There's an article in today's Vancouver Sun by Barbara Yaffe.
Titled: The high cost of home ownership: Canadian homeowners carried nearly $1.2 trillion in mortgage debt last year, the article shares a stunning statistic:
The Canadian Association of Accredited Mortgage Professionals estimates, homeowners in this country — of whom 60 per cent carry mortgages — owed nearly $1.2 trillion in mortgage debt last year, up from $664 billion in 2008. In other words, national mortgage debt has nearly doubled in just four years.
Combine that with the fact that CMHC has gone from $100 Billion in insured mortgages in 2006 to almost $600 Billion today and you know where Canadians got the money to bid the price of real estate to astronomical levels.
Debt fuelled our bubble, plain and simple.
Debt fuelled our bubble, plain and simple.
Throw in emergency level interest rates to facilitate the low monthly payments on massive mortgage amounts and you get a real sense of why the bubble has continued for so long.
But make no mistake. These are not real estate prices which reflect intrinsic value. The real estate bubble is born of excess credit. Massive, excess credit.
This is a scenario that has been repeated over and over the past 500 years.
- Tipper and See-Saw Time (1621)
- Tulip mania (top 1637)
- South Sea Company (1720)
- Mississippi Company (1720)
- Railway Mania (1840s)
- Encilhamento ("Mounting") (1886–1892)
- Florida speculative building bubble (1926)
- Roaring Twenties stock-market bubble (c. 1922–1929)
- Poseidon bubble (1970)
- Japanese asset price bubble (1980s)
- 1997 Asian Financial Crisis (1997)
- The Dot-com bubble (1995–2000)
A boom caused by excess credit will always bust. Ours will be no different.
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I have a horrible feeling that this time, it will be a worldwide, simultaneous and spontaneous bursting of all credit that finally flattens the Vancouver/Canadian housing market. ..V
ReplyDeleteThe leveraging that has been going on in the hunt for yield has been fantastic in all sectors of the financial markets... real estate, stocks, bonds, emerging markets. But how can we ignore Spain, Ireland, the Chinese Ghost cities and all the other blow out bubbles in construction. I think all this cheap credit has ignited a huge class struggle if these 30 year charts mean anything: http://www.chpc.biz/2/post/2013/10/us-30yrs-later.html
ReplyDeleteAnd my latest post underscores the problem that cheap credit has made even worse... that is the disparity in the participation of the national wealth: http://www.chpc.biz/2/post/2013/10/share-of-wealth.html
It is the upper class that is extremely successful at the game as evidenced in Realty Tracs Flip Count in the US: http://www.chpc.biz/2/post/2013/10/us-flipping-update.html
I'm just venting, sorry. The good news is that on the weekend I went to a new 1200sf condo open house owned by an offshore investor who bough the pre-sale and now is trying to unload for his cost of purchase, holding , tax and commissions. The place never rented or lived in, about 18 months old looks to be about 30% overpriced at just under $1mil which is probably what he paid (ie $700k) 3 years ago when he signed the pre-sale. I think we are at the point in the cycle where buyers sharpen their pencils.
On the other hand, expensive credit would have stopped all of this dead cold in its tracks some decades ago, in a grinding unforgiving depression. The flip side is we get the depression all at once with a bit of undershoot as it stands now. This is the perfect picture of a dilemma if there ever was one.
DeleteI only wish. We've been seeing this type of activity here in Vancouver since 2008. They can hold that place empty for close to infinity.
DeleteAnd that is a good thing. Sharpening pencils is smart. Even handicapped children know you need to sharpen the colour pencils to keep drawing pretty pictures. Home-owners.....? They are slower to catch on.
DeleteGuys like Mark Carney (Mr. Bubble) are responsible for this. What are they thinking? Now he's doing the same thing in Britain that he did here.
ReplyDeleteGod save the Queen... and all her subjects.
DeleteTo be fair, the bubble started back around '02-'03. The largest gains in Van pricing happened between 03-08. Carney did not become governor until fall 2008 once those price gains had already happened.
DeleteDavid Dodge was BoC governor from '01-'08. However, he did public criticize the CMHC for dropping their standards to Zero Down Forty, as being inflationary.
Carney did not create the bubble, but he did help to keep it from correcting during '08-'09.
All those bubbles were caused by excess credit? hmm...
ReplyDeleteCan anybody shed some light on this? WHY did the USA bail out our Canadian banks during the 2008 crisis? http://business.financialpost.com/2012/04/30/canadas-secret-bank-bailout/
ReplyDeleteThere is always a reason? Is it to transfer the wealth to the rich in the US? Is it to control our politicians?
Rich uncles always give candy to the children.
DeleteCouldn't of explained this bubble better myself. I've been telling my friends who are home owners that we have a bubble, they just laught, they think its different here and HAM is buying everything. I feel the media has made most owners delusional, I just hope they see the light and realise these excessive prices won't last before they are completely screwed. I'm actually worried about how many Vancouverites are going to be financially ruined because of this bubble. Guess we'll just have to live and learn.
ReplyDeleteSo the amount of CMHC mortgage has increased $500B (from $100B to $600B) while the total amount of mortgage has increased $536B (from $664B to $1200B). Which means our banks literally shuffle money from CMHC to the home sellers and take almost no risk on their ends during the last four years.
ReplyDeleteShocking stat, indeed.
This bubble has an iron skin. The longer it gets drawn out the fewer people left to pick up the slack when it finally bursts. People are extremely comfortable with taking on huge debt, I have been phobic of debt since my first car loan seeing the payment on principle being almost nothing. Good luck to all the nillionaires out there in bubble town....
ReplyDeleteI give up. We've been talking bubble talk for the past 5 years. It doesn't seem like it's going to happen in my lifetime. I'm moving to Vegas baby.
ReplyDeleteNo worries. The bubble talk is a bubble itself now too. That is because 4 years ago we still had time to back out of this mess. Three years ago if it all came down we were going to have a mere recession. Two years ago the excess of credit spelled economic disaster. But we still had time to back out if we wanted too. Last year our problems looked to many like they were gone but under the surface the real trouble was still bubbling and percolating like never before. Now when this sucker bursts we are just screwed in the most epic way possible and there is no chance whatsoever of redemption until bankruptcy rules the land of the indentured. So therefore waiting was worth the price of the popcorn.
DeleteDid you save any money for the rainy day?
I disagree with one of the above comments regarding HAM. Certainly on the west side of Vancouver, HAM is active. I see many older houses in good areas bought up by developers and then torn down. I know the developers are catering to HAM because the signs put up on the lots are in Chinese. Maybe they are Chinese developers, i don't know, but the houses when they are completed always have wok kitchens.
ReplyDeleteI will buy when they come with French maids!
Delete