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Overheated housing market will hold Canada back, report says

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Sep 17, 2003
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Overheated housing market will hold Canada back, report says

Once a growth leader among big industrialized nations, Canada's reign at or near the top may be coming to an end, says a new forecast from Capital Economics.
Read full article here
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Feb 15, 2008
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No surprise there. As high house prices collapse, the accompanying deflation could be very bad for the Canadian economy, ie: a very high CAD$. IMHO, the BoC is way behind the curve in lowering interest rates.
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
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A new day, the same prediction...for 10 years...
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Capital Economics is an extreme bear when it comes to forecasting of the Canadian economy/real estate market. I'd take their analysis with a grain of salt. Their forecast represents the the more extreme negative forecast then the likely outcome.

Since the beginning of 2011 they have been making headlines by calling for a contraction of prices in excess of 25%. So far it hasn't happened and there is no evidence that suggests that it will.

Just so the bears don't get up in arms. I'm not saying that their analysis is faulty. Just that their forecasts lie closer to the worst case scenario then the average case. So far that statement has been proven right as since 2011 house prices have not contracted (AS A WHOLE) 25%.
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GonePostal wrote: Since the beginning of 2011 they have been making headlines by calling for a contraction of prices in excess of 25%. So far it hasn't happened and there is no evidence that suggests that it will.
There's tons of evidence that a very substantial housing price decline is right around the corner, or in some cases, already upon us.
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
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Rickson9 wrote: A new day, the same prediction...for 10 years...
10 years? Try not lying, please.
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
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May 11, 2008
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Mark77 wrote: 10 years? Try not lying, please.
He's not that far off.
About a year or 2 after I purchased my first property (2003) there was talk of a bubble there were rumblings of a bubble.

The oldest articles I could find on a quick search were from 2004 & 2005.
2005 - http://www.canadiancapitalist.com/a-housing-bubble/
2004 - http://mises.org/daily/1533
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May 26, 2010
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aznrsx1979 wrote: He's not that far off.
About a year or 2 after I purchased my first property (2003) there was talk of a bubble there were rumblings of a bubble.

The oldest articles I could find on a quick search were from 2004 & 2005.
2005 - http://www.canadiancapitalist.com/a-housing-bubble/
2004 - http://mises.org/daily/1533
That first article you linked to states categorically:
Some economists use P/E ratio to determine if housing prices are in a bubble. Using data from Royal LePage, a detached bungalow in parts of Ottawa costs about $221,000, pays about $3,100 in taxes and rents for about $1,700, which yields about 7.8%. Not bad, when you compare it to 5 year fixed mortgages at 4.8%. In 2000, a similar bungalow yielded 9.8% when interest rates were close to 7%.

While it is possible that pockets of housing bubbles might exist, my analysis shows that most home prices in Ottawa (which is a typical market in Canada) are not in any bubble.
Your second article you linked at was about the United States - not Canada - and proved to be quite right, judging by the crash they began in 2006.
Rickson9 wrote:A new day, the same prediction...for 10 years...
I'm not aware of Capital Economics (who the original article is about), or any reputable economic journalist/body warning about there being a bubble in 2003. Could you point me in the direction of something? As far as I can tell the whole issue of a Canadian bubble has only been at the forefront since the decline occured in the USA.
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Jul 16, 2003
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The 90% price crash must be just around the corner. Another expert called it 3 years ago. Some people's job must consist of calling a crash and picking random number.

Andre Oliveira - Mortgage Agent
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tetris wrote: Once a growth leader among big industrialized nations, Canada's reign at or near the top may be coming to an end, says a new forecast from Capital Economics.
Read full article here
They are certainly way off consensus but there's nothing wrong with a difference of opinion. And if you expect housing markets to crash, then their forecast seems reasonable given the second round impacts on growth would be pretty bad.

However, as others have mentioned - what's their track record like? A quick look at their 2011 and 2012 forecasts also called for a housing crash and similarly very low GDP growth rates (ie., 2% in 2011 and 1% in 2012). they were also calling for bank of canada rate cut by 2012. So again, way off the consensus:

http://www.slideshare.net/Wu7wah/canada ... -economics

Clearly history has proved that they were wrong and consensus was right - GDP came in at 2.5% in 2011 and 1.7% in 2012 - there was no housing crash and the bank of canada never cut. If anyone based any investment decisions on Capital Economics forecasts over the past two years, they could have lost a lot of money.

This doesn't mean that Capital Economics will be wrong again going forward, but you have to wonder what's in it for them standing out from consensus? Perhaps they are just trying to get themselves some publicity given that they are new forecasting entrant to Canada. But you have to wonder if its a good long term strategy, especially since the main job of this firm is forecasting and they've been way off the mark for two years running now!!
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gomyone wrote: This doesn't mean that Capital Economics will be wrong again going forward, but you have to wonder what's in it for them standing out from consensus? Perhaps they are just trying to get themselves some publicity given that they are new forecasting entrant to Canada. But you have to wonder if its a good long term strategy, especially since the main job of this firm is forecasting and they've been way off the mark for two years running now!!
I've wondered the same thing actually. The heavily critical reports tend to come from private research groups/private investment firms and bodies from outside of Canada (like the OECD and IMF).

I presume the business that Capital Economics and the firms of individuals such as Ben Rabidoux are making good money on the basis that they are providing a contratian view to the consensus from the bank's researchers/sector body researchers/government bodies. If their findings are influenced by the attration they achieve by going against the grain, then their work could be called into question in a similar way that the bank's research is, for being an obviously vested interest.

In terms of being wrong so far, the beauty (for them) is that they only need to be correct once, and any misgivings about timing of their predictions will be forgotten. I'm sure that the author of znrsx1979's early post in this thread about the USA bubble doesn't mind calling it a couple of years before it all collapsed.
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Mark77 wrote: There's tons of evidence that a very substantial housing price decline is right around the corner, or in some cases, already upon us.
Can you name two markets in Canada that have experienced "very substantial housing price declines"

And please don't say Whistler.
Let's hug it out
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Jul 16, 2003
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Since the subject of this discussion is the imminent crash, maybe we could have the mods merge this with one of other threads?
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May 26, 2010
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laptop-tech wrote: Since the subject of this discussion is the imminent crash, maybe we could have the mods merge this with one of other threads?
Makes sense - the only things that really warrant their own threads are big policy announcements etc. Not a huge need for individual threads for monthly real estate board stats and new reports from banks/think tanks etc.in my opinion.
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Motoss wrote: "Markets Can Stay Irrational Longer Than Investors Can Stay Solvent"
Great piece of advice in any market.
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RCGA wrote: Can you name two markets in Canada that have experienced "very substantial housing price declines"

And please don't say Whistler.
I don't have any links off hand but I've heard several re agents report that Victoria has had substantial declines.
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May 26, 2010
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RCGA wrote: Can you name two markets in Canada that have experienced "very substantial housing price declines"

And please don't say Whistler.
Why would you specifically exclude one of Canada's few world class destinations from that list? I think the 40% declines in condo prices there (I believe close to 50% adjusted for inflation - from what I've seen the HPI doesn't take into account the national rate of inflation) are a pretty good indicator of an over supply of condominiums in the city (along with being a warning about the 'hotel style condo' that apparently account for about 10% of the Whistler condo market, and appear to be suffering the worst in the city).

Nothing that I've seen in around Vancouver suggests that the market as a whole have had anything like substantial declines. There are obviously individual property sectors in individual cities/areas that are experiencing substantial loses (i.e. White Rock condos are down 14.6% pre-inflation adjustment and North Delta condos down 16.9% pre-inflation adjustment - but in terms of city wide drops, across all types of dwelling there aren't any cities around here with figures within a stones throw of that. The biggest drops in terms of city wide, without breaking down type of property are Maple Ridge, down 8.7%, Squamish, down 7.4% and Port Coquitlam down 6.6%. All figures I would presume are a bit larger, when adjusted for inflation - but hardly sky is falling loses (unless you were unlucky enough to buy a Whistler condo in 2007 on a 40 year mortgage with 1% down).
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Feb 15, 2013
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Mark77 wrote: 10 years? Try not lying, please.
Anecdotal information isn't lying. It's just as valid as all anecdotal information on RFD. Heard the same "RE crash" story for 10 years now.... *yawn*
mattieuk wrote: Could you point me in the direction of something? As far as I can tell the whole issue of a Canadian bubble has only been at the forefront since the decline occured in the USA.
<- this is the source of my anecdotal information. Predictions are so interesting! Especially if they've been wrong for 10 years now...

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