Thursday, April 8, 2010

And the band played on...

Some may be blissfully blind, but others appear to be gleefully blind.

And throughout it all, our American cousins shake their heads in disbelief.

Over at seekingalpha.com Rolfe Winkler looks at the Canadian housing bubble and declares, "so much for Canadian sobriety."

Winkler notes that the average price for a single detached home in the Village on the Edge of the Rainforest now exceeds $1 million, that prices have climbed 23.3% in just 12 months, and that prices are now nearly 3% higher than they were before the housing market crashed.

The Americans know where we are headed.

Of course the gleefully blind proudly proclaim that "because of the economic rebound. And the Olympics. And the warm winter [here]. Vancouver is different."

The rational is always, "it's different here".

Meanwhile Winkler makes the point that all R/E contrarians make:

"Household debt to income in Canada is now more than in the US. All the usual metrics to gauge whether housing is overvalued, eg House Price/Income or House Price/Rent are at levels up to over 30% from their long-run average. These are normally consistent with an overpriced market that is due for a correction; the question is when, as often these things persist for much longer than most people dare to guess. If Canada’s banks are behaving so responsibly, where are households getting so much leverage?"

Cause for concern?

Not according to the Bank of Canada who, according to Reuters, says "Canada's housing market is not in a price bubble but seems firmly valued."

That will be a quote for the ages.

This all comes just days after a CIBC study found that household debt - mostly mortgage debt - is growing three times faster than income.

And all of this comes at a time when many analyst share the sentiment that "the current rebound in the economy is a statistical mirage orchestrated by record amounts of monetary and fiscal stimulus that are simply unsustainable and actually risk precipitating a very unstable financial and economic backdrop in coming years."

One blogger I follow compares the current economic conditions to the Titanic disaster and suggests that we are at about same point in time as that famous ship was after it struck the iceberg.

Instead of a band playing on deck as the vessel took on water, we have the equivalent of an IMAX theater, complete with surround sound, to keep us occupied as we meet our fate.

Regretfully, I couldn't agree more.

May I have the next dance?

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5 comments:

  1. You have had some really interesting entries as you back them up with good resources and research.

    I know this is the billion dollar question that everyone would like to know, but how soon do you see the housing market starting to fall or correct and when do you see the news begin to admit that the price of houses in Canada is falling.

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  2. Id say mid summer or fall.

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  3. I'm currently living in Edmonton and debating about when to buy my first home. As interest rates started to go up, I locked in a rate with ING and have 4 months. Now I'm wondering if I should take advantage of that rate, while housing prices still seem high, or wait to see if prices drop. I'm a newbie, so forgive me if I ask a stupid question. In your opinion, is it better to wait for housing prices to drop (with higher mortgage rates) or vice versa?

    Do you think Edmonton will follow suit with falling house prices? Some people are quick to remind me of the latest foreign investments in our oilsands. They also say that house prices will only go up. I don't know how they can believe that, with mortgage affordability at an extreme low.

    I can't seem to come to a decision about buying or continuing to rent for another year (as my rent is lower than a potential mortgage will be).

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  4. You're better off with an 8%, $200,000 loan than a 5% $300,000 loan.

    Save as much as you can while you rent and buy without taking out insurance (you'll need 20% DP) for ING (~$7k on a $300k loan). If that will take some time to save, all the better, you have an excuse to wait a while as this all unravels.

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  5. I see the inventory of homes for sale in the greater Vancouver area has been trending up quite significantly over the last several months.

    It’s going to be interesting to see if (finally) this is the start of the “great correction” (to borrow a phrase from Bill Bonner) in Canada’s housing market, and if it is, are the politicians in Ottawa and the Bank of Canada going to be able to “pull yet another rabbit out of the hat”, (with the continued assistance of Canada’s taxpayers and some of the more gullible folks in this country) in order to keep the debt fueled “party” going a little bit longer.

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