Real Estate Talks

Doesn't look wildly overbuilt in Vancouver, nor Toronto. Could see 10-15% dop. Low low interest rates. Long term owners will wait for the next cycle. No big deal.


http://www.theglobeandmail.com/report-o ... le4469160/


Economists are arriving at something of a concensus where Canada's housing market is concerned, projecting a drop in prices of 10 per cent to 15 per cent over the next few years, and notably in Toronto and Vancouver.

And while they're not expecting a U.S.-style meltdown, they are warning about the risks to the real estate market. And going forward, the market will largely stagnate.

"Even beyond mid-decade, Canada’s housing sector faces the likelihood of a prolonged period of relatively modest sales and price gains," economists Aron Gampel, Adrienne Warren and Mary Webb of Bank of Nova Scotia said today.

"Historically, long cycles of rising home prices have been followed by extended periods of persistent softness, allowing affordability to be gradually restored and generating renewed pent-up demand," they said in a new report.

Vancouver SFH avg price is already down 16% in last 20 weeks (i.e. since Feb/12 peak).....so presumably the report implies a further 15% drop from the already dropped prices...or did they miss the 16% drop that has already occured (and therefore already rendered even their worst predictions wrong)?

Since different markets move at different times and rates, the averages are very cushioned. The 2009 "correction" only saw a 15% correction on paper (average prices). However, CERTAIN properties (namely those which went up the most), saw >15% price drops (and of course certain properties saw <15% price drops). As such, I'd expect the van west and richmond markets which saw the greatest gains, to also experience the largest drops. (As they did in 2009 where some van west experienced 30-50% peak to trough).

Whenever the topic comes up of the market "dipping" or "softening" someone pipes up that it won't be as bad as the US meltdown. Predictions mean very little, i don't think too many were predicting what happened to the US market either, and Canadian debt levels are right up there with where the US was. Our economy hangs on theirs and the rest of the world is not looking too great either. So even if our little recession isn't as bad, it isn't going to be a picnic, the whole province was hinging on real estate, and real estate was hinging on the whole province. If someone is signed up for a 30 year mortgage it won't make much difference if they lose 30-40% equity in one year or five, it's going to hurt. The US real estate market is still losing air in some areas, and gaining back a little in some others, their recovery is shaky. Our government provincial and federal wracked up a bunch of debt trying to stimulate things and that can't go on forever. People who thought they were going to make big bucks in real estate are going to get a reality check, some will lose their shirts, some will scrape by. The real money makers have already left the building.
As long as the real estate experts keep shuffling the benchmarks the public can fool themselves into thinking there hasn't been much of a shift. The "average" price in the Okanagan hasn't changed drastically in the last five years, but what you get for that price sure has, and the eagerness of the buyers to lay down said amount of money has definitely changed substantially.

Whenever the topic comes up of the market "dipping" or "softening" someone pipes up that it won't be as bad as the US meltdown. Predictions mean very little, i don't think too many were predicting what happened to the US market either, and Canadian debt levels are right up there with where the US was. Our economy hangs on theirs and the rest of the world is not looking too great either. So even if our little recession isn't as bad, it isn't going to be a picnic, the whole province was hinging on real estate, and real estate was hinging on the whole province. If someone is signed up for a 30 year mortgage it won't make much difference if they lose 30-40% equity in one year or five, it's going to hurt. The US real estate market is still losing air in some areas, and gaining back a little in some others, their recovery is shaky. Our government provincial and federal wracked up a bunch of debt trying to stimulate things and that can't go on forever. People who thought they were going to make big bucks in real estate are going to get a reality check, some will lose their shirts, some will scrape by. The real money makers have already left the building.
As long as the real estate experts keep shuffling the benchmarks the public can fool themselves into thinking there hasn't been much of a shift. The "average" price in the Okanagan hasn't changed drastically in the last five years, but what you get for that price sure has, and the eagerness of the buyers to lay down said amount of money has definitely changed substantially.

Interesting points.

For me, the biggest difference between the markets is that in the USA, horrible mortgage products were in use. For example, the option adjustable rate mortgage (ARM) was the riskiest and most complicated home loan product ever created. On a worst-case scenario, the option ARM rate could jump from 5% to a maximum rate of 12% in just a couple years, and remain there. If there was a 2% rate adjustment cap, the rate will go to 7% in month 61, 9% in month 73, 11% in month 85, and 12% in month 97 until the end of the term of the loan. Many areas of Cali and Florida, 40% of mortgages were option ARMs and businessweek reported that up to 40% of all option ARMs turned out to be "negative amortization".

Canada doesn't have these toxic mortgages, and interest rates will stay low for at least a few more years. IMHO, there is little use in comparing the two countries insofar as housing is related.

As we know all this now, and with hindsight, the market has put in a psychological hedge against the introduction of similar products here. As a result, I see a mostly flat market, with growth in some areas (i.e. near new transit corridors) and losses in others (overpriced Richmond).

IMHO, there is little use in comparing the two countries insofar as housing is related.

Some might argue that high prices compared to rents and incomes are two striking similarities.

IMHO, there is little use in comparing the two countries insofar as housing is related.

Some might argue that high prices compared to rents and incomes are two striking similarities.

I would attribute what you note above as the marginal decline in Canada's middle class and the stratification of wealth across national boundaries. This is present in almost all countries right now. Also, there will be 9 billion people in 2050. I can't even imagine how scarce and relatively expensive property will be then, compared to now, on a rents and incomes basis.


Thus, without a systemic failure (i.e. Option ARMs resetting to higher rates creating a negative feedback loop) I see a small slip, followed by a few years of stagnation. Desirable areas near transit corridors will hold up nicely, while places with no fundamentals (i.e. parts of Richmond) will see declines.

40% of Canadians have 100% equity in their homes and at least everyone I know is buy and hold (i.e. housing is a long term consumption item).

IMHO, there is little use in comparing the two countries insofar as housing is related.

Some might argue that high prices compared to rents and incomes are two striking similarities.

Except, of course, it is different in Vancouver: here prices to rents and incomes are FAR MORE OUT OF WACK than anywhere in the US prior to their downturn.

IMHO, there is little use in comparing the two countries insofar as housing is related.

Some might argue that high prices compared to rents and incomes are two striking similarities.

Except, of course, it is different in Vancouver: here prices to rents and incomes are FAR MORE OUT OF WACK than anywhere in the US prior to their downturn.

renting and buying are two different activities with different cost structures. I'm sure you're now well aware that comparing rents and incomes with detached ownership won't get your own ass into a home anytime soon...but good luck with your strategy, whatever it is

renting and buying are two different activities with different cost structures. I'm sure you're now well aware that comparing rents and incomes with detached ownership won't get your own ass into a home anytime soon...but good luck with your strategy, whatever it is

I'm more curious about the strategy of the person that buys a home to rent to someone and pours money into it every month while hoping/praying for capital appreciation. Is that even a strategy?

Is that even a strategy?

It's a strategy, though perhaps not a good one.

etb pontificated:

" comparing rents and incomes with detached ownership "

Yes, all-knowing ETB: I was well-schooled by you that SFH prices depend on people having kids (and not on "incomes" or anything else)......that's why Vancouver SFH prices will never go down...even though they are falling now, in the early 1980's, mid-1990's, 2008.....even though people were having babies then...but, yes, it is different now and different in Vancouver compared to anywhere else in the world because all other countries in the world have negative population growth and they do not have babies....eventually the whole world will be populated by Vancouverites because only Vancouver homeowners have babies...wasn't it Bob Rennie that said: "go east"? Well, he really meant it!

Oh, and ETB, I never got your answer to: who owns the land in a strata building?

I would attribute what you note above as the marginal decline in Canada's middle class and the stratification of wealth across national boundaries

OK if you say so; I still see 30% of the housing base being rented out; if any country provides stalwart and tolerated leadership in income stratification I need only look at... wait a minute... the US. Huh.

Oh, and ETB, I never got your answer to: who owns the land in a strata building?

This has been covered already

Remember strata has no land... skyhooks... remember?

The relevant question is who owns the skyhooks?

Oh, and ETB, I never got your answer to: who owns the land in a strata building?

This has been covered already

Remember strata has no land... skyhooks... remember?

The relevant question is who owns the skyhooks?

Really? You don't know who owns the skyhook?