'old school' in the practice of 'good governance'  :D

https://en.wikipedia.org/wiki/Privateer

 

As european banks are essentially too big for their sovereigns to control; one bets on them screwing up, & ultimately receiving some kind of bail-out. In Canada they get 'broken-up, and the pieces merged into others'  ... arguably a similar discussion to the one that Deutsche Bank and Commerzbank are currently having  ;) https://www.pymnts.com/news/b2b-payments/2018/deutsche-commerzbank-german-bank-merger/

 

SD

 

[Cigarbutt]

Always keep in mind that banking in Canada is an 'oligopoly', that operates at the pleasure of her majesty.

Her majesty has also been in the thieving busines since at least the 1500's, and is very 'old school' in the practice of 'good governance'  :D

https://en.wikipedia.org/wiki/Privateer

 

As european banks are essentially too big for their sovereigns to control; one bets on them screwing up, & ultimately receiving some kind of bail-out. In Canada they get 'broken-up, and the pieces merged into others'  ... arguably a similar discussion to the one that Deutsche Bank and Commerzbank are currently having  ;) https://www.pymnts.com/news/b2b-payments/2018/deutsche-commerzbank-german-bank-merger/

 

SD

For expected extent, direction and quality of “good governance”, you may be interested in reading a 2011 report from the Bank of Canada:

https://www.bankofcanada.ca/wp-content/uploads/2011/06/sp150611.pdf#chart1

 

Message of yesteryear: we need to apply “vigilance” and “moderation”.

 

Somehow what happened (just continue the graph lines and data points up to Q3 2018) does not fit, at least to me, to the definition of vigilance and moderation.

 

The author of the note is now leading a venerated institution in London, may have to issue guidance through a different kind of transition and he’s likely to do whatever it takes. We have learned (in a Pavlovian way) to expect nothing less.

 

About 7 to 8 years ago, it was suggested that there was a risk: “our institutions should not be lulled into a false sense of security by current low rates. Similarly, households will need to be prudent in their borrowing… ”

 

Definitions:

Lull:  A temporary interval of quiet or lack of activity.

LOL: Laughing out loud, to denote great amusement.

 

With use, LOL has been overused to the point where nobody laughs out loud when they say it. In fact, the acronym may be a prelude that leads to a less than cheery consensus. More accurately, the acronym "LOL" could sometimes be redefined as "lack of laughter."

 

With profiteering, the problem was unreasonable profits from unreasonable delegation of government powers and now it seems that the problem is excessive presence of authorities giving the illusion of control. At least, a constant remains: opportunity to profit in times of stress.

 

LOL

[wisowis]

 

The one-page note (see below) shows how 1-the % of mortgage debt servicing to disposable income has remained quite stable although there are small peaks that help to define the concept of margin of safety and how 2-the composition of the mortgage payment has changed over time (principal and interest strip). However what the author considers to be a source of “strength” and financial flexibility may correspond, at least to me, to a terrible misconception if the value of the underlying asset bought and financed is overvalued. In some scenarios, the price obtained upon selling may be a relevant input and a source of significant hardship as the value of liabilities is much stickier than the value of assets. At least, that’s one of the lessons learned from the American Experience in 2007-9.

 

 

Apologies, but I am having trouble understanding this point. If you are putting a significant share of your mortgage payments into the equity of the home, doesn't it reduce the risk to the system? At e.g. 100% LTV, and with all payments going to interest, any drop in the value of the assets could cause insolvency. But at 80% LTV, and 50% of payments going into to the principal, the scenario of going underwater requires a >20% drop in asset values. I understand (psychologically) why trading loonies for quarters would cause hardship for homeowners/homesellers, but certainly reducing leverage in the housing market (which capital repayment does) reduces systemic risk, right?

[Cigarbutt]

The one-page note (see below) shows how 1-the % of mortgage debt servicing to disposable income has remained quite stable although there are small peaks that help to define the concept of margin of safety and how 2-the composition of the mortgage payment has changed over time (principal and interest strip). However what the author considers to be a source of “strength” and financial flexibility may correspond, at least to me, to a terrible misconception if the value of the underlying asset bought and financed is overvalued. In some scenarios, the price obtained upon selling may be a relevant input and a source of significant hardship as the value of liabilities is much stickier than the value of assets. At least, that’s one of the lessons learned from the American Experience in 2007-9.

Apologies, but I am having trouble understanding this point. If you are putting a significant share of your mortgage payments into the equity of the home, doesn't it reduce the risk to the system? At e.g. 100% LTV, and with all payments going to interest, any drop in the value of the assets could cause insolvency. But at 80% LTV, and 50% of payments going into to the principal, the scenario of going underwater requires a >20% drop in asset values. I understand (psychologically) why trading loonies for quarters would cause hardship for homeowners/homesellers, but certainly reducing leverage in the housing market (which capital repayment does) reduces systemic risk, right?

Hi wisowis

Don't apologize. :)

 

It is a question of perspective, price/value and ability to hold to maturity.

The underlying assumption is that there has been a growing disconnect between intrinsic value and price.

 

-Perspective

Elevated down-payments and accelerated principal reimbursement are sound principles and a sign of conservatism.

 

-Price/value and ability to hold to maturity

The potential problem is paying a premium to intrinsic value and financing a part of that purchase with debt. Then part of the "principal" repayments includes the premium and if you have to sell (for any reason) before maturity when the premium is gone or even has reversed you may end up with an underwater loan and eventually no house left.

 

Think of dollar-cost averaging for investments. You assume that, over time, the price to value discrepancies will cancel each other. With housing in Canada, it seems to me that a lot of home buyers have increasingly used dollar-cost-averaging to buy and reimburse an over-valued home and some may not have the chance to take advantage of the full cycle.

 

Also, the higher principal component in the debt servicing implies that people were encouraged and rendered comfortable buying a more expensive home, not considering the over-valuation issue discussed above.

 

Have you spoken to real people about disappearing home equity going through this in the US 10 years ago?

In the US, leading up to the peak, there was a lot of home refinancing and some of the dynamics was different but the people I spoke too have a feeling the "equity money" that disappeared reappeared (through a creative process) in somebody else's pockets.

[SharperDingaan]

The report cited is 6 1/2 years old, and the world today is a very different place to what it was in mid 2011.

Past results are also not a reasonable predictor of future activity, especially when the future conditions are very different to what they were.

 

Vancouver real estate is a hot-spot for money laundering, and widely believed to be corrupt. Costs are set by the international buyer, and not the local trying to live there; and we have seen repeated market actions to diminish the influence of foreign buyers (foreign resident taxes, LOC rule changes, mortgage rule changes, etc.). The influence of foreign buyers it is also a common experience elsewhere (London).

 

Most banks will not lend if the mortgage payment exceeds 1/3 of take-home, corresponding to a house value of roughly 3x salary (1/.33). In low rate environments, house values are higher and banks lend more as the lower interest cost permits a higher borrow. Floating rate mortgages issued over the last 12 months+ have also been subject to a 200bp stress test at time of issue.

 

Comes renewal time your banker can either demand payment in full, only offer a fixed vs a floating rate loan, or demand a partial principal repayment; hence if you're a sh1t credit, you can become someone else's problem. It's a numbers game, the banker has deeper and better quality historic information than you have, and the bankers need fresh foreclosure examples to show others.

 

We would suggest that while the 'Canadian' banking system has been reasonably prudent, it's borrowers have not been; and the chickens will come home to roost as interest rates progessively climb back to historic levels. It is not the BoC's job to protect the dumb from their own actions, and they will let the market solution prevail.

 

People will get hurt, as they should do

But it's not going to result in a systemic crash of the Canadian banking system.

 

SD

 

 

[John Hjorth]

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[Cigarbutt]

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Thank you for this link and the post in the BRK-general news section concerning Home Capital.

Another confirmation that Mr. Buffett is in a league of its own.

The BRK news release is a classic piece.

 

BTW, I liked several aspects of TBW's interview and I know he has commented above in this thread concerning Mr. Buffett's involvement in HCG.

 

If one thinks of the real estate picture in Canada as potential dominoes to fall, one would think that a company like Home Capital is in first line and before government involvement is triggered.

 

[Viking]

Yes, thanks for posting. In terms of what is a Canadian to do i liked his idea of holding US$ as this has been my hedge should we get a housing correction or bust.

 

Bottom line is i expect the US economy to perform better than the Canadian economy moving forward. If housing in Canada gets ugly i expect this outperformance to widen.

[Viking]

Real estate stats for Greater Vancouver for January are out and they are ugly. If supply continues to build in the coming months and pricing continues to soften we could be seeing the end of the great housing bubble in Canada (Vancouver anyways). Year over year, inventory up 56% and prices (for detached houses) down 9%. The threat of missing out (as prices go continually higher) may be shifting to fear of trying to catch a falling knife (as prices go lower) which may slow sales even more.

 

Real Estate Board of GV: https://www.rebgv.org/market-watch/monthly-market-report/january-2019.html

 

And we have a Federal election this fall. What is a politician to do? Loosten mortgage rules (allow 30 year amortizations for first time buyers so young people can ‘afford’ that + $1 million home by taking on an obsene amount of debt).

 

https://www.theglobeandmail.com/politics/article-morneau-taking-close-look-at-return-to-30-year-insured-mortgages/

 

Some highlights:

Supply is continuing to build - The total number of homes currently listed for sale on the MLS® system in Metro Vancouver is 10,808, a 55.6 per cent increase compared to January 2018 (6,947)

 

Prices are starting to fall - Sales of detached homes in January 2019 reached 339, a 30.4 per cent decrease from the 487 detached sales recorded in January 2018. The benchmark price for detached homes is $1,453,400. This represents a 9.1 per cent decrease from January 2018, and an 8.3 per cent decrease over the past six months.

 

Australia also seems to be having its own housing correction...

[Rod]

Real estate stats for Greater Vancouver for January are out and they are ugly. If supply continues to build in the coming months and pricing continues to soften we could be seeing the end of the great housing bubble in Canada (Vancouver anyways). Year over year, inventory up 56% and prices (for detached houses) down 9%. The threat of missing out (as prices go continually higher) may be shifting to fear of trying to catch a falling knife (as prices go lower) which may slow sales even more.

 

Real Estate Board of GV: https://www.rebgv.org/market-watch/monthly-market-report/january-2019.html

 

And we have a Federal election this fall. What is a politician to do? Loosten mortgage rules (allow 30 year amortizations for first time buyers so young people can ‘afford’ that + $1 million home by taking on an obsene amount of debt).

 

https://www.theglobeandmail.com/politics/article-morneau-taking-close-look-at-return-to-30-year-insured-mortgages/

 

Some highlights:

Supply is continuing to build - The total number of homes currently listed for sale on the MLS® system in Metro Vancouver is 10,808, a 55.6 per cent increase compared to January 2018 (6,947)

 

Prices are starting to fall - Sales of detached homes in January 2019 reached 339, a 30.4 per cent decrease from the 487 detached sales recorded in January 2018. The benchmark price for detached homes is $1,453,400. This represents a 9.1 per cent decrease from January 2018, and an 8.3 per cent decrease over the past six months.

 

Australia also seems to be having its own housing correction...

 

It seems the BC and Federal gov'ts have done what needs to be done to end this bubble. I hope they have the guts to let it die. I expect the boomers will be agitating soon...

[Viking]

Real estate stats for Greater Vancouver for January are out and they are ugly. If supply continues to build in the coming months and pricing continues to soften we could be seeing the end of the great housing bubble in Canada (Vancouver anyways). Year over year, inventory up 56% and prices (for detached houses) down 9%. The threat of missing out (as prices go continually higher) may be shifting to fear of trying to catch a falling knife (as prices go lower) which may slow sales even more.

 

Real Estate Board of GV: https://www.rebgv.org/market-watch/monthly-market-report/january-2019.html

 

And we have a Federal election this fall. What is a politician to do? Loosten mortgage rules (allow 30 year amortizations for first time buyers so young people can ‘afford’ that + $1 million home by taking on an obsene amount of debt).

 

https://www.theglobeandmail.com/politics/article-morneau-taking-close-look-at-return-to-30-year-insured-mortgages/

 

Some highlights:

Supply is continuing to build - The total number of homes currently listed for sale on the MLS® system in Metro Vancouver is 10,808, a 55.6 per cent increase compared to January 2018 (6,947)

 

Prices are starting to fall - Sales of detached homes in January 2019 reached 339, a 30.4 per cent decrease from the 487 detached sales recorded in January 2018. The benchmark price for detached homes is $1,453,400. This represents a 9.1 per cent decrease from January 2018, and an 8.3 per cent decrease over the past six months.

 

Australia also seems to be having its own housing correction...

 

It seems the BC and Federal gov'ts have done what needs to be done to end this bubble. I hope they have the guts to let it die. I expect the boomers will be agitating soon...

 

Right now all the policy dicussion is around how to make housing more affordable. The flip side of this is people who currently own homes do not want to see them go down in value (boomers) as they likely see their home equity as their retirement nest egg. Vancouver real estate is in a wickedly difficult situation and it is going to be very interesting to see how it plays out in 2019.

 

Interest rates look headed lower; my read is global deflationary forces are starting to overwhelm the strength of the US economy. Lower interest rates and a resumption of QE will likely allow governments to kick the can down the road a little longer. I am wondering if all the talk about much higher US rates last year (Gundlach and others) was just not a head fake and we have seen the peak in interest rates for this cycle. Not good if true.

[Cigarbutt]

Interesting developments in Australia. It seems like the authorities want to look under the hood of financial institutions and monetary authorities are espousing an easing mood.

 

Cyclical, secular or else?

All real estate cycles have their own stories and are not always globally correlated. Who knows what will happen but a common theme has been that busts tend to be correlated to booms (in intensity and duration).

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12162132

 

What may be a fascinating aspect is the Sweden curve that seems to be unremarkable and whose section in the 1990-period does not stand out, although the house price to disposable income did increase by about 30% then with some uncomfortable consequences.

http://archive.riksbank.se/Documents/Avdelningar/AFS/2015/Session%201%20-%20Englund.pdf

 

Conclusion: History does not repeat itself and nobody knows the future but crises don’t arise out of thin air.