Real Estate

Vancouver housing bubble?

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Newbie
Jul 31, 2012
57 posts
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WHITE ROCK
Simon Seize wrote:
Aug 20th, 2012 6:45 pm
For everyone waiting for Vancouver prices to crash into the straight of Georgia... when was the last time that Van prices were below (or even at) the median Canadian price? With that in mind, if Vancouver does crash, what does that imply for the prices in Podunk or wherever else in Canada?
Actually, even with a 50% crash in prices in Vancouver the average cost to average income would still be higher than five, which would still make it "severy unaffordable" by traditional valuation metrics.

As for what that means if I was living in say Regina and the cost of my house was comparable with Vancouver I would seriously begin questioning the merits of enduring a prarie winter, and you can bet so would a lot of others.
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Feb 15, 2008
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Calgary
ronthecivil wrote:
Aug 22nd, 2012 4:03 pm
Actually, even with a 50% crash in prices in Vancouver the average cost to average income would still be higher than five, which would still make it "severy unaffordable" by traditional valuation metrics.

As for what that means if I was living in say Regina and the cost of my house was comparable with Vancouver I would seriously begin questioning the merits of enduring a prarie winter, and you can bet so would a lot of others.
Yeah but the driving factor for most tends to be the availability of jobs. Regina was once dirt-cheap, but getting a good job in Regina has traditionally been downright impossible for an outsider, especially if one does not want to work for the government. If Vancouver prices end up crashing, I wouldn't expect a lot of good jobs to exist there either.
Member
Jul 17, 2007
226 posts
20 upvotes
Vancouver
ronthecivil wrote:
Aug 22nd, 2012 4:03 pm
Actually, even with a 50% crash in prices in Vancouver the average cost to average income would still be higher than five, which would still make it "severy unaffordable" by traditional valuation metrics.

As for what that means if I was living in say Regina and the cost of my house was comparable with Vancouver I would seriously begin questioning the merits of enduring a prarie winter, and you can bet so would a lot of others.
Taking into account that the RE crash will drastically reduce income of the construction people, FIRE crowd, etc., then the average cost to average income in Vancouver even after 50% will be likely more than 6 rather than 5.
[OP]
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Dec 3, 2004
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Macleans is joining the bashing party on housing now. The title of this article says it all. This is an article by Ben Rabidoux:

Why Canadian homeowners are likely just as vulnerable as Americans were
The take-away:

The average Canadian household with a mortgage is in substantially worse shape than a cursory reading of the numbers would indicate. If we could strip away all non-mortgaged households and factor-in HELOC debt, we might find that the balance sheet of Canadian households looks remarkably similar to that of American families just before the housing market crash.
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Good article, I hope Ben doesn't receive too many death threats over it.
Sr. Member
Sep 24, 2006
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I found this article in the Toronto Star today:

Fears of steep home price decline ‘much ado about nothing,’ CIBC says
http://www.thestar.com/business/article ... omist-says

I was interested to read some intelligent, logical arguments but the article states that the main reason house prices won't crash is that wealthy parents would help their kids! Unbelievable.....
Deal Addict
Jan 16, 2009
3923 posts
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Toronto
hank755 wrote:
Aug 23rd, 2012 12:37 pm
I found this article in the Toronto Star today:

Fears of steep home price decline ‘much ado about nothing,’ CIBC says
http://www.thestar.com/business/article ... omist-says

I was interested to read some intelligent, logical arguments but the article states that the main reason house prices won't crash is that wealthy parents would help their kids! Unbelievable.....
I bet wealthy chinese is going to come from Vancouver to Toronto to buy all the (relatively) cheap houses.
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Jan 28, 2012
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What a load of crap. Maybe some parents help out a little but that isn't going to save the market.

I know some parents are quite horrified at the thought of their poor little baby living in a rental (I have a friend who's parents bug him constantly to buy), but that will change when these older people start seeing their own massive equity dry up.
Jr. Member
Nov 11, 2004
189 posts
36 upvotes
Good read.

Though the article didn't really elaborate where those "wealth" are from/stored (ie. home equity? :cheesygri )

Although some are cash rich I'm sure , but fundamentally 'lucky kids' + 'harsh reality' never ends well IMO. In other words, I think majority of those lucky ones would end up being the fuel of a bubble.
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Jan 28, 2012
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A lot of it is "rich parents" who bought their house for 1/10 or less than what it is now worth. So now they are so "rich" from their home equity, but they also are completely invested in the cult of home ownership as well.

Whether or not they will pony up the cash depends on the family, but at the very least these parents are the ones constantly hounding their own kids to buy a place and spare their precious grandchildren from the horrors of renting.
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Nov 27, 2007
3510 posts
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hank755 wrote:
Aug 23rd, 2012 12:37 pm
I found this article in the Toronto Star today:

Fears of steep home price decline ‘much ado about nothing,’ CIBC says
http://www.thestar.com/business/article ... omist-says




I was interested to read some intelligent, logical arguments but the article states that the main reason house prices won't crash is that wealthy parents would help their kids! Unbelievable.....
Mr. Tal is an IDIOT, his thoughts back in June

Mr. Tal says other Canadian cities will see a decline although not as severe as Toronto or Vancouver. Calgary and Edmonton are at different point in their housing cycle and not likely to see a drop in sales or price.

“There is the beginning of a trend,” said Mr. Tal about the steep decline in Vancouver sales from May. “We see significant softening in investment, we see reduced penetration of Chinese money into the city. I’m not surprised by this.”

Next stop for Vancouver might be a sudden reduction in price. “They will fall,” said the economist. “It’s just a question of time.”
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Dec 3, 2004
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Engi-Nir wrote:
Aug 23rd, 2012 3:29 pm
Mr. Tal is an IDIOT, his thoughts back in June

Mr. Tal says other Canadian cities will see a decline although not as severe as Toronto or Vancouver. Calgary and Edmonton are at different point in their housing cycle and not likely to see a drop in sales or price.

“There is the beginning of a trend,” said Mr. Tal about the steep decline in Vancouver sales from May. “We see significant softening in investment, we see reduced penetration of Chinese money into the city. I’m not surprised by this.”

Next stop for Vancouver might be a sudden reduction in price. “They will fall,” said the economist. “It’s just a question of time.”
He hadn't drank the kool-aid yet. Now he has. Granted, it was forced down his throat by several realtors wearing ski masks.
[OP]
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Dec 3, 2004
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Canadian banks' profit growth slowing
Canada's banks, the most stable in the world, will probably post the lowest profit growth in two quarters as consumer lending eases and spending subsides ahead of a potential housing slowdown.

Profit before one-time items among Canada's six main banks, led by Bank of Nova Scotia, rose an average of six per cent in the period ended July 31, Mario Mendonca, an analyst at Canaccord Genuity in Toronto, said in a note dated Aug. 13. That's down from nine per cent in the previous quarter, Mendonca said.

"The current macro environment is less than fertile ground for bank profit growth," Robert Sedran, an analyst at CIBC World Markets in Toronto, wrote in an Aug. 13 note, citing concerns about the housing market and signs of "fatigue" among Canadian consumers.

Scotiabank and Bank of Montreal, respectively Canada's third-and fourth-largest banks by assets, are the first banks to report third-quarter results on Aug. 28.

The country's banks, ranked the world's soundest by the World Economic Forum, will probably report consumer lending eased, while investment bank fees are expected to be higher than a year ago, Mendonca said. A slowdown in housing is expected to put profit growth in the "mid-single digit" range next year, he said.

Bloomberg Markets magazine in June ranked Canadian Imperial Bank of Commerce, Toronto-Dominion Bank, National Bank of Canada and Royal Bank of Canada as the world's third-, fourth-, fifth-and sixth-strongest banks, respectively.

Canadian consumers are borrowing less on credit, driven by a slowdown in credit card use, Sedran said in his note. Concern about consumer indebtedness led to efforts by the Canadian government this year to cool Toronto's overheated condominium market.

In June, Finance Minister Jim Flaherty cut the maximum amortization period for mortgages to 25 years from 30, and reduced the most home-owners can borrow against the value of their homes to 80 per cent from 85 per cent - moves aimed at avoiding a collapse similar to one in the U.S. housing market.

"Fears of an outright housing crash will continue to weigh on investors, given the experience in the United States and across the world where stretched markets did indeed crash," Sedran wrote.

Canadian household debt levels could "constrain" earnings growth for the six main lenders in the second half of 2012, according to Fitch Ratings.

Net interest margin - the difference between what a bank charges for loans and pays in deposits - may decline to 2.13 per cent for the six main banks in the third quarter from 2.25 per cent two years ago, ac-cording to Credit Suisse analyst Gabriel Dechaine.

"We're not expecting any blockbuster earnings; more like steady as she goes," said Anil Tahiliani, head of North American equities at Calgary-based McLean & Partners Wealth Management, which owns shares of Canadian banks. "There's no real strong catalyst to take them considerably higher."

"In many ways, we're getting back to what banks should be like," said Ian Nakamoto, director of research at MacDougall, MacDougall and MacTier Inc. in Toronto, which man-ages about $4 billion in assets, including bank shares.
It's concerning how much housing is mentioned in this and the amount of analysts predicting it. From reading in depth a bit more, it appears that the analysts are not concerned about losses due to a housing crash (since they will mostly be covered by CMHC), but rather, by lack of growth ahead for banks due to less household debt, consumer spending, etc. The reduced HELOC's also has to take a hit out of banks, since that is their gravy. Higher rates than mortgages, with no excess risk, basically chopped down to 65%.

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