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Garth Turner October 16th, 2009 http://www.greaterfool.ca/2009/10/16/ottawas-bubble
With house prices rising, and incomes not, with bidding wars in many centres and real estate values at a record level, one question looms: Where’s the money coming from? How are buyers, especially newbies, pulling this off?
Well, chew on this: Two years ago when RBC did its annual survey of homebuying intentions it asked first-time buyers how much of a down payment they planned on making. Twenty-one per cent said their down would be “between $1 and $5,000.”
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Vancouver Sun Derrick Penner October 7, 2009 http://www.vancouversun.com
The recent whipsaw rebound in Metro Vancouver's resale housing markets was likely "too much, too fast," according to the estimate of TD Economics' latest housing outlook.
After collapsing by just over one-third in 2008 compared with the previous year, the number of home sales in Metro so far in 2009 is 19 per cent higher than a year ago, TD said in the report.
And while average resale values dropped by about one-third to $436,000 between last October and this April, TD said prices recovered to an average $608,000 by August, a mere eight per cent from their previous peak.
However, for Metro Vancouver, Gauthier said TD Economics' estimate is that the pent-up demand that welled up during the uncertainty of last fall's financial crisis was largely met by June.
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No other Canadian economic indicator has rebounded as sharply as sales of existing homes over the last few months. After plummeting by nearly a third in the second half of last year, the seasonally-adjusted level of sales had climbed back by 61 per cent as of August. Not even the 50 per cent S&P/TSX rally since March can match such a robust recovery. The fact is that existing home sales have more than recovered; they now exceed pre-recession levels and match the lofty sales volumes of 2007. All of this occurred in the midst of a recession gauged to be severe by most any other standard.
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Julian Beltrame, THE CANADIAN PRESS http://money.ca.msn.com
Ottawa - The Bank of Canada's efforts to spark a rebound in the domestic housing market may be working too well.
A new TD Bank report shows house sales and prices have defied gravity during the severe economic recession and are poised to end 2009 at higher levels than they were before the downturn hit Canada last fall.
"After plummeting by nearly a third in the second half of last year, the seasonally-adjusted level of sales had climbed back by 61 per cent as of August," the report notes. That is more than pre-recession levels.
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Jonathan Tonge October 2, 2009 americacanada.blogspot.com
Carney and Flaherty marked the second quarter as the end of the recession. In the real world the Canadian economy continued to sink in July.
Canada’s economy was 4.6% smaller in July 2009 than it was in July 2008.
Output of goods producing industries shrunk 13.5% YOY to 317 billion.
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Gregg Hall Aug 17, 2007 http://www.artipot.com
The real estate bubble is a much discussed phenomenon used to describe a situation in which property values, both or either commercial and residential, expand very rapidly. The result is an over-inflated market that sees buyers purchasing property at prices far above standard value while fearing the market will burst and property values will plummet as fast as they rose. Buying in such a market can be risky for those who cannot afford to lose on their investment.
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Jonathan Tonge Sep 23, 2009 www.americacanada.blogspot.com
An inquiring reporter came to me to ask "what's the risk?":
The risk is that the government is socializing risk in an attempt to prop up the real estate market and the economy as a whole I answered.
Perhaps this will be a better story for you when you see real estate collapse. With long line ups outside of builders sales offices in Canada, you'd think a real estate bear would be nuts right now. Perhaps a doomsday scenario. But real estate's fate is written into the cards. 35 years, 5% down, record low interest rates, generous banks thanks to government insurance, and obsessive consumer attitudes towards real estate is all that is driving it. It's not sustainable.
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Jonathan Tonge September 9, 2009 americacanada.blogspot.com
The Canadian Government, via CMHC, has stimulated an already very aggressive mortgage lending market. Please read CMHC - Canada's Breaking Point.
Derek Holt and Karen Cordes, economists at Scotiabank, reported that "lenders have been scrambling to get enough product to put into the federal government’s Insured Mortgage Purchase Program over the months, and that may have translated into excessively generous financing terms"
"Pent-up demand from the sales slump last fall may explain some of the gains, said Bank of Nova Scotia economist Derek Holt, but low mortgage rates are the dominant factor."
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I came across this WSJ article,(Better to buy or rent?) that basically gives you something concrete and practical to work with when deciding whether to buy or rent a property. The price-to-rent calculation is simple and I have outlined it in steps below.
Step 1. Determine your price point for a property (example:say you are interested in buying a home that costs $175,000 in the midwest)--$175,000
Step 2. Determine annual rent for a property (example: say you currently rent at $600 a month so 12 months x $600 is $7200 annual rent that you pay)--$7200
Step 3. Divide your answer from step 1 by your answer found in step 2 ($175,000/$7200=24.3)
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Anna Prior Aug 30, 2009 online.wsj.com
With housing prices down significantly in many parts of the country and interest rates low, it may be an affordable time for twentysomethings to buy that first home.
In some instances, the price of owning can be comparable to renting in the long run. But a lot of uncertainty still remains about the housing market and the economy -- making the decision to buy more complicated.
Nicole Stivers, a 24-year-old who works in public relations in Contra Costa County, Calif., purchased her first home with her fiancé in February. They were able to capitalize on what she calls a "perfect storm" -- job stability, a desire to settle down, a surge in home foreclosures and the $8,000 tax credit for first-time buyers.
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August 25, 2009 http://www.calculatedriskblog.com
Here are three key measures of house prices: Price-to-Rent, Price-to-Income and real prices based on the Case-Shiller quarterly national home price index.
Price-to-Rent
In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.
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Aug 16, 2009 runningofthebulls.typepad.com
Most of my focus on the bubbly Canadian real estate market has been on Western Canada. This is primarily because over the last 10 years, Eastern Canada, i.e. everything east of Manitoba, has not much mattered in the global scheme of things as global investor demand has been focused on Western Canada, where things can be dug/mined/drilled etc. out of the ground. It is out west where the bubbly activity in the housing market has occurred.
Worthwhile Canadian Initiative - one of my favourite economics blogs - cites data from Teranet to bolster their argument that Canadian home prices are not in a bubble. It is an index akin to the Case-Shiller index in the US that tracks the changes in home prices in six Canadian cities - Vancouver, Calgary, Toronto, Ottawa, Montreal and Halifax. According to the Teranet index, home prices rose 8.9% per year from 2003 through 2007 across the six cities in the index.
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Gordie_Canuk July 23, 2009 gordiecanuk.blogspot.com
I can already hear the chatter, emanating from home owners and real estate agents far and wide.
"Bubble?!?! What bubble??? Canada's Real Estate market is doing fine, prices aren't rising out of control, they're up only modestly or holding steady. Pick up the paper and read what industry professionals are saying, our housing market is poised for bigger and better things in the years ahead"!!!
Uh huh, I know...every time I've discussed Canada's housing market in the past month or two, the reaction to my view is always the same. About a month ago I blogged on this topic, relating a conversation with a colleague who's going through a divorce. I had suggested to "Bob", that once the marital home is sold, that he'd do well to hold on tight to his cash and rent...with an eye to getting back into the market in another year, if not two.
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Jul 20, 2009 Jonathan Tonge www.americacanada.blogspot.com
(ALL GRAPHS EXTRACTED FROM CMHC PUBLICATIONS)
Everyone here is probably very well aware of who CMHC is. For any international visitors, CMHC was formed as a crown corporation in Canada after World War II to address the shortage in housing. It's mandate was to make home ownership accessible to all Canadians. CMHC primary deliverables is mortgage insurance and mortgage backed securities. Think Fannie and Freddie.
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Jonathan Tonge July 6, 2009 www.americacanada.blogspot.com
DOUBLING OF CANADIAN MORTGAGE DEBT AND HOME PRICES NOT SUPPORTED BY INCOMES, GDP OR INFLATION.
Bad credit got us in this mess. We are now told that bad credit will get us out of it. It's a lie. We are worse off in 2009 then we were in 2008.
HOME PRICES DOUBLED SINCE 2001:
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worthwhile.typepad.com
Here is what is hopefully one of the last of a once-robust breed - The Apocalyptic Canadian Housing Market Story:
Judging by the latest real estate data, the Canadian housing market could scarcely be better. Average home prices are up more than 16 per cent this year, and in May they hit an all-time monthly high, according to the Canadian Real Estate Association. By those numbers, Canada didn’t just sidestep the housing market crash that continues to plague the United States, it sailed right through it virtually unscathed. And yet, there are plenty of signs that the Canadian housing market is still sitting on some very shaky ground—and even the potential that Canada’s big housing crash is yet to come.
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Jonathan Tonge June 23, 2009 americacanada.blogspot.com
Topics:
1. How Fiscal and Monetary Stimulus Damages the Economy
2. Stimulus - North America's Addiction
3. Canada's Mortgage Debt
i) 1981-2009
ii) 2002-2009
4. Stimulus Hangover
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http://www.canadianbusiness.com/columnists/larry_macdonald/article.jsp?content=20090618_154426_8792
We might want to order up a huge grain of salt to go with the latest housing stats released by the Canadian Real Estate Association (CREA). Actually, we may want to get a truck load of the stuff from a salt mine somewhere.
In a June 15 press release, CREA announced that the average price for a house sold on the Multiple Listing Service (MLS) shot up to a record high of $319,757 in May. “Over the past four months, the national MLS residential average price has recovered 16.4% from the low in January,” added CREA in its press release.
This data does not gel with other data series on the economy and housing market. Last checked, Canada was still in recession: the unemployment rate in May rose to an 11-year high of 8.4%. Since the recession began 11 months ago, Canada has lost over 360,000 jobs — with more than 10% of that total coming in May. Hmmm … how can house prices spike so much when so many people are losing their jobs or can’t find work?
Meanwhile, other measures of Canadian house prices are showing declines. The Teranet–National Bank National Composite House Price Index dropped 5.8% during the 12 months to March. And, according to Statistics Canada, selling prices for new homes fell 3% over the 12 months to April (the sharpest deceleration in new home prices since the recession of the early 1990s).
The problem with using average prices in the housing market, as mentioned in my blog, is the failure to compare apples with apples and oranges with oranges. In each period, the average price is calculated from a different mix of houses. There will be differences in the proportion of houses by dwelling space, style, number of bedrooms, lot size, region, and a variety of other characteristics.
In particular, when there are a higher number of sales from regions with more expensive homes, the CREA index will signal an increase in price simply due to this shift in the mix of houses. This, indeed, is what has happened in recent months: sales in high-priced cities such as Calgary and Vancouver are rising more quickly than elsewhere and distorting the CREA index.
CREA does footnote this problem in its press releases. But why even bother calculating such a faulty indicator and reporting the results as a lead item in monthly press releases? Why not headline a less biased measure?
That would be an index like the one produced by Teranet and National Bank. Launched about six months ago, it does a much better job isolating pure price change by using the “repeat sales” approach.
Just prior to its release, TD Financial Group released a study of house prices in Canada, lamenting distortions in measurement. One of its recommendations was that “Canada needs a repeat sales home price index.” They got their wish when the Teranet-National Bank index came out shortly afterward.
In the United States, indexes based on the repeat-sales formula are now mainly used. Of note is the S&P/Case-Shiller Home Price Index.
It would seem to be time for Canada to follow suit.
By the way, the S&P/Case-Shiller Home Price Index also doesn’t jibe very well with CREA’s house price stats. It is showing a drop of 18.7% over the 12 months to March and a 2.8% drop from February to March.
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June 26, 2009 Colin Campbell macleans.ca
Judging by the latest real estate data, the Canadian housing market could scarcely be better. Average home prices are up more than 16 per cent this year, and in May they hit an all-time monthly high, according to the Canadian Real Estate Association. By those numbers, Canada didn’t just sidestep the housing market crash that continues to plague the United States, it sailed right through it virtually unscathed. And yet, there are plenty of signs that the Canadian housing market is still sitting on some very shaky ground—and even the potential that Canada’s big housing crash is yet to come.
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Rebecca Wilder May 16, 2009 http://www.newsneconomics.com
The chart illustrates price-rent ratios for some of the most notorious housing bubbles - Ireland, Spain, the UK, and the US - indexed to 1997. The price-rent ratio can be compared to a price-earnings, or even better a price-dividend, ratio in finance. It measures the relative value of the asset: the price of the asset (purchase price of a home) divided by its flow of fundamental value (rental income earned or the value of having a roof over your head). As the price-rent ratio grows, the market value moves away from its fundamental value.
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