Canada's Housing Bubble

Feb 24, 2010 Garth Turner greaterfool.ca

In the spring of 2005, US housing prices were at record highs – just like now in Canada – and had increased about 20% in the previous year – same as here. Real estate was everyone’s fav investment.

And why not? The experts said it was okay. No danger. Keep on buying.

“Our analysis reveals little evidence of a housing bubble. In high appreciation markets… current housing prices are not cheap, but our calculations do not reveal large price increases in excess of fundamentals.”

That, if you can believe it, came from a Federal Reserve Bank of New York report written by three of the country’s best real estate economists.

Four months later, the market started to crumble. Five years later, prices across America have collapsed from 20% to 70%, one in four homeowners is in negative equity, seven million families have lost their homes to foreclosure, the middle class has been eviscerated, properties sell for less than $100 in several cities and the US has plunged into recession and debt on the back of a mortgage crisis. It’s the worst event since the Great Depression. Because of a bubble the experts told citizens did not exist.

I thought of that today when I heard the words “Re/Max.”

The country’s biggest property pumper came out with one of its publicity barrages, which are routinely licked up by the MSM. Here are two of my favourite quotes, both from Elton Ash, Re/Max executive vice president, Western Canada – one from each side of his mouth:

“I’m confident that we are not going into a bubble situation. I don`t think that the Canadian buyer is that naive at all.”

“Affordability is the catalyst for the vast majority of purchasers in today’s housing market… There is a growing sense, on both sides of the fence, that the time to act is now.”

Notice the suck-and-blow? On one hand, new buyers are told this is a stable market without the dangerous excess of a bubble (just like US suckers were reassured). But on the other hand Re/Max and others try to whip the market into a crescendo of Spring buying, creating that ‘buy now or buy never’ mentality which always marks a bubble top.

And it’s working. At least as far as the slobbering, sycophantic media is concerned.

“Calgary will experience a ‘very active’ spring housing market as improved an economic outlook combined with record low interest rates and affordable housing are ‘fuelling recovery’ in residential real estate sales..” said the Herald.

“Toronto leads the country when it comes to a lack of listings on the real estate market, contributing to upward pressure on pricing, according to a report by Re/Max” said the Star.

“Re/Max said Wednesday that housing supply is drying up relative to the number of people looking to buy,” said Canwest News. “It said expected higher interest rates from the Bank of Canada by mid-year, tougher mortgage conditions imposed by the federal government effective in April, and the implementation of harmonized sales taxes in Ontario and BC in July should cause a surge in demand this spring.”

And that’s just what Re/Max wants. By pouring accelerant on the hot coals of the housing market, these self-dealers seek to squeeze out every last dollar of commission before the inevitable dousing. Why else churn out media releases telling people listings are scant, when they’re in fact increasing? Why encourage young buyers to slither hopelessly into debt if the market is about to cool? Why downplay fears of a bubble, only to pour every corporate resource into gassing it up further?

If I were F, I’d be pissed. Only a week after trying to dampen the fire down by tightening up mortgage regs, the finance minister sees his modest work dashed by these house monkeys.

So, let’s remember. There are those among us who, in serving themselves, serve no one.

BTW, between 1980 and the late 1990s the average US house price-to-income ratio was 3. By 2006, when the market crashed, it had reached 4.6 – termed seriously unaffordable.

Today the ratio in Canada is 5.2. Toronto, 5.7. Vancouver, 9.3. Re/Max, 0.