If you, personally, want a “soft landing” you had better make sure you have a good parachute.

Thanks to John in Ottawa for this very insightful comment:

Canada is a vast country and the “correction” will be different in one market to the next. Markets that are two to three standard deviations from the historic trend line should expect prices to revert to the mean. That is going to feel like a collapse to those affected.

It is important that we not lose sight of Canadian’s debt to GDP ratio. It is on par with that of the US at the peak of their housing bubble. Americans were using their homes as ATMs, through the so-called “wealth effect.” With stagnant incomes and so much to buy, credit card debt was being consolidated into mortgages at a stunning rate.

Americans had a huge incentive to consolidate into mortgage debt due to mortgage interest tax deductibility, something we don’t have. That does not mean that the same thing isn’t happening here. Last year 20% of Canadian mortgage holders refinanced or took out HELOCS, to the tune of $42,000 on average, and the majority used the money to “pay down debt.” Taking on debt to pay down debt is just another term for consolidation.

While house prices are rising, it may seem safe to indulge in credit card debt with the assurance that the credit cards, with their 18% to 24% interest charges can be dealt with through the house ATM. But there is a trap. What happens when the credit cards have been maxed out again, but the ATM is closed because house values have peaked, even if the peak looks, for a time, like a plateau?

Clearly, the spending stops! Consumption stops and saving becomes paramount. To an economist, saving and paying down debt are the same thing. In the US, the savings rate went from negative to positive in a hurry. Debt has been shrinking dramatically in the US in the Finance, Business, and Household sectors at a dramatic rate. The only thing propping up the US economy is the offsetting increase in Government spending (through debt financing). Negative real interest rates and record low mortgage rates in the US have not enticed the private sector to borrow and consume.

It has been shown that the rate of change in savings/consumption has a dramatic impact on aggregate demand, that is as the private sector’s psychology changes from taking on more debt to saving, or debt reduction, aggregate demand plunges. In the US, it plunged further and any time in recorded history, including the Great Depression. Nothing the Government or the Fed has done has managed to do more than put a bandage on this gushing wound.

As aggregate demand plunges, unemployment surges. The unemployment depth and breath has increased dramatically in the US in recent recessions. The current unemployment recession is the longest and most dramatic since the Great Depression. For many Americans, it is a Great Depression.

It is difficult, actually impossible, for me to believe that Canadian’s can somehow manage to bridge a deep drop in aggregate demand, similar to the drop in the US, and somehow simply maintain, or plateau, our housing prices. The inability to go the the home ATM will dramatically affect the psychology of the wealth effect and Canadians, like our American cousins, will begin to save. The construction industry will come to a screaming halt and unemployment will rise further.

Considering interest rates, we don’t have all the tools available to us that the US has available to them. We are not the reserve currency. We don’t have China and the Middle East (Saudi Arabia) covering our backs, let alone the Federal Reserve. The US government can take on virtually unlimited debt and engage in quantitative easing to control bond rates (with varying degrees of success). We can’t. Being the reserve currency has its privileges.

We have to consider ourselves more in terms of European nations. Our debt levels, in their various forms, are not dissimilar to those of Ireland and Spain. The Bank of Canada is unlikely, in my view, to raise rates again soon. However, we do not have the luxury of assuming that bond vigilantes will not turn their sights on us. But Ireland has the German tax payers to bail them out. Who bails us out. At the slightest sign of weakness, Canada’s long term borrowing costs, which directly affect five year mortgage rates (think five year ARM), could increase dramatically, far beyond the 2.5% threshold that Canadians are considered able to endure. Just this week the TD bank raised it’s mortgage rate by 25 basis points in reaction to the short term rise in US interest rates.

QE II is designed to reduce long term interest rates. The TD bank knows this and is clever enough to know that the recent rise in rates is most likely simply a very short term artifact of front running the Fed and won’t last. Is the TD bank feeling a bit sensitive, perhaps a bit exposed?

This is a rather long comment and I apologize for that. I thank those who took the time to read it through. The bottom line is simple. Yes, our banks may be on a fairly solid footing, but Canadians aren’t. We are exposed to a very high debt load, a continuing world wide financial crisis, a capricious commodities market, and, in many markets, a dramatic housing bubble.

Our federal government does not have the fiscal and policy tools to continuously bail us all out in a manner similar to the US. Can you imagine Harper extending unemployment benefits to 99 weeks or the Bank of Canada buying up $125B of mortgages? No other country’s tax payers will bail us out except through the IMF with the resulting forfeiture of fiscal sovereignty. Canadians will begin to save (pay down debt) again and GDP will plunge. If you, personally, want a “soft landing” you had better make sure you have a good parachute.

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8 Responses to If you, personally, want a “soft landing” you had better make sure you have a good parachute.

  1. breezer1 says:

    well said john. my parachute is gold and silver and a few select commodities. also keeping an eye out for’ blood in the street’ real estate deals as the world unwinds.

  2. mac says:

    Garth has has a signed comment from an academic at Carleton University explain why he thinks housing will likely go sideways and NOT collapse.

    Have a read and a think about what he says, please, then maybe, just maybe, think about how to advise Canadians (and Vancouverites) on how to best take advantage of what may only turn out to be a flat market:

    Concerning forecast housing collapse, in my 1 hour conversation with the journalist, I said, in my judgment, a housing collapse is much less likely in Canada for a series of reasons that I laid out – not all of which were published, presumably due to space constraints. I provide the full exegesis and then you can reject each or all of them

    1. we have only 6 banks in Canada – not the approximate 6,000 as in US – and which are regulated by a single authority (OSFI) and not the hodge podge of alphabet soup agencies in the US AND at state level

    2. the Canadian Bank Act mandates that a bank may NOT make a mortgage with less than 20% down payment UNLESS insured by CMHC (please go look it up) – hence the “illegal” comment

    3. CMHC required a minimum of 10% down payment throughout the 1960s, 70s, 80s and 90s. It was reduced to 5% in the late 1990s. In 2006, it was reduced to zero and when then Governor David Dodge learned of the change – as reported on the front page of the Globe and Mail in July or August of 2006, he went to CMHC Head office in person and objected very strongly. The policy was reversed shortly thereafter.

    4. the 6 banks and CMHC have adopted common income standard ratios – called the Gross Debt Service Ratio (GDSR) and the Total Debt Service Ratio (TDSR). The monthly mortgage payment (GDSR) may NOT exceed 32% of the person or family’s gross monthly income and the TDSR (mortgage payment and all other debt payments including alimony) may NOT exceed 40% of gross monthly income. I noted that these equity and income standards did not prevail in the USA – indeed NINJA mortgages (no income, no job, no assets) were the norm in the US

    5. in 1980-81 I was Mortgage Manager at Ottawa Main Office (opposite West Block, Parliament Hill and beside National Press Club), 4th largest branch of BMO at that time, when then Fed Gov Paul Volker ran interest rates from 10% through 20% and induced a deep recession. The housing market certainly dried up – but it did NOT collapse. Indeed, it was a remarkable time for any person willing to observe and learn about consumer behaviour by watching real Canadians struggle with very difficult decisions concerning tough choices – e.g. do I pay my car loan? do I pay my credit card? The 1980-81 recession was far more devastating than the recent 2008 recession – for Canadians. However, there was not a housing collapse nor a foreclosure crisis.

    6. the national household balance sheet data provided by Bank of Canada reveals Canadians owe almost $1.5 Trillion – and many analysts have become become deeply concerned. However, they fail to focus in the same report on the data that Canadians OWN over $6 trillion in assets or a coverage ratio of 4:1 (see recent excellent analysis by BMO Economics of this data and they concluded a housing collapse is unlikely)
    Given that the lion’s share of the $1.5 trillion owed (75% I recall) is mortgage debt, we should be less concerned. Why? Because 1. mortgage debt is amortized over long periods of 25,30,35 years and 2. is offset by a hard asset called a home, which can be sold and the debt liquidated.

    7. the unemployment rate is substantially lower in Canada than the US (if the US calculated their unemployment rate the way we do, the US rate would be around 17% vs our 8%

    8. IF – IF there were a substantial number of defaults and foreclosures in Canada, the banks would be immunized – because CMHC insures approximately 75% of all high ratio mortgages. CMHC is a 100% Govt of Canada owned corporation and the NO Minister of Finance would allow CMHC to dump all the foreclosures onto the market at once – thereby causing a housing crash – as did occur in the US with multiple independent agencies.

    9. demographics – yes I did discuss it in the interview but it was cut out – I noted that we bring in over 300,000 immigrants annually and is scheduled to increase to 350,000 – the highest in the world as a percentage of pop. I also noted that our birth rate – well below breakeven at 1.6 – is not as low as e.g. Japan or Italy. In conjunction with our very high immigration, this produces a steady annual increase in demand for housing

    10. aging of boomers – boomers are about 1/3 Cdn population. It is an extreme fantasy to believe that Canada is going to build seniors and nursing homes for most of these boomers. The vast majority of elders remain in their own home and will continue to do – as did my 91 year old mother who passed away in her own home last year.

    Concerning my comment that the US housing crisis was caused – NOT by market failure or by government failure – but by what I called “Congressional failure”, I can provide the approximately 60 slides of a paper that I presented at a conference called “Financial Armageddon” at Carleton University in 2009. EVERY slide I presented was publicly sourced from the Federal Reserve or the US Treasury or from Fanny or Freddie or HUD or the US Census Bureau or quotes from the Congressional Record of Barney Franks or Chris Dodds. These slides are remarkably illuminating and demonstrate my hypothesis that Congressional policy caused the housing bubble and then the housing collapse.

    John Meynard Keynes famously noted that wages are sticky downward – no one wants a pay cut and indeed strongly resist – which is why wages do not go down much if at all, during recessions.

    My “insight” is that house prices are sticky downward as well. Setting aside deaths, marriage breakups and job relocation, most housing sales are discretionary within a city. Thus, the owner can always take the house off the market if he does not like the price offered.

    I concluded that, going forward, we will experience what we experienced in the past with housing prices that overshoot. In the early 1980s, house prices went flat line for several years as they did again in the early 1990s.

    I did agree with the US economist that predicts a housing collapse that interest rates will go up next year and that as Governor Carney noted in the MPC this spring, about 10% of mortgage borrowers will be “vulnerable” if interest rates increase by 3%.

    However, I did not agree with the American economist from a Washington think tank that this will result in a housing collapse – for all the reasons provided above.

    Ian Lee
    Sprott School
    Carleton University

  3. jesse says:

    Ian misses the elephant in the room: prices are severely detached from incomes. All the other points are sidebars or footnotes why prices haven’t yet come down but don’t address what price level is sustainable, nor did he address how disinflation affects asset prices and what the reverse would look like.

  4. John in Ottawa says:

    Let me assure everyone that I was very surprised that my lowly comment was elevated to a post. I am equally surprised that my comment has sparked excellent debate. I hope Ben will respond to this post as he has many of the supporting facts at hand.

    Regarding advice to those in Vancouver during a flat market, were it me, I would simply tighten my belt and ensure that my credit card was paid off every month.

    Vancouver is certainly “ground zero” of the debate about a possible housing collapse. It has the dubious distinction of being the most unaffordable city in the world. A recent RBC report put the proportion of household income allocated to mortgage debt service at approximately 80% if I recall correctly. I have trouble with this number and, frankly, wonder if it is not an unfortunate artifact of aggregation. It simply isn’t possible for any one family to pay 80% of income towards a mortgage. Not if they also wish to buy gasoline and eat.

    That said, this weeks placement of the Olympic Village into receivership seems indicative of a market that is cooling off. The prices at the Village are unlikely to go sideways and the tax payers of Vancouver are unlikely to recoup all of their investment.

    I will now address Professor Lee’s points as you have asked and it is not my intention to reject his points, rather add my comments as best I can from memory. I should point out that Professor Lee and I have tangentially intersecting lives. While he was a manager at BMO I was teaching at the Faculty of Management, University of Calgary. He went back into academics and I went back into business.

    On to his points.

    1. It is true that we have only 6 large banks and they have been held up to the world as an example of good banking practice during this financial crisis. However, the US also has only a handful of large banks and they required a bail out through TARP. So there were different operating standards and some of these differences will be addressed in later points.

    Of the 6000 or so small banks, savings and loans, and thrifts, over 900 are currently on the troubled list and every “bank failure Friday” the FDIC takes a few down. However, the 6000 small regional banks were not heavily engaged in the home mortgage market. Effectively, they were priced out of that market. The small banks are suffering from a collapse of the commercial real estate market, particularly construction loans for housing development or mall development.

    Interestingly, it has been postulated that one of the reasons banks are not quick to lend is that they want to keep cash on hand to pick up a failed bank from the FDIC. However, the data supports the view that business and consumers have no appetite for borrowing.

    2. It is correct that CMHC must insure high ratio loans. However, this puts the risk of default directly on the Canadian tax payer. In the US, in addition to the FHA, private companies provide mortgage insurance. GM’s financial arm contributed to GM’s bankruptcy. AMBAC went into Chapter 11 this week and MBIA is a basket case.

    3. During the period of the 60’s through 90’s, Canada’s housing market (and the US housing market) was relatively stable. The general trend was house prices increasing in line with inflation. It is the period over the past ten years during which bubbles have grown in the US and in Canada. Low interest rates and ill advised loosening of down payment requirements are major contributing factors.

    4. Certainly Canada’s lending standards are a major mitigating factor with regard to any future rate of foreclosure and I am not predicting the rate of foreclosure that has occurred in the US. I believe the great majority of Canadians can afford their homes, even if those homes go under water. As I said above, I find some of the published income ratios suspect.

    I’ll come back to it later, but the mortgage market in the US became a looting ground, rife with fraud at every level. The stories of field hands being put into $500,000 homes make for interesting reading.

    However, an underwater home, even if it is still affordable, creates dislocations in the labour market. In many US states one can simply mail in the keys (jingle mail) and, with only a hit to the credit rating, move on. In Canada mortgages are recourse loans. Default on the mortgage and the debt stays with you. If house prices revert to the mean in Canada, this is going to be disruptive to individuals and business as labour mobility decreases.

    Finally, the psychology in the US towards the “honourable obligation” to pay the mortgage is changing. US citizens are seeing too many instances of businesses walking away from mortgages that are under water. The Mortgage Bankers Association’s high profile example of jingle mail was a real eye opener for the average joe struggling with high mortgage payments on an under water house.

    Under water homes are the most significant factor affecting “strategic default” in the US. That is, people who can afford their homes are refusing to continue to pay for a bad investment.

    5. I remember the 80’s recession well. Business would come to the University and recruit in the Fall. The student’s worst problem was choosing between the 15 to 20 job offers received. When Spring came, all the offers were withdrawn. It was a tough time.

    Bear in mind, there was no “housing bubble” in the 80’s and mortgage standards were much tougher leading up to the 80’s. It was a tough time and I’m sure many people lost their homes.

    As bad as the 80’s recession was, unemployment in the US only increased by 1.3% and all of the jobs were recovered within 10 months. Contrast that to today’s 9.6% unemployment and the unemployment level still bouncing along the bottom 34 months later.

    6. This is an area of speculation for everyone involved. Canadians do have a great deal of equity in their homes. Frankly, if my home lost 25% of its value, I wouldn’t run screaming for the exits. I would be disappointed, of course.

    The problem occurs at the margin; those last “greater fools” that buy all the house they can believing it is a great way to gain margin and get rich on little investment. Speculators fall into this category. To the degree they have an influence, they alone can do a great deal of damage to a housing market. I honestly don’t know how much, but they will do the most damage where the market is bubbliest. Vancouver continues to be the market to watch.

    7. Now this is an area where I must respectfully disagree with Professor Lee. Canada calculates its unemployment in almost the same way the US does. The popularly quoted unemployment number in the US is U-3 at 9.6%. Ours is, I believe, just over 8%. Both numbers have been sticky. The less quoted U-6 number is around 17% in the US as Professor Lee states. We don’t publish a U-6 number, but it would be similar in difference.

    Ben Barneke said last week that he fears the unemployment rate will increase next year. I agree, both in the US and in Canada. Couple this with a decrease in the participation rate, those citizens who would be counted in U-6, and matters get worse than they would seem. Given that we don’t have 99 weeks of unemployment insurance payout, our participation rate may have dipped more than in the US. And they call us a socialist country.

    Bottom line, our unemployment isn’t very different from that found in the US. This is a real drag on GDP.

    8. Now this is an interesting point. CMHC is for the most part the only mortgage insurer in Canada. If they are insuring 75% of mortgages, then it may be safe to assume that roughly 75% of mortgages have less than 80% equity. Bearing with me for a minute on this logic, that means that 75% of mortgages would be under water if housing prices dropped just 21% in Canada. Given recent reports from The Economist, the OECD, and Canadian banks, in many markets this is not out of the realm of probability.

    And as Professor Lee says, CMHC is government owned. That means that the tax payors will bail out the banks.

    It is worth noting that last year CMHC was the mortgage market. Harper loaned CMHC $50B as part of the stimulus to buy mortgages from the banks. Not only does CMHC insure over a $T of mortgages, they now own $50B of them.

    A similar situation exists in the US, where Fannie Mae and Freddie Mac represent 95% of the mortgage market. They are the market. The Federal Reserve has purchased $1.25T of those mortgages, something our Bank of Canada will not quickly duplicate.

    Marked-to-market one can only wonder what those mortgages are really worth. Some estimates put their value at anywhere from 30 to 60% of face value. This, along with QE 1 and 2 will put the Fed into a huge bind going forward, but that’s another topic.

    The large number of bank owned or REO houses in the US that are not on the market is called the shadow market. Good business dictates that they not all be dumped on the market at once. However, the shadow market is a huge overhang and will depress housing prices for years to come. Should Canada find itself in the same situation, with CMHC holding a large inventory of housing, it will be forced to sell them off at some reasonable pace (empty houses deteriorate) and it can be expected to be a drag on prices.

    9. Canada currently ranks 12th in immigration, the US 22nd. However, we have a low illegal immigration rate and the US has an illegal immigration problem, so the statistics are unreliable.

    What I don’t know is how many immigrants buy houses in the short term, and the bubble is in danger of causing a short term problem.

    10. Well I certainly hope my wife doesn’t stick me in an old age home! My experience is similar. My adopted mother died in her own home at the age of 92. However, she came from a different age and she saw the Depression. Her house was paid for and she could stretch a penny into a fine wire.

    My biological parents live in Southern California. They have seen the value of their home plunge 25 to 30%, but it is paid for and doesn’t factor into their life style decisions. What has affected their life style is the depreciation of their portfolio and the termination of dividends.

    As I said above, a 25% reduction in the value of my home would be no more than disappointing and frankly, I have postulated that homes in my particular micro-market will only move sideways for the next ten years. Even I like to see the world through rose coloured glasses, but this is my honest expectation. I must stress “micro-market”, however.

    Professor Lee’s careful analysis ends with a few general points I would like to address.

    I confess I don’t quite know how to parse the difference between “Government failure” and “Congressional failure.” I suspect Professor Lee is making a distinction between Congress and Regulators.

    At the end of the 90’s, Congress repealed the Depression era Glass-Steagle Act. This Act strictly regulated the business of banks. In particular, it proscribed banks getting into the more speculative area of business commonly associated with investment bankers such as JP Morgan and Goldman Sachs. In hindsight, this is recognized by many as a huge mistake. It set the stage for the abuses of this past decade.

    The Federal Reserve Bank deserves its fair share of the blame. The Fed lowered interest rates to near zero after the tech bubble bust and left them there too long.

    If by Government Professor Lee means regulators, it has been well established that the regulators suffered from regulatory capture. That is, there was a revolving door between business and regulators. This was most recently highlighted in the Gulf oil blowout. Frankly, during the past decade, regulators at every level of the financial industry were either asleep at the switch or shouted down.

    Banks freed to engage in speculative activities, low interest rates, regulator capture, and “financial innovation” led to, in my opinion, massive fraud at every level of the mortgage food chain and a world wide financial crisis that has yet to fully unfold.

    It is true that wages are sticky to the down side. We would have far less unemployment if wage earners were willing or able to share the load. This is an area of human psychology and the need to preserve family.

    Beyond basic shelter, which can be purchased or rented, the housing market is a different beast. Since at least as far back as WW II, housing prices have moved pretty much in line with inflation. Houses are a commodity subject to supply and demand. However, “irrational exuberance” can infect any market. That is, markets can be manipulated.

    If we are to look to history to determine what will happen to housing in various markets, we can’t look back over the past 50 years as a guide, unless we accept the hypothesis that there isn’t a bubble. This is key. Is there a bubble?

    Most, but clearly not all, economists and analysts believe that there is a bubble is some Canadian markets. Canada, as a whole, being 16% over value does not constitute a bubble. However, markets in Toronto and Vancouver exhibit characteristics of bubbles, that is extreme divergence from long term trends.

    If we are to accept the hypothesis that bubble markets exist, then we have to look at how past bubbles have unwound. The tech bubble, the housing bubbles in the US, UK, Spain and Ireland, the South Sea and Tulip bubbles.

    Bubbles unwind. They can burst or deflate gently. In my opinion, Vancouver and Toronto are the wild cards. All eyes are certainly on Vancouver.

    Professor Lee makes excellent points that I would respectfully characterize as valid mitigating factors. These factors are critical and may very well save us from the horrors that are currently plaguing Ireland, to name a case in the news.

    Where I differ substantially with Professor Lee is his hypothesis that housing prices will move sideways in bubble markets. Professor Lee has used the period from 1950 to 2000 to support his thesis. The problem is, the last decade was very different from that period, even here in many regions of Canada.

    Collapse, slow deflation, or sideways. It depends on the market, just as it did in the US. In the American Great Plains, housing prices have barely dipped, but then there was never a bubble in the Plains.

    The one area in which Professor Lee and I are in perfect agreement is that housing prices are not going to continue to rise forever. If housing prices do not rise, the home ATM is closed. Be prudent. Our parent’s frugality is back in vogue.

  5. mac says:

    With respect to the democratization of the web and social media where an uneducated pleb like myself can challenge a university professor, I’m not getting a clear point from your rebuttal of Ian Lee. I also don’t know what you mean by your lowly comment? What lowly comment? In the article? Are you Ian Lee? I’m sorry if I don’t know who you are or have lost some of the thread from Garth’s original posting.

    Allow me to illuminate from the streets of Vancouver… from the ground up as it were, rather than the top down.

    The OV going into receivership is an indication of the market cooling off. I don’t think so. The OV cooled off even before the Olympics started as Rennie had to abandon his 4-stage sales process when he couldn’t sell out stages 1 or 2. Plus 2008/09 dip in prices cleared a lot of speculators out of our market. Sales were delayed, prices were always above market.

    It’s possible that the Olympic Village would sell quite well for prices that are appropriate for its location and price/sq. ft. In other words, somewhere between $550-$950 a sq.ft whereas it’s starting price today is $800/sq.ft for some of the worst placed units. Others are well over $1,000/sq. ft. Remember, units are just a hop, skip and a jump from the downtown eastside and you do “feel” it when you’re there. My guess is Asians “feel” it more than most since other, poorer people in their extended community have historically been abandoned by the City to deal with drugs, homelessness in ChinaTown.

    You say it’s not possible for a single family to pay the statistical 80% proportion of household income that’s needed to support the kind of mortgage debt we find ourselves saddled with here in lowly YVR. Quite true. I don’t think any single family supports these payments. I do, however, believe multiple families do on a regular basis, making it affordable, if just barely.

    Be they multi-generational Canadian families giving the kids the down payments and a bit of help here and there or be they immigrants who move multiple families into one unit, something we here find hard to understand considering the small square footage but something that’s quite normal for people overseas as their cities are at least 3x as expensive as here. Making Shanghai, Hong Kong, etc. the Top Most Expensive Cities in the World, not Vancouver.

    Are we on our way to matching those overseas prices? That’s the fear, isn’t it? Vancouver is now 50% Asian. Richmond was 50% Asian 15 years ago. It is now 70%.

    For me, Ian Lee has said it all in points 8 & 9. Government intervention and immigration/demographics. “The highest in the world as a percentage of pop.” I did not know that until he wrote that in his rebuttal of Garth. For Vancouver, many of those immigrants are from the countries that are now the economic engines of the world. They are hungry for commodities and not unaware of the stable real estate values in the most desired cities within the countries who have those commodities. It’s possible that they themselves are the price stabilizers. Not for every sector of the housing market in Vancouver but for certain sectors.

    I can’t speak for Sydney or the neighbourhoods within Sydney, but as far as West Side SFHs in Vancouver, prices are still rising at astronomical, yes even bubble rates, right now while the “cooling off” period is happening.

    The question is, how much more hot air is coming from the billions of newbie billionaires from the Far East? And what about when they start creating a middle class of just regular millionaires looking to shunt money illegally out of country and park it in Dunbar or Kits. Could it be enough to keep our 40 square miles (?) of West Side SFHs inflated? Enough to delay a correction for another decade or two? Then should the advice to Vancouverites be, get in while the market is going sideways and the FED is hellbent on QE 2, 3 & 4 (according to Roubini). Find a distressed sale. Find a fixer upper. Do it responsibly, don’t get into too much debt, take a smaller place, live with less and hang on. I’m afraid, paying off one’s credit card is advice that just won’t cut it around here. No offence intended.

    I don’t know where “Financial Insights” is published from. Ottawa? Toronto? Montreal? But here in Vancouver, kids get condos as University graduation presents from parents living abroad. Sometimes more than one condo because they get bored of certain areas of town. (I am speaking from experience on this one.) I don’t think we have any data to understand the kind of “boom” in money and people that is coming from overseas. My fear is academics here look at the data on “Canada” when perhaps they should be looking elsewhere.

    A good chunk of our speculators left the market in 2008. The dip down and the surge back up saw a lot of them safely out of the market with cash in pocket. Now, something else is driving some prices higher while stabilizing others. What is it?

    • “how much more hot air is coming from the billions of newbie billionaires from the Far East?”

      Hyperbole much?

      Billions of new billionaires? Do you realize that China has less than 1/6th the total number of millionaires as our neighbours to the south? There aren’t even half a million millionaires…..the notion of billions of billionaires exposes your complete ignorance to the magnitude of the numbers you suggest. More importantly, you support my assertion that the ‘arguments’ advanced in support of Vancouver’s miracle housing market amount to nothing more than weak anecdotes and hyperbole.

  6. jesse says:

    “Are we on our way to matching those overseas prices?”

    Do you understand why developing world prices are so high compared to local incomes? It’s because these countries have significant wage inflation. Canada does not, relatively speaking. Despite all the immigration talk, the vast majority of sales are supported by locals earning local incomes that are plodding along at a slight spread above GDP growth.

    The rich Asian argument is, in sheer magnitude, a very small part of the overall housing market. Only looking at certain neighbourhoods distorts this reality; any look at Kelowna and Victoria shows sales and prices trending far worse than even 2008. Vancouver really is living in a temporal rift. We all know those don’t last.

  7. mac says:

    Really? Wage inflation between 2001 and 2008 in Asia was significant? I know it’s in the media now, but now is not when our bubble happened, although it continues on in certain sections of the city.

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