When will it pop

[Trex]

The so called "housing bubble" is a topic of considerable debate in the media.
Is there one in Canada?
And what the hell is a housing bubble anyway?

Is a foamy housing market a bubble?
An overheated market?
A hot housing market?
An over priced housing market?
A bubbly market?
A constant sellers market?
An unsustainable increase in selling prices year over year?
What the hell is it really?

Next up, who is opposed to defining a bubble real estate market actually as a bubble market?
Pretty much everybody, is the answer.

The real estate agents who are making a killing for performing a mediocre service?
The banks who are making a fortune risk free (CMHC is on the hook for all the risk)?
The Fed Government which sparked a housing boom by forcing the CMHC to back 0/40 mortgages?
The construction industry which feeds off the boom?
The Provincial or Municipal Governments which feed of the construction industry?
The homeowners themselves which honestly want to believe that their properties constantly increase in value and are now worth hundreds upon hundreds of thousands of dollars?
Or how about the young folks looking to buy? ( Obviously they don't want to pay top dollar for a declining value asset).

In my opinon certain cities in Canada certainly do have bubbles.
How the heck can a leaky, black mould infested crack shack of about 700 square feet be worth over a million dollars?
Welcome to Vancouver.
Is it sustainable?

Obviously not.

Not if you believe in youth.
Not if you believe in growth.
Not if you believe in equity amongst our future workers and our older generations who sit upon vastly inflated properties.

Here is a link to international housing affordability:
http://www.demographia.com/dhi-ix2005q3.pdf

It's unbiased.
It never actually claims Canada has a housing bubble.
Check out the affordability of housing in Canada.
There is no question that Vancouver is vastly overpriced.
5 times annual earnings is considered unsustainably overpriced on a property (a bubble).
Vancouver single family houses are something like 16 times over annual earnings.
Thats insane.
It's completely unsustainable.
And it's bankrupting our youth without them even realizing it's happening.

Vancouver, Victoria and Toronto are heavily into bubble territory.
Kelowna, Edmonton, Calgary, Ottawa and a bunch of other cities are, at the very least, heavily overpriced.

It's OK for me.
I paid my mortgage off.

But believe it or not I actually do worry (somewhat )about our young and future generations.

How the hell do the older generation (like me) figure we should pimp out overpriced housing to our young on the backs of zero or 5% down, 35 or 40 year mortgages at 3 or 4 % interest rates.
Can anyone who reads this over the age of 40 imagine a newly wed couple of, say age 31, buying into a first time mortgage that will not be paid off until the newlyweds are 70 years of age?
On their first property?
Does anyone with the slightest clue actually believe interest rates are going to remain at 3 0r 4% for 30 or 40 years when the historical average is around 7%.

The answer is pretty simple.
In certain cities in Canada it's completely unsustainable.
Just look what happened south of the border.
And not only is it unsustainable, it's actually unfair to our own youth.

The reason for this long winded rant was simply to urge any young or first time buyers to think very carefully about future property purchases.
Property is a home, but it is also an investment.
Consider how much upside it has?
Now consider how much downside it has?

Trex

 

[Liberalman]

The interest rates will be going up in a couple of months and thats when the housing bubble will pop real loud.

A lot of people bought their houses on five year terms when they start to mature then they have to get another term for higher interest rates.

As the prices start to fall people that wanted to buy will hold onto their money until the prices bottom out and they will also wait until the interest rates levels out which might take about a year.

When people start to walk away from their houses people that either sold early or have money will get the good deals

 

[SirJosephPorter]

I don’t think we have a housing bubble. Sure, the house prices have firmed up somewhat, and may even have started rising in some areas. But to call it a bubble is a stretch.

 

[Slim Chance]

The interest rates will be going up in a couple of months and thats when the housing bubble will pop real loud.

A lot of people bought their houses on five year terms when they start to mature then they have to get another term for higher interest rates.

As the prices start to fall people that wanted to buy will hold onto their money until the prices bottom out and they will also wait until the interest rates levels out which might take about a year.

When people start to walk away from their houses people that either sold early or have money will get the good deals

Good analysis... the only other element to consider is that there were many that took advantage of the CMHC allowance to put very little down (5%?) and assume a large mortgage when prices were quite high. Factor in the (relative) drop in current prices and you see many people that are in negative equity territory.

Increased interest rates will cripple those folks that are in the above situation.

 

[Trex]

I don’t think we have a housing bubble. Sure, the house prices have firmed up somewhat, and may even have started rising in some areas. But to call it a bubble is a stretch.

A stretch Huh,
Did you read the non profit demographia link that states that Vancouver is one of the most overpriced housing markets in the world?

You obviously think young first time buyers are perfectly fine leveraged to the hilt with a 0-40 or a 5-35 loan.
At 16 times annual average earnings.
Thats more leveraged than futures or derivatives purchased through a margin account with no balance.
With more downside risk because you are locked in for 35 or 40 years.

Let see.
The European business press says Canada has a housing bubble.
The Australian business press says that the two biggest housing bubbles are number one in Australia and number two in Canada.
The international business press (The Economist) has published an article saying Canada has a housing bubble.
The American financial press has written numerous articles on a Canadian housing bubble.
Both the National Post and the Globe and Mail have published articles on a Canadian housing bubble .
David Dodge has publicly warned Canadians that some cities in Canada have an unsustainable housing bubble.
And not half an hour ago I walked out of Indigo and I noticed that on the front cover of the new issue of Canadian Business Week Is a full page, full colour illustration screaming "Do not buy Canadian real estate at this time"
To you this is a stretch?

Not warning young families of first time buyers about the risks of going into negative equity on zero down or 5% down mortgage is, in my opinion, criminal.
And anyone who would encourage young FTB's into purchasing a property in the bubble markets of Vancouver, Toronto or Victoria is at best a fool and at worst cruel.
Or maybe just a realtor.

Trex

 

[Kreskin]

I wonder how much interest rates really will go up. Their warning of such brings the dollar up and that in itself could negate some of the rise.

There are so many variables to consider, who knows how much of what will happen. But prices are quite unaffordable so something has to give sooner or later, one would think.

 

[SirJosephPorter]

I wonder how much interest rates really will go up. Their warning of such brings the dollar up and that in itself could negate some of the rise.

There are so many variables to consider, who knows how much of what will happen. But prices are quite unaffordable so something has to give sooner or later, one would think.

I don’t’ know about the West (and I agree that house prices are ridiculously high in Vancouver, but then they have always been that way).

Here in Ontario, there is no housing bubble. Sure house prices are on the increase, but no more than usual.

Average home prices, 50-year price trend, Toronto real estate

Now in 1989, that was a real housing bubble, the prices came crashing down in subsequent years. Nothing like that is happening today.

I am not really familiar with what is happening in the West, I do know that house prices have always been high in places like Vancouver, Calgary etc. But at least in Ontario, there is no housing bubble.

My son is looking for a condo in London (he starts his residency in July, and he figures it is better to buy a small condo than pay rent for four or five years). So we know there is no bubble in London. There is no bubble where I live.

So at least Ontario is safe, I don’t know about the West.

 

[SirJosephPorter]

Not warning young families of first time buyers about the risks of going into negative equity on zero down or 5% down mortgage is, in my opinion, criminal.
And anyone who would encourage young FTB's into purchasing a property in the bubble markets of Vancouver, Toronto or Victoria is at best a fool and at worst cruel.
Or maybe just a realtor.

Trex

Are they still giving mortgages at 5% down payment? I would think they would have stopped after the sub prime fiasco in USA.

Anyway, I don't know about Vancouver or Victoria, but there is no housing bubble in Toronto. Incidentally, Vancouver house prices may have gone up because of the Olympics.

 

[L Gilbert]

One of the enduring mysteries of the Great Recession is how Canada largely escaped the crushing home price correction that hit virtually every other Western country.

Housing market has big cracks - The Globe and Mail

More:

http://www.google.com/search?hl=en&...010&aq=0&aqi=g2&aql=&oq=housing+bubble+Canada

 

[Tonington]

It's certainly something I've considered. I'm out of school now, with a student loan that is approximately what my parents paid for our home way back in the late 80's. Real income is flat, productivity is lagging, student debts are high (I'm not the only one)...I wonder down the road what my EI premiums will be, how much for CPP? Who is thinking ahead about these issues besides people in my generation, and how many in my generation have even stopped to consider this yet?

It's a bit overwhelming when I stop and consider...I'd like to own my own business some day.

 

[VanIsle]

The interest rates will be going up in a couple of months and thats when the housing bubble will pop real loud.

A lot of people bought their houses on five year terms when they start to mature then they have to get another term for higher interest rates.

As the prices start to fall people that wanted to buy will hold onto their money until the prices bottom out and they will also wait until the interest rates levels out which might take about a year.

When people start to walk away from their houses people that either sold early or have money will get the good deals

B of C will raise interest rates by 1/4 of 1% in a couple of months. That's not a big move. There is a possible threat that they will raise them again later on but it's not a certainty just yet.
People who are up for renewal, can renew up to 120 days in advance without penalty. There is a lot of buying going on right now for those very reasons alone. A couple of months penalty is worth it, if there is indication that the rates are going to go really high but I seriously doubt there is any reason for anyone to get too reved up yet. I don't think any bubbles are about to burst as fast as you say. Rates will be a tad higher but they will still be affordable. Qualifying for a new mtg. will be a little more difficult but it never should be too easy anyway.

 

[SirJosephPorter]

B of C will raise interest rates by 1/4 of 1% in a couple of months. That's not a big move. There is a possible threat that they will raise them again later on but it's not a certainty just yet.
People who are up for renewal, can renew up to 120 days in advance without penalty. There is a lot of buying going on right now for those very reasons alone. A couple of months penalty is worth it, if there is indication that the rates are going to go really high but I seriously doubt there is any reason for anyone to get too reved up yet. I don't think any bubbles are about to burst as fast as you say. Rates will be a tad higher but they will still be affordable. Qualifying for a new mtg. will be a little more difficult but it never should be too easy anyway.

My son told me that he can get mortgage at 3.75%, locked in for five years. Sounds like a great deal, He won't stay in the condo more than five years anyway (he will sell it at the end of his residency).

I told him to be sure to lock in the rates.

 

[VanIsle]

A stretch Huh,
Did you read the non profit demographia link that states that Vancouver is one of the most overpriced housing markets in the world?

You obviously think young first time buyers are perfectly fine leveraged to the hilt with a 0-40 or a 5-35 loan.
At 16 times annual average earnings.
Thats more leveraged than futures or derivatives purchased through a margin account with no balance.
With more downside risk because you are locked in for 35 or 40 years.

Let see.
The European business press says Canada has a housing bubble.
The Australian business press says that the two biggest housing bubbles are number one in Australia and number two in Canada.
The international business press (The Economist) has published an article saying Canada has a housing bubble.
The American financial press has written numerous articles on a Canadian housing bubble.
Both the National Post and the Globe and Mail have published articles on a Canadian housing bubble .
David Dodge has publicly warned Canadians that some cities in Canada have an unsustainable housing bubble.
And not half an hour ago I walked out of Indigo and I noticed that on the front cover of the new issue of Canadian Business Week Is a full page, full colour illustration screaming "Do not buy Canadian real estate at this time"
To you this is a stretch?

Not warning young families of first time buyers about the risks of going into negative equity on zero down or 5% down mortgage is, in my opinion, criminal.
And anyone who would encourage young FTB's into purchasing a property in the bubble markets of Vancouver, Toronto or Victoria is at best a fool and at worst cruel.
Or maybe just a realtor.

Trex

Vancouver has always been a "don't buy, it's too high" zone. Victoria is much the same. That doesn't put the whole province over the edge. Housing isn't cheap and if you are not already in the market, getting there has become more difficult. I don't remember where but somewhere on these forums there is a thread that speaks about the new rules that are being set by the federal governement. Zero down isn't going to happen anymore. I'm not so sure it ever did. My niece and her husband bought in downtown Vancouver and they had to have 10% down. It was their second purchase but they did not do the sell and buy thing. There was a few years in between. My son bought here in town and he didn't have a dime for a downpayment. The guy he was buying from just worked it out so that his purchase included a downpayment - meaning on paper he had the money. I don't know how they are supposed to do it but first time buyers are going to have to show that they can pay the payments for a year mtg. even if they don't go with a fixed rate. Newspaper people trash talk anyone and anything. I think the best thing for anyone to do is talk to their banker before they make any quick decisions and before they have major disappointments.

 

[damngrumpy]

This housing bubble featured over priced housing, with low interest rates and not
enough down payment should the market change. Too many people have more
than one property with very little down. The other unknown factor, other than a
rise in interest rates is, when and how much inflation will we see? Some are now
predicting the American economy to take a second hit within a short period when
the second wave of foreclosures come due this spring. The prediction is the markets
will lose some 1.5 trillion dollars that is 500 billion more than last time. Combine
that with a possible devaluation of the American dollar by 15 to 20 percent. We
are in for some interesting times in the months ahead. The sites I have been following for the last few years are Money News, and Whiskey and Gunpowder.
Their predictions have been amazingly accurate over the long term. Sometimes
I say well that didn't happen only to find out about 6 weeks later all hell breaks
loose. Watch your credit cards, how much you have in the market, be real real
careful about the bond market, they are about to slip in the next few months,
and watch the job market almost everywhere. Europe is having trouble with four
countries now. Greece, Spain, Ireland, and Portugal with two or three others showing
signs of wear. Housing bubble, its only the tip of the iceberg and Harper has not
saved Canada he has merely postponed a huge problem coming right at us as
America is our biggest customer and they are in fact broke.

 

[SirJosephPorter]

be real real careful about the bond market, they are about to slip in the next few months,and watch the job market almost everywhere.

Be careful of the bond market? That is one thing you don’t have to worry about, unless you are speculating in bonds. And if you are speculating, you deserve all you get.

But if you have bought bonds for income, why would bonds going down affect you? Unlike stocks, the face value of a bond is guaranteed provided you hold the bond to maturity.

So suppose you have a bond which pays 5%, set to mature in 10 years. You are collecting interest every year. Now interest rates go up, the bond slips form 100 $ to 80$. Why should you care about that? You still keep getting your 5%. Hold the bond for 10 years and you are guaranteed to get your 100 $ back.

So if you hold bonds for interest income it generates, you have nothing to worry about. If you hold bonds to make a quick buck (for capital gains), you may well get burned, and you would deserve it.

 

[Liberalman]

Here is a chart I found which shows you how crazy it can get when the interest rates takes off I feel that rate will resemble in the coming years of 1974-1983.

 

[VanIsle]

Why would you ever think you have reason to believe an old chart like that would have any bearing on the way things are today? You FEEL the rates will resemble the rates of 74 - 83! Why do you think our banking system is as secure as it is. They already learned not to ever let that happen again.

 

[damngrumpy]

The problem is they haven't learned a thing. In fact the Americans, have not changed
the rules that started the whole thing. Derivatives are biggest danger facing investors
and speculators. Leveraged funds are the dark cloud looming over the horizon and
they are toxic paper for anyone who has any.
If you think our banking system is safe, I feel sorry for you, the only change the present government has made is the style of rhetoric. We are in deep deep trouble
even Canada. Inflation will soon see interest rates climb rapidly, inflation will be as
severe as the seventies and China and the United States will devalue their currency.
There are rumors south of the boarder that America may just default, others say,
the Americans will devalue their currency by 15 to 20 percent and that will drive the
Canadian dollar to new heights, forget about exports. We can't export when the
dollar goes to a 1.25. Not only that America and Europe are about to experience
its worst showing since World War II. We are headed for a 1.5 trillion dollar loss in
the markets if you read between the lines. and this will happen before the fall of
2010. The whole program reads like the great depression, recovery, disaster, recover
disaster, and finally about 1933 the bottom fell out. Japan has been in recession for
twenty years and for them things will get worse. We are in for a very rough ride
for the next five or six years at least. Hang onto your wallet, even the money folks
south of the boarder are starting to worry about bonds, and that spells real trouble
because it is usually safe.

 

[damngrumpy]

Oh and Sir Joseph, no you don't get your 5% because if America defaults China would
be in trouble, as would Europe and we would be right behind that. There are all kinds of people who don't understand we are less than a half mile walk to a great
depression of our own. This is more than a fragile economy the way things are now
the whole system is not sustainable. Bonds, stocks and even cash don't mean a hell
of a lot when the system is broke, and I do believe it is in the shadow of being broke.

 

[SirJosephPorter]

Why would you ever think you have reason to believe an old chart like that would have any bearing on the way things are today? You FEEL the rates will resemble the rates of 74 - 83! Why do you think our banking system is as secure as it is. They already learned not to ever let that happen again.

Quite right, I don’t see the double digit interest rates making a come back. My guess would be that interest rates may go up by 1 or 2 % over the years before they start trending down once again.

The only good reason to increase interest rates is to curb inflation, and I don’t see a runaway inflation.