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  #1  
Old Posted Jun 30, 2011, 4:49 PM
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Canada's 'housing bubble' deemed close to bursting

Canada's 'housing bubble' deemed close to bursting


Jun 29, 2011



Read More: http://www.cbc.ca/news/business/stor...economics.html

Quote:
Canada's housing market is in a bubble that's set to burst and prices could plunge by as much as 25 per cent, a major independent research firm warns. “Housing valuations have lost all touch with fundamentals and household debt is at a record high,” economists at the research consultancy Capital Economics say in their most recent Canada Economic Outlook, issued Wednesday. “Our fear is that, with the housing bubble now close to bursting and commodity prices retreating, Canada will go from leader to laggard.” The report predicts a fall in house prices by as much as 25 per cent over the next three years.

A domestic housing boom coupled with high commodity prices worldwide have spared the economy the severe recession felt by other developed countries. Canada’s economic success could become the thorn in its side as the threat of a downturn in the housing sector looms, the report says. The firm says a burst housing bubble would shrink real estate investment and hurt consumption — two things that would considerably slow economic growth. This decline in consumption would mean a slowly rising unemployment rate as well, according to Capital. The company says Canadian house prices are overvalued by approximately 25 per cent, close to excessive levels seen in the frothy U.S. market at its 2006 peak.

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  #2  
Old Posted Jun 30, 2011, 5:14 PM
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How would this affect the condo market? They are usually quite different from the housing market.
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  #3  
Old Posted Jun 30, 2011, 5:18 PM
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^ not really. The percentages are usually a little different but the house and condo markets trend the same ways. From what I've heard there are a few cities which have huge inventories of unsold condos.
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Old Posted Jun 30, 2011, 5:22 PM
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Vancouver is ridiculous. There are a lot of foreign buyers and locals have become acclimated to forking over a huge share of their money for mediocre housing. I know people who are still looking at buying suburban properties with long-term mortgages (only 30 years now...). Everybody's convinced that prices will go up forever and now's their last chance.

I expect there to be a lot of carnage.
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  #5  
Old Posted Jun 30, 2011, 5:28 PM
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I suppose the bubble would be centered around Vancouver? Prices there are absolutely outrageous.

As far as the condo market, it *is* a housing market, just a different form factor. It won't change a thing, condo prices are too high in Vancouver and even other cities like Calgary or Toronto. Toronto's condo prices have become much higher in the past 10 years that I've visited the city, way above and beyond inflation. You could find starter condos for less than $200,000 (decent sized) back in 2001/2002 in a 15 floor setting (maybe not at 20 or 30 floors, with a better view and more space), today you have to pay double to get a decent condo many times. $300-500,000 is the norm for condos that were $170-300k 10 years ago.

But in Vancouver the issue is just compounded many times over.
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Old Posted Jun 30, 2011, 5:28 PM
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Commodity prices are retreating? They might want to let the oil companies in on that secret. I'm starting to question if we'll ever see sub-$1 gasoline again.

Fortunately Calgary's housing prices dropped by 25% or so a couple of years ago, so we'll ride this out. We're the most affordable large city in Canada according to some report or another that came out earlier this year.
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  #7  
Old Posted Jun 30, 2011, 5:32 PM
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Quote:
Originally Posted by Brandon716 View Post
I suppose the bubble would be centered around Vancouver? Prices there are absolutely outrageous.

Bubble markets in descending order:

1) Vancouver
2) Rest of BC
3) Toronto
4) SK and MB

Rest of the country is not far off fundamentals. AB may or may not belong on that list depending on the direction of energy prices.
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  #8  
Old Posted Jun 30, 2011, 5:32 PM
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Quote:
Originally Posted by Joshy View Post
How would this affect the condo market? They are usually quite different from the housing market.
The condo market, by definition, is included in the "housing market". Housing doesn't just refer to SFH in this context.

Expect it to be much worse, if this doom and gloom scenario transpires. The condo market is filled with empty inventory bought up by speculators, combined with absolutely dreadful below-code construction that's only now being detected. Remember Vancouver's leaky roofs from a few years ago? That's just the tip of the iceberg. Imagine the value of your condo when you realize you just got hit with an $80,000 assessment. And that's for a minor problem with the building. 6 figure assessments are becoming common.

Calgary saw its bubble burst a couple of years ago. Detached housing went down a fair bit, but condos got destroyed. Not every city had quite the speculator influence we did, but it's still a huge factor that seems to cause perpetual instability in the condo market.
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  #9  
Old Posted Jun 30, 2011, 5:33 PM
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Quote:
Originally Posted by Brandon716 View Post
I suppose the bubble would be centered around Vancouver? Prices there are absolutely outrageous.

As far as the condo market, it *is* a housing market, just a different form factor. It won't change a thing, condo prices are too high in Vancouver and even other cities like Calgary or Toronto. Toronto's condo prices have become much higher in the past 10 years that I've visited the city, way above and beyond inflation. You could find starter condos for less than $200,000 (decent sized) back in 2001/2002 in a 15 floor setting (maybe not at 20 or 30 floors, with a better view and more space), today you have to pay double to get a decent condo many times. $300-500,000 is the norm for condos that were $170-300k 10 years ago.

But in Vancouver the issue is just compounded many times over.
The condo market is always more volatile as it is more challenging to manage inventory due to:

1) Longer lead times
2) Higher minimum order quantities (unlike detached housing, condos are difficult to build in quantities of 1)
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  #10  
Old Posted Jun 30, 2011, 5:38 PM
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Quote:
Originally Posted by freeweed View Post
Expect it to be much worse, if this doom and gloom scenario transpires. The condo market is filled with empty inventory bought up by speculators, combined with absolutely dreadful below-code construction that's only now being detected. Remember Vancouver's leaky roofs from a few years ago? That's just the tip of the iceberg. Imagine the value of your condo when you realize you just got hit with an $80,000 assessment. And that's for a minor problem with the building. 6 figure assessments are becoming common.
The foreign and speculative condo buying is, I think, the biggest thing that separates Vancouver and Toronto from some other markets (maybe Calgary is also like this).

I follow developments in Halifax and there is very limited speculative buying. Apartment developments are way more common. If a developer wants to build a condo, actual people who intend to live in the building come forward over a period of months. When a building is done it's typically 80% full of residents. In Vancouver, condos sell out overnight to a limited number of buyers.

If the values tank, residents can just stay put, assuming they haven't overextended themselves. Investors often *need* to sell in order to avoid losing money on mortgages.

Anyway, hopefully I can pick up something cheap in a couple years.
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  #11  
Old Posted Jun 30, 2011, 5:42 PM
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Let's see what happens when interest rates go up to realistic levels.


I could go buy a house tomorrow but I'm renting, and will continue to rent until this plays out. Houses are way overpriced right now and I refuse to become a debt slave and have the value of my assets sucked away a couple years down the road, before I've barely made a dent in the principal.
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  #12  
Old Posted Jun 30, 2011, 6:02 PM
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Quote:
Originally Posted by Doug View Post
Bubble markets in descending order:

1) Vancouver
2) Rest of BC
3) Toronto
4) SK and MB

Rest of the country is not far off fundamentals. AB may or may not belong on that list depending on the direction of energy prices.
Manitoba's housing was seriously undervalued for years and with renewed , relatively strong population growth putting pressure on an already under-supplied market , I don't understand why you think that Man. (or Sask for that matter) is a bubble market .
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  #13  
Old Posted Jun 30, 2011, 6:02 PM
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its going to be coast to coast
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  #14  
Old Posted Jun 30, 2011, 6:12 PM
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There was a piece on the news last night, I'm not sure if it was just for St. John's or other areas of the province, about the high demand for housing and that contractors are thinking that with several of the mega projects kicking into high gear that they will have an even tougher time getting workers to build houses.

So I'm not sure if this means will be safe for the supposed bubble.
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  #15  
Old Posted Jun 30, 2011, 6:18 PM
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I take it the new subdivisions built during the bubble would be the hardest hit.
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Old Posted Jun 30, 2011, 6:21 PM
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Something tells me this will start in the end of 2012. The BOC doesn't seem to be in a rush to increase the rate.
Which could be perfect for me, after all 2013 i'll be looking for a 2 bedroom downtown condo or townhouse so striking 100 grand from the price is a great feeling.
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  #17  
Old Posted Jun 30, 2011, 6:24 PM
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Quote:
Originally Posted by flar View Post
Let's see what happens when interest rates go up to realistic levels.
If by "realistic" you mean "historical during the inflationary years of the 1970s/80s", then yeah.

I dunno, I think 4-5% interest rates are rather healthy, presuming the economy chugs along at an acceptable pace. Certainly is much easier to live these days compared to the years of near-20% interest rates. Talk about debt slaves!
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  #18  
Old Posted Jun 30, 2011, 6:28 PM
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Quote:
Originally Posted by Spocket View Post
Manitoba's housing was seriously undervalued for years and with renewed , relatively strong population growth putting pressure on an already under-supplied market , I don't understand why you think that Man. (or Sask for that matter) is a bubble market .
Well they're both bubbles in the sense that values skyrocketed in a short period of time without corresponding wage growth. The longer term question is whether or not the prices remain affordable given the local job market.

From what I know from friends in Winnipeg, people still seem to be able to afford housing, so I don't think it's in a bubble quite yet. Mind you, a lot of the recent increase was due to a severe shortage of newer housing over the past 15 years combined with a sudden jump in population, so I could easily see some new subdivisions popping up which depress prices somewhat. Whether it would be enough to demonstrate a "bubble" is a whole other matter.
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Old Posted Jun 30, 2011, 6:46 PM
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What does this mean in terms of population and high rise growth for the country?

If prices drop would that be a good time to buy a condo?
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  #20  
Old Posted Jun 30, 2011, 8:39 PM
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Quote:
Originally Posted by jigglysquishy View Post
What does this mean in terms of population and high rise growth for the country?

If prices drop would that be a good time to buy a condo?
No, I would definately not buy anything if the price goes down. Remember the old adage Buy high, sell low.
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