Scotiabank hints at bubble in RE

[metalhead]

They think it may take a couple of years or more for high rates to correct the bubble.
The bulls should be able to run for a bit longer.

http://ca.news.finance.yahoo.com/s/2411 ... ubble.html

Canadian real estate prices are inflated, but they're unlikely to correct themselves in the short term, a Bank of Nova Scotia report suggests.

"Canadian house prices are rich no matter how one looks at it," Scotia economists Derek Holt and Karen Cordes said in a report titled Is There a Canadian Housing Bubble?

Of the many ways of gauging the health of a real estate market, affordability is one of the least useful because any measure that essentially compares income with mortgage payments is dependent on interest rates, Holt said Tuesday. Rates are at record lows at the moment, as the Bank of Canada's benchmark rate sits at 0.25 per cent.

Comparing current and past prices is more useful, the report says, and under that metric, Canadian housing prices are in eye-opening territory. The U.S. S&P/Case Shiller index rose 100 per cent between 2000 and its peak in mid-2006. The Canadian equivalent is up 86 per cent during the past decade.

Looking at real estate on a price-to-rent perspective also suggests speculative activity, as the ratio of housing prices to how much the spaces could bring in rental income has more than doubled since 1981.

"All combined, while not all measures are at record, the general picture is one of lofty Canadian house price valuations," the report noted.

Two of Canada's three largest urban centres, Toronto and Vancouver, have generally led the housing boom. Together, they represent one-fifth of the Canadian marketplace.

These conditions are likely to persist for some time, the report says, in part because the Bank of Canada has given no indication it plans on raising interest rates until the second half of 2010, and even then, not materially until 2011 at the earliest.

"Low interest rates are driving healthy affordability right now, but this effect will wane in the next two to four years," the report reads.
snip.....................

[rofina]

I think nearly everyone agrees that there is no reason for a slowdown untill rates go up.
We reached these levels at higher rates back in mid 08, now we have not quite yet reached a new high, but "affordability" is better obviously only because of lower rates.
If people could afford to drive this market to its previous top at higher rates, its scary to imagine how high they will be willing to take it at these rates.

[bestplaceonmeth]

I think nearly everyone agrees that there is no reason for a slowdown untill rates go up.

Does "everyone" include the Japanese, or should we leave them out?

[rofina]

I think nearly everyone agrees that there is no reason for a slowdown untill rates go up.

Does "everyone" include the Japanese, or should we leave them out?

I directed that comment more at the local market. I have been running into an increasing amount of people, few of whom have been realtors that actually are willing to come out and say that this market is interest rate driven. Therefore I reason that if people drove prices to the current peak with rates at 4-5%, what highs are these idiots capable of reaching with rates at half that?

Not only that but they are basically guaranteed a free ticket out by the way of Carney nearly guaranteeing that we wont see significant increases till mid next year.

[bestplaceonmeth]

Here's the great thing about these never-been-lower emergency rates, and I've made this point several times before.

The mad rush to get into the market before rates go up only serves to pull future demand into the present and we will soon run out of buyers.

The mortgage industry concurs.

http://www.canadianmortgagetrends.com/c ... world.html

And that brings us back to the Japanese real estate market of the late 80's, even with their near zero rates. Prices dropped 80%.

http://www.investmentu.com/IUEL/2005/20050328.html

[Marco911]

The problem about this whole "rate thing" is that you have to be able to make the payments.

That's all it comes down to and a part of that is having income. The job market in BC is very soft right now. People in sales are being destroyed in terms of salary. This is a bit of an issue because while they do not reflect the unemployment number, they may not be making enough to facilitate their previous lifestyle based on that income.

The sales manager at the Audi dealership for example, mentioned that numbers are down and income is cut significantly. I don't know his personal finances but no doubt this has an effect. A few friends that work for some high tech firms in BC have been cut from bonus structure.

While they hate this, the alternative is to be fired and collect their $1800 EI cheques. How in the hell is someone who was making $8000 every 2 weeks suppose to live off $1800 a month? EI is such a bunch of bullshit for those people who have their act together and get shafted due to economic problems.

Interest rates can go to zero for all I care. The problem is that if someone can't get a decent job, prices are going to tumble. I think we'll be hit with a double hit. Interest rates will go up while the economy tanks. How and why?

The overall economy will start to improve in the country and once that happens, especially back East, interest rates will rise. Just because BC is not doing well or has dried up with building and construction projects doesn't mean it can force Canada to hold back interest rates if another part of the country is booming. You don't end up with two different levels of interest rates in the country. Projects will start up elsewhere in the country pushing demand for workers in those places. As people move or focus on those areas, Vancouver will go into the toilet where it belongs. The fact it has not done that yet is a combination of projects continuing and low interest rates. Since Vancouver has no other real economy to speak of other than this housing/construction element, it is a house of cards and the clouds are slowly rolling in.

[instigator]

^^bears have been saying this for 10 years LOL

[habs100]

So most of us agree that interest rate is the main cause of the rise and fall in this local real estate price.
So question for your experts... what factors will also influence the fall in prices other than Marco's suggested increasing employment rate out in the East?

[Taipan]

Another external crash, as indicated in my "So you think your alone - sense in a crazy market".

Tick tick tick. Just a matter of time.

[Marco911]

^^bears have been saying this for 10 years LOL

Some bears have yes. Not all. Plenty of us have purchased within the last 10 years or prior and have sold a few years ago because it was obvious there was a problem. I think a smart investor does not try and call an absolute top or bottom but rather, buy when there is value, and sell when there isn't. How long someone decides to hold on is up to the risk the investor is willing to take.

I sold off some real estate in 2006 which in hindsight was too soon. I sold out of my stock positions as the market was in the mid 9's which was also too soon. I've never been poor by knowing when to say no. The issue some bulls seem to have is that bears are always going to say no. A smart investor is both a bull and a bear. In fact, the difference between a good investor and a great investor is one that knows when to change between one and the other. A good investor just buy and holds (usually).

[pianoexcellence]

^^bears have been saying this for 10 years LOL

Some bears have yes. Not all. Plenty of us have purchased within the last 10 years or prior and have sold a few years ago because it was obvious there was a problem. I think a smart investor does not try and call an absolute top or bottom but rather, buy when there is value, and sell when there isn't. How long someone decides to hold on is up to the risk the investor is willing to take.

I always leave a little money on the table at the top. I've had some times where I have literally sold withing a fraction of a percent at the top and looking back, though it worked out well, it was too risky for me.

Squamish in May 2008 was an example of literally selling the absolute top. 3 weeks either side of my sale date would have been a 3k difference in price. If in that position again, I would sell sooner.

[vreaa]

"Your choice is to hustle, or to be stepped on by hustlers."
(On the misallocation of resources in a bubble.)
See
http://tinyurl.com/yf76uat

[ryedawg76]

just sold a condo to a buyer from Asia who's paying all cash. what does that say about the Vancouver market. Interest rates may be influencing the prices to some degree but foreign investors with boatloads of cash and an appetite for real estate are the biggest contributors to the lofty but relatively stable prices we are seeing.

[Greenhorn]

just sold a condo to a buyer from Asia who's paying all cash. what does that say about the Vancouver market. Interest rates may be influencing the prices to some degree but foreign investors with boatloads of cash and an appetite for real estate are the biggest contributors to the lofty but relatively stable prices we are seeing.

My friend is offshore too and buys Vancouver condos cash. But behind the scenes, he is fully leveraged with offshore financing secured by other assets. It would be too much brain damage for him to get a loan from a Canadian lender. Also, on he would have to disclose his global assets which he does not want Revenue Canada to know about. There is a requirement on a Canadian tax return to disclose offshore assets and income. He likes the benefits of Canada such as our health care which he uses, temperate climate, safe haven for storing capital, etc. but he does not like our taxes.

Point is, Mr. Asia who bought your condo is likely fully levered with offshore financing.

[Invisiblehand]

just sold a condo to a buyer from Asia who's paying all cash. what does that say about the Vancouver market. Interest rates may be influencing the prices to some degree but foreign investors with boatloads of cash and an appetite for real estate are the biggest contributors to the lofty but relatively stable prices we are seeing.

My friend is offshore too and buys Vancouver condos cash. But behind the scenes, he is fully leveraged with offshore financing secured by other assets. It would be too much brain damage for him to get a loan from a Canadian lender. Also, on he would have to disclose his global assets which he does not want Revenue Canada to know about. There is a requirement on a Canadian tax return to disclose offshore assets and income. He likes the benefits of Canada such as our health care which he uses, temperate climate, safe haven for storing capital, etc. but he does not like our taxes.

Point is, Mr. Asia who bought your condo is likely fully levered with offshore financing.

How do you get MSP without a tax return? That doesn't seem very fair. Does he collect welfare cheques too?