CBC recently ran a story saying Canada’s real estate boom is over. The story cited the following CREA statistics:
- Home sales (unit and dollar volume) are down 16+% year-over-year.
- Prices increased just 1.1% in May compared to May 2007, the smallest annual increase in seven years.
- May had a record number of home listings: 54,029
If the market is in fact peaking, this portends at least two possibilities from a mortgage standpoint:
a) Lenders may get increasingly conservative in their underwriting as the market keeps slowing; and,
b) Appraisers may become more reserved in their valuations. We’ve already noticed appraisals coming in slightly weaker in recent months.
At this point, however, a few months does not a trend make. We’ll keep an eye on June and July’s numbers and report back.
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Last modified: April 25, 2014
I’m confused as to how they can generalize the WHOLE Canadian market when each province is so different. Do they mean the big markets like Vancouver/Calgary/Toronto/Montreal?
I find reports like this a relief. The smaller the boom, the smaller the bust.
True that two months do not a trend make. But to ignore the other HUGE trend….the nearly identical run up, peak, and run-down of the american RE market is foolish.
The same thing is happening here, ignore it if you like.
MDJ,
Nothing to be confused about…it’s a generalized statement yes, but naturally places that rose the most and became the most disconnected from fundamentals (ie, wages) will be the ones that crash the hardest.
It’s common sense, really. Natural cycles of economics – periods of growth followed by periods of contraction.
You should be able to use your own judgement to figure out what will happen in the market(s) you are interested in.
Toronto Bear,
Thanks very much for the comments. It’s easy to think we’re topping out–and we very well might be (we aren’t suggesting otherwise). Predicting is not our ballgame, however, be it interest rates, housing trends, or any other macro economic variable. There are just too many factors for anyone to know what prices will be like in 6 months, 12 months, 24 months, etc. Instead we provide a forum for folks like you to be heard, as well as conveying statistics and opinions of major analysts.
Hopefully all of this helps people see both sides of the argument. Like you said, ignoring the data is foolish. Then again, some would say the same thing about extrapolating economic data into the future…
All the best,
Rob
Hi Rob,
I absolutely agree with your comments. I think you guys do an excellent job moderating here providing just the facts and a great forum for your readers to express their opinions. Sadly there are few such sites devoted to (unbiased) Canadian RE, although a couple have started to pop up here and there.
That being said….I’ll continue to elaborate on the market in general. The reason for my obviously bearish outlook are simply that we are in essentially the same situation as the US.
Homes in Canada have reached historically high levels of unaffordability. The Canadian version of “subprime” is now probably just as prevelant as in the US (zero-down, 40 yr mortgages), which enable people to get into homes they otherwise could not afford. Sales have peaked and are on the decline, at the same time inventory is rising dramatically in many cities. Price increases are stagnatating and in some cases already dropping (Calgary and Edmonton). Furthermore, the Canadian RE industry and mainstream media spouts that we are not going to see a “US-style correction”. The Canadian RE industry sounds EXACTLY like David Lereah and Lawrence Yun, disgraced “economists” who have continually been proven wrong. I think it is borderline criminal for RE agents and media to continue to spout the apparently timeless “now is the best time to buy”. When ISN’T the best time to buy for these people? Well considering they make more commission when sales are high and prices are high….how can we take them seriously?? Talk about conflict of interest.
Seriously…if a stock broker knowingly misleads an investor, they can be criminally charged…why not real estate agents?
Even low interest rates will not solve the affordability problem…that is the key factor more than anything else. The US has lowered rates and we can all see how well that has worked at improving their sagging market. That market will not rebound, nor should it, until homes become affordable once again. ie) a median-wage earner can afford a median-priced home at 30% of salary on a conventional 20-down/25-year term. Long term, prices will of course fluctuate up and down, but the trend line must be parallel to incomes…ie) affordability.
Anyway, I’ve said enough for now. I know your site is focused on all aspects of the market including rates, etc, and this is why I’ve kept my comments to the relevant topic posts. (ie, this one and the 40 year mortgage topic a month or two back).
To all your readers…..in this guys opinion, you will be making a HUGE financial mistake to buy a home in the next 2-3 years. Prices have essentially nowhere to go but down.
Toronto Bear,
I’ve heard this comment about housing affordability for a median wage earner many times.
But I’m not sure I understand why housing prices should be linked to a median wage earner?
As population increases, land does not (especially prime land near major urban centres).
We certainly have no shortage of open land in Canada. But the cost savings of living far from work is increasingly offset by travel costs (gas?).
If you look at a country like England, their housing costs are such that most median wage earners will never come close to being able to afford a home.
Simon
Simon,
If you don’t understand why a typical home should be within the means of a typical family…just use common sense…if the average family cannot afford an average-priced home…who the heck is going to live in them? Do you really think it is only the rich/elite that are homeowners? This is hardly the case. The reality is that “normal” people are in “normal” homes but they are paying FAR too high a percentage of their income towards the payments. The only thing “abnormal” is the current prices!!
Statistics Canada recently released a report on the incomes of Canadians and showed that on an inflation-adjusted basis incomes have stayed FLAT since around 1982. Over that same time period, how much have home prices increased? What is the fundamental basis for home price increases? Well most people would say that like all goods, prices are driven by supply and demand. Since demand has been high, prices have risen. Population certainly has increased over that time, but the statscan figures show that has had no effect on income…immigration has not been a magical source of wealth. Meanwhile, the # of homes built has also increases with population increases, so it’s not like supply is diminishing. Likewise, land in Canada is far from running out, even in major unban centres where they are just building up instead of out. In my opinion the supply/demand rationale for home prices increases is valid but that the demand factor is heavily distorted due to poor lending practices and irrational exuberance. Yes everyone “wants” a house (so demand is there) but until banks started lending money in ways they’ve never done before, these people did not have the means to actually contribute to the demand.
I think the whole “they are not making any more land” argument is much thinner than a fundamental argument based on how much the citizens of a particularly community earn in wages and what percentage of that they can afford to pay. The pursuit of the “homeownership dream” encouraged by ads like scotiabanks “zero down, you’re richer than you think” foolishly gets people to pay double or triple the cost to “own” the same home they could rent. It’s insane, but it’s all about keeping up with the Joneses.
In case you haven’t noticed, the housing market is about to undergo (or is already undergoing) a global crash, even in England.
Just wanted to add one quick comment. Canada’s birth rates have been declining death rates increasing and overall population growth rate has been declining. (still positive but growth is slowing) It is true that there isn’t more land. but based on demographics it seems likely that Canada will see a population decrease as baby boomers begin to die. And even sooner baby boomers will begin selling their homes to fund their retirement and or move to extended care facilities.
Just wanted to add one quick comment. Canada’s birth rates have been declining death rates increasing and overall population growth rate has been declining. (still positive but growth is slowing) It is true that there isn’t more land. but based on demographics it seems likely that Canada will see a population decrease as baby boomers begin to die. And even sooner baby boomers will begin selling their homes to fund their retirement and or move to extended care facilities.
Just wanted to add one quick comment. Canada’s birth rates have been declining death rates increasing and overall population growth rate has been declining. (still positive but growth is slowing) It is true that there isn’t more land. but based on demographics it seems likely that Canada will see a population decrease as baby boomers begin to die. And even sooner baby boomers will begin selling their homes to fund their retirement and or move to extended care facilities.
Bear,
Surely the issue is not who lives in the property, but rather who owns them?
There will always be renters, and they will always be poorer than the property owners. Would you agree?
I’m not saying there will or will not be a property devaluation.
I’m just pointing out that I don’t see why the resale value of an average property is intrinsicly linked to the income of the average individual (or family).
Perhaps I lack common sense. Or perhaps the issue is complex.
Simon
Simon,
Actually I disagree that under the current climate renters will be poorer than owners. Well I guess it depends on your definition of an “owner”. Is someone who gets a zero-down mortgage spread over 40 years considered an owner?
At todays price levels (the most expensive at any point in canadian history relative to incomes), I would argue that when we are considering renters vs. new “owners”, that renters are FAR better off. Rent can be had for approximately 40% of the amount it would cost to “own” the same place. People who buy to rent at the current prices simply cannot recover their costs…not even close!! Meanwhile, renters can bank the 60% saved and invest in savings to be used for a future downpayment. (At a point when incomes and home prices are not so far off the historical norm…which is probably a couple years off in my best guess).
According to statscan, there are something like 12.4 million households in canada and 8.5 million of them are people who “own”, or roughly 70%. That number has dramatically increased over the course of the bubble. The same thing happened in the US…the stated goal of the US administration was to make home “ownership” available to as many people as possible. Well it’s true that more people are “homeowners” as opposed to renting when you compare now and 7 years ago…but I think a more accurate term is that there really are only more “mortgage slaves”. The amount of equity that americans currently have has slipped well below 50% for the first time and is falling drastically as home values continue to plummet. I don’t know how this can really constitute higher levels of “ownership”. LOL!
My thoughts on the matter are pretty clear. The amazing thing to me is the absurd ignorance that Canadians seem to have and why they think anything is different north of the border. The situations are nearly idental. Why anyone would want to make the plunge as a first-time buyer now is just insane, again, IMHO.
I’d also like to point out that most of our fellow citizens do not research the issue thoroughly and take time to read housing blogs like you and I are choosing to do. Most of them are just sheeple who blindly believe that housing values only go up, and buy into all the hype that the RE-industry has brainwashed them with through their not-so-subtle manipulation of the mainstream media. (Particularly newspapers, who derive HUGE portions of their revenues from the RE industry.)
I have no problem with people who choose to disagree with my point of view, as long as they have some fundamental reasons to back them up and are not just regurgitating the same lines we read in the Realtors monthly reports in every major Canadian market.
On the contrary, I applaud people with independent viewpoints who can analyze the facts and then decide what they think is best for them. after all, RE provides unique opportunities for different people in different markets, and the perceived “stability” of “owning” is intrisically more valuable to some than others.
Cheers,
TB
Love all the discussions. Here is what I am understanding so far. Rate expect to go up, house prices expected to come down. Some people are against buying right now. So when is a good time to buy? Rates and house prices seems to go different direction all the time anyway. If you wait for the house price to be lowered and buy (how much lower can it go?), you’ll most likely pay for it in mortgage rate.
T Bear: When you mention about financial mistake… My question is, for first time homebuyer, how can you make a financial mistake buying a place to live now IF you can afford it. Isn’t it better to start out with the rate being low to get rid of the overhead? Should one really wait for home prices to come down? which probably mean the mortgage rate would be super high compare to what we’re seeing now. When is a good time to buy when you put mortgage rate and house prices into consideration?
Bury your money in the ground an old man said. Old men are wise. Buy land!
“If you look at a country like England, their housing costs are such that most median wage earners will never come close to being able to afford a home.
Simon”
This is trotted out all the time, but with respect, it’s simply not true. I owned my house in a very posh part of southeast England before I moved back here to BC. Houses in Vancouver and Victoria are more expensive than comparable properties in the UK, adjusting for cultural factors. And the UK is crashing as we speak in any case.
Hi,Bear The west are putting a brave face in economy, There is a large condo in down town Calgary, was to be built and stalled. Jayman builder in Edmonton was laying off workers, homes are not selling,the price has gone up so much, because investors are flipping RE,the ratio of house price to income is 4 times the average house hold’s annual income. They are the one jacking the price, they are burnt now with the down turn, I will not not say sorry!
Well,
Here we are a couple of months later and look what has happened. Prices in Calgary and Edmonton are down between 8-13% year over year. Toronto prices are down 6% year over year. Vancouver is about the same, and is about to be destroyed.
Lowering interest rates and massive injections of liquidity has not stopped the freefall south of the border. Global equity markets have tanked, primarly due to the housing bubble. The TSX has gone from 15k to 10k. Wealth is disappearing, people are in a panic.
Sorry to say I told you so, but really, the writing on the wall should have been obvious to everyone. I got out of the stock market in July 07 and will continue to sit on the sidelines until this mess is over….and it might be 10 years.
PS,
For Simon above who was making the “they aren’t making any more land” argument. Go look into what happened in Japan around 1989, at the height of their debt/housing bubble. They certainly weren’t making any more land there, 100 year mortgages, and the Nikkei stock index was around 40,000. Real estate has been crashing there for 20 years, and the Nikkei is at about 10,000 today. By analogy, the DOW and the TSX could end up in the 2000 range and recover to the 3000-4000 range in the year 2030. I’m not saying it will happen. In fact, it almost certainly won’t. But the fact remains, if it could happen to Japan, why not Canada?