Sunday, June 23, 2013

Don't worry. Be Happy. There will be no housing crash... at least according to Dan Cayo

Meet Dan Cayo.

He's a columnist with the Vancouver Sun.

According to his bio, Cayo has worked in journalism all his adult life. At one time or another he has served as a newspaper writer and editor, a radio and television reporter and commentator, a wire service reporter, and a journalism teacher. From mid-1997 until mid-1999 he took a leave of absence to run the Atlantic Institute for Market Studies, a business-funded think-tank based in Halifax, but he continued to write regular columns for eight newspapers across Canada. He came to the Vancouver Sun as editorial page editor in 2000. In the fall of 2003, he made the switch to column writing.

Like many who follow real estate, Cayo made note of US economist Paul Krugman's comments about our real estate bubble.

His response?  'Phhffft'

Of course we're paraphrasing here.  Cayo outlined his thoughts in a column titled, "Don't worry, city's house prices won't tank."
Don't worry about alarmist economists - those at the Organization for Economic Cooperation and Development, for example, or Nobel Prize-winner Paul Krugman - who are predicting a real estate crash.

Because house prices in Canada are poised to edge up, not plunge down, according to a new analysis from the Conference Board of Canada. And Vancouver - despite having the highest real estate prices in the country, and despite being the target of incessant warnings from worrywarts who see a bubble poised to pop - will turn out to be one of the most resilient markets of all.
You gotta love those bold enough to go on the record and make such confident predictions.

Cayo constructs the article around the comments of Mario Lefebvre, the Director of the Centre for Municipal Studies at the Conference Board of Canada. According to Lefebvre:
Vancouver's steady population growth, in particular its unusually high percentage of foreign-born residents, is the basis of this confidence.

"The foreign-born population can significantly alter the landscape of a country's housing market," Lefebvre wrote. "In many instances, immigrants arrive in a new country with some pre-established wealth. If a specific market welcomes a relatively large share of wealthy immigrants, their arrival creates a new source of demand that not only stimulates demand for housing, but can also raise house prices significantly without any changes to personal disposable income per capita."
In other words... that's why it's different here (or at least why it's different in those housing bubbles that still exist).
This is true not only in our market, but also in another seven of the 27 countries that the OECD identified, using two different measures, as having housing stock that is over-valued by 20 per cent or more. (The others with demographics similar to ours are Belgium, Norway, New Zealand, France, Austria, Sweden and the United Kingdom.)
You will recall that Krugman's gloomy view echoes former Bank of Canada governor Mark Carney and others who worry that Canadians are too deeply indebted and over-leveraged to a dangerous degree.

These factors lead the OECD to concluded earlier this month that, nationally, Canada's housing market is over-valued as much as 30%, based on the ratio of house prices to disposable income, and up to 60% if the comparison is to the historical value of rent. Cayo observes thatit is a safe bet, I think, that Vancouver's numbers would look even worse.

So why isn't this a concern to Lefebvre?
"You've seen some declines (in house prices). But that seems to be slowly, slowly ending. You're actually bottoming out."
An upward trend will continue says Lefebvre because it's not just the steady influx of foreign money, but our endless population growth.
"As long as you have population growth," he said, "people will need housing."

For as far as Lefebvre can see into the future, he is confident Vancouver will continue to have population growth. And this region will continue to lead the way in attracting a steadily expanding proportion of foreign-born residents, many of them arriving with quite a lot of money.

The bottom line: Most parts of Canada will see, very soon, a modest upward trend in housing prices, and those that don't are unlikely to see anything worse than a small decline. Meanwhile, Vancouver is high on his list of the least likely places to see any problem at all.
See?  Rich people will keep moving here and bring buckets of money with them to support our housing market.

Sounds like a sound economic argument to us.


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  1. Lucky for him the idea is going to see an acid test very soon with the Shanghai exchange plummeting 5.5% in a single day and credit tightening in China like a steel vise over the weekend. Hmmmm.

    Too few here make the connection between equities markets, bonds and real estate but rest assured they are all inextricably intertwined with global liquidity and credit markets.

    The shit is about to hit the fan.

    Without bothering to tell you what you already know it is pretty safe to say Vancouver is going to take a punch in the gut that will be felt for a long time if Chinese markets keep falling like they have today.

  2. Emerging markets are slowing ... Do these guys even know what's going on around the world at all? God help us all.

  3. Who to believe, a Nobel Prize Winner or a paid shill for the RE industry. I wonder what Tsur S is going to say about this. Even he can't believe the bubble is about to pop.

  4. Re. QE2: Bernanke's timing could not be worse. What a doofus that guy is.

  5. Rich foreigners = Deux Ex Machina.

    I can't believe the garbage that these people will say. They all think out-of-town money will save the day, just like Miami or Las Vegas, Jeez.

  6. Rich immigrants? No doubt, there are rich asian immigrant investors drive the pre-sales market in some areas. Perhaps that makes news, but, this study by David Ley, Geography professor at UBC, seems to paint a different picture about the wealth of new immigrants;

    "Racial polarization has also deepened, as neighbourhoods where white and native-born residents remained the majority enjoyed the lion’s share of the income gains, while areas with the greatest share of visible minorities and immigrants were much more likely to see their fortunes decline."

    They may be coming, but the majority of them certainly aren't wealthy.

  7. The media shills will mutter its different here until they are blue in the face from drowning. It can't happen here... gulg glug... higher interest rates won't matter... glug glug... millions of rich immigrants want our properties... glurpppp... HAM... helicopters will come back... BPOE... CHOKE.

  8. Shills like to talk about population growth, but construction activity grows quickly too to match this increased demand.

    Don't say there's not enough land, the number of completed units trends definiely show there's still land in Vancouver for building.

  9. He is probably highly leveraged ... owning a few houses.

  10. Slightly off topic but interesting:
    "Being more knowledgeable about real estate now, I would never buy pre-con again."

  11. The mark of any good journalist is credibility. Don Cayo just lost his.