Until 2009, most Googlers wanting the scoop on a real estate bubble searched California cities. Good choice. Those markets then collapsed. These days when people around the world punch in “housing bubble” the next top words (in this order) are Vancouver and Toronto. So what?
To researchers at Pacifica Partners, it’s a big deal. Google, the argument goes, is about the best way ever discovered to measure what people are thinking about and, therefore, investor sentiment. When people are typing ‘bubble’ and then ‘Vancouver’ it pretty much tells you what they’re feeling. And it’s not good.
Sentiment matters in the valuation of any asset. Maybe more so with real estate than, say, Bank of Nova Scotia preferred shares (which sure get me aroused). People want houses more than they need them, and end up financially castrating themselves in the process. So any change in sentiment can have massive market indications. Like, look south. Houses have never been cheaper or more affordable, and yet negative sentiment has created the world’s biggest buyer’s market.
I mention this because in the midst of the panic buying I described yesterday, the fear index of what comes next is shooting through the roof.
Latest to freak out a little is the federal bank regulator, no doubt prodded into action by the 2.99 mortgage wars and cash-back home loans which put our ‘prudent’ banks into the no-money-down real estate business. Yeah, just like Countrywide, the US sub-prime giant which assisted in wiping out the middle class.
The regulator (called OSFI – Office of the Superintendent of Financial Institutions) is on the verge of new rules making the banks require more than a pulse to lend money. OSFI wants them to analyze a client’s financial assets, background and projected income stability for the life of the mortgage. Plus, do way more due diligence on the real value of the property being bought.
Will this mean the end of young horniness? You know, the current crop of condo-buying, newly-marrieds who borrowed the down payment, want 95% financing, have a sketchy job history, no savings and zero other investments – and now are cord wood for the real estate pyre? If these proposals become law, you bet, no matter what F does about killing 30-year mortgages, or when Brother Carney jacks rates.
Did I mention the feds are also seriously mulling a vicious attack on HELOCs? No more interest-only payments, for example, and a massive reduction in borrowing limits. So much for sucking deductible equity out of your house to buy another one.
Meanwhile, the growing risks of Canadian real estate – as evidenced by those flash mob buyers and bloody bidding wars – are going mainstream. This week the site Seeking Alpha reviewed them again, just in case there’s anyone left (outside of Calgary, Toronto and Vancouver) who hasn’t heard the news. There is, it reminds, almost no more upside left for housing prices, and a gaping cavern of downside.
The five horsemen of the Acondolypse are (1) F changing lending rules, (2) rising mortgage rates, (3) too damn many new housing units, (4) a swampy economy and (5) “Reversion to the mean of long term fundamental economic relationships eg: price to rent ratios, price to income, present value of cash flows from rental properties, home price appreciation to income growth, home price appreciation to GDP growth, etc.” In other words, by any traditional economic measure, Canadian real estate is, well, screwed.
Which brings us back to sentiment. Financial veterans love saying ‘the trend is your friend’, because forward market momentum can keep investors hooked, and prices rising long after assets get overvalued. That’s where the Googling comes in. It suggests a majority of people might actually understand the growing risk, shaking their heads at multiple offers, idiots freezing all night in line-ups, million-dollar homes everywhere and newbie buyers walking into granitey little suburban Taj Mahals.
Exactly how moronic has this country become?
Here’s Jerry. He’s an American realtor.
“Garth: I am a real estate broker in Point Roberts, WA, about 30 minutes from downtown Vancouver BC. I have been in the business for over 30 years and have never understood the real estate values north of the 49th parallel especially in the last 4 years when everywhere else values have plummeted but many areas of Canada have not just increased but exceeds our (U.S.) levels of greed and excess at its peak. I just took a waterfront listing a few days ago ($598,000) and likely it will take a month or so to sell and there won’t be anyone camping out to schedule a viewing. No wonder my head hurts.”
Actually, Jerry, your head’s okay. Ours, on the other hand, is pudding.
Note: Regarding the Google search reference above, a Pacifica Partners spokesperson adds this comment: “Just to clarify because your readers seemed confused; the Google search data is for people searching for “housing bubble”, differentiated from the city from where they are searching. For example, a person searching for “Housing Bubble” who is searching from an IP address located in Toronto, would be counted under Toronto. As you can see, this provides powerful insight into the mindsets of the locals.”