No turning back

The boom has busted in Victoria: here

Finally, a Canadian economist with the gonads to state the obvious: Our housing market will follow the pattern of the American one, which means big price decreases are in the offing. Doug Porter, of BMO Nesbitt Burns, is now echoing what was spelled out in my book, Greater Fool, several months ago. It is inevitable this will happen – sales declines first, price declines second – despite a housing industry trying to squeeze every last drop out of boom times. That it took this long for the reality of this correction to be noted, is the biggest news. With this MSM validation the decline, of course, will accelerate. — Garth

Housing drop looming in Canada

After months of holding fast to the view that Canada will not follow the U.S. into a housing decline, one economist is now raising the spectre of an overall drop in prices north of the border.

Canadian home sales are down by 13 per cent year-over-year so far in 2008, and price appreciation has slowed markedly to a 1.8 per cent year-to-date gain. When charted out, these data suggest Canada is tracking the U.S. housing market fairly closely, at a two-year lag, said Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc.

“It’s a bit unnerving to see how Canadian performance is beginning to look like that of the U.S. two years down the line,” Mr. Porter said. In the past 10 years, the price of a detached, two-storey home in Canada has risen by an average of 129 per cent, according to a recent study by Royal LePage Real Estate Service. However, this year sales are down, listings are up, and while prices have mostly stayed in positive territory, a few markets have showed signs of cracking.

Last month, three cities posted slight year-over-year declines in house prices – Calgary, Edmonton and Windsor-Essex. In the West, the declines look like modest corrections to markets that got ahead of themselves, Mr. Porter said. More concerning is weakness in cities where economic fundamentals are much less stable, such as Windsor and Thunder Bay, he added.

“The most interesting question is, what will happen to the middle ground? Will cities like Toronto, Montreal and Ottawa, which have fairly robust markets but have not been blessed by a booming underlying economy, end up seeing home price declines, too?”

Economic fundamentals including strong job growth and low interest rates suggest that Canada is still in pretty good shape, and that declines in this “mass of cities” is an outside chance rather than a probability, he said. So far, Canada is not even close to experiencing the 8 per cent price drop and 20 per cent decline in existing home sales that has taken place in the U.S. this year, but that doesn’t mean there is no cause for concern, he added.

“There are a litany of reasons why the Canadian market is different,” Mr. Porter said. “But even a very pale version of what we saw in the U.S. would not be good news.”

34 comments ↓

#1 David on 06.27.08 at 7:35 pm

The Canadian and USA housing markets are statistically speaking mano a mano nearly identical in demographic and financial terms. As they say in hockey, there have been some timing differences and the transition game from bubble to bust have varied between the two countries. Saying Canada will have a pale version of the crisis now engulfing the US mortgage markets is ridiculous. These is the same type of thinking many folks has about the tech dot bomb crash in the USA, while conveniently ignoring the devastating crash in market capitalisation of companies like Nortel on the TSE. The housing crash is coming to neighbourhood near you very soon and no amount of fatuous nonsense and pious rubbish about the religion of real estate will prevent the coming collapse.
One of the unfortunate consequences of the housing crash will be the elimination of the middle class with the last remnants of middle class life and housing in complete tatters. Elizabeth Warren from Harvard University delivered an excellent lecture on the subject of middle class decline, debt and housing. The lecture may seem a shade long at times, but the basis premises of her argument hold true.
http://economistsview.typepad.com/economistsview/2008/04/the-coming-coll.html

#2 rocker guy on 06.27.08 at 7:56 pm

Nesbitt burns have a shorting strategy at work?

#3 heh-heh on 06.27.08 at 8:00 pm

Report raises concerns about Calgary’s commercial, residential real estate markets
http://www.canada.com/calgaryherald/news/story.html?id=67d5b48d-2402-465d-992d-3de110c6cab0

#4 Lesserfool on 06.27.08 at 11:42 pm

Garth,

You are a PM for God’s sake. Have you thought about what could happen to your reputation if you are wrong? Or you got enough greater fools buying your book to worry about a job in the future.

I hope you are an exception in the HOC. Otherwise we are screwed.

Talk is cheap. Do you own a property? If you really believe a major correction is coming please sell your house and rent as you preach. You will buy it back from the Grater fool at discount.

This is one of the dumbest comments on this board. I can chew and walk at the same time, or in this case, be an MP and write a book. As for owning property, of course I do – downsized, energy self-sufficient, well-located and paid for. I prepared for this storm for the past three years. — Garth

#5 Mountain Girl on 06.28.08 at 12:27 am

I love renting.
I am so so grateful that my husband and I were way too poor to buy in Calgary in the last few years.
Now we are making decent cash and would probably get approved for a ridiculous mortgage, but we plan to just keep on renting and saving for a few more years.
Honestly, I feel like we dodged a bullet!

#6 Mike.slob on 06.28.08 at 12:41 am

“So far, Canada is not even close to experiencing the 8 per cent price drop and 20 per cent decline in existing home sales that has taken place in the U.S. this year, but that doesn’t mean there is no cause for concern, he added”????
31 per cent decline in existing home sales in Vancouver
and Victoria,BC
34 per cent decline in existing home sales in Calgary and Edmonton,AB
between 11% and 22% per cent decline in existing home sales in GTA, ON, but prices still up..
So far, Canadian major markets are even worst experiencing in existing home sales decline than in the U.S. this year,but overal prices still up…WHY?

About Residential ReSales in GTA in 2008:

Feb.2008 sales decreased 11.2%
Mar.2008 sales decreased 22.2%
Apr.2008 sales decreased 7.3%
May.2008 sales decreased 16%
Mid-June.2008 sales decreased 14%,avg.price up, and inventory listings are up 17%.

My Real Estate prediction for June 2008:
Sales volume in GTA will be down between
14% and 17%.

My Real Estate prediction for July 2008:
Sales volume in GTA will be down between
17% and 22%.

Is it buyers market? NO,avg.price is up about $ 70,000
from January 2006, So welcome if you want you can buy
house or condo in GTA (Toronto Area)

#7 Mike on 06.28.08 at 6:40 am

I can tell you as far as commercial space downtown T.O. the agents and landlords are still looking for the big dough.. that is a market that must correct for sure.One of the older broker heavyweights, won’t mention the name, thinks we are in for a big correction in commercial for sure.
Residential in T.O. still defys logic or maybe defies hope…some stuff sells for 900k and sells in 4 days,…others sit there for weeks on end… some even cancel their listings

#8 poorguy on 06.28.08 at 10:40 am

Whoever claims that Canada has not experienced as much as US in housing price ,see the chart and find out where we are.Its coming guys! Faster than we were hoping.

http://www.bmonesbittburns.com/economics/amcharts/Jun2708.pdf

#9 Dawn in Calgary on 06.28.08 at 1:48 pm

Mountain Girl — We are glad we were too poor to buy when we moved here too. I kept saying that the houses in the suburbs weren’t worth it — pressboard thrown together crap that won’t last 30 years. We’re now making mid $100’s and spending less than 25% on housing and banking everything we can. Piss on all the speculators who now can’t rent out their equity-bought McMansions.

All the RE bulls in Calgary are starting to sweat — tons those cranes on the Calgary landscape, thousands of condo projects still being built, office space freeing up soon — the downtown vacancy rate in Calgary will be going up quickly as soon as the big bldgs are done.

Storm clouds gather in real estate market
‘Investor returns have peaked,’ says Scotiabank report

A report by the Scotiabank Group is raising concerns about the future of Calgary’s commercial real estate market and the province’s residential market, which is “clearly beyond its peak on multiple counts.”

The report, released Friday, said as Alberta’s housing and office markets witness mounting challenges, “disinflationary pressures are in the cards in Canada’s inflation heartland.”

http://www.canada.com/calgaryherald/news/calgarybusiness/story.html?id=1de6346c-c7ae-4446-bb36-476d77f90c46

#10 Rob in Madrid on 06.28.08 at 2:00 pm

from everything I’ve read sales volumes are down but from records previously set, in other words sales are down but still way above what they were a few years ago.

Personally I belive the market will soften and then go sides ways for a long time. Where the US goes so does Caanda.

I believe even with a 30% decline prices will still be above what they were before the boom started.

#11 3rdman on 06.28.08 at 2:58 pm

Oil says its 1973 all over again I’m off to Summerland…

http://www.iomfire.com/main/Summerland.htm

Never buy realty made out of plastic..

#12 David on 06.28.08 at 3:12 pm

There is a still a large number of people like LesserFool who have not caught on to the tectonic plate movement waiting to happen under the Canadian real estate market. The only guarantee buying an overvalued house will provide is a one way ticket out of the middle class.
As for Garth’s message, most likely there are too many pols in Ottawa with Silent Sam Syndrome or Blissful Complacency Syndrome to address the housing crisis brewing in suburban Canada.
The Harvard Joint Centre on Housing Studies recently reported that the US housing slump is the worst in 50 years, the median home price in inflation adjusted terms has shrunk 18% since 2006 and foreclosure rates are the highest since such data was recorded starting 35 years ago.
The wailing and gnashing of teeth in the Canadian real estate market is just beginning.

#13 mike on 06.28.08 at 7:51 pm

Re lesser fool to clarify…Garth is an MP not PM although one day might be PM
Also Garth took some flack predicting
the previous correction. Also he spells his
own position in his book. WE all knew
he liquidated his holdings some time
ago Plus at least he does make an
Effort to give people a heads up
unlike most other politicians incl
our min of finance Dumb questions
indeed

#14 nonplused on 06.28.08 at 8:18 pm

Maybe LesserFool is one of these people who have come to think to government is somehow obligated to make real-estate prices rise somehow forever? Personally I wish there were more MP’s who at least thought about economics and the effects of monetary and fiscal policy once in a while, even if they maybe didn’t get it right every time. The effort to depreciate (or at least stop the appreciation) the Canadian dollar against the US dollar had a lot to do with driving our markets into hyperstupid, and that was an intentional policy. Now it’s going to wipe many of us out.

#15 nonplused on 06.28.08 at 9:02 pm

Sorry, that was monetary policy in an effort to keep the Canadian dollar from appreciating further, combined with the new CMHC 0/40, that drove our markets into hyperdrive for 2 years after it was clear the bubble in the rest of the world was beginning to deflate. Both of which were within the scope of Ottawa to influence.

#16 patriotz on 06.28.08 at 11:00 pm

“We are definitely seeing a shift in the marketplace, although it’s certainly not a time for panic,” said Victoria Real Estate Board president Tony Joe.

Translation: please don’t try to sell your property until the realtors unload theirs.

Another echo from south of the border two years ago.

The NAR’s chief economist David Lereah says there’s no reason to panic. Not only was a market adjustment expected — it’s healthy.

In an exclusive interview with Realty Times, Lereah said this: “There is a transition taking place in most of the nation’s hot housing markets: transitioning from a sellers’ market to a buyers’ market. In that transition, home sales drop and after some time, price appreciation follows.”

#17 Mike on 06.29.08 at 1:39 pm

The key looming issue today affecting all markets worldwide is the impending Senate approval of the lending practices for some of the troubled homeowners in the US.
Before the Senate is a bill to allow fixed rate mortgages to be given to some troubled owners basically backed by the US government… key word… fixed rates.. Like the rebate cheques recently sent out, this may provide some temporary relief and a firming of the sliding US home market. Does Garth think this bill, if passed, will effect Canada RE? Are we still on the same path we were before but now accelerating?
I for one am not sure the new lending scheme will have much effect at all. Might it stem the tide and reverse any slight sluggishness in the Canadian RE market?
Anyone have any insights?

#18 nonplused on 06.29.08 at 7:09 pm

I don’t know if the US proposals could have much affect. It’s kind of the old “you can’t push on a string” theory. In order for a credit induced bubble to inflate, there have to be willing borrowers who want the loans because they think prices are going higher. This forms a feedback loop where the increased amount of lending puts upward pressure on prices because supply can’t keep up with the newly created demand.

But once the belief in further price increases evaporates for one reason or another, it becomes harder to convince anyone to borrow against that asset, and even harder still to convince the banks to lend against it.

I think the proposal before congress indicates just exactly how panicy the folks in the know south of the border really are. These are not normal proposals, and they are not meant for normal times.

#19 Another Albertan on 06.29.08 at 7:22 pm

Trying to reverse the current course is like trying to erect an orange snow fence to stop an avalanche.

#20 poorguy on 06.29.08 at 10:54 pm

Did any body watch Hot Property on Pulse24?
They are still claiming that Toronto RE is red hot.
Is this a joke?

#21 Whacked Out Winnipeg on 06.29.08 at 11:38 pm

The market in Winnipeg does not show any signs of slowing. People are still are offering way over asking price. If Canada is two years behind the US in the housing cycle, Winnipeg must be a year behind the rest of the major cities in the country.

#22 David on 06.30.08 at 1:04 am

Red hot market for whom? The banks looking for long term debt instruments or maybe realtors looking for fat fees? The market might not be so red hot for middle class families buying themselves a ticket to the poor house. House prices have consistently outstripped income growth in Canada by a six fold factor in the past 40 years. This is totally out of line without historical averages and needs very strong market corrective measures. The money is already lost at this point for those who borrowed too much on aging or poorly constructed new homes.
No amount of off the balance sheet hocus pocus will turn these uncollectible debts into good assets for the banks.

#23 David on 06.30.08 at 9:47 am

to poorguy: this is City Pulse24, they have zero credibility.

This is a media house that had a segment highlighting a fuel pill, they only talked about the socalled benefits it supposedly may have.

A simple google search would have informed them that the company is banned from selling the snake oil product in the US.

#24 Mountain Girl on 06.30.08 at 12:24 pm

I want to add that that feeling I mentioned earlier – that of dodging a bullet – is not rooted in smugness. My husband and I would probably have been persuaded to buy if we had had the means to do so. I spent a very frustrated spring of ’06 believing that we would never own a home now that the boom had hit.
But I also felt very obstinately that the houses were not worth what they were selling and no market was going to bully me into buying a house with no home inspections or conditions on the sale. I thought that was crazy and I just refused to play the game.
It was only through a lot of reading and research that I started to realize that those gut feelings had been right, and that many of my friends had bought houses they couldn’t afford.
I don’t feel smug. I feel quite worried for people in this economic climate. At some point you have to acknowledge that people are smart enough to make their own decisions and take the consequences, but a little part of me feels like the real estate spin machine has been a pretty powerful force in all of this. Was that fair?
Anyway, Dawn in Calgary, you wouldn’t catch me dead in one of those suburbs. The boom also precipitated a lot of very shoddy building practices. Those brand new houses won’t last very long.
But I am pretty stunned to see recent MLS prices for homes in my inner city neighbourhood. Seriously ugly little bungalows trying to sell for half a mill or more. Mind you, they haven’t been selling. Many of those listings have been there for months now.
Maybe we’re not the only ones who refuse to play the game.

#25 anonymous on 06.30.08 at 12:43 pm

Whacked Out Winnipeg,

The equity locusts of the west are moving east. That’s all that’s happened.

Did you buy yet? There may be time, if you don’t pay too much. Just remember that you have to unload your place in the Spring of 2009. So make sure your fix ups are done by this fall. That will be your opportunity.

Saskachewan housing is going to crash this fall.

Don’t be believe the hype, but you can make a lot of money if you sell at the right time.

#26 EJ on 06.30.08 at 3:23 pm

Whacked Out:

Yes, Winnipeg is behind on the curve of it all. Give it 6 months to a year before you see some problems being reported in the MSM. People bidding $300k for a 1500sqft house in that city are insane.

The pumpers like to advertise Winnipeg as being so affordable compared to the rest of the country, but they always leave out one thing: There’s a reason for that. Winnipeg is not a very desirable city to live in compared to the other over-priced towns. Now with affordability down the tubes, what attraction does wpg have? High crime, lousy weather, high taxes, streets in disrepair, lack of any attractions, poor job market unless you’re in gov’t job, lack of doctors, a billion mosquitoes…

#27 wealthy renter on 06.30.08 at 8:12 pm

Mountain Girl,

I think your eloquent explanation of your situation sums up the thoughts and experiences of many readers of this board.

2006 was the year that we basically got off the Toronto real estate treadmill. It was the days of multiple offers, expensive and butt ugly old homes in C+ neighborhoods , no inspections etc. All the things you describe. We were a little different because we had the means to comfortably own a home: however, we couldn’t help but think that buyers had gone out of their minds.

By that point, my wife and I both feel that greed had turned real estate agents really ugly. Not too long ago, we found a house we liked (in a neighbourhood we want to live in.) It was the first call we had made in 1.5 years. My wife was ripped apart on the phone for not putting in a “serious offer” ($50K above asking.) She can more than defend herself, and held her own for a very long (2 against 1) phone call, but the whole process had truly become surreal.

In many ways, I actually don’t cheer for a housing crash. Given housing’s contribution to our GDP, I think any kind of sustained slowdown would be devastating economically. At the same time, I think that many people (at least my friends and co-workers) are now drowning in debt and banking on substantial yearly increases in their homes. I don’t know how much these folks will contribute to the economy in any meaningful way. They are at least 15 years way from inheritances from boomer parents, and they are stuck paying for overheated assets that they can barely afford.

It will not be pretty.

#28 finklebean on 06.30.08 at 8:44 pm

Maybe we’re not the only ones who refuse to play the game. by Mountain Girl

You’re not. If I had to sum up my reason for renting rather than owning it would be ‘Because I don’t like to be ripped off’.
I don’t like to be overcharged at the store and I would feel like a sap if I paid too much for a house.
If house prices come back to earth, and they should, renters can make an informed choice about whether to buy or keep renting.

#29 Whacked Out Winnipeg on 07.01.08 at 1:16 pm

EJ and Anonymous thanks for your replies regarding the Winnipeg market.

EJ I agree with your comment regarding winnipeg as not the most desirable place to live. People in Winnipeg are saying the reason for the market strength is because the RE values are catching up the the rest of Canada. I always tell them Winnipeg is cheap for a reason.

I am a first time home buyer and I am looking at buying around a 1000sq foot home which now you cannot find for under $200,000. With a single income wouldn’t be comfortable purchasing one of these homes at current prices.

The bidding wars on these types of homes are the worst. Homes ranging in price from $140,000 to $200,000 regularly get sold for $30,000 over asking price. People really believe that if they don’t buy now they will be priced out forever.

It is hard in this market not to overpay, but i’ve came across a few good deals but narrow missed out. I am young and still live at home with the parents so I have the luxury of being able to wait for better times. If prices become attractive enough in other larger cities I may want to leave Winnipeg. For now I will have to wait and see how everything plays out in the canadian RE market.

#30 David on 07.01.08 at 9:50 pm

Whacked Out, the Winnipeg real estate market went crazy for no good reason. Normally unmarketable homes are now subject to over bidding on list price. Now is a good time to keep your powder dry and save your shekels for when the bids dry up. Nothing is forever, including crazy real estate bubbles driven by phantom offers. Cars are being given away now in the Peg’, with houses soon to follow.

#31 B2B on 07.02.08 at 6:01 pm

The fact people are even talking about Winnipeg being a desirable place to live and ever catching up to Canada – laughable concepts both – portends a crash there.

Edmonton used to be the butt of jokes about “Deadmonton”. Winterpeg is so irrelevant it doesn’t even get many jokes. I’m sure there’s nice people there, but honestly. Ask someone from elsewhere in the world what they think of Winnipeg, and they’ll either say “wha?” or mention igloos and mosquitoes.

#32 Out of here on 07.04.08 at 3:29 am

I was fortunate settling down have 2 kids, buying a 1/2 duplex in Richmond, BC and now just recently selling my home. I feel like I’ve dodged a bullet or training heading in my general direction. I’ve decide to pack the family and for the same price in Vancouver getting a couple of acres in Ottawa with a nice home on top of it?

Was I wrong? I don’t know.

#33 lazer on 07.09.08 at 9:41 pm

winnipeg believe it or not is actually a fairly desirable city to live in. ive done alot of travelling, ive lived in ft mcmurray, edmonton, calgary and toronto, but i have my home in winnipeg. we are definately behind in the real estate boom, and i do believe that in 2 or so years the market will decline. there is alot of industry in winnipeg and because it is cheaper to live and the wages are cheaper there is more coming in all the time. in my opinion thats the main reason we are behind the housing boom. once the rest of the countrys prices go up business moves to the cheaper citys like winnipeg and saskatoon.

#34 Dan on 08.05.08 at 1:51 pm

All you Winnipeg bashers should just shut your yaps. If you knew anything about Winnipeg’s economy you’d understand why it’s housing market is relatively stable (except for the last few years) and it’s economy is relatively boom and bust resistant. It is an extremely diverse economy with engines in both high-tech and low-tech manufacturing, energy, natural resources and services (among others). I have lived in Vancouver, Edmonton and Victoria and have travelled across North America. People who bash Winnipeg, generally have no clue what Winnipeg is and often have never even been there. Check your facts before you make idiotic suppositions.

The housing market in Winnipeg will slow and flatten out by mid-summer 2009. Bidding wars will end but pricing overall won’t see significant drops. Winnipeg’s economy will continue to chug along unapologetically, as it always does. No big booms…no big busts. Just steady as she goes.

And as for the mosquitoes… it’s been a beautiful sunny summer. The lakes are gorgeous and the city looks fine!