Is the housing bubble about to end in Canada. My friend Jon Hermanson, of Rugby Mining, feels that it is. What do you think?
Tough audio on this one as Jon is currently in Columbia. He did bring the issue of the end of the housing bubble in Canada to my attention when he told us that he was selling his home in anticipation of future falling prices.
Listen closely and see if you don’t agree. Again sorry about the audio quality, but that can happen in extreme reotes like this one.
Click download link to listen on this device: Download Show
Well put, Mr. Irish!
Big Al
If I have to answer anymore real estate questions,,,I going to charge…let’s see
I think, maybe $800, plus the normal 7% commission on the value of the question
plus , Al’s fee of 20%….then don’t forget the last, but not least, Irish, must be considered. and his fee of 50%…he only gets 50%, because he alway gives
1/2 an answers….
One question Mr. In the Box,
Should we incorporate?
Big Al
YA….would could call it something like FIFTH THIRD BANKERS,
FIFTH OF WHISKEY, THIRD OF A BRAIN,AND YOU (AL) THE BANKER….
Great idea In the Box!
Big Al
Al,
I am mystified at some of the questions you ask the listening audience. I think you’re questions such as, is the Canadian housing bubble going to pop must be a tongue and cheek question.
Is this a serious question?
I love our Canadian friends to the north, it is a beautiful country indeed. But they are just as brainwashed and dumbed-down as any American I talk to on a daily basis.
People are paying $400,000 K for homes and Condo’s in Canadian cities no bigger than 1100 sqf on burger flipping and retail job’s. Of course it going to pop. No I take that back, it’s going to implode!
The entire world financial structure is coming down, it’s not if but when. Poor Canadians are going to have their brains kicked in by taking on insane levels of housing debt at a time when debt should be the last thing someone should be expanding.
Hi Vortex,
Of course it is tongue in cheek.
Regarding the $400K for a condo, I hate to correct you but that is a little low.
Kathy and I share a 2 bedroom? condo above a 7-11 store and a nightclub in Vancouver with our youngest. Grand total of 700 square feet.
It is currently on the market for $600K.
By the way it includes 2 parking spaces that we have serious trouble getting two small cars into. Once you are in, the only door you can open is the driver’s door in the left hand space.
What a deal!
Big Al
I know you mentioned it last week Al. Real estate, fortunately, moves relatively slowly, even in declines. I have a RE license here in AZ, which I am supposed to say when talking about the subject. Not advice, but price discovery occurs by lowering the price every 2-3 weeks, not only making the property cheaper, but keeping it from becoming a stale listing. I’m not say you should do that, but just for consideration. Another strategy is to pull the listing and wait until nearer to summer, as Vancouver, like many places, best prices come in summer when people can more easily move. The listen would be ‘new’ again, right before the traditional peak buying season. Just suggestions of what ‘I might do’! (now I get to try that line on)
“The listING would be ‘new’ again…”
So that we don’t have a misunderstanding, Kathy and I are renting this place with Steph. We do not own it.
I currently would not purchase any real estate in Vancouver.
Appreciate you insights, John W.
Big Al
Oh, OK. Yes, I thought you owned it (kind of wish you did, outright!). At least Steph doesn’t have to go far for a Slurpee. (I somehow doubts she drinks those!)
HELLO VORTEX. I cant understand why the CANADIAN’s looking across the border, & seen what happening in the US, are not thinking, hang on we could be next
I can’t either Mr. Irish.
Big Al
Irish,,,mentioned..the main problem….'”THINKING”….
Irishtony,
I agree completely with your assessment. It is stunning to watch the propaganda induced public group-think that permeates all of mankind these days. People in Canada, just like their US counterparts think that taking on mountains of unserviceable bebt is a badge of honor. You cannot make this **** up. This is George Orwell on steroids.
Canada will prove to not be immune to the insanity within the housing market.
The NWO cannot believe how easily the chattel are swayed into making absurd decisions like massive unserviceable debt and just how easily it’s going to be to take-down the over indebted slaves.
Hi Vortex,
You have to put yourself in the shoes of the Interviewer. You are asking questions that most of the time you know the answer to, but you want the interviewee to give you their perceptions and opinions, for the benefit of your listeners. You must assume that some of your listeners may not be as up to speed on the subject matter as you are and so you probe the source for as much info as possible. If you’ve never interviewed anyone this may seem a little new to you. Big Al does this for all our benefit. You just must be ahead of the curve. I hope to one day be there where you are.
Castanheiro, very sound points all the way around and I agree. I give big Al a little trouble sometimes but I have the utmost respect for him and this forum.
Not quite brainwashed yet Vortex.
We do refinance every 5 years or so, on a mortgage that may be up to 30 years in length. We are required to (in most cases) put 5% down and if we put any less than 10% down then we must insure with “canadian mortgage and housing corp.” and pay perhaps a couple hundred/month more to that particular crown corporation which protects us if we are to become unemployed/disabled or what have you (from my understanding). Further, if we ever had to default on our loan, the bank would obviously sell it, but we would be reimbursed what equity we have in our homes from the sale.
I don’t know of anyone (post 2009) who could get a 400k house flipping burgers, but people can buy more with little in the bank if they have excellent credit.
With regard to a bubble, Vancouver definitely is, and that particular province (British Columbia) is referenced as “bring cash” because Vancouver has many mining companies and office jobs etc. but almost no industry or manufacturing. Alberta (just one province east of BC) has oodles of money due to oil and gas, and the tar sands supporting 100 000’s of people who make six figure incomes…as you go further east in Canada into Manitoba and Ontario people are significantly poorer.
I personally am in Edmonton where you can get a decent house for about 350k new or less depending on size.
ConservativeCanuck
It’s great to hear from someone on the front lines so too speak. I still think Canadians are in for a real rude awakening as it relates to the housing market.
But if there was a place to pay-up for real estate it would have to be Canada because it is such a beautiful country with so much to offer.
I am also living in Edmonton, and I’m not planning on buying anytime soon. During the past decade, home prices have more than doubled, with salaries not really going anywhere. We started out this wild ride with a SFH averaging around $150,000, give or take. Now, we’re looking at the same for $350,000. I would not call this affordable. I refuse to drink the koolaid like the rest of the zombies. Correction will come.
Here is my gut feeling:
It depends entirely on where you are located. Canada’s real estate markets are probably too diverse to be referred to as one market.
For places like Edmonton, which benefit from an influx of population due to continued expansion in oil production, are a lot less likely to see price deflation in real estate than places like Vancouver’s lower mainland. What keeps Vancouver going, even in the face of bloated prices, is a continued influx of people, who create demand. As long as there is demand, prices should remain firm.
What we should look at is the average time it takes to sell properties. If inventory is moving only sluggishly, maybe we can expect prices to pull back. For now most buyers are locked in at very low interest rates and don’t have to worry about rising rates for years to come.
Good point, Peter.
My opinion. after and continuing to spend a lot of time in Vancouver, is that the market is so over inflated that it simply must come down.
Big Al
I somewhat agree AL, but Vancouver to Canada is like Beverly Hills to the U.S. the wealth isn’t created there, we get 50k-100k asians coming in who have high 6 figures …or 7 or 8 figures in the bank…It’s all money from somewhere else…no real economy in Van.
Many people who buy houses don’t understand the market because they aren’t investors. They get emotional about owning a home and don’t think with a clear head. All markets go up and down and real estate in Canada is in a bubble and will correct. In the late 80’s we had a real estate boom where I live and prices for a detached home sold for over a million $’s but 10 years after the crash in 1990 these same homes sold for !/3 of their peak highs. Real estate is not only location, location, location but it is also timing,timing, and timing.
couple great articles here from Chris Horlacher for more info:
http://www.mises.ca/posts/articles/the-canadian-moral-hazard-corporation/
Amen, Shawn!
Big Al
I grew up in the Vancouver neighborhood of Kerrisdale, and it was quite nice at the time, a “little above average” I suppose, but lots of retirees and unremarkable 2 bedroom homes from the 1940’s. It has become some of the most expensive real estate anywhere in the world today. I watched as the first cusp of the Hong Kong wave hit in 1982. You could have one of those 1940’s homes on one lot selling for $150,000 CAD, and a new-build next door selling for $600,000. The new home could command that kind of premium because only new houses were of interest to foreign buyers at that point. It was pretty clear what the future was bringing, with such disparity. That was 1982-1984.
Prices have been over a million $ for a 50 ft wide city lot for years, but just last year went up as much as another 50% more. That’s hyperbolic. I don’t have the price/sq foot data, but such data is available from the US NAR, so I imagine it also is from Canadian branch of Realtors.
There’s many facts that suggest to it’s a bubble:
* Mortgage loan refi’s required, as Al and Jon say, sooner or later. Any (or perhaps the inevitable) rise in interest rates, one day, will wreak havoc. It doesn’t matter if many own their homes outright. It’s the cascade affect that starts when you cannot find new buyers because of interest rates. Existing owners can’t sell. There are already FOR SALE signs sitting on Marine Drive for months now, with properties going stale.
* China hard landing. Hong Kong is a Special Administrative Region of China and still has some authority to do what it wants, but if a margin call of sorts hits it’s investors, who have sunk money into the greater Chinese economy, the natural reaction of people is to pull out of their investments, and sell a few of them. That would include homes owned anywhere in the world, particularly those held for investment and which are valuable.
* Canada has the same baby-boom demo’s as any Western world, post WWII country. It’s past it’s peak spending wave. New immigrants are shoring-up the birth rate of around 1.5-2.0 births per couple, so the country can hope to collect taxes from enough workers to fund pension, health, and income taxes. But those new workers don’t have $2,000,000 for a home, nor are they going to get an inheritance of a home. Even in the latter case, Canada has it’s own estate taxes, the idea of which is to renew assets every generation or two, taking away from those who earned them (true socialism). How do you divide up 1 home in West Vancouver when you have 3 siblings? Sell it.
* Canadian Dollar – as it strengthens more, and it will, exports drop. This also happens as the western nations (customers) seem poised to enter their final consolidation of debt generated over the last 40 years.
* “There’s no bubble here” mentality. Vancouver’s Pacific rim locale has made it somewhat different, but you know what? Every country/region where there’s a bubble “was different”.
When looking at a price chart, the name “bubble” is really not accurate. It’s a spike (a dirac, for those of you who like derivative calculus). The year of 2011 was a spike in price for Vancouver, just like the ones in China, just like the ones in the US in 2005. The steeper the slope of a spike, the sooner it’s end comes.
Thanks for the well-thought-out comments, John W.
Big Al
my comments are the same as last week
Well they’re good too! (and they were) Just reflecting on some years in good ‘ol Van. Different city now, though.
thanks jwr….gnaw, gnaw, gnaw….I am almost loose…
Ummm my 777 sf condo costs $500 per square foot. It doesn’t back fire ecsaube it will be $800 per sq ft in the not too long future. My mom’s 1600 square foot 50 year old home was purchased for $250k 20 years ago, today it’s worth $2,000,000. The deal here is this .buy what you can and flip it to the Chinese and buy your final house in CASH in the suburbs about 45 minutes from Vancouver. nobody is laughing when you are young and starting off.
yes but is Vancouver really just a suburb of China?
If oil prices stay up high this will support Alberta real estate.
Hi Barry,
Walking around Vancouver, I must say that it truly does feel like a suburb of China.
Big Al
Barry, I believe you are rationalizing.
Look at the most recent (mini?) bubble–silver.
“If they keep printing money, silver can’t go down”
“The market is recognizing it as a currency–that will at least support it”
blah blah blah
surprise—50% decline within a few months.
For the record I do not believe the bull market in silver is over, but certainly selling some silver in the $40-50 range was the right thing to do at the time amidst the rationalizing and excitement.
Interesting analogy, skii.
Many thanks,
Big Al
I remember the same type of glnoaitg in SoCal before I left, now people are putting bullets in their head when the bank takes the house. And those gloaters are all crying for governement bailouts and whining about how they aren’t being helped by the banks. Your wealth is imaginary, unless you sell it now. You will be truely surprised how quickly a million dollars in paper money can be gone.
I think employment, salaries, and interest rates are the main drivers for housing and the bubble for our northern neighbors. As interest rates have no where to go but up, and as unemployment goes up, more families and extended families will start sharing the same home. And ergo, less demand.
Yep, great point James C,
Big Al
Howdy
I kinda think with the baby boomers retiring we are gonna need alot of condos. I live in one and I love not shoveling snow,painting or cutting grass.etc.
A friend of mine continues to buy houses on the lower mainland, Alot of people mistakenly call the lower mainland Vancouver. He buys the biggest ones he can get his hands on and rents the rooms, has no trouble renting.
I have to think that Canada is to large to consider 1 market, right now a “boom” is in Red Lake Ontario, lotsa work and lotsa need for buisinesses. Alberta, Saskatchewan resources. Right now Canada needs 100 thousand miners, $20-$30 an hour for labour
Also enough people for the patch cant be trained fast enough, not enough room in classrooms, anyway, its location and what your buying I think, wouldnt want to be in Ontario/Quebec manufacturing right now.
You bring up a good point benb,
You know I realize the truth in what you are saying when I compare the real estate environment where Kathy and I live and the environment 2 hours south where Kyle and Sarah live.
Let me tell you, my friend, there is absolutely no comparison.
Big Al
Happily I live in the East where properties are more down to earth but still high. The same property in Vancouver will cost you maybe 50% less in Montreal. Of course it is relative to business opportunities and net salaries. I know that my home would cost more than double if it were close to English Bay and 80% more if it were close to downtown Vancouver.
BC is very pretty but a fall is coming. It will hurt a lot of people. But I have been hearing this for years.
The rise of homes, gasoline, the PMs are all related to the debasement of dollars. No matter the weakness in the Canadian dollar in the future ( Canada has little to no gold) we are riding a myth that will end. And very badly.
Yes Canada is rich in PMs. But that is all under ground. Do you have any idea the hell it is for a junior to open a mine in Canada? BC is left wing David Suzuki land followed by Ontario.
Furthermore, when Ontario and Quebec begin to extract the PMs, much of it will go to the entity who financed it (CHINA) – sorry lefties. They are going to learn a hard lesson in the effects on socialism. If Ontario and Quebec are not completely bankrupt by then.
You know James B, it is funny but you are probably correct.
You do live in a very pretty city by the way.
Big Al
Unfortunately Al, Montrealers love to moan about what is happening in Ontario or BC. China does not own most of the pm mines in Canda. I have no idea where he gets these statistics. Toronto currently has 171 new hi rise projects under construction. Nesw York has 61. Toronto has the fastest developing condo market in North America. 25 % of the condos are for investment and much of that is offshore more which is pouring into Canada due to the stability of the CanadIan economy. Our unemployment will not be going up but rather down as things pick up in the US and elswhere. There is no doubt that the housing prices will cool down. They have to but I certainly do not see any crash. Neither does the Finance Minister or The Head of the Bank of Canada nor the Head of the Read Estate Association.
Thanks jimmy d,
You know, I spend a lot of time in Canada and I love the country. (As I love my country.)
I do not understand the Canadian prices which are substantially higher than they are here.
I am under the impression however that tuition prices are less in Canada than they are here. We spent about $250K to put two of our children through universities. Is that similar to the Canadian universities. If that is not the case, I would have to say that Canadians have more correct priorities when it comes to education.
I happen to really like Toronto. I have only been there about 1/2 dozen times, but I enjoyed each of these visits immensely.
There are major differences between the two countries and I must say that over the past 30 or so years, I have learned to love them both.
Thanks for your comments,
Big Al
$250,000????! Holy smokes!!
When I grew up in the UK, a University education was FREE! In fact, they gave you a grant to attend, to encourage more people to get degrees.
Thats why Americans feel relatively poor nowadays. Horrendous costs for Education and Healthcare, 2 things that should be provided to everyone for free by the Government. I mean, what good are taxes if they dont cover those 2 necesseties?
Here we go again, yet another discussion on whether Canadian housing is in a ‘bubble’ or not.
Big Al, I love listening to your show every day and reading the comments about all sorts of topics but really, to perpetuate this ‘fear’ about the Canadian housing market is a bit much.
People have been shouting ‘bubble’ for 10 years now and just because housing is expensive here compared to somewhere like Detroit!!
Its simply not comparable.
Look at Vancouver – a beautiful city that seems to bring out the worst in people living elsewhere in Canada who just seem envious and can’t wait to knock it down.
Sure, everything isn’t perfect here, but before I moved here from Scotland 15 years ago, I looked at every location in the English speaking world (languages are not my strong point so i wanted to emmigrate to an english speaking country).
After careful analysis, Vancouver was the top choice in my mind. Temperate climate, good mix of races from all over the world, reasonable jobs market, nice places to live, access to the Ocean, Mountains and an international airport. Thats just for starters, not to mention its sheer beauty.
Anyway, to cut a long story short, in my mind Vancouver has risen as a City in the world standing to something like a New York or a Paris or a Toyko or a London when it comes to property and the prices are on par with those. Do people constantly say Paris house prices are in a bubble?? No, its accepted that its an important city that many people want to live in and they pay a premium to do so.
Vancouver is the same. Its obviously helped by strong migration from mainland China, which shows no sign of slowing, in fact the wealthy Chinese are falling over backwards to move here and as long as the Chinese economy keeps expanding and growing the middle and wealthy classes, there will be huge demand for migration to Vancouver and the rest of Canada.
America has been in a huge economic downturn for several years now and the weakness of the US dollar shows that clearly. Canada has withstood the worlds economic problems better than most and we already had a decent housing market correction in 2008/09 and after that Buyers stepped in and bought the dip.
The same will likely happen the next dip there is, in fact its dipping right now.
As long as Asia is growing and the vacancy rate in Vancouver remains as low as it is (currently 1% i believe) then the demand is real and its there for property.
I bought an apartment in downtown Vancouver 5 years ago. Its currently worth about 7% more than the price I paid.
Is that a bubble? Prices rising 1.5% a year???
I don’t think so. Far from it in fact.
Just because prices seem expensive relative to cheap cities in the US, does not a bubble make.
Keep up the great work with the articles!
I wish we could go back to the days when Nortel was the Guerilla on The TSX and everyone was buying at $120 plus then the crash came and all the analysts said it was a buy at $90, $70, $40, and so on and when Nortel finally hit bottom at 67 cents the same analysts said ” Don’t Buy Nortel It’s Junk.”
I am looking at acreages one hour from Vancouver for 25k per acre.
If you want to live in Vancouver you must really have to or want to.
I have lived in a few Canadian provinces and Vancouver is beautiful but 15 acres backed up against a park with the ocean a few minutes away is more in line with the reality of real estate anywhere but Vancouver.
I am looking for a cheap piece of real estate in greece, or ireland, does anyone
have any to sell.? Included must be a boat, a car, a bank account, 10 acres,
an ocean view, and a wheel barrol full of gold….anything less and I am staying
in Florida…
HUH……….you dont ask for much do you, you are easily pleased. By the way i am still waiting for your email with your address, so i can send you those coins…..i am sure you will be pleased with them……….anthony_mcdade@hotmail.co.uk
it is on the way……thanks very much….
Housing prices are grossly overinflated due to irresponsible lending practices, government policy and uncontrolled immigration displacing natives and destroying housing availability.
The amount of speculation is sickening.
It is making Canadians poor and real estate agents (most over-value job around) and bankers wealthy. I am disgusted by the situation.
HI AL . First get well soon. Every housing bubble pops. What causes a housing bubble in the first place well in my opinion its a number of things, (& bear in mind i am no expert ). people want bigger & better homes, & that costs more money, so they take out larger loans. The banks love that because they make more money, & if you cant pay they just grab your home, so their money is safe. Estate agents rack up the valuation of property, because they make more commission. The government love it because they can get more property tax, so everybody loves it except the home owner’s who have to pay more, until they can no longer afford it…………And then…….POP………Just my way of putting it in simple terms.