Mortgage crisis coming?

Calgary prices crash $40,000.

Ray Turchansky, Canwest News Service

Lost amid concern over United States government agencies moving in to support mortgage lenders Freddie Mac and Fannie Mae plus IndyMac Bankcorp, was a warning that Canada could soon face its own mortgage crisis.

Peter Hall, vice-president and chief economist with Export Development Canada, said in a report that in addition to U.S. housing woes, housing starts were down 56% year-over-year during May in the United Kingdom, 18% during the first quarter of the year in Spain and 17% year-over-year in May in France.

Hall noted that housing starts in Canada are “soaring on the strength of the domestic economy and a huge dollop of very sell-timed fiscal stimulus,” and that a continuing excess of housing starts over requirements means “Canada’s turn may come soon” for a housing crisis.

The report came in the wake of the Canadian government’s attempt to avoid a housing crisis by no longer insuring mortgages with less than 35-year amortization periods and less than five-per-cent down payments as of Oct. 15.

Homebuyers with less than a 20% down payment are required to have their mortgage insured through the Canada Mortgage and Housing Corporation — a Crown corporation — or a handful of private firms that have entered the mortgage insurance market.

In 2006, the government extended the maximum amortization period from 25 to 40 years, adding hundreds of thousands of dollars in interest costs. Last year, 37% of mortgages taken out were for longer than 25 years.

Soon after the Canadian changes were announced, the United States Federal Reserve Board tightened up its mortgage lending policies. As of Oct. 1, the Fed will require lenders to verify a borrower’s income in determining repayment ability, to take a lender’s ability to repay a loan from income into consideration, to establish escrow accounts for property taxes and homeowners insurance in certain cases, and basically to advertise rates and payments with clear notice if a rate is not fixed.

One reason U.S. lenders were willing to give mortgages to people with an unproven ability to make payments was that the lenders were able to package the loans with others and sell them to other institutions. Had the lenders been forced to hold the debt themselves, which is somewhat the case in Canada, lending would have been less reckless.

Rather than abating, the U.S. housing problem grows worse by the day. Resets from low-interest “teaser” rates to market rates that are higher are just now peaking, with foreclosures expected to flood the market with homes for sale early in 2009.

People unable to afford mortgage rates reset at five or six per cent never should have been allowed to take on house payments in the first place.

It was quite another thing when the Alberta government established the Heritage Fund Mortgage Interest Protection Program in 1982, to compensate homeowners for payments greater than 12.5%.

Back then, first mortgages were running at 16% to 18%, causing many families to take on second mortgages at 22%.

Things have deteriorated so badly in the U.S. that the Treasury Department will extend credit if needed to prop up Freddie Mac and Fannie Mae, two government-sponsored enterprises (GSE) that hold nearly half of all American mortgages.

The GSEs each include a debt component and an equity component, with the latter falling in value as investors sold off shares due to concern over rising mortgage defaults.

Famed U.S. commodities investor Jim Rogers called the Treasury plan an “unmitigated disaster,” saying the mortgage lenders are “basically insolvent,” and taxpayers will be left footing the bill.

At the same time, U.S. government agencies stepped in to take over IndyMac Bankcorp, after helping to bail out Bear Stearns. That leaves about 90 financial institutions — out of about 7,500 in the U.S. — on a watch list to go under.

The government intervention to save mortgage lenders was expected to boost stock markets, but the Dow Jones industrial average fell, and that deepened investor fears.

Meanwhile, portfolio manager Adrian Mastracci of Vancouver-based CKM Wealth Management offers some sound tips for homebuyers:

• Consider a condominium or townhouse as a starter home, before buying a detached house.

• Remember that in addition to the purchase price of a home, you may have legal and realtor costs, expenses for moving, renovations, furniture, repairs, maintenance, property taxes, insurance and utilities.

• Save 20% for a down payment to reduce extra fees, consider taking money from your registered retirement savings plan through the Home Buyers Plan, and forego making non-registered investments because you would need an 8.9% return to do better than paying down a 5.75% mortgage if you’re in the 35% tax bracket.

Edmonton Journal

[email protected]


#1 The One on 07.24.08 at 11:00 am

Hi Garth,

I would suggest headlining this report on the main page from Export Development Canada as well:

Housing not just a US problem

July 9, 2008

By Peter G. Hall, Vice-President and Chief Economist, Export Development Canada

Almost two years old and counting, the US housing market crash is still grabbing headlines. It’s no wonder, given the dramatic plunge, its secondary effects and scant signs of recovery. But the US isn’t alone anymore. Housing markets are now faltering in other key economies.
The US housing market has garnered lots of attention for a number of reasons. It stumbled well ahead of other markets, activity plunged rapidly to recessionary levels, and the subsequent unravelling of the mortgage market infected the global financial system. What is more, recovery is not imminent. The US market is saturated with surplus housing, and it could take well over a year to mop up the excess. Don’t expect the headlines to abate anytime soon.

But other economies are now sharing the unwanted limelight. European housing markets are at varying stages of correction. The UK appears to be in the throes of a full-blown reversal right now. Data for May show that housing starts plunged by 56% from year-ago levels, and sales are down 37% for the same period following a one-month, 13% drop in May. Homeowners are facing rising mortgage rates, and house prices are beginning to fall. Excesses in the marketplace suggest that, like the US market, recovery is still a long way off.

Spain is also at the forefront of the European correction. First-quarter housing starts were down 18%, and mortgage lending is down 13% from 2007 levels. The sharp correction has revealed overheated markets, and economic forecasts are being revised down accordingly. In France, starts have fallen sharply from a torrid clip in 2007, and in May were off almost 17%. Building permits are still well ahead of starts, and mortgage lending is still in positive territory, suggesting a correction that is still in the early stages. The housing market remains weak in Germany, and on the other side of the world, Japanese housing starts for April were down 9% year-on-year.

Housing markets are critical to the economic outlook for a number of reasons. First, they are a key leading indicator of economic activity. A correction in housing markets almost always portends a slowdown or recession in the other parts of the economy. Second, housing markets are volatile, and can quickly influence the general sense of economic well-being. Third, to varying degrees depending on the specific economy, consumers make spending decisions partly on the perceived value of their homes, the priciest assets that most of them have. When prices flat-line or head downward, consumers, especially the highly-leveraged ones, can recoil quickly. A related point is the effect this has on financial markets. The ongoing impact of the sub-prime mortgage fallout on global financial markets is evidence enough of the influence of a housing correction.

Canada has thus far avoided a housing adjustment. Starts are soaring on the strength of the domestic economy and a huge dollop of very well-timed fiscal stimulus. But Canada’s turn may come soon. Although imbalances in the marketplace appear to be small, starts are currently well ahead of requirements, and are unlikely to continue indefinitely at today’s pace.

The bottom line? Housing markets are in a tailspin in the world’s largest economies, and working off the excesses will take time. They point to persistent global weakness through 2009.

#2 $fromaSia on 07.24.08 at 11:23 am

As to the recommendations of purchasing a home?!?

Simply don’t buy now (don’t fuel the stupidity) and save as much as you can for downpayment in the mean time.

It’s that simple, stupid.

#3 Kevin in Winnipeg on 07.24.08 at 11:44 am

A real estate agent in Wpg has said there are no more multiple offers on homes. Buyers are still dumb enough to offer +20% over the asking price though. I think we are at the breaking point here even when stats say it is a healthy market.

#4 confused and a little crazed on 07.24.08 at 12:36 pm

hey kevin,

is the realtor yanking your chain. Why would anyone offer 20 % over list if there are no bidding wars?

#5 brazer on 07.24.08 at 1:02 pm

Outlook darkens for Canadian exports

“I’m not one who wants to paint a rosy picture at all,” said Peter Hall, vice-president and chief economist of EDC. “It’s still very dark times for Canadian exporters.”

#6 The One on 07.24.08 at 1:11 pm

Canadian consumers downbeat about the economy

Only 29 per cent of Canadians currently think this is a good time to make a major purchase

Canwest News Service

Published: Thursday, July 24, 2008
OTTAWA – Canadian consumer confidence has been shaken, survey results released Thursday suggest.

“Waning consumer confidence is further evidence of softening domestic demand and bad news for Canadian business,” TNS Canadian Facts vice-president Richard Jenkins said Thursday in releasing the results of the market research firm’s July survey.

Its consumer confidence index slipped to 96.5 this month from 97.8 in June, leaving it down a “significant” 11.5 per cent from its 109 peak last November.

“Recent declines reflect a deterioration of current conditions rather than just expectations for the future,” it said, noting that the latest decline comes as the Bank of Canada has shifted its focus to inflation concerns from trying to stimulate the economy.
The present situation index, which captures evaluations of the overall state of the economy and the employment situation, fell to 106.4 from 110.1 in June, the expectations index, which measures consumers’ estimation of the economy, household income and employment in the next six months, rose slightly to 94.4 from 92.4. The buy index, which gauges the degree to which people think the current period is a good time to make major purchases, dropped slightly to 85.6 from 86.8 last month.

Only 29 per cent of Canadians currently think this is a good time to make a major purchase, it noted.

“Although confidence has not completely evaporated, we expect more and more consumers to retreat from making major purchases and scale back discretionary spending,” Jenkins said.

The mid-July survey of 1,015 Canadians is considered accurate within 3.1 percentage points 19 times out of 20

#7 VJ in Winnipeg on 07.24.08 at 1:31 pm

Hey Kevin,

I think you are right. I am noticing a couple houses in my neighborhood without SOLD signs on them that would caused bidding wars a few short weeks ago. The best I thing I did was bow out of this market and stay in my starter home!

#8 Whacked Out Winnipeg on 07.24.08 at 1:33 pm

Kevin in Winnipeg

Are you looking at looking at buying a house right now?

What do you think about the market right now besides it being way over priced?

I think I found a pretty good opportunity. Im thinking about putting an offer on a house but I will not bid over asking price. I have the feeling that winnipeg prices probley won’t correct as much as the rest of canada.

#9 Rick on 07.24.08 at 1:44 pm

#8 Whacked Out Winnipeg on 07.24.08 at 1:33 pm
I have the feeling that winnipeg prices probley won’t correct as much as the rest of canada.
Yeah, thats exactly what they say here on Vancouver Island too!! …….and in Van, Calgary, …….TO…………………………………………………………………..and so on.

#10 Another Winnipegger on 07.24.08 at 2:32 pm

Confused, it’s a result of the “blind bidding” process employed in real estate sales and a RE buying public that is slow to realize how much conditions have changed. For the past couple of years, anyone who has wanted to buy a given home has been forced to submit an offer within a few days of showing, and overbid by tens of thousands of dollars to have any hope of buying that home.

Within the last couple of months, the market has shifted fairly dramatically, but not everyone is aware of this and so they are still bidding as though there is serious competition for the house they want. I’m pretty sure these are the last of the “greater fools” in this city, and that soon, as Kevin suggests, awareness of the true state of the market will become more widespread. Many more houses are going for near or below asking price these days, and hopefully more buyers here will wake up soon.

I’m seeing a pretty substantial increase in asking prices, though, which I guess is the next agent tactic now that massive overbidding can’t necessarily be counted on anymore to get the price the seller is hoping for.

#11 VJ in Winnipeg on 07.24.08 at 2:33 pm

“I have the feeling that winnipeg prices probley won’t correct as much as the rest of canada.”

Funny how everyone here in Winnipeg says that. I have a friend who is a financial adviser here and when I even suggested housing prices may fall (despite presenting a myriad of reasons) he took it as a personal insult lol. Everyone here says the same thing…”prices will level off…but they won’t drop”. Whatever helps you sleep at night I say.

#12 Ron Paul on 07.24.08 at 3:05 pm

Ron Paul gets it.

#13 dekethegeek on 07.24.08 at 3:21 pm

sold my cottage in PEI in June of 07 for 89k, just saw a similar cottage on the SAME ROAD, built by the SAME builder, at the SAME time for sale for 45k !
Glad i jumped in ’07

#14 nonplused on 07.24.08 at 3:23 pm

None of the individual markets in Canada are going to correct as much as the Canadian market as a whole, seems to be the thinking in those individual markets.

The bubble will deflate first where it inflated last. That’s the way these things work unfortunately, sort of like an elevator, last one in is the first one out. According to Eric Jansen (, real estate bubbles form in the metropolitan centers and work out towards the rural areas, and crash in the reverse order.

There is nothing about Winnipeg to justify any increase in house prices above building costs. The main economy is collecting taxes from the rest of Canada for the crooks in Ottawa. There is no shortage of land. The only reason there aren’t more houses in Winnipeg is that until the bubble took hold nobody could figure out why you might want to build more houses in Winnipeg. I think Winnipeg will be the canary in the mine shaft this time as opposed to Calgary as seems to be the consensus. Just because Calgary was the epicenter of the implosion of the last housing bubble in Canada doesn’t mean it will be every time! The drivers of the bubble are somewhat different this time, and so are the drivers of the correction.

#15 smwhite on 07.24.08 at 3:29 pm


I watched some friends and acquaintances rush out to get their over priced McMansions, while I tried to convert others into buying smaller, starter homes if they really needed to get into the market. My mantra was to stay in an entry level type home for a couple reasons.

When “it” hits the fan whether its because of rate increases, lack of available credit, whatever, the entry level home will be more desirable to new families because of affordability. Regardless of market conditions, you’ll have a better chance selling the entry level/starter home in a bear RE market if need be, not to mention looking at a possible loss, 10% of 250K feels better the 10% of 500K.

The added benefit of that is if there ends up being that much pressure on the system, the middle-higher end homes will have more room for the price to be pushed downwards.

In a nutshell those that bought conservatively will be in a great position to entertain the idea of moving up a notch on the RE belt as you’ve built up equity in your starter home, those that bought too much might find themselves in a position where they need to shed too much home and there is where the starter home is desirable, again.

If you have to buy now, be modest, you’ll get more home in 3 – 5 years time! (Granite counter tops, stainless steel appliances are not modest additions).

This was the underlying problem with 40 year mortgages… You could have your dream home today, forget years of savings, for granite and stainless steel.
You just have to pay double interest over the 25 year mortgage for those counter tops and appliances.

#16 Shifty on 07.24.08 at 4:04 pm

Uh-oh, did he say $1-trillion?

David Berman, today at 3:15 PM EDT

Bill Gross, managing director of Pacific Investment Management Co. (or PIMCO), caused quite a stir in the blogosphere on Thursday with his monthly note to clients. In that note, Mr. Gross put a number on the estimated losses from the housing meltdown in the United States – and the number isn’t pretty. In fact, it was high enough to scare investors off financial stocks again.

“PIMCO estimates a total of $5-trillion (U.S.) of mortgage loans are in risky asset categories and that nearly $1-trillion of cumulative losses will finally mark the gravestone of this housing bubble,” he said.

#17 Sponge Rob on 07.24.08 at 4:10 pm

RE: Winnipeg. North end houses that sold for $30k 8 years ago are now going for $180k. Nope no bubble here! But at least you get lots of entertainment for your housing buck in Winnipeg. You get to watch live episodes of “Cops” out your window. Winnipeg is going to crash and burn. I wish it wasn’t true because much of my family lives there. It’s so bad that most crime is not even reported in the media anymore.

#18 Brent on 07.24.08 at 4:49 pm

That’s what they said here in Alberta too. Oh but it’s different here, we are the envy of Canada! Everybody is moving here, real estate can never go down here. Ya right, sure thing! Now the real estate market in Alberta has fallen right off a cliff!

#19 Kevin in Winnipeg on 07.24.08 at 5:28 pm

confused and a little crazed – From the stats and public consensus, I would have said myself there are still multiple offers on homes but after hearing what this agent had to say and seeing a bunch of comps, there definitely has been a change. I would say the over bidders are uneducated buyers lead on by agents. No other way to explain the price increases with no bidding wars.

Whacked Out Winnipeg – The real concern I see with Wpg is once the Govt capital projects are done (floodway, Hydro Building, HSC, Terminal), what will become of the city. There is absolutely no industry to sustain growth here. And with an average HOUSEHOLD income of $65,000, how can these prices stay the way they are without large income increases. That said, I honestly don’t think we will see a huge decrease in prices here but Wpg will go back to being a stagnant economy as it has since 1920.

#20 B2B on 07.24.08 at 5:52 pm

Winnipeg is the Florida of Canada. Wealthy Londoners and Parisiens dream of the day they can retire there. It will be protected in any downturn because of the sheer value of the Winnipeg lifestyle.

#21 David on 07.24.08 at 7:37 pm

As far as the Winnipeg real estate bubble goes the justification for rising prices seemed to be rising prices. The bubble in Winnipeg is so out of line with the city’s character. Nobody pays retail prices for anything in Winnipeg EVER and then there are these crazy outlandish multiple bids on 75 year old homes in the west end. None of this makes any economic sense, but telling people that produces nothing but icy colds stares and vilification as a doom and gloomer.When the bubble does burst as it inevitably will, heaven help the desperate sellers in Winnipeg.

#22 Calgary is a rip off on 07.24.08 at 8:03 pm


As much as it probably is coming, house prices in Calgary are still way overpriced. Most of these homes are probably worth $200,000. Just today Mario at the Calgary Herald finally recognized that homes have dropped around $40,000 in value. Thats nothing considering they are overpriced to begin with!!! Unless something catastrophic happens, it is extremely unlikely that real estate will become reasonable for the common person. As it stands right now you have a bunch of dumb progressive conservative bulls that make up the majority of the population here. The prevailing view among many is that the slump will end here in Calgary in 2008, in December. By the way, Alberta is NOT the envy of Canada. Sure its nice here in some ways, however all there is to look at in Calgary is a bunch of houses. And there is only 8 feet space between houses here!!! What the hell is that? I personally consider this stupid city a stepping stone to somewhere else. My wife hates it here, and Im beginning to see the wisdom of what she has been telling me all along that its overrated, claustrophobic, too cold, etc, etc, not to mention having an extremely ignorant political climate. A co-worker and many others say it is much better to buy than rent here. At least with renting I can leave anytime, I have a clause in my lease that says I can break it for $800 anytime as I choose. So if I get a better job elsewhere, either in Canada or the United States, Im gone!! I suspect in Calgary that Im not the only one who wants out, and the problem is that housing, all of it which is for sale and rentals prevents many from either wanting to move here or moving here, or both. One last note, people in Calgary move slow, like cows. Maybe that is why they call it cowtown: Dumb and slow.

#23 brazer on 07.24.08 at 8:17 pm

CIBC raises its mortgage rates……….

And…LB drops its 40 yr AM….

#24 brazer on 07.24.08 at 8:18 pm

Ugly day for CAD markets…^GSPTSE&t=1d&l=off&z=l&q=l&c=

#25 $fromaSia on 07.24.08 at 8:46 pm

David, when these people walk away, heaven help the tax payer.

#26 Another Albertan on 07.24.08 at 9:07 pm

“None of the individual markets in Canada are going to correct as much as the Canadian market as a whole, seems to be the thinking in those individual markets.”

I love the mathematical impossibility of this statement, if you take it literally.

This isn’t integro-differential calculus using polar coordinates, a time series and complex numbers. You just need basic arithmetic and some propositional logic to be able to prove the logical fallacy.

Then again, people are more than happy to admit that they are “a people person, not a numbers person” and that is a round-about way of admitting they are innumerate for anything more than guesstimating the tip on a restaurant bill.

#27 Marky Mark and the funky bunch on 07.24.08 at 9:31 pm

Having to live in winterpeg for the past year, while a pretty nice place and very good people, it has a lot of problems and a provincial government who are nothing more than champaign socialists………….
They are now talking about using Enron accounting to meet the ever bloated government programs………yes, paying for programmes today with future earning of tomorrow…….but what if they never materialize??? In any other business, this would be a crime.
So yes, Winnipeg is going to take a hit……..typical house buyer I’ve come across……….40 year mortgage, still paying off university, working retail with a car………..I still can’t figure out a reason why there is a housing bubble here in the first place besides the 40 year zero down.

#28 everythingzen on 07.24.08 at 10:26 pm

Interesting site and topics Garth. It sure looks like the market has peaked.

However, your posts seem to be intended to spur on CANADIAN (vs AMERICAN) housing market drama as opposed to reporting it.

Live in the present moment, not the unknown future and you will probably lead a happier existence.

The private company that I work for owns a significant amount of investment property across Canada and has little debt left on its balance sheet. The owners would not consider buying a home for personal use as an investment. They would regard it as shelter first and a possible forced savings mechanism second. Any expected appreciation from a house is in the order of inflation if you are fortunate.

As far as investments go, the golden rule is that they must pay you, not vice versa. Perhaps not necessarily in the short term, but in the foreseeable, reasonably predictable future.

Budget your house purchase wisely and you will find a lifetime of enjoyment out of it. Overleverage and you will incur a great deal of preventable suffering. Remember, larger does not mean better, nor does ownership automatically trump renting. Renters indirect cover my salary so I have tremendous respect for them as I do for all living beings.

May you all be at peace!

#29 David on 07.24.08 at 10:44 pm

Another Albertan, I think the person who made that statement simply intended to state that a mass correction was coming in the Canadian real estate market. Different markets and bubbles will deflate at different rates depending on home ownership, occupancy and leverage rates. For example in Quebec home ownership is around 62% versus Alberta at 73%. Quebec missed the bubble for the most part and the housing market has little deflationary potential. If anything prices in Quebec might rise to the current level of inflation. Metro Vancouver has the potential for the mother of all housing bubble collapses. Winnipeg has the potential for a very strong correction. Calgary is somewhere between the two. If one sums up all the parts of the collapse, it is still going to be a nasty business.

#30 rant in Calgary on 07.25.08 at 12:00 am

Calgary was reported to be the 68th most expensive place to live, out of 150 surveyed world wide.

Wanna move here, I have a house for sale.
It’s in a o.k. part of town, built in 1961, 3 bdm, 2 bth, 1300sft, original appliances, fixtures, shag carpet.(some may call it a fixer upper)
Only half a million.
Alright… I’ll take $460k.
No… come on I paid $505k last year.(0/40)
Wait, I will still owe money if I sell at $460k.

JINGLE MAIL comming to a bank near you.

#31 Rick on 07.25.08 at 12:18 am

25 Another Albertan on 07.24.08 at 9:07 pm “None of the individual markets in Canada are going to correct as much as the Canadian market as a whole, seems to be the thinking in those individual markets.”

I love the mathematical impossibility of this statement, if you take it literally.

This isn’t integro-differential calculus using polar coordinates, a time series and complex numbers. You just need basic arithmetic and some propositional logic to be able to prove the logical fallacy.

Then again, people are more than happy to admit that they are “a people person, not a numbers person” and that is a round-about way of admitting they are innumerate for anything more than guesstimating the tip on a restaurant bill.

TOO FUNNY! Thank you!!

#32 EJ on 07.25.08 at 2:03 am

Marky Mark: There’s a housing bubble in Winnipeg for pretty much the same reason as anywhere else. Because lending was cheap, and it’s trendy. Hey, it happened everywhere else, why not here? HGTV said so, right? The news said RE is a can’t-lose investment, right? The banks are throwing money at me, why not? Buy now or get priced out forever!

Every region has their own stated reasons in attempt to justify high prices. In Alberta it’s oil, in Vancouver it’s because everyone wants to live there, Saskatoon and Regina is potash/oil, and Winnipeg because it’s a service based economy and it’s really affordable/underpriced. Whatever. Every housing boom in history turned out to be a bubble, yet this time (like every other time) “it’s different”.

People believe what the popular media tells them. Very few actually stop to think about it.

#33 islander on 07.25.08 at 2:48 am

…people in Calgary move slow, like cows. Maybe that is why they call it cowtown: Dumb and slow….

My guess is that Albertans will not be sorry to see you or your spoiled brat of a wife leave.

#34 Mylene on 07.25.08 at 7:57 am

CIBC changes mortgage rates
Thu Jul 24, 5:33 PM

TORONTO, July 24 /CNW/ – CIBC (CM: TSX; NYSE) today announced the following changes in mortgage rates:

Six-month convertible 6.99 per cent, down .11 per cent

Six-month open 8.99 per cent, down .16 per cent

One-year open 9.10 per cent, down .14 per cent

One-year closed 6.95 per cent, up .55 per cent

Two-year closed 7.00 per cent, up .45 per cent

Three-year closed 7.00 per cent, up .45 per cent

Four-year closed 6.99 per cent, up .15 per cent

Five-year closed 7.15 per cent, up .20 per cent

Seven-year closed 7.60 per cent, no change

10-year closed 7.95 per cent, up .35 per cent

These rates are effective July 25, 2008.

#35 pbrasseur on 07.25.08 at 8:06 am

For a serious mortgage crisis to occurs in Canada it would have to affect most of the country. This is not the reality.

With respect for people who live there Calgary is a small boom town in a very specific region, in terms of RE from a nation wide perspective what happens there is not that important.

Fact is that except for a few hot spots (some western cities and some areas of Toronto) there is’nt that much of a bubble going on in this country.

Take Montreal for example, it is a city much larger that Calgary and Vancouver and there while it is true that prices have gone up considerably in the past few years they are still far from insane, in part because they were very low at the beginning of the hike. Same goes for probably 80% of the country.

After such a run in prices I expect the market to slow even in non bubble areas and prices may come down some, maybe 15% on average, this will have some negative consequences obviously but “crash” or “meltdown” I just don’t see. 1929 this is not.

In fact I suspect that in a few month this busy blog will dry up. Yet Mr Turner will have sold a lot of books ;)

#36 Calgary rip off on 07.25.08 at 9:55 am

Islander: Your comments are very funny. If you mean Vancouver Islander I wouldnt expect anything less as the culture there is backward(time to build a bridge and get out of the 1960’s isolation). Judgement comes around to those who go around. That would mean you. Save your breath as last time I checked you arent in Calgary or from there(if you are, Im sorry)!

Rant in Calgary:

I bet that house is worth what you say it is according to market value and you’ll probably find some fool to buy it at that price, even though you probably bought it for $100,000. Typical Calgarian who thinks his house is worth more than it is. Good luck with that.

Nice posting Garth on the $40,000 correction(Mario wasnt totally pimped by the Herald on that one). Its still not enough for what these houses are really worth in Calgary. They might as well put teepees up on the land and charge $200 grand for them, as there is only 8 feet between each house. As for being spoiled, I can only comment neutrally on what I see in Calgary: Too much traffic, overpriced houses, and people who think their houses are worth more than they really are. This isnt being spoiled. Its being accurate. And it will be interesting to watch the correction being made to this city.

#37 smwhite on 07.25.08 at 11:24 am

pbrasseur, I’m not big on how the great depression effected Canada after the failures of the US financial system in 1929, but from what I heard we(Canada) weren’t immune, 1929 may be going to far but its at least 1980 or 1990(all over again)…

The majority of the Canadian RE speculative wealth that is sitting in homes is sitting in homes on the other side of Ontario and as you stated some areas in TO.

It took ten years across the country for the last bubble to play out and thirteen or fourteen years for those that bought at the peaks of 89 – 90 for homes owners to be no longer upside-down, this happened about 2003. I agree with you thatthe run up in prices to about 2005 – 2006 was justified, they just should have started leveling off like they did this summer, two summers ago.

Quebec has had a reasonably conservative market compared to other Canadian metros but factoring in provincial taxes, language and separation issues its not a big surprise as it isn’t in the same league as Vancouver, Calgary or even Toronto. Because of this I see Quebec to be fairly well insulated, It looks like the Ottawa valley, Quebec and Atlantic Canada will slow as you stated, I think most markets west of Toronto are ready for free-fall though…

I posted a similar rant on the last article:

If you look at the chart 2004 – 2006 rates were at their lowest levels ever, these mortgages come up in 2009 to 2011 for renewal, the 40 year mortgages will come up in 2011 – 2013. So if there is danger to our mortgage market, it will hit 2010, if there are chinks in the armor, we’ll know next spring. I’ll stick around until then!

Here is a link I’ve been posting on the history of the Ottawa market, I would gather Ottawa is probably a good gauge for the national average and what could be expected over the next 10 years…

I couldn’t agree with everythingzen more…

#38 Sold Out of Cowtown on 07.25.08 at 12:09 pm

I’ve been living and working in Alberta for the past 11 yrs., and it disgusts me the way they’ve mismanaged the oilsands, gave away an entire industry to the Americans and all the yahoo’s out there working 60hr weeks with nothing to show for it but a disposable overpriced home made of vinyl, truck payments up the ying yang, and loving every minute of it. Reality will hit hard when the housing bubble bursts, the Liberals get a majority government, and I’ll be doing a jig in Ontario :).

#39 Sold Out of Cowtown on 07.25.08 at 12:13 pm

BTW the most depressing town I’ve ever visited would be Fort McMurray. Lots of high paying jobs, but you work round the clock there. The town is filthy, the majority of people are grossly obese, long rude faces everywhere, huge crack problem, and every house has at least 3 tenants on average just to make a mortgage payment! Thats the Alberta Advantage, they can have it. Then again theres no more work for Canadians, the CNRL’S of the world are hiring foreigners instead to keep costs down.

#40 brazer on 07.25.08 at 12:26 pm

Ottawa swings to deficit

“Revenues from the GST tax plunged 20.9 per cent from last year, the Finance Department said, and revenues from corporate taxes fell 16.6 per cent. Many companies, especially manufacturers and forestry operators, have been reporting lower profits because of the slumping economy.”

not good.

#41 Mike.slob on 07.25.08 at 1:04 pm

When we can see decreased prices in GTA?
Many people still thinking that whatever will happen that RE in GTA is strong.But will see from 2009-2013.
I’m positive will be crash in GTA,but when?
Seven months sales down and still prices up in GTA and Vancouver?
Ontario economy is alredy in recession,unemployement
rate hit 6.7% and TSX hit 13,100.
Also we can expect double digits decline of sales in GTA to February 2009.Than will be FINAL GAME.
Politics and Banks will not allow to retret of gained assets but major correction we can expect between
March/09 and July/09. And if Sales again going down in GTA than welcome to situation as 1989.

#42 GenXer on 07.25.08 at 1:40 pm


I completely agree, and I completely disagree.
In many ways, the current situation is much worse than that of 1929. Let me count the ways…

1. At that time, individuals did not have the ability to utlize leverage while investing. They also were much less leveraged in their real estate transactions as well.

2. Families had fewer structural expenses including childcare, education and transportation.

3. The world banking system was far less international, allowing countries to be far more protectionist in their policies.

4. Jobs were more protected due to lack of globalized labour diversification.

5. Personal savings rates averaged ~11% for the average family, versus ~0% today. Families had some savings to fall back on during that time.

6. Gold Standard vs. the Oil Standard – Once upon a time, a dollar was backed by gold. Now it is only a piece of paper. The real economy is being driven by the cost of energy, much of it supplied in the form of fuels. The new standard that is pushing our economy is oil – and it is taking away the governments ability to influence the economy with monetary policy.

Add to this the largest capital crisis the world has ever seen, a lingering war in the middle east that threatens the oil supply and a debt-ridden capitalist society across the west and where does that lead?

It’s fair to say that things won’t go south overnight, but no one can argue that the current financial system cannot continue to exist in the status quo.

In fact, a small change to the short term interest rate will have a disastrous effect on the overall ecomony due to the high leverage and low savings that individuals have pursued. If the Bank of Canada wasn’t scared, would they continue to hold interest rates at 3% while predicting 4.4% inflation this year? What kind of banking system can afford to hold that kind of discrepancy?

#43 Its Coming!! on 07.25.08 at 1:50 pm

check this out!!!!!

#44 Ian on 07.25.08 at 2:54 pm

Could someone crunch these investment numbers for me… trying to figure out how low rest of Canada must be when you exclude alberta…

‘Dark Clouds form over Canadian economy
While the average Canadian worker can expect some $11,100 in new capital investment in 2008, rising to $11,400 in 2009, the average worker in the world’s 30 industrial countries will likely see the equivalent of $11,600 in Canadian dollars worth of such new investment, rising to $11,800 in 2009, it said.
The gap with the other G7 countries, which include the U.S., Britain, France, Germany, Italy and Japan, is even greater. The average G7 investment this year is projected at the equivalent of $11,800 in Canadian dollars rising to $11,900 in 2009. And the gap with the U.S., where investment is expected to amount to $12,500 this year and next, is greater still.
Provincially, the capital investment picture is mixed, with relatively very high levels of capital investment in the resources rich provinces of Alberta, at $2.45 in new capital investment per worker this year for every $1 in such investment per worker in the U.S., and in Saskatchewan and in Newfoundland at more than $1 each per worker more than in the U.S.
In British Columbia it is expected to be 76 cents.’
July 25 Times Colonist (Victoria) 2008

#45 nonplused on 07.25.08 at 2:58 pm

Another Albertan,

Thanks, I was sure most people would get that but you never know on a blog.

As for most people being able to calculate the tip on a bill at a restaurant, from the waitresses I have known over the years it is a small percentage indeed. But everybody knows how to forecast the real-estate market!

#46 dotava on 07.25.08 at 5:03 pm

#34 pbrasseur on 07.25.08 at 8:06 am

Don’t forget that we are part of global market and that our biggest customer is in recession.

#47 mike on 07.25.08 at 5:21 pm

So far many many parts of GTA have reduced prices and not just the junky ones but even some nicely fixed up ones. In certain areas , like Leaside, North Toronto , the beachs , Rosedale, Bloor West and Bayview village for example prices are still sky high I suspect mostly because these houses rarely hit the market so those with pre appr morts jump at the chance because they have been shut out for so long. In the top tier stuff things are still selling… not quickly but for some very large coin.
I would welcome some contrary info if it does exist.

#48 brazer on 07.25.08 at 5:50 pm

More foreclosure gloom

“A total of 739,714 foreclosure filings were recorded during that three-month period, up 14% from the first quarter, and 121% from the same period in 2007. That means that one of every 171 U.S. households received a filing, which include notices of default, auction sale notices and bank repossessions.”

#49 Dave in Calgary on 07.25.08 at 5:53 pm

Sold Out of Cowtown:

You said: “The town is filthy, the majority of people are grossly obese, long rude faces everywhere, huge crack problem”

Then: “Then again theres no more work for Canadians, the CNRL’S of the world are hiring foreigners instead to keep costs down.”

Perhaps you should send a letter to CNRL to tell them they should keep hiring fat, angry, crack-headed Newfys for $120,000 a year instead of foriegners.

#50 calgary on 07.25.08 at 6:12 pm

What is the equalibrium “average price” of a single detached home?
Is there a formula to figure out an estimate?

#51 Crack Head NewfIE on 07.25.08 at 10:19 pm

Hey Dave(how original…*sigh*) in Calgary,

If you’re going to insult an entire province the least you could do is spell Newfie(not Newfy) correctly you degenerate.

#52 Brent on 07.25.08 at 11:51 pm

I thought you spelt it Newfee? lol

#53 Future Expatriate on 07.26.08 at 12:51 am

1929 is not too far… it’s not far enough.

Call what’s coming “The GreatEST Depression”

Soon even the faked figures from the US Gov won’t be able to hide that the US has been in a full fledged recession for more than three years now.

#54 Another Albertan on 07.26.08 at 1:42 am

#49 – What are you looking to calculate? Even though I’m not sure, I’m still going to put down some comments:

The _costs_ to build a structure is reasonably consistent (a.k.a. predictable) over a long-ish time interval. This is providing that there is no prolonged price steps in materials or labour. Of course, using a longer interval will naturally smooth the resulting output, as is expected.

In the past few years, labour has become more expensive, but is not measured in multiples. Periodically, there are runs on inputs such as copper or concrete or certain types of lumber. You might see $500 in copper now cost $1000, but this is a trivial input cost when viewed from the perspective of the final selling price and considering that a builder is targeting probably around 20% as his margin. Again, an appropriate sampling interval will smooth the highs and lows.

Given the quite reasonable attempts of builders to control costs and to ensure build efficiency, when you see price fluctuations, it’s due to the price of the land or location moving up or down. Since builders buy often and in bulk from suppliers, they aren’t prone to getting hoodwinked on pricing, as an individual renovator/owner might.

No one could ever rationally justify major asset appreciation by explaining that the constituent components have skyrocketed, such as new cabinet door knobs or Berber carpet are now $4000 each or per sq-ft. There are mechanisms to make well-informed, rational decisions on such items in every marketplace.

There is, on the other hand, a great ability to spin intangibles – like how your lifestyle will improve if you are located closer to downtown or to the shoreline. “There is margin in magic” and “There is cash in chaos” are two classic consulting phrases. The same thing applies when whipping a home (or car or TV, etc) buyer into an irrational, animal-brain frenzy. [Why buy a Jetta when you can buy the same platform for more money in the form of an A4? Oh, that’s right… the cachet of driving an Audi versus a VW is worth another 10 or 15K.]

The resulting output of this process is manifested in the price movement of the land or the location.

A piece of crap house in Calgary that was 200k in 2004, hasn’t had a stitch of upkeep, and that is now on the market in 2008 at 600k is really the same house with 400k worth of price fuzziness applied to the land. The house itself hasn’t appreciated and is actually worth less as a structure due to physical depreciation and deterioration.

Calculating the “average price” of a structure from an engineering and construction perspective is not that difficult. Manufactured/mobile homes are perfect examples. Pick your features and size and here’s your price. Now go determine where you want to place that structure and how the pricing and sales mechanism changes… it’s a whole different ballgame.

If you are looking for information on broad market pricing and trends, there is no “formula”. It is typically a regression analysis of long-term pricing, credit availability, inflation pressures, general economic circumstances, etc. It’s a lot of work and is the reason why people like Robert Schiller get as much press play as they do (because it’s all in how you present the interpretation). It’s also why there is a lot of mushiness in pricing. There is no real-time marketplace like the equity or bond markets to get you instant feedback on price determination. If you get “no bid” in those places, you are toast and you know it. If you get “no bid” in real estate, everyone has their preferred explanation… short-term soft market, neighbourhood temporarily out of favour, it’s winter, etc.

And for all of these reasons and more, you have a battle between the bulls (“this time it’s different”) and the bears (“we will eventually revert back to the long-term mean”) [or some perverted hybrid where prices stabilize but don’t move for half a decade+ and wait for the historical trend to catch up].

#55 patriotz on 07.26.08 at 2:37 am

What is the equalibrium “average price” of a single detached home?

Three times median family income, or about 150x monthly rent for the same house. You get about the same result either way.

#56 Sold Out of Cowtown on 07.26.08 at 9:30 am

Dave in Calgary, I unfortunately had to spend some time working alongside the non union sector represented by CLAC. If they weren’t foreigners, they were Newfies. I have never come across a more clicky group of people in my life. It’s funny how they claim to hire Albertans first when I’ve only come across a couple. Nobody is really benefiting from all the expansions up north, all the moneys being flooded down south and wages are being spent in Manila and St. Johns lol.

#57 Sold Out of Cowtown on 07.26.08 at 9:39 am

BTW the temporary foreign workers are only temporarily here by choice. The wages they earn here in one month are equivalent to one years wages back home. They don’t want to live here, 2 years of solid work and a young mans set for a long, long time. I’m 33, I should immigrate to the Philippines and retire, or come back to Canada as a temporary foreign worker because it doesn’t pay to be an honest citizen of this country. Wait a minute, we don’t have a country, we’ll be apart of the North American Union soon and spending Amero’s not Loonies anymore so who cares!

#58 Andrew on 07.26.08 at 10:05 am

I live in Winnipeg and was considering a condo instead of living in an apartment. But I soon realized just how out of touch RE has become to renting or income. You can rent a 800 sqr ft 2 bedroom apartment in Osborne Village for ~700 – 900. I have a one bedroom which costs me 604/month. But a ~800 -900 sqr ft 2 bedroom condo is over 170,000 plus condo fee and in alot of cases over 200,000 plus condo fees. The Condo fees are usually between 300 to 400 per month. All these condos are within a five block area of my apartment.

Yet incomes have stayed pretty much the same in Winnipeg.

Nope winnipeg doesn’t have a real estate bubble. Everythings just fine here…….

Many people including people who should know better as Kevin in Winnipeg put it believe that housing prices will not fall but keep going up. I have to agree with Kevin housing prices will go down and I think significantly.
I am really concerned what will happen in Winnipeg after all the major projects are done. All those thousands of jobs will just disappear over night and then what. fewer jobs and an exodus of workers from the city to alberta’s oil sands and dropping housing prices.
We will probably just build a new football stadium at tax payers expense to try and keep things going a little while longer. Tough times are ahead for real estate in Winnipeg. I think.

#59 richard anable on 07.30.08 at 8:24 am

Great website!

I spent 5 years in the Toronto area while working for York University.

I am not optimistic for the short term down here in the States, even given the managed markets & government bailouts.

#60 Sadiq on 08.29.08 at 10:10 pm

New Flyer, Boeing, Hydro, MTS, Flood Gate, Jhonson Terminal. Thats all for now. Most of the projects will end by 2010 or would be near completion.
With both the city,province and feds not actually investing in any sort of sustainable industry we have to hit rock bottom.
We are apparently going to benefit from Ethanol industry and agriculture. Bull Shit. Any one and every one who has lived here knows that Agriculture is a gamble. You might have a good year or two. Followed by flooding and drought.
My inclination says we would never rectify our RE. Now we are over inflated in 2-3 years we will be overly deflated. Our mid range break even point would not last a quarter.

#61 Homebuyer x on 11.12.08 at 12:30 pm

Take it this way:
In Calgary now the market is slow ! it is a good time to buy a new or preowned house there is a lot of pressure on the sellers !! I just made an offer 20 k below the reduced price on a New House and they accepted !!
Yes the price may drop next year so what… I am not planing to resell my house it will pick up in 2 3 years …
it always been this way…. we do not have and will not have a housing mealt down